U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000
[ ] 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 August 31, 2000: 456,760
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 -- July 31, 2000,
and January 31, 2000. 3-4
Condensed consolidated statements of operations -- Three
months ended July 31, 2000 and 1999; six months ended
July 31, 2000 and 1999. 5
Condensed consolidated statements of cash flows -- Six
months ended July 31, 2000 and 1999. 6
Notes to condensed consolidated financial statements --
July 31, 2000. 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
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>
July 31, January 31,
2000 2000
--------------------------------
Assets (Unaudited) (Audited)
Current Assets:
<S> <C> <C>
Cash $ 45 $ 107
Accounts receivable 3,149 2,173
Inventories 2,232 1,716
Deferred taxes 368 368
Other current assets 269 149
------------------------------
Total current assets 6,063 4,513
Machinery and equipment:
Machinery and equipment $ 2,901 $ 2,838
Less accumulated depreciation 2,063 1,932
------------------------------
Net machinery and equipment 838 906
Other assets:
Repair and maintenance inventories, less provision
for obsolescence 55 55
Computer software, less amortization 608 674
Excess of cost over net assets of business acquired,
less amortization 1,723 1,757
------------------------------
Total other assets 2,386 2,486
------------------------------
Total assets $ 9,287 $ 7,905
==============================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Transnational Industries, Inc.
Condensed Consolidated Balance Sheets (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
July 31, January 31,
2000 2000
--------------------------------
Liabilities and stockholders' equity (Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,313 $ 1,043
Deferred maintenance revenue 778 751
Accrued expenses 551 398
Billings in excess of cost and estimated earnings 1,479 815
Current portion of long-term debt 329 323
--------------------------------
Total current liabilities 4,450 3,330
Long-term debt, less current portion 830 879
Stockholders' equity:
Series B cumulative convertible preferred stock,
$0.01 par value - authorized 100,000 shares;
issued and outstanding 318 shares
(liquidating value $164,764) 73 73
Common stock, $0.20 par value -authorized
1,000,000 shares; issued and outstanding 456,760
(excluding 45,710 shares held in treasury) 100 100
Additional paid-in capital 8,511 8,505
Accumulated deficit (4,540) (4,982)
--------------------------------
4,144 3,696
Less: Treasury stock (137) -
--------------------------------
Total stockholders' equity 4,007 3,696
--------------------------------
Total liabilities and stockholders' equity $ 9,287 $ 7,905
================================
</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 Six Months Ended
July 31 July 31
----------------------- -----------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 3,203 $ 2,114 $ 6,205 $ 4,664
Cost of Sales 2,203 1,489 4,269 3,297
----------- ----------- ----------- -----------
Gross Margin 1,000 625 1,936 1,367
Selling expenses 208 217 422 396
Research and development 243 161 468 350
General and administrative expenses 270 219 509 429
----------- ----------- ----------- -----------
721 597 1,399 1,175
----------- ----------- ----------- -----------
Operating income 279 28 537 192
Interest expense 34 17 66 37
----------- ----------- ----------- -----------
Income before income tax 245 11 471 155
Provision for income taxes 15 2 29 11
----------- ----------- ----------- -----------
Net income 230 9 442 144
Preferred dividend requirement 2 2 4 4
----------- ----------- ----------- -----------
Income applicable to common shares $ 228 $ 7 $ 438 $ 140
=========== =========== =========== ===========
Basic income per common share $ 0.50 $ 0.01 $ 0.96 $ 0.28
=========== =========== =========== ===========
Diluted income per common share $ 0.48 $ 0.01 $ 0.93 $ 0.28
=========== =========== =========== ===========
</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
July 31,
--------------------
2000 1999
---------- ---------
<S> <C> <C>
Net cash provided (used) by operating activities $ 183 $ (12)
Net cash provided (used) by investing activities (202) (162)
Net cash provided (used) for financing activities (43) (202)
---------- ---------
Increase (decrease) in cash (62) (376)
Cash at beginning of period 107 455
---------- ---------
Cash at end of period $ 45 $ 79
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
Transnational Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
July 31, 2000
Note A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All such adjustments are
of a normal recurring nature. Operating results for the three month and six
month periods ended July 31, 2000, 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, 2000, contained in the Registrant's Annual Report on Form 10-KSB for
the year ended January 31, 2000.
Note B - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (dollars in thousands except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31 July 31
----------------------- -----------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator (same for basic and diluted):
Net income $ 230 $ 9 $ 442 $ 144
Preferred dividend requirement 2 2 4 4
----------- ----------- ----------- -----------
Net income available to common stockholders $ 228 $ 7 $ 438 $ 140
=========== =========== =========== ===========
Denominator:
Weighted average shares outstanding for basic earnings per
share 456,760 502,470 456,760 502,470
Dilutive effect of employee stock options 15,006 12,338 13,859 6,332
----------- ----------- ----------- -----------
Weighted average shares outstanding and assumed conversions
for diluted earnings per share 471,766 514,808 470,619 508,802
=========== =========== =========== ===========
Basic income per share $ .50 $ .01 $ .96 $ .28
=========== =========== =========== ===========
Diluted income per share $ .48 $ .01 $ .93 $ .28
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
Common shares potentially issuable under the contractual conversion rights
of the Preferred B shares would have an antidilutive effect on earnings per
share and therefore have not been included in the above computations. Weighted
average common shares issuable under the contractual conversion rights of the
Preferred B shares amounted to 1,871 in each of periods ended July 31, 2000 and
1999.
Note C - Debt
On July 7, 2000 the Revolving Credit Agreement originally executed on June
12, 1997 was amended. Under the amendment the borrowing limit was increased from
$800,000 to $1,100,000, the rate of interest was lowered from prime plus two
percent to prime plus one-half percent and the maturity date was extended from
July 1, 2002 to July 7, 2005. The security and all other terms of the bank debt
agreements remain unchanged.
Note D - Treasury Stock
Treasury Stock is shown at cost and consists of 45,710 shares of common
stock. The shares were acquired in February 2000 for cash of $3 per share or a
total of $137,130.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OFOPERATIONS
Results of operations
Revenues in the second quarter and first six months of the fiscal year ended
January 31, 2001 (Fiscal 2001) were $3,203,000 and $6,205,000 compared to
$2,114,000 and $4,664,000 in the comparable periods of the fiscal year ended
January 31, 2000 (Fiscal 2000). The increases of $1,089,000 (52%) for the
quarter and $1,541,000 (33%) for the six-month period were due to higher dome
and ImmersaVision revenues. ImmersaVision revenues were $808,000 and $1,389,000
in the first quarter and first six months of Fiscal 2001, compared to $286,000
and $760,000 in the first quarter and first six months Fiscal 2000,
respectively. Dome revenues were $1,622,000 and $3,348,000 in the second quarter
and first six months of Fiscal 2001 compared to $1,015,000 and $2,351,000 in the
comparable periods of Fiscal 2000, an increase of $607,000 (60%) and $997,000
(42%) for the quarter and the six-month period, respectively. The increase in
dome revenues was attributable to higher revenue from ride simulation
attractions, planetarium domes, and the sale of a special theater dome to a
major European automobile maker for use in a visitor center. Otherwise, dome
revenues from film theaters and military training simulators decreased.
Planetarium revenues were $773,000 and $1,468,000 in the second quarter and
first six months of Fiscal 2001 compared to $813,000 and $1,553,000 in the
comparable periods of Fiscal 2000, a decrease of $40,000 and $85,000 for the
quarter and the six-month period, respectively. The decrease in planetarium
revenues was attributable to lower revenues from maintenance and parts and
peripheral equipment previously recorded as part of the optical planetarium
systems. Much of the peripheral equipment sold with the new planetarium systems
has been enhanced and expanded for integration into the ImmersaVision systems
and is now recorded as part of ImmersaVision sales. Planetarium revenues
attributable to the sale of maintenance and parts were $285,000 and $598,000 in
the second quarter and first six months of Fiscal 2001 compared to $330,000 and
$628,000 in the comparable periods of Fiscal 2000, a decrease of $45,000 (14%)
and $30,000 (5%), respectively. The decrease in maintenance and parts revenues
was due to the timing of performance on preventive maintenance agreements.
Revenues are expected to continue at the level of the first six months for the
remainder of Fiscal 2001 as work continues on the order backlog. The backlog of
unearned revenue as of July 31, 2000 was approximately $10,600,000, of which
approximately 80% is scheduled to be earned over the next twelve months. In
addition, the Company has booked or is in negotiation to book approximately
$2,800,000 of new orders, most of which is expected to be completed within the
next twelve months. While revenues are expected to continue at higher than
historical levels over the next year, uncertainty in the timing and delivery of
new sales may cause revenue levels to fluctuate in interim periods.
Gross margins improved to 31.2% in each of the second quarter and first
six-month periods of Fiscal 2001 compared to 29.6% and 29.3% in the comparable
periods of Fiscal 2000. The gross margin improvement was attributable to the
higher dome sales with strong margins which improved from volume related
efficiencies. Planetarium and ImmersaVision gross margins continued to lag dome
margins. Selling expenses decreased $9,000 (4%) in the second quarter and
increased $26,000 in the first six months of Fiscal 2001 compared to the
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comparable periods of Fiscal 2000. The decrease for the quarter was due to the
timing of sales related travel. The increase for the six-month period was due to
staffing additions and organizational changes. Selling expenses in fiscal 2001
are expected to be at current or increasing levels as marketing efforts on
ImmersaVision continue to demand significant resource commitments. Research and
development expenses increased $82,000 (51%) and $118,000 (34%) in the second
quarter and first six months of Fiscal 2001 compared to the comparable periods
of Fiscal 2000. The increase in research and development expenses was due to
modifications and improvements of ImmersaVision products to fulfill customer
requirements, the continued creation of proprietary programming tools for
software content development for ImmersaVision, and improvements to optical
planetarium products. Research and development efforts are expected to continue
at increasing levels in future periods. General and administrative expenses
increased $51,000 (23%) and $80,000 (19%) in the second quarter and first six
months of Fiscal 2001 compared to the comparable periods of Fiscal 2000. The
increase in general and administrative expenses was due primarily to costs
related to information system improvements and strategic planning.
Net interest expense amounted to $34,000 and $66,000 in the second quarter and
first six months of Fiscal 2001 compared to $17,000 and $37,000 in the
comparable periods of Fiscal 2000. The increase in interest expense is
attributable to new capital leases and higher use of the bank line of credit.
The $34,000 and $66,000 reported in the first quarter and first six months of
Fiscal 2001 consisted of $24,000 and $44,000 paid on bank debt agreements plus
$10,000 and $22,000 paid on capital lease obligations. The $17,000 and $37,000
reported in the first quarter and first six months of Fiscal 2000 consisted of
$13,000 and $29,000 paid on bank debt agreements plus $5,000 and $11,000 paid on
capital lease obligations, offset by $1,000 and $3,000 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 state income taxes amounted to $15,000 and
$29,000 in the second quarter and first six months of Fiscal 2001 compared to
$2,000 and $11,000 in the comparable periods of Fiscal 2000. As a result of the
above, the Company reported net income of $230,000 and $442,000 in the second
quarter and first six months of Fiscal 2001 compared to of $9,000 and $144,000
for the comparable periods of Fiscal 2000.
Liquidity and Capital Resources
Net cash provided by operating activities was $183,000 in the first six months
of Fiscal 2001, compared to $12,000 used in the first six months of Fiscal 2000.
The $183,000 of net cash provided by operating activities in first six months of
Fiscal 2001 was produced by adding $259,000 of non-cash charges to $442,000 of
net income and subtracting $518,000 of cash used by changes in operating assets
and liabilities. By way of comparison, in the first six months of Fiscal 2000,
the $12,000 of net cash used by operating activities resulted from the effects
of $392,000 of cash used from changes in operating assets and liabilities which
offset $144,000 of net income and $236,000 of non-cash charges to net income.
The change in operating assets from time to time is primarily attributable to
progress payment terms on particular customer contracts, and the Company expects
changes in operating assets from period to period to remain both material and
variable.
The $183,000 provided by operations in the first six months of Fiscal 2001 was
offset by $202,000 used by financing activities and $43,000 used by investing
activities. In addition to the $12,000 used by operations in first six months of
Fiscal 2000, financing activities used $162,000 and investing activities used
$202,000. The net result was a $62,000 decrease in cash balances during the
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<PAGE>
first six months of Fiscal 2001 compared to a decrease of $376,000 during the
first six months of Fiscal 2000.
Financing activities in the first six months of Fiscal 2001 consisted of net
proceeds of $115,000 from the revolving credit note offset by payments of
$74,000 on capital leases and monthly principal payments on the bank term note
of $84,000. Financing activities in the first six months of Fiscal 2000
consisted of net payments of $75,000 on the revolving credit note, payments of
$41,000 on capital leases and monthly principal payments on the bank term note
of $86,000.
Total debt at July 31, 2000 was $1,159,000, a decrease of $43,000 from the
$1,202,000 at January 31, 2000. In summary, the decrease resulted from $115,000
of net proceeds on the revolving credit note offset by $84,000 of scheduled
payments applied to term debt and $74,000 of payments applied to capital lease
obligations.
Investing activities in the first six months of Fiscal 2001 consisted of $65,000
of various machinery and equipment additions and the purchase of treasury stock
at a cost of $137,000. The $162,000 invested in capital assets in the first six
months of Fiscal 2000 consisted of $94,000 in computer software and $68,000 of
various machinery and equipment additions.
At July 31, 2000 there was a $470,000 balance on the revolving credit note
compared to $355,000 at January 31, 2000. This resulted in unused borrowing
capacity of $630,000 under the amended $1,100,000 borrowing limit at July 31,
2000 compared to $445,000 under the $800,000 limit at January 31, 2000. Cash
balances of $45,000 provided additional liquidity at July 31, 2000 compared to
$107,000 at January 31, 2000. The next source of liquidity, accounts receivable,
increased to $3,149,000 at July 31, 2000 compared to $2,173,000 at January 31,
2000. This resulted in a $1,099,000 increase in liquidity available from cash,
borrowing capacity and accounts receivable at July 31, 2000 compared to January
31, 2000. Although fluctuations in the progress billings of contracts in
progress pressured liquidity through the first six months of Fiscal 2001,
contract funding recovered as billings exceeded revenue recorded by $224,000 at
July 31, 2000 compared to the $54,000 at January 31, 2000. The increase of the
revolving credit limit has provided some relief to the liquidity pressures from
customer contracts. Liquidity pressure is expected to continue as the payment
terms on many large contracts require performance milestones and, as expected,
fewer contracts are providing advance payments from customers.
The modified 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 (without limitation)
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<PAGE>
"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.
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<PAGE>
II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description of Document
10.1 Letter Agreement to Amend Revolving Line of Credit dated July 7, 2000,
between First Keystone Federal Savings Bank, Transnational Industries
Inc. and Spitz Inc.
10.2 Line of Credit Modification Agreement dated July 7, 2000, between First
Keystone Federal Savings Bank, Transnational Industries Inc. and Spitz
Inc.
10.3 Renewal Line of Credit Note dated July 7, 2000, of Transnational
Industries Inc. and Spitz Inc. to First Keystone Federal Savings Bank.
27 Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during the three months
ended July 31, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TRANSNATIONAL INDUSTRIES, INC.
/s/ Paul L. Dailey, Jr.
-------------------------
Date: September 14, 2000 Paul L. Dailey, Jr.
Secretary-Treasurer
Signing on Behalf of Registrant
and as Chief Financial Officer
13
