U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0 - 14835
TRANSNATIONAL INDUSTRIES, INC.
(Name of small business issuer in its charter)
Delaware 22-2328806
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
Post Office Box 198 19317
U.S. Route 1 (Zip Code)
Chadds Ford, Pennsylvania
(Address of principal
executive offices)
Issuer's telephone number (610) 459-5200
Securities Registered Pursuant to Section 12(b) of the Exchange Act: None
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock
($0.20 par value per share)
(Title of class)
Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that 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
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Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ( )
The Issuer's revenues for the fiscal year January 31, 2000, were
$10,212,000.
The aggregate market value of the voting stock held by non-affiliates
of Registrant as of March 31, 2000 was approximately $364,386 based on the
average of bid and asked price of these shares. Shares of Common Stock held by
each executive officer and director and by each person who owns 5% or more of
the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates.
As of March 31, 2000, 456,760 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The issuer's definitive proxy statement to be filed with the Securities and
Exchange Commission within 120 days after January 31, 2000, is incorporated by
reference into Part III of this Form 10-KSB.
Transitional small business disclosure format (check one) YES NO X
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PART I
ITEM 1. BUSINESS
General Development of Business
Transnational Industries, Inc. (the "Company"), is a holding company. The
Company specializes through its subsidiary, Spitz, Inc. ("Spitz"), in the
design, manufacture and integration of computer-controlled immersive
visualization systems and domed projection screens. Spitz, under a predecessor
corporation, was founded in 1944.
Narrative Description of Business
Products
Video projector systems
In 1997 Spitz introduced ImmersaVision(TM), a new line of video projector
products. ImmersaVision uses the latest advances in video projection and desktop
video graphics combined with other panoramic visual displays and sound effects
in dome theaters to create an immersive virtual reality experience. Markets
targeted include existing and new planetarium theaters and various other
applications that will benefit from immersive multi-media displays for wide
audiences. ElectricSky(TM) is an ImmersaVision system configured for dome
theaters in the Planetarium market and other special applications.
ElectricHorizon(TM) is an ImmersaVision system configured for immersive video
theaters using wide curved projection screens. All ImmersaVision products can be
configured for interactive virtual reality applications. Through the end of the
Company's fiscal year ended January 31, 2000, two ElectricSky systems were
installed and are currently operating, and several more systems are scheduled
for installation during fiscal 2001. The ElectricSky systems are being sold and
marketed to both tourist attractions and science museums. Spitz has also
delivered an ElectricHorizon System for a temporary exhibit at a domestic
science museum. The temporary ElectricHorizon exhibit was owned and funded by
Spitz and various suppliers of the hardware and software content for the purpose
of demonstration. At the end of the exhibit, the ElectricHorizon components were
dismantled and returned to the various owners. Spitz has not yet sold an
ElectricHorizon system but there are several sales prospects that are expected
to make order decisions within the next year. In addition, Spitz has entered
into a joint venture agreement to participate in the development and ownership
of a new ElectricHorizon theater for a tourist attraction. It is not unusual in
the markets targeted by Spitz for the sales cycle from planning through vender
selection to take a year or more.
Planetarium projector systems
Spitz is the world's leading producer of planetarium systems. Spitz designs,
manufactures, installs, repairs, and maintains (under renewable annual
contracts) planetarium projector systems. Systems currently sold by Spitz
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emphasize computer controls, integrated sound and lighting systems, and
peripheral special effects such as video projection. Systems are designed to
meet individual customer preferences, through the selection of standardized
basic systems and various add on options. Spitz is capable of providing all of
the interior furnishings and equipment for the planetarium theater as well as
complete planetarium show productions. Additionally, Spitz's experience enables
it to advise on the theater design and architectural integration of the
planetarium equipment. Spitz believes that these skills and capabilities are
important to buyers of planetarium systems. The principal customers for the
Company's planetarium business are entities in the entertainment and educational
markets such as museums and schools.
Domed Structures
Spitz is also the world's leading producer of domed projection screens. Spitz
designs, manufactures, and installs domed projection screens which are used in
planetarium theaters and a variety of other applications such as ride
simulators, special or large format film theaters, and simulation training
systems. Spitz's experience enables it to advise on the architectural
integration of domed projection screens and solve complex optical problems
involving reflectivity and image distortion on compoundly curved surfaces. Spitz
believes that these skills are important to buyers of domed projection screens.
The principal customers in Spitz's dome business are entities in the
entertainment, educational and commercial and military simulation markets.
Customers include major theme parks, world expositions, museums, schools, and
military defense contractors.
Materials and Supplies
ImmersaVision systems, Planetarium systems and domes are manufactured and
assembled from standard metal materials, complex electronic components and
computer controls. The majority of the components are standard but some are
custom made by vendors at the direction of Spitz. The components, as well as the
metal materials, are readily available from numerous supply sources.
Patents and Licenses
Spitz has relied principally on a combination of contracts and trade secrets to
protect its proprietary interests in its production processes and its business.
None of the products currently sold by Spitz are protected by patents. As new
products are developed, Spitz plans to evaluate the feasibility of patents to
protect its new inventions.
Principal Customers
During fiscal 2000, revenues of $4,656,000 (46% of total revenues) were derived
from sales to the five largest customers. Revenue from one customer accounted
for 15% of total revenues. Revenue from another customer accounted for 10% of
total revenues. Users of Spitz's products normally have not had the need for
recurring purchases except for maintenance and parts. Accordingly, Spitz relies
on sales to new projects or replacement of or enhancement to existing systems.
Spitz domed projection screens are sometimes sold to the suppliers of large
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format film projectors for inclusion with systems sold to their customers as
opposed to Spitz selling directly to the end user. Also, the large aerospace
companies typically buy domed projection screens from Spitz for inclusion in
military training systems sold to their customers. While this creates a
competitive strength for Spitz because of its strong support capabilities and
preference among the system suppliers, it will also result in reliance on sales
to a few system suppliers.
Competition
While Spitz believes that it is the world's leading producer of planetarium
systems and domed projection screens, its business is competitive. Management
estimates that there are one domestic and four foreign competitors that
manufacture competing planetarium systems. Competition is evolving for
ImmersaVision from existing planetarium competitors and other suppliers of
virtual reality display mediums resulting in two known domestic and one known
foreign competitor. There is currently one known domestic competitor that
manufactures domed projection screens. In addition, construction or metal
fabrication contractors will occasionally supply domed projection screens,
particularly in foreign markets. The many competitive factors influencing the
markets for Spitz's products include price, performance, customer preferences,
design and integration support, and service capabilities.
Spitz is unique among its competitors by virtue of its capability as a single
source that can directly supply and integrate all of the equipment in the
planetarium theater, including the projection system, sound, lighting, computer
control system and domed projection screen. Years of involvement in the design
of domed theater systems for many different applications and dome market
distribution channels provide Spitz competitive strength in the markets targeted
by ImmersaVision. As a single source, capable of integrating all of the
equipment in the theater from the screen through show production, Spitz attracts
customers who are unwilling to take on such complex tasks. Also, Spitz is
developing proprietary programming tools while maintaining strong compatibility
with various formats to keep a competitive advantage in ImmersaVision markets.
The Company believes that Spitz's long history and proven performance as the
supplier of the vast majority of the world's domed projection screens are also
competitive strengths.
Competitors selling planetarium projector systems have significantly greater
financial resources than the Company, putting the Company at a potential
disadvantage in new system development and sales promotion. Competitors selling
domed projection screens continue to provide strong price competition. Foreign
currency fluctuations affect Spitz's pricing against its foreign competitors. A
strengthening U.S. dollar will weaken Spitz's price competitiveness among
foreign competitors. Also, future fluctuations and indirect economic effects of
the foreign currency markets remain uncertain. The continued success of Spitz's
products will depend on keeping pace with competing technologies and selling
efforts while maintaining price competitiveness and good relationships with
system suppliers in the large format film and military training markets.
Research and Development
Spitz conducts research and development and the costs of such activities were
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$820,000 in fiscal 2000 and $521,000 in fiscal 1999.
Environmental Compliance
Spitz routinely improves and maintains various systems designed to control the
quality of air and water discharged from its plant, including dust control and
ventilation. Spitz anticipates that it will continue to make similar routine
expenditures to comply with current federal, state, and local environmental
regulations. The Company does not believe, however, that such expenditures will
be significant or materially affect its earnings or competitive position.
Employees
At January 31, 2000, the Company and Spitz had 62 permanent employees, of whom
55 were employed full time.
ITEM 2. PROPERTIES
The Company and Spitz are located in a 46,525 square-foot building on
approximately 16.7 acres on U.S. Route 1, Chadds Ford, Pennsylvania, which is
leased to Spitz by an unrelated third party through April 2006, with an option
to renew for an additional eight years. The building houses all of the
companies' administrative offices and production facilities and is in good
operating condition.
ITEM 3. LEGAL PROCEEDINGS
There was no material litigation pending at the date of this filing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during the three
months ended January 31, 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market Information for Common Stock
The principal market on which the Company's Common Stock is traded is the Over
the Counter market. Various market dealers make the market of the Company's
stock and trades are made through the OTC Bulletin Board. The table below
presents the high and low bid over-the-counter market quotations by quarter for
fiscal 2000 and 1999. The quotations, obtained from OTC Bulletin Board
statistics, reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999
------------------ -----------------
High Low High Low
-------- --------- -------- --------
<S> <C> <C> <C> <C>
First Quarter $3.75 $1.50 $5.75 $2.88
Second Quarter 5.75 2.75 4.38 3.00
Third Quarter 2.94 2.25 3.05 1.75
Fourth Quarter 4.00 1.38 1.75 1.50
</TABLE>
Holders
At March 31, 2000, there were approximately 100 holders of record of common
stock.
Dividends
The Company has never paid cash dividends on its common stock, and the current
policy of its Board of Directors is to retain all earnings to provide funds for
the growth of the Company. In addition, the loan agreements of the Company and
its subsidiary prohibit the payment of cash dividends, except and to the extent
that the Company satisfies certain financial covenants. In addition, the terms
of the Company's Series B Preferred Stock prohibits the Company from paying
dividends on its common stock until it pays to holders of the Company's
preferred stock all accrued and unpaid dividends thereon.
Preferred Stock
The holders of the Series B Cumulative Convertible Preferred Stock ("Preferred
B") are entitled to receive quarterly dividends, when and if declared by the
Company's Board of Directors, at an annual per share amount of $27.50. The
payment of such dividends would be prior and in preference to the payment of any
dividends on the Company's common stock. At January 31, 2000, accumulated but
undeclared and unpaid dividends with respect to the 318 outstanding shares of
Preferred B amounted to $80,891. The Preferred B shares may be redeemed by the
Company at $250 per share plus accumulated unpaid dividends of $254 per share.
The 318 shares of Series B Preferred are convertible into 1,871 shares of the
Company's common stock.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents for the periods indicated (i) the percentage which
certain items in the consolidated financial statements of the Company bear to
revenues and (ii) the percentage change in the dollar amount of such items from
year to year in the two-year period ended January 31, 2000.
<TABLE>
<CAPTION>
Percentage
Change
Year ended January 31, 2000
------------------------ vs.
2000 1999 1999
--------------------------- -----------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 36.0%
Cost of sales 69.9 69.2 37.4
Gross margin 30.1 30.8 32.9
Selling expenses 7.6 9.9 4.3
Research and development 8.0 6.9 57.4
General and administrative 8.5 10.7 7.9
Operating income 6.0 3.3 149.2
Interest expense 0.9 1.6 (23.6)
Income before income taxes 5.1 1.6 322.0
Income taxes - current 0.3 0.2 235.7
Deferred tax benefit (3.6) - *
Extraordinary gain - - *
Net Income 8.4 1.5 737.6
</TABLE>
- -----------
* Not meaningful
-----------
Revenues in the year ended January 31, 2000 (fiscal 2000) were $10,212,000
compared to $7,509,000 in the year ended January 31, 1999 (fiscal 1999), an
increase of $2,703,000 (36%). The increase was primarily due to ImmersaVision
and dome sales. ImmersaVision revenue for fiscal 2000 was $1,643,000 compared to
$273,00 for fiscal 1999, an increase of $1,370,000. The ImmersaVision revenue in
fiscal 2000 was attributable to the completion and installation of an
ElectricSky system for a major domestic science center and the commencement of
work on two ElectricSky systems scheduled for installation in Europe in fiscal
2001. More significant revenue from ImmersaVision is expected in fiscal 2001 as
work intensifies on scheduled installations as well as other anticipated new
sales. Dome revenues were $5,510,000 in fiscal 2000 compared to $4,259,000 in
fiscal 1999, an increase of $1,251,000. 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
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and military training simulators decreased. Planetarium revenues were $3,059,000
in fiscal 2000 compared to $2,977,000 in fiscal 1999, an increase of $82,000.
Planetarium revenue from the sale of refurbished systems for the educational
market increased while revenue from new systems decreased. Planetarium revenues
include amounts attributable to the sale of maintenance and parts of $1,286,000
in fiscal 2000 compared to $1,207,000 in fiscal 1999, an increase of $79,000.
The increase in maintenance and parts revenues was due mostly to higher sales of
parts and paid service visits to customers without preventive maintenance
agreements.
The Company's revenues from maintenance and parts are recurring and are expected
to remain steady or increase over time due to the expansion of the Company's
customer base resulting from new sales. For the remaining (and predominant)
portions of its revenues, the Company must rely on the sale of systems, both as
replacements for existing systems and new installations, in all of the various
markets that the Company serves. The Company's products are often sold together
as components of a complete system. In addition to a competitive advantage, this
provides each of the Company's products with efficient direct access to a wide
breadth of markets that might otherwise be difficult to reach. By being sold as
a complete system, ImmersaVision products provide new sales opportunities for
domes and planetarium systems. More importantly, ImmersaVision products and
their use in planetarium theaters are creating new opportunities beyond the
Company's traditional markets.
The backlog of unearned revenue as of January 31, 2000 was approximately
$7,200,000, all of which is scheduled to be earned in fiscal 2001. In addition,
the Company has booked, or is in negotiation to book, approximately $7,650,000
of new sales orders of which approximately 70% is expected to be completed in
fiscal 2001. The Company expects increasing revenue contributions from
ImmersaVision products in future years as the installed base grows and new
applications of the product are developed. Research and development efforts will
continue with the goal being to promote the creation of software content and new
applications for ImmersaVision that will enhance existing products and provide
entry into new entertainment and other commercial markets. While revenue levels
are expected to increase over the next year, uncertainty in the timing and
delivery of new sales are expected to cause revenue levels to continue to
fluctuate in interim periods.
Gross margins remained relevantly constant at 30.1% in fiscal 2000 compared to
30.8% in fiscal 1999. Volume related efficiencies improved strong gross margins
on domes, while gross margins on planetarium and ImmersaVision revenue lagged.
Low planetarium margins continued due to pricing and cost pressures on new
projector systems. Selling expenses increased $32,000 (4%) in fiscal 2000, as
staffing additions and organizational changes replaced higher levels of
engineering resources devoted to sales and marketing activities in prior years.
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 $299,000 (57%)
in 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
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planetarium products. Research and development efforts are expected to continue
at increasing levels in future periods. General and administrative expenses
increased $63,000 (8%) in fiscal 2000 primarily due to inflationary increases
and cost related to improvements to the Company's management information
systems.
Net interest expense amounted to $94,000 in 2000 compared to $123,000 in fiscal
1999. The $94,000 reported in fiscal 2000 consisted of $63,000 paid on bank debt
plus $35,000 paid on capital lease obligations offset by $4,000 of interest
income earned on cash invested. The $123,000 reported in fiscal 1999 consisted
of $93,000 paid on bank debt plus $31,000 paid on capital lease obligations
offset by $1,000 of interest income earned on cash invested.
The Company paid no federal income taxes in fiscal 2000 or fiscal 1999 as
federal taxable income was offset by the utilization of net operating loss
carryforwards. Income tax expense - current consists of state income taxes of
$33,000 and $14,000 in fiscal 2000 and fiscal 1999, respectively. In prior
years, uncertainty of future profits prevented the Company from recording any
tax benefit associated with the net operating loss carryforwards. Because of
recent improved performance and the outlook for fiscal 2001, the Company
recorded a deferred tax asset of $368,000 in anticipation of future utilization
of the net operating loss carryforwards. This resulted in a $368,000 deferred
tax benefit recorded in fiscal year 2000. Net operating losses are expected to
continue to offset federal taxable income for the foreseeable future resulting
in the payment of no federal income taxes. However, deferred tax expense is
expected in future years. The Company expects to continue to incur state income
taxes in future years.
As a result of the above, the Company reported net income of $854,000 in fiscal
2000 compared to net income of $109,000 in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its continuing operations primarily by cash provided from
operating activities. The Company also uses a revolving credit contract to fund
its working capital requirements. The Company usually receives progress payments
under the terms of its customer contracts. Payments are typically based on the
completion of various chronological, production and installation milestones.
Timing and the level of progress payments vary among contracts depending upon
many factors. The cumulative progress payments can be more or less than the cost
and estimated earnings recognized on a contract during the period of
performance. The nature and timing of progress payments can cause cash flow from
operations to fluctuate from period to period. Some customer contracts require
the Company to provide standby letters of credit as performance security.
Net cash provided by operating activities was $257,000 in fiscal 2000, compared
to $956,000 in fiscal 1999. The Company's $854,000 of net income in fiscal 2000
only produced $257,000 of net cash due to operating activities due to the
effects of $720,000 of cash used by changes in operating assets and liabilities,
net, offset in part by $123,000 (net) of non-cash charges to net income. By way
of comparison, in fiscal 1999 the Company had $956,000 of net cash provided by
operating activities from $109,000 of net income, due to the effects of $429,000
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of cash generated from changes in operating assets and liabilities, net, and
$418,000 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
year to year to remain both material and variable.
The $257,000 provided by operations in fiscal 2000 was offset by $523,000
invested in capital additions and $82,000 used by financing activities.
Financing activities included payments of $121,000 on capital leases and monthly
principal payments on the bank term note of $166,000 offset by net proceeds of
$205,000 on the revolving credit note. Non cash financing transactions in fiscal
2000 consist of $315,000 of machinery and equipment acquired through capital
leases.
Of the $956,000 provided by operations in fiscal 1999, $310,000 was invested in
capital additions and financing activities used $662,000. Financing activities
included net pay downs of $450,000 on the revolving credit note, payments of
$83,000 on capital leases, and monthly principal payments on the bank term note
of $129,000. Non cash financing transactions in fiscal 2000 consist of $32,000
of computer equipment acquired through capital leases.
Total debt at January 31, 2000 was $1,202,000, an increase of $233,000 from
$969,000 at January 31, 1999. In summary, the increase resulted from $205,000 of
net proceeds on the revolving credit note plus new capital lease obligations of
$315,000 offset by $166,000 of scheduled payments applied to term debt and
$121,000 of payments applied to capital lease obligations.
Capital additions consisting of the purchase and fabrication of machinery and
equipment and the development of computer software amounted to $838,000
($315,000 by capital lease) and $342,000 ($32,000 by capital lease), in 2000 and
1999, respectively. Cost of computer software developed to automate and
integrate the control and show production process of ImmersaVision into a
theater environment with other products amounted to $309,000 and $233,000 in
2000 and 1999, respectively. Future opportunities from ImmersaVision are
expected to require continual investments in hardware and software in order to
benefit from advancing technologies. When appropriate, the Company will fund the
acquisition of capital assets through capital leases or equipment financing
notes. The Company will continue to finance capital investments through
operations and external debt sources.
At January 31, 2000 there was a $355,000 balance on the revolving credit note
compared to $150,000 at January 31, 1999. This resulted in unused borrowing
capacity of $445,000 at January 31, 2000 compared to $650,000 at January 31,
1999. Cash balances of $109,000 provided additional liquidity at January 31,
2000 compared to $455,000 at January 31, 1999. The next source of liquidity,
accounts receivable, increased to $2,173,000 at January 31, 2000 compared to
$1,712,000 at January 31, 1999. This resulted in an $80,000 decrease in
liquidity available from cash, borrowing capacity and accounts receivable at
January 31, 2000 compared to January 31, 1999. The decrease is noteworthy
considering the increased customer contract volume and a significant increase of
$677,000 in accounts payable obligations. Contributing to the decrease in
liquidity available from cash, borrowing capacity and accounts receivable was a
$709,000 reduction in funding from contracts in progress as billings exceeded
revenue recorded by only $54,000 at January 31, 2000 compared to $763,000 at
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January 31, 1999. This illustrates the previous discussion of the effect of
customer progress payments on cash flow. Contracts in progress used cash during
fiscal 2000 as performance through the completion of each project caught up to
the advanced billings at January 31, 1999. Although advance billings on
contracts in progress at January 31, 2000 are minimal compared to the prior
year, contracts in progress are still expected to absorb liquidity during fiscal
2001. This will continue to pressure liquidity. The payment terms on many of the
large prospective contracts remain uncertain and advance payments from customers
appear unlikely in the immediate future. The Company's bank has recently
notified the Company of its intention to increase the borrowing limit under the
revolving credit agreement to $1,100,000 to provide additional liquidity for the
growth of the business.
The Company's 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. However, new growth
opportunities for the Company's business may require funding beyond the
capabilities of the Company's current capital structure. The Company's improved
financial condition and capital structure should improve its ability to raise
additional funds for growth through other capital resources.
YEAR 2000 IMPACT AND MANAGEMENT INFORMATION SYSTEMS
The Year 2000 Issue is the result of older computer programs being unable to
distinguish between the year 1900 and 2000. This could have resulted 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. In 1999 the Company began to make changes to
its computer systems in order to prepare for the year 2000 and improve
management information systems.
The Company has used 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. 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
concluded that it would be better served by an alternative solution. As part of
the objective to improve its information systems, the Company evaluated its
overall data processing resources and made substantial changes in the fiscal
year ending January 31, 2000. In this process, the Company selected new products
that are Year 2000 compliant. The Company 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 was completed in August 1999 at
an initial cost of $82,000. An enterprise software system was selected after an
evaluation of several products, which required additional computer hardware
installed in September 1999 at a cost of approximately $40,000. Cost of the
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enterprise software, installation and implementation is estimated at $300,000.
The cost is being capitalized and funded through operating cash flow and leasing
of computer hardware and software. Implementation of the enterprise software is
in process and is scheduled for completion during fiscal 2001. The first phase
of the implementation, which replaced critical financial applications, was
completed on December 1, 1999. In addition, modifications have been made to
certain date sensitive applications of the current minicomputer system in order
to ensure that other critical business processes continue through the completion
of the implementation of the new enterprise software.
The Company experienced no failures of its information systems, products and
experienced no interruption in service nor any delivery delays from suppliers at
the turn of the century, and continued to experience no errors, delays or
interruptions throughout the first quarter of fiscal 2001.
FORWARD-LOOKING INFORMATION
The statements in this Annual Report on Form 10-KSB 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.
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ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Page
Report of Independent Auditors 15
Consolidated Balance Sheets 16
Consolidated Statements of Operations 18
Consolidated Statements of Changes in Stockholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21
14
<PAGE>
Report of Independent Auditors
To the Stockholders and
the Board of Directors
Transnational Industries, Inc.
Chadds Ford, Pennsylvania
We have audited the accompanying consolidated balance sheet of Transnational
Industries, Inc. as of January 31, 2000 and 1999, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Transnational Industries, Inc. at January 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
STOCKTON BATES, LLP
Philadelphia, Pennsylvania
April 18, 2000
15
<PAGE>
Transnational Industries, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
January 31,
------------- -------------
2000 1999
------------- -------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 107 $ 455
Accounts receivable 2,173 1,712
Inventories 1,716 1,281
Deferred taxes 368 -
Other current assets 149 85
------------- -------------
Total current assets 4,513 3,533
Machinery and equipment:
Machinery and equipment $ 2,838 $ 2,309
Less accumulated depreciation 1,932 1,697
------------- -------------
Net machinery and equipment 906 612
Other assets:
Repair and maintenance inventories, less provision
for obsolescence (2000--$1,181; 1999--$1,141) 55 165
Computer software, less amortization 674 501
Excess of cost over net assets of business acquired,
less amortization 1,757 1,825
------------- -------------
Total other assets 2,486 2,491
------------- -------------
Total assets $ 7,905 6,636
============= =============
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
Transnational Industries, Inc.
Consolidated Balance Sheets (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
January 31,
------------- -------------
2000 1999
------------- -------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $1,043 $ 366
Deferred maintenance revenue 751 686
Accrued expenses 398 338
Billings in excess of cost and estimated earnings 815 1,447
Current portion of long-term debt 323 238
------------- -------------
Total current liabilities 3,330 3,075
Long-term debt, less current portion 879 731
Stockholders' equity:
Series B cumulative convertible preferred stock,
$0.01 par value - authorized 100,000 shares;
issued and outstanding 318 shares
(liquidating value $160,391) 73 73
Common stock, $0.20 par value -authorized
1,000,000 shares; issued and outstanding 502,470 100 100
Additional paid-in capital 8,505 8,493
Accumulated deficit (4,982) (5,836)
------------- -------------
Total stockholders' equity 3,696 2,830
------------- -------------
Total liabilities and stockholders' equity $ 7,905 $ 6,636
============= =============
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
Transnational Industries, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended January 31,
-----------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues $10,212 $7,509
Cost of sales 7,137 5,195
----------- -----------
Gross margin 3,075 2,314
Selling expenses 779 747
Research and development 820 521
General and administrative expenses 863 800
----------- -----------
2,462 2,068
----------- -----------
Operating Income 613 246
Interest expense, net 94 123
----------- -----------
Income before income taxes 519 123
Income tax expense - current 33 14
Income tax benefit - deferred (368)
----------- -----------
Net income 854 109
Preferred dividend requirement 8 8
----------- -----------
Income applicable to common shares $ 846 $ 101
=========== ===========
Basic earnings per common share $ 1.68 $ .20
=========== ===========
Diluted earnings per common share $ 1.65 $ .20
=========== ===========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
Transnational Industries, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Additional Accumulated
Series B Stock Paid in Capital Deficit
------------------ -------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Balance at January 31, 1998 $ 76 $ 100 $ 8,479 $ (5,945)
Conversion of Preferred
Stock to Common Stock (3) 3
Compensation from stock options 11
Net Income 109
------------------ -------------- --------------------- -------------------
Balance at January 31, 1999 $ 73 $ 100 $ 8,493 $ (5,836)
Compensation from stock options 12
Net Income 854
------------------ -------------- --------------------- -------------------
Balance at January 31, 2000 $ 73 $ 100 $ 8,505 $ (4,982)
================== ============== ===================== ===================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
Transnational Industries, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended January 31,
----------------- ---------------
2000 1999
----------------- ---------------
<S> <C> <C>
Operating activities
Net income $ 854 $ 109
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred taxes (368)
Depreciation and amortization 439 367
Provision for obsolescence 40 40
Compensation from stock options 12 11
Changes in operating assets and liabilities, net:
Accounts receivable (461) (975)
Inventories (288) 162
Other current assets (64) 50
Cost and estimated earnings on contracts net of billings (709) 1,135
Accounts payable 677 (102)
Accrued expenses 125 159
----------------- ---------------
Net cash provided by operating activities 257 956
----------------- ---------------
Investing activities
Capital expenditures (523) (310)
----------------- ---------------
Net cash used by investing activities (523) (310)
----------------- ---------------
Financing activities
Proceeds from revolving line of credit 1,115 200
Payments on revolving line of credit (910) (650)
Payments on capital leases (121) (83)
Scheduled payments on long term debt (166) (129)
----------------- ---------------
Net cash used by financing activities (82) (662)
----------------- ---------------
Decrease in cash (348) (16)
Cash at beginning of year 455 471
----------------- ---------------
Cash at end of year $ 107 $ 455
================= ===============
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
Transnational Industries, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Nature of Business
Transnational Industries, Inc. (the Company) is a holding company. The Company,
through its subsidiary, Spitz, Inc. (Spitz) manages its business as a single
operating segment, supplying visual immersion theaters with systems and
subsystems for simulation applications used in entertainment, education and
training. In its fifty-two year history, Spitz has predominantly manufactured
astronomical simulation systems (planetariums), projection domes, and other
curved projection screens. Projection domes and curved projection screens are
used for various applications including large format film theaters such as
Omnimax theaters and various simulation systems. It also services the systems it
sells under maintenance contracts. In recent years, Spitz has introduced new
video and computer graphics projection products for planetarium theaters and
other applications using immersive multimedia displays for wide audiences.
Principal customers are domestic and international museums, schools, military
defense contractors, theme parks and other entities in the entertainment
industry.
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Spitz. Upon consolidation, all significant
intercompany transactions have been eliminated.
Revenue Recognition
Revenues from sales of equipment are recognized on the percentage of completion
method, measured by the percentage of cost incurred to estimated total cost for
each contract. Estimated losses under the percentage of completion method are
charged to operations immediately. Revenues from maintenance contracts
representing the estimated portion for preventive service (40% of contract
value) are recognized upon completion of the preventive service. The balance of
revenues from maintenance contracts representing covered services is recognized
over the one-year term of the contract. Revenues from parts and other services
are recognized upon shipment or completion of the service, respectively.
Inventories
Inventories are stated at the lower of cost, determined by the first-in
first-out method, or market value. Certain repair and maintenance inventories
having realization cycles longer than one year have been classified as
long-term. Inventories include amounts related to long term contracts as
determined by the percentage of completion method of accounting.
21
<PAGE>
Machinery and Equipment
Machinery and equipment are stated at cost, which is depreciated using the
straight-line method over the estimated useful lives of the assets.
Computer Software
Computer software consists of costs of developing software products for
automated control systems and show production tools sold with projection
systems. Costs are amortized over the estimated sale of units not to exceed a
period of 10 years. Amortization of costs related to computer software products
held for sale amounted to $107,000 and $37,000 in fiscal 2000 and fiscal 1999,
respectively.
Excess of Cost Over Net Assets of Business Acquired
The excess of cost over net assets of business acquired is amortized on the
straight-line basis over forty years. The Company continually evaluates the
carrying amount of this asset. Accumulated amortization of excess of cost over
net assets of business acquired amounted to $991,000 and $924,000 at January 31,
2000 and 1999, respectively.
Income Taxes
Income taxes are accounted for by the asset and liability approach in accordance
with Statement of Financial Accounting Standard No. 109 "Accounting for Income
Taxes". Deferred taxes will arise, subject to a valuation allowance, from
differences between the financial reporting and tax bases of assets and
liabilities and are adjusted for changes in the tax laws when those changes are
enacted.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimated.
Earnings Per Share
Earnings per share have been computed in accordance with Statement of Financial
Accounting Standards No. 128. Basic earnings per share reflect the amount of
income available for each share of common stock outstanding during the year.
Diluted earnings per share reflects the amount of income available for each
share of common stock outstanding during the year assuming the issuance of all
dilutive potential shares.
22
<PAGE>
The following table sets forth the computation of basic and diluted earnings per
share (dollars in thousands except per share data):
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------------------
2000 1999
------------------- ------------------
<S> <C> <C>
Numerator (same for basic and dilutive):
Net income $ 854 $ 109
Preferred dividend requirement 8 8
------------------- ------------------
Net income available to common stockholders $ 846 $ 101
=================== ==================
Denominator:
Weighted average shares outstanding for basic earnings per
share 502,470 501,720
Dilutive effect of employee stock options 10,157 6,393
------------------- ------------------
Weighted average shares outstanding and assumed
conversions for dilutive earnings per share 512,627 508,113
=================== ==================
Basic earnings per share $ 1.68 $ .20
=================== ==================
Diluted earnings per share: $ 1.65 $ .20
=================== ==================
</TABLE>
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 shares in fiscal year 2000 and 1,906 shares in fiscal
1999.
2. Inventories
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
January 31,
--------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Raw materials, parts, and subassemblies $ 935 $ 735
Work-in-process 75 27
Cost and estimated earnings in excess of billings 761 684
---------------- ---------------
Total inventories 1,771 1,446
Repairs and maintenance inventories recorded with other assets 55 165
---------------- ---------------
Inventory recorded within current assets $1,716 $1,281
================ ===============
</TABLE>
23
<PAGE>
3. Costs and Estimated Earnings on Contracts in Progress
Costs and estimated earnings on contracts in progress consist of:
<TABLE>
<CAPTION>
January 31,
---------------------------------
2000 1999
----------------- ---------------
<S> <C> <C>
Costs incurred on contracts in progress $ 4.680 $ 3,358
Estimated earnings 1,828 1,408
----------------- ---------------
Total costs and estimated earnings on contracts in progress 6,508 4,766
Less billings to date (6,562) (5,529)
----------------- ---------------
Total costs and estimated earnings on contracts in progress net of
Billings $ (54) $ (763)
================= ===============
</TABLE>
Included in the accompanying balance sheet or footnotes under the following
captions:
<TABLE>
<CAPTION>
January 31,
--------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Costs and estimated earnings in excess of billings recorded
With inventory $ 761 $ 684
Billings in excess of costs and estimated earnings recorded with
Liabilities (815) (1,447)
---------------- ---------------
Total costs and estimated earnings on contracts in progress net of
Billings $ (54) $ (763)
================ ===============
</TABLE>
4. Debt
Current and long term debt consists of (in thousands):
<TABLE>
<CAPTION>
January 31,
--------------- ---------------
2000 1999
--------------- ---------------
<S> <C> <C>
Capitalized lease obligations (Note 6) $396 $200
Revolving credit note payable to First Keystone Federal Savings Bank, due
July 1, 2002 with monthly interest at 2% over prime 355 150
Term note payable to First Keystone Federal Savings Bank, payable in equal
monthly installments of $17,122 including interest at 9.25% through July 1,
2002 451 619
--------------- ---------------
Total debt 1,202 969
Less current portion 323 238
--------------- ---------------
Long term debt, less current portion $879 $731
=============== ===============
</TABLE>
24
<PAGE>
The balance on the term note payable to First Keystone Federal Savings Bank
(First Keystone) represents the balance due on an $820,000 note issued to the
Company's primary lender on June 12, 1997. The note is payable jointly by the
Company and Spitz with interest at 9.25% over five years in equal monthly
installments of $17,122. The balance on the revolving credit note payable to
First Keystone represents the balance due under an $800,000 Revolving Credit
Agreement executed on June 12, 1997. The Revolving Credit Note is also jointly
payable by the Company and Spitz, requires monthly interest payments at prime
plus 2% and matures on July 1, 2002. The Revolving Credit Agreement permits
borrowing, subject to an asset based formula, of up to $800,000 resulting in
unused borrowing capacity of $445,000 at January 31, 2000. The debt agreements
with First Keystone are secured by virtually all of the Company's assets and
require the maintenance of certain financial covenants.
5. Preferred Stock
The holders of the Series B Cumulative Convertible Preferred Stock (Preferred)
are entitled to receive quarterly dividends, when and if declared by the
Company's Board of Directors, at an annual per share amount of $27.50. The
payment of such dividends would be prior and in preference to the payment of any
dividends on the Company's common stock. At January 31, 2000, accumulated but
undeclared and unpaid dividends with respect to the 318 outstanding shares of
Preferred amounted to $80,891. The Preferred shares may be redeemed by the
Company at $250 per share plus accumulated unpaid dividends of $254 per share.
The 318 shares of Preferred are convertible, at the option of the holders
thereof, into 1,871 shares of the Company's common stock, and such common shares
have been reserved by the Company for issuance upon conversion.
Upon liquidation, dissolution, or winding up of the Company, before any
distribution with respect to the common stock, the holders of shares of the
Preferred are entitled to receive an amount equal to the aggregate liquidation
value, which would include any accumulated and unpaid dividends. The Preferred
has no voting rights except as to any change in the Company's Certificate of
Incorporation adversely affecting the preferences of the holders of the
Preferred and as required by law. In such instances, each holder of Preferred is
entitled to the number of votes equal to the number of shares of common stock
that would be obtained upon conversion of the Preferred.
6. Leases
Spitz leases its office and production facilities under an operating lease.
Total rent expense under the lease amounted to $262,200 and $257,025 in fiscal
years 2000 and 1999, respectively. The current term under the lease, which
commenced May 1, 1998, is for a period of eight years. Upon expiration of the
current term on April 30, 2006, the lease provides Spitz with a renewal option
for an additional eight years. Annual rent is $262,200 through the first five
years of the current eight-year term. Rent for the remaining three years and the
optional renewal term will be escalated based on the Consumer Price Index.
Minimum rental commitments under the operating lease are as follows for the
fiscal years ended: 2001 through 2006 -- $262,200; 2007 $65,550.
25
<PAGE>
Spitz finances purchases of certain machinery and equipment through capital
leases. Assets under capital lease included in Machinery and Equipment are as
follows (in thousands):
<TABLE>
<CAPTION>
January 31,
--------------------------------
2000 1999
----------------- --------------
<S> <C> <C>
Machinery and equipment $ 583 $ 357
Less accumulated depreciation 148 143
----------------- --------------
Net book value $ 435 $ 214
================= ==============
</TABLE>
The asset and liability are recorded at the present value of the minimum lease
payments based on the interest rates imputed in the leases at rates ranging from
11.8% to 12.8%. Depreciation on the assets under capital lease is included in
depreciation expense.
Future minimum annual rentals under capital lease agreements at January 31,
2000, are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fiscal 2001 $ 192
Fiscal 2002 181
Fiscal 2003 86
Fiscal 2004 -
Fiscal 2005 -
-----------
Total payments
459
Less amount representing interest
63
-----------
Present value of capital lease obligations
396
Less current portion
153
-----------
Long term obligation $ 243
===========
</TABLE>
7. Stock Compensation Plan
Under the 1995 Stock Option and Performance Incentive Plan, the Company may
grant stock options, stock appreciate rights or shares aggregating up to 100,000
shares of the Company's common stock to employees of the Company and Spitz. On
May 20, 1996, 10,500 stock options were granted to certain management employees
at an exercise price of $2.25, the market price of the Company's common stock on
the grant date. On July 8, 1997, 39,500 stock options were granted to certain
management and other employees at an exercise price of $2.50. The market price
of the Company's common stock on July 8, 1997 was $3.63. The options vest
ratably over four years from the date of grant and expire ten years from the
date of grant. The following table summarizes the activity:
26
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended January 31,
-----------------------------------------------------------
2000 1999
----------------------------- ----------------------------
Weighted Weighted
Number Average Number Average
Of shares exercise of shares exercise price
price
-------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of period 50,000 $ 2.45 50,000 $ 2.45
Options granted -- --
-------------- ------------
Options outstanding at end of period 50,000 $ 2.45 50,000 $ 2.45
============== ============
Options exercisable at end of period 27,625 $ 2.43 15,125 $ 2.41
============== ============
</TABLE>
The weighted average remaining contractual life of the 50,000 outstanding stock
options at January 31, 2000 is 7.2 years.
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25) in accounting for its employee stock options because the alternative
fair value accounting provided under Financial Accounting Standards Board
Statement No. 123 (FAS 123) requires the use of option valuation models that, in
management's opinion, do not necessarily provide a reliable measure of the value
of its employee stock options. Under APB 25, compensation is measured under the
intrinsic value method at the grant date and recorded ratably over the vesting
period. Intrinsic value is measured by the difference between the option
exercise price and the market price of the underlying stock at the grant date
for the options granted by the Company. The options granted in July 1997 had an
exercise price ($2.50) below market value ($3.63) at the grant date. As a
result, compensation expense from stock options, in accordance with APB 25,
amounted to $11,102 in each of fiscal years 2000 and 1999.
Pro forma information regarding net income and earnings per share is required
under FAS 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for the options granted was estimated at the grant date using a
Black-Scholes option pricing model with the following assumptions: risk free
interest rate 6%; dividend yield 0%, expected volatility of 40%; and a weighted
average expected life of 7.62 years. Under FAS 123 the estimated fair value of
the options is amortized to expense over the vesting period.
The following pro forma information reflects net income and earnings per share
had the Company accounted for the employee stock options under FAS 123 (in
thousands except per share data):
27
<PAGE>
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------
2000 1999
-------------- -----------
<S> <C> <C>
Net income As reported $ 854 $ 109
Pro forma 831 94
Basic earnings per common share As reported 1.68 .20
Pro forma 1.65 .17
Diluted earnings per common share As reported 1.65 .20
Pro forma 1.64 .17
</TABLE>
8. Profit Sharing Plan
The Company has a funded profit-sharing plan covering substantially all
employees. The plan permits the Company to make discretionary contributions to
the accounts of participants. Under the plan, the Company makes a partial
matching contribution to each participant's account equal to 50 percent of the
participant's contribution, subject to a maximum of 3 percent of the
participant's total cash compensation and subject to certain limitations
contained in the Internal Revenue Code. Profit-sharing expense related to the
plan was $76,000 and $71,000 in fiscal 2000 and 1999, respectively.
9. Income Taxes
Current income tax expense for 2000 and 1999 consists of applicable state income
taxes on the income before taxes of Spitz. Current federal income taxes for both
2000 and 1999 have been eliminated by the utilization of federal net operating
loss carryforwards.
Deferred income taxes result from temporary differences in the financial bases
and tax bases of assets and liabilities. Significant components of the Company's
net deferred tax at January 31, 2000 and 1999 are as follows: (in thousands)
<TABLE>
<CAPTION>
January 31,
-------------------------------
2000 1999
-------------- ----------------
<S> <C> <C>
Net operating loss carryforwards $ 3,970 $ 4,477
Obsolescence reserve 401 388
-------------- ----------------
Net deferred tax assets 4371 4865
Valuation allowance (4,003) (4865)
-------------- ----------------
Deferred income tax, net $ 368 $ 0
============== ================
</TABLE>
The valuation allowance is intended to represent the corresponding amount of
deferred tax assets which may not be realized. The Company's provision for
income taxes may be impacted by adjustments to the valuation allowance which may
be required if circumstances change regarding the utilization of the deferred
28
<PAGE>
tax assets in future periods. The valuation allowance did not remain equal to
the net deferred tax asset for the 2000 tax year because it is felt that it is
more likely than not that taxable income will result from the Company's current
backlog and the Company will utilize the tax benefit related to net operating
loss utilization in the near term.
At January 31, 2000, the Company had investment tax credit carryforwards of
$126,000 expiring in 2000 through 2002 and a net operating loss carryforwards
for tax purposes of $11,678,000 expiring 2012 through 2014. For financial
reporting purposes, the net operating loss carryforward in 2000 is approximately
$13,739,000. The difference relates to the nondeductible reserve for inventory
valuation not recognized for tax purposes. The net operating loss carryforward
was reduced by approximately $729,000 and $334,000 from the utilization of a net
operating loss deduction in 2000 and 1999, respectively. The Internal Revenue
Service has not examined the Company tax returns during the years in which the
net operating losses were generated or since that time. The effects of such
examinations on the Company's tax loss carryforwards, if any, cannot currently
be determined.
10. Financial Instruments
Risk Management
Spitz's financial instruments subject to credit risk are primarily trade
accounts receivable and cash. Credit is granted to customers in the ordinary
course of business but the Company usually receives progress payments under the
terms of its customer contracts. Additionally, letters of credit are often
arranged to secure payment from international customers.
The Company and its subsidiary maintain cash balances at two financial
institutions located in Michigan and Pennsylvania. Accounts are secured by the
Federal Deposit Insurance Corporation. During the normal course of business,
balances may exceed the insured amount.
Spitz customer contracts are generally payable in U.S. currency. Occasionally,
foreign currency will be required to purchase goods and services related to the
installation of products at foreign customers sites. Spitz generally does not
use derivative financial instruments with respect to such foreign currency
requirements as their amounts are generally minor relative to the overall
contract costs.
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments", requires
disclosures about the fair value of certain financial instruments for which it
is practicable to estimate that value. For purposes of such disclosures, the
fair value of a financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation. Management believes that the fair value of its
financial instruments is generally equal to its book value.
11. Supplemental Cash Flow Information
Non cash financing transactions consist of machinery and equipment of $315,000
29
<PAGE>
and $32,000 acquired through capital leases in fiscal 2000 and 1999,
respectively.
Interest paid on debt including capital lease obligations amounted to $98,000 in
Fiscal 2000 and $124,000 in Fiscal 1999. The Company paid no federal income
taxes in Fiscal 2000 and 1999.
12. Significant Customers and Geographic Information
In fiscal year 2000, one customer accounted for 15.2% and another customer
accounted for 10.1% of total revenue. In fiscal year 1999, no single customer
accounted for more than 10% of total revenue. Export revenues by geographic area
for the years ended January 31 consist of (in thousands):
<TABLE>
<CAPTION>
Year ended January 31,
-----------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Canada $ 7 $ 3
South America - 43
Europe 2,366 942
Middle East 5 22
Far East 710 263
----------------- -----------------
Total export revenues $ 3,088 $1,273
================= =================
</TABLE>
13. Subsequent Event - Purchase of Common Stock
In February 2000, the Company completed a transaction whereby it purchased
45,710 shares of its common stock, consisting of all of the shares of a single
shareholder, for cash of $3 per share or a total of $137,310. Such shares are to
be held in treasury reducing the number of common shares outstanding to 456,760.
30
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
The information required by this Item is incorporated herein by reference to the
sections entitled "Proposal No. 1 -- Election of Directors - Executive Officers
of the Company" and "-- Section 16(a) Beneficial Ownership Reporting Compliance"
of the Company's Definitive Proxy Statement to be filed with the Commission
within 120 days after January 31, 2000.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
sections entitled "Proposal No. 1 -- Election of Directors -- Compensation of
Directors" and "-- Executive Compensation" of the Company's Definitive Proxy
Statement to be filed with the Commission within 120 days after January 31,
2000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Company's Definitive Proxy Statement to be filed with the
Commission within 120 days after January 31, 2000.
ITEM 12. CERTAIN RELATIONSHIPS AND TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
section entitled "Proposal No. 1 -- Election of Directors -- Certain
Relationships and Transactions" of the Company's Definitive Proxy Statement to
filed with the Commission within 120 days after January 31, 2000.
31
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description of Document
3.1 Certificate of Incorporation of Registrant, as amended (Exhibit 3.1 to
Registrant's Registration Statement No. 33-6826 on Form S-1
incorporated herein by reference).
3.2 Certificate of Amendment of Certificate of Incorporation of Registrant,
filed August 31, 1990 (Exhibit 3.2 to Registrant's Form 10-K for the
fiscal year ended January 31, 1991 (the "1991 10-K") incorporated
herein by reference).
3.3 Certificate of Designations, Preferences and Rights of the Preferred
Stock (Exhibit 4(b) to Registrant's 1989 Form 8-K filed with the
Securities and Exchange Commission on February 15, 1989 ["1989 Form
8-K"] incorporated herein by reference).
3.4 Certificate of Designations, Rights and Preferences of Series B
Convertible Preferred Stock of Registrant, filed September 5, 1990
(Exhibit 3.4 to the 1991 10-K, incorporated herein by reference).
3.5 By-laws of Registrant, as amended (Exhibit 3.3 to Registrant's Form
10-K for the fiscal year ended January 31, 1989 ["1989 10-K"]
incorporated herein by reference).
4.1 Certificate of Incorporation of Registrant, as amended, listed as
Exhibit 3.1 above and incorporated herein by reference.
4.2 Certificate of Amendment of Certificate of Incorporation of
Registrant, listed as Exhibit 3.2 above and incorporated herein by
reference.
4.3 Certificate of Designations, Preferences and Rights of the Preferred
Stock, listed as Exhibit 3.3 above and incorporated herein by
reference.
4.4 Certificate of Designations, Rights and Preferences of Series B
Convertible Preferred Stock of Registrant, listed as Exhibit 3.4 above
and incorporated herein by reference.
4.5 Convertible Subordinated Debenture Purchase Agreement, dated as of
November 22, 1989, between Registrant and the purchasers of convertible
subordinated debentures set forth therein (Exhibit 4(a) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 31, 1989
[the "10/31/89 10-Q"] incorporated herein by reference).
10.1 Transnational Industries Inc. 1995 Stock Option and Performance
Incentive Plan (Exhibit "A" to Registrant's Proxy Statement dated June
16, 1995 incorporated herein by reference).
10.2 Employment Agreement dated May 1, 1995 between Charles Holmes and
Spitz Inc (Exhibit 10.2 to Registrant's 1996 10-K incorporated herein
by reference).
32
<PAGE>
10.3 Employment Agreement dated May 1, 1995 between Paul Dailey and Spitz
Inc. (Exhibit 10.3 to Registrant's 1996 10-K incorporated herein by
reference).
10.4 Employment Agreement dated May 1, 1995 between Jonathan Shaw and Spitz
Inc. (Exhibit 10.4 to Registrant's 1996 10-K incorporated herein by
reference).
10.5 Employment Agreement dated May 1, 1995 between John Fogleman and Spitz
Inc. (Exhibit 10.5 to Registrant's 1996 10-K incorporated herein by
reference).
10.6 Line of Credit Agreement, dated June 12, 1997, between First Keystone
Savings Bank, the Company and Spitz, Inc. (Exhibit 10.1 to Registrant's
Form 10-QSB for the quarterly period ended July 31, 1999 (the "7/97
Form 10-QSB") incorporated herein by reference).
10.7 Line of Credit Note, dated June 12, 1997, of the Company and Spitz,
Inc. to First Keystone Savings Bank (Exhibit 10.2 to the 7/97 Form
10-QSB incorporated herein by reference).
10.8 Term Note, dated June 12, 1997, of the Company and Spitz, Inc. to
First Keystone Savings Bank (Exhibit 10.3 to the 7/97 Form 10-QSB
incorporated herein by reference).
21 Subsidiaries of Registrant (a Delaware corporation):
Spitz, Inc.
27 Financial Data Schedules*
*Filed electronically herewith
(b) Reports on Form 8-K for the quarter ended January 31, 2000.
None
33
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: April 28, 2000 Transnational Industries, Inc.
By: /s/ Charles H. Holmes Jr. By: /s/ Paul L. Dailey
-------------------------------- ------------------------
Charles H. Holmes Jr. Paul L. Dailey
Director, President and Vice President and
Chief Executive Officer Chief Financial Officer
In accordance with the Securities Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature Title Date
By: /s/ Charles H. Holmes Jr.
--------------------------
Charles H. Holmes Jr. April 28, 2000
Director, President and
Chief Executive Officer
Principal Executive Officer)
By: /s/ Paul L. Dailey
--------------------------
Paul L. Dailey Vice President and April 28, 2000
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
By: /s/ Charles F. Huber
--------------------------
Charles F. Huber Chairman of the Board April 28, 2000
of Directors
By: /s/ William D. Witter
--------------------------
William D. Witter Vice-Chairman of the April 28, 2000
Board of Directors
By: /s/ Michael S. Gostomski
----------------------------
Michael S. Gostomski Director April 28, 2000
By: /s/ Calvin a. Thompson
----------------------------
Calvin A. Thompson Director April 28, 2000
34
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Transnational Industries, Inc. as of January 31,
2000 and the related consolidated statement of operations and statement of cash
flows for the year then ended and is qualified in its entirety by reference to
such financial statements. with the legend)
</LEGEND>
<CIK> 0000796228
<NAME> Transnational Industries Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> JAN-31-1999
<CASH> 107
<SECURITIES> 0
<RECEIVABLES> 2173
<ALLOWANCES> 0
<INVENTORY> 1716
<CURRENT-ASSETS> 4513
<PP&E> 2838
<DEPRECIATION> 1932
<TOTAL-ASSETS> 7905
<CURRENT-LIABILITIES> 3330
<BONDS> 0
0
73
<COMMON> 100
<OTHER-SE> 3523
<TOTAL-LIABILITY-AND-EQUITY> 7905
<SALES> 10212
<TOTAL-REVENUES> 10212
<CGS> 7137
<TOTAL-COSTS> 7137
<OTHER-EXPENSES> 820
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 519
<INCOME-TAX> (368)
<INCOME-CONTINUING> 854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 854
<EPS-BASIC> 1.68
<EPS-DILUTED> 1.65
</TABLE>
