U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 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 November 30, 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 -- October 31, 2000,
and January 31, 2000. 3-4
Condensed consolidated statements of operations -- Three
months ended October 31, 2000 and 1999; nine months ended
October 31, 2000 and 1999. 5
Condensed consolidated statements of cash flows -- Nine
months ended October 31, 2000 and 1999. 6
Notes to condensed consolidated financial statements --
October 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>
October 31, January 31,
2000 2000
--------------------------------
Assets (Unaudited) (Audited)
Current Assets:
<S> <C> <C>
Cash $ 23 $ 107
Accounts receivable 2,676 2,173
Inventories 2,224 1,716
Deferred taxes 368 368
Other current assets 338 149
------------------------------
Total current assets 5,629 4,513
Machinery and equipment:
Machinery and equipment $ 3,068 $ 2,838
Less accumulated depreciation 2,142 1,932
------------------------------
Net machinery and equipment 926 906
Other assets:
Repair and maintenance inventories, less provision
for obsolescence 55 55
Computer software, less amortization 565 674
Excess of cost over net assets of business acquired,
less amortization 1,706 1,757
------------------------------
Total other assets 2,326 2,486
------------------------------
Total assets $ 8,881 $ 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>
October 31, January 31,
2000 2000
--------------------------------
Liabilities and stockholders' equity (Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,281 $ 1,043
Deferred maintenance revenue 701 751
Accrued expenses 490 398
Billings in excess of cost and estimated earnings 1,461 815
Current portion of long-term debt 377 323
--------------------------------
Total current liabilities 4,310 3,330
Long-term debt, less current portion 341 879
Stockholders' equity:
Series B cumulative convertible preferred stock,
$0.01 par value - authorized 100,000 shares;
issued and outstanding 318 shares
(liquidating value $166,950) 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 8,514 8,505
Accumulated deficit (4,320) (4,982)
--------------------------------
4,367 3,696
Less: Treasury stock (137) -
--------------------------------
Total stockholders' equity 4,230 3,696
--------------------------------
Total liabilities and stockholders' equity $ 8,881 $ 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 Nine Months Ended
October 31, October 31,
----------------------------- ------------------------------
2000 1999 2000 1999
-------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 3,329 $ 2,481 $ 9,534 $ 7,145
Cost of Sales 2,313 1,911 6,582 5,208
-------------- -------------- ---------------- -------------
Gross Margin 1,016 570 2,952 1,937
Selling expenses 231 203 653 599
Research and development 275 117 743 467
General and administrative expenses 247 207 756 636
-------------- -------------- ---------------- -------------
753 527 2,152 1,702
-------------- -------------- ---------------- -------------
Operating income 263 43 800 235
Interest expense 28 21 94 58
-------------- -------------- ---------------- -------------
Income before income tax 235 22 706 177
Provision for income taxes 15 3 44 14
-------------- -------------- ---------------- -------------
Net income 220 19 662 163
Preferred dividend requirement 2 2 6 6
-------------- -------------- ---------------- -------------
Income applicable to common shares $ 218 $ 17 $ 656 $ 157
============== ============== ================ =============
Basic income per common share $ 0.48 $ 0.03 $ 1.44 $ 0.31
============== ============== ================ =============
Diluted income per common share $ 0.45 $ 0.03 $ 1.38 $ 0.31
============== ============== ================ =============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
Transnational Industries, Inc.
Condensed Consolidated Statements
of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
--------------------
2000 1999
---------- ---------
<S> <C> <C>
Net cash provided (used) by operating activities $ 769 $ 220
Net cash provided (used) by investing activities (242) (370)
Net cash provided (used) for financing activities (611) (215)
---------- ---------
Increase (decrease) in cash (84) (365)
Cash at beginning of period 107 455
---------- ---------
Cash at end of period $ 23 $ 90
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
Transnational Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
October 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 nine-month periods
ended October 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 Nine Months Ended
October 31, October 31,
--------------------------- --------------------------
2000 1999 2000 1999
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Numerator (same for basic and dilutive):
Net income $ 220 $ 19 $ 662 $ 163
Preferred dividend requirement 2 2 6 6
-------------- ------------ ------------ -------------
Net income available to common stockholders $ 218 $ 17 $ 656 $ 157
============== ============ ============ =============
Denominator:
Weighted average shares outstanding for basic earnings per
share 456,760 502,470 456,760 502,470
Dilutive effect of employee stock options 29,273 11,070 18,997 7,911
-------------- ------------ ------------ -------------
Weighted average shares outstanding and assumed conversions
for dilutive earnings per share 486,033 513,540 475,757 510,381
============== ============ ============ =============
Basic income per share $ .48 $ .03 $ 1.44 $ .31
============== ============ ============ =============
Dilutive income per share $ .45 $ .03 $ 1.38 $ .31
============== ============ ============ =============
</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 October 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.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OFOPERATIONS
Results of operations
Revenues in the third quarter and first nine months of the fiscal year ended
January 31, 2001 (Fiscal 2001) were $3,329,000 and $9,534,000 compared to
$2,481,000 and $7,145,000 in the comparable periods of the fiscal year ended
January 31, 2000 (Fiscal 2000). The increase of $848,000 (34%) for the quarter
and $2,389,000 (33%) for the nine-month period was due to higher revenues from
all of the Company's products, but mostly ImmersaVision. ImmersaVision revenues
were $1,251,000 and $2,640,000 in the third quarter and first nine months of
Fiscal 2001, compared to $534,000 and $1,294,000 in the third quarter and first
nine months of Fiscal 2000, an increase of $717,000 (134%) for the quarter and
$1,346,000 (104%) for the nine-month period. The increase in ImmersaVision
revenue in Fiscal 2001 was attributable to work completed on seven ImmersaVision
orders on the backlog. The ImmersaVision products are often sold with a dome and
optical planetarium system, which generates more sales opportunities for domes
and optical planetarium systems. Dome revenues were $1,233,000 and $4,581,000 in
the third quarter and first nine months of Fiscal 2001 compared to $1,213,000
and $3,564,000 in the comparable periods of Fiscal 2000, an increase of $20,000
(2%) for the quarter and $1,017,000 (29%) for the nine-month period. The
increase in dome revenues for the quarter was attributable to the sale of a dome
for a special effects attraction for a casino. The increase in dome revenue for
the nine month period was attributable to the casino dome as well as 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 $845,000 and $2,313,000 in the third
quarter and first nine months of Fiscal 2001 compared to $733,000 and $2,286,000
in the comparable periods of Fiscal 2000, an increase of $112,000 (15%) for the
quarter and $27,000 (1%) for the nine-month period. Planetarium revenues
attributable to the sale of new and refurbished optical systems were $463,000
and $1,333,000 in the third quarter and first nine months of Fiscal 2001
compared to $400,000 and $1,325,000 in the comparable periods of Fiscal 2000, an
increase of $63,000 (16%) and $8,000 (1%), respectively. The number of optical
planetarium systems sold has increased due to ImmersaVision; however, the
average sales price is lower than a stand alone system since much of the
peripheral equipment 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
$382,000 and $980,000 in the third quarter and first nine months of Fiscal 2001
compared to $333,000 and $961,000 in the comparable periods of Fiscal 2000, an
increase of $49,000 (15%) and $19,000 (2%), respectively. The increase 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 nine months for the
remainder of Fiscal 2001 and into Fiscal 2002 as work continues on the order
backlog. The backlog of unearned revenue as of July 31, 2000 was approximately
$11,900,000, of which approximately 80% is scheduled to be earned over 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
9
<PAGE>
may cause revenue levels to fluctuate in interim periods.
Gross margins improved to 30.5% and 31.0% in the third quarter and first nine
months of Fiscal 2001 compared to 23.0% and 27.1% in the comparable periods of
Fiscal 2000. The gross margin improvement was attributable to dome sales with
strong margins which improved from volume related efficiencies. Planetarium and
ImmersaVision gross margins continued to lag dome margins but showed signs of
improvement due to experience and volume related efficiencies. Selling expenses
increased $28,000 (14%) and $54,000 (9%) in the third quarter and first nine
months of Fiscal 2001 compared to the comparable periods of Fiscal 2000 due to
staffing additions and higher use of engineering resources for selling efforts.
Selling expenses in Fiscal 2001 are expected to continue at current or
increasing levels as marketing efforts on ImmersaVision continue to demand
significant resource commitments. Research and development expenses increased
$158,000 (135%) and $276,000 (59%) in the third quarter and first nine 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 $40,000 (19%) and
$120,000 (19%) in the third quarter and first nine 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 $28,000 and $94,000 in the third quarter and
first nine months of Fiscal 2001 compared to $21,000 and $58,000 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 $28,000 and $94,000 reported in the first quarter and first nine months of
Fiscal 2000 consisted of $13,000 and $57,000 paid on bank debt agreements plus
$15,000 and $37,000 paid on capital lease obligations. The $21,000 and $58,000
reported in the first quarter and first nine months of Fiscal 2000 consisted of
$12,000 and $40,000 paid on bank debt agreements plus $10,000 and $21,000 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
$44,000 in the third quarter and first nine months of Fiscal 2001 compared to
$3,000 and $14,000 in the comparable periods of Fiscal 2000.
As a result of the above, the Company reported net income of $220,000 and
$662,000 in the third quarter and first nine months of Fiscal 2001 compared to
$19,000 and $163,000 in comparable periods of Fiscal 2000.
Liquidity and Capital Resources
Net cash provided by operating activities was $769,000 in the first nine months
of Fiscal 2001 compared to $220,000 provided in the first nine months of Fiscal
2000. The $769,000 provided by operations in the first nine months of Fiscal
2001 consisted of $1,073,000 provided from earnings offset by $304,000 used by
changes in operating assets and liabilities. The $220,000 provided by operations
in the first nine months of Fiscal 2000 consisted of $525,000 provided from
earnings offset by $305,000 used by changes in operating assets and liabilities.
The change in operating assets from time to time is primarily attributable to
10
<PAGE>
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 $769,000 provided by operations in the first nine months of Fiscal 2001 was
offset by $611,000 used by financing activities and $242,000 used by investing
activities. The $220,000 provided by operations in the first nine months of
Fiscal 2000 was offset by $215,000 used by financing activities and $370,000
used by investing activities. The net result was an $84,000 decrease in cash
balances during the first nine months of Fiscal 2001 compared to a decrease of
$365,000 during the first nine months of Fiscal 2000.
Financing activities in the first nine months of Fiscal 2001 consisted of net
payments of $355,000 on the revolving credit note, payments of $128,000 on
capital leases and monthly principal payments on the bank term note of $128,000.
Financing activities in the first nine months of Fiscal 2000 consisted of net
payments of $25,000 on the revolving credit note, payments of $76,000 on capital
leases and monthly principal payments on the bank term note of $114,000.
Total debt at October 31, 2000 was $718,000, a decrease of $484,000 from the
$1,202,000 at January 31, 2000. The decrease resulted from $355,000 of net
payments on the revolving credit note, $128,000 of scheduled payments applied to
term debt and $128,000 of payments applied to capital lease obligations offset
by a new capital lease obligation of $127,000.
Investing activities in the first nine months of Fiscal 2001 consisted of
$105,000 of various machinery and equipment additions and the purchase of
treasury stock at a cost of $137,000. In addition, $127,000 of various machinery
and equipment additions were financed through a capital lease in the third
quarter of Fiscal 2001. The $370,000 invested in capital assets in the first
nine months of Fiscal 2000 consisted of $253,000 in computer software and
$117,000 of various machinery and equipment additions.
At October 31, 2000 there was no balance on the revolving credit note compared
to $355,000 at January 31, 2000. This resulted in unused borrowing capacity of
$1,100,000 under the amended borrowing limit at October 31, 2000 compared to
$445,000 under the $800,000 limit at January 31, 2000. Cash balances of $23,000
provided additional liquidity at October 31, 2000 compared to $107,000 at
January 31, 2000. The next source of liquidity, accounts receivable, increased
to $2,676,000 at October 31, 2000 compared to $2,173,000 at January 31, 2000.
This resulted in a $1,074,000 increase in liquidity available from cash,
borrowing capacity and accounts receivable at October 31, 2000 compared to
January 31, 2000. Although fluctuations in the progress billings of contracts in
progress pressured liquidity through the first nine months of Fiscal 2001,
contract funding recovered as billings exceeded revenue recorded by $265,000 at
October 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.
11
<PAGE>
Forward-Looking Information
The statements in this Quarterly Report on Form 10-QSB that are not statements
of historical fact constitute "forward-looking statements." Said forward-looking
statements involve risks and uncertainties which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performances or achievements, expressly predicted or implied by
such forward-looking statements. These forward-looking statements are identified
by their use of forms of such terms and phrases as (without limitation)
"expects," "intends," "goals," "estimates," "projects," "plans," "anticipates,"
"should," "future," "believes," and "scheduled."
The important factors which may cause actual results to differ from the
forward-looking statements contained herein include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
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.
12
<PAGE>
II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description of Document
27 Financial Data Schedules
(b) The Registrant did not file any reports on Form 8-K during the three months
ended October 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: December 14, 2000 Paul L. Dailey, Jr.
Secretary-Treasurer
Signing on Behalf of Registrant
and as Chief Financial Officer
