<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ----------------------
Commission file number 0-3905
-----------------------
TRANSMATION, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 16-0874418
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Vantage Point Drive, Rochester, NY 14624
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 716-352-7777
------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark (X) whether the registrant, (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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Number of Shares Outstanding Date
- ----- ---------------------------- ----
Common 5,851,372 July 30, 1998
TOTAL PAGES - 14
<PAGE> 2
Part I
FINANCIAL INFORMATION
Item 1. Financial Statements
TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET
Unaudited
<TABLE>
<CAPTION>
June 30, March 31,
ASSETS: 1998 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 462,204 $ 652,664
Accounts Receivable, less allowance
for doubtful accounts of $541,000 at 6/30/98
and $592,000 at 3/31/98 10,919,774 12,540,347
Inventories 10,960,769 10,675,829
Prepaid Expenses and Deferred Charges 1,360,893 1,344,799
Deferred Tax Assets 540,172 540,172
----------- -----------
Current Assets 24,243,812 25,753,811
Properties, at cost, less accumulated
Depreciation 6,310,649 6,405,053
Goodwill, less accum. Amortization of $1,596,735 at
6/30/98 and $1,320,500 at 3/31/98 18,923,711 19,199,947
Deferred Charges 206,753 204,308
Deferred Income Taxes 58,582 58,582
Other Assets 253,513 253,513
----------- -----------
$49,997,020 $51,875,214
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Notes Payable $ 2,500,000
Current Portion of Long Term Debt $ 2,856,000 2,856,000
Accounts Payable 6,603,049 7,861,779
Accrued Payrolls, Commissions & Other 1,798,816 2,174,389
Income Taxes Payable 160,742 234,984
----------- -----------
Current Liabilities 11,418,607 15,627,152
Long-Term Debt 23,738,636 21,752,922
Deferred Compensation 492,257 509,981
----------- -----------
35,649,500 37,890,055
----------- -----------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common Stock, par value $.50 per share Authorized - 15,000,000 shares -
issued and outstanding - 5,851,372 at 6/30/98, 5,830,942 at 3/31/98
(including 2,853,692
shares issued on 7/22/97) 2,925,686 2,915,471
Capital in Excess of Par Value 2,328,020 2,227,117
Accumulated Translation Adjustment (159,103) (120,788)
Retained Earnings 9,252,917 8,963,359
----------- -----------
14,347,520 13,985,159
----------- -----------
$49,997,020 $51,875,214
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 3
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
April 1, 1998 - April 1, 1997 -
June 30, 1998 June 30, 1997
--------------- ---------------
<S> <C> <C>
Net Sales $17,959,309 $19,113,082
Cost and Expenses:
Cost of Product Sold 11,827,445 13,075,821
Selling & Administrative Expenses 4,629,075 4,665,734
Research & Development Costs 434,321 399,407
Interest Expense 590,410 588,298
----------- -----------
17,481,251 18,729,260
----------- -----------
Income Before Taxes 478,058 383,822
Provision for Income Taxes
State and Federal 188,500 142,000
----------- -----------
Net Income 289,558 241,622
Retained Earnings at
Beginning of Period 8,963,359 7,965,388
----------- -----------
Retained Earnings at
End of Period $ 9,252,917 $ 8,207,010
=========== ===========
Earnings Per Share - Basic $.05 $.04
Earnings Per Share - Diluted $.05 $.04
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ending
----------------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 289,558 $ 241,622
Items Not Requiring (Providing) Cash
Included in Income
Depreciation and Amortization 733,833 675,805
Provision for Losses on Accounts Receivable (51,000) (66,900)
Other Assets 298,944
Decrease(Increase) in Accounts Receivable 1,671,573 (339,556)
(Increase) in Inventories (284,940) (1,002,535)
(Increase) in Prepaid Expenses &
Deferred Charges (18,539) (45,522)
(Decrease) in Accounts Payable (1,258,730) (923,778)
Increase(Decrease) in Accrued Payrolls, Commissions
and Other Liabilities (375,573) 10,662
(Decrease) in Income Taxes Payable (74,242) (527,489)
(Decrease) in Deferred Compensation (17,724) (19,143)
------------ ------------
Net Cash Provided(used) by Operating Activities 614,216 (1,697,890)
------------ ------------
Cash Flows from Investing Activities:
Purchase of EIL Instruments, Inc. (22,000,000)
Purchases of Properties (363,193) (1,203,387)
------------ ------------
Net Cash (used in) Investing Activities (363,193) (23,203,387)
------------ ------------
Cash Flows from Financing Activities:
(Decrease)Increase in Notes Payable & Current Portion of LTD (2,500,000) 2,700,784
Exercise of Stock Options & Warrants 111,118 227,155
Increase in Long-Term Debt 1,985,714 21,487,493
------------ ------------
Net Cash (used) Provided by Financing Activities (403,168) 24,415,432
------------ ------------
Effect of Exchange Rate Changes on Cash (38,315) 3,295
------------ ------------
Net (Decrease) in Cash (190,460) (482,550)
Cash at Beginning of Period 652,664 758,215
------------ ------------
Cash at End of Period $ 462,204 $ 275,665
============ ============
Cash Paid for Interest and Income Taxes is as follows:
Interest Paid $ 637,703 $ 143,979
Taxes Paid $ 190,297 $ 682,715
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
UNAUDITED
<TABLE>
<CAPTION>
Number of
Shares of $.50
Par Value Common Stock Capital Accumulated
Common Stock Issued and in Excess of Retained Translation
Outstanding Outstanding Par Value Earnings Adjustment
-------------- ------------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996 2,451,946 $1,225,973 $1,124,583 $5,905,652 ($93,819)
Issuance of Stock 374,466 187,233 1,997,163
Currency Translation Activity (36,713)
Net Income 2,059,736
--------- ---------- ---------- ---------- --------
Balance, March 31, 1997 2,826,412 1,413,206 3,121,746 7,965,388 (130,532)
Two for One Stock Split
On 7/22/97 2,853,692 1,426,846 (1,426,846)
Issuance of Stock 150,838 75,419 532,217
Currency Translation Activity 9,744
Net Income 997,971
--------- ---------- ---------- ---------- --------
Balance, March 31,1998 5,830,942 2,915,471 2,227,117 8,963,359 (120,788)
Issuance of Stock 20,430 10,215 100,903
Currency Translation Activity (38,315)
Net Income 289,558
--------- ---------- ---------- ---------- --------
Balance, June 30, 1998 5,851,372 $2,925,686 $2,328,020 $9,252,917 ($159,103)
========= ========== ========== ========== =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
Note 1 - Borrowings
At June 30, 1998, the Company has a $30,572,000 Revolving Credit and Term Loan
agreement with banks. At June 30, 1998, $13,572,000 is borrowed under the term
loan. The term loan, dated April 4, 1997, extends through January 1, 2003, and
requires 21 consecutive quarterly installment payments which commenced January
1, 1998. Interest is payable on a formula basis, at the Company's option, at
rates above prime or above LIBOR determined on the basis of Company performance
as determined by its leverage ratio. On June 30, 1998, interest to be paid under
the Term Loan was at 2.75% above LIBOR or 1.25% above the bank's prime lending
rate. At June 30, 1998, $10,166,636 was borrowed under the Revolving Credit
portion of the Company's credit facility. The term of the Revolving Credit
facility, dated April 4, 1997, extends through January 4, 2001. Interest is
payable under the revolving credit facility on a formula basis, at the Company's
option, at rates above prime or above LIBOR determined on the basis of Company
performance as determined by its leverage ratio. On June 30, 1998, interest to
be paid under the Revolving Credit Agreement was at 2.50% above LIBOR or 1.00%
above the bank's prime lending rate. At June 30, 1998, interest was payable on
the above loans at rates ranging from 8.16% to 9.50%.
Required payments under the term loan are as follows:
July 1, 1998 - June 30, 1999 $2,856,000
July 1, 1999 - June 30, 2000 $2,857,000
July 1, 2000 - June 30, 2001 $2,857,000
July 1, 2001 - June 30, 2002 $2,858,000
July 1, 2002 - March 31, 2003 $2,144,000
The revolving credit and term loan agreement contains, among other provisions,
restrictions on the annual amount of capital expenditures, payment of dividends,
the annual amount of expenditures made for the purpose of printing and
distributing catalogs.
Additionally, the Company has pledged its personal property and fixtures,
including inventory and equipment, and its accounts receivable as collateral
security for the loan. Further, the Company has agreed to pay to the lender an
amount equal to 1/4% of the unused portion of the total credit available. The
fee is payable quarterly and total commitment fees paid on any unused lines of
credit under revolving credit agreements were immaterial in years 1997-1998. The
Company also agreed to pay a closing fee in the amount of $80,000 and an agency
fee in the amount of $45,000 in conjunction with the Revolving Credit and Term
Loan facility; both fees are being amortized over the term of the loans.
6
<PAGE> 7
The Company is in compliance with or had received waivers for all provisions of
its loan agreement as of June 30, 1998.
Note 2 - Inventories
The major classifications of inventory are as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
---- ----
<S> <C> <C>
Raw Materials and Purchased Parts $ 4,379,588 $ 4,221,730
Work in Process 653,085 629,545
Finished Products 6,773,715 6,529,564
----------- -----------
11,806,388 11,380,839
Less Inventory Reserves (845,619) (705,010)
----------- -----------
$10,960,769 $10,675,829
=========== ===========
</TABLE>
Note 3 - Net Income Per Share
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which requires
disclosure of basic and diluted earnings per share. Basic earnings per share is
computed based on the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects the assumed conversion of
dilutive stock options and warrants. In computing the per share effect of
assumed conversion, funds which would have been received from the exercise of
options and warrants are considered to have been used to purchase common shares
at average market prices for the period, and the resulting net additional common
shares are included in the calculation of average common shares outstanding. All
previously reported earnings per share amounts were restated upon adoption of
SFAS No. 128.
7
<PAGE> 8
The table below summarizes the amounts used to calculate basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998 THREE MONTHS ENDED JUNE 30, 1997
-------------------------------- --------------------------------
AVERAGE AVERAGE
NET OUTSTANDING PER NET OUTSTANDING PER
EARNINGS SHARES SHARE EARNINGS SHARES SHARE
-------- ----------- ----- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings
Per Share $289,558 5,770,913 $0.05 $241,622 2,803,376 $0.09
Stock Split 7/22/97 2,803,376 ($0.05)
Basic Earnings
After Stock Split $289,558 5,770,913 $0.05 $241,622 5,606,752 $0.04
Effect of Dilutive
Options & Warrants 584,998 354,434
-------- --------- ----- -------- --------- ------
Diluted Earnings
Per Share $289,558 6,355,911 $0.05 $241,622 5,961,186 $0.04
======== ========= ===== ======== ========= ======
</TABLE>
Certain anti-dilutive outstanding stock options and warrants were excluded from
the calculation of average shares outstanding since their exercise prices
exceeded the average market price of common shares during the period. The
anti-dilutive stock options and warrants so excluded at the end of each of the
last two interim periods and their associated exercise prices are summarized
below. The options expire at various times between 1999 and 2002.
Number of Exercise
Options and Warrants Price
-------------------- --------
1998 539,320 $6.875 - $9.25
1997 None None
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
The Company's primary sources of liquidity and capital are funds provided
through its borrowing agreement with banks, its profitability and management of
its Balance Sheet.
8
<PAGE> 9
During the quarter ended June 30, 1998, Accounts Receivable balances owing to
the Company were reduced by $1,671,573 as the result of continued efforts to
better manage this asset. Although inventories increased by $284,,940 in the
June 1998 quarter, this increase resulted from the acquisition of inventory to
support new product releases later in the fiscal year. The Company does
anticipate that present inventory levels will be reduced by year-end. Trade
Payables and various accrued liabilities were reduced by a total of $1,634,303
compared to March 31. This reduction resulted from payment of amounts due others
in accordance with our normal payment terms.
During the quarter, the Company repaid the final installment of $2,500,000 due
under its April 1996 purchase of Altek. The primary source of funds for this
transaction was an increase in bank debt.
Results of Operations
Comparison of April 1, 1998 - June 30, 1998
to
April 1, 1997 - June 30, 1997
Sales totaled $17,959,309 in the quarter ended June 30, 1998 compared to
$19,113,082 in the same quarter last year. This reduction resulted from lower
sales to customers in the Far East compared to last year as the result of that
region's continuing economic problems and also from lower sales to certain other
foreign markets and from lower sales of the Company's Cal-Lab services which
resulted from the Company's desire to perform higher margin services work than
in the past and which, therefore, resulted in the Company foregoing
opportunities to perform certain lower margin service work during the 1998
quarter.
Cost of Products Sold totaled 65.9% of sales in 1998 compared to 68.4% of sales
in 1997. This improvement is attributable to improved margins in the Company's
Cal-Lab operation in 1998 compared to 1997.
All other expenses were comparable in 1998 vs 1997.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. See Index to Exhibits.
b. Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
9
<PAGE> 10
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSMATION, INC.
Date August 12, 1998 /s/ Eric W. McInroy
----------------------- ----------------------------
Eric W. McInroy
President and CEO
Date August 12,1998 /s/ John A. Misiaszek
----------------------- ----------------------------
John A. Misiaszek
Vice President, Finance
10
<PAGE> 11
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
Not applicable.
(3) Articles of Incorporation and By Laws
(i) The Articles of Incorporation, as amended, are incorporated herein by
reference to Exhibit 4(a) to the Registrant's Registration Statement
on Form S-8 (Registration No. 33-61665) filed on August 8, 1995.
Certificate of Amendment thereto is incorporated herein by reference
to Exhibit I to the Registrant's Form 10-Q for the quarter ended
September 30, 1996.
(ii) By-laws, as amended through August 18, 1987, are incorporated herein
by reference to Exhibit (3) to the Registrant's Form 10-K for the year
ended March 31, 1988.
(4) Instruments defining the rights of security holders, including indentures
(a) Revolving Credit and Term Loan Agreement dated April 4, 1997 among
Transmation, Inc. and Manufacturer's and Traders Trust Company and State
Street Bank and Trust Company is incorporated herein by reference to
Exhibit 4(c) to the Registrant's Form 8-K dated April 18, 1997.
(b) Amendment No. 1 thereto is incorporated by reference to Exhibit 4(a) to
the Registrant's Form 10-K for the year ended March 31, 1998.
(10) Material Contracts
The documents listed under (4) are incorporated herein by reference.
(11) Statement re Computation of Per Share Earnings
Computation can be clearly determined from Note 3 to the Financial
Statements included herein at Item 1.
(15) Letter re unaudited interim financial information
Not applicable.
(18) Letter re change in Accounting Principles
Not applicable.
(19) Report furnished to security holders
Not applicable.
(22) Published report regarding matters submitted to vote of security holders
Not applicable.
11
<PAGE> 12
(23) Consents of Experts and Counsel
Not applicable.
(24) Power of attorney
Not applicable.
*(27) Financial Data Schedule
The Financial Data Schedule is included herein as Exhibit 27.
(99) Additional Exhibits
Not applicable.
- -----------
* Exhibit filed with this Report
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 462,204
<SECURITIES> 0
<RECEIVABLES> 11,460,774
<ALLOWANCES> 541,000
<INVENTORY> 10,960,769
<CURRENT-ASSETS> 24,243,812
<PP&E> 12,396,213
<DEPRECIATION> 6,085,564
<TOTAL-ASSETS> 49,997,020
<CURRENT-LIABILITIES> 11,418,607
<BONDS> 26,594,636
0
0
<COMMON> 2,925,686
<OTHER-SE> 11,421,834
<TOTAL-LIABILITY-AND-EQUITY> 49,997,020
<SALES> 13,607,082
<TOTAL-REVENUES> 17,959,309
<CGS> 8,900,006
<TOTAL-COSTS> 11,827,445
<OTHER-EXPENSES> 5,114,396
<LOSS-PROVISION> (51,000)
<INTEREST-EXPENSE> 590,410
<INCOME-PRETAX> 478,058
<INCOME-TAX> 188,500
<INCOME-CONTINUING> 289,558
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 289,558
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
