UNITED STATES
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 quarter ended January 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission file number 0-8422
TRANSACT INTERNATIONAL INC.
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(Exact name of small business issuer as specified in its charter)
Connecticut 06-0732124
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22 Thorndal Circle, Darien, Connecticut 06820
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(Address of principal executive offices)
(203) 656-0777
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
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 (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of February 16, 1998 was 6,123,235.
Transitional Small Business Disclosure Format YES [ ] NO [X]
TRANSACT INTERNATIONAL INC.
FORM 10-QSB - Quarter Ended January 31, 1998
Index
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets
January 31, 1998 (Unaudited) and April 30, 1997
Statements of Operations (Unaudited)
Three and Nine Months Ended January 31, 1998 and January 31, 1997
Statements of Cash Flows (Unaudited)
Nine Months Ended January 31, 1998 and January 31, 1997
Notes to the Financial Statements (Unaudited)
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
SIGNATURE
PART I : FINANCIAL INFORMATION
TRANSACT INTERNATIONAL INC.
BALANCE SHEETS
January 31, April 30,
1998 1997
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ASSETS (Unaudited)
CURRENT ASSETS
Cash ..................................................... $ 1,974 $ 85,370
Accounts receivable, net of allowance for doubtful
accounts of $58,000 and $43,000 respectively ......... 619,442 459,265
Inventories .............................................. 236,932 311,969
Costs and estimated earnings in excess of billings on
incomplete contracts ................................. 163,376 483,180
Prepaid expenses and other current assets ..................... 1,298 17,952
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TOTAL CURRENT ASSETS ....................... 1,023,022 1,357,736
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PROPERTY, PLANT AND EQUIPMENT, at cost ........................ 299,906 292,575
Less accumulated depreciation ............................ (271,720) (252,293)
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28,186 40,282
OTHER ASSETS .................................................. 2,300 2,300
----------- -----------
TOTAL ASSETS ............................... $ 1,053,508 $ 1,400,318
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Short-term borrowings .................................... $ -- $ 131,250
Note payable to stockholder .............................. 85,000
Accounts payable ......................................... 1,415,179 1,160,394
Accrued expenses ......................................... 384,312 361,583
Current portion of long-term debt ........................ 99,155 47,319
Billings in excess of costs and estimated earnings on
incomplete contracts ................................. 141,573 96,300
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TOTAL CURRENT LIABILITIES .................. 2,125,219 1,796,846
STOCKHOLDERS' DEFICIENCY
Preferred stock, no par value, authorized
2,000,000 shares, none issued ........................ -- --
Common stock, no par value, authorized
12,000,000 shares, issued 6,201,735 .................. 852,541 852,541
Additional paid-in capital ............................... 5,224,726 5,224,726
Treasury stock, at cost : 78,500 shares .................. (29,606) (29,606)
Deficit .................................................. (7,119,372) (6,444,189)
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TOTAL STOCKHOLDERS' DEFICIENCY ............. (1,071,711) (396,528)
=========== ===========
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIENCY $ 1,053,508 $ 1,400,318
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
TRANSACT INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
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1/31/98 1/31/97 1/31/98 1/31/97
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NET SALES ................................... $ 613,566 $ 1,432,626 $ 2,848,248 $ 6,216,185
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales .......................... 654,533 1,240,901 2,634,155 5,272,537
Selling and administrative ............. 266,165 237,416 876,704 927,607
----------- ----------- ----------- -----------
920,698 1,478,317 3,510,859 6,200,144
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INCOME (LOSS) FROM OPERATIONS ............... (307,132) (45,691) (662,611) 16,041
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense ....................... (4,202) (5,165) (15,431) (17,081)
Other income ........................... 355 1,042 2,859 1,800
----------- ----------- ----------- -----------
(3,847) (4,123) (12,572) (15,281)
----------- ----------- ----------- -----------
NET INCOME (LOSS) ........................... $ (310,979) $ (49,814) $ (675,183) $ 760
=========== =========== =========== ===========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ (0.05) $ (0.01) $ (0.11) $ 0.00
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING ........ 6,123,235 6,123,235 6,123,235 6,123,235
=========== =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
TRANSACT INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
--------------------------
1/31/98 1/31/97
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OPERATING ACTIVITIES:
Net income (loss) .................................................. $(675,183) $ 760
Adjustments to reconcile net income (loss) to cash (used in)
provided by operations:
Depreciation of property, plant and equipment ............. 19,427 27,061
Changes in assets and liabilities :
(Increase) in accounts receivable .................... (160,177) (162,023)
Decrease in inventories .............................. 75,037 107,434
Decrease in other current assets ..................... 16,654 56,547
Decrease (increase) in costs and estimated earnings in
excess of billings on incomplete contracts - net .. 365,077 (88,082)
Increase (decrease) in accounts payable and accrued
expenses .......................................... 277,514 (59,575)
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NET CASH USED IN OPERATIONS ........................................ (81,651) (117,878)
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INVESTING ACTIVITIES:
Capital expenditures ............................................... (7,331) (8,212)
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FINANCING ACTIVITIES:
Proceeds from stockholder loan ..................................... 100,000 --
Repayment of debt .................................................. (94,414) (35,033)
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ................ 5,586 (35,033)
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NET DECREASE IN CASH ............................................... (83,396) (161,123)
CASH, BEGINNING OF PERIOD .......................................... 85,370 287,986
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CASH, END OF PERIOD ................................................ $ 1,974 $ 126,863
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ........................................................... $ 15,431 $ 17,081
SEE NOTES TO FINANCIAL STATEMENTS.
TRANSACT INTERNATIONAL INC.
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
1. The accompanying financial statements have been prepared assuming that
Transact International Inc. (the "Company") will continue as a going
concern. The Company's ability to continue as a going concern is very
hampered by the matters discussed in the remainder of this paragraph. The
Company has a stockholders' deficiency and working capital deficiency of
$1,071,711 and $1,102,197, respectively, at January 31, 1998. The Company
has lost approximately $950,000 over the 15 months ended January 31, 1998.
The Company's financial condition is very weak. The Company continues to
explore the sale or licensing of certain product lines that might enable
the Company to continue as a going concern. The Company's sales backlog is
approximately $2.8 million of which $1.7 million is a project in India. The
project is presently on "hold" pending a resolution of the Company's
request to the client for authority to assign the contract to a Joint
Venture of the Company and its major subcontractor for the project.
Although the client has had some initial reservations to assignment of the
contract to the proposed joint venture the Company believes that recent
duscussions with the client have cleared the way for approval of the
Companys request. Once the joint venture is in place, proceeds from the
clients L/C to the Company will be apportioned between the subcontractor
and the Company in such a way as to assure direct payment to the
subcontractor. The Company is proceeding on the basis that, with the Joint
Venture and Allocation of Funds in place to the satisfaction of the
Company's Joint Venture partner, the project can then proceed as originally
planned. The Company continues to seek additional profitable orders. The
Company's ability to continue in business is dependent upon its ability to
become profitable and/or sell or license certain product lines in the
immediate future. However, there is no assurance that the Company will be
successful in attaining additional profitable orders or in selling or
licensing certain product lines.
The balance sheet as of January 31, 1998, the statements of operations for
the three and nine months ended January 31, 1998 and 1997 and the
statements of cash flows for the nine months ended January 31, 1998 and
1997 have been prepared by the Company, without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, the
results of operations and cash flows at January 31, 1998 and all periods
presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's April 30, 1997 annual report to
stockholders. Seasonality is not a major factor in the Company's
operations. The results of operations for the three and nine month periods
ended January 31, 1998 are not necessarily indicative of those for a full
fiscal year.
2. Inventories consist of raw materials and manufacturing supplies at January
31, 1998 and April 30, 1997.
3. On June 4, 1997 a stockholder of the Company loaned the Company $100,000
payable October 31, 1997 with interest at 8% per annum. The Company was
unable to repay the loan on October 31, 1997 and subsequently reached an
agreement with the stockholder to pay $5,000 per month until receipt of the
TRANSACT INTERNATIONAL INC.
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
(Continued)
proceeds of an Indian project is received. Upon receipt of these proceeds
from India, expected in 1998, the balance due on the loan from the
stockholder will be repaid. The receipt of proceeds from India is expected
in 1998 subject to obtaining a satisfactory resolution of the
subcontractors concern for payment (see 1. above). The entire outstanding
balance due to a stockholder of $85,000 is shown as a current liability on
the January 31, 1998 balance sheet.
Due to the loss for the year ended April 30, 1997 the Company was in
default of its term loan with its bank and therefore the balance owed at
April 30, 1997 of $131,250 was classified as a current liability in the
April 30, 1997 balance sheet. In August 1997 the bank waived the default
and therefore the loan, which is payable $6,250 per month plus interest, is
classified in the January 31, 1998 balance sheet as current portion of long
term debt.
4. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share,"
which is effective for the Company's quarter ended January 31, 1998. Under
SFAS 128, a Company may present two earnings per share (EPS) amounts. Basic
EPS is calculated based on income available to common shareholders and the
weighted-average number of shares outstanding during the reported period.
Diluted EPS would include additional dilution, if any, from potential
common stock, such as stock issuable pursuant to the exercise of stock
options outstanding. If the provisions of SFAS 128 had been applied in
fiscal 1997, basic and diluted EPS would not have been effected.
Amounts per share have been computed using the weighted average number of
common shares outstanding during each period. The Company has no
outstanding stock options.
5. There was no benefit for income taxes in the three and nine month periods
ended January 31, 1998 and 1997, as the loss generated cannot be carried
back to offset income in prior years.
The Company has operating loss carryovers and investment tax credit
carryforwards for tax return purposes of approximately $6,300,000 and
$28,000 respectively, expiring in 1998 through 2011.
The tax effects of temporary differences giving rise to the Company's
deferred tax assets at January 31, 1998 are approximately as follows :
Net operating loss carryforward .. $2,570,000
Investment tax credit carryforward 104,000
Other reserves and liabilities ... 128,000
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2,802,000
Valuation allowance .............. 2,802,000
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$ ----
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TRANSACT INTERNATIONAL INC.
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
(Continued)
Due to the Company's cumulative losses, management does not consider that
enough support to overcome the "more likely than not" criteria existed at
January 31, 1998 to record a deferred tax asset. As a result, for financial
reporting purposes, deferred tax assets are fully reduced by a valuation
allowance.
TRANSACT INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The Company incurred net losses for the three and nine months ended January 31,
1998 of $310,979 and $675,183, respectively. The losses result primarily from
the decrease in sales for the three and nine months ended January 31, 1998 of
$819,060 (57.2%) and $3,367,937 (54.2%), respectively from the comparable
periods the prior year. Sales of transfer balls decreased, in fiscal 1998 from
fiscal 1997, approximately $212,000 and $975,000 for the three and nine months
ended January 31, 1998, respectively. Sales from terminal equipment decreased,
in fiscal 1998 from fiscal 1997, approximately $629,000 and $2,400,000 for the
three and nine months ended January 31, 1998, respectively. The decline in
terminal equipment sales primarily reflects the reduction of projects for the
U.S. Air Force in fiscal 1998. Gross (loss) profit percentages for the three and
nine months ended January 31, 1998 and 1997 were (6.7%), 7.5%, 13.4% and 15.2%,
respectively. The decline in gross profits percentages in 1998 was primarily due
to (i) a decrease in transfer ball sales which have a higher gross profit
percentage than terminal equipment, and (ii) fixed overhead expenses comparable
to fiscal 1997 with less sales in fiscal 1998 and small cost overruns on two
projects in 1998.
For the three and nine months ended January 31, 1998 the Company
reduced/(increased) its selling and administrative expenses from 1997 by
$(28,749) and $50,903, respectively. The third quarter increase was due
primarily to increases in bad debt expenses and legal fees net of lower travel
expenses. The reduction for the nine months ended January 31, 1998 compared to
January 31, 1997 was primarily in compensation, travel and rent expense offset
by increased legal fees incurred applicable to Seaport Container Handling
Systems, Inc.
The Company's sales backlog as of January 31, 1998 is approximately $2.8 million
of which $1.7 million is a project in India. The project is presently on "hold"
pending a resolution of the Company's request to the client for authorization to
assign the contract to a Joint Venture of the Company and its major
subcontractor for the project. The Company believes that such authorization is
forthcomming and is proceeding on the basis that, with the Joint Venture and
related Allocation of Funds in place to the satisfaction of the Company's Joint
Venture partner, the project can then proceed as originally planned. The backlog
at January 31, 1997 was $2.8 million.
LIQUIDITY AND CAPITAL RESOURCES:
During the nine months ended January 31, 1998, the Company used approximately
$80,000 of cash in its operations, primarily resulting from the net loss and an
increase in accounts receivable, net of a decrease in inventory costs and
estimated earnings in excess of billings on incomplete contracts and an increase
in accounts payable. At January 31, 1998 the Company has a working capital
deficiency of $1,102,197.
The Company's ability to continue in business is dependent upon its ability to
become profitable and/or sell or license certain product lines in the immediate
future. At January 31, 1998 the Company's financial condition is very weak and
its resources limited. There is no assurance that the Company will be successful
in attaining additional profitable orders or in selling or licensing certain
product lines.
PART II: OTHER INFORMATION
TRANSACT INTERNATIONAL INC.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURES
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.
TRANSACT INTERNATIONAL INC.
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Registrant
Date: March 10, 1998 /s/ Bruno S. Frassetto
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Bruno S. Frassetto
President and Acting Chief Financial
and Accounting Officer