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 DECEMBER 31, 1996 ----------------------------- 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 2,631,270 January 23, 1997 TOTAL PAGES - 26
2 <TABLE> <CAPTION> PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TRANSMATION, INC. CONSOLIDATED BALANCE SHEET (Unaudited) Dec. 31, March 31, ASSETS: 1996 1996 ----------- ----------- <S> <C> <C> Current Assets: Cash $ 324,251 $ 204,046 Accounts Receivable, less allowance for doubtful accounts of $518,000 at December 31, 1996, and $436,000 at March 31, 1996 6,425,498 5,320,996 Inventories 7,291,750 6,491,127 Prepaid Expenses and Deferred Charges 1,081,669 947,209 Deferred Tax Assets 526,923 310,294 ------------ ------------ Current Assets 15,650,091 13,273,672 Properties, at cost, less accumulated depreciation 2,246,029 1,976,679 Deferred Charges 197,202 172,713 Deferred Income Taxes 92,331 54,366 Other Assets 266,095 224,297 Goodwill 6,053,206 ------------ ------------ $ 24,504,954 $ 15,701,727 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities Notes Payable $ 1,700,000 Accounts Payable 2,916,670 $ 3,049,880 Accrued Payrolls, Commissions & Other 1,611,771 1,345,499 Income Taxes Payable 557,141 410,566 ------------ ------------ Current Liabilities 6,785,582 4,805,945 Long-Term Debt 5,822,800 2,050,800 Deferred Compensation 615,016 682,593 ------------ ------------ 13,223,398 7,539,338 ------------ ------------ Stockholders' Equity: Common Stock, par value $.50 per share - Authorized - 15,000,000 shares - issued and outstanding - 2,629,270 at Dec. 31, 1996, and 2,451,946 at March 31, 1996 1,314,635 1,225,973 Capital in Excess of Par Value 1,910,376 1,124,583 Stock payable former Altek Owners 1,225,000 Accumulated Translation Adjustment (121,301) (93,819) Retained Earnings 6,952,846 5,905,652 ------------ ------------ 11,281,556 8,162,389 ------------ ------------ $ 24,504,954 $ 15,701,727 ============ ============ </TABLE> 2
3 <TABLE> <CAPTION> TRANSMATION, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) Three Months Ended Nine Months Ended ------------------------ ------------------------ Dec. 31, Dec. 31, Dec. 31, Dec. 31, 1996 1995 1996 1995 ------------------------ ------------------------ <S> <C> <C> <C> <C> Net Sales $12,210,882 $ 9,918,064 $34,470,490 $28,584,813 ------------------------- ------------------------- Costs and Expenses: Cost of Product Sold 7,377,367 6,284,669 20,915,278 18,045,464 Selling & Admin. Expenses 3,567,901 2,610,327 10,081,481 8,094,237 Research & Develop. Costs 399,802 266,916 1,186,792 796,028 Interest Expense 163,209 81,741 475,445 300,739 ------------------------- ------------------------- 11,508,279 9,243,653 32,658,996 27,236,468 ------------------------- ------------------------- Income Before Taxes 702,603 674,411 1,811,494 1,348,345 Provision for Income Taxes State and Federal 275,065 197,775 764,300 480,300 ------------------------- ------------------------- Net Income 427,538 476,636 1,047,194 868,045 Retained Earnings at Beginning of Period 6,525,308 5,062,338 5,905,652 4,670,929 ------------------------- ------------------------- Retained Earnings at End of Period $ 6,952,846 $ 5,538,974 $ 6,952,846 $ 5,538,974 =========== =========== =========== =========== Net Income Per Share $ 0.15 $ 0.19 $ 0.36 $ 0.34 =========== =========== =========== =========== </TABLE> SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3
4 <TABLE> TRANSMATION, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) <CAPTION> Three Months Ended Nine Months Ended ------------------------- ---------------------------- 12/31/96 12/31/95 12/31/96 12/31/95 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Cash Flows from Operating Activities Net Income $ 427,538 $ 476,636 $ 1,047,194 $ 868,045 Items Not Requiring (Providing) Cash Included in Income Depreciation and Amortization 248,115 115,631 737,179 323,379 Provision for Losses on Accounts Receivable (11,000) (25,000) 82,000 30,200 Other Assets (5,600) (5,800) 3,803 (14,377) (Increase)Decrease in Accounts Receivable (885,820) (198,400) (541,856) 312,437 Decrease(Increase) in Inventories (38,451) (143,569) 40,946 94,996 Decrease(Increase) in Prepaid Expenses & Deferred Charges 168,204 163,141 (158,879) 171,340 Increase(Decrease) in Accounts Payable 91,728 1,284,774 (558,694) (291,782) Increase(Decrease) in Accrued Payrolls, Commiss. and Other Liabilities 216,974 201,954 (59,877) (45,024) Increase in Income Taxes Payable 166,201 213,452 146,575 475,791 (Decrease) in Deferred Compensation (22,328) (22,327) (67,577) (65,790) (Increase) in Deferred Income Taxes (130,099) (1,251) (130,099) 1,851 ----------- ----------- ----------- ----------- Net Cash Provided(used) by Operating Activities 225,462 2,059,241 540,715 1,861,066 ----------- ----------- ----------- ----------- Cash Flows from Investing Activities: Purchase of Altek Industries Corp (6,723,888) Purchases of Properties (292,718) (283,727) (462,812) (568,778) ----------- ----------- ----------- ----------- Net Cash (used in) Investing Activities (292,718) (283,727) (7,186,700) (568,778) ----------- ----------- ----------- ----------- Cash Flows from Financing Activities: Increase in Notes Payable 1,700,000 Exercise of Stock Options, Warrants & Stk Purchases 42,465 18,135 261,955 180,752 Stock Issued - Altek Purchase 612,500 Increase(Decrease) in Long-Term Debt 324,000 (1,607,700) 2,993,459 (1,632,326) Stock Payable - Former Altek Owners 1,225,000 ----------- ----------- ----------- ----------- Net Cash Provided by(used in) Financing Activities 366,465 (1,589,565) 6,792,914 (1,451,574) ----------- ----------- ----------- ----------- Effect of Exchange Rate Changes on Cash (10,494) (12,426) (26,724) 19,594 ----------- ----------- ----------- ----------- Net Increase(Decrease) in Cash 288,715 173,523 120,205 (139,692) Cash at Beginning of Period 35,536 294,548 204,046 607,763 ----------- ----------- ----------- ----------- Cash at End of Period $ 324,251 $ 468,071 $ 324,251 $ 468,071 =========== =========== =========== =========== Cash Paid for Interest and Income Taxes is as follows: Interest Paid $ 147,636 $ 84,160 $ 378,658 $ 294,750 Taxes Paid $ 108,420 $ 15,000 $ 577,665 $ 182,865 </TABLE> SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4
5 <TABLE> TRANSMATION, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) <CAPTION> Number of Shares of $.50 Par Value Common Stock Capital Common Stock Issued and in Excess of Retained Outstanding Outstanding Par Value Earnings ---------------- ---------------- ----------------- ----------------- <S> <C> <C> <C> <C> Balance, March 31, 1994 2,374,240 $1,187,120 $835,029 $4,289,144 Issuance of Stock 6,400 3,200 14,800 Net Income 381,785 ---------------- ---------------- ----------------- ---------------- Balance, March 31, 1995 2,380,640 1,190,320 849,829 4,670,929 Issuance of Stock 71,306 35,653 274,754 Net Income 1,234,723 ---------------- ---------------- ----------------- ---------------- Balance, March 31, 1996 2,451,946 1,225,973 1,124,583 5,905,652 Issuance of Stock 177,324 88,662 785,793 Net Income 1,047,194 ---------------- ----------------- ---------------- ---------------- Balance, Dec. 31, 1996 2,629,270 $1,314,635 $1,910,376 $6,952,846 ================ ================ ================= ================ </TABLE> SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5
6 Note 1 - Revolving Credit Agreement - ----------------------------------- Borrowings under a secured revolving credit agreement with a bank which extends through July 31, 1999 total $4,422,800 at December 31, 1996. Maximum funds available under this credit agreement total $10,000,000. The interest rate is the bank's prime lending rate or may be fixed for up to a 90-day period. The revolving credit agreement contains, among other provisions, restrictions on the annual amount of capital expenditures, restrictions on the annual amount of expenditures made for the purpose of printing and distributing catalogs and requirements for minimum amounts of tangible net worth. 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. Total commitment fees paid on any unused lines of credit under revolving credit agreements were immaterial in 1996 and 1995. The company is in compliance with provisions of its loan agreement at December 31, 1996. Note 2 - Inventories - -------------------- The major classifications of inventory are as follows: <TABLE> <CAPTION> Dec. 31, March 31, 1996 1996 ---------- ---------- <S> <C> <C> Raw Materials and Purchased Parts $1,586,686 $1,412,576 Work in Process 639,486 569,317 Finished Products 5,065,578 4,509,234 ---------- ---------- $7,291,750 $6,491,127 ========== ========== </TABLE> Note 3 - Stockholders' Equity - ----------------------------- In August 1993, an incentive Stock Option plan was adopted; this plan was amended in August 1995 and August 1996. Options are available to be granted to employees under the 1993 Plan at prices not less than fair market value at the date of grant and are exercisable in annual installments beginning at the date of grant and expiring up to ten years later. 6
7 The following table summarizes the transactions under the plan during 1996, 1995, and 1994: <TABLE> <CAPTION> Option Price Shares Per Share Aggregate ----------- ------------- ----------- <S> <C> <C> <C> Balance, 3/31/94 97,300 $2.25-$4.00 $ 236,425 ----------- ------------- ----------- Options Granted During the Year 163,600 4.25 695,300 Options Exercised During the Year (5,200) 2.25 (11,700) Options Canceled During the Year (12,100) 2.25 (27,225) ----------- ------------- ----------- Balance, 3/31/95 243,600 2.25-4.25 892,800 Options Exercised During the Year (24,400) 2.25 (54,900) Options Canceled During the Year (11,100) 2.25-6.25 (51,375) Options Granted During the Year 194,450 4.25-6.63 995,581 ----------- ------------- ----------- Balance, 3/31/96 402,550 2.25-6.63 1,782,106 Options Exercised During the Year (45,150) 2.25-4.25 (106,088) Options Canceled During the Year (54,800) 2.25-6.50 (261,712) Options Granted During the Year 60,280 6.50-8.375 401,195 ----------- ------------- ----------- Balance, 12/31/96 362,880 $4.25-$8.375 $ 1,815,501 =========== ============= =========== </TABLE> On August 21, 1984, shareholders approved the Directors' Warrant Plan. This plan was amended by shareholders in August 1995 and August 1996. The Plan provides that warrants may be granted thereunder to non-employee directors of Transmation to purchase in the aggregate not more than 100,000 shares of the company's Common Stock. The purchase price for shares issued under the Directors' Warrant Plan shall be equal to the fair market value of the stock on the date of the grant of the warrant. A summary of activity under the 1984 Directors' Warrant Plan is as follows: 7
8 <TABLE> <CAPTION> Warrant Shares Price Aggregate ------ ----- --------- Balance - 3/31/95 32,500 $3.00 -$3.87 $ 110,625 ------------------------------------ <S> <C> <C> <C> Exercised During the Year (14,500) 3.00 -3.875 (54,875) Granted During the Year 14,000 6.500 91,000 Canceled During the Year (2,000) 3.875 (7,750) ------- ------- ------- Balance - 3/31/96 30,000 3.00-6.50 139,000 Exercised During the Year (500) 3.00 (1,500) Canceled During the Year (2,000) 1.50 (13,000) Granted During the Year 12,000 8.375 100,500 ------- ------- ------- Balance - 12/31/96 39,500 $3.00-$8.375 $ 225,000 ====== ===== ====== ========= </TABLE> On March 11, 1993, the Board of Directors granted the former President of the company's Instrument Division a non-qualified stock option contract for the purchase of 25,000 shares of the company's common stock at $3.00 per share, the fair market value at the date of the grant. Upon his termination in January 1996, the former President of the company's Instrument Division exercised his right to purchase 15,000 of such shares. The remainder of this grant was canceled. On August 15, 1995, the Board of Directors granted the then President of the Company's Transcat division a non-qualified stock option contract for the purchase of 23,950 shares of the Company's common stock at $6.25 per share, the fair market value at the date of the grant. These shares are exercisable in equal installments beginning at the date of the grant and expiring five years later. Note 4 - Net Income Per Share - ----------------------------- The net income per share amounts in 1996 and 1995 were computed by dividing the net income by the average number of shares actually outstanding plus common equivalent shares resulting from the assumed conversion of the dilutive stock options and warrants. Common and common equivalent shares averaged 2,913,846 in 1996 and 2,541,917 in 1995. 8
9 Item 2. - ------- Management's Discussion and Analysis of Financial Condition and Results of - ---------------------------------------------------------------------------- Operations - ---------- Sales increases during the current fiscal year have resulted from the acquisition of Altek in April 1996 and from sales increases for both product and service in the Company's Transcat division. Sales in the Company's Instrument division are below plan and organizational changes and aggressive new product efforts have been implemented to correct that condition. Financial Condition - -------------------- The Company's primary sources of liquidity and capital are funds provided through its borrowing agreement with a bank, its profitability, and through management of its balance sheet. During the quarter ended December 31, 1996, customer trade accounts receivable balances increased by $886,000 compared to balances 90 days earlier. This was a temporary increase which resulted from the timing of certain billings to customers in relationship to the end of the period and has now essentially been reduced to earlier levels. Results of Operations - --------------------- Comparison of OCTOBER 1, 1996 - DECEMBER 31, 1996 to OCTOBER 1, 1995 - DECEMBER 31, 1995 Sales increased 23% in the quarter ended December 31, 1996 compared to the same period one year ago. This increase resulted from the acquisition of Altek Industries Corp in April of 1996 and from increases in the sale of both products and services in the Company's Transcat division. Cost of products sold totaled 60.4% of sales in the quarter ended December 31, 1996 compared to 63.4% of sales in the same quarter in 1995. This improvement is the result of proportionately more sales of higher margin CalXpress services as well as high margin Altek manufactured product in 1996 compared to 1995. Research & Development costs totaled 3.3% of sales in 1996 compared to 2.7% of sales in fiscal 1995. Interest expense totaled 1.3% of sales in 1996 versus 0.8% of sales in 1995. These changes result from the Company's acquisition of Altek Industries Corp in April of 1996. Sales and Administrative expenses increased 37% in the period ended December 31, 1996 compared to the same period in 1995. This increase is the result of a Company decision to increase sales efforts in both its Instrument and Transcat Divisions and also results from our Altek acquisition in April of 1996. 9
10 Results of Operations - --------------------- Comparison April 1, 1996 - December 31, 1996 - -------------------------------------------- to April 1, 1995 - December 31, 1995 --------------------------------- Sales increased by more than 20% to $34,470,490 in the nine months ended December 31, 1996 compared to sales of $28,584,813 for the nine-month period ended December 31, 1995. This increase resulted from the inclusion of the sales of Altek Industries Corp, which was acquired in April 1996, in the Company's sales totals in 1996 together with increases in sales of product and services in the Company's Transcat division. Cost of product sold totaled 60.7% of sales in 1996 compared to 63.1% of sales in 1995. This improvement is the result of proportionately greater sales of high margin CalXpress services in 1996 compared to 1995 and of the inclusion of manufactured product from Altek Industries Corp in 1996. Altek Industries Corp products have higher gross margins than do other products manufactured by Transmation, Inc. Sales and Administrative expenses increased by 24.6% in the nine-month period ended December 31, 1996 compared to the same period in 1995. This increase is the result of the Company's decision to increase sales efforts in both its Instrument and Transcat divisions and also results from our Altek acquisition in April 1996. Research & Development expenses increased 49% in 1996 compared to the same nine-month period in 1995. This increase results from Transmation's acquisition of Altek in April 1996. 10
11 PART II OTHER INFORMATION Item 2. CHANGES IN SECURITIES None 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 2/4/97 /s/ ROBERT G. KLIMASEWSKI ------------------------- -------------------------------- Robert G. Klimasewski President Date 2/4/97 /s/ JOHN A. MISIASZEK ------------------------- -------------------------------- John A. Misiaszek Vice President, Finance
12 INDEX TO EXHIBITS (2) Plan of acquisition, reorganization, arrangement, liquidation or succession Not applicable. (3) (a) Articles of Incorporation 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) as filed on August 8, 1995 and amended by Exhibit I to our September 30, 1996 10Q. (b) By-laws Code of Regulations, as amended, are incorporated herein by reference to Exhibit 3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1988. (4) Instruments defining the rights of security holders, including indentures (a) The documents listed under Item (3) of this Index are incorporated herein by reference. (b) Revolving Credit Agreement between the Registrant and Manufacturers and Traders Trust Company is incorporated herein to Exhibit 1 to the Registrant's Form 10-Q for the quarter ended September 30, 1994. (c) Agreement and Amendment No. 1 to an Existing Revolving Credit Facility Agreement between the Registrant and Manufacturers and Trades Trust Company dated September 8, 1995 is incorporated herein by reference to Exhibit 1 to the Registrant's Form 10-Q for the quarter ended September 30, 1995. (d) Agreement and Amendment No. 2 to an Existing Revolving Credit Facility Agreement between the Registrant and Manufacturers and Traders Trust Company dated December 15, 1995, is incorporated herein by reference to Exhibit 4 to Registrant's Form 10-Q for the quarter ended December 31, 1995. Upon written request, the Registrant will provide to security holders copies of any of the referenced omitted exhibits. *(e) Agreement and Amendment No. 3 to an Existing Revolving Credit Facility Agreement between the Registrant and Manufacturers and Traders Trust Company dated December 18, 1996, together with a brief identification of the contents of all omitted exhibits thereto, is included herein as Exhibit 4. Upon written request, the Registrant will provide to security holders copies of any of the referenced omitted exhibits. (10) Material Contracts (a) The documents listed under Item (4) of this Index are incorporated herein by reference. 12
13 (b) Compensation agreements between the Registrant and William J. Berk are incorporated herein by reference to Exhibit 10 to the Registrant's Form 10-K for the fiscal year ended March 31, 1984, and Exhibit 10(b) to the Registrant's Form 10-K for the fiscal year ended March 31, 1991. (c) Not used. (d) Transmation, Inc. Directors' Stock Plan is incorporated herein by reference to Exhibit 10(i) to the Registrant's Form 10-K for the fiscal year ended March 31, 1995 and as amended by reference to Exhibit 10(a) of the Registrant's Form 10-K for the fiscal year ended March 31, 1996. (e) Employment Agreement dated as of April 1, 1995 between the Registrant and Robert G. Klimasewski is incorporated herein by reference to Exhibit 10(ii) to the Registrant's Form 10-K for the fiscal year ended March 31,1995 and amended by reference to Exhibit 10(d) of the Registrant's Form 10-K for the fiscal year ended March 31, 1996. (f) Transmation, Inc. Amended and Restated Directors' Warrant Plan is incorporated herein by reference to Exhibit 99(b) to the Registrant's Registration Statement on Form S-8 (Registration No. 33-61665) as filed on August 8, 1995 and as amended by Exhibit II attached hereto. (g) Transmation, Inc. Amended and Restated 1993 Stock Option Plan is incorporated herein by reference to Exhibit 99(c) to the Registrant's Registration Statement on Form S-8 (Registration No. 33-61665) as filed on August 8, 1995 and as amended by Exhibit III and Exhibit IV attached hereto. (h) Transmation, Inc. Employees' Stock Purchase Plan is incorporated herein by reference to Exhibit 99(e) to the Registrant's Registration Statement on Form S-8 (Registration No. 33- 61665) as filed on August 8, 1995 and as amended by reference to Exhibit 10(b) of the Registrant's Form 10-K for the fiscal year ended March 31, 1996 and as amended by Exhibit V attached hereto. (i) Amendment No. 1 to Transmation, Inc. Directors' Stock Plan is included herein by reference to Exhibit 10(i) to the Registrant's Form 10-Q for the quarter ended September 30, 1995. (j) Non-Statutory Stock Option Agreement dated August 15, 1995 between Transmation, Inc. and Eric W. McInroy is included by reference to Exhibit 10(j) to the Registrant's Form 10- 13
14 Q for the quarter ended September 30, 1995 and as amended by reference to Exhibit 10(c) of the Registrant's Form 10-K for the fiscal year ended March 31, 1996. (11) Statement re computation of per share earnings Computation can be clearly determined from Note 4 to the financial statements filed with 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. (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 at pages 25 through 26 of this Report. (99) Additional Exhibits Not applicable. - ----------------- * Exhibit filed with this Report 14