Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________to _________________
For Quarter Ended September 30, 1995
TRANSNET CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE_________________ ______________22-1892295_________
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
45 Columbia Road, Somerville, New Jersey 08876-3576
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 908-253-0500
________________________________________________________________
Former name, former address and former fiscal year, if changed since last Report
Indicate by check mark 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 November 9, 1995: 5,216,804.
TRANSNET CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets
September 30, 1994 and June 30, 1995 1
Consolidated Statements of Operations
Three Months Ended September 30, 1995 and 1994 2
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1995 and 1994 3 - 4
Notes to Consolidated Financial Statements 5 - 6
Management's Discussion and Analysis 7
PART II. OTHER INFORMATION 9
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, June 30,
1 9 9 5 1 9 9 5
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,267,532 $ 1,549,206
Accounts Receivable - Net 7,973,773 10,201,044
Inventories 3,718,179 5,011,791
Other Current Assets 825,299 413,053
TOTAL CURRENT ASSETS $ 13,784,783 $ 17,175,094
PROPERTY AND EQUIPMENT - NET $ 495,940 $ 529,096
OTHER ASSETS:
Deposits and Other Assets $ 1,581,590 $ 1,582,522
TOTAL ASSETS $ 15,862,313 $ 19,286,712
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 5,139,007 $ 8,331,318
Accrued Expenses 412,175 647,843
Deferred Income 227,520 328,100
Other Current Liabilities 181,783 313,739
TOTAL CURRENT LIABILITIES $ 5,960,485 $ 9,621,000
STOCKHOLDERS' EQUITY:
Capital Stock - Common $.01
Par Value, Authorized 15,000,000
Shares; Issued 7,294,524 Shares
(of which 2,252,720 are
in Treasury) $ 74,695 $ 74,695
Paid-In Capital 10,686,745 10,686,745
Retained Earnings 5,358,031 5,121,915
Totals $ 16,119,471 $ 15,883,355
Less: Treasury Stock - At Cost (6,217,643) (6,217,643)
TOTAL STOCKHOLDERS' EQUITY $ 9,901,828 $ 9,665,712
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 15,862,313 $ 19,286,712
See Notes to Consolidated Financial Statements.
TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
1 9 9 5 1 9 9 4
REVENUE $ 15,729,967 $ 11,116,234
COST OF REVENUE 14,013,222 9,737,077
GROSS PROFIT $ 1,716,745 $ 1,379,157
EXPENSES
Selling, General and
Administrative Expenses $ 1,425,518 $ 1,234,360
Bad Debt Expense 12,000 10,000
$ 1,437,518 $ 1,244,360
OPERATING INCOME $ 279,227 $ 134,797
OTHER INCOME (EXPENSE)
Interest Income $ 17,926 $ 10,917
Interest Expense (61,037) (12,662)
TOTAL OTHER INCOME (EXPENSE) - NET $ (43,111) $ (1,745)
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 236,116 $ 133,052
PROVISION FOR INCOME TAX 0 0
NET INCOME $ 236,116 $ 133,052
INCOME PER COMMON SHARE $ 0.05 $ 0.03
See Notes to Consolidated Financial Statements.
TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
1 9 9 5 1 9 9 4
OPERATING ACTIVITIES:
Net Income $ 236,116 $ 133,052
Adjustments to Reconcile Net Income
to Net Cash:
Depreciation and Amortization $ 36,756 $ 47,736
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable 2,227,271 (1,468,418)
Inventory 1,293,612 (543,293)
Other Current Assets (412,246) (328,293)
Other Assets (2,668) (3,748)
Increase (Decrease) in:
Accounts Payable and Accrued
Expenses (3,427,979) 1,187,563
Deferred Income (100,580) (209,497)
Other Current Liabilities (131,956) (17,133)
Total Adjustments $ (517,790) $ (1,335,083)
NET CASH - OPERATING ACTIVITIES - FORWARD $ (517,790) $ (1,202,031)
INVESTING ACTIVITIES:
Capital Expenditures $ --- $ (875)
NET CASH - INVESTING ACTIVITIES - FORWARD $ --- $ (875)
See Notes to Consolidated Financial Statements.
TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
1 9 9 5 1 9 9 4
NET CASH - OPERATING ACTIVITIES -
Forwarded $ (281,674) $ (1,202,031)
NET CASH - INVESTING ACTIVITIES -
Forwarded $ --- $ (875)
NET CASH - FINANCING ACTIVITIES $ --- $ ---
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (281,674) $ (1,202,906)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIODS $ 1,549,206 $ 2,015,355
CASH AND CASH EQUIVALENTS AT
END OF PERIODS $ 1,267,532 $ 812,449
See Notes to Consolidated Financial Statements.
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1995 and 1994 is unaudited)
(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts of
the Corporation and its wholly-owned subsidiary: Century American Corporation.
Intercompany transactions and accounts have been eliminated in consolidation.
During the prior year the Corporation liquidated four inactive subsidiaries
whose activities were previously merged with the Corporation.
Inventory: Inventory consists of finished goods. The Corporation's inventory
is valued at the lower of cost (determined on the average cost basis) or market.
Cash and Cash Equivalents: For the purposes of the statement of cash flows, the
Corporation considers highly liquid debt instruments, purchased with a maturity
of three months or less, to be cash equivalents.
Earnings Per Share: Earnings per common share are based on 5,216,804 and
5,041,804 weighted shares outstanding for the periods ended September 30, 1995
and 1994, respectively.
(2.) INCOME TAXES
Effective July 1, 1993, the Corporation adopted Financial Accounting Standards
Statement No. 109, Accounting for Income Taxes ("FAS 109"). Under FAS 109,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Adoption of FAS 109 had no material effect on the
Financial Statements. Prior to the adoption of FAS 109, income tax expense was
reported pursuant to Financial Accounting Standards Statement No. 96.
The Corporation has a deferred tax asset of $1,436,000 based on net operating
loss carryforwards of approximately $2,900,000. A valuation allowance of
$1,172,450 has been provided against this deferred asset. Realization of the
tax asset is dependent upon future events effecting utilization of the net
operating loss carryforwards ("NOL's"). NOL's expire in the years 2005 and 2006.
Current tax expense of $94,400 has been offset by the net operating loss
carryforward benefit of $94,400.
(3.) RECLASSIFICATION
Certain items from prior year's Balance Sheet and Statement of Operations have
been reclassified to conform to the current year's presentation.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments consisting only of normal recurring
adjustments necessary to present fairly the financial position, the results of
operations and cash flows for the periods presented.
These statements should be read in conjunction with the summary of significant
accounting policies and notes contained in the Corporation's annual report on
Form 10-K for the year ended June 30, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the three months ended September 30, 1995 were $15,729,967 as
compared with $11,116,234 for the quarter ended September 30, 1994. For the
quarter ended September 30, 1995 the Corporation reported net income of $236,116
as compared with net income of $133,052 for the corresponding period in 1994.
The increase in revenues is due to increases in hardware sales as well as
increased demand for the Corporation's technical services (hardware service
contracts, technical support contracts and training).
Earnings for the quarter ended September 30, 1995 are attributable to increased
revenues, management's concentration on sales of network and system integration
products which yield higher profit margins, the Corporation's technical service
and support programs, and continued adherence to cost control measures. Service
related revenues, though not a material source of the Corporation's revenues,
are significant in their contributions to earnings because these operations
yield a higher profit margin than equipment sales. The Corporation anticipates
that the technical service segments of its operations will continue to expand in
the future. For the quarter ended September 30, 1995, the increase in revenues
from the provision of service, support, outsourcing and network integration is
largely the result of the Corporation entering into service contracts with a
number of large corporate customers. Most of these contracts are short-term,
usually twelve months or less, and contain provisions which permit early
termination. Although the contracts generally contain renewal terms, there is
no assurance that such renewals will occur.
With respect to hardware sales, the computer industry has experienced a trend of
decreasing prices of computers and related equipment. Management believes that
this trend will continue. Industrywide, the result of price erosion has been
lower profit margins on sales, which require businesses to sell a greater volume
of equipment to maintain past earning levels. To counter these factors and to
maximize the Corporation's profit margin, management has modified its marketing
strategy and has enforced expense controls. Management's current marketing
strategy is designed to increase sales of lower revenue/higher profit margin
products related to service and support operations. Management's efforts
include targeting commercial customers who provide marketplaces for a wide range
of products and services at one time, a cost-effective approach to sales.
Management believes it maximizes profits through concentration on sales of
value-added applications; promotion of the Corporation's service and support
operations; and strict adherence to cost-cutting controls. Management
emphasizes the promotion of its technical service, support, outsourcing and
network integration capabilities, and continues the aggressive pursuit of an
increased volume of equipment sales and promotion of its training services.
Interest income for the quarter increased as compared to the corresponding
period in the prior year because of the increase in the amount of funds invested
and higher yields. Interest expense increased in the quarter ended September
30, 1995 compared to the same period in 1994 as a result of financing costs
associated with increased inventory and sales volume.
Selling, general and administrative expenses decreased as a percentage of
revenues for the quarter from approximately 11% in 1994 to approximately 9% of
revenues for the 1995 quarter, due to management's strict adherence to
cost-control measures.
Liquidity and Capital Resources
There are no material commitments of the Corporation's capital resources.
The Corporation currently finances the purchases of portions of its inventory
through floor-planning arrangements under which such inventory secures the
amount outstanding. Inventory decreased in the quarter ended September 30,
1995 as compared to the corresponding period in 1994. Management shall continue
its efforts to increase turnover and to provide the Corporation with protection
against inventory obsolescence resulting from the rapid technological advances
of the computer industry.
Accounts receivable and payable, and inventories decreased, and cash levels
correspondingly increased, for the period ended September 30, 1995 compared with
the same quarter in 1994 as a result of the purchase and payment cycle during
the quarter.
For the fiscal quarter ended September 30, 1995, as in the fiscal quarter ended
September 30, 1994, the internal resources of the Corporation were sufficient to
enable the Corporation to meet its obligations.
PART II.
OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits - None required to be filed for Part II of this report.
B. Reports on Form 8-K - None filed during the quarter for which this
report is submitted.
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.
TRANSNET CORPORATION
(Registrant)
/s/ Steven J. Wilk
Steven J. Wilk, President
/s/ John J. Wilk
John J. Wilk,
Principal Financial and Accounting Officer
and Chairman of the Board of Directors
DATE: November 11 , 1994
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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