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 March 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 _________________
For Quarter Ended March 31, 1996
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 _____
<PAGE>
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of
April 26, 1996: 5,216,804.
TRANSNET CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets
March 31, 1996 and June 30, 1995 1
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995 2
Nine Months Ended March 31, 1996 and 1995 3
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis 8
PART II. OTHER INFORMATION 10
<PAGE>
i.
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, June 30,
1 9 9 6 1 9 9 5
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,737,772 $1,549,206
Accounts Receivable - Net 7,885,000 10,201,044
Inventories 3,267,054 5,011,791
Other Current Assets 896,833 413,053
TOTAL CURRENT ASSETS 13,786,660 $ 17,175,094
PROPERTY AND EQUIPMENT - NET $ 420,732 $ 529,096
OTHER ASSETS:
Deposits and Other Assets $ 1,753,295 $ 1,582,522
TOTAL ASSETS $ 15,960,686 $ 19,286,712
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 4,424,143 $ 8,331,318
Accrued Expenses 466,642 647,843
Deferred Income 403,742 328,100
Other Current Liabilities 270,935 313,739
TOTAL CURRENT LIABILITIES $ 5,565,462 $ 9,621,000
STOCKHOLDERS' EQUITY:
Capital Stock - Common $.01 Par Value,
Authorized 15,000,000 Shares;
Issued 7,469,524 Shares
(of which 2,252,720 are in Treasury)$ 74,695 $ 74,695
Paid-In Capital 10,686,745 10,686,745
Retained Earnings $ 5,851,427 $ 5,121,915
Totals 16,612,867 15,883,355
Less: Treasury Stock - At Cost (6,217,643) (6,217,643)
TOTAL STOCKHOLDERS' EQUITY $ 10,395,224 $ 9,665,712
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 15,960,686 19,286,712
See Notes to Consolidated Financial Statements.
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1 9 9 6 1 9 9 5
REVENUE $ 16,000,510 $ 14,661,200
COST OF REVENUE 14,212,711 13,045,677
GROSS PROFIT $ 1,787,799 $ 1,615,523
EXPENSES
Selling, General and
Administrative Expenses $ 1,541,929 $ 1,402,306
Bad Debt Expense 12,000 15,000
$ 1,553,929 $ 1,417,306
OPERATING INCOME $ 233,870 $ 198,217
OTHER INCOME (EXPENSE)
Interest Income $ 16,507 $ 13,929
Interest Expense (46,962) (28,110)
TOTAL OTHER INCOME (EXPENSE) - NET $ (30,455) $ (14,181)
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 203,415 $ 184,036
PROVISION FOR INCOME TAX 0 0
NET INCOME $ 203,415 $ 184,036
EARNINGS PER COMMON SHARE $ 0.04 $ 0.04
See Notes to Consolidated Financial Statements.
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31,
1 9 9 6 1 9 9 5
REVENUE $ 49,184,912 $ 38,491,405
COST OF REVENUE 43,807,997 33,875,937
GROSS PROFIT $ 5,376,915 $ 4,615,468
EXPENSES
Selling, General and
Administrative Expenses $ 4,500,598 $ 4,045,570
Bad Debt Expense 36,000 40,000
$ 4,536,598 $ 4,085,570
OPERATING INCOME $ 840,317 $ 529,898
OTHER INCOME (EXPENSE)
Interest Income $ 48,090 $ 33,538
Interest Expense (158,895) (62,803)
TOTAL OTHER INCOME (EXPENSE) - NET $ (110,805) $ (29,265)
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 729,512 $ 500,633
PROVISION FOR INCOME TAX 0 0
NET INCOME $ 729,512 $ 500,633
EARNINGS PER COMMON SHARE $ 0.14 $ 0.10
See Notes to Consolidated Financial Statements.
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31,
1 9 9 6 1 9 9 5
OPERATING ACTIVITIES:
Net Income $ 729,512 $ 500,633
Adjustments to Reconcile Net Income
to Net Cash:
Depreciation and Amortization 134,268 143,207
Loss on Disposition of Equipment -- 1,054
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable $ 2,316,044 $ (2,758,733)
Inventory 1,744,737 (1,364,341)
Other Current Assets (483,780) (103,545)
Other Assets (181,573) (3,061)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses (4,088,376) 2,602,033
Deferred Income (75,642 (91, 882)
Other Current Liabilities (42,804) 103,363
Total Adjustments $ (525,842) (1,471,905)
NET CASH - OPERATING ACTIVITIES - FORWARD $ 203,670 $ 971,272)
INVESTING ACTIVITIES:
Capital Expenditures $ (15,104) $ (1,787)
NET CASH - INVESTING ACTIVITIES - FORWARD $ (15,104) $ (1,787)
See Notes to Consolidated Financial Statements.
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31,
1 9 9 6 1 9 9 5
NET CASH - OPERATING ACTIVITIES -
Forwarded $ 203,670 $ (971,272)
NET CASH - INVESTING ACTIVITIES -
Forwarded $ (15,104) $ (1,787)
FINANCING ACTIVITIES -
Issuance of Common Stock$ __ 175,000
NET CASH - FINANCING ACTIVITIES $ -- 175,000
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 188,566 $ (798,059)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIODS $ 1,549,206 $ 2,015,355
CASH AND CASH EQUIVALENTS AT
END OF PERIODS $ 1,737,772 $ 1,217,296
See Notes to Consolidated Financial Statements.
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1996 and 1995 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
weighted shares outstanding for the periods ended March 31, 1996 and 1995,
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 $1,142,000 based on net
operating loss carryforwards of approximately $2,200,000. A valuation allowance
of $878,450 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 $294,000 has been offset by the net operating
loss carryforward benefit of $294,000 for the nine months ended March 31, 1996.
Tax expense and carryforward benefit amounted to $84,000 for the three month
period ended March 31, 1996.
(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.
<PAGE>
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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the three months ended March 31, 1996 were $16,000,510 as compared
with $14,661,200 for the quarter ended March 31, 1995. For the quarter ended
March 31, 1996 the Corporation reported net income of $203,415 as compared with
net income of $184,036 for the similar period in 1995. For the nine months ended
March 31, 1996, revenues were $49,184,912, as compared to $38,491,405 reported
for the similar period in 1995, with earnings of $729,512 for the period ended
March 31, 1996, compared with net earnings of $500,633 for the same period in
1995. 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 March 31, 1996 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 March 31, 1996, 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.
To maximize the Corporation's profit margins, 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 prioryear because of the increase in the amount of funds
invested and higher yields.Interest expense increased in the
quarter and nine-month period ended March 31,1996 compared to
the same periods in 1995 as a result of financing costs
associated with increased sales volume and related inventory and accounts
receivable.
<PAGE>
Selling, general and administrative expenses remained relatively constant at
approximately 10% of revenues for the quarter ended March 31, in both fiscal
1996 and 1995 periods, due to management's strict adherence to cost-control
measures. For the nine-month period, selling, general and administrative
expenses decreased as a percentage of revenues to 9% in 1996, from 11% of
revenues in 1995, due to increase in sales in the more recent period.
Liquidity and Capital Resources
There are no material commitments of the Corporation's capital resources.
The Corporation currently finances a portion of its accounts receivable and
finances purchases of portions of its inventory through floor-planning
arrangements under which such inventory secures the amount outstanding.
Inventory decreased in the quarter ended March 31, 1996 as compared to the
corresponding period in 1995 in response to increased inventory turns related to
the higher volume of sales. 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 decreased for the quarter and nine-month period
ended March 31, 1996 compared with the same periods in 1995 as a result of
management's efforts to shorten receivable and payable cycles. Cash levels
increased in the nine months ended March 31, 1996 as compared to a decrease in
cash levels during the corresponding period in 1995. The increase is due to
availability of funds resulting from customer payment of accounts receivable.
Management reached an agreement in principle with an affiliated party to
lease, with an option to buy, certain real property owned by TransNet
Corporation, and is currently negotiating a long-term lease.
Based upon the current terms of the proposed lease, management believes
that, upon completion, income from this lease will initially increase
earnings by approximately $225,000 per year or $.04 per share per year. There is
no assurance, however, that the lease will be executed and there is no assurance
that, if executed, the final terms will be as favorable to the Corporation as
those currently proposed. The execution of the agreement is contingent upon
satisfaction of certain requirements of local, state and federal laws and should
be consummated by the end of calendar 1996.
For the fiscal quarter and nine months ended March 31, 1996, as in the periods
ended March 31, 1995 the internal resources of the Corporation were sufficient
to enable the Corporation to meet its obligations.
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIE
D IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,737,772
<SECURITIES> 0
<RECEIVABLES> 7,885,000
<ALLOWANCES> 0
<INVENTORY> 3,267,054
<CURRENT-ASSETS> 13,786,660
<PP&E> 420,732
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,960,686
<CURRENT-LIABILITIES> 5,565,462
<BONDS> 0
0
0
<COMMON> 74,695
<OTHER-SE> 10,320,529
<TOTAL-LIABILITY-AND-EQUITY> 15,960,686
<SALES> 16,000,510
<TOTAL-REVENUES> 16,000,510
<CGS> 14,212,711
<TOTAL-COSTS> 1,553,929
<OTHER-EXPENSES> (16,507)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,962
<INCOME-PRETAX> 203,415
<INCOME-TAX> 0
<INCOME-CONTINUING> 203,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,415
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
