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, 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 September 30, 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 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 8, 1996: 5,216,804.
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TRANSNET CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets
September 30, 1996 and June 30, 1996 3
Consolidated Statements of Operations
Three Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1996 and 1995 5 - 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis 8 - 9
PART II. OTHER INFORMATION 10
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TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, June 30,
1 9 9 6 1 9 9 6
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,688,083 $ 2,383,741
Accounts Receivable - Net 7,769,808 7,366,019
Inventories 3,140,578 3,642,228
Deferred Tax Asset 314,750 314,750
Other Current Assets 240,346 465,943
------------- ------------
TOTAL CURRENT ASSETS $ 13,153,565 $ 14,172,681
-------------------- ------------- -------------
PROPERTY AND EQUIPMENT - NET $ 1,102,517 $ 1,158,083
- ---------------------------- ------------- -------------
OTHER ASSETS $ 1,040,240 $ 1,051,261
- ------------ ------------- -------------
TOTAL ASSETS $ 15,296,322 $ 16,382,025
------------ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 740,705 $ 1,739,706
Accrued Expenses 521,155 539,104
Floor Plan Payable 2,617,638 2,852,328
Deferred Income 253,315 319,284
Other Current Liabilities 150,126 215,501
------------- --------------
TOTAL CURRENT LIABILITIES $ 4,282,939 $ 5,665,923
------------------------- ------------- -------------
DEFERRED TAX LIABILITY $ 48,750 $ 48,750
---------------------- ------------- -------------
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 6,420,836 6,123,555
------------- --------------
Totals $ 17,182,276 $ 16,884,995
Less: Treasury Stock - At Cost (6,217,643) (6,217,643)
---------------- --------------
TOTAL STOCKHOLDERS' EQUITY $ 10,964,633 $ 10,667,352
-------------------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 15,296,322 $ 16,382,025
------ =============== =============
See Notes to Consolidated Financial Statements.
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TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
1 9 9 6 1 9 9 5
REVENUE $ 16,539,108 $ 15,729,967
- -------
COST OF REVENUE 14,696,920 14,013,222
- --------------- -------------- -------------
GROSS PROFIT $ 1,842,188 $ 1,716,745
------------ -------------- -------------
EXPENSES
Selling, General and Administrative Expenses $ 1,560,137 $ 1,425,518
Bad Debt Expense 7,500 12,000
-------------- -------------
$ 1,567,637 $ 1,437,518
-------------- -------------
OPERATING INCOME $ 274,551 $ 279,227
- ----------------- -------------- -------------
OTHER INCOME (EXPENSE)
Interest Income $ 28,032 $ 17,926
Interest Expense (5,302) (61,037)
--------------- -------------
TOTAL OTHER INCOME (EXPENSE) - NET $ 22,730 $ (43,111)
---------------------------------- -------------- --------------
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 297,281 $ 236,116
----------------
PROVISION FOR INCOME TAX 0 0
- ------------------------ -------------- -------------
NET INCOME $ 297,281 $ 236,116
============== =============
INCOME PER COMMON SHARE $ 0.06 $ 0.05
- ----------------------- ============== =============
See Notes to Consolidated Financial Statements.
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TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
1 9 9 6 1 9 9 5
OPERATING ACTIVITIES:
Net Income $ 297,281 $ 236,116
----------- -----------
Adjustments to Reconcile Net Income
to Net Cash:
Depreciation and Amortization $ 88,803 $ 36,756
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (403,789) 2,227,271
Inventory 501,650 1,293,612
Other Current Assets 225,597 (412,246)
Other Assets (979) (2,668)
Increase (Decrease) in:
Accounts Payable and Accrued
Expenses (1,016,950) (1,310,915)
Deferred Income (65,969) (100,580)
Other Current Liabilities (65,375) (131,956)
------------ ------------
Total Adjustments $ (737,012) $ 1,599,274
------------ -----------
NET CASH - OPERATING ACTIVITIES - FORWARD $ (439,731) $ 1,835,390
- ----------------------------------------- ------------ -----------
INVESTING ACTIVITIES:
Capital Expenditures $ (21,237) $ ---
NET CASH - INVESTING ACTIVITIES - FORWARD (21,237) $ ---
- ----------------------------------------- --------- -----------
See Notes to Consolidated Financial Statements.
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TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
1 9 9 6 1 9 9 5
NET CASH - OPERATING ACTIVITIES -
Forwarded $ (439,731) $ 1,835,390
--------- ------------ -----------
NET CASH - INVESTING ACTIVITIES -
Forwarded $(21,237) $
--------- --------- -------
FINANCING ACTIVITIES
Floor Planning Payable $ (234,690) $(2,117,064)
---------------------- ------------ --------------
NET CASH - FINANCING ACTIVITIES $ (234,690) $(2,117,064)
- ------------------------------- ------------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (695,658) $ (281,674)
---------------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIODS $ 2,383,741 $ 1,549,206
-------------------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIODS $ 1,688,083 $ 1,267,532
-------------- =========== ===========
See Notes to Consolidated Financial Statements.
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TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 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 September 30, 1996 and
1995.
(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 $1,120,000 based on net
operating loss carryforwards of approximately $1,700,000. A valuation
allowance of $805,250 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 $117,200 has been offset by the net operating loss
carryforward benefit of $117,200.
(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, 1996.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the three months ended September 30, 1996 were $16,539,108 as
compared with $15,729,967 for the quarter ended September 30, 1995. For the
quarter ended September 30, 1996 the Corporation reported net income of $297,281
as compared with net income of $236,116 for the corresponding 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 September 30, 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 September 30, 1996, the increase in revenues
from the provision of service, support, outsourcing and network integration is
largely the result of the Corporation renewing and/or 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.
The computer industry continually faces manufacturers' reductions in prices on a
wide array of products, thereby increasing competition, which results in lower
prices to customers and a reduction in profit margins. 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
primarily targeting commercial customers, and to a lesser extent educational
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 decreased in the quarter ended September 30,
1996 compared to the same period in 1995 as a result of management's efforts to
shorten the collection cycles of accounts receivable, with a resulting reduction
in related financing costs.
Selling, general and administrative expenses remained relatively constant at
approximately 9% of revenues for the quarter ended September 30, in both fiscal
1996 and 1995 periods, 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 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 September 30, 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.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Accounts receivable and payable decreased for the quarter ended September 30,
1996 compared with the same period in 1995 as a result of management's efforts
to shorten receivable and payable cycles. Cash levels decreased in the three
months ended September 30, 1996 as compared to a decrease in cash levels during
the corresponding period in 1995. The decrease is due to scheduled payment
requirements under the floor planning arrangements.
For the fiscal quarter ended September 30, 1996, as in the fiscal quarter ended
September 30, 1995, the internal resources of the Corporation were sufficient to
enable the Corporation to meet its obligations.
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<PAGE>
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 13, 1996
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<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 QUALIFIED
IN ITS'S ENTIRETY BY REFERNECE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,688,083
<SECURITIES> 0
<RECEIVABLES> 7,769,808
<ALLOWANCES> 0
<INVENTORY> 3,140,578
<CURRENT-ASSETS> 13,153,565
<PP&E> 1,102,517
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,296,322
<CURRENT-LIABILITIES> 4,282,939
<BONDS> 0
0
0
<COMMON> 74,695
<OTHER-SE> 10,889,938
<TOTAL-LIABILITY-AND-EQUITY> 15,296,622
<SALES> 16,539,108
<TOTAL-REVENUES> 16,539,108
<CGS> 14,696,920
<TOTAL-COSTS> 1,567,637
<OTHER-EXPENSES> (28,032)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,302
<INCOME-PRETAX> 297,281
<INCOME-TAX> 0
<INCOME-CONTINUING> 297,281
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297,281
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
