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 December 31, 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 December 31, 1995
TRANSNET CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE________________ ______________22-1892295_________
(State or other jurisdiction of (I.R.S. EmployerIdentification 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 February 9, 1996:
5,216,804.
TRANSNET CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets
December 31, 1995 and June 30, 1995 1
Consolidated Statements of Operations
Three Months Ended December 31, 1995 and 1994 2
Six Months Ended December 31, 1995 and 1994 3
Consolidated Statements of Cash Flows
Six Months Ended December 31, 1995 and 19944 - 5
Notes to Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis 8 - 9
PART II. OTHER INFORMATION 10
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
December 31, June 30,
1 9 9 5 1 9 9 5
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,807,688 $ 1,549,206
Accounts Receivable - Net 11,444,799 10,201,044
Inventories 3,827,404 5,011,791
Other Current Assets 422,754 413,053
TOTAL CURRENT ASSETS $17,502,645 $17,175,094
PROPERTY AND EQUIPMENT - NET $ 462,784 $ 529,096
OTHER ASSETS:
Deposits and Other Assets $ 1,576,491 $ 1,582,522
TOTAL ASSETS $19,541,920 $19,286,712
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 8,331,784 $8,331,318
Accrued Expenses 633,284 647,843
Deferred Income 126,483 328,100
Other Current Liabilities 258,560 313,739
TOTAL CURRENT LIABILITIES $ 9,350,111 $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 $ 74,695 $ 74,695
in Treasury)
Paid-In Capital 10,686,745 10,686,745
Retained Earnings 5,648,012 5,121,915
Totals $16,409,452 $15,883,355
Less: Treasury Stock - At Cost (6,217,643) (6,217,643)
TOTAL STOCKHOLDERS' EQUITY $10,191,809 $ 9,665,712
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $19,541,920 $19,286,712
See Notes to Consolidated Financial Statements.
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
1 9 9 5 1 9 9 4
REVENUE $17,454,435 $12,713,971
COST OF REVENUE 15,582,064 11,093,183
GROSS PROFIT $ 1,872,371 $1,620,788
EXPENSES
Selling, General and
Administrative Expenses $ 1,533,151 $1,408,903
Bad Debt Expense 12,000 15,000
$ 1,545,151 $1,423,903
OPERATING INCOME $ 327,220 $ 196,885
OTHER INCOME (EXPENSE)
Interest Income $ 13,657 $ 8,693
Interest Expense (50,896) (22,032)
TOTAL OTHER INCOME (EXPENSE) - NET $ (37,239) $ (13,339)
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 289,981 $ 183,546
PROVISION FOR INCOME TAX 0 0
NET INCOME $ 289,981 $ 183,546
INCOME PER COMMON SHARE $ 0.06 $ 0.04
See Notes to Consolidated Financial Statements.
TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31,
1 9 9 5 1 9 9 4
REVENUE $ 33,184,402 $ 23,830,205
COST OF REVENUE 29,595,286 20,830,260
GROSS PROFIT $ 3,589,116 $ 2,999,945
EXPENSES
Selling, General and
Administrative Expenses $ 2,958,669 $ 2,643,263
Bad Debt Expense 24,000 25,000
$ 2,982,669 $ 2,668,263
OPERATING INCOME $ 606,447 $ 331,682
OTHER INCOME (EXPENSE)
Interest Income $ 31,583 $ 19,610
Interest Expense (111,933) (34,694)
TOTAL OTHER INCOME (EXPENSE) $ (80,350) $ (15,084)
-NET
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 526,097 $ 316,598
PROVISION FOR INCOME TAX 0 0
NET INCOME $ 526,097 $ 316,598
INCOME PER COMMON SHARE $ 0.10 $ 0.06
See Notes to Consolidated Financial Statements.
TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31,
1 9 9 5 1 9 9 4
OPERATING ACTIVITIES:
Net Income $ 526,097 $ 316,598
Adjustments to Reconcile Net
Income to Net Cash:
Depreciation and Amortization $ 73,512 $ 95,472
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (1,243,755) (1,192,564)
Inventory 1,184,387 (505,655)
Other Current Assets (9,701) (219,735)
Other Assets (1,169) (1,758)
Increase (Decrease) in:
Accounts Payable and Accrued
Expenses 466 1,344,139
Deferred Income (201,617) (311,485)
Other Current Liabilities (69,738) (55,167)
Total Adjustments $ (267,615) $ (846,753)
NET CASH - OPERATING ACTIVITIES - $ 258,482 $ (530,155)
FORWARD
INVESTING ACTIVITIES:
Capital Expenditures $ --- $ (1,787)
NET CASH - INVESTING ACTIVITIES - $ --- $ (1,787)
FORWARD
See Notes to Consolidated Financial Statements.
TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31,
1 9 9 5 1 9 9 4
NET CASH - OPERATING ACTIVITIES -
Forwarded $258,482 $(530,155)
NET CASH - INVESTING ACTIVITIES -
Forwarded $ --- $ (1,787)
NET CASH - FINANCING ACTIVITIES --- ---
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $258,482 $(531,942)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIODS $1,549,206 $2,105,355
CASH AND CASH EQUIVALENTS AT
END OF PERIODS $1,807,688 $1,483,413
See Notes to Consolidated Financial Statements.
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of December 31, 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 December 31, 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 $1,226,000
based on net operating loss carryforwards of approximately
$2,400,000. A valuation allowance of $962,450 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 $210,000 has been offset by the net
operating loss carryforward benefit of $210,000 for the
six months ended December 31, 1995. Tax expense and
carryforward benefit amounted to $115,600 for the three
month period ended December 31, 1995.
(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 December 31, 1995 were
$17,454,435 as compared with $12,713,971 for the quarter ended
December 31, 1994. For the quarter ended December 31, 1995
the Corporation reported net income of $289,981 as compared
with net income of $183,546 for the similar period in 1994.
For the six months ended December 31, 1995, revenues were
$33,184,402, as compared to $23,830,205 reported for the
similar period in 1994, with earnings of $526,097 for the
period ended December 31, 1995, compared with net earnings of
$316,598 for the same 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 December 31, 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 December 31, 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.
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 and six-month period ended
December 31, 1995 compared to the same periods in 1994 as a
result of financing costs associated with increased sales
volume and related inventory and accounts receivable.
Selling, general and administrative expenses decreased as a
percentage of revenues for both the quarter and six-month
period from approximately 11% in 1994 to approximately 9% of
revenues for the 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 the 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 December 31, 1995 as compared to the
corresponding period in 1994 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 increased for the quarter and
six-month period ended December 31, 1995 compared with the
same periods in 1994 as a direct result of an increase in
equipment sales. Cash levels increased in the six months
ended December 31, 1995 as compared to a decrease in cash
levels during the corresponding period in 1994. The increase
is due to availability of funds resulting from customer
payment of accounts receivable.
For the fiscal quarter and six months ended December 31, 1995,
as in the periods ended December 31, 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: February 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,807,688
<SECURITIES> 0
<RECEIVABLES> 11,444,799
<ALLOWANCES> 0
<INVENTORY> 3,827,404
<CURRENT-ASSETS> 17,502,645
<PP&E> 462,784
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,541,920
<CURRENT-LIABILITIES> 9,350,111
<BONDS> 0
<COMMON> 74,395
0
0
<OTHER-SE> 10,117,114
<TOTAL-LIABILITY-AND-EQUITY> 19,541,920
<SALES> 17,454,435
<TOTAL-REVENUES> 17,454,435
<CGS> 15,582,064
<TOTAL-COSTS> 1,545,151
<OTHER-EXPENSES> (13,657)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,896
<INCOME-PRETAX> 289,981
<INCOME-TAX> 0
<INCOME-CONTINUING> 289,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 289,981
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
