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, 1997
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, 1997
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 April 26, 1997: 5,216,804.
<PAGE>
TRANSNET CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets
March 31, 1997 and June 30, 1996 1
Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996 2
Nine Months Ended March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis 8
PART II. OTHER INFORMATION 10
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, June 30,
1 9 9 7 1 9 9 6
CURRENT ASSETS:
Cash and Cash Equivalents $ 3,109,810 $ 2,383,741
Accounts Receivable - Net 10,116,736 7,366,019
Inventories 1,673,036 3,642,228
Deferred Tax Asset 314,750 314,750
Other Current Assets 374,995 465,943
------------- ------------
TOTAL CURRENT ASSETS $ 15,589,327 $ 14,172,681
-------------------- ------------- -------------
PROPERTY AND EQUIPMENT - NET $ 927,083 $ 1,158,083
- ---------------------------- ------------- -------------
OTHER ASSETS $ 1,056,937 $ 1,051,261
- ------------ ------------- -------------
TOTAL ASSETS $ 17,573,347 $ 16,382,025
------------ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 2,961,446 $ 1,739,706
Accrued Expenses 463,705 539,104
Floor Plan Payable 2,181,323 2,852,328
Deferred Income 205,012 319,284
Other Current Liabilities 208,076 215,501
------------- --------------
TOTAL CURRENT LIABILITIES $ 6,019,562 $ 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 6,961,238 6,123,555
------------- --------------
Totals $ 17,722,678 $ 16,884,995
Less: Treasury Stock - At Cost (6,217,643) (6,217,643)
---------------- --------------
TOTAL STOCKHOLDERS' EQUITY $ 11,505,035 $ 10,667,352
-------------------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 17,573,347 $ 16,382,025
------ =============== =============
See Notes to Consolidated Financial Statements.
1
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1 9 9 7 1 9 9 6
REVENUE $ 16,123,401 $ 16,000,510
- -------
COST OF REVENUE 14,354,376 14,212,711
- --------------- -------------- -------------
GROSS PROFIT $ 1,769,025 $ 1,787,799
------------ -------------- -------------
EXPENSES
Selling, General and
Administrative Expenses $ 1,598,060 $ 1,553,929
-------------- -------------
OPERATING INCOME $ 170,965 $ 233,870
- ----------------- -------------- -------------
OTHER INCOME (EXPENSE)
Interest Income $ 34,458 $ 16,507
Interest Expense (4,752) (46,962)
--------------- --------------
TOTAL OTHER INCOME (EXPENSE) - NET $ 29,706 $ (30,455)
---------------------------------- -------------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 200,671 $ 203,415
----------------
PROVISION FOR INCOME TAX -- --
- ------------------------ -------------- -------------
NET INCOME $ 200,671 $ 203,415
- ----------- ============== =============
EARNINGS PER COMMON SHARE $ 0.04 $ 0.04
- ------------------------- =============== ==============
See Notes to Consolidated Financial Statements.
2
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31,
1 9 9 7 1 9 9 6
REVENUE $ 52,159,412 $ 49,184,912
- -------
COST OF REVENUE 46,466,680 43,807,997
- --------------- -------------- -------------
GROSS PROFIT $ 5,692,732 $ 5,376,915
------------ -------------- -------------
EXPENSES
Selling, General and
Administrative Expenses $ 4,894,545 $ 4,536,598
-------------- -------------
OPERATING INCOME $ 798,187 $ 840,317
- ----------------- -------------- -------------
OTHER INCOME (EXPENSE)
Interest Income $ 80,230 $ 48,090
Interest Expense (40,735) (158,895)
--------------- --------------
TOTAL OTHER INCOME (EXPENSE) - NET $ 39,495 $ (110,805)
- ---------------------------------- -------------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 837,682 $ 729,512
----------------
PROVISION FOR INCOME TAX -- --
- ------------------------ -------------- -------------
NET INCOME $ 837,682 $ 729,512
- ---------- ============== =============
EARNINGS PER COMMON SHARE $ 0.16 $ 0.14
- ------------------------- =============== ==============
See Notes to Consolidated Financial Statements.
3
<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 $ 837,682 $ 729,512
----------- -----------
Adjustments to Reconcile Net Income
to Net Cash:
Depreciation and Amortization 288,237 134,268
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable $(2,750,717) $ 2,316,044
Inventory 1,969,192 1,744,737
Other Current Assets 90,949 (483,780)
Other Assets (41,676) (181,573)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 475,336 (4,088,376)
Deferred Income (114,272) 75,642
Other Current Liabilities (7,425) (42,804)
------------ ------------
Total Adjustments $ (90,376) $ (525,842)
------------ ------------
NET CASH - OPERATING ACTIVITIES - FORWARD $ 747,306 $ 203,670
- ----------------------------------------- ----------- -----------
INVESTING ACTIVITIES:
Capital Expenditures $ (21,237) $ (15,104)
------------ -----------
NET CASH - INVESTING ACTIVITIES - FORWARD $ (21,237) $ (15,104)
- ----------------------------------------- ------------ ------------
See Notes to Consolidated Financial Statements.
4
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31,
1 9 9 7 1 9 9 6
NET CASH - OPERATING ACTIVITIES -
Forwarded $ 747,306 $ 203,670
--------- ----------- -----------
NET CASH - INVESTING ACTIVITIES -
Forwarded $ (21,237) $ (15,104)
--------- ------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS $ 726,069 $ 188,566
---------------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIODS $ 2,383,741 $ 1,549,206
-------------------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIODS $ 3,109,810 $ 1,737,772
-------------- =========== ===========
See Notes to Consolidated Financial Statements.
5
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1997 and 1996 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, 1997 and 1996,
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 $672,000 based on net operating
loss carryforwards of approximately $1,200,000. A valuation allowance of
$357,250 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.
6
<PAGE>
Current tax expense of $334,800 has been offset by the net operating loss
carryforward benefit of $334,800 for the nine months ended March 31, 1997.
Tax expense and carryforward benefit amounted to $80,000 for the three
month period ended March 31, 1997.
(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.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the three months ended March 31, 1997 were $16,123,401 as compared
with $16,000,510 for the quarter ended March 31, 1996. For the quarter ended
March 31, 1997 the Corporation reported net income of $200,671 as compared with
net income of $203,415 for the similar period in 1996. For the nine months ended
March 31, 1997, revenues were $52,159,412, as compared to $49,184,912 reported
for the similar period in 1996, with net earnings of $837,682 for the period
ended March 31, 1997, compared with net earnings of $729,512 for the same period
in 1996. 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, 1997 are attributable to increased
service 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 agressively increased its technical staff in response to the demand
for its services, encountering the high level of competition in the industry and
the shortage of qualified technical personnel. Management anticipates that the
technical service segments of its operations will continue to expand in the
future, and that the competition to hire and retain qualified personnel will
similarly continue. For the quarter ended March 31, 1997, 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. The majority
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. These price reductions increase competition, creating
pressure to lower prices to customers in order to remain competitive, which in
turn results in the reduction of profit margins. To maximize the Corporation's
profit margin, management has modified its marketing strategy, has enforced
expense controls, and continually considers additional cost reduction measures,
such as outsourcing such items as distribution activities. 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, 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.
8
<PAGE>
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. Interest expense decreased in the quarter and nine-month period ended
March 31, 1997 compared to the same periods in fiscal 1996, as a result of
management's efforts to shorten the collection cycles of accounts receivable,
with a resulting reduction in related financing costs.
Although actual expenses increased in 1996 due to the expenses related to the
significant increase in the Corporation's technical staff (discussed above),
selling, general and administrative expenses remained relatively constant at
approximately 10% of revenues for the quarter and approximately 9% for the
nine-months ended March 31, 1997 and 1996, due to management's strict adherence
to costcontrol 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 and nine-month period ended March 31, 1997 as
compared to the corresponding period in 1996 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, as well as to minimize floor plan financing.
Accounts receivable and payable increased for the quarter and nine-month period
ended March31, 1997 compared with the same periods in fiscal 1996 as a result of
increased sales. Cash levels increased in the nine month period ended March 31,
1997 as compared to the decrease in the corresponding period in fiscal 1996. The
increase is due to availability of funds resulting from customer payments of
accounts receivable.
For the fiscal quarter and nine months ended March 31, 1997, as in the periods
ended March 31, 1996 the internal resources of the Corporation were sufficient
to enable the Corporation to meet its obligations.
9
<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
DATE: May 14, 1997
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement 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-30-1997
<PERIOD-END> mar-31-1997
<CASH> 3,109,810
<SECURITIES> 0
<RECEIVABLES> 10,116,736
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,589,327
<PP&E> 927,083
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,573,347
<CURRENT-LIABILITIES> 6,019,562
<BONDS> 0
0
0
<COMMON> 74,695
<OTHER-SE> 11,430,340
<TOTAL-LIABILITY-AND-EQUITY> 17,573,347
<SALES> 16,123,401
<TOTAL-REVENUES> 16,123,401
<CGS> 14,354,376
<TOTAL-COSTS> 1,598,060
<OTHER-EXPENSES> (34,458)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,752
<INCOME-PRETAX> 200,671
<INCOME-TAX> 0
<INCOME-CONTINUING> 200,671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200,671
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
