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, 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 December 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 ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 5, 1997: 5,216,804.
<PAGE>
TRANSNET CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets
December 31, 1996 and June 30, 1996 1
Consolidated Statements of Operations
Three Months Ended December 31, 1996 and 1995 2
Six Months Ended December 31, 1996 and 1995 3
Consolidated Statements of Cash Flows
Six Months Ended December 31, 1996 and 1995 4 - 5
Notes to Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis 8 - 9
PART II. OTHER INFORMATION 10
i.
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
December 31, June 30,
1 9 9 6 1 9 9 6
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,101,280 $ 2,383,741
Accounts Receivable - Net 9,254,180 7,366,019
Inventories 3,325,421 3,642,228
Deferred Tax Asset 314,750 314,750
Other Current Assets 154,999 465,943
------------- ------------
TOTAL CURRENT ASSETS $ 15,150,630 $ 14,172,681
-------------------- ------------- -------------
PROPERTY AND EQUIPMENT - NET $ 1,025,714 $ 1,158,083
- ---------------------------- ------------- -------------
OTHER ASSETS $ 1,070,719 $ 1,051,261
------------- -------------
TOTAL ASSETS $ 17,247,063 $ 16,382,025
------------ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 1,706,097 $ 1,739,706
Accrued Expenses 469,447 539,104
Floor Plan Payable 3,298,476 2,852,328
Deferred Income 153,647 319,284
Other Current Liabilities 266,283 215,501
------------- --------------
TOTAL CURRENT LIABILITIES $ 5,893,950 $ 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 6,760,566 6,123,555
------------- --------------
Totals $ 17,522,006 $ 16,884,995
Less: Treasury Stock - At Cost (6,217,643) (6,217,643)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY $ 11,304,363 $ 10,667,352
-------------------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 17,247,063 $ 16,382,025
============= =============
See Notes to Consolidated Financial Statements.
1
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
1 9 9 6 1 9 9 5
REVENUE $ 19,496,903 $ 17,454,435
- -------
COST OF REVENUE 17,415,384 15,582,064
-------------- -------------
GROSS PROFIT $ 2,081,519 $ 1,872,371
------------ -------------- -------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES $ 1,728,848 $ 1,545,151
----------------------- -------------- -------------
OPERATING INCOME $ 352,671 $ 327,220
- ----------------- -------------- -------------
OTHER INCOME (EXPENSE)
Interest Income $ 17,740 $ 13,657
Interest Expense (30,681) (50,896)
-------------- -------------
TOTAL OTHER INCOME (EXPENSE) - NET $ (12,941) $ (37,239)
---------------------------------- -------------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 339,730 $ 289,981
----------------
PROVISION FOR INCOME TAX 0 0
-------------- -------------
NET INCOME $ 339,730 $ 289,981
- ------------ ============== =============
INCOME PER COMMON SHARE $ 0.07 $ 0.06
- ----------------------- ============== =============
See Notes to Consolidated Financial Statements.
2
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31,
1 9 9 6 1 9 9 5
REVENUE $ 36,036,011 $ 33,184,402
- -------
COST OF REVENUE 32,112,304 29,595,286
GROSS PROFIT $ 3,923,707 $ 3,589,116
------------ -------------- --------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES $ 3,296,485 $ 2,982,669
----------------------- -------------- -------------
OPERATING INCOME $ 627,222 $ 606,447
- ----------------- -------------- -------------
OTHER INCOME (EXPENSE)
Interest Income $ 45,772 $ 31,583
Interest Expense (35,983) (111,933)
-------------- -------------
TOTAL OTHER INCOME (EXPENSE) - NET $ 9,789 $ (80,350)
---------------------------------- -------------- --------------
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 637,011 $ 526,097
----------------
PROVISION FOR INCOME TAX _____________0 ____________
NET INCOME $ 637,011 $ 526,097
- ------------ ============== =============
INCOME PER COMMON SHARE $ 0.12 $ 0.10
- ----------------------- =============== =============
See Notes to Consolidated Financial Statements.
3
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31,
1 9 9 6 1 9 9 5
OPERATING ACTIVITIES:
Net Income $ 637,011 $ 526,097
----------- -----------
Adjustments to Reconcile Net Income
to Net Cash:
Depreciation and Amortization $ 177,606 $ 73,512
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (1,888,161) (1,243,755)
Inventory 316,807 1,184,387
Other Current Assets 310,944 (9,701)
Other Assets (43,458) (1,169)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses (103,266) (2,219,182)
Deferred Income (165,637) (201,617)
Other Current Liabilities 50,782 (69,738)
----------- ------------
Total Adjustments $(1,344,383) $(2,487,263)
------------ ------------
NET CASH - OPERATING ACTIVITIES - FORWARD $ (707,372) $(1,961,166)
- ----------------------------------------- ------------ ------------
INVESTING ACTIVITIES:
Capital Expenditures $__ (21,237) $_____---
------------- --------
NET CASH - INVESTING ACTIVITIES - FORWARD $_ __(21,237) $_____---
- ----------------------------------------- ------------- --------
See Notes to Consolidated Financial Statements.
4
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31,
1 9 9 6 1 9 9 5
NET CASH - OPERATING ACTIVITIES -
Forwarded $ (707,372) $(1,961,166)
--------- ------------ ------------
NET CASH - INVESTING ACTIVITIES -
Forwarded $___(21,237) $____---___
--------- - -------- - ------
FINANCING ACTIVITIES
Floor Plan Payable $ 446,148 $ 2,219,648
------------------ ----------- ----------
NET CASH - FINANCING ACTIVITIES $ 446,148 $ 2,219,648
- ------------------------------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (282,461) $ 258,482
---------------- ------------ -----------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIODS $ 2,383,741 $ 1,549,206
-------------------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIODS $ 2,101,280 $ 1,807,688
-------------- ----------- -----------
See Notes to Consolidated Financial Statements.
5
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of December 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 December 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 $865,000 based on net operating
loss carryforwards of approximately $1,400,000. A valuation allowance of
$550,250 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 $254,800 has been offset by the net operating loss
carryforward benefit of $254,800 for the six months ended December 31,
1996. Tax expense and carryforward benefit amounted to $137,600 for the
three month period ended December 31, 1996.
6
<PAGE>
(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 December 31, 1996 were $19,496,903 as
compared with $17,454,435 for the quarter ended December 31, 1995. For the
quarter ended December 31, 1996 the Corporation reported net income of $339,730
as compared with net income of $289,981 for the similar period in 1995. For the
six months ended December 31, 1996, revenues were $36,036,011, as compared to
$33,184,402 reported for the similar period in 1995, with earnings of $637,011
for the period ended December 31, 1996, compared with net earnings of $526,097
for the same period in 1995. The increase in revenues is primarily due to
increases in the sale of the Corporation's technical services (such as technical
support, technical repair and maintenance services, system integrations, network
design and installation, and training), and to a lesser extent to an increased
volumes of hardware sales. The portion of increased revenues attributed to the
increase in equipment sales was lessened from prior periods due to the impact of
decreases in the prices of computer equipment.
Earnings for the quarter ended December 31, 1996 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 December 31, 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. 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
8
<PAGE>
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. Interest expense decreased in the quarter and six-month period ended
December 31, 1996 compared to the same periods 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.
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 9% of revenues for the quarter and six-months ended December 31,
1996 and 1995, 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 and six-month period ended December 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, as well as minimize floor plan financing.
Accounts receivable and payable increased for the quarter and six-month period
ended December 31, 1996 compared with the same periods in 1995 as a result of
increased sales. Cash levels decreased in the six month period ended December
31, 1996 as compared to the corresponding period in 1995. The decrease is due to
scheduled payment requirements under the floor planning arrangements
For the fiscal quarter and six months ended December 31, 1996, as in the periods
ended December 31, 1995 the internal resources of the Corporation were
sufficient to enable the Corporation to meet its obligations.
9
<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: February 11, 1997
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
10q for 2nd qtr
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> jun-30-1997
<PERIOD-END> dec-31-1996
<CASH> 2,101,280
<SECURITIES> 0
<RECEIVABLES> 9,254,180
<ALLOWANCES> 0
<INVENTORY> 3,325,421
<CURRENT-ASSETS> 15,150,630
<PP&E> 1,025,714
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,247,063
<CURRENT-LIABILITIES> 5,893,950
<BONDS> 0
0
0
<COMMON> 74,695
<OTHER-SE> 11,229,668
<TOTAL-LIABILITY-AND-EQUITY> 17,247,063
<SALES> 19,496,903
<TOTAL-REVENUES> 19,496,903
<CGS> 17,415,384
<TOTAL-COSTS> 1,728,848
<OTHER-EXPENSES> (17,740)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,681
<INCOME-PRETAX> 339,730
<INCOME-TAX> 0
<INCOME-CONTINUING> 339,730
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 339,730
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
