10QSB 1 a5242384.txt TRANSBOTICS CORPORATION 10-QSB U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 2006 -------------------------------------------------------------------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to -------------------------------------------------------------------------------- Commission file number 0-18253 -------------------------------------------------------------------------------- Transbotics Corporation -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 56-1460497 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3400 Latrobe Drive, Charlotte, North Carolina 28211 -------------------------------------------------------------------------------- (Address of principal executive offices) (704) 362-1115 -------------------------------------------------------------------------------- (Issuer's telephone number) N/A -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS As of October 6, 2006, there were 4,854,951 shares of common stock outstanding. Transitional Small Business Disclosure Format (Check one): Yes No X --- --- I N D E X Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets August 31, 2006 (Unaudited) and November 30, 2005 3-4 Condensed Statements of Operations (Unaudited) Nine months ended August 31, 2006 and August 31, 2005 5 Condensed Statements of Cash Flows (Unaudited) Nine months ended August 31, 2006 and August 31, 2005 6 Notes to Condensed Financial Statements 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-17 Item 3. Controls and Procedures 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 (a) Exhibits -- Press Releases and other Exhibits (b) Reports on Form 8-K SIGNATURES 20 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements TRANSBOTICS CORPORATION CONDENSED BALANCE SHEETS
August 31, November 30, 2006 2005 (Unaudited) -------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 137,869 $ 177,026 Accounts receivable, net 1,887,107 1,946,326 Inventories 390,083 482,772 Costs and estimated earnings in excess of billings on uncompleted contracts 275,121 223,442 Prepaid expenses and other current assets 29,864 22,940 -------------------------------------------------------------------------------------------------------- Total current assets 2,720,044 2,852,506 -------------------------------------------------------------------------------------------------------- NONCURRENT DEPOSITS 31,854 31,854 -------------------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT Furniture, fixtures and office equipment, including assets acquired under capital leases; 2006 $13,270, 2005 $13,270 274,804 254,001 Machinery and equipment 101,047 90,031 -------------------------------------------------------------------------------------------------------- 375,851 344,032 Less accumulated depreciation including amounts applicable to assets acquired under capital leases; 2006 $4,423, 2005 $2,432 239,775 210,463 -------------------------------------------------------------------------------------------------------- 136,076 133,569 -------------------------------------------------------------------------------------------------------- $2,887,974 $3,017,929 ========================================================================================================
See Notes to Condensed Financial Statements 3
August 31, November 30, 2006 2005 (Unaudited) ----------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Note payable, Bank (Note D) $ 500,000 $ 395,000 Current maturities of long-term debt 2,475 2,249 Accounts payable 537,027 1,029,870 Accrued expenses and customer deposits 214,495 237,162 Billings in excess of costs and estimated earnings on uncompleted contracts 566,537 404,376 ----------------------------------------------------------------------------------------- Total current liabilities 1,820,534 2,068,657 ----------------------------------------------------------------------------------------- LONG-TERM DEBT (Note D) 307,469 309,355 ----------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, par value $.01 per share; 1,000,000 shares authorized; no shares issued - - Common stock, par value $.01 per share; 11,000,000 shares authorized 4,854,951 and 4,827,451 shares issued and oustanding at 2006 and 2005, respectively 48,549 48,274 Additional paid-in capital 4,590,111 4,571,961 Accumulated deficit (3,878,689) (3,980,318) ----------------------------------------------------------------------------------------- 759,971 639,917 ----------------------------------------------------------------------------------------- $2,887,974 $3,017,929 =========================================================================================
4 TRANSBOTICS CORPORATION CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended August 31, August 31, August 31, August 31, 2006 2005 2006 2005 ------------------------------------------------------------------------------------------------------------------ Net revenues $1,996,800 $2,310,814 $6,353,906 $6,213,398 Cost of goods sold 1,269,711 1,729,782 4,445,089 4,512,936 ------------------------------------------------------------------------------------------------------------------ Gross profit 727,089 581,032 1,908,817 1,700,462 ------------------------------------------------------------------------------------------------------------------ Operating expenses: Selling 140,635 102,351 452,997 399,416 General and administrative 380,300 299,169 1,090,203 891,029 Research and development 101,009 63,216 226,163 164,430 ------------------------------------------------------------------------------------------------------------------ 621,944 464,736 1,769,363 1,454,875 ------------------------------------------------------------------------------------------------------------------ Operating income 105,145 116,296 139,454 245,587 ------------------------------------------------------------------------------------------------------------------ Net interest expense: (17,060) (9,845) (37,825) (24,864) ------------------------------------------------------------------------------------------------------------------ Income before income taxes 88,085 106,451 101,629 220,723 Federal and state income taxes (Note B) - - - - ------------------------------------------------------------------------------------------------------------------ Net income $ 88,085 $ 106,451 $ 101,629 $ 220,723 ================================================================================================================== Weighted average number of common shares outstanding - Basic 4,854,951 4,827,451 4,840,446 4,826,389 --------------------------------------------------------- Diluted 5,129,983 5,211,002 5,183,342 5,246,795 ------------------------------------------------------------------------------------------------------------------ Income per common share - basic (Note C) $ 0.02 $ 0.02 $ 0.02 $ 0.05 Income per common share - diluted (Note C) 0.02 0.02 0.02 0.04 ================================================================================================================== Dividends per common share $ - $ - $ - $ - ==================================================================================================================
See Notes to the Condensed Financial Statements 5
TRANSBOTICS CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended August 31, August 31, 2006 2005 ------------------------------------------------------------------------------------------------------------ NET CASH USED IN OPERATING ACTIVITIES $ (85,393) $ (72,257) ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (57,104) (73,391) ------------------------------------------------------------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (57,104) (73,391) ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (repayments) on revolving bank credit agreement 105,000 (25,000) Net proceeds from the exercise of stock options, and common stock issued - 585 Principal payments on long-term borrowings (1,660) (1,148) ------------------------------------------------------------------------------------------------------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 103,340 (25,563) ------------------------------------------------------------------------------------------------------------ Decrease in cash and cash equivalents (39,157) (171,211) Cash and cash equivalents: Beginning 177,026 236,968 ------------------------------------------------------------------------------------------------------------ Ending $137,869 $ 65,757 ============================================================================================================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash payments for interest $ 35,534 $ 24,010 SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES Equipment additions financed through capital lease obligations $ - $ 13,270 Expense paid by issuance of common stock $ 18,425 $ - ============================================================================================================
See Notes to the Condensed Financial Statements 6 TRANSBOTICS CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) Note A. The unaudited condensed financial statements and related notes have been prepared by Transbotics Corporation (the "Company"), without audit pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows at August 31, 2006, and for all periods presented, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. It is suggested that these condensed financial statements be read in conjunction with the Company's audited financial statements and notes thereto for the fiscal year ended November 30, 2005. The results of operations for the nine months ended August 31, 2006 are not necessarily indicative of the operating results for the full year. Note B. Income Taxes The Company did not recognize any income tax expense during the nine months ended August 31, 2005 and 2006 for its earnings as the Company had net operating loss carryforwards. Deferred tax assets have not been recognized as management believes its more likely than not that operating loss carryforwards will not be utilized in the future. - Unaudited - 7 NOTES TO CONDENSED FINANCIAL STATEMENTS Note C. Earnings per common share Basic per share amounts are computed, generally, by dividing net income by the weighted-average number of common shares outstanding. Diluted per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is antidilutive. At August 31, 2006 and August 31, 2005 the Company had options outstanding to purchase a total of 211,500 and 214,500 shares of common stock, respectively, at weighted-average exercise prices of varying amounts. The following table sets forth the comparison of basic and diluted earnings per share:
Three Months Ended Nine Months Ended August 31, August 31, August 31, August 31, 2006 2005 2006 2005 ---------------------------------------------------- BASIC INCOME PER SHARE: Net income $ 88,085 $ 106,451 $ 101,629 $ 220,723 Weighted average shares 4,854,951 4,827,451 4,840,446 4,826,389 ---------------------------------------------------- Basic earnings per share $ 0.02 $ 0.02 $ 0.02 $ 0.05 ==================================================== DILUTED INCOME PER SHARE: Net income $ 88,085 $ 106,451 $ 101,629 $ 220,723 Plus impact of assumed conversions: Interest on 6% convertible notes, net of related tax effect 4,500 4,500 13,500 13,500 ---------------------------------------------------- $ 92,585 $ 110,951 $ 115,129 $ 234,223 ==================================================== Weighted average shares 4,854,951 4,827,451 4,840,446 4,826,389 Plus effect of dilutive potential shares: Stock options 94,652 114,834 106,204 121,157 Convertible notes 180,380 268,717 236,692 299,249 ---------------------------------------------------- 5,129,983 5,211,002 5,183,342 5,246,795 ---------------------------------------------------- Diluted earnings per share $ 0.02 $ 0.02 $ 0.02 $ 0.04 ====================================================
- Unaudited - 8 NOTES TO CONDENSED FINANCIAL STATEMENTS
Note D. Note Payable and Long-Term Debt Current debt consists of the following: 2006 2005 ---------------------------------------------------------------------------------------------------------------- Note payable agreement (Company's Line of Credit) with a financial institution that allows the Company to borrow up to $750,000 and bears interest at the lender's prime rate per annum. The line of credit is secured by the Company's assets and expires March 23, 2007. Under the terms of the agreement, the obligation includes a "payable on demand" feature. The loan agreement obligation is evidenced by a demand note. (1)(2) $500,000 $395,000 ---------------------------------------------------------------------------------------------------------------- Long-term debt consists of the following : ---------------------------------------------------------------------------------------------------------------- In September 2003, the Company issued $300,000 principal amount of 6% convertible subordinated notes due September 2013. Interest on the 6% convertible notes is payable quarterly on each February 28, May 31, August 31 and November 30 during the term of the notes. The 6% convertible notes were issued at 100% principal value, and are convertible into 750,000 shares of common stock at the option of the holder at any time while the note is outstanding at a price of $0.40 per share. The 6% convertible notes may be redeemed by the Company, in whole or in part, anytime after September 30, 2006 at 100% of the principal amount. As of the filing date, no redemption has been initiated by the Company. $300,000 $300,000 Obligations under capital leases 9,944 11,604 ---------------------------------------------------------------------------------------------------------------- 309,944 311,604 Less current maturities: ---------------------------------------------------------------------------------------------------------------- Notes - - ---------------------------------------------------------------------------------------------------------------- Obligations under capital leases 2,475 2,249 ---------------------------------------------------------------------------------------------------------------- $307,469 $309,355 ================================================================================================================ (1) The prime rate at August 31, 2006 was 8.25%. (2) The note payable is secured by a first priority security interest in the Company's accounts receivable, inventory, software and intangibles.
9 Note E. Related Party Transactions In 2003, Mr. Curt Kennington, the managing member of Kennington Family Limited LLC, the Company's landlord, became a related party when he invested in the Company by acquiring shares and convertible debt (see note D). The Company's rent paid for the nine months ending August 31, 2006 and 2005 amounted to $121,387 and $118,029, respectively. Mr. Kennington received interest payments from the Company of $3,375 and $3,375 on the convertible debt for the nine months ending August 31, 2006 and 2005, respectively. In 2003, Mr. John Robison became a Director and related party when he invested in the Company by acquiring shares and convertible debt (see note D). Mr. Robison received interest payments from the Company of $6,750 and $6,750 on the convertible debt for the nine months ending August 31, 2006 and 2005, respectively. In 2003, Mr. Anthony Packer, became a related party when he invested in the Company by acquiring shares and convertible debt (see note D). Mr. Packer received interest payments from the Company of $3,375 and $3,375 on the convertible debt for the nine months ending August 31, 2006 and 2005, respectively. - Unaudited - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements (including the notes thereto) presented elsewhere herein. OVERVIEW The Company derives virtually all of its revenues from the sale of hardware, technology and engineering services in connection with projects incorporating its licensed Automated Guided Vehicle (AGV) control technology. In the current and prior years, the Company's net revenues from AGV systems, vehicles and technology were derived primarily from sales to customers serving a limited number of industries including automotive, food/beverage, paper, textiles and newspaper publishing. The Company's results of operations can be expected to continue to depend substantially upon the capital expenditure levels in those industries and in other industries that the Company may enter. Due to the long sales cycle involved, uncertainties in timing of projects, and the large dollar amount of a typical project, the Company has experienced, and can be expected to continue to experience, substantial fluctuations in its quarterly and annual results of operations. The Company sells its products and services primarily in two ways. Vehicles, technology and other products and services may be sold in a "project" that becomes an integrated AGV system. The other way is to sell hardware, technology and services as standard items or spare parts for existing systems, with less involvement by the Company in overall system design. The Company generally recognizes lower net revenue but realizes a higher gross profit margin percentage in selling standard items, in each case compared to the sale of a project, due to the inclusion in project sales of other vendors' products and services with margins generally lower than the Company's own products and services. Between any given accounting periods, the levels of and mixture of standard item sales and project sales can cause considerable variance in net revenues, gross profit, gross profit margin, operating income and net income. Revenues from standard item sales are recognized upon shipment, while revenues from project sales are recognized under the "percentage of completion" method. Under this method, with respect to any particular customer contract, revenues are recognized as costs are incurred relative to each major component of the project. The percentage of completion method will subject the Company's results of operations to substantial fluctuations dependent upon the progress of work on project components. Such components can differ markedly from one another in amount and in gross profit margin. Project contracts are billed upon attainment of certain "milestones." The Company grants payment terms of 30 days to its customers. It typically receives a cash advance ranging from 20% to 30% of the total contract amount. Bills are thereafter delivered as milestones are reached. Upon delivery of the project, the customer typically reserves a "retainage" of 10% to 20% pending final system acceptance. Notwithstanding the receipt of cash advances and periodic payments upon reaching project milestones, the Company requires external financing to finance uncompleted contracts, inventories, receivables and other assets. The Company's backlog consists of all amounts contracted to be paid by customers but not yet recognized as net revenues by the Company. 11 Forward-looking statements: This report (including information included or incorporated by reference herein) contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: o Revenues from end user systems sales, new Original Equipment Manufacturers ("OEMs") and new niches may be lower than expected or delayed. o General economic or business conditions, either nationally or in the markets in which the Company is doing business, may be less favorable than expected resulting in, among other things, a deterioration of market share or reduced demand for its products. 12 RESULTS OF OPERATIONS The table below shows (a) the relationship of income and expense items relative to net revenues, and (b) the change between the comparable prior period and current period, for the three-month and nine-month periods ended August 31, 2006 and 2005, respectively. This table should be read in the context of the Company's condensed statements of income presented elsewhere herein:
Percentage of Change Period to Period Increase Percentage of Net Revenues (Decrease) ------------------------------------------------------------------------------------------------------------------ Three Nine Three Months Nine Months Months Months Ended Ended Ended Ended August 31, August 31, August 31, August 31, August 31, August 31, 2006 2005 2006 2005 2005 to 2006 2005 to 2006 % % % % % % ------------------------------------------------------------------------------------------------------------------ Net Revenues 100.0 100.0 100.0 100.0 (13.6) 2.3 Cost of Goods Sold 63.6 74.9 70.0 72.6 (26.6) (1.5) ------------------------------------------------------------------------------------------------------------------ Gross Profit 36.4 25.1 30.0 27.4 25.1 12.3 ------------------------------------------------------------------------------------------------------------------ Operating expenses: Selling 7.0 4.4 7.1 6.4 37.4 13.4 General and administrative 19.0 13.0 17.2 14.3 27.1 22.4 Research and development 5.1 2.7 3.6 2.7 59.8 37.5 ------------------------------------------------------------------------------------------------------------------ 31.1 20.1 27.9 23.4 33.8 21.6 ------------------------------------------------------------------------------------------------------------------ Operating income 5.3 5.0 2.1 4.0 (9.6) (43.2) Net interest expense: (0.9) (0.4) (0.6) (0.4) 73.3 52.1 ------------------------------------------------------------------------------------------------------------------ Income before income taxes 4.4 4.6 1.5 3.6 (17.3) (54.0) Federal and state income tax (benefit) - - - - - - ------------------------------------------------------------------------------------------------------------------ Net income 4.4 4.6 1.5 3.6 (17.3) (54.0) ==================================================================================================================
13 Quarter Ended August 31, 2006 compared to the Quarter Ended August 31, 2005 Net revenues decreased from $2,310,814 in the earlier period to $1,996,800 in the latter period. The decrease was primarily due to fewer vehicles being completed in the current period versus the quarter ended August 31, 2005. Cost of goods sold decreased from $1,729,782 to $1,269,711 or 26.6%. As a percentage of net revenues, cost of goods sold decreased to 63.6% compared to 74.9% in 2005. Gross profit increased by $146,057 or 25.1% from $581,032 to $727,089, while gross profit as a percentage of net revenues increased to 36.4% from 25.1%. The increase in gross profit was primarily due to increased engineering efficiencies as well as additional engineering billable hours from the Company's backlog recognized in the current period. Selling expenses increased from $102,351 to $140,635 or 37.4%, primarily due to additional sales personnel and activity in the current quarter of the current year compared to the prior year's quarter. General and administrative expenses increased from $299,169 to $380,300 compared to the prior year. This increase was primarily due to increases in personnel and recruiting related expenses as the Company continues to expand. As a percentage of net revenues, general and administrative expenses increased from 13.0% to 19.0% due to increased expenses for personnel. The Company incurred $101,009 of research and development expense in 2006 compared to $63,216 in 2005 as it is expanding its product offerings. Primarily as a result of the foregoing, operating income decreased by $11,151 from $116,296 in the earlier period to $105,145 in the latter period. Net interest expense increased from $9,845 to $17,060 in the current year primarily due to interest on increased borrowings and increases in the borrowing rate from the line of credit to the bank. The Company did not recognize any income tax expense in 2006 and 2005 for its earnings as the Company had net operating loss carryforwards. Deferred tax assets have not been recognized since utilization of operating loss carryforwards in the future are not assured to be realized. Primarily due to lower revenues and higher expenses in 2006 as described above, the Company's net income decreased to $88,085 in the three months ended 2006 compared to a net income of $106,451 in same period of 2005. Backlog. Backlog consists of all amounts contracted to be paid by customers but not yet recognized as net revenues by the Company. At August 31, 2006, the Company had a backlog of approximately $3,540,000 compared to approximately $3,010,000 one year earlier. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS ================================================================================ Nine Months Ended August 31, 2006 compared to Nine Months Ended August 31, 2005 Net revenues increased by $140,508 or 2.3%, from $6,213,398 in the earlier period to $6,353,906 in the latter period. The increase is primarily due to the project work and AGV vehicle revenues compared to the prior year. Cost of goods sold decreased from $4,512,936 to $4,445,089, or 1.5%, due primarily to increased focus on becoming more efficient on engineering compared to the prior year. As a percentage of net revenues, cost of goods sold decreased from 72.6% to 70.0%. Gross profit increased by $208,355 or 12.3%, from $1,700,462 to $1,908,817 while gross profit as a percentage of net revenues increased from 27.4% to 30.0%. The increase in gross profit was primarily due to increased engineering efficiencies as well as additional engineering billable hours from the Company's backlog recognized in the current periods. Selling expenses increased from $399,416 to $452,997 in 2006 primarily due to increases in personnel, show and promotion related costs compared to the prior year. General and administrative expenses increased from $891,029 to $1,090,203, or 22.4% compared to the prior year. The increase was primarily due to increases in personnel related cost, director fees and professional fees. The Company continued to invest in the development of new material handling products to expand its product line in the current year. This expense totaled $226,163 in the current year compared to $164,430 in the prior year. Primarily as a result of the foregoing, the operating income for the period was $139,454 compared to $245,587 the prior year. Net interest expense increased from $24,864 to $37,825 in the current year primarily due to interest on increased borrowings and increases in the prime rate from the line of credit to the bank. The Company did not recognize any income tax expense in 2006 and 2005 for its earnings as the Company had net operating loss carryforwards. Deferred tax assets have not been recognized since utilization of operating loss carryforwards in the future are not assured to be realized. Primarily due to higher expenses as described above, the Company had net income of $101,629 in the nine months ended 2006 compared to a net income of $220,723 for the same period in 2005. 15 LIQUIDITY AND CAPITAL RESOURCES The Company experiences needs for external sources of financing to support its working capital, capital expenditures and acquisition requirements when such requirements exceed its cash generated from operations in any particular period. The amount and timing of external financing requirements depend significantly upon the nature, size, number and timing of projects and contractual billing arrangements with customers relating to project milestones. The Company has relied upon bank financing under a revolving working capital facility, long-term debt, capital leases and proceeds of its public and private offerings to satisfy its external financing needs. During the period ended August 31, 2006 net cash used in operating activities was $85,393. The Company's accounts receivable and inventory balances decreased as receivables from previous quarters were collected. These funds, as well as additional funds from the line of credit, were used to pay amounts owed to vendors. The Company renewed its $400,000 bank line of credit (as further described in Note D) and the bank increased availability on the line to $750,000 in March 2006. The credit line is evidenced by a demand note which is reviewed annually unless called prior to the anniversary date. The Company believes that its working capital of $899,510 at August 31, 2006 is adequate for its current operations. The Company will, from time to time, reexamine the possibility or feasibility of going private to reduce its operating expenses. The Company's current expenses relating to being publicly held are approximately $250,000 annually and are presently expected to increase significantly if full implementation of the Sarbanes-Oxley section 404 becomes effective for small public companies. Such expenses are significant in relation to the Company's revenues. Critical Accounting Policies: Use of Estimates in Preparation of Condensed Financial Statements: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Revenue recognition: The Company recognizes revenue from the sale of distribution products and engineering services as shipments are made and/or services rendered. The Company recognizes revenues under AGV system contracts on the percentage of completion method, measured by the percentage of each component cost incurred to date to estimated total component contract costs for each component in the contract. Component costs include material, direct labor, subcontracts, engineering, overhead, and miscellaneous costs. Provisions for estimated losses are made in the period in which they first become determinable. "Costs and estimated earnings in excess of billings on uncompleted contracts" represent revenue recognized in excess of amounts billed. "Billings in excess of costs and estimated earnings on uncompleted contracts" represent billings in excess of revenues recognized. Due to the average length of typical AGV system projects, the large dollar amount of each project, and inherent difficulties in estimating the total component costs, the use of different estimates and assumptions may have provided materially different results. Stock options: In December 2004, the Financial Accounting Standards Board issued Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)). Statement 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. The cost will be measured based on the fair value of the instruments issued. Statement 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. The Company adopted Statement 123(R) on March 1, 2006, requiring compensation cost to be recognized as expense for outstanding unvested awards, based on the grant-date fair value of those awards. The Company does not expect the adoption of Statement 123(R) to have a material impact on its financial position as all options granted through August 31, 2006 are fully vested, and the Company's future compensation arrangements, at this time, do not include the use of share-based payments. 16 At August 31, 2006 and August 31, 2005, options were outstanding to purchase a total of 211,500 and 214,500 shares of common stock of the Company, respectively, at weighted-average exercise prices of varying amounts. At August 31, 2006, 211,500 outstanding options were vested and exercisable while 214,500 options at August 31, 2005 were vested and exercisable. 17 Item 3. Controls and Procedures CONTROLS AND PROCEDURES The Company maintains a system of internal controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in reports filed under the Securities and Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms. It should be noted that in designing and evaluating the disclosure controls and procedures, that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of August 31, 2006, an evaluation was performed under the supervision and with the participation of the Company's management, including the CEO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, the Company's CEO and Chief Accounting Officer concluded that the Company's disclosure controls and procedures were effective as of August 31, 2006. There have been no changes in internal control over financial reporting that occurred during the nine months ended August 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - 1. Certification of each principal executive officer and principal financial officer 2. Certification of Periodic Financial Report pursuant to 18 U.S.C. Section 1350 (b) Reports on Form 8-K 1. August 11, 2006 Form 8-K announcement of hiring Todd Plyler as Chief Accounting Officer. 19 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANSBOTICS CORPORATION (Registrant) BY: /s/ Claude Imbleau ------------------------------------------- Claude Imbleau President, CEO, CFO Director ( Principal Executive Officer and Principal Financial Officer) BY: /s/ Todd Plyler ------------------------------------------- Todd Plyler Principal Accounting Officer Date: October 6, 2006 --------------- 20 EXHIBIT INDEX The following documents are included in this Form 10-QSB as an Exhibit: Designation Number Under Exhibit Item 601 of Page Number Regulation S-K Exhibit Description Number -------------------------------------------------------------------------------- (A) Exhibits: ------------- 1. 10.1 Press release announcing the hiring of - Todd Plyler as the new Chief Accounting Officer (incorporated by reference to Company's 8-K filing of August 11, 2006) 2. 10.1 Press release announcing Upgrade Order 22 for LGV System in the Food and Beverage Industry reported on August 1, 2006. 3. 31.1 Certification of each principal executive officer and principal financial officer 23 4. 32.1 Certification of Periodic Financial 24 Report pursuant to 18 U.S.C. section 1350 21