|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington, D. C. 20549           
|                                  
|FORM 10-Q                         

|                                              |                                                                                           
|--------------------------------------------- | ------------------------------------------------------------------------------------------
|x                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
 EXCHANGE ACT OF 1934 
|                                             
|For the
 quarterly period endedMarch 31, 2011
|                                             
|Or                                           
|                                             
|o                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
 EXCHANGE ACT OF 1934

For the
transition period from ________________to _________________

Commission
File No. 0-8693

|                                                      
|------------------------------------------------------
|TRANSNET
CORPORATION                                  
|(Exact name of registrant as specified in its charter)

|                                                                |  |                                      | 
|--------------------------------------------------------------- |  | ------------------------------------ | 
|DELAWARE                                                        |  | 22-1892295                           | 
|                                                                |  |                                      | 
|(State or other jurisdiction of
 incorporation or organization) |  | (IRS Employer Identification Number) | 

|                                                                  |  |            | 
|----------------------------------------------------------------- |  | ---------- | 
|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 o                                                                                                                                                                                                                                                                                                                                               

Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company (as defined in
Rule 12b-2 of the Act)


| |                            |                             
| | -------------------------- | ----------------------------
| | Large
 Accelerated Filer o | Accelerated
 Filer o        
| | Non-accelerated
 Filer o   | Smaller
 Reporting Company x

Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act)


o Yes x No


Indicate the
number of shares outstanding of each of the issuers classes of common stock, as
of May 13, 2011: 4,823,304.

---



TRANSNET CORPORATION AND SUBSIDIARY

FORM 10-Q

TABLE OF CONTENTS

|                               |                                                                                                |  |         
|------------------------------ | ---------------------------------------------------------------------------------------------- |  | --------
|                               |                                                                                                |  | Page No.
|                               |                                                                                                |  |         
|PART I.
 FINANCIAL INFORMATION |                                                                                                | 
|                               |                                                                                                | 
|                               | Consolidated
 Balance SheetsMarch 31, 2011 (unaudited) and June 30, 2010                       |  | 1       
|                               |                                                                                                |  |         
|                               | Consolidated Statements of Operations
 (unaudited)                                             |  |         
|                               | Three Months
 Ended March 31, 2011 and 2010                                                    |  | 2       
|                               | Nine Months
 Ended March 31, 2011 and 2010                                                     |  | 3       
|                               |                                                                                                |  |         
|                               | Consolidated
 Statements of Cash Flows (unaudited) 
 Nine Months Ended March 31, 2011 and 2010 |  | 4       
|                               |                                                                                                |  |         
|                               | Notes to
 Consolidated Financial Statements (unaudited)                                        |  | 5       
|                               |                                                                                                |  |         
|                               | Item 2. Managements Discussion and Analysis                                                   |  | 8       
|                               |                                                                                                |  |         
|                               | Item 4. Controls and Procedures                                                                |  | 12      
|                               |                                                                                                |  |         
|PART II. OTHER INFORMATION     |                                                                                                | 
|                               |                                                                                                | 
|                               | Item 6. Exhibits and Reports on Form 8-K                                                       |  | 13      
|                               |                                                                                                |  |         
|                               | Signatures                                                                                     |  | 13      
|                               | Certifications                                                                                 |  | 14      

i.

---



TRANSNET CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ---------- | -------------- | - | ---------- | -
|                                                                                                                                                                                                      |  | March 31,
 2011 |            | June 30,
 2010 |  
|                                                                                                                                                                                                      |  |                 |            |                |  
|                                                                                                                                                                                                      |  | (unaudited)     |            |                |   |           
|Assets:                                                                                                                                                                                               |  |                 |            |                |   |            |  
|Current Assets                                                                                                                                                                                        |  |                 |            |                |   |            |  
|Cash and Cash Equivalents                                                                                                                                                                             |  | $               | 46,715     |                | $ | 318,377    |  
|Restricted Cash                                                                                                                                                                                       |  |                 | 882,065    |                |   | 876,147    |  
|Accounts Receivable - Net                                                                                                                                                                             |  |                 | 2,204,143  |                |   | 3,532,045  |  
|Inventories - Net                                                                                                                                                                                     |  |                 | 155,231    |                |   | 247,743    |  
|Other Current Assets                                                                                                                                                                                  |  |                 | 15,025     |                |   | 3,587      |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Total Current Assets                                                                                                                                                                                  |  | $               | 3,303,179  |                | $ | 4,977,899  |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Property and Equipment - Net                                                                                                                                                                          |  |                 | 36,534     |                |   | 56,309     |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Other Assets                                                                                                                                                                                          |  |                 | 232,454    |                |   | 229,335    |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Total Assets                                                                                                                                                                                          |  | $               | 3,572,167  |                | $ | 5,263,543  |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Liabilities and
 Stockholders Equity:                                                                                                                                                                |  |                 |            |                |   |            |  
|Current Liabilities:                                                                                                                                                                                  |  |                 |            |                |   |            |  
|Accounts Payable                                                                                                                                                                                      |  | $               | 2,365,816  |                | $ | 1,998,179  |  
|Accrued Expenses                                                                                                                                                                                      |  |                 | 485,343    |                |   | 343,838    |  
|Unearned Revenue                                                                                                                                                                                      |  |                 | 111,406    |                |   | 193,222    |  
|Due to Officers                                                                                                                                                                                       |  |                 | 285,000    |                |   | 75,000     |  
|Line of Credit                                                                                                                                                                                        |  |                 | 821,121    |                |   | 1,777,139  |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Total Current Liabilities                                                                                                                                                                             |  | $               | 4,068,686  |                | $ | 4,387,378  |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Stockholders Equity:                                                                                                                                                                                 |  |                 |            |                |   |            |  
|Capital Stock - Common, $.01 Par Value,
 Authorized 15,000,000 Shares; Issued 7,408,524 at March 31, 2011 and June 30,
 2010 [of which 2,585,220 are in Treasury at March 31, 2011 and June 30, 2010] |  |                 | 74,085     |                |   | 74,085     |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Additional Paid-in Capital                                                                                                                                                                            |  |                 | 10,574,670 |                |   | 10,574,670 |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Accumulated Deficit                                                                                                                                                                                   |  |                 | (3,992,439 | )              |   | (2,619,755 | )
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Total                                                                                                                                                                                                 |  |                 | 6,656,316  |                |   | 8,029,000  |  
|Less: Treasury Stock - At Cost                                                                                                                                                                        |  |                 | (7,152,835 | )              |   | (7,152,835 | )
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Total Stockholders(Deficit) Equity                                                                                                                                                                   |  |                 | (496,519   | )              |   | 876,165    |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  
|Total Liabilities and Stockholders Equity                                                                                                                                                            |  | $               | 3,572,167  |                | $ | 5,263,543  |  
|                                                                                                                                                                                                      |  |                 |            |                |   |            |  

See Notes to
Consolidated Financial Statements.

1

---



|                                     
|-------------------------------------
|TRANSNET CORPORATION AND SUBSIDIARY  
|CONSOLIDATED STATEMENTS OF OPERATIONS
|(UNAUDITED)                          

|                                                                |  |                              |           |      |   |           |  
|--------------------------------------------------------------- |  | ---------------------------- | --------- | ---- | - | --------- | -
|                                                                |  | THREE MONTHS ENDED MARCH 31, |          
|                                                                |  |                              |          
|                                                                |  | 2011                         |           | 2010 |  
|                                                                |  |                              |           |      |  
|Revenue                                                         |  |                              |           |      |   |           |  
|Equipment                                                       |  | $                            | 1,709,816 |      | $ | 2,708,041 |  
|Services                                                        |  |                              | 1,253,580 |      |   | 2,184,867 |  
|                                                                |  |                              |           |      |   |           |  
|                                                                |  |                              |           |      |   |           |  
|Total Revenue:                                                  |  |                              | 2,963,396 |      |   | 4,892,908 |  
|                                                                |  |                              |           |      |   |           |  
|                                                                |  |                              |           |      |   |           |  
|Cost of Revenue                                                 |  |                              |           |      |   |           |  
|Equipment                                                       |  |                              | 1,507,333 |      |   | 2,242,329 |  
|Services                                                        |  |                              | 1,120,758 |      |   | 1,839,467 |  
|                                                                |  |                              |           |      |   |           |  
|                                                                |  |                              |           |      |   |           |  
|Total Cost of Revenue                                           |  |                              | 2,628,091 |      |   | 4,081,796 |  
|                                                                |  |                              |           |      |   |           |  
|                                                                |  |                              |           |      |   |           |  
|Gross Profit                                                    |  |                              | 335,305   |      |   | 811,112   |  
|                                                                |  |                              |           |      |   |           |  
|Selling, General and Administrative
 Expenses                   |  |                              | 1,101,512 |      |   | 1,295,194 |  
|                                                                |  |                              |           |      |   |           |  
|                                                                |  |                              |           |      |   |           |  
|Operating Loss                                                  |  |                              | (766,207  | )    |   | (484,082  | )
|                                                                |  |                              |           |      |   |           |  
|                                                                |  |                              |           |      |   |           |  
|Other Income (Expense)                                          |  |                              |           |      |   |           |  
|Interest Income                                                 |  |                              | 1,955     |      |   | 3,096     |  
|Interest Expense                                                |  |                              | (25,376   | )    |   | (18,716   | )
|                                                                |  |                              |           |      |   |           |  
|Total Other (Expense)                                           |  |                              | (23,421   | )    |   | (15,620   | )
|                                                                |  |                              |           |      |   |           |  
|                                                                |  |                              |           |      |   |           |  
|Net Loss                                                        |  | $                            | (789,628  | )    | $ | (499,702  | )
|                                                                |  |                              |           |      |   |           |  
|                                                                |  |                              |           |      |   |           |  
|Basic and Diluted Net Loss Per Common Share                     |  | $                            | (0.16     | )    | $ | (0.10     | )
|                                                                |  |                              |           |      |   |           |  
|                                                                |  |                              |           |      |   |           |  
|Weighted Average Common Shares Outstanding
  Basic and Diluted |  |                              | 4,823,304 |      |   | 4,823,304 |  
|                                                                |  |                              |           |      |   |           |  

See Notes to
Consolidated Financial Statements.

2

---



|                                     
|-------------------------------------
|TRANSNET CORPORATION AND SUBSIDIARY  
|CONSOLIDATED STATEMENTS OF OPERATIONS
|(UNAUDITED)                          

|                                                                |  |                             |            |      |   |            |  
|--------------------------------------------------------------- |  | --------------------------- | ---------- | ---- | - | ---------- | -
|                                                                |  | NINE MONTHS ENDED MARCH 31, |           
|                                                                |  |                             |           
|                                                                |  | 2011                        |            | 2010 |  
|                                                                |  |                             |            |      |  
|Revenue                                                         |  |                             |            |      |   |            |  
|Equipment                                                       |  | $                           | 7,294,817  |      | $ | 9,208,216  |  
|Services                                                        |  |                             | 5,354,458  |      |   | 7,324,727  |  
|                                                                |  |                             |            |      |   |            |  
|                                                                |  |                             |            |      |   |            |  
|Total Revenue:                                                  |  |                             | 12,649,275 |      |   | 16,532,943 |  
|                                                                |  |                             |            |      |   |            |  
|                                                                |  |                             |            |      |   |            |  
|Cost of Revenue                                                 |  |                             |            |      |   |            |  
|Equipment                                                       |  |                             | 6,188,378  |      |   | 7,454,833  |  
|Services                                                        |  |                             | 4,199,863  |      |   | 5,507,988  |  
|                                                                |  |                             |            |      |   |            |  
|                                                                |  |                             |            |      |   |            |  
|Total Cost of Revenue                                           |  |                             | 10,388,241 |      |   | 12,962,821 |  
|                                                                |  |                             |            |      |   |            |  
|                                                                |  |                             |            |      |   |            |  
|Gross Profit                                                    |  |                             | 2,261,034  |      |   | 3,570,122  |  
|                                                                |  |                             |            |      |   |            |  
|Selling, General and Administrative
 Expenses                   |  |                             | 3,574,064  |      |   | 3,932,165  |  
|                                                                |  |                             |            |      |   |            |  
|                                                                |  |                             |            |      |   |            |  
|Operating Loss                                                  |  |                             | (1,313,030 | )    |   | (362,043   | )
|                                                                |  |                             |            |      |   |            |  
|                                                                |  |                             |            |      |   |            |  
|Other Income (Expense)                                          |  |                             |            |      |   |            |  
|Interest Income                                                 |  |                             | 5,922      |      |   | 9,953      |  
|Interest Expense                                                |  |                             | (65,574    | )    |   | (44,413    | )
|                                                                |  |                             |            |      |   |            |  
|Total Other (Expense)                                           |  |                             | (59,652    | )    |   | (34,460    | )
|                                                                |  |                             |            |      |   |            |  
|                                                                |  |                             |            |      |   |            |  
|Net Loss                                                        |  | $                           | (1,372,682 | )    | $ | (396,503   | )
|                                                                |  |                             |            |      |   |            |  
|                                                                |  |                             |            |      |   |            |  
|Basic and Diluted Net Loss Per Common Share                     |  | $                           | (0.28      | )    | $ | (0.08      | )
|                                                                |  |                             |            |      |   |            |  
|                                                                |  |                             |            |      |   |            |  
|Weighted Average Common Shares Outstanding
  Basic and Diluted |  |                             | 4,823,304  |      |   | 4,823,304  |  
|                                                                |  |                             |            |      |   |            |  

See Notes to
Consolidated Financial Statements.

3

---



|                                     
|-------------------------------------
|TRANSNET CORPORATION AND SUBSIDIARY  
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|(UNAUDITED)                          

|                                                    |  |                             |            |      |   |            |  
|--------------------------------------------------- |  | --------------------------- | ---------- | ---- | - | ---------- | -
|                                                    |  | NINE MONTHS ENDED MARCH 31, |           
|                                                    |  |                             |           
|                                                    |  | 2011                        |            | 2010 |  
|                                                    |  |                             |            |      |  
|Operating Activities:                               |  |                             |            |      |   |            |  
|Net Loss                                            |  | $                           | (1,372,682 | )    | $ | (396,503   | )
|                                                    |  |                             |            |      |   |            |  
|Adjustments to Reconcile Net Income to Net
 Cash:   |  |                             |            |      |   |            |  
|Depreciation and Amortization                       |  |                             | 42,479     |      |   | 62,485     |  
|Provision for Doubtful Accounts                     |  |                             | 55,514     |      |   | (91,128    | )
|                                                    |  |                             |            |      |   |            |  
|Changes in Assets and Liabilities:                  |  |                             |            |      |   |            |  
|(Increase) Decrease in:                             |  |                             |            |      |   |            |  
|Restricted Cash                                     |  |                             | (5,918     | )    |   | (9,352     | )
|Accounts Receivable                                 |  |                             | 1,272,389  |      |   | 1,024,743  |  
|Inventory                                           |  |                             | 92,511     |      |   | 89,159     |  
|Other Current Assets                                |  |                             | (11,438    | )    |   | (27,220    | )
|Other Assets                                        |  |                             | (3,119     | )    |   | (1,958     | )
|                                                    |  |                             |            |      |   |            |  
|Increase (Decrease) in:                             |  |                             |            |      |   |            |  
|Accounts Payable and Vendor Credit                  |  |                             | 367,636    |      |   | (1,816,827 | )
|Accrued Expenses                                    |  |                             | 141,505    |      |   | (44,764    | )
|Unearned Revenue                                    |  |                             | (81,816    | )    |   | (269,792   | )
|                                                    |  |                             |            |      |   |            |  
|Total Adjustments                                   |  | $                           | 1,869,743  |      | $ | (1,084,654 | )
|                                                    |  |                             |            |      |   |            |  
|                                                    |  |                             |            |      |   |            |  
|Net Cash - Operating Activities                     |  | $                           | 497,061    |      | $ | (1,481,157 | )
|                                                    |  |                             |            |      |   |            |  
|                                                    |  |                             |            |      |   |            |  
|Investing Activities:                               |  |                             |            |      |   |            |  
|Capital Expenditures                                |  | $                           | (22,705    | )    | $ | (22,627    | )
|                                                    |  |                             |            |      |   |            |  
|                                                    |  |                             |            |      |   |            |  
|                                                    |  |                             |            |      |   |            |  
|Financing Activities:                               |  |                             |            |      |   |            |  
|Line of Credit- Net                                 |  | $                           | (956,018   | )    | $ | (28,732    | )
|Proceeds from Officers                              |  |                             | 210,000    |      |   |           |  
|Net Cash  Financing Activities                     |  | $                           | 746,018    | )    | $ | (23, 732   | )
|                                                    |  |                             |            |      |   |            |  
|Net Decrease in Cash and Cash Equivalents           |  | $                           | (271,662   | )    | $ | (1,532,516 | )
|                                                    |  |                             |            |      |   |            |  
|Cash and Cash Equivalents at Beginning of
 Periods  |  | $                           | 318,377    |      | $ | 1,654,366  |  
|                                                    |  |                             |            |      |   |            |  
|                                                    |  |                             |            |      |   |            |  
|Cash and Cash Equivalents at End of Periods         |  | $                           | 46,715     |      | $ | 121,850    |  
|                                                    |  |                             |            |      |   |            |  
|                                                    |  |                             |            |      |   |            |  
|Supplemental Disclosures of Cash Flow
 Information: |  |                             |            |      |   |            |  
|Cash paid during the period for:                    |  |                             |            |      |   |            |  
|Interest                                            |  | $                           | 40,198     |      | $ | 46,270     |  
|Income Taxes                                        |  | $                           |           |      | $ | 2,080      |  

See Notes to
Consolidated Financial Statements.

4

---



TRANSNET CORPORATION AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1.) | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | The accompanying unaudited
 financial statements have been prepared in accordance with accounting principles
 generally accepted in the United States of America for interim financial
 information and with the instructions to Form 10-Q and Article 8 of
 Regulation S-X. They do not include all of the information and footnotes
 required by accounting principles generally accepted in the United States of
 America for complete financial statements. In the opinion of management, all
 adjustments (consisting only of normal recurring accruals) considered
 necessary in order to make the interim financials not misleading have been
 included. The operating results for the three months and nine months ended
 March 31, 2011 are not necessarily indicative of the results that can be
 expected for the year ending June 30, 2011.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | The balance
 sheet as of June 30, 2010 has been derived from the audited financial
 statements at such date, but does not include all of the information and
 footnotes required by accounting principles generally accepted in the United
 States of America for complete financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | The complete
 list of significant accounting policies followed by TransNet Corporation (the
 Corporation) are set forth in Note 2 to the Corporations consolidated
 financial statements in the Form 10-K for the fiscal year ended June 30,
 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | For further
 information, please refer to the consolidated financial statements and
 footnotes thereto included in the Corporations Annual Report on Form 10-K
 for the year ended June 30, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | Certain
 reclassifications have been made to prior period financial statements to conform
 to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(2.) | SUMMARY OF SIGNIFICANT
 ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | (a) 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | (b) 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | (c) Cash and Cash
 Equivalents: The Corporation considers highly liquid debt instruments,
 purchased with a maturity of three months or less, to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | (d) Revenue Recognition:
 The Corporations revenues are derived from both the sale of equipment and
 services provided to customers. Revenues related to equipment sales are
 recognized when evidence of an arrangement exists, delivery has occurred, the
 sales price is both fixed and determinable, and collectability is reasonably
 assured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | Revenues related to
 services provided are recognized ratably over the term of the underlying
 customer contract or when obligations have been satisfied. For service
 performed on a time and materials basis, revenue is recognized upon
 performance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | (e) Earnings Per Share:
 Earnings per common share - basic and diluted are based on 4,823,304 weighted
 shares outstanding for the three and nine months ended March 31, 2011 and
 2010. The options to purchase an aggregate of 297,500 shares of our common
 stock at a price of $0.88 per share were not included in the computation of
 diluted earnings per share for the periods ended March 31, 2011 and 2010
 because the options exercise price was greater than the average market price
 of the common shares. As of January 3, 2011, all options expired).                                                                                                                                                                                                                                                                                

5

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|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3.) | NEW ACCOUNTING UPDATES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | In October 2009, the
 FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605):
 Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging
 Issues Task Force), which amends ASC 605-25, Revenue Recognition:
 Multiple-Element Arrangements. ASU No. 2009-13 addresses how to
 determine whether an arrangement involving multiple deliverables contains
 more than one unit of accounting and how to allocate consideration to each
 unit of accounting in the arrangement. This ASU replaces all references to
 fair value as the measurement criteria with the term selling price and
 establishes a hierarchy for determining the selling price of a deliverable.
 ASU No. 2009-13 also eliminates the use of the residual value method for
 determining the allocation of arrangement consideration. Additionally, ASU
 No. 2009-13 requires expanded disclosures. The Corporation adopted this
 new accounting pronouncement for the quarterly period beginning July 1, 2010,
 as required, and adoption did not have a material impact on its financial
 statements taken as a whole.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | In January 2010, the FASB
 issued ASU No. 2010-06, Improving Disclosures about Fair Value
 Measurements. The guidance in ASU 2010-06 provides amendments to literature
 on fair value measurements and disclosures currently within the ASC by
 clarifying certain existing disclosures and requiring new disclosures for the
 various classes of fair value measurements. ASU 2010-06 is effective for
 interim and annual periods beginning after December 15, 2009, except for the
 disclosures about purchases, sales, issuances, and settlements in the roll
 forward of activity in Level 3 fair value measurements, which are effective
 for fiscal years beginning after December 15, 2010, and for interim periods
 within those fiscal years. The adoption of this guidance is not expected to
 have a material impact on the Corporations financial position or results of
 operations.                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | In July 2010, the
 FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about
 the Credit Quality of Financing Receivables and the Allowance for Credit
 Losses (ASU 2010-20). The amendments in this update require additional
 disclosure about the credit quality of financing receivables, such as aging
 information and credit quality indicators. Both new and existing disclosures
 must be disaggregated by portfolio segment or class. The disaggregation of
 information is based on how allowances for credit losses are developed and
 how credit exposure is managed. ASU 2010-20 is effective for interim periods
 and fiscal years ending after December 15, 2010. The adoption of this
 guidance is not expected to have a material impact on the Corporations
 financial position or results of operations.                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(4.) | FAIR VALUE MEASUREMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | We adopted ASC Topic 820,
 Fair Value Measurements and Disclosures on July 1, 2008 for all
 financial assets and liabilities and nonfinancial assets and liabilities that
 are recognized or disclosed at fair value in the financial statements on a
 recurring basis (at least annually). Topic 820 defines fair value,
 establishes a framework for measuring fair value, and expands disclosures
 about fair value measurements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | Topic 820 defines fair
 value as the price that would be received upon sale of an asset or paid upon
 transfer of a liability in an orderly transaction between market participants
 at the measurement date and in the principal or most advantageous market for
 that asset or liability. The fair value should be calculated based on
 assumptions that market participants would use in pricing the asset or
 liability, not on assumptions specific to the entity. In addition, the fair
 value of liabilities should include consideration of non-performance risk
 including our own credit risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | In addition to defining
 fair value, Topic 820 expands the disclosure requirements around fair value
 and establishes a fair value hierarchy for valuation inputs. The hierarchy
 prioritizes the inputs into three levels based on the extent to which inputs
 used in measuring fair value are observable in the market. Each fair value
 measurement is reported in one of the three levels which is determined by the
 lowest level input that is significant to the fair value measurement in its
 entirety. These levels are:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 1  inputs are based
 upon unadjusted quoted prices for identical instruments traded in active
 markets.                                                                                          
| |  | Level 2  inputs are based
 upon quoted prices for similar instruments in active markets, quoted prices
 for identical or similar instruments in markets that are not active, and
 model-based valuation

6

---



| |   |                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | techniques
 for which all significant assumptions are observable in the market or can be
 corroborated by observable market data for substantially the full term of the
 assets or liabilities.                                                                                                                                                  
| |  | Level 3 
 inputs are generally unobservable and typically reflect managements
 estimates of assumptions that market participants would use in pricing the
 asset or liability. The fair values are therefore determined using
 model-based techniques that include option pricing models, discounted cash
 flow models, and similar techniques.

The following
table presents assets that are measured and recognized at fair value on a
recurring basis.

|                |  |                 |         |         |   |         |  |         |   |  |   |   | 
|--------------- |  | --------------- | ------- | ------- | - | ------- |  | ------- | - |  | - | - | 
|Description     |  | March 31,
 2011 |         | Level 1 |   | Level 2 |  | Level 3 |  
|                |  |                 |         |         |   |         |  |         |  
|               
|Restricted Cash |  | $               | 882,065 |         | $ | 882,065 |  | $       |  |  | $ |  | 

|     |                                 
|---- | --------------------------------
|(5.) | VENDOR CREDIT AND LINE OF CREDIT

The Corporation utilizes credit available from multiple vendors under
terms which provide for interest free periods ranging from 30 to 60 days. A
significant portion of vendor credit is secured by certain of the Corporations
assets. The vendors may in their sole discretion from time to time determine
the maximum amount of credit which they elect to extend. Subsequent to the end of the March 2011 quarter, a third party credit facility
  was terminated by the lender. The Corporation owes approximately $745,000
  under this facility, which is secured principally by the Corporations
  accounts receivable. As of the date of this filing, Management is engaged
  in ongoing negotiations with the lender to resolve outstanding payment issues
  and is hopeful that these issues will be resolved promptly on terms favorable
  to the Corporation. The Corporation entered into a line of credit with
  a third party, which is secured by the Corporation's certificate of deposit
  listed as restricted cash. The line of credit accrues interest at the
  rate of 5.130% and is payable upon demand.

|     |                
|---- | ---------------
|(6.) | RELATED PARTIES

Certain
officers and directors have directly and indirectly loaned the Corporation an
aggregate amount of $272,000, as of March 31, 2011. Additionally, a loan of
$13,000 from a member of senior management was also outstanding as of that
date. The loans are non-interest bearing and are payable upon demand.

|     |                                                                              
|---- | -----------------------------------------------------------------------------
|(7.) | INCOME TAXES                                                                 
|     |                                                                              
|     | The following reconciles the tax provision with the U.S. statutory tax rates:

|                                                      |  |                              |       |    |  |       |   
|----------------------------------------------------- |  | ---------------------------- | ----- | -- |  | ----- | --
|                                                      |  | Three Months Ended March 31, |      
|                                                      |  |                              | 2011  |    |  | 2010  |   
|Income taxes
 at U.S. statutory rate                  |  |                              | (35.0 | )% |  | (35.0 | )%
|State taxes,
 net of federal tax benefit              |  |                              | (6.0  | )  |  | (6.0  | ) 
|Change in
 valuation allowance on deferred tax assets |  |                              | 41.0  |    |  | 41.0  |   
|                                                      |  |                              |       |    |  |       |   
|Total expense (benefit)                               |  |                              | 0     | %  |  | 0     | % 
|                                                      |  |                              |       |    |  |       |   
|                                                      |  |                              |       |    |  |       |   
|                                                      |  | Nine Months Ended March 31,  |      
|                                                      |  |                              | 2011  |    |  | 2010  |   
|Income taxes
 at U.S. statutory rate                  |  |                              | (35.0 | )% |  | (35.0 | )%
|State taxes,
 net of federal tax benefit              |  |                              | (6.0  | )  |  | (6.0  | ) 
|Change in
 valuation allowance on deferred tax assets |  |                              | 41.0  |    |  | 41.0  |   
|                                                      |  |                              |       |    |  |       |   
|Total expense (benefit)                               |  |                              | 0     | %  |  | 0     | % 
|                                                      |  |                              |       |    |  |       |   

At June 30,
2010, the Corporation had federal net operating tax loss carryforwards of
approximately $11.2 million, which will begin to expire on June 30, 2024. The
Corporation has provided a full valuation allowance against its deferred tax
asset due to the uncertainty about its realization.

7

---



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note about Forward Looking Statements


Certain statements
in Managements Discussion and Analysis (MD&A), other than purely
historical information, including estimates, projections, statements relating
to our business plans, objectives, and expected operating results, and the
assumptions upon which those statements are based, are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements generally are
identified by the words believe, project, expect, anticipate,
estimate, intend, strategy, plan, may, should, will, would,
will be, will continue, will likely result, and similar expressions
identify forward-looking statements, but are not the exclusive means of
identifying such statements and their absence does not mean that a statement is
not forward-looking. Forward-looking statements are based on current
expectations and assumptions that are subject to risks and uncertainties, which
may cause actual results to differ materially from the forward-looking
statements. Except as required by law, we undertake no obligation to update or
revise publicly any forward-looking statements, whether as a result of new information,
future events, or otherwise.


Results of Operations

For the
quarter ended March 31, 2011, the Corporation reported revenues of $2,963,396
as compared $4,892,908 for the quarter ended March 31, 2010. For the quarter
ended March 31, 2011, the Corporation reported a net loss of $789,628 as
compared to a net loss of $499,702for the quarter ended March 31, 2010. The
decrease in equipment revenues was attributable to delays in projects by
certain clients as well as reduced demand due to the continued economic
slowdown. The decrease in service revenues, discussed below, was impacted by
the delays in projects, but primarily attributable to reduction in the
Corporations legacy services, which were partially related to mergers and/or
internal changes within our clients organizations. Revenues for the
nine-months ended March 31, 2011 were $12,649,275 as compared with $16,532,943
for the same period in the prior year.

The losses for
the quarter and nine-month period ended March 31, 2011 were attributable directly
to the reduction in revenues. Despite indications from clients that delays of
their projects from the fiscal 2011 second quarter should be resolved in the
third quarter, two significant projects were further delayed into the fourth
quarter. One project was received after the close of the third quarter and is
in process, and although no assurance can be given, it is anticipated that the
second order will be placed during the fourth quarter of fiscal 2011. These
delays are outside the Corporations control, and were dependent upon clients
internal operations. As noted above, Service related revenues (technical
support, repair and maintenance, network integration, staffing, and training)
decreased as a result of these delays, and termination of certain legacy
services and also as a result of reduction in equipment sales, and related to
the mix of products sold. Because service revenues yield higher profit margins
than equipment sales, the reduction in service revenues reduced our overall
profit margin and significantly impacted our earnings. Revenues continue to be
affected by the general slowdown resulting from the recession, including a
significant reduction in purchases by state, and local governmental agencies,
and educational customers (K-12 through higher education) (collectively Public
Sector clients) and restrictions on capital expenditures experienced by many
clients. Expenses related to underutilized technical staff, including
higher-compensated engineers, were absorbed by the Corporation during the
quarter and this negatively impacted earnings.

During the
first three quarters of fiscal 2011, the Corporations clients continued to be
conservative in their IT budgetary spending and to scrutinize their IT spending
and the related returns on investments before incurring new expenses. As a
result, Management concentrates on sales of higher margin equipment such as
Voice over Internet Protocol (VoIP) systems and physical security systems,
optimizing the utilization rates of its service technicians, and reducing
selling and administrative expenses. Interest in physical security systems
marketed by TransNet continues to be strong, even in light of budgetary
restrictions of Public Sector clients. While no assurances can be given, we
believe that TransNet is well positioned in the State of New Jerseys
purchasing contracts for growth of our business with Public Sector clients and
that sales under these contracts will have a positive impact on results.
TransNet is listed by State selected manufacturers as an approved vendor for a
significant number of IT, communication, and security products pursuant to
these contracts.

8

---



Changes in
purchasing mechanisms enacted by the State of New Jersey in fiscal 2010 require
certain purchases made by State entities be made directly from manufacturers,
which decreases our equipment sales revenue. Under this agency model, certain
orders are processed directly by our hardware partners, who receive purchase
orders directly, and ship and invoice to our clients directly. TransNet is paid
an agency fee for generating the transaction. Although these transactions lower
the amount of revenue realized, they provide payment of the fee within a
shorter period than the typical payment period for sales invoiced by the
Corporation, and free our funding for other transactions. Sales under this
agency model were not a material source of revenues. Revenues from these
transactions are included in Service revenues. Cost of equipment sold may be
impacted by the Corporations eligibility for temporary incentives, such as
rebates, offered by equipment manufacturers from time to time. The
Corporations eligibility for the rebates is usually subject to minimum sales
levels and satisfaction of other criteria established by the manufacturers in
their sole discretion.

Service
related revenues are a material portion of revenues and, as noted above, are
significant in their contributions to net income because these operations
typically yield a higher profit margin than equipment sales. Service revenues
are generated primarily by services including planning, design, configuration,
installation and implementation, testing, and optimization, often related to
the sale and implementation of VoIP networks. Project work is the major source
of service revenue generation and Management continues its focus on optimizing
utilization rates of its service technicians. Revenues are also generated by a
variety of support contracts for these networks which provide service and
support for the customers personal computers, peripherals, and networks. These
contracts are short-term, and contain provisions which permit early
termination. Although the contracts generally contain renewal terms, there is
no assurance that such renewals will occur. Under these agreements, TransNets
Support Center provides troubleshooting, diagnosis, and remedial services
performed remotely by skilled system engineers, who will be dispatched to
perform on-site repairs, if necessary. The agreements are for twelve months or
less. In addition, our system engineers and service technicians provide service
and support on an on-call basis.

Management
believes that future spending will be subject to specific criteria, but also
believes that as single source provider, the Corporation is in a better position
to satisfy client demands for cost-effectiveness and a suitable return on
investment. The VoIP systems and solutions marketed by TransNet are designed
with the capacity for optimization through the subsequent addition of layers
of solutions, for example, security solutions, paving the way to future
business from existing customers. The Corporation reviews and modifies its
service offerings in response to industry fluctuations, and has recruited
experienced and specially certified systems engineers and project managers to
respond to increased VoIP projects. We are confident that our strategy of being
an advanced solutions provider will result in future revenues from clients
optimization of already installed networks, providing clients with greater operating
efficiencies.

In addition to
these technical services, TransNet provides temporary and permanent IT staffing
and consulting services. Our staffing services are not a material source of
revenues, but these services carry higher profit margins than equipment sales.
Despite the economic slowdown, businesses continue to be faced with special
projects to perform required upgrades, repairs, and replacement of their
networks despite the recession and demand for our services increased. Because
employers are reluctant to expand their own workforce in light of the
recession, TransNets staffing operations experienced a strong demand for
temporary IT support specialists. Revenues generated by our staffing operations
continue to improve in conjunction with the demand for temporary employees and
an increased demand for permanent placements noted during the third fiscal
quarter.. Although no assurances can be given, we believe that as the economy
recovers and businesses begin to increase the number of employees, revenues and
profits from our staffing services will be positively affected and will
continue to increase.

Our clients
continued to be conservative in their IT budgetary spending and scrutinize
budgets and returns on investments. In conjunction with attention on
utilization rates of our service technicians, Management monitors and takes
steps to reduce selling, general and administrative expenses in an effort to
contain expenses as much as possible.

In addition to
the challenging economic environment, the IT industry experiences a continuing
trend of decreasing prices of equipment and intense competition. Management
believes that this trend will continue. Industry-wide, the result of price
erosion has been lower profit margins on sales, which require businesses to
sell a greater volume of equipment to maintain past earning levels. Price
decreases has intensified competition within the industry, including the
consolidation of businesses through merger or acquisition, as well as the
increased initiation of sales by certain manufacturers directly to the end-user
and the entrance of manufacturers into technical services business.

9

---



Management
believes that the adoption of policies by many larger corporate customers,
which limit the number of vendors permitted to provide goods and services for
specified periods of time, has further increased price competition.

To meet these
competitive challenges and to maximize the Corporations profit margin,
Management has modified its marketing strategy and has taken steps to reduce
expenses. We have also developed new service offerings that take into account
clients cost constraints. We modified our service offerings in response to
industry fluctuations, and employ experienced and specially certified systems
engineers and project managers to respond to VoIP projects. During the past few
fiscal years, we have focused upon higher margin projects and services related
to VoIP/IP Telephony and physical security in order to stimulate growth and
opportunities for the Corporation. Despite our efforts, however, the economic
impact of the recession and continued downward pressure on end-user prices for
equipment and services, combined with expenses for a highly skilled technical
staff and continued delays in purchases from the Public Sector, have depressed
our overall profit margins. Our goal is to increase our profit margins further
as we focus on higher-end products and services flowing from security,
communications, and data center management. The complex products and services not
only are higher-margined items, but are also of pressing importance to our
clients. Many of our Public Sector clients, however, are experiencing budgetary
constraints, and as noted, are forced to postpone initiation of these systems.

Management
also utilizes approaches such as manufacturers direct shipment as a means to
reduce equipment related overhead costs which increases profits. Our marketing
strategy focuses upon provision of technical services and sales of lower
revenue/higher profit margin products related to service and support
operations. We target commercial and public sector customers who provide
marketplaces for a wide range of products and services at one time, a
cost-effective approach to sales. These customers often do not have their own technical
staffs and outsource their computer service requirements to companies such as
TransNet. In light of the above, Management emphasizes and continues the
aggressive pursuit of an increased volume of sales of VoIP systems, and related
technical service and support programs, and has introduced new technical
support programs offering a wide variety of alternatives of remote and on-site
network support and monitoring.

The
Corporations performance is also impacted by other factors, many of which are
not within its control. These factors include: industry and general economic
conditions; availability of credit; the short-term nature of clients
commitments; patterns of capital spending by clients; the timing and size of
new projects; pricing changes in response to competitive factors; the
availability and related costs of qualified technical personnel; timing and
customer acceptance of new product and service offerings; trends in IT
outsourcing; and product constraints.

Management
continues its aggressive steps initiated in fiscal 2010 to significantly reduce
selling, general and administrative expenses and to adjust the allocation of
personnel to increase the number of employees providing billable services. We
significantly decreased our actual expenses through a number of staff
reductions, and implementation of salary freezes, salary reductions, and other
cost reduction programs. The results of these cost-saving measures will be
realized more fully going forward. We anticipate that selling, general, and administrative
expenses for fiscal 2011 will be approximately 10% less than the prior year.
Selling, general and administrative expenses for the quarter ended March 31,
2011, decreased in actual figures, but increased as a percentage of revenues as
a result of the lower revenue figures, moving to 37% of revenues as compared to
26% of revenues for the comparative quarter in the prior year, and representing
28% of revenues for the first nine months of fiscal 2011 as compared to 24% for
the same period last year. Management continues its efforts to monitor and
control expenses, despite increasing personnel related costs such as health
care expenses.

Interest
income decreased in the quarter and nine-month period ended March 31, 2011 as
compared to the same periods in the prior year as a result of lower amounts
invested. Interest expense increased in the periods ended March 31, 2011, due
to increased borrowing to fund equipment sales and extended payments
attributable to reduced cash levels. The Corporation utilizes vendor credit
options, which provide more favorable terms than financing available through
alternate sources.

Liquidity and Capital Resources

There are no
material commitments of the Corporations capital resources, other than leases,
a third party line of credit, vendor credit facilities, and employment
contracts.

10

---



Cash and cash
equivalents decreased during the nine-month period ended March 31, 2011, as
cash was used to fund operations. Cash levels continue to be impacted by
reduced revenues, and the slow payment cycles of Public Sector clients and
extended payment cycles from some commercial clients, many of whom are affected
by the economic recession. The Corporation has entered into vendor credit
arrangements to assist in purchasing inventory and provide more flexibility
with respect to cash. A significant portion of the vendor credit is secured by
certain of the Corporations assets.

The amount of
cash received from or used by operating activities will vary based on a number
of business factors which may vary at different times, including terms of
available financing from vendors, and slowdowns or upturns in our business or
that of our customers. A decline in service revenues and/or a change in the
proportion of service revenues to total revenues may affect operating cash flow
as the bulk of the Corporations service revenues are derived from billing of
our technical staffs services. The cash outlay for the labor/payroll
underlying these services is incurred on a semi-monthly basis. Billing is
determined by timeframes set by our clients. Additionally, the Corporation at
times may absorb costs related to downtime of a portion of our technical staff
which may result from any slowdown of new business or downtime between
projects.

Accounts receivable
decreased for the nine-month period ended March 31, 2011 as a result of reduced
revenues. Accounts receivable continue to be impacted by the timing of our
collection of accounts receivable. The payment cycle is a significant factor in
our cash flow to fund operations. Products and are typically sold on short-term
credit terms, but may also include extended terms under such projects as E-rate
projects. These projects are funded by the Schools and Libraries Program of the
Universal Service Fund, commonly known as E-Rate, which is administered by
the Universal Service Administrative Company (USAC) under the direction of
the Federal Communications Commission (FCC). E-Rate provides discounts to
assist most schools and libraries in the United States to obtain affordable
telecommunications and Internet access. Extended payment cycles of commercial
customers and governmental agencies continue to affect our accounts receivable
levels. Accordingly, Management vigorously continues its efforts to expedite payments
from the governmental bodies and is working to implement more favorable payment
schedules where possible. Management notes that payment terms with governmental
clients are usually dictated by the client.

Inventories
decreased in the fiscal 2011 period due to reduced demand for equipment. The
increase in accounts payable during the quarter ended March 31, 2011 is
attributable to lower cash levels. Amounts outstanding under the line of credit
decreased as a result of payments made on these lines.

We require
access to working capital from a third party line of credit and vendor credit
to fund our day-to-day operations, particularly at the end of our fiscal
quarters when demand for our products and services increase. We continue our
concerted effort to improve our working capital position and implemented
measures to reduce headcount, streamline operations, and manage costs in
response to the impact of the recession. In conjunction with the tightening of
credit in the US economy, which has negatively impacted our access to credit,
management has reviewed the Corporations line of credit and available vendor
credit and has taken steps to obtain the most favorable credit arrangements
available. Management currently utilizes various vendor credit options, all of
which provide the Corporation with more favorable payment terms than those
available from other sources.. Members of management have assisted the
Corporations cash flow due to low cash levels, which resulted in part from the
extended payment cycles of certain clients as well as current revenue levels. Subsequent to
  the end of the March 2011 quarter, a third party credit facility was terminated
  by the lender. The Corporation owes approximately $745,000 under this
  facility, which is secured principally by the Corporations accounts
  receivable. As of the date of this filing, Management is engaged in ongoing
  negotiations with the lender to resolve outstanding payment issues and is hopeful
  that these issues will be resolved promptly on terms favorable to the Corporation. Management
  is also pursuing options to obtain alternate sources of credit and is actively
  engaged in negotiating additional credit facilities. The unavailability
  of vendor or other credit going forward may have an adverse impact upon the
  operations of the Corporation.

Impact of Inflation

The effects of
inflation on our operations were not significant during the periods presented.

Critical Accounting Policies

The
Corporations financial statements are prepared in accordance with accounting
principles that are generally accepted in the United States. The methods,
estimates, and judgments used in applying these most critical

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accounting
policies have a significant impact on the results reported in the financial
statements. The Securities and Exchange Commission has defined critical
accounting policies as policies that involve critical accounting estimates that
require (a) management to make assumptions that are highly uncertain at the
time the estimate is made and (b) different estimates that could have been
reasonably used for the current period, or changes in the estimates that are
reasonably likely to occur from period to period, which would have a material
impact on the presentation of our financial condition, changes in financial
condition or in result of operations. Based on this definition, the most
critical policies include: revenue recognition, allowance for doubtful
accounts, and valuation of deferred tax assets.

INVESTMENT CONSIDERATIONS AND UNCERTAINTIES


The matters discussed in Managements
Discussion and Analysis and throughout this report that are forward-looking
statements are based on current management expectations that involve risk and
uncertainties. Potential risks and uncertainties include, without limitation:
the impact of economic conditions generally and in the industry for IT products
and services; dependence on key vendors and customers; continued competitive
and pricing pressures in the industry; product supply shortages; open-sourcing
of products of vendors, including direct sales by manufacturers; rapid product
improvement and technological change, short product life cycles and resulting
obsolescence risks; technological developments; capital and financing
availability; and other risks set forth herein.


Item 4. Control
and Procedures

The Chief
Executive Officer and Chief Financial Officer of the Corporation have
concluded, based on their evaluation as of March 31, 2011, that the
Corporations disclosure controls and procedures are not effective to ensure
that information required to be disclosed by the Corporation in the reports
filed or submitted by it under the Securities Exchange Act of 1934, as amended
(the Exchange Act), is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms, and include controls
and procedures designed to ensure that information required to be disclosed by
the Corporation in such reports is accumulated and communicated to the
Corporations management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.

In light of
this conclusion, the Corporation has initiated documentation of its policies
and procedures, and will institute compensating procedures and processes as
necessary to ensure the reliability of its financial reporting. Management
intends to remediate weaknesses in the control environment through new resources
and processes in its accounting department. Management believes that its
actions will continue to improve the Corporations internal control over
financial reporting, as well as its disclosure controls and procedures.

There were no
significant changes in the Corporations internal controls or in other factors
that could significantly affect these controls subsequent to the date of such
evaluation. The Corporation has commenced a review by its internal staff,
including its accounting staff, of new processes to provide an evaluation of
the level of controls and related procedures currently in place for each
process.

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Part II
OTHER INFORMATION

Item 6: Exhibits and Reports on
Form 8-K

| |    |                                            
| | -- | -------------------------------------------
| | A. | Exhibits                                  
| |    | 31.1 Certification
 required by Section 302
| |    | 31.2 Certification
 required by Section 302
| |    | 32 Certification required
 by Section 906  
| |    |                                            
| | B. | Reports on Form 8-K -                      
| |    | None.                                      

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
 and
| | Chief Executive Officer       
| |                               
| | /s/ John J. Wilk              
| |                               
| | John J. Wilk,                 
| | Chief Financial Officer       

DATE: May 23, 2011

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