UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1996 Commission File Number 0-8693
------------- ------
TRANSNET CORPORATION
(Exact name of small business registrant in its charter)
Delaware 22-1892295
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45 Columbia Road
Branchburg, New Jersey 08876-3576
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (908) 253-0500
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock [$.01 par value]
(Title of Class)
Indicated 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 ninety days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this From 10-K or in any amendment to
this Form 10-K.
YES [ ] NO [ ]
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant was approximately $8,794,818 on September 6,
1996 based upon the closing sales price on the NASDAQ System as of said date.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares of the registrant's common stock outstanding on September
6, 1996 was 5,216,804 shares (exclusive of Treasury shares).
<PAGE>
PART I
ITEM 1. BUSINESS
TransNet Corporation ("TransNet" or the "Corporation") was incorporated in the
State of Delaware in 1969. TransNet, a computer dealer, is engaged in the sale
and technical support and service of local area networks and personal computer
systems and peripheral equipment, software, and supplies. The sale of products
and the promotion of technical services, the primary focus of the Corporation,
are conducted through its own sales and service departments. In addition to its
principal business activities, the Corporation operates one retail computer
store. Leasing of computer equipment is also conducted to a minor extent through
a wholly-owned subsidiary. As used herein, the term "Corporation" shall refer to
TransNet and where the context requires, shall include TransNet and its
wholly-owned subsidiary, Century American Corporation.
Description of Business
Products, Sources, and Markets: The sale of computer and related equipment for
local area networks ("LAN's") and personal computers ("PC's") accounted for the
significant portion of the Corporation's revenues. The principal markets for the
Corporation's products are commercial, governmental, educational, and individual
customers. These markets are reached by direct sales conducted through the
corporate sales department based in Branchburg, New Jersey. The retail market,
which is primarily comprised of small businesses, individual customers, and
educational users, is reached through the TransNet Computer Store located in
Lebanon, New Jersey.
The Corporation is selective in choosing the products that it markets and its
product mix is geared primarily to the requirements of its business customers.
The products sold by the Corporation include business and personal desktop
computer systems manufactured by International Business Machines
("IBM"), Apple Computer, Inc. ("Apple"), Compaq Computer Corporation
("Compaq"), NEC Technologies, Inc. ("NEC"), AST Research ("AST"),
Hewlett-Packard Company ("Hewlett- Packard"), Sun Microsystems, Inc. ("Sun")
and Toshiba American Information Systems, Inc. ("Toshiba"); related peripheral
products such as network products of Compaq, Novell, Inc. ("Novell"),
Cisco Systems, Inc. ("Cisco"), and Banyan Systems, Inc. ("Banyan");
selected software products; wireless communication products; and supplies
produced by other manufacturers. The Corporation does not manufacture or
produce any of the items it markets.
The Corporation is currently an authorized dealer for Apple, AST, Compaq
(including authorizations as a Compaq Enterpise Partner and a Compaq Certified
Education Partner), Hewlett-Packard, IBM, NEC, Sun Microsystems, and Toshiba,
Lotus Development Corporation ("Lotus"), Microsoft Corporation ("Microsoft"),
Banyan, Cisco, Novell, and 3COM. The Corporation has received dealer
authorization as an Airdata solutions provider for AT&T wireless services. In
addition, the Corporation has entered into a Consulting Services Agreement with
SAP America, Inc. The Corporation also offers a variety of products manufactured
by other companies including Okidata, and Hayes Microcomputer Products, Inc.
Occasionally, the Corporation will order specific products to satisfy a
particular customer requirement. The Corporation evaluates its product line and
new products internally and through discussions with its vendors and customers.
Software sold by the Corporation includes software designed for general business
applications as well as specialized applications such as research,
pharmaceuticals, and education; software for desktop publishing; integrated
packages; and entertainment software, such as video games.
The Corporation maintains an inventory of its product line to provide shipments
to customers. Back orders are generally immaterial, but manufacturers' product
contraints occasionally impact the Corporation's inventory levels (see
Management's Discussion and Analysis). Shipments are made from the Corporation's
warehouse in Branchburg, New Jersey primarily through common carriers.
Customers of the retail store take delivery upon purchase.
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The marketing of computers is generally not seasonal in nature, although in
fiscal 1995 and 1996 the Corporation's retail sales increased in the Christmas
holiday seasons.
Technical Support and Service: The Corporation provides a wide variety of
network services, personal computer support, repair and standard equipment
maintenance. These services include LAN and PC hardware support, systems
integration services, help desk services, asset management, relocation services,
and installation or installation coordination. The Corporation's staff of
specially trained system engineers and service technicians provide on-site or
on-call support for file servers, personal computers, laptop computers, printer
and other peripheral equipment. The Corporation seeks highly qualified personnel
and employs experienced technicians to whom it provides authorized manufacturer
training on an on-going basis. The Corporation has increased the size of its
technical staff to meet the demand for its services. TransNet is an authorized
service dealer for the following manufacturers: Apple, AST, Banyan, Compaq,
Dell, Epson, Hewlett Packard, IBM, NEC, Novell, and Sun.
In addition to the above-referenced services, the Corporation's in-house
technical staff performs system configurations to customize computers to the
customers' specifications. During fiscal 1996, the Corporation expanded its
technical staff in response to the increased volume of equipment sales and the
increasing complexity of the systems to be configured. The Corporation also
provides authorized warranty service on the equipment it sells.
The Corporation's technical services are available to business and individual
customers located within 100 miles of the Corporation's Branchburg, New Jersey
office. Through a variety of alternatives, the Corporation offers repair or
maintenance service at the customer site or on the Corporation's premises.
Maintenance and service contracts are offered to maintain and/or repair computer
hardware. Technical support and service contracts are offered on an annual basis
and are available for a variety of services related to products marketed by the
Corporation. In connection with its "TechNet" program, pursuant to which the
Corporation assigns service personnel to the customer's location on a full-time
basis, the Corporation has entered into individual agreements with several large
corporate customers to provide support and repair and maintenance services.
Although existing agreements usually are for terms of one or two years, many of
the most recent agreements are for shorter periods of time, such as three to six
months in relation to customers' special projects. These agreements contain
provisions allowing for termination prior to the expiration of the agreements.
In addition, although the agreements contain renewal terms, there is no
assurance that the agreements will be renewed.
Repair and maintenance services are also available on a "time and materials"
basis. The repair services usually consist of diagnosing and identifying
malfunctions in computer hardware systems and replacing any defective circuit
boards or modules. The defective items are generally repaired by in-house bench
technicians or returned to the manufacturer for repair or replacement.
The Corporation also operates a "walk-in/while-you-wait" repair center at its
Lebanon, New Jersey computer store.
In addition to servicing its own customers within its service area, the
Corporation has been selected as a member of the Intelligent Systems Group
("ISG"), a group of dealers selected from Intelligent Electronics dealers. ISG
members provide service to customers of other ISG members in instances in which
a customer has locations outside the dealer's respective service areas, but
within an ISG member's geographic area. Through this arrangement, TransNet can
also assure its customers quality technical service at customer locations
nationwide.
Service operations are not a material source of revenues, although they
contribute to profits, as discussed in "Management's Discussion and Analysis."
Training: The Corporation established a Training Center at its headquarters,
which provides training at the Center or at the customer site. The Corporation
offers comprehensive training on hardware and software, including a wide variety
of DOS, Windows, Macintosh and UNIX systems and network applications, operation,
and maintenance. The Center has its own dedicated network and each
3
<PAGE>
instructor is certified to teach the classes. The Corporation's Training Center
is an Apple Computer authorized training center and is also authorized for
training on all Microsoft, Lotus, Quark, FrameMaker and Macromind products. The
training activities of the Corporation are not a material source of revenues.
Suppliers: In July 1990, in order to reduce its costs for computer and related
equipment, the Corporation entered into a buying agreement with Connecting Point
of America, Inc., a subsidiary of Intelligent Electronics, one of the largest
computer aggregators in the United States. Intelligent Electronics recently
reorganized its structure and the Corporation's current agreement is with the
Intelligent Systems Group. Under the agreement, the Corporation is able to
purchase equipment of various manufacturers at discounts currently unavailable
to it through other avenues. The agreement provides that the Corporation may
terminate the arrangement upon sixty days notice. During fiscal 1996, the
majority of the revenues generated by the Corporation from product sales were
attributable to products purchased by the Corporation from Intelligent
Electronics pursuant to the Agreement. The balance of the Corporation's product
sales were attributable to products purchased from a variety of sources on an as
needed order basis. Management fully anticipates that Intelligent Electronics
will be a major supplier during fiscal 1997.
Customers: The majority of the Corporation's corporate customers are
commercial users located in the New Jersey - New York City metropolitan area.
During fiscal 1996, one customer accounted for approximately 50% of the
Corporation's revenues, and an affiliate of the customer accounted for 19% of
the Corporation's revenues. Such customer accounted for approximately 34% and
17%, respectively of the Corporation's revenues in fiscal 1995 and 1994,
respectively. The loss of this customer would have a material adverse impact
upon the Corporation if management could not replace the purchases of equipment
and technical services with similar purchases from new accounts. No other
customer accounted for more than 10% of the Corporation's revenues in fiscal
1996.
Competition: The sale and service of personal computer systems is highly
competitive and may be affected by rapid changes in technology and spending
habits in both the business and institutional sectors. The Corporation is in
direct competition with any business which is engaged in the sale and technical
support and service of networks, personal computers and related peripherals.
Management believes that the increasing complexity of personal computer systems,
the use of personal computers in the workplace and the widespread utilization of
personal computer networks have created an environment in which commercial
customers require significant levels of sophisticated support services such as
those provided by the Corporation. Management believes that TransNet's ability
to combine competitive pricing with sophisticated support services allows it to
compete effectively against a wide variety of alternative microcomputer sales
and distribution channels, including independent dealers, direct mail and
telemarketing, superstores and direct sales by manufacturers (including some of
its own suppliers), and with respect to the retail sector, the Corporation
competes with department stores and retail chains. The Corporation competes with
numerous larger and longer established companies possessing substantially
greater financial resources and substantially larger administrative, technical,
marketing and servicing staffs, facilities and equipment.
Technological advances occur rapidly in computer technology and new products are
often announced prior to availability, sometimes creating demand exceeding
manufacturers' expectations and thereby resulting in product shortages. When
this occurs, resulting product constraints intensify competition, depress
revenues because customers demand the new product, and increase order backlogs.
In the Corporation's experience, these backlogs have been immaterial, although
manufacturers' limitations on product availability impacted the Corporation's
revenues for the last quarter of fiscal 1996 (see Management's Discussion and
Analysis).
In the past several years, there have been frequent reductions in the price of
computers. As a result, competition has increased and the Corporation lowered
its prices to remain competitive. In addition, businesses able to purchase in
larger volume than the Corporation have received higher discounts from
manufacturers than the Corporation. These factors have resulted in a lower
profit margin on the Corporation's equipment sales. As a result of its buying
agreement with Intelligent Electronics, the
4
<PAGE>
Corporation is able to purchase equipment at discounts otherwise unavailable to
it, enabling the Corporation to be more price competitive. In a cost-effective
marketing approach, the Corporation now targets larger customers with more
diversified product needs for its marketing efforts in order to sell a greater
number and variety of products and services at one or a limited number of
locations, thereby improving its gross profit margins.
The Corporation does not believe that it is a significant factor in any of its
fields of activity.
Trademarks: Other than the trademark of its name, TransNet holds no patents
or trademarks.
Employees: As of September 6, 1996, the Corporation employed 134 full-time
employees. None of its employees are subject to collective bargaining
agreements.
ITEM 2. PROPERTIES
The Corporation's executive, administrative, corporate sales offices, and
service center are located in Branchburg, New Jersey, where the Corporation
leases a building of approximately 21,000 square feet. This "net-net" lease,
which currently provides for an approximately $15,000 monthly rental, expires in
February 2001. The building is leased from W Realty, a partnership consisting of
John J. Wilk, Chairman of the Board and Raymond J. Rekuc, a Director, at terms
which management believes are as favorable as available from unaffiliated third
parties.
The Corporation's Lebanon, New Jersey Computer Store, is located on leased
premises of approximately 5,000 square feet. The "net-net" lease providing for a
monthly rental of approximately $4,800 expired in February 1994. The lease is
currently in effect on a month-to-month basis at a monthly rental of
approximately $4,800. The premises are leased from Annette and Mark Stanoch,
officers of the Corporation on terms which management believes are as favorable
as those available from unaffiliated third parties.
See Note 7 of the Notes to Consolidated Financial Statements with respect to the
Corporation's commitments for leased facilities.
The Corporation owns a 6.7 acre plot in Mountainside, New Jersey, which was
purchased in 1979 to construct a proposed twin building office complex. To date,
no construction activities have taken place and none are currently planned. Even
if construction is undertaken, the Corporation may elect not to move any of its
operations onto the premises but may elect to rent or sell the developed
property. At the present time, there are no plans by the Corporation to commence
construction.
5
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Corporation is not currently a party to any legal proceeding which it
regards as material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
There were no matters submitted by the Corporation during the quarter ended
June 30, 1996 to a vote of securityholders.
6
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITYHOLDERS MATTERS
TransNet's common stock is quoted and traded in the NASDAQ National Market
System under the symbol "TRNT." The following table indicates the high and low
closing sales prices for TransNet's common stock for the periods indicated based
upon information supplied by the National Quotation Bureau Incorporated.
Calendar Year Closing Sales Prices
High Low
1994
First Quarter 2 11/16 7/8
Second Quarter 2 7/16 1 15/16
Third Quarter 2 9/16 1 11/16
Fourth Quarter 2 1/2 1 3/4
1995
First Quarter 1 15/16 1 9/16
Second Quarter 3 1/16 1 3/4
Third Quarter 6 3/16 2 7/16
Fourth Quarter 6 3 1/2
1996
First Quarter 4 3/8 2 7/8
Second Quarter 3 3/4 2 15/32
As of September 29, 1996, the number of holders on record of TransNet's
common stock was 3,732. Such number of record owners was determined from the
Company's shareholder records and does not include beneficial owners whose
shares are held in nominee accounts with brokers, dealers, banks and clearing
agencies.
TransNet has not paid any dividends on its common stock since its
inception.
7
<PAGE>
<TABLE>
Item 6.
TRANSNET CORPORATION AND SUBSIDIARY
- ------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------
Y e a r s e n d e d J u n e 3 0,
--------------------------------------
1 9 9 6 1 9 9 5 1 9 9 4 1 9 9 3 1 9 9 2
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue $64,200,588 $56,216,605 $40,342,165 $28,903,305 $28,791,420
Net Income $ 1,001,640 $ 882,466 $ 393,870 $ 264,644 $ 80,785
Earnings Per Share $ .19 $ .17 $ .08 $ .05 $ .02
Weighted Average
Number of Shares 5,216,804 5,155,526 5,041,804 5,041,804 5,041,804
Total Assets $16,333,275 $19,286,712 $13,289,915 $10,513,428 $ 9,989,642
Working Capital $ 8,458,008 $ 7,554,094 $ 7,225,788 $ 6,845,754 $ 6,518,088
8
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the fiscal year ended June 30, 1996 were $64,200,588 as compared
with $56,216,605 for the fiscal year ended June 30, 1995, and $40,342,165 for
the fiscal year ended June 30, 1994. Revenues for both fiscal 1996 and 1995
increased as compared to the respective prior year, as the result of increased
hardware sales and an increase in revenues from technical services (technical
repair and maintenance, support, network integration, and outsourcing) and
training services. Service related revenues, though not a material source of the
Corporation's revenues, are typically higher profit revenues. Revenues generated
by these technical services increased by approximately 25% in fiscal 1996 as
compared to fiscal 1995 due to management's focus on the promotion of technical
service and support operations and a number of agreements with large
organizations for service and support (as discussed below).
For fiscal 1996, the Corporation reported net income of $1,001,640, as
compared with net income of $882,466 for fiscal 1995, and $393,870 for fiscal
1994. In addition to reflecting increased sales volume, increased net income for
the years ended June 30, 1996, 1995 and 1994 as compared with the prior year is
attributable to increased service and support related revenues; management's
concentration on sales of network and system integration products which yield
higher profit margins; the Corporation's technical service and support programs;
and continued adherence to cost control measures. Service related revenues are
significant in their contributions to net income because these operations yield
a higher profit margin than equipment sales. Management anticipates that the
technical support and service segments of operations will continue to expand in
the future. For the fiscal years ended June 30, 1996 and 1995, the respective
increases in revenues from the provision of service, support, outsourcing and
network integration is largely the result of the Corporation entering into
service contracts with a number of large corporate customers to provide service
and support for their personal computers, peripherals and networks. Most of
these contracts are short-term, usually twelve months or less, and contain
provisions which permit early termination. Although the contracts generally
contain renewal terms, there is no assurance that such renewals will occur.
During the fiscal years discussed, the computer industry has experienced a
trend of decreasing prices of computers and related equipment. Management
believes that this trend will continue. Industrywide, 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. In addition,
manufacturers' shortages of certain products, known as product constraints,
during the last quarter of fiscal 1996 combined with the price decreases to
increase the already fierce competition.
To counter these factors and to maximize the Corporation's profit margin,
management has modified its marketing strategy during these years and has
enforced expense controls. Management's current marketing strategy is designed
to increase sales of lower revenue/higher profit margin products related to
service and support operations. Management's efforts include targeting
commercial customers who provide marketplaces for a wide range of products and
services at one time, a cost-effective approach to sales. Management believes it
maximizes profits through concentration on sales of value-added applications;
promotion of the Corporation's service and support operations; and strict
adherence to cost-cutting controls. In light of the above, management places its
emphasis on, and continues the aggressive pursuit of an increased volume of
equipment sales and promotion of its training services. In addition, the
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Corporation's buying agreement with Intelligent Systems Group, a subsidiary of
Intelligent Electronics, enhances the Corporation's competitive edge through
discounts unavailable through other sources.
Selling, general and administrative expenses remained constant as a
percentage of revenues at slightly below 10% of revenues for both fiscal 1996
and 1995 as compared to 12% of revenues for fiscal 1994. Selling, general and
administrative expenses during fiscal 1995 decreased as a percentage of revenues
to 10% from 12% in fiscal 1994 due to the increase in revenues and cost control
measures.
Interest income in fiscal 1996 increased as compared to fiscal 1995, and
similarly in 1995 over 1994, due to the rise in interest rates. Interest expense
increased in 1996 over 1995 as a result of financing costs associated with
inventory, and in 1995 over 1994 which was due to increased equipment sales.
Liquidity and Capital Resources
There are no material commitments of the Corporation's capital resources,
other than real estate leases and employment contracts entered into in the
normal course of business.
The Corporation currently finances the purchases of portions of its inventory
through floor planning arrangements under which such inventory secures the
amount outstanding. Inventory decreased in 1996 as compared to 1995 due to
manufacturers' product constraints during the last quarter of fiscal 1996.
Inventory increased in 1995 as compared to 1994 to accommodate the increased
sales volume.
Accounts receivable and payable decreased for the period ended June 30, 1996
as a direct result of a decrease in revenues for the last quarter of fiscal
1996. The decrease in orders was attributable to the late spring announcement of
new products by equipment manufacturers, which delayed orders until the new
products were available after July 1996. Accounts receivable and payable
increased in 1995 as compared to 1994 due to an increase in revenues during the
fourth quarter.
For the fiscal year ended June 30, 1996, as in the fiscal years ended June
30, 1995 and 1994, the internal sources of the Corporation were sufficient to
enable the Corporation to meet its obligations.
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ITEM 8. FINANCIAL STATEMENTS
Attached.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure between
the Corporation and its independent public accountants nor any change in the
Corporation's accountants during the last fiscal year.
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INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
TransNet Corporation
Somerville, New Jersey
We have audited the accompanying consolidated balance sheets of
TransNet Corporation and subsidiary as of June 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three fiscal years in the period ended June 30, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of TransNet Corporation and subsidiary as of June 30, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three fiscal years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
August 15, 1996
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<TABLE>
TRANSNET CORPORATION AND SUBSIDIARY
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
June 30,
1 9 9 6 1 9 9 5
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $2,383,741 $ 1,549,206
Accounts Receivable - Net 7,366,019 10,201,044
Inventories 3,642,228 5,011,791
Other Current Assets 465,943 217,053
Deferred Tax Asset 314,750 263,550
---------- -----------
Total Current Assets 14,172,681 17,242,644
Property and Equipment - Net 1,158,083 529,096
Other Assets 1,051,261 1,582,522
---------- -----------
Total Assets $16,382,025 $19,354,262
=========== ===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $1,739,706 $ 1,014,908
Accrued Expenses 539,104 647,843
Floor Plan Payable 2,852,328 7,316,410
Deferred Income 319,284 328,100
Other Current Liabilities 215,501 313,739
---------- -----------
Total Current Liabilities 5,665,923 9,621,000
---------- -----------
Deferred Tax Liability 48,750 67,550
---------- -----------
Stockholders' Equity:
Capital Stock - Common, $.01 Par Value, Authorized
15,000,000 Shares; Issued 7,469,524 Shares in 1996
and 1995 [of which 2,252,720 are in Treasury] 74,695 74,695
Paid-in Capital 10,686,745 10,686,745
Retained Earnings 6,123,555 5,121,915
---------- -----------
Totals 16,884,995 15,883,355
Less: Treasury Stock - At Cost (6,217,643) (6,217,643)
---------- -----------
Total Stockholders' Equity 10,667,352 9,665,712
---------- -----------
Total Liabilities and Stockholders' Equity $16,382,025 $19,354,262
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
TRANSNET CORPORATION AND SUBSIDIARY
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
Y e a r s e n d e d
J u n e 3 0,
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
<S> <C> <C> <C>
Revenue $64,200,588 $56,216,605 $40,342,165
Cost of Revenue 56,974,857 49,762,601 34,946,537
----------- ----------- -----------
Gross Profit 7,225,731 6,454,004 5,395,628
Selling, General and Administrative Expenses 6,153,883 5,697,915 5,019,490
----------- ----------- -----------
Operating Income 1,071,848 756,089 376,138
----------- ----------- -----------
Other Income [Expense]:
Interest Income 67,123 53,775 46,975
Interest Expense (174,731) (117,587) (29,243)
----------- ----------- -----------
Total Other [Expense] Income - Net (107,608) (63,812) 17,732
----------- ----------- -----------
Income Before Income Tax [Benefit] 964,240 692,277 393,870
Income Tax [Benefit] (37,400) (190,189) --
----------- ----------- -----------
Net Income $ 1,001,640 $ 882,466 $ 393,870
=========== =========== ===========
Income Per Common Share $ .19 $ .17 $ .08
=========== =========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
TRANSNET CORPORATION AND SUBSIDIARY
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
Total
Common Stock Paid-in Retained Treasury Stock InstallmenStockholders'
Shares Amount Capital Earnings Shares Amount Receivable Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1993 7,294,524 $ 72,945 $10,513,495 $3,845,579 $(2,252,720 $(6,217,643)$(2,500)$8,211,876
Net Income -- -- -- 393,870 -- -- -- 393,870
Reduction in Notes
Receivable - Stock -- -- -- -- -- -- 2,500 2,500
---------- ----------- ---------- ---------- --------- ---------- ---------- ----------
Balance - June 30, 1994 7,294,524 72,945 10,513,495 4,239,449 (2,252,720) (6,217,643) -- 8,608,246
Exercise of Options 175,000 1,750 173,250 -- -- -- -- 175,000
Net Income -- -- -- 882,466 -- -- -- 882,466
---------- ----------- ---------- ---------- --------- ---------- ---------- ----------
Balance - June 30, 1995 7,469,524 74,695 10,686,745 5,121,915 (2,252,720) (6,217,643) -- 9,665,712
Net Income -- -- -- 1,001,640 -- -- -- 1,001,640
---------- ----------- ---------- ---------- --------- ---------- ---------- ----------
Balance - June 30, 1996 7,469,524 $ 74,695 $10,686,745 $6,123,555 (2,252,720) $(6,217,643)$ -- $10,667,352
========== =========== =========== ========== ========== =========== ========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
TRANSNET CORPORATION AND SUBSIDIARY
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
Y e a r s e n d e d
J u n e 3 0,
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Net Income $ 1,001,640 $ 882,466 $ 393,870
----------- ----------- -----------
Adjustments to Reconcile Net Income to
Net Cash Provided by [Used for]
Operating Activities:
Depreciation and Amortization 275,131 172,612 184,272
Loss on Sale of Equipment 6,360 1,054 --
Deferred Income Taxes (70,000) (196,000) --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 2,835,025 (4,004,954) (2,187,092)
Inventories 1,369,563 (1,547,138) (1,162,350)
Other Current Assets (318,890) (181,694) 97,562
Other Assets 56,147 (675,448) (53,207)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 616,059 1,045,850 293,498
Other Current Liabilities (98,238) 129,570 45,352
Other Liabilities (8,816) (200,057) 386,694
----------- ----------- -----------
Total Adjustments 4,662,341 (5,456,205) (2,395,271)
----------- ----------- -----------
Net Cash - Operating Activities 5,663,981 (4,573,739) (2,001,401)
----------- ----------- -----------
Investing Activities:
Capital Expenditures (366,214) (31,378) (147,401)
Proceeds from Sale of Equipment 850 -- --
----------- ----------- -----------
Net Cash - Investing Activities (365,364) (31,378) (147,401)
----------- ----------- -----------
Financing Activities:
Floor Plan Payable (4,464,082) 3,963,968 1,654,573
Receipt of Installment Receivable from Officer -- -- 2,500
Issuance of Common Stock -- 175,000 --
----------- ----------- -----------
Net Cash - Financing Activities (4,464,082) 4,138,968 1,657,073
----------- ----------- -----------
Net Increase [Decrease] in Cash and Cash
Equivalents 834,535 (466,149) (491,729)
Cash and Cash Equivalents - Beginning of Years 1,549,206 2,015,355 2,507,084
----------- ----------- -----------
Cash and Cash Equivalents - End of Years $ 2,383,741 $ 1,549,206 $ 2,015,355
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 182,000 $ 105,000 $ 47,000
Income Taxes $ 32,000 $ 6,400 $ --
Supplemental Disclosure of Non-Cash Investing Activities:
During 1996, $520,790 of other assets were placed into service and classified
as property and equipment.
See Notes to Consolidated Financial Statements.
16
</TABLE>
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
[1] Nature of Operations
TransNet Corporation [the "Company"] was incorporated in the State of Delaware
in 1969 and is engaged in the sale and service of personal computer systems and
peripheral equipment, software, and supplies primarily in the New Jersey - New
York City Metropolitan area. The sale of products and the promotion of technical
services, including outsourcing, are conducted through the company sales and
service departments. In addition to its principal business activities,
the Company operates one retail computer store.
The sale and service of personal computer systems is highly competitive and may
be affected by rapid changes in technology and spending habits in both the
business and institutional sectors. Management believes the Company's ability to
combine competitive pricing with sophisticated support services allows it to
compete effectively against alternative personal computer sales and distribution
channels.
[2] Summary of Significant Accounting Policies
[A] Consolidation - The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary, Century American Corporation.
Intercompany transactions and accounts have been eliminated in consolidation.
[B] Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased [See
Note 3].
[C] Accounts Receivable - Accounts receivable have been reduced by an allowance
for doubtful accounts of $39,838, $176,153 and $141,199 as of June 30, 1996,
1995 and 1994, respectively. The receivables secure a floor plan agreement
[See Note 7C].
[D] Inventory - The Company's inventory is valued at the lower of cost
[determined on the average-cost basis] or market. The inventory secures a floor
plan agreement [See Note 7C].
[E] Property and Equipment, Depreciation and Amortization - Property and
equipment are stated at cost. Depreciation and amortization are computed by use
of the straight-line method over the estimated useful lives of the various
assets ranging from five to ten years. Leasehold improvements are amortized over
the shorter of the life of the lease or their estimated useful life.
[F] Intangible Assets - Goodwill resulting from a business combination in 1990
is being amortized over 20 years by using the straight-line method. Licences and
other intangible assets are amortized using the straight-line method over their
estimated useful lives ranging from five to twenty years. The Company routinely
assesses the possible impairment and future value of the assets.
[G] Deferred Income - Deferred income consists of prepaid maintenance service
contracts. Revenue on the contracts is recognized by using the straight-line
method over the term of the contract which is usually one year.
[H] Revenue Recognition - Revenue is recognized at time of shipment on equipment
sold directly to customers. Maintenance service contracts are billed
periodically and revenue is recognized ratably over the terms of the contracts.
[I] Earnings Per Share - Earnings per common share are based on 5,216,804
weighted outstanding average shares for fiscal 1996, 5,155,526 for 1995, and
5,041,804 for 1994. Common stock equivalents are included if dilutive.
17
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
- ------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
[J] Concentrations of Credit Risk - The Company currently maintains cash
accounts of approximately $404,000 in a financial institution which is subject
to credit risk beyond FDIC insured limits.
The Company routinely assesses the financial strength of its customers and based
upon factors surrounding the credit risk of its customers establishes an
allowance for uncollectible accounts and, as a consequence, believes that its
accounts receivable credit risk exposure beyond such allowances is not
significant. The Company does not require collateral from their customers.
[K] Business Concentrations - The Company is engaged in the sale and technical
support and service of local area networks, personal computer systems, and
peripheral equipment, software, and supplies to companies and organizations
located primarily in the New Jersey - New York City Metropolitan area and is
currently an authorized dealer for many of the largest computer products
suppliers in the world, including Apple, Compaq, Hewlett Packard, IBM, Lotus
Development Corporation, and Microsoft Corporation. If the Company were to lose
any of its dealer authorizations or if it were to experience significant delays,
interruptions or reductions in its supply of hardware and software, the
Company's revenues and profits could be adversely affected.
For the year ended June 30, 1996, the Company had net sales to a customer that
generated approximately 50% of total net sales and net sales to an affiliate of
this customer that generated net sales of approximately 19% of total net sales.
The loss of this customer and/or the loss of the affiliated customer could have
a material effect on the Company.
[L] Advertising Costs - The Company participates in cooperative advertising
programs with its vendors, whereby the vendors absorb the costs of advertising.
During the year ended June 30, 1996, 1995 and 1994, the Company incurred
additional advertising expense of $33,700, $-0- and $-0-, respectively.
[M] Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
[N] Reclassification - Certain prior year items have been reclassified to
conform with the current year's presentation.
[3] Repurchase Agreements
Repurchase agreements included in cash equivalents as of June 30, 1996 and 1995
consisted of:
Cost Fair Value
June 30, 1996:
Repo 6%, 7/1/96 $ 1,686,930 $ 1,686,930
This security is backed by $1,726,642 of Federal Home Loan Mortgage Corporation
bonds maturing May 1, 1998 with an interest rate of 6%.
Cost Fair Value
June 30, 1995:
Repo 5.45%, 7/3/95 $ 677,929 $ 677,929
18
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
- ------------------------------------------------------------------------------
[3] Repurchase Agreements [Continued]
This security is backed by $737,040 of Federal Home Loan Mortgage Corporation
Bonds maturing in November 2023 with an interest rate of 5.20%.
[4] Inventories
Inventories consist of:
June 30,
1 9 9 6 1 9 9 5
Product Inventory $3,243,574 $4,418,118
Service Parts 398,654 593,673
---------- ---------
Totals $3,642,228 $5,011,791
------ ========== ==========
[5] Property, Equipment, Depreciation and Amortization
Property and equipment and accumulated depreciation as of June 30, 1996 and 1995
are as follows:
June 30,
1 9 9 6 1 9 9 5
Machinery and Equipment $1,205,567 $ 515,339
Furniture and Fixtures 419,264 418,082
Leasehold Improvements 334,996 330,608
---------- ---------
Totals 1,959,827 1,264,029
Less: Accumulated Depreciation and
Amortization 801,744 734,933
Property and Equipment - Net $1,158,083 $ 529,096
---------------------------- ========== =========
Total depreciation expense amounted to $250,807, $130,741 and $150,275 for the
years ended June 30, 1996, 1995 and 1994, respectively.
[6] Intangible Assets
Intangible assets and accumulated amortization as of June 30, 1996 and 1995 are
as follows:
June 30,
1 9 9 6 1 9 9 5
Licenses $ 292,060 $ 292,060
Other -- 80,000
Goodwill 259,422 259,422
--------- ----------
Totals 551,482 631,482
Less: Accumulated Amortization 100,336 156,012
--------- ----------
Intangible Assets - Net $ 451,146 $ 475,470
----------------------- ========= ==========
Intangible assets are included in other assets for financial reporting purposes.
Amortization expense for fiscal 1996, 1995 and 1994 was $24,324, $41,871 and
$33,997, respectively.
19
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
- ------------------------------------------------------------------------------
[7] Commitments and Related Party Transactions
[A] Leasing Agreements - The Company leases office and warehouse space and a
retail store under various operating leases with related parties, which expire
through 2001. During fiscal 1991, the Company entered into a five year lease
with three five year renewal options with W. Realty, an affiliate of the
Chairman of the Board and a director, for its primary office and warehouse
facility. In March 1996, the Company exercised the renewal option. In addition,
the Company leases space for its retail store from officers of the Company on a
month-to-month basis.
Total rent expense was $242,260, $244,511 and $228,605 for the years ended June
30, 1996, 1995 and 1994, respectively.
The following is a summary of rental commitments:
1997 $ 191,214
1998 196,170
1999 206,082
2000 206,082
2001 137,388
-----------
Total $ 936,936
----- ===========
At June 30, 1996, the Company had prepaid the rent in the amount of
approximately $19,800.
[B] Employment Agreements - Effective July 1, 1995, the Company entered into
four [4] employment agreements with officers of the Company. The term of each
agreement is for five [5] years with annual salaries ranging from $135,000 to
$250,000. A "Performance Bonus," based on the Company's consolidated pre-tax
profits, is also included in each of the agreements at rates of two to six
percent based on certain achieved profit levels. The bonus accrual was
approximately $83,000 as of June 30,1996. In addition, the employment agreements
contain provisions pertaining to the termiantion of employment prior to the
expiration of the agreement.
In addition, the employment agreements contain provisions pertaining to the
termination of employment prior to the expiration of the agreement. The
provisions reflect lump sum payments equal to 80% of the greater of the current
annual salary or the prior years annual gross wages multiplied by the lesser of
five or the number of years remaining in the agreement.
[C] Floor Plan Payable - The Company finances its inventory through floor
planning arrangements with a finance company, whereby the Company's inventories
and accounts receivable have been pledged as collateral against the outstanding
loan balances. The outstanding balances for both the inventory and accounts
receivable credit lines at June 30, 1996 and 1995 are approximately $2,900,000
and $7,300,000, respectively. The unused portion of the credit lines at June 30,
1996 and 1995 are approximately $8,500,000 and $3,200,000, respectively.
Interest is applied to the average daily outstanding balance under the lines of
credit at a rate of the greater of 6% or the daily prime rate per annum. The
prime rate and the average interest rate was 8.25% and 7.875% at June 30, 1996
and a rate of 7.5% for both prime and average interest at June 30, 1995.
20
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
- ------------------------------------------------------------------------------
[8] Income Taxes
The provision for income taxes is summarized as follows:
Y e a r s e n d e d
J u n e 3 0,
------------------------
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
Federal:
Current $ 287,000 $ 208,050 $ 155,859
Deferred (62,400) (151,900) (21,943)
---------- --------- ----------
Totals 224,600 56,150 133,916
Less: Net Operating Loss Carryforward Benefit(272,000) (208,050) (133,916)
Net Federal Provision $ (47,400) $(151,900) $ --
--------------------- ========== ========= ==========
State:
Current $ 72,000 $ 61,311 $ 45,841
Deferred (7,600) (44,100) (6,454)
---------- --------- ----------
Totals 64,400 17,211 39,387
Less: Net Operating Loss Carryforward Benefit(54,400) (55,500) (39,387)
------- --------- ----------
Net State Provision $ 10,000 $ (38,289) $ --
------------------- ========== ========= ==========
Total Provision $ (37,400) $(190,189) $ --
--------------- ========== ========= ==========
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 ["SFAS 109"], "Accounting for Income Taxes." Under SFAS 109,
deferred tax assets and liabilities are determined based on temporary
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The Company's temporary
differences include depreciation, inventory capitalization, allowance for
doubtful accounts, vacation pay accruals, and net operating loss carryforwards.
Adoption of SFAS 109 had no material effect on the financial statements. Prior
to the adoption of SFAS 109, income tax expense was reported pursuant to
Statement of Financial Accounting Standards No. 96 "Accounting for Income
Taxes."
The Company has a deferred tax asset of $314,750 at June 30, 1996 based
primarily on net operating loss carryforwards of approximately $2,000,000.
Realization of the tax asset is dependent upon future events effecting
utilization of the net operating loss carryforwards. A valuation allowance has
been provided against this deferred asset. The valuation allowance decreased by
approximately $372,000 from the prior period.
The net deferred tax asset in the accompanying consolidated balance sheets
include the following components:
June 30,
1 9 9 6 1 9 9 5
Deferred Tax Asset - Net Operating Loss 1,120,000$ 1,436,000
Valuation Allowance (876,000) (1,248,195)
Other 70,750 75,745
Deferred Tax Assets 314,750 263,550
Deferred Tax Liabilities - Depreciation (48,750) (67,550)
-------- -----------
Net Deferred Tax Asset $ 266,000 $ 196,000
---------------------- =========== ===========
21
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
- ------------------------------------------------------------------------------
[8] Income Taxes [Continued]
Unused net operating loss carryforwards at June 30, 1996 are as follows:
Year of
Expiration Amount
2005 $ 1,100,000
2006 900,000
-----------
Total $ 2,000,000
----- ===========
The following is a reconciliation of income taxes [benefit] at the U.S.
statutory tax rate to the taxes actually provided:
Y e a r s e n d e d
J u n e 3 0,
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
U.S. Statutory Rate Applied to Pretax Income$ 337,500 $ 235,375 $ 133,915
State Taxes 72,000 61,311 45,841
Net Operating Loss Carryforward (326,400) (263,550) (173,303)
Decrease in Valuation Allowance (115,505) (237,561) --
Other (4,995) 14,236 (6,453)
---------- --------- ----------
Totals $ (37,400) $(190,189) $ --
------ ========== ========= ==========
[9] Benefit Plans
The Company maintains a defined contribution pension plan which covers
substantially all of the Company's employees. The contribution amount is
determined at the discretion of management. There was no expense for the plan
for the years ended June 30, 1996, 1995 and 1994.
Effective January 1, 1995, the Company adopted another defined contribution
[401(k)] plan covering all eligible employees. Under the terms of the Plan,
participating employees deposit a percentage of their salaries in the Plan. The
Company matches up to a certain percentage of the employees' contribution.
Expense for the years ended June 30, 1996, 1995 and 1994 was $16,882, $5,285 and
$- 0-, respectively.
[10] Stockholders' Rights Plan
On February 6, 1990, the Board of Directors adopted a Stockholders' Rights Plan,
which entitles the Right holder, upon the occurrence of specified triggering
events, i.e., the acquisition by a person or group of beneficial ownership of
20% or more of outstanding shares; the commencement of a tender offer for 20% or
more of outstanding shares [unless an offer is made for all outstanding shares
at a price deemed by the Continuing Board to be fair and in the best interest of
stockholders] and the determination by the Board that a person is an "Adverse
Person," as defined in the Rights Agreement [except an Acquiring Person or
Adverse Person] to purchase one share of common stock at an exercise price of
$7.50 per share, or in certain "take over" situations, common stock equal in
value to two times the exercise price. Subsequent to a triggering event, if the
Company is acquired in a merger or other business transaction in which the
Company is not the surviving corporation [unless Board approved], or 50% or more
of the Company's assets or earning power is sold or transferred, each holder of
a Right shall have the right to receive upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right. The Rights may be redeemed by the Company for $.01 per Right at any time
prior to the determination of the Board that a person is an Adverse Person or
ten days following a public announcement of the acquisition of, or commencement
of a tender offer for, 20% of the outstanding common stock. The Rights expire on
February 6, 2000, unless earlier redeemed.
22
<PAGE>
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
- ------------------------------------------------------------------------------
[11] Stock Options
In connection with the acquisition of Round Valley Computer Center, the Company
granted the three selling stockholders [two of whom are currently officers] five
year options expiring in 1995 to purchase an aggregate 175,000 shares of the
Company's stock at $1.00 per share. All such options were exercised during the
year ended June 30, 1995.
[12] Significant Customer
During the years ended June 30, 1996, 1995 and 1994, the Company derived 50%,
34% and 17%, respectively of its revenue for each year from one major customer.
Additionally, in the year ended June 30, 1996, the Company derived 19% of its
revenue from an affiliate of the significant customer [See Note 2].
[13] Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments" which requires disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value of the financial instruments disclosed herein is not necessarily
representative of the amount that could be realized or settled, nor does the
fair value amount consider the tax consequences of realization or settlement.
In assessing the fair value of financial instruments, the Company used a variety
of methods and assumptions, which were based on estimates of market conditions
and risks existing at that time. For certain instruments, including cash and
cash equivalents, trade receivables, trade payables, and the floor plan payable
it was concluded that the carrying amount approximated fair value for these
instruments because of their short maturities.
[14] New Authoritative Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in March of 1995.
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 is effective for financial
statements issued for fiscal years beginning after December 15, 1995. Adoption
of SFAS No. 121 is not expected to have a material impact on the Company's
financial statements.
The FASB has also issued SFAS No. 123 "Accounting for Stock-Based Compensation,"
in October 1995. SFAS No. 123 uses a fair value based method of recognition for
stock options and similar equity instruments issued to employees as contrasted
to the intrinsic valued based method of accounting prescribed by Accounting
Principles board ["APB"]Opinion No. 25, "Accounting for Stock Issued to
Employees." The recognition requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The Company will continue to apply Opinion No. 25 in recognizing its stock based
employee arrangements. The disclosure requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995. The
Company will adopt the disclosure requirements on July 1, 1996. SFAS 123 also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. Those transactions must be
accounted for based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably measurable.
This requirement is effective for transactions entered into after December 15,
1995.
. . . . . . . . . . .
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Corporation are as follows:
Name Age Position
John J. Wilk (a) 68 Chairman of the Board and Treasurer
Steven J. Wilk (a) 39 President and Director
Jay A. Smolyn 40 Vice President, Operations and Director
Mark Stanoch (b) 44 Vice President, Sales
Annette Stanoch (b) 43 Vice President, Planning
Vincent Cusumano (c)(e) 61 Secretary and Director
Earle Kunzig (c)(f) 57 Director
Raymond J. Rekuc (d)(e) 51 Director
Susan Wilk-Cort (a) Director
(a) Steven J. Wilk and Susan Wilk-Cort are respectively, the
son and daughter of John J.Wilk.
(b) Mark Stanoch and Annette Stanoch are husband and wife.
(c) Member of the Audit Committee.
(d) Chairman of the Audit Committee.
(e) Member of the Compensation Committee.
(f) Chairman of the Compensation Committee.
The Audit Committee reviews, evaluates and advises the Board of Directors
in matters relating to the Corporation's financial reporting practices, its
application of accounting principles and its internal controls. In addition, the
Audit Committee reviews transactions regarding management remuneration or
benefits.
The Compensation Committee reviews, evaluates and advises the Board of
Directors in matters relating to the Corporation's compensation of and other
employment benefits for executive officers. The Board established its
Compensation Committee in December 1994. Prior to that time compensation
decisions were subject to oversight by the entire Board of Directors. The items
reviewed by the Compensation Committee are disclosed in Item 11, "Executive
Compensation."
The Corporation does not have an Executive Committee. The term of office of
each director expires at the next annual meeting of stockholders. The term of
office of each executive officer expires at the next organizational meeting of
the Board of Directors following the next annual meeting of stockholders.
The following is a brief account of the business experience of each
TransNet director during the past five years.
John J. Wilk was president, a director and chief executive officer of
TransNet since its inception in 1969 until May 1986, when he was elected
Chairman of the Board.
Steven J. Wilk was elected a vice president of TransNet in October 1981 and
in May 1986 was elected President and Chief Executive Officer. He was elected a
director of TransNet in April 1989.
Jay A. Smolyn has been employed at TransNet since 1976 and in April 1985
became Vice President, Operations. He was elected a director of TransNet in
January 1990.
Vincent Cusumano, who was elected a TransNet director in April 1977, is,
and for the past five years has been, president and chief executive officer of
Cusumano Perma-Rail Corporation of Roselle Park, New Jersey, distributors and
installers of exterior iron railings. Mr. Cusumano is not actively engaged in
the business of the Corporation.
24
<PAGE>
Earle Kunzig, who was elected a TransNet director in November 1976, is Vice
President of Sales and a principal of Hardware Products Sales, Inc., Wayne, New
Jersey, a broker of used computer equipment and provider of computer maintenance
services. He was director of hardware operations for Computer Maintenance
Corporation, a business computer servicing organization in Secaucus, New Jersey
from 1978 through July 1985. Mr. Kunzig is not actively engaged in the business
of the Corporation.
Raymond J. Rekuc, who was elected a TransNet director in August 1983, is
currently the principal in Raymond J. Rekuc, Certified Public Accountant, an
accounting firm located in Rivervale, New Jersey. He was a partner with Hess,
Keeley & Company, Accountants and Auditors, Millburn, New Jersey from October
1980 until September 1986, when he became treasurer of Royalox International,
Inc. of Asbury, New Jersey, an importer of luggage and luggage hardware. Mr.
Rekuc provided financial consulting services to TransNet in 1990 through 1993.
Mr. Rekuc is a member of the American Institute of Certified Public Accountants
and the New Jersey Society of Certified Public Accountants, and is not actively
engaged in the business of the Corporation.
Susan Wilk-Cort joined TransNet in November 1987. Prior to that time,
she was a Senior Attorney with the U. S. Securities and Exchange Commission,
Washington, D.C., and then the Office of General Counsel of The
Federal Home Loan Bank Board. She was elected a director of TransNet in January
1990.
The two executive officers of the Corporation who are not directors, Mark
Stanoch and Annette Stanoch, were the founders of Round Valley Computer Center,
Inc. ("RVCC") in 1984. RVCC was engaged in marketing personal computers of
several manufacturers including IBM, Apple and Hewlett Packard, and providing
support and service from its two facilities at Branchburg and Lebanon, New
Jersey, at the time of its acquisition by TransNet on March 6, 1990. At the time
of the acquisition, Mark Stanoch and Annette Stanoch were respectively elected
Vice President, Sales and Vice President, Planning of TransNet.
None of the Corporation's directors are directors of any other Corporation
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 or subject to the requirements of Section 15(d) of that
Act.
Compliance with Section 16(a) of the Exchange Act
Based solely on a review of Forms 3 and 4 and any amendments thereto
furnished to the Corporation pursuant to Rule 16a-3(e) under the Securities
Exchange Act of 1934, or representations that no Forms 5 were required, the
Corporation believes that with respect to fiscal 1996, its officers, directors
and beneficial owners of more than 10% of its equity timely complied with all
applicable Section 16(a) filing requirements, with the exception of Mark Stanoch
who did not timely file his Form 4 with respect to sales of stock.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued by the Company during the three years ended on June 30, 1996, to its
Chief Executive Officer and each of its other executive officers whose total
annual salary and bonus for the fiscal year ended June 30, 1996, exceeded
$100,000. All of the Company's group life, health, hospitalization or medical
reimbursement plans, if any, do not discriminate in scope, terms or operation,
in favor of the executive officers or directors of the Company and are generally
available to all full-time salaried employees.
25
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
----------------------------------- ------------------------ -----------
Name and Year Ended Other Annual OptionRestricted LTIP All Other
Principal PositJune 30, Salary Bonus Compensation SARs Stock AwardPayouts(Compensation
- ------------------------------- ------------------ ---------------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven J. Wilk 1996 $240,833$47,560 $0 0 0 $0 0
President and C1995 $195,000$25,400 $0 0 0 $0 0
Executive Offic1994 $190,000$23,033 $0 0 0 $0 0
Mark Stanoch 1996 $130,833$36,600 $0 0 0 $0 0
Vice President1995(b) $110,000$15,200 $0 0 0 $31,200 0
Sales 1994 $107,000$18,688 $0 0 0 $18,977 0
Annette Stanoch 1996 $130,833$36,600 $0 0 0 $0 0
Vice President1995(b) $110,000$15,200 $0 0 0 $31,200 0
Planning 1994 $107,500$18,688 $0 0 0 $18,977 0
Jay Smolyn 1996 $130,833$36,600 $0 0 0 $0 0
---- ---------------- --- - - --- -
Vice President 1995 $110,000$15,200 $0 0 0 $0 0
- ---------------- ---- ---------------- --- - - -- -
Operations 1994 $105,000$18,688 $0 0 0 $0 0
- -------------- ---- ---------------- -- - - -- -
</TABLE>
(a) On March 6, 1990, in connection with its acquisition of all of the
issued and outstanding capital stock of Round Valley Computer Center, Inc.
("RVCC") from RVCC's sole stockholders, Mark Stanoch, Annette Stanoch and a
third individual, the Corporation agreed pursuant to the Acquisition Agreement
to pay the three RVCC stockholders a percentage of TransNet's consolidated
pre-tax profits (including RVCC's) varying from 10% to 12% in the aggregate with
respect to each fiscal year from 1990 through 1995.
(b) With respect to the incentive bonus paid to Mr. and Mrs. Stanoch,
respectively, for the fiscal year ended June 30, 1995, payment of $12,667
of the bonus was paid in fiscal 1996.
Employment Agreements with Executive Officers
TransNet has employment contracts in effect with Steven J. Wilk, Jay A.
Smolyn, Mark Stanoch and Annette Stanoch which expire on June 30, 2000. Pursuant
to the employment contracts, Steven J. Wilk's annual salary is "at least"
$250,000 and Mr. Smolyn's, Mr. Stanoch's and Mrs. Stanoch's salary is "at least"
$135,000 or, in each case, such greater amount as may be approved from time to
time by the Board of Directors. The contracts also provide for additional
incentive bonuses to be paid with respect to each of the Corporation's fiscal
years based upon varying percentages of the Corporation's consolidated pre-tax
income exclusive of extraordinary items (3% of the first $500,000, 4% of the
next $500,000, 5% of the next $4,000,000 and 6% of amounts in excess of
$5,000,000 for Steven J. Wilk, and 2% of pre-tax income in excess of $100,000 to
the first $500,000 and 3% in excess of $500,00 for Mr. Smolyn, Mr. Stanoch and
Mrs. Stanoch). Steven J. Wilk's employment contract provides for a continuation
of full amount of salary payments for 6 months and 50% of the full amount for
the remainder of the term in the event of illness or injury. In addition, the
employment contracts contain provisions providing in the event of a hostile
change of control of the Corporation and a resultant termination of the
employee's employment prior to expiration of the employment agreement, Mr.
Smolyn, Mr. Stanoch and Mrs. Stanoch would receive a lump sum payment equal to
80% of the greater of his/her then current annual salary or his/her previous
calendar year's gross wages including the additional incentive compensation
multiplied by the lesser of five or the number of years remaining in the
agreement. In the case of Steven J. Wilk, the contract provides that in the
event of termination of employment due to a hostile change in control, he may
elect to serve as
26
<PAGE>
consultant at his current salary and performance bonus for a period of five
years beginning at the date of the change in control, or he may elect to receive
a lump sum payment which would be the greater of 80% of his then current salary
or 80% of his previous years gross wages times five. The contracts for Mr.
Smolyn, Mr. Stanoch and Mrs. Stanoch provide that the Corporation may terminate
his/her employment, with or without cause. If said termination is without cause,
the Corporation shall pay the Employee an amount equal to compensation payable
for a period of one-half of the contract period remaining, not to exceed
compensation for 18 months. Steven J. Wilk's employment agreement provides that
should the Corporation terminate his employment (other than for the commission
of willful criminal acts), he may elect to continue as consultant to the
Corporation at his then current compensation level, including the performance
bonus, for the lesser of two (2) years or the remainder of the contract term or
he may elect to receive a lump sum payment equal to eighty percent of his then
current salary plus incentive bonus times the lesser of two (2) years or the
remainder of the contract.
Director's Compensation
During fiscal 1996, the Company paid $5,000 in directors' fees to each of
its three outside directors.
Stock Options
No options to acquire TransNet Corporation stock were held by the
Corporation's executive officers at June 30, 1996.
27
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of August 31, 1996 , the number of
shares of TransNet's common stock owned beneficially to the knowledge of the
Corporation, by each beneficial owner of more than 5% of such common stock, by
each director owning shares and by all officers and directors of the Corporation
as a group.
Name of Beneficial Amount of Shares Percent of
Owner Beneficially Owned Class
Directors ____
Steven J. Wilk (a) 393,500 shs 8%
John J. Wilk (a) 221,550 shs 4%
Jay A. Smolyn (a) 85,000 shs 2%
Susan Wilk-Cort (a) 85,500 shs 2%
Vincent Cusumano (a) 0 shs ----
Earle Kunzig (a) 1,600 shs ----
Raymond J. Rekuc (a) 0 shs ----
All officers and directors 952,650 shs (b) 18%
as a group (nine persons)
(a) The address of all directors is 45 Columbia Road, Branchburg, New
Jersey 08876.
John J. Wilk and Steven J. Wilk, chairman of the board of directors and
president of the Corporation as well as beneficial owners of 4% and 8%
respectively, of TransNet's common stock may be deemed to be a "parent" of the
Corporation within the meaning of the Securities Act of 1933.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 2 herein as to the leasing by the Corporation of its principal
facility in Branchburg, New Jersey from a partnership consisting of its Chairman
of the Board and an outside Director and its leasing of the premises utilized by
its Lebanon, New Jersey computer store from two of its officers.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
(Y) Independent Auditor's Report.
(Y) Consolidated Balance Sheets as of June 30, 1996 and
June 30, 1995.
(Y) Consolidated Statements of Operations for the Years
Ended June 30, 1996, 1995 and 1994.
(Y) Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1996, 1995 and 1994.
(Y) Consolidated Statements of Cash Flows for the Years
Ended June 30, 1996, 1995 and 1994.
(Y) Notes to Consolidated Financial Statements
(b) Reports on Form 8-K
The Corporation did not file any reports on Form 8-K with
respect to or during the quarter ended June 30, 1996.
(c) Exhibits Incorporated by Reference to
3.1(a ) Certificate of Incorporation,Exhibit 3(A) to Registration
as amended Statement on Form S-1 (File No. 2-
42279)
3.1(b) October 3, 1977 Amendment Exhibit 3(A) to Registration
to Certificate of Incorporation Statement on Form S-1 (File No. 2-
42279)
3.1 (c) March 17, 1993 Amendment
to Certificate of Incorporation
3.2(a) Amended By-Laws Exhibit 3 to Annual Report on Form
10-K for year ended June 30, 1987
3.2(b) Article VII, Section 7 of the Exhibit to Current Report on
By-Laws, as amended Form 8-K for January 25, 1990
Exhibits Incorporated by Reference to
4.1 Specimen Common Stock Exhibit 4(A) to Registration Statement
Certificate on Form S-1 (File No. 2-42279)
10.1 March 1, 1991 lease agreement Exhibit 10.1 to Annual Report between
W. Realty and the Form 10-K for year ended June 30, 1991
Corporation for premises at 45
Columbia
Road, Somerville (Branchburg), New Jersey
10.2 February 1, 1996 amendment to
Lease Agreement between W. Realty and
the Corporation for premises at
45 Columbia Road, Somerville, New Jersey
10.3 Employment Agreements effective
July 1, 1995 with Steven J. Wilk, Jay A.
Smolyn, Annette Stanoch and Mark Stanoch
10.4 Form of Rights Agreement Exhibit to Current Report on Form as of
dated as of February 6, 1990 between 8-K for January 25, 1990
29
<PAGE>
TransNet and The Trust Company of
New Jersey, as Rights Agent
10.5 Acquisition Agreement dated Exhibit to Current Report on Form March 6,
1990 between TransNet and 8-K for March 6, 1990 Selling Stockholders of
Round Valley Computer Center, Inc.
(22) Subsidiaries - The following table indicates the sole wholly-owned
active subsidiary of TransNet Corporation and its state of incorporation.
Name State of Incorporation
Century American Corporation Delaware
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Registrant: TransNet Corporation
Date: October 7, 1996 By /s/ Steven J. Wilk
---------------------
Steven J. Wilk
Chief Executive Officer
Date: October 7, 1996 By /s/ John J. Wilk
-------------------
John J. Wilk
Chief Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
By /s/ Steven J. Wilk Date:
Steven J. Wilk, Director
By /s/ John J. Wilk Date:
John J. Wilk, Director
By /s/ Jay A. Smolyn Date:
Jay A. Smolyn, Director
By /s/ Raymond J. Rekuc Date:
Raymond J. Rekuc, Director
By /s/ Susan M. Wilk Date:
Susan M. Wilk, Director
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
this schedule contains summary information extracted from the consolidated
balance sheet and the consolidated statement of operations and is qualified
in its entirety by refernec to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> jun-30-1996
<PERIOD-END> jun-30-1996
<CASH> 2,383,471
<SECURITIES> 0
<RECEIVABLES> 7,366,019
<ALLOWANCES> 0
<INVENTORY> 3,642,228
<CURRENT-ASSETS> 14,172,681
<PP&E> 1,158,083
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,382,025
<CURRENT-LIABILITIES> 5,665,923
<BONDS> 0
0
0
<COMMON> 74,695
<OTHER-SE> 10,592,657
<TOTAL-LIABILITY-AND-EQUITY> 16,382,025
<SALES> 64,200,588
<TOTAL-REVENUES> 64,200,588
<CGS> 59,974,857
<TOTAL-COSTS> 6,153,883
<OTHER-EXPENSES> (67,123)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174,731
<INCOME-PRETAX> 964,240
<INCOME-TAX> (37,400)
<INCOME-CONTINUING> 1,001,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,001,640
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
