Document/Exhibit Description Pages Size
1: 10-K Annual Report 54 241K
2: EX-23.1 Consent of Experts or Counsel 1 5K
3: EX-31.1 Certification per Sarbanes-Oxley Act (Section 302) 2± 9K
4: EX-31.2 Certification per Sarbanes-Oxley Act (Section 302) 2± 9K
5: EX-32 Certification per Sarbanes-Oxley Act (Section 906) 1 6K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended JUNE 30, 2010
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
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Commission File Number 0-8693
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TransNet Corporation
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(Exact name of registrant as specified in its charter)
Delaware 22-1892295
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
45 Columbia Road, Branchburg, New Jersey 08876-3576
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 908-253-0500
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Securities registered pursuant to Section 12 (b) of the Act: NONE
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Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 Par Value
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Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act [ ] Yes [x] No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [x] No
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 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. [ ]
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 [ ] Accelerated Filer [ ] Non-accelerated Filer [ ]
Smaller Reporting Company [x]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act) [ ] Yes [x] No
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant based upon the closing as of the last business
day of the registrant's most recently completed second quarter was approximately
$1,059,696.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares of the registrant's common stock outstanding on October 12,
2010 was 4,823,304 shares (exclusive of Treasury shares).
TABLE OF CONTENTS
[Enlarge/Download Table]
PAGE
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PART I
Item 1. Business 1
Item 1A. Risk Factors 7
Item 2. Properties 9
Item 3. Legal Proceedings 9
PART II
Item 4. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities 10
Item 6. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
Item 6A. Quantitative and Qualitative Disclosures about Market Risk 16
Item 7. Financial Statements and Supplementary Data F-1
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 17
Item 8A. Controls and Procedures 17
Item 8B. Other Information 18
PART III
Item 9. Directors, Executive Officers and Corporate Governance 19
Item 10. Executive Compensation 21
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters 25
Item 12. Certain Relationships and Related Transactions and Director Independence 26
Item 13. Principal Accountant Fees and Services 26
PART IV
Item 14. Exhibits and Financial Statement Schedules 27
Signatures 29
i
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Statements included in this Report that do not relate to present or
historical conditions are "forward-looking statements" within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and in
Section 21F of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Such forward-looking statements involve risks and uncertainties that
could cause results or outcomes to differ materially from those expressed in
such forward-looking statements. Forward-looking statements may include, without
limitation, statements relating to the corporation's plans, strategies,
objectives, expectations, and intentions and are intended to be made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements made in the Form 10-K generally are based on
our best estimates of future results, performances or achievements, predicated
upon current conditions and the most recent results of our business and
industry. Words such as "believes," "forecasts," "intends," "possible," "will,"
"expects," "estimates," "anticipates," or "plans" and similar expressions are
intended to 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. Among the important factors on which such statements are
based are assumptions concerning the anticipated growth of the information
technology industry, the continued need of current and prospective clients for
the Corporation's products and services, the availability of qualified
professional staff, and general economic conditions. We undertake no obligation
to update or revise publicly any forward-looking statements, whether as a result
of new information, future events, or otherwise.
INTRODUCTORY STATEMENT
Throughout this Annual Report on Form 10-K, the terms "the Corporation,"
"we," "us," and "our company," unless the context indicates otherwise, refers to
TransNet Corporation and our wholly-owned subsidiary, Century American
Corporation.
ii
ITEM 1. BUSINESS
TransNet Corporation ("TransNet" or the "Corporation") is a single-source
provider of technology infrastructure solutions, including unified communication
and information technology ("IT") products and solutions, and technology
management services designed to enhance clients' return on investment in IT
costs through enhancing the productivity and security of their information
systems. Through its sales and service departments, TransNet provides IT
products, technologies, solutions, and services for its customers throughout the
entire "life cycle" of their IT systems by combining a wide array of value-added
professional technical services with the sale of voice over internet protocol
("VoIP" or "IP") systems, hardware systems, network products, physical security
solutions, wireless networks and communication products, computers, peripherals,
and software. TransNet also provides IT staffing services and end-user training.
TransNet was incorporated in the State of Delaware in 1969. 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.
Century American Corporation, formerly a leasing subsidiary, is currently
inactive.
DESCRIPTION OF BUSINESS
PRODUCTS, SOURCES, AND MARKETS: IT systems are critical to an
organization's productivity and ability to compete. As a single-source unified
communications and IT provider, the Corporation partners with its clients
through all stages of the "life cycle" of the client's information system
network, providing the best solution to meet each client's individual needs. Our
sales and technical representatives meet with the client to understand the
clients' goals and challenges, and perform a needs analysis, then plan, prepare,
design, implement, operate, safeguard data, and optimize the networks as the
clients needs evolve. The sale of IT equipment and related software for VoIP
systems, network products, physical security solutions, wide-area networks
("WANs"), local area network ("LANs"), desktop and laptop computers, and video
surveillance products accounted for a significant portion of the Corporation's
revenues, accounting for 57% of revenue in fiscal 2010, and 63% of revenue in
fiscal.
TransNet provides cost-efficient and flexible IT solutions including a
variety of networks, including VoIP systems, LANs and WANs. Our network
infrastructure solutions include of network routing and switching, wireless
networks, and network security solutions. As part of its single source approach,
the Corporation is a systems integrator, combining hardware and software
products from different manufacturers into working systems for maximum
flexibility. Equipment sold by TransNet includes network electronics, VoIP
products, servers, monitors, computer hardware, printers, physical security
systems and video surveillance equipment, and operating systems software. IP is
the network data communications protocol utilized by most businesses.
Implementing voice over the IP network (VoIP) has been widely accepted due to
the benefits of increased productivity and cost savings flowing from these
systems. Most of the networks sold by TransNet are VoIP systems, which
incorporate the technological advances allowing the convergence of voice and
data, as well as video and security solutions onto the network. VoIP systems
provide great potential for expansion to incorporate various converged
technologies to meet clients' IT needs with one network. The resulting
efficiencies of operation and inherent ability to expand provide clients with
the ability and flexibility to expand systems to meet specific requirements and
as time and budgets allow.
As clients migrate to the use of VoIP systems, and the inherent
complexities of these systems, we believe that clients will choose to work with
a business such as TransNet, with expertise as an IT solutions provider. Because
clients' IT needs and IT solutions are increasingly more sophisticated, and
because technology develops at a rapid pace, TransNet keeps pace with these
changes to ensure its ability to effectively deliver advanced solutions to our
clients. To meet this demand, TransNet maintains strategic alliances with the
industry's leading IT manufacturers. TransNet does not manufacture or
1
produce any of the items it markets. We are currently an authorized reseller for
Cisco Systems, Inc. ("Cisco") as a Cisco Silver Certified Partner, Dell, Inc.,
Hewlett-Packard ("HP") as an HP Gold Provider, a State/Local Government
Specialized Partner, Elite Education Partner (K-12 and higher education),
IPcelerate, Inc. ("IPcelerate"), Lenovo, Lexmark International, Inc., McAfee,
Inc., Microsoft as a Microsoft Gold Partner, NEC-Mitsubishi Electronic Display
of America, Inc. ("NEC"), Nortel/Avaya Networks ("Nortel"), Novell, Inc.
("Novell") as a Novell Silver Partner, Smart Technologies, Symantec, Toshiba
American Information Systems, Inc. ("Toshiba"), VMware, Inc., Websense, and 3COM
(through JP). In addition to those manufacturers referenced above, we sell
products manufactured by Citrix and Xerox/Tektronix, as well as video
surveillance equipment manufactured by Bosch, and 9-1-1 emergency response and
system management solutions manufactured by PlantCML. As a result of these
alliances, combined with our expertise, we offer our clients a wide range of
products and solutions to meet the diverse range of client needs. These
alliances are subject to specified qualifications and may be terminated by
either party.
As the use of wireless networks expands, due to the ease of access to
these networks, the need for security to protect against unauthorized access is
paramount to client's requirements. In keeping with the critical need for
network security, the Corporation markets network management and control
software to provide greater security to its clients, allowing them to monitor
and control access to their networks with security measures such as user
authentication and verification. TransNet offers a full range of security
products to provide the required security safeguards, including the technologies
described below.
TransNet's strategy is to become a leading provider of advanced
technologies. To continue its commitment to provide its clients with
cutting-edge technology, and in keeping with this strategy, our unified
communications offerings include products from industry leaders, an example of
which is the addition of Cisco physical security products. The networks sold by
TransNet allow for optimization through addition of new "layers" which
incorporate new solutions converged on to an existing network. These layers may
be selectively added in increments to existing networks based on specific client
needs, budgets, and timeframes. While many of these solutions, such as the ones
discussed below, have been evolving over the past few years, it is only recently
that these technologies have evolved to the point of integration onto a VoIP
system. One example is physical security solution suites for both public and
commercial sites. The need and demand for these solutions has increased
dramatically in recent years in the aftermath of public violence, and
"situational awareness" is key. In addition to tie-ins to fire alarms and smoke
detectors, these solutions, through video surveillance cameras, as well as
personnel authentication and validations, monitor access to specific physical
locations with advanced network-administered security controls focused upon
intruder prevention and containment. These physical security solutions not only
monitor and control access to locations under specified parameters that may be
modified by the client with respect to day of the week and time of day, but
because these solutions now operate on the client's VoIP network, they connect
with the network's voice, data, and video applications to provide real-time
notification of security breaches, and allow for instant messaging of
first-responders and/or security forces, and/or to provide automatic physical
security modifications in effected areas of a location, for example, restricting
entrance or exits from a particular part of a building, or enhanced video
surveillance to improve the clarity of videos from monitoring cameras. An added
benefit may be obtained through the use of secure virtual private network
("VPN") access, whereby these systems allow monitoring of multiple areas without
incurred expenses for multiple security teams. We believe these technologies
hold great promise for educational facilities and emergency response clients, as
well as having commercial applications.
TransNet has obtained an advanced certification from Cisco to provide
solutions specifically geared to emergency communications. These solutions run
on a client's IP network and, in the event of an emergency, provide critical
services to establish communication between non-interoperable radio systems, or
to provide restoration of all telecommunication services in the event of a site
evacuation -
2
whether due to a natural or man-made disaster. Another example of TransNet's
network optimization is the expansion of unified emergency communications
technologies with the 9-1-1 emergency response call center solutions
manufactured by PlantCML, which are designed to streamline the emergency
response of municipal police departments and public safety provider clients.
The principal markets for the Corporation's products are commercial
clients, including Fortune 500 companies and large to mid-size businesses, as
well as federal, state, and local governmental agencies, and educational
customers (K-12 through higher education) (collectively "Public Sector"
clients). These markets are reached by direct sales conducted through our
corporate sales departments based in our Branchburg, New Jersey headquarters.
Our clients are located primarily in New Jersey, eastern Pennsylvania, and the
New York City metropolitan area. TransNet also serves locations of its customers
outside the region. Our sales staff is comprised of experienced sales
professionals, who are provided with on-going manufacturer training and
certification programs to ensure that our sales staff is technically proficient
to meet our clients' demand for advanced technology solutions.
Other than a small inventory of parts and supplies, the Corporation does
not maintain a standard inventory, but orders product based upon orders received
by its clients. Most products are sold pursuant to purchase orders. Larger
orders may be governed by contracts that establish specified prices. Shipments
are made from the Corporation's warehouse in Branchburg, New Jersey primarily
through common carriers. In addition, in an effort to reduce costs, the
Corporation utilizes a direct shipping program, through which product is shipped
directly to our clients from the Corporation's suppliers. Backlogs of orders are
generally immaterial, although the Corporation has experienced an increase in
open orders during the first quarter of fiscal 2011.
The marketing of IT products and related technical services is generally
not seasonal in nature.
TECHNICAL SUPPORT AND SERVICE: During the past year, our management
continued its focus on marketing a wide array of sophisticated technical
services in conjunction with equipment sales to its clients in order to maximize
profits. Services are available for a variety of products marketed by the
Corporation, and include system integration and design, preparing, implementing,
testing, operating, supporting, and optimizing the networks we market. In
addition, TransNet provides post-installation technical support and network
monitoring services, authorized warranty service, help-desk services, call
center support, and "break and fix" repair and maintenance services. Service
operations are a significant source of revenues, comprising 43% of revenues in
fiscal 2010and 37% of revenues in fiscal 2009.
TransNet's technical services are delivered by our staff of specially
certified and trained systems engineers and technical representatives. Members
of our technical staff hold a variety of specialized certifications and all
receive on-going training and certification programs to keep pace with the
demands of rapid technological development, and to obtain and maintain the
requisite qualifications to provide unparalleled levels of service. As
referenced above, TransNet maintains strategic alliances with the industry's
leading manufacturers and we often work with these partners on specified
networks. TransNet is an authorized service and support dealer for the following
manufacturers: Cisco (Silver Certified Partner), Dell Inc., Hewlett Packard (as
a Gold Partner), Lenovo, IPcelerate, Lexmark, Microsoft (as a Gold Partner), and
Nortel/Avaya.
As IT systems have evolved, so has the need for sophisticated planning,
design, and implementation services, as well as post-installation support
services. Our clients require the assistance of an experienced, qualified IT
solutions provider such as TransNet. Our technical representatives are a vital
component of system planning and design, working closely with our sales staff
and our clients to ensure the delivery and implementation of a system that
addresses all of the clients IT needs, a process that involves determining each
customer's standard hardware technology, application, and operating
3
system software, and networking platform requirements. TransNet also offers
post-installation training on the new system.
As part of the implementation process, TransNet has the capability to
provide in-house technical services to stage, configure, integrate, and test the
products prior to delivery and installation at the client site. In addition to
our project management team, our system engineers are deployed at client sites
to implement networks. After installation, our technical representatives perform
rigorous testing to ensure functionality.
Post-installation, TransNet offers a variety of support contracts tailored
to clients' support requirements to assure prompt response to network problems.
Networks have become increasingly complex, the number of wireless networks has
expanded, and the need for sophisticated services related to management and
security of network operations and proper flow and security of data likewise has
increased. Network security includes firewalls, intrusion prevention and
detection, and virtual private networks. In response to the increased security
needs of its clients, TransNet has incorporated network security management into
its service offerings. TransNet utilizes automated remote management systems to
provide real-time monitoring of clients' networks, VoIP systems and network
infrastructure and immediate detection of, and response to, network problems or
failure, or breaches in network security. Detected problems are routed through
our Support Center, and a technician is assigned to remedy the situation
remotely if possible, or dispatched to the client site, if necessary. Regular
diagnostic reports are generated, as well.
Additional post-installation services include troubleshooting, diagnosis,
and remedial action performed remotely and/or on-site by skilled system
engineers. We offer a range of guaranteed response times, based upon the
client's specific response requirements or the nature of the outage. The
availability of these services is determined by the client, ranging from 24/7
coverage to next business day response. In addition, our system engineers and
service technicians provide service and support on an on-call basis for
networks, file servers, personal computers, laptop computers, printers and other
peripheral equipment.
Many businesses elect to focus their resources on their respective core
business and, accordingly, do not have internal IT staffs, and as a result, they
outsource these services and obtain technical services from IT solutions
providers such as TransNet. The Corporation provides a wide variety of
cost-effective outsourced network services to assist customers in optimizing
technology to enhance their productivity. Many of these services may be
performed at the client site or through our Support Center. In addition to those
services referenced above, we offer services of skilled technology personnel,
including WAN and LAN planning, design, implementation and support, PC hardware
support, systems integration services, project management, help desk services,
asset management, relocation services, and installation or installation
coordination.
Through its "TechNet" program, the Corporation stations service personnel
at a customer's location on a full-time basis. Under this program, the
Corporation has entered into individual agreements with large corporate
customers to provide help-desk, technical support, and repair and maintenance
services. Technical support and services are performed pursuant to contracts of
specified terms and coverage (hourly rates or fixed price extended contracts) or
on a time and materials basis. These agreements are for twelve months or less.
These agreements contain provisions allowing for termination prior to the
expiration of the agreements. Although the agreements generally contain renewal
terms, there is no assurance that the agreements will be renewed. During the
past few years, this area of service operations has declined, as many US
businesses have moved their help-desk/technical support programs outside the
United States, a trend we believe will continue.
4
In addition to services pursuant to a contract, 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.
As referenced above, TransNet seeks highly qualified personnel and employs
experienced system engineers and technicians to whom it provides authorized
manufacturer training and certification programs on an on-going basis. The
Corporation competes with other resellers and manufacturers, as well as some
customers, to recruit and retain qualified employees.
IT STAFFING: TransNet provides a range of services to recruit and source
technical personnel to meet the specific short-term or long-term interim and
permanent staffing needs of our clients. Because of its first-hand knowledge of
the industry and the skills and experience required for IT positions, TransNet
understands its clients' staffing needs. Recruiters with experience in our
industry provide cost-effective services to locate and deliver qualified
candidates. Our staffing activities are not a material source of revenues. These
higher profit margin service revenues increased during fiscal 2010 after a
significant decrease in fiscal 2009 due to the recession and resulting decline
in staffing activities. We anticipate that this trend of increased staffing will
continue as the national economy slowly recovers, particularly because many
companies chose to supplement their staff with temporary employees rather than
hire full-time employees.
TRAINING: TransNet's headquarters houses its training center, the TransNet
Education Center, which provides training for customers. The Corporation also
provides training at customer sites. The Corporation offers comprehensive
training on hardware and software, including a wide variety of Windows and
Macintosh systems and network applications, operation, and maintenance. The
training activities of the Corporation are not a material source of revenue.
SUPPLIERS: TransNet purchases product directly from its suppliers. The
Corporation reduces its costs for through buying arrangements with Ingram Micro,
Inc., its principal supplier, and other industry suppliers. Under these
arrangements, the Corporation is able to purchase equipment of various
manufacturers at discounts and terms currently unavailable to it through other
avenues. During fiscal 2010, the majority of the revenues generated by TransNet
from product sales were attributable to products purchased from Ingram Micro,
Inc. The balance of the Corporation's product line was purchased from Tech Data
Corp., Synnex, and HP, from whom the Corporation purchases direct, as well as a
variety of sources used on an as needed order basis. Management anticipates that
Ingram Micro, Inc. will be a major supplier during fiscal 2011.
CUSTOMERS: As mentioned above, TransNet's target markets are commercial
and Public Sector customers. The majority of the Corporation's corporate
customers are commercial users located in the New Jersey - New York City
metropolitan area and eastern Pennsylvania.
No customer accounted for 10% or more of the Corporation's revenues in
fiscal 2010 or 2009.
COMPETITION: The IT markets in which we operate are highly competitive and
may be affected by rapid changes in technology and spending habits in both the
business and institutional sectors. Technological advances occur rapidly in IT
products and this increases the demand upon TransNet to quickly develop
expertise in the new products to remain competitive.
5
The Corporation is in direct competition with any business engaged in
information technology management, specifically the sale and technical support
and service of VoIP products, networks, personal computers, and related
peripherals. Competitors include relatively small and highly specialized firms;
businesses similar to TransNet; as well as some of the world's largest national
and/or global telecommunication businesses, which possess substantially greater
financial resources and substantially larger staffs, facilities and equipment.
In addition, several IT manufacturers now sell directly to the end-users. More
aggressive competition by these manufacturers could affect TransNet's ability to
effectively compete in the market. Due to price reductions of IT products,
pricing pressure is a constant competitive factor. The Corporation must lower
its prices to remain competitive, resulting in lower profit margins. Businesses
able to purchase in larger volume than TransNet have received higher discounts
from manufacturers.
While price has become the principal competitive factor in the IT market,
we believe that other factors are important to prospective and existing clients.
TransNet also competes on the basis of technical expertise in sales and quality
of support services, broad range of product offerings, and flexibility in design
of customer specific solutions, performance, product quality and reliability,
brand, distribution, account relationships, customer service and support.
Management believes that TransNet's understanding of customers' needs and its
ability to combine competitive pricing with responsive and sophisticated support
services allow it to compete effectively against a wide variety of alternative
sales and distribution channels, including independent dealers, direct mail and
telemarketing, superstores and direct sales by manufacturers (including some of
its own suppliers). In a cost-effective marketing approach, the Corporation now
targets larger customers with more diversified and more highly sophisticated
product and technical support 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.
During the past few years, the industry has experienced and continues to
experience a significant amount of consolidation. In the future, TransNet may
face fewer but larger competitors as the result of such consolidation.
TRADEMARKS: Other than the trademark of its name, TransNet holds no
patents or trademarks.
TransNet may copyright its proprietary information such as documents
related to network design and implementation.
EMPLOYEES: As of September 15, 2010, the Corporation employed 85 full-time
employees and 23 part-time employees. None of its employees are subject to
collective bargaining agreements.
INFORMATION: The Corporation files its annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed pursuant to Section 13(a) and 15(d) of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission. The public may
read and copy any material filed with the Commission at the SEC's Public
Reference Room at 100 F Street, NE, Washington, DC 20549, on office business
days during the hours of 10:00 am to 3:00 pm. The public may obtain information
on the operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the Commission (http://www.sec.gov). The Corporation's
website is http://www.transnet.com.
6
ITEM 1A. RISK FACTORS
The following are risks related to our business:
OUR OPERATING RESULTS HAVE VARIED, AND MAY CONTINUE TO VARY. WE RECOGNIZED
LOSSES FOR THE PAST TWO FISCAL YEARS.
We incurred losses of approximately $1.6 million for fiscal 2010 and $2.7
million for fiscal 2009. Our net losses may continue and our ability to return
to profitability will be impacted by:
o the short-term nature of client's commitments because of shorter-term
projects rather than long-term contracts
o patterns of capital spending by clients, as the industry continues to
experience a sluggish IT spending environment
o general economic conditions
o pricing changes in response to competitive factors, often driving prices
and profit margins down
o our revenues may not increase or remain at current levels
o our ability to access sufficient working capital and/or vendor credit to
fund sales and operating activities
o timing and customer acceptance of new product and service offerings
o trends in IT outsourcing, as clients reduce the number of vendors
o the availability and related costs of attracting and retaining qualified
sales and technical personnel
FAILURE TO COMPETE EFFECTIVELY IN THE MARKETPLACE COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATION AND FINANCIAL CONDITION.
We operate in an intensely competitive industry. We compete with small
boutique IT firms as well as large, global companies, including manufacturers
who now compete against us to sell directly to the customer. Although we feel we
offer our clients a wide range of highly sophisticated professional services in
conjunction with a select product line, increased competition may create greater
pressure to further reduce prices, which could have an adverse effect on our
business, results of operations and financial condition.
GENERAL MARKET AND ECONOMIC CONDITIONS, INCLUDING THOSE RELATED TO CREDIT
MARKETS, MAY CONTINUE TO ADVERSELY IMPACT OUR BUSINESS AND RESULTS OF
OPERATIONS.
Economic conditions since September 2008, notably the decline in the
economy, businesses, consumer confidence, and increased unemployment have
resulted in volatility and general economic slowdowns not seen in decades.
National economic conditions have resulted in dramatic changes in the
availability of credit and dramatic slowdowns in business. Continued concerns
about economic recovery have hampered growth. As a result of these conditions
the availability of capital and credit has been and may continue to be adversely
affected. If these market conditions continue, they may limit our ability and
that of our customers to timely access the capital and credit necessary for
business operations, and may affect our financial condition and results of
operation.
WE REQUIRE ACCESS TO WORKING CAPITAL AND VENDOR CREDIT TO FUND OUR DAY-TO-DAY
OPERATIONS.
We require access to working capital to fund our day-to-day operations,
particularly at the end of our fiscal quarters when demand for our products and
services increase. Termination of the arrangements or acceleration of payment
due under these arrangements would have an adverse impact upon our financial
condition.
7
WE MUST ATTRACT AND RETAIN QUALIFIED SALES AND TECHNICAL PERSONNEL.
We rely upon our ability to find, attract, and retain qualified sales and
technical personnel. At present, there is a shortage of qualified personnel and
we are in direct competition for these applicants with larger businesses to hire
from this limited pool of qualified applicants.
WE DERIVE A SIGNIFICANT AMOUNT OF OUR REVENUE FROM A RELATIVELY SMALL NUMBER OF
CLIENTS. IF WE WERE TO LOSE ONE OR MORE OF THESE CLIENTS, AND THE BUSINESS WERE
NOT REPLACED, IT COULD HAVE AN ADVERSE IMPACT ON OUR RESULTS OF OPERATIONS AND
OUR FINANCIAL CONDITION.
While no customer currently accounts for 10% or more of our revenues, our
top ten clients account for a significant amount of our business. Although we
anticipate our business to continue with these clients, the loss of a number of
large clients could have an adverse impact on our Corporation's results of
operations if that revenue stream was not replaced from alternative sources.
WE MUST MAINTAIN AUTHORIZATIONS FROM MAJOR MANUFACTURERS TO OPERATE AS AN
AUTHORIZED RESELLER AND/OR SERVICE PROVIDER TO PROVIDE THE RESPECTIVE
MANUFACTURER'S PRODUCTS AND SERVICES.
We must maintain our authorized status as an authorized reseller or
authorized service provider in order to market the products of most major
manufacturers. Such authorizations are conditioned upon our continued ability to
meet specified requirements, usually related to technical skill levels of our
personnel. Although we do not foresee any problem in maintaining our
authorizations or obtaining future authorizations, without these authorizations
or suitable replacements, we would not be able to offer our clients the products
we currently market.
WE PURCHASE PRODUCT FROM A SMALL NUMBER OF SUPPLIERS.
The majority of our purchases are made from a single supplier who provides
us with discounted prices. Although the product purchased from that supplier is
available from other sources, if that supplier relationship were terminated, we
may not be able to obtain the products at the same discounted pricing, and that
may have an adverse impact on our ability to compete and our profit margins.
A PORTION OF OUR REVENUE COMES FROM GOVERNMENTAL CLIENTS.
A portion of our revenue is derived from contracts with state and local
governments and governmental agencies. Future statutes and/or regulations,
and/or changes in purchasing methods or purchasing levels by these entities may
affect future revenues and/or profitability of these contracts.
OUR INDUSTRY IS SUBJECT TO PRICING PRESSURES.
Although we believe our pricing is competitive, certain of our competitors
may offer more aggressive pricing to customers. Pricing pressure and competition
for a reduced amount of business have intensified in the current economic
downturn. As we have previously reported, the IT industry is subject to price
reductions, and we believe that the current economic conditions may continue to
intensify pricing pressure. As a result, we may have to lower prices to remain
competitive, and reduced prices would require us to sell a higher volume of
sales and services, and may have a negative effect upon our gross profit
margins.
THERE HAS BEEN SIGNIFICANT VOLATILITY IN OUR STOCK PRICE.
The market for our common stock has a limited daily trading volume, and
therefore even moderate selling pressure could have a depressive effect on our
stock price. Price volatility may continue. The stock price is affected by
revenue, earning results, and general economic conditions.
8
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 annual rental of $185,605, expires in February
2011. The building is leased from East Coast Property Management, LLC, a related
party. See Item 13. Certain Relationships and Related Transactions.
See Note [6][A] of the Notes to Consolidated Financial Statements with
respect to the Corporation's commitments for leased facilities.
ITEM 3. LEGAL PROCEEDINGS
The Corporation is not currently a party to any legal proceeding that it
regards as material.
9
PART II
ITEM 4. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITYHOLDERS
MATTERS
TransNet's common stock is quoted and traded on the OTC Bulletin Board
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 reported by the National Association of Securities Dealers.
Calendar Year Closing Sales Prices
------------- --------------------
High Low
--------- --------
2008
-----
Third Quarter $ 0.60 $ 0.29
Fourth Quarter 0.36 0.14
2009
-----
First Quarter $ 0.26 $ 0.13
Second Quarter 0.22 0.14
Third Quarter 0.25 0.17
Fourth Quarter 0.34 0.25
2010
-----
First Quarter $ 0.32 $ 0.23
Second Quarter 0.33 0.15
As of September 21, 2010, the number of shareholders of record of
TransNet's common stock was 2,145. 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 declared a dividend of $0.07 per share on April 28, 2004, payable
to shareholders on May 14, 2004. The dividend was paid on June 1, 2004. This was
the first dividend paid by the Corporation. The Board of Directors may consider
future dividends, but no assurance can be given that additional dividends will
be issued. No other dividends have been declared.
10
ITEM 6. 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
Revenues for the fiscal year ended June 30, 2010 were $20,943,304, as
compared to $24,142,487 for fiscal 2009. Revenues from equipment sales decreased
in fiscal 2010 due to decreased client demand stemming from the recession,
product constraints on certain VoIP product, and the increase in direct
shipments, as discussed below. During fiscal 2009, revenues for equipment sales
and the provision of technical services were significantly reduced as a direct
result of the slowdown resulting from the national recession. For the fiscal
year ended June 30, 2010, the Corporation reported a net loss of $1,566,773 as
compared to net loss of $2,735,097 for the year ended June 30, 2009.
During the fiscal year ended June 30, 2010, revenues from equipment sales
were reduced as a result of a number of factors, which included the continuation
of the economic slowdown. Operations were significantly affected by the freeze
on purchases of equipment and services implemented by the State of New Jersey
following the November 2009 gubernatorial election as the new administration was
established and evaluated the State's financial condition. This reduced
equipment and service revenues from state and local governmental agencies and
educational customers (K-12 through higher education) (collectively "Public
Sector" clients). As a result, sales to Public Sector clients during the second
quarter and most of fiscal 2010 were lower than anticipated. During the fourth
quarter, the State resumed purchases and the Corporation has received orders
from its Public Sector clients. Management notes that no existing orders were
cancelled as a result of the State freeze, but these clients delayed
implementation of orders, however, which contributed to a decrease in service
revenues. Demand for 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's new purchasing contracts for growth of our business with Public
Sector clients and that sales under these contracts will have a significant and
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.
Changes in purchasing mechanisms by the State enacted in fiscal 2010 also
reduced revenue levels by requiring certain purchases made by State entities be
made directly from manufacturers. Implementation of this new "agency model"
contributed to the decrease in equipment sales revenue. Under this 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
-11-
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. Rebates received
during fiscal 2010 did not have a material impact upon cost of equipment sold.
In addition to the Public Sector freeze, the Corporation's operations were
significantly impacted by unanticipated product constraints on equipment
manufactured by Cisco Systems, Inc. ("Cisco"). Cisco product comprises a
significant portion of system components for VoIP systems provided by TransNet,
and result in higher profit margin transactions. Cisco curtailed its
manufacturing when demand for its products fell as the recession deepened. As
customer orders increased from pent-up demand, indicating possible beginnings of
an economic recovery, Cisco's reduced levels of production were insufficient to
meet its industry partners' growing demand for its product. In response to these
constraints, Management implemented expense reduction measures until product
levels improved and returned to normal levels. The constraints affected
operations through the fourth quarter of fiscal 2010. During that quarter, we
received a high volume of orders for product and related services, many of which
could not be filled because product was not available. As a result, TransNet
entered the first quarter of fiscal 2011 with a near record level of open
orders.
The losses for fiscal 2010 were attributable to the effects of the State
freeze and product constraints, which decreased overall revenues, and
particularly affected higher profit margin service revenues. Despite the Cisco
shortages, as a result of sales of higher profit IT solutions such as physical
security systems, gross profit margin increased on equipment sales for fiscal
2010 compared to the fiscal 2009. Because projects were delayed due to the
freeze and constraints, the Corporation absorbed expenses related to
under-utilization of its technical staff during the year. This is particularly
significant regarding the compensation levels for the more highly skilled
members of the staff, whose skills demand higher wages.
Despite the decreases related to product constraints, service revenues
increased during the fiscal 2010 as compared to the prior year in conjunction
with increased demand for services during the first two quarters of fiscal 2010.
Demand for our products and services in the fourth quarter of fiscal 2010
increased due in part to the State of New Jersey's resumption of purchases and
to the easing of pent-up demand for IT products and services.
Revenues from equipment sales in fiscal 2009 period reflected the overall
slowdown in business. The loss in 2009 was primarily due to the slowdown in
business and delays in projects as a result of the economic downturn, combined
with lower profit margin equipment sales and technical services. Equipment sales
during fiscal 2009 included a significantly reduced amount of higher profit
equipment, such as VoIP systems, resulting from the restriction on capital
expenditures by many clients. This negatively impacted profit margins.
Uncertainty of our Public Sector clients regarding the proposed federal stimulus
package and state funding added to the slowdown while their projects were on
hold pending funding parameters. In addition to the economic downturn, during
fiscal 2009 delays in orders resulting from prolonged negotiations in connection
with changes instituted by the State of New Jersey to modify the channels
through which the State purchases IT equipment and services. As disclosed,
purchasing by Public Sector clients throughout fiscal 2009 was significantly
reduced in anticipation of changes to purchasing mechanisms, as an extended
process of negotiation of new contracts between the
-12-
State and major IT manufacturers took place. The contracts were finalized and
executed in the third quarter of fiscal 2009.
Service revenues in fiscal 2009 decreased as the result of an overall
slowdown in new orders, the recession-related "on hold" status of several
projects pending third party progress on the projects, and the resulting
downtime of some technical personnel. During that year, construction related
delays, which are not uncommon, occurred in a number of projects because the
Corporation's portion of the project could not be performed until a specified
amount of the construction has been completed and/or certain determinations made
as to specifics of the project due to customer-originated change orders. Due to
the delays, the Corporation absorbed expenses related to under-utilization of
its technical staff, particularly related to more highly compensation
higher-skilled technical engineers.
Our service revenues are generated primarily by services including system
planning, design, configuration, installation and implementation, testing, and
optimization, often related to the sale and implementation of VoIP networks.
Service related revenues, a material portion of revenues, are significant in
their contributions to net income because these operations yield a higher profit
margin than equipment sales. During fiscal 2010, Management refocused its
attention on utilization rates of its service technicians. As previously
reported, project work has become the major source of service revenue
generation. Revenues are also generated by a variety of support contracts with a
number of corporate and Public Sector customers. Under these agreements, which
provide service and support for customers' networks, personal computers, and
peripherals, 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 provide a
range of guaranteed response times, based upon the client's specific response
requirements or the nature of the outage. The availability of these services is
determined by the client, from 24/7 to next business day. These contracts are
short-term, and contain provisions that permit early termination. Although the
contracts generally contain renewal terms, there is no assurance that such
renewals will occur. Our system engineers and service technicians also provide
service and support on an on-call basis.
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. This area of our operations was significantly impacted by
the recession during fiscal 2009 as staffing operations virtually ground to a
halt as businesses curtailed staffing and reduced their personnel levels. During
fiscal 2010, however, businesses were 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, 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. 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.
As the economy slowly recovers from the recession, credit remains tight,
and clients often face reduced budgets. We are confronted by continued
restrictions on capital expenditures for many clients, who have restricted their
IT budgetary spending and scrutinized their IT spending and the related returns
on investments before incurring new expenses, often delaying purchases. As
stated above, Management responded by refocusing our attention on sales of
higher profit margin IT equipment, optimizing the utilization rates of its
service technicians, and reducing selling and administrative expenses.
Management believes that as a single-source provider, the Corporation will be in
a better position to satisfy client demands for cost-effectiveness and a
suitable return on investment. The VoIP networks marketed by TransNet are
designed with the capacity for "optimization" through the subsequent addition of
layers of
-13-
solutions, for example, physical security solutions. We are confident that our
strategy of being an advanced solutions provider will result in future revenues
from clients' optimization of already installed networks. In conjunction with
these solutions, we note the technologies of the integration of voice, video,
and data that provide clients with new levels of operating efficiencies.
Management has also directed attention to new service offerings that take
into account clients' cost constraints. The Corporation modified its service
offerings in response to industry fluctuations, and employs experienced and
specially certified systems engineers and project managers to respond to VoIP
projects. We believe our focus upon higher margin services related to VoIP/IP
Telephony and physical security will lead to growth and opportunities for the
Corporation. 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.
In addition to the challenging economic environment, the computer industry has
experienced a continuing trend of decreasing prices of computers and related
equipment. 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. Another result of the price decreases has been 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. 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 time periods, 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. Management also utilizes approaches such as
manufacturers' direct shipment as a means to reduce equipment related overhead
costs which increases profits. Management's current marketing strategy is
designed to shift its focus to provision of technical services and to sales of
lower revenue/higher profit margin products related to service and support
operations. Management's efforts include targeting 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. Management believes that product
sales will continue to generate a significant percentage of the Company's
revenues.
The Corporation's performance is also impacted by other factors, many of
which are not within its control. These factors include: 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;
product constraints; and industry conditions.
As a result of reduced revenues for fiscal 2010, selling, general and
administrative expenses, despite an actual decrease in expenses, remained
approximately the same percentage of revenues as fiscal 2009, translating to 25%
of revenues. Actual expenses decreased significantly during fiscal 2010 as the
Corporation undertook a number of staff reductions, and implemented salary
freezes, salary reductions,
-14-
and other cost reduction programs. The results of these cost-saving measures
will be realized more fully going forward. Management continues its efforts to
control expenses, despite increasing personnel related costs, such as health
benefits. During the second half of fiscal 2009, management aggressively
increased its efforts to reduce expenses and adjusted the allocation of
personnel to increase the number of employees providing billable services.
Interest income decreased in fiscal 2010 as compared to fiscal 2009 as a
result of lower amounts invested. Interest expense increased in the fiscal 2010
compared to prior year as a result of increased borrowing to fund equipment
sales. The Corporation utilizes vendor credit options, which provide more
favorable terms.
LIQUIDITY AND CAPITAL RESOURCES
There are no material commitments of the Corporation's capital resources,
other than leases, third party lines of credit, and employment contracts.
Cash and cash equivalents decreased in fiscal 2010, as cash was used to
fund operations. Cash levels continue to be impacted by the slow payment cycles
of Public Sector clients and extended payment cycles from some commercial
clients as a result of the economic downturn. 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 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, as
referenced above, during fiscal 2010 and 2009, the Corporation absorbed costs
related to downtime of a portion of our technical staff which resulted from the
slowdown of new business resulting from purchasing freezes and product
constraints.
Accounts receivable decreased at June 30, 2010 compared to the prior year
due to reduced revenues. The timing of our collection of accounts receivable 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. 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 slightly in fiscal 2010 as compared to the prior
year as a result of direct shipments and revenue levels. Management minimizes
the amount of inventory on hand. The decrease in accounts payable for the period
ended June 30, 2010 is attributable to the utilization of lines of credit to
finance equipment sales.
We require access to working capital from third party lines 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 efforts to improve our working capital position and implemented further
measures to reduce headcount, streamline operations, and manage costs in
response to the impact
-15-
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. The
Corporation previously financed inventory purchases through a credit line with a
finance company, with a maximum credit line of $2,500,000, which was terminated
by the Corporation during the fourth quarter of fiscal 2009 because the modified
terms were unfavorable. Management utilizes various vendor credit options, all
of which provide the Corporation with more favorable payment terms than those
available under the prior credit line. Management believes that its current
levels of available credit will be sufficient to meets its requirements going
forward. The unavailability of such 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
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 MICROCOMPUTER 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 6A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached.
-16-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
TransNet Corporation and Subsidiary
Somerville, New Jersey
We have audited the consolidated balance sheets of TransNet Corporation and
Subsidiary as of June 30, 2010 and 2009, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the two years in
the period ended June 30, 2010. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall 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, 2010 and 2009, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended June 30, 2010, in conformity with U.S. generally
accepted accounting principles.
/s/ MSPC
Certified Public Accountants and Advisors,
A Professional Corporation
Cranford, New Jersey
October 13, 2010
F-1
TRANSNET CORPORATION AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
JUNE 30,
------------------------------
2010 2009
-------------- -------------
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 318,377 $ 1,654,366
Restricted Cash 876,147 863,621
Accounts Receivable - Net 3,532,046 4,392,995
Inventories - Net 247,742 261,456
Other Current Assets 3,587 11,152
-------------- -------------
TOTAL CURRENT ASSETS 4,977,899 7,183,590
PROPERTY AND EQUIPMENT - NET 56,309 120,690
OTHER ASSETS 229,335 216,755
-------------- -------------
TOTAL ASSETS $ 5,263,543 $ 7,521,035
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable $ 1,998,180 $ 3,481,381
Accrued Expenses 343,838 403,181
Unearned Revenue 193,222 365,442
Due to Officers 75,000 --
Lines of Credit 1,777,139 828,094
-------------- -------------
TOTAL CURRENT LIABILITIES 4,387,379 5,078,098
-------------- -------------
STOCKHOLDERS' EQUITY:
Capital Stock - Common, $.01 Par Value,
Authorized 15,000,000 Shares; Issued
7,408,524 Shares at June 30, 2010 And
2009 [of which 2,585,220 are in Treasury
at June 30, 2010 and 2009] 74,085 74,085
Additional Paid-in Capital 10,574,670 10,574,670
Accumulated Deficit (2,619,756) (1,052,983)
-------------- -------------
Totals 8,028,999 9,595,772
Less: Treasury Stock - At Cost (7,152,835) (7,152,835)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 876,164 2,442,937
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,263,543 $ 7,521,035
============== =============
See Notes to Consolidated Financial Statements.
F-2
TRANSNET CORPORATION AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
YEARS ENDED
------------------------------
JUNE 30,
------------------------------
2010 2009
-------------- -------------
REVENUE:
Equipment $ 11,999,064 $ 15,190,823
Services 8,944,240 8,951,664
-------------- -------------
TOTAL REVENUE 20,943,304 24,142,487
-------------- -------------
COST OF REVENUE:
Equipment 9,874,356 13,599,527
Services 7,367,445 7,426,305
-------------- -------------
TOTAL COST OF REVENUE 17,241,801 21,025,832
-------------- -------------
GROSS PROFIT 3,701,503 3,116,655
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,217,162 5,846,897
OPERATING LOSS (1,515,659) (2,730,242)
OTHER INCOME [LOSS]:
Interest Income 13,127 40,125
Interest Expense (67,988) (55,492)
Gain on Sale of Asset 3,747 10,512
-------------- -------------
LOSS BEFORE INCOME TAX BENEFIT [EXPENSE] (1,566,773) (2,735,097)
INCOME TAX BENEFIT [EXPENSES] -- --
-------------- -------------
NET LOSS $ (1,566,773) $ (2,735,097)
============== =============
BASIC AND DILUTED
NET LOSS PER COMMON SHARE $ (.32) $ (.57)
============== =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 4,823,304 4,823,304
============== =============
See Notes to Consolidated Financial Statements.
F-3
TRANSNET CORPORATION AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
[Enlarge/Download Table]
RETAINED
COMMON STOCK EARNINGS TREASURY STOCK TOTAL
----------------------- PAID-IN [ACCUMULATED -------------------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT] SHARES AMOUNT EQUITY
----------- --------- ------------ ------------ ----------- ------------ -------------
BALANCE - JUNE 30, 2008 7,408,524 74,085 10,574,670 1,682,114 (2,585,220) (7,152,835) 5,178,034
Net Loss -- -- -- (2,735,097) -- -- (2,735,097)
----------- --------- ------------ ------------ ----------- ------------ -------------
BALANCE - JUNE 30, 2009 7,408,524 74,085 10,574,670 (1,052,983) (2,585,220) (7,152,835) 2,442,937
Net Loss -- -- -- (1,566,772) -- -- (1,566,772)
----------- --------- ------------ ------------- ----------- ------------ --------------
BALANCE - JUNE 30, 2010 7,408,524 $ 74,085 $ 10,574,670 $ (2,619,755) (2,585,220) $ (7,152,835) $ 876,165
=========== ========= ============ ============= =========== ============ ==============
See Notes to Consolidated Financial Statements.
F-4
TRANSNET CORPORATION AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
YEARS ENDED
---------------------------
JUNE 30,
---------------------------
2010 2009
------------ ------------
OPERATING ACTIVITIES:
Net Loss $ (1,566,773) $ (2,735,097)
------------ ------------
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 86,399 148,454
Gain on Sale of Asset (3,747) (10,512)
Provision for Doubtful Accounts (97,378) 5,000
Deferred Income Taxes -- --
Inventory Reserve Adjustment -- (4,000)
Changes in Assets and Liabilities:
[Increase] Decrease in:
Restricted Cash (12,526) (26,611)
Accounts Receivable 958,327 2,079,953
Inventories 13,714 8,521
Other Current Assets 7,565 6,822
Other Assets (12,580) (12,760)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (1,542,544) 2,685,540
Unearned Revenue (172,220) 308,156
------------ ------------
Total Adjustments (774,990) 5,188,563
------------ ------------
NET CASH - OPERATING ACTIVITIES (2,341,763) 2,453,466
------------ ------------
INVESTING ACTIVITIES:
Capital Expenditures (24,271) (21,770)
Proceeds from Sale of Asset 6,000 35,000
------------ ------------
NET CASH - INVESTING ACTIVITIES (18,271) 13,230
------------ ------------
FINANCING ACTIVITIES:
Loan from Officers 75,000 --
Lines of Credit - Net 949,045 (1,126,948)
------------ ------------
NET CASH - FINANCING ACTIVITIES 1,024,045 (1,126,948)
------------ ------------
NET INCREASE [DECREASE] IN CASH AND CASH
EQUIVALENTS (1,335,989) 1,339,748
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 1,654,366 314,618
------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 318,377 $ 1,654,366
============ ============
See Notes to Consolidated Financial Statements.
F-5
TRANSNET CORPORATION AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
YEARS ENDED
-------------------
JUNE 30,
-------------------
2010 2009
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 69,845 $ 52,398
Income Taxes $ -- $ --
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the fiscal year ended June 30, 2010, the Company traded-in an automobile
with a book value of $2,253 in exchange for $6,000 towards a new leased car.
See Notes to Consolidated Financial Statements.
F-6
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
[1] NATURE OF OPERATIONS
TransNet Corporation ("TransNet" or the "Corporation") is a single-source
provider of unified communication and information technology ("IT") products and
solutions, and technology management services designed to enhance clients'
return on investment in IT costs through enhancing the productivity and security
of their information systems. Through its sales and service departments,
TransNet provides IT products, technologies, solutions, and services for its
customers throughout the entire "life cycle" of their IT systems by combining a
wide array of value-added professional technical services with the sale of VoIP
systems, hardware systems, network products, wireless networks and communication
products, computer peripherals, and software. TransNet was incorporated in the
State of Delaware in 1969. 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. Century American
Corporation, formerly a leasing subsidiary, is currently inactive.
The sale and service of IT is highly competitive and may be affected by rapid
changes in technology and spending habits in both the business and institutional
sectors.
[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] RECLASSIFICATIONS - Certain reclassifications have been made to prior period
financial statements to conform to the current year presentation.
[C] CASH AND CASH EQUIVALENTS - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
[D] ACCOUNTS RECEIVABLE - Accounts receivable have been reduced by an allowance
for doubtful accounts of $24,546 and $120,000 as of June 30, 2010 and 2009,
respectively.
[E] INVENTORIES - The Company's inventory is valued at the lower of cost
[determined on the moving average-cost basis] or market. Inventory has been
reduced by an allowance of $3,000 at June 30, 2010 and 2009, respectively.
[F] 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 including renewal option periods, or their
estimated useful life.
[G] IMPAIRMENT OF LONG LIVED ASSETS - Certain long-term assets of the Company
are reviewed quarterly as to whether their carrying value has become impaired,
pursuant to guidance established in ASC 360 "Property, Plant, and Equipment."
Management considers assets to be impaired if the carrying value exceeds the
future projected cash flows from related operations [undiscounted and without
interest charges]. If impairment is deemed to exist, the assets will be written
down to fair value. Management also re-evaluates the periods of amortization to
determine whether subsequent events and circumstances warrant revised estimates
of useful lives. For the two year period ended June 30, 2010, the Company has
not recognized an impairment of a long-lived asset.
F-7
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
--------------------------------------------------------------------------------
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
[H] 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, in accordance with ASC 605 "Revenue Recognition."
Revenues related to services provided are recognized ratably over the term of
the underlying customer contract or at the end of the contract when obligations
have been satisfied, in accordance with ASC 605 "Revenue Recognition." For
service performed on a time and materials basis, revenue is recognized upon
performance.
The Corporation also enters into revenue arrangements in which customers may
purchase a combination of equipment and services (multiple-element
arrangements). When vendor-specific objective evidence ("VSOE") of fair value
exists for all elements, revenue is allocated to each element based on the
relative fair value of each of the elements. VSOE of fair value is established
by the price charged when that element is sold separately. For services, VSOE of
fair value is established by the amounts charged when they are sold separately.
For arrangements where VSOE of fair value exists only for the undelivered
elements, we defer the full fair value of the undelivered elements and recognize
the difference between the total arrangement fee and the amount deferred for the
undelivered items as revenue, assuming all other criteria for revenue
recognition have been met.
[I] EARNINGS PER SHARE - We follow the provisions of ASC 260 "Earnings Per
Share." Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. ASC 260 also requires a dual presentation of basic and
diluted earnings per share on the face of the statement of operations for all
companies with complex capital structures. Diluted earnings per share reflects
the amount of earnings for the period available to each share of common stock
outstanding during the reporting period, such as common shares that could result
from the potential exercise or conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an anti-dilutive
effect on per share amounts [i.e., increasing earnings per share or reducing
loss per share]. The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants. Equity instruments that may dilute earnings per share in the future
are listed in Note 10.
[J] CREDIT RISK - Financial instruments that potentially subject the Company to
concentrations of credit risk are cash and cash equivalents and accounts
receivable arising from its normal business activities. 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 places its cash with high credit financial institutions. The amount on
deposit in any one institution that exceeds federally insured limits is subject
to credit risks. As of June 30, 2010, the Company had approximately $626,147
which is subject to such risk. The Company does not require collateral or other
security to support financial instruments subject to credit risk.
F-8
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3
--------------------------------------------------------------------------------
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
[K] BUSINESS CONCENTRATIONS - The Company is engaged in the sale of and
technical support, service, and technology management service of unified
communication and information technology ["IT"] products and solutions,
including Voice over IP ["VoIP"] systems, hardware systems, network products,
physical security solutions, wireless networks and communication products,
computers, printers, peripherals, and software, to commercial and public sector
clients located primarily in the New Jersey, Eastern Pennsylvania, and the New
York City Metropolitan area. The Company is currently an authorized dealer for
several IT manufacturers including Apple, Cisco, Dell, Inc., Hewlett-Packard,
IBM, Lenovo, Microsoft, NEC, Novell, Symantec, Toshiba, VMware, and Web sense.
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.
[L] 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.
[M] STOCK OPTIONS ISSUED TO EMPLOYEES - We adopted the fair value recognitions
provisions of ASC 718 "Compensation - Stock Compensation", under the modified
prospective transition method. Prior to July 1, 2005, we applied the Accounting
Principles Board (APB) Opinion No. 25 intrinsic value accounting method for its
stock incentive plans. Under the modified prospective transition method, the
fair value recognition provisions apply only to new awards or awards modified
after July 1, 2005. Additionally, the fair value of existing unvested awards at
the date of adoption is recorded in compensation expense over the remaining
requisite service period.
[N] DEFERRED INCOME TAXES - Pursuant to ASC 740 "Income Taxes," income tax
expense [or benefit] for the year is the sum of deferred tax expense [or
benefit] and income taxes currently payable [or refundable]. Deferred tax
expense [or benefit] is the change during the year in a company's deferred tax
liabilities and assets. Deferred tax liabilities and assets are determined based
on differences between financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
[3] INVENTORIES
Inventories consist of the following at June 30, 2010 and 2009:
June 30,
----------------------------------
2010 2009
-------------- ---------------
Product Inventory $ 248,788 $ 262,118
Service Parts 1,954 2,338
Obsolescence Reserve (3,000) (3,000)
-------------- --------------
TOTALS $ 247,742 $ 261,456
============== ==============
F-9
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4
--------------------------------------------------------------------------------
[4] PROPERTY, EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment and accumulated depreciation and amortization as of June
30, 2010 and 2009 are as follows:
June 30,
----------------------------
2010 2009
------------- ------------
Automobiles $ 149,547 $ 174,937
Office Equipment 2,285,121 2,263,950
Furniture and Fixtures 344,010 344,009
Leasehold Improvements 273,102 273,102
Computer Software 237,621 234,321
------------- ------------
Totals 3,289,401 3,290,319
Less: Accumulated Depreciation and Amortization 3,233,092 3,169,629
------------- ------------
PROPERTY AND EQUIPMENT - NET $ 56,309 $ 120,690
============= ============
Total depreciation and amortization expense amounted to $86,399 and $148,454 for
the years ended June 30, 2010 and 2009, respectively.
[5] INTANGIBLE ASSETS AND GOODWILL
In accordance with ASC 350 "Intangibles - Goodwill and Other," we test, at least
annually, our intangible assets and goodwill for impairment by comparing fair
value to the carrying value. No impairment was computed for other intangible
assets.
The following intangible assets and accumulated amortization as of June 30, 2010
and 2009 are included in other assets:
JUNE 30, 2010:
[Download Table]
Weighted
Average Net of
Amortization Accumulated Accumulated
Intangible Assets Period [Years] Cost Amortization Amortization
-------------------- -------------- ------------ ------------ ------------
Licenses 20 $ 20,000 $ 20,000 $ --
============ ============ ============
JUNE 30, 2009:
[Download Table]
Weighted
Average Net of
Amortization Accumulated Accumulated
Intangible Assets Period [Years] Cost Amortization Amortization
-------------------- -------------- ------------ ------------ ------------
Licenses 20 $ 20,000 $ 19,833 $ 167
============ ============ ============
For the years ended June 30, 2010 and 2009, amortization expense of intangible
assets was $0 and $167, respectively.
F-10
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #5
--------------------------------------------------------------------------------
[6] COMMITMENTS AND RELATED PARTY TRANSACTIONS
[A] LEASING AGREEMENTS - In April 2004, the Company terminated its prior lease
and entered into a new leasing agreement with East Coast Property Management,
LLC, a related party, to lease its office and warehouse space through February
2011. East Coast Property Management is owned by the President and
Vice-President of the Company. Terms of this operating lease agreement were
similar to the prior lease and provide for minimum rent payments of $165,719 per
annum for the first two years of the agreement, and $185,605 per annum for the
remaining five years.
In addition to the annual base rent, the office and warehouse real estate lease
requires the Company to pay for certain contingent expenses such as building
maintenance, insurance and real estate taxes. Total contingent lease expenses
were $80,127 and $120,177 for the years ended June 30, 2010 and 2009,
respectively.
The Company maintains an operating lease for two pieces of office equipment that
expires during 2011. Office equipment lease expense was $12,128 and $10,031 for
the years ended June 30, 2010 and 2009, respectively. The Company has two
automobile leases. In February 2009, the Company entered into an operating lease
for an automobile used by the President and Chief Executive Officer of the
Corporation which expires during 2011, and in November 2009, entered an
operating lease on an additional automobile. That lease expires in 2012.
Automobile lease expense was $10,599 for the year ended June 30, 2010.
The fixed annual base rent [exclusive of an annual cost of living adjustment and
contingent usage charges] of the office, warehouse and equipment leases for the
next three (3) years are as follows:
Year Ending Real Office
June 30, Estate Equipment Automobile
----------- -------------- -------------- -------------
2011 $ 123,737 $ 6,787 $ 12,864
2012 -- -- 9,383
2013 -- -- 1,079
-------------- -------------- -------------
TOTALS $ 123,737 $ 6,787 $ 24,126
============== ============== =============
Total rent expense was $180,605 and $185,605 for the years ended June 30, 2010
and 2009, respectively.
F-11
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #6
--------------------------------------------------------------------------------
[6] COMMITMENTS AND RELATED PARTY TRANSACTIONS [CONTINUED]
[B] EMPLOYMENT AGREEMENTS - The Company has entered into employment agreements
with two officers of the Company which provide for salaries of at least $165,000
and $300,000 per annum, and expire in June 2013. The agreements provide for a
"Performance Bonus" based on percentages from two (2) percent to six (6) percent
applied to specified levels of the Company's pre-tax profits. No bonuses were
paid for each of the two year period ended June 30, 2010. During fiscal 2010,
both officers voluntarily waived portions of their respective current salary
levels. Salary commitments under employment agreements for the next five fiscal
years are as follows:
Years Ending
June 30,
------------
2011 $ 465,000
2012 465,000
2013 465,000
2014 --
2015 --
Thereafter --
--------------
TOTAL $ 1,395,000
==============
In addition the employment agreements contain provisions providing that in the
event of a hostile change of control of the Company and resulting termination of
the employees' employment prior to expiration of the agreement, the employees
would be entitled to receive certain lump sum payments equal to the greater of
80% of the officer's then current salary or 80% of the prior year's gross wages
including any performance bonus times the remaining years of the agreement.
[C] LINES OF CREDIT -
On May 6, 2008 the Company entered into a discretionary inventory line of credit
with a third party. This line of credit had a term of one year and was not
renewed during 2009, but a subsequent agreement was entered into with the third
party in May 2010. Provisions in the agreement provide that the lender may, in
its sole discretion, determine the maximum amount of financing which it elects
to extend. The outstanding borrowing under the agreement at June 30, 2010 was
$977,777. Payments on the line of credit are due currently and are interest free
for a 60 day period. If not repaid in full, interest on the outstanding balance
is calculated based on the actual number of days elapsed on the basis of a year
consisting of 360 days at the per annum rate equal to the Prime Rate plus 2%.
The Company has incurred no interest expense related to the line of credit
during the fiscal years ended June 30, 2010 and 2009. The Prime Rate interest
rate was 3.25% at June 30, 2010.
F-12
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #7
--------------------------------------------------------------------------------
[6] COMMITMENTS AND RELATED PARTY TRANSACTIONS [CONTINUED]
[C] LINES OF CREDIT [CONTINUED] - On June 18, 2008 the Company entered into a
line of credit with a third party, which is secured by the Company's certificate
of deposit, which is classified as restricted cash. As of June 30, 2010, the
Company had a maximum credit line of $825,000, of which $799,362 was outstanding
under the agreement. Payments on the line of credit are due upon the lender's
demand, and the Company will pay regular monthly payments of all accrued unpaid
interest due as of each payment date. Interest shall be calculated from the date
of each advance until repayment of each advance at a rate of 5.13% per annum.
The Company has incurred $24,300 and $23,876 of interest expense related to this
line of credit during the fiscal years ended June 30, 2010 and 2009,
respectively.
[D] LOANS FROM OFFICERS - In May 2010, two officers of the Company each loaned
the Company $25,000, and an additional $25,000 was loaned by an employee of the
Company. The loans are non-interest bearing and are payable upon demand.
[7] INCOME TAXES
The provision for income taxes is summarized as follows:
Years Ended
-------------------------------
June 30,
-------------------------------
2010 2009
-------------- --------------
Current:
Federal $ -- $ --
State -- --
-------------- --------------
Current Provision -- --
-------------- --------------
Deferred:
Federal -- --
State -- --
-------------- --------------
Deferred Provision -- --
-------------- --------------
INCOME TAX [BENEFIT] EXPENSE $ -- $ --
---------------------------- ============== ==============
The deferred tax asset and liability in the accompanying consolidated balance
sheets include the following components:
[Enlarge/Download Table]
June 30,
---------------------------------
2010 2009
--------------- ---------------
Net Operating Loss ["NOL"] Carry Forwards $ 4,572,981 $ 3,851,981
Accounts Receivable Allowance 9,049 48,000
Inventory Allowance 1,200 1,200
Inventory Capitalization 6,018 6,347
Depreciation and Amortization 21,791 3,260
Other Temporary Differences 6,762 6,762
--------------- ---------------
Deferred Tax Assets - Current Portion 4,617,801 3,917,550
Valuation Allowance (4,617,801) (3,917,550)
--------------- ---------------
NET DEFERRED TAX ASSET $ -- $ --
---------------------- =============== ===============
Deferred Tax Liabilities - Net of Current Portion:
Depreciation and Amortization $ -- $ --
=============== ===============
F-13
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #8
--------------------------------------------------------------------------------
[7] INCOME TAXES [CONTINUED]
The future realization of the deferred tax assets related to federal and state
NOL carry forwards is contingent upon the Company's future results of
operations. The Company performs an analysis each year to determine if future
income will more likely than not be sufficient to realize the recorded deferred
tax asset. Management has established a full valuation allowance on the total
deferred tax asset as it may not be realized.
At June 30, 2010, the Company had approximately $11,150,000 of federal net
operating losses with the following fiscal year expiration dates:
Year Ending
June 30,
------------
2024 $ 780,000
2025 1,670,000
2026 915,000
2027 1,490,000
2028 2,025,000
2029 2,705,000
2030 1,565,000
--------------
TOTAL $ 11,150,000
==============
For the years ended June 30, 2010 and 2009, the Company increased the valuation
allowance on the deferred tax asset by $700,251 and $1,116,669, respectively.
The following is a reconciliation of income taxes at the U.S. statutory tax rate
to the Company's effective income tax rate is as follows:
Years Ended
-------------------------
June 30,
-------------------------
2010 2009
----------- ----------
U.S. Statutory Rate Applied to Pretax Income (35.0)% (35.0)%
State Taxes - Net of Federal Income Tax Benefit (6.0) (6.0)
Effect of Valuation Allowance Change 41.0 41.0
----------- ----------
INCOME TAX [BENEFIT] EXPENSE --% --%
=========== ==========
[8] EARNINGS PER SHARE
For each of the two years in the period ended June 30, 2010, all common stock
equivalents were considered anti-dilutive and not included in diluted earnings
per share.
[9] DEFINED CONTRIBUTION PLANS
The Company adopted a defined contribution [401(k)] plan ["the Plan"] covering
all eligible employees on January 1, 1995. Under the terms of the Plan,
participating employees elect to contribute a portion of their salaries to the
Plan. During fiscal 2009, the Company suspended its contributions that matched
up to a certain percentage of the employees' contribution. The Corporation's
contributions for the years ended June 30, 2010 and 2009 was $0 and $31,862,
respectively.
F-14
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #9
--------------------------------------------------------------------------------
[10] STOCKHOLDERS' RIGHTS PLAN AND 2000 STOCK OPTION 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 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 Plan initially expired in February 2000, but was extended to
February 2010. No rights were outstanding under the Stockholders Rights Plan as
of June 30, 2010.
Under terms of the Company's 2000 Stock Option Plan [the "Option Plan"],
employees, directors, and consultants may be granted incentive stock options to
purchase the Company's common stock at no less than 100% of the market price on
the date the option is granted [110% of fair market value for incentive stock
options granted to holders of more than 10% of the voting stock of the Company].
The Option Plan also provides for non-qualified stock options to be issued with
an exercise price of not less than 85% of the fair market value of the common
stock. The Company has reserved 500,000 shares of the Company's common stock for
distribution under the Option Plan. In January 2001, the Company granted 362,000
stock options under the Option Plan to various employees. Shares of common stock
under the Option Plan may consist, in whole or in part, of authorized and
unissued treasury stock.
Information related to stock options granted in connection with the Option Plan
is as follows:
Option Plan
-------------------------------
Weighted
Number of Average
Shares Exercise Price
------------- --------------
Outstanding - June 30, 2008 297,500 .88
Granted -- --
Exercised -- --
Forfeited/Canceled -- --
------------- --------------
Outstanding - June 30, 2009 297,500 .88
Granted -- --
Exercised -- --
Forfeited/Canceled -- --
------------- --------------
OUTSTANDING - JUNE 30, 2010 297,500 $ .88
============= ==============
F-15
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #10
--------------------------------------------------------------------------------
[10] STOCKHOLDERS' RIGHTS PLAN AND 2000 STOCK OPTION PLAN [CONTINUED]
The following table summarizes information about stock options outstanding at
June 30, 2010:
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices of Options Life Price of Options Price
---------------- ---------- ----------- --------- ---------- ---------
$.88 297,500 0.5 $.88 297,500 $.88
The exercise price for each of the above grants was determined by the Board of
Directors of the Company to be equal to the fair market value of the common
stock on the day of grant [110% of the fair market value for incentive stock
option grants to holders of more than 10% of the voting stock of the Company].
[11] CONTINGENCIES
The Company may from time to time become involved in various legal proceedings
in the ordinary course of its business. The Company is not currently a party to
any legal proceeding that it deems to be material.
[12] SIGNIFICANT CUSTOMERS
During the years ended June 30, 2010 and 2009, no customers accounted for 10% or
more of our revenue.
We derive a significant amount of our revenue from a relatively small number of
clients. If the Company were to lose one or more of these clients, and the
business were not replaced, it could have an adverse impact on its results of
operations and financial condition.
While no one customer currently accounts for 10% or more of our revenues, the
Company's top ten clients also account for a significant amount of its business.
[13] BUYING AGREEMENT
During the years ended June 30, 2010 and 2009, the Company purchased
approximately $5,400,000 and $8,900,000, respectively, of hardware from one
vendor at discounted prices under a buying agreement. Should the buying
agreement be terminated, the Company may not be able to obtain purchases from
another supplier at comparable terms.
F-16
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #11
--------------------------------------------------------------------------------
[14] FAIR VALUE OF FINANCIAL INSTRUMENTS
We adopted ASC 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). ASC 820 defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements.
ASC 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, ASC 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 are
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 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.
Restricted cash represents the Company's certificate of deposit as discussed in
Note [6] [C].
The following table presents assets that are measured and recognized at fair
value on a recurring basis.
Description Level 1 Level 2 Level 3 June 30, 2010
------------------------------- ---------- ------- ------- -------------
Restricted Cash $ 876,147 $ -- $ -- $ 876,147
[15] NEW AUTHORITATIVE PRONOUNCEMENTS
On June 29, 2009, the FASB issued an accounting pronouncement establishing the
FASB Accounting Standards Codification (the "ASC") as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities. This pronouncement was effective for financial
statements issued for interim and annual periods ending after September 15,
2009, for most entities. On the effective date, all non-SEC accounting and
reporting standards will be superseded. The Corporation adopted this new
accounting pronouncement for the quarterly period ended September 30, 2009, as
required, and adoption did not have a material impact on its financial
statements taken as a whole.
F-17
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #12
--------------------------------------------------------------------------------
[15] NEW AUTHORITATIVE PRONOUNCEMENTS [CONTINUED]
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. This ASU will become effective for us for revenue arrangements
entered into or materially modified on or after July 1, 2010. Earlier
application is permitted with required transition disclosures based on the
period of adoption. We are currently evaluating the application date and the
impact of this standard on our consolidated financial statements.
In October 2009, the FASB issued ASU No. 2009-14, "Software (Topic 985): Certain
Revenue Arrangements That Include Software Elements (a consensus of the FASB
Emerging Issues Task Force)." ASU No. 2009-14 amends ASC 985-605, "Software:
Revenue Recognition," such that tangible products, containing both software and
non-software components that function together to deliver the tangible product's
essential functionality, are no longer within the scope of ASC 985-605. It also
amends the determination of how arrangement consideration should be allocated to
deliverables in a multiple-deliverable revenue arrangement. This ASU will become
effective for us for revenue arrangements entered into or materially modified on
or after July 1, 2010. Earlier application is permitted with required transition
disclosures based on the period of adoption. We are currently evaluating the
application date and the impact of this standard on our consolidated financial
statements. Both ASU No. 2009-13 and ASU No. 2009-14 must be adopted in the same
period and must use the same transition disclosures.
In December 2009, the FASB issued ASU No. 2009-17, "Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities." ASU No. 2009-17 amends the guidance for consolidation of
VIEs primarily related to the determination of the primary beneficiary of the
VIE. This ASU was effective for us on April 1, 2010 and did not have a material
impact on our consolidated financial statements.
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.
F-18
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #12
--------------------------------------------------------------------------------
[15] NEW AUTHORITATIVE PRONOUNCEMENTS [CONTINUED]
In April 2010, the FASB issued ASU No. 2010-13, "Compensation - Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades". The guidance in ASU 2010-13 provides amendments to
clarify that an employee share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity's equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as the adoption of this guidance is not expected to have a material impact on
the Corporation's financial position or results of operations.
The Public Company Accounting Oversight Board voted on July 28, 2009 to adopt
Auditing Standard No. 7, "Engagement Quality Review" ("EQR"), and to issue a
Concept Release on requiring the engagement partner to sign the audit report.
The EQR standard provides a framework for the engagement quality reviewer to
objectively evaluate the significant judgments made and related conclusions
reached by the engagement team in forming an overall conclusion about the
engagement.
The Sarbanes-Oxley Act of 2002 directs the Board to include in its auditing
standards a requirement that each registered public accounting firm "provide a
concurring or second partner review and approval of [each] audit report (and
other related information), and concurring approval in its issuance, by a
qualified person (as prescribed by the Board) associated with the public
accounting firm, other than the person in charge of the audit, or by an
independent reviewer (as prescribed by the Board)."The Board initially proposed
the auditing standard on February 26, 2008, and re-proposed it on March 4, 2009.
[16] SUBSEQUENT EVENTS
In February 2010, the FASB issued an additional accounting pronouncement that
amended certain requirements for subsequent events (FASB ASC Topic 855), which
requires an SEC filer or a conduit bond obligor to evaluate subsequent events
through the date the financial statements are available to be issued and removes
the previous requirement to disclose the date through which subsequent events
have been evaluated. The amended amendments were effective on issuance of the
final pronouncement. The adoption of this pronouncement had no effect on our
consolidated financial statements.
F-19
TRANSNET CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #13
--------------------------------------------------------------------------------
[17] SELECTED QUARTERLY FINANCIAL DATA [UNAUDITED]
[Enlarge/Download Table]
Three Months Ended
-----------------------------------------------------------
September 30, December 31, March 31, June 30, Fiscal Year
2009 2009 2010 2010 2010
------------- ------------ ------------ ------------- --------------
Net Revenues $ 5,864,949 $ 5,775,087 $ 4,892,908 $ 4,410,361 $ 20,943,304
Gross Profit $ 1,396,337 $ 1,362,672 $ 811,112 $ 131,382 $ 3,701,503
Net Income [Loss] $ 102,062 $ 1,136 $ (499,702) $ (1,170,267) $ (1,566,773)
Net Income [Loss] Per
Common Share:
Basic and Diluted $ .02 $ -- $ (.10) $ (..24) $ (..32)
Three Months Ended
-----------------------------------------------------------
September 30, December 31, March 31, June 30, Fiscal Year
2008 2008 2009 2009 2009
------------- ------------ ------------ ------------- --------------
Net Revenues $ 8,565,265 $ 5,143,972 $ 5,176,608 $ 5,256,642 $ 24,142,487
Gross Profit $ 1,831,768 $ 227,124 $ 729,091 $ 328,672 $ 3,116,655
Net Income [Loss] $ 50,431 $ (1,230,774) $ (585,190) $ (969,564) $ (2,735,097)
Net Income [Loss] Per
Common Share:
Basic and Diluted $ .01 $ (.26) $ (.12) $ (.20) $ (.57)
. . . . . . . . . . .
F-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
TransNet Corporation and Subsidiary
Somerville, New Jersey
Our report on our audits of the basic consolidated financial statements of
TransNet Corporation and Subsidiary appears on page F-1. The audits were
conducted for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The supplemental schedule II is presented
for purposes of complying with the Securities and Exchange Commission's Rules
and Regulations under the Securities Exchange Act of 1934 and is not otherwise a
required part of the basic consolidated financial statements. Such information
has been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements, and in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.
/s/ MSPC
Certified Public Accountants and Advisors,
A Professional Corporation
Cranford, New Jersey
October 13, 2010
F-21
TRANSNET CORPORATION AND SUBSIDIARY
--------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
JUNE 30, 2010 AND 2009
--------------------------------------------------------------------------------
[Enlarge/Download Table]
(a) (b) (c) (d) (e)
BALANCE AT CHARGED TO DEDUCTIONS BALANCE
BEGINNING COST AND TO VALUATION AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS OF PERIOD
------------------------------------------ ------------ ------------ ------------ ------------
Year Ended June 30, 2010
Allowance for Doubtful Accounts $ 120,000 $ 8,111 $ (105,489) $ 22,622
Deferred Tax Asset Valuation
Allowance 3,917,550 609,662 -- 4,527,172
Inventory Reserve 3,000 -- -- 3,000
------------ ------------ ------------ ------------
TOTALS $ 4,040,550 $ 617,773 $ (105,489) $ 4,552,794
============ ============ ============ ============
Year Ended June 30, 2009
Allowance for Doubtful Accounts $ 115,000 $ 64,181 $ (59,181) $ 120,000
Deferred Tax Asset Valuation
Allowance 2,800,881 1,116,669 -- 3,917,550
Inventory Reserve 7,000 -- (4,000) 3,000
------------ ------------ ------------ ------------
TOTALS $ 2,922,881 $ 1,180,850 $ (63,181) $ 4,040,550
============ ============ ============ ============
F-22
ITEM 8. 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.
ITEM 8A. CONTROLS AND PROCEDURES
The Chief Executive Officer and Chief Financial Officer of the Corporation
have evaluated the effectiveness of the Corporation's disclosure controls and
procedures as of the end of the period covered by this annual report. Based on
its evaluation, the Corporation's Chief Executive Officer and Chief Financial
Officer have concluded that, as of June 30, 2010, such controls and procedures
were not effective.
In making this evaluation, management considered, among other matters, the
material weaknesses in the Corporation's internal control over financial
reporting that have been identified. See below.
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's management is responsible for establishing and
maintaining adequate internal control over financial reporting, and for
performing an assessment of the effectiveness of internal control over financial
reporting as of June 30, 2010. Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. The
Corporation's system of internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Corporation's assets; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with authorizations
of the Corporation's management and directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the Corporation's assets that could have a material
effect on its financial statements. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements.
Management performed an assessment of the effectiveness of the
Corporation's internal control over financial reporting as of June 30, 2010
based upon criteria in Internal Control - Integrated Framework issued by COSO.
Based on that assessment, management has concluded that its internal control
over financial reporting was not effective as of June 30, 2010 based on the
criteria in Internal Control - Integrated Framework issued by COSO.
The Corporation's management identified the following deficiencies that
would be considered a material weakness in our internal control over financial
reporting as of June 30, 2010. A material weakness is a deficiency, or
combination of deficiencies, that results in more than a reasonable possibility
that a material misstatement in the Corporation's annual or interim financial
statements will not be prevented or detected on a timely basis:
(i) the Corporation did not maintain an effective control environment due
to the lack of documented formal policies and procedures; and
17
(ii) the Corporation did not maintain effective internal control over the
financial closing and reporting process.
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 to
include the development of a standard closing checklist with specific assignment
of duties, responsibilities, and timetable for completions of assigned tasks.
Management intends to remediate weaknesses in the control environment and
financial reporting through specific process improvements that have been
identified. The Corporation will develop new processes in its accounting
department. Each new process will be evaluated to ensure it is supported by
effectively designed level of controls and procedures to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. The Corporation plans to devote additional
resources to its internal controls, and is currently engaged in discussions with
third parties regarding improvements. In addition, additional resources will be
devoted to developing and communicating its policies, including policies
regarding internal controls and related policies and procedures, to its
employees and management. This shall include development and enforcement of
compliance programs. The compliance program shall also include communication to
set and reinforce the right tone from the top.
These remediation efforts, primarily associated with financial reporting,
will require significant ongoing effort and investment. Management, with the
oversight of the audit committee and internal audit staff, will continue to
identify and take steps to remedy known deficiencies as expeditiously as
possible and enhance the overall design and capability of the control
environment. The Corporation intends to further expand its accounting policy and
controls capabilities by providing additional resources where deemed necessary
and to enhance training of existing staff in such matters. Management believes
that the foregoing actions will continue to improve the Corporation's internal
control over financial reporting, as well as its disclosure controls and
procedures.
This annual report does not include an attestation report of the
Corporation's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Corporation's registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the company to provide only
management's report in this annual report.
There has been no change in the Corporation's internal control over
financial reports during the last fiscal quarter of 2010 that has materially
affected, or is reasonably likely to materially affect, the Corporation's
internal control over financial reporting.
ITEM 8 B. OTHER INFORMATION
None.
18
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Corporation are as follows:
Name Position
---- --------
John J. Wilk Chairman of the Board and Chief Financial Officer
Steven J. Wilk President, Chief Executive Officer, and Director
Jay A. Smolyn Vice President, Operations and Director
Vincent Cusumano (a) (c) Director
Raymond J. Rekuc (b)(d) Director
Susan Wilk Director and Secretary
----------
(a) Member of the Audit Committee
(b) Chairman of the Audit Committee.
(c) Chairman of the Compensation Committee.
(d) Member of the Compensation Committee.
The Board of Directors has established an audit committee and a
compensation committee. Additional information concerning each of the committees
and the directors serving such committees follows.
The audit committee is responsible for review of the Corporation's
auditing, accounting, financial reporting and internal control functions and for
the selection, approval and recommendation of independent accountants to the
Board of Directors. In addition, the audit committee is expected to monitor the
quality of the Corporation's accounting principles and financial reporting as
well as the independence of, and the non-audit services provided by, the
Corporation's independent accountants. The Board of Directors has adopted a
written charter for the audit committee. The audit committee is comprised of
Messrs. Rekuc (Chairman) and Cusumano, who are independent directors in
accordance with the definition of "independent director" established by the
corporate governance rules of The NASDAQ National Market. (Although the
Corporation's Common Stock is not quoted on the NASDAQ National Market, the
Corporation has used the NASDAQ National Market's independence criteria in
making this judgment in accordance with applicable SEC rules.) The Board has
determined that Mr. Rekuc is its audit committee financial expert. Earle Kunzig,
an independent director, was a member of the committee through his death in
October 2009.
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 compensation committee is
comprised of Messrs. Cusumano (Chairman) and Mr. Rekuc. Earle Kunzig chaired the
Committee from its inception through his death in October 2009. Mr. Rekuc is
serving temporarily.
Set forth below is biographical information regarding directors and
executive officers of the Corporation. Unless otherwise noted, each director has
held the indicated position for at least five years.
JOHN J. WILK*, 82, was the President and Chief Executive Officer of
TransNet since its inception in 1969 until May 1986, when he was elected as
Chairman of the Board of Directors.
STEVEN J. WILK*, 53, has been the President and Chief Executive Officer of
TransNet since May 1986. He was elected as a director of TransNet in April 1989.
19
JAY A. SMOLYN, 54, has been employed at TransNet since 1976 and in April
1985 became Vice President, Operations. He was elected as a director of TransNet
in March 1990.
VINCENT CUSUMANO, 74, has served as a director of TransNet since 1977. He
is the President and Chief Executive Officer of Cusumano Perma-Rail Corporation
of Roselle Park, New Jersey, distributors and installers of exterior iron
railings.
RAYMOND J. REKUC, 64, has served as a director of TransNet since 1983. He
is the principal of Raymond J. Rekuc, Certified Public Accountant, an accounting
firm located in Old Tappan, New Jersey. Mr. Rekuc is a member of the American
Institute of Certified Public Accountants and the New Jersey Society of
Certified Public Accountants.
SUSAN M. WILK* joined TransNet in November 1987 as Director of
Administration, and was named Legal Counsel in 1994. She was elected a director
of TransNet in March 1990. Prior to joining TransNet, Ms. Wilk was an attorney
with the U.S. Securities and Exchange Commission and the Federal Home Loan Bank
Board.
* John J. Wilk, Chairman of the Board, is the father of Steven J. Wilk, a
director and the President and Chief Executive Officer of the Company, and Susan
M, Wilk, a director and Legal Counsel of the Corporation.
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 2010, its officers, directors
and beneficial owners of more than 10% of its equity timely complied with all
applicable Section 16(a) filing requirements.
CODE OF ETHICS
The Corporation adopted a Code of Ethics that applies to the Corporation's
executive officers, chief financial officer, and controller, as well as all its
employees. The Code of Ethics was attached as an exhibit to the Form 10-K for
the fiscal year ended June 30, 2004. A copy of the Code of Ethics is available
at no cost by writing to: TransNet Corporation, Attn: Investor Relations, 45
Columbia Road, Somerville, New Jersey 08876.
20
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
PHILOSOPHY
The Compensation Committee of our Board of Directors is responsible for
establishing and evaluation our policies governing the compensation of our
executive officers. The Compensation Committee ensures that the total
compensation paid to our executive officers is fair, reasonable, and
competitive. The Committee's members are independent directors. The Chief
Executive Officer may make recommendations with respect to those executives
whose compensation is determined by the Committee. The Compensation Committee
recommends any modification of compensation to the Board of Directors, which
must approve any such modification
The Corporation's executive compensation philosophy is to attract and
retain executive officers and to align interests of our executive officers with
those of our shareholders and the Corporation's business strategy and results.
Accordingly, compensation is linked to individual and corporate performance. Our
executive compensation program provides annual cash compensation, in the form of
a competitive base salary and inventive bonuses to motivate our executives to
deliver on business performance goals.
BASE SALARY
The base salary is designed to attract and retain experienced executive
officers who will establish corporate strategy and goals. While the initial base
salary was determined by an assessment of competitive market levels at
comparable companies and is included in the employment agreement for each of our
named executive officers, the factors used in determining adjustments in base
salary include individual performance, change in role and/or responsibility, and
changes in the competitive market environment. The Compensation Committee
reviews base salary on an annual basis, and considers certain quantitative
factors, including the Corporation's financial, strategic, and operating
performance for the year. The qualitative criteria include leadership qualities
and management skills, as exhibited by each executive officer's respective
innovations, time and effort devoted to the Corporation, and other general
considerations. The Compensation Committee of the Board of Directors also takes
notice of comparable remuneration of other CEO's at similar companies.
The amount of base salary paid to the named executive officers during
fiscal 2010 and 2009 is shown in the Summary Compensation Table below.
INCENTIVE BONUS
The annual cash incentive bonus is designed to reward the executive
officers for the achievement of performance objectives and corporate profits.
The amounts of the bonus are determined by formulas set forth in the executive's
employment agreement tied to the pre-tax profits of the Corporation.
No bonuses were paid for fiscal 2010 or 2009.
OTHER BENEFITS
TransNet maintains a 401(k) plan in which all full-time employees,
including our named executive officers, who are at least 21 years of age and
have at least three months of service, are eligible to participate. In 2009, the
Corporation contributed the amounts indicated in the Summary Compensation Table
below, based upon formulas applicable to all participating employees. During
fiscal 2009, the Corporation suspended its contributions to the plan. The
suspension was continued throughout fiscal 2010.
21
HEALTH AND WELFARE BENEFITS
All full-time employees, including our named executive officers, may
participate in our health and welfare benefit programs, including medical,
dental and vision care coverage, term life and disability insurance. None of the
Corporation's group life, health, dental, and medical reimbursement plans
discriminates in scope, terms of operation, in favor of the executive officers
or directors of the Corporation and the plans are generally available to all
full-time employees.
EMPLOYMENT CONTRACTS WITH EXECUTIVE OFFICERS
TransNet has employment contracts in effect with Steven J. Wilk and Jay
A. Smolyn that expire on June 30, 2013. Pursuant to the employment contracts,
Steven J. Wilk's annual salary is "at least" $300,000 and Mr. Smolyn's salary is
"at least" $165,000 or, in each case, such greater amount as may be approved
from time to time by the Board of Directors. The Compensation Committee annually
reviews the base salary of each executive officer, and determines whether to
recommend an increase to 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).
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 terms regarding 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 contract. These provisions are summarized in the
"Potential Payments upon Termination or Change in Control" section below.
During fiscal 2010 and 2009, Messrs. Wilk and Smolyn voluntarily waived
portions of their cash compensation levels to assist the Corporation in cost
reduction.
PERQUISITES
Pursuant to their employment agreements, Steven J. Wilk and Jay A.
Smolyn are each provided with the use of a Company car for business purposes.
SUMMARY COMPENSATION TABLE
[Download Table]
Name and Principal All Other
Position Year Salary (a) Bonus Compensation (b) Total
--------------------- ------ ---------- ----- ---------------- ----------
Steven J. Wilk 2010 $ 250,577 $ 0 0(c) $ 250,577
President and Chief 2009 $ 232,500 $ 0 $ 1,260(c) $ 233,760
Executive Officer $ 0
Jay A. Smolyn 2010 $ 169,615 $ 0 0(d) $ 169,615
Vice President, 2009 $ 177,500 $ 0 $ 1,167(d) $ 178,667
Operations
(a) Amounts in this column represent gross salary earned for the fiscal year
ended June 30, 20010.
(b) Amounts in this column include payments made to the named officer's 401(k)
plan, and expenses of the Corporation related to the use of the Company
car.
(c) Payments in this column include payment of $1,260 made to Mr. Wilk's
401(k) plan for fiscal 2009. In fiscal 2010 and 2009, respectively, other
compensation/benefits did not exceed $10,000.
(d) This amount represents the Corporation's contribution to Mr. Smolyn's
401(k) plan for fiscal 2009. Other compensation/benefits did not exceed
$10,000.
22
STOCK OPTIONS
TransNet's Stock Option Plan provides for the grant of both Non-qualified
Stock Options and Incentive Stock Options, as the latter is defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as
providing for the granting of Restricted Stock and Deferred Stock Awards,
covering, in the aggregate, 500,000 shares of the Company's Common Stock. The
purpose of the Plan is to advance the interests of the Company and its
shareholders by providing additional incentives to the Company's management and
employees, and to reward achievement of corporate goals.
Awards under the Plan may be made or granted to employees, officers,
directors and consultants, as selected by the Board. The Plan is administered by
the entire Board of Directors. All full-time employees and directors and
officers of the Company are eligible to participate in the Plan.
No options were granted during fiscal 2010. None of our named executive
officers exercised any stock options during the fiscal year ended June 30, 2010.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
[Enlarge/Download Table]
Number of Securities Number of Securities
Underlying Underlying
Unexercised Options Unexercised Options Option Exercise Option Expiration
Name Exercisable Unexercisable Price Date
----------------- -------------------- -------------------- --------------- ------------------
Steven J. Wilk 100,000 - 0- $0.88 1/10/2011
Jay A. Smolyn 50,000 - 0- $0.88 1/10/2011
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
As stated above, the employment contracts for Messrs. S. Wilk and Smolyn
contain terms regarding 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 contract. These terms provide that Mr. Smolyn would
receive a lump sum payment equal to the greater of 80% of his then current
annual salary or 80% of his 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 contract. In the case of Mr. 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 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 year's gross
wages times the lesser of five or the number of years remaining in the contract.
The contract for Mr. Smolyn provides that the Corporation may terminate his
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 a 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. No payment would be made if either named officer resigned.
23
The payments that would be made to these officers if termination had occurred at
June 30, 2010 would be as follows:
Steven J. Wilk:
o hostile change of control - election to either serve as a
consultant for five years at $300,000 per year; or to elect a
lump-sum payment of $720,000
o termination by the Corporation of employment (other than for
willful commission of criminal acts): election by Mr. Wilk to
either serve as a consultant for two years at a salary of
$300,000 per year; or elect a lump-sum payment of $480,000
Jay A. Smolyn:
o hostile change of control - a lump-sum payment of $432,000
o termination by the Corporation without cause: $270,000
o termination by the Corporation with cause: $0
DIRECTOR COMPENSATION
Directors who are salaried employees receive no additional compensation
for services as a director or as a member of any committee of the board of
directors. Directors who are not officers or employees of the Company receive an
annual retainer of $5,000. Such directors do not receive additional fees for
their service on a committee of the board of directors. During fiscal 2010, the
Company paid an annual retainer fee of $5,000 to each of its independent
directors.
DIRECTOR COMPENSATION
Fees Earned of Paid in
Name Cash All Other Compensation Total
----------------- ---------------------- ---------------------- ------
Vincent Cusumano $5,000 $ 0 $5,000
Raymond J. Rekuc 5,000 $ 0 5,000
John J. Wilk $ 0 $ 0 $ 0
Steven J. Wilk $ 0 $ 0 $ 0
Jay A. Smolyn $ 0 $ 0 $ 0
Susan M. Wilk $ 0 $ 0 $ 0
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH RELATED PERSONS
Other than continuing the lease referenced below, during fiscal 2010, the
Corporation did not enter into any transaction with related persons that would
be required to be disclosed under this caption pursuant to Item 404(a) of
Regulation S-K. See Item 13 for discussion of the lease by of the Corporation of
its premises from an entity controlled by two officers and directors.
24
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of September 15, 2010 by
(i) each holder known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors and
named executed officers individually, and (iii) all directors and officers of
the Company as a group.
The amounts and percentages of Common Stock beneficially owned are
reported on the basis of regulations of the SEC governing the determination of
beneficial ownership of securities. Under the rules of the SEC, a person is
deemed to be a beneficial owner of a security if that person has or shares
voting power, which includes the power to vote or to direct the voting of such
security, or investment power, which includes the power to dispose of or to
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has a right to acquire
beneficial ownership within 60 days. Under these rules, more than one person may
be deemed to be a beneficial owner of the same securities.
Name of Beneficial Amount of Shares Percent of
Owner Beneficially Owned Class
-------------------------------------------- ------------------ ----------
Anthony Chiarenza (a) 300,000(b) 6.2% (c)
Kasaken Capital, LLC (d) 250,000 5.2% (c)
Steven J. Wilk (e) 496,350(g) 9.8% (f)
John J. Wilk (e) 255,000(h) 5.0% (f)
Jay A. Smolyn (e) 133,000(i) 2.6% (f)
Susan M. Wilk (e) 108,200(j) 2.1% (f)
Vincent Cusumano (e) 15,000(k) * (f)
Raymond J. Rekuc (e) 2,500(l) * (f)
All officers and directors
As a group (six persons) 1,010,050 19.9% (f)
----------
(a) Based upon a Schedule 13G/A filed by Anthony Chiarenza and Key Equity
Investors, Inc. on December 31, 2009. The address for both is P.O. Box
604579, Bayside, New York 11360-4579.
(b) Includes 265,000 shares of the Company's Common Stock held by Mr.
Chiarenza, and 35,000 shares held by Key Equity Investors, Inc., of which
Mr. Chiarenza is President, Chairman, and Chief Executive Officer. As a
result of his positions, Mr. Chiarenza is deemed to have beneficial
ownership of shares held by Key Equity Investors, Inc.
(c) Based on 4,823,304 shares of the Company's Common Stock outstanding as of
September 15, 2010.
(d) Based on a Schedule 13G filed by Kasaken Capital, LLC on March 13, 2009.
The address for Kasaken Capital, LLC is 55 Union Place, Summit, New Jersey
07901.
(e) The address of all officers and directors is 45 Columbia Road, Somerville,
New Jersey 08876.
(f) Based on 4,823,304 shares of the Company's Common Stock outstanding, plus
247,500 shares of Common Stock issuable upon exercise of outstanding
options exercisable within 60 days.
(g) Includes 100,000 shares that Mr. Wilk is entitled to purchase upon the
exercise of incentive stock options. The options were granted on March 4,
2001 under the Company's 2000 Stock Option Plan. The exercise price is
$0.88 per share.
25
(h) Includes 50,000 shares that Mr. Wilk is entitled to purchase upon the
exercise of incentive stock options. The options were granted on March 4,
2001 under the Company's 2000 Stock Option Plan. The exercise price is
$0.88 per share.
(i) Includes 50,000 shares that Mr. Smolyn is entitled to purchase upon the
exercise of incentive stock options. The options were granted on March 4,
2001 under the Company's 2000 Stock Option Plan. The exercise price is
$0.88 per share.
(j) Includes 30,000 shares that Ms. Wilk is entitled to purchase upon the
exercise of incentive stock options. The options were granted on March 4,
2001 under the Company's 2000 Stock Option Plan. The exercise price is
$0.88 per share.
(k) Includes 15,000 shares that Mr. Cusumano is entitled to purchase upon the
exercise of incentive stock options. The options were granted on March 4,
2001 under the Company's 2000 Stock Option Plan. The exercise price is
$0.88 per share.
(l) Includes 2,500 shares that Mr. Rekuc is entitled to purchase upon the
exercise of incentive stock options. The options were granted on March 4,
2001 under the Company's 2000 Stock Option Plan. The exercise price is
$0.88 per share.
* Less than 1%.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
In December 2003, East Coast Property Management, LLC, ("East Coast"), a
limited liability corporation owned by Steven J. Wilk and Jay A. Smolyn,
executive officers and directors of the Corporation, purchased the property
occupied by the Corporation and assumed the "net-net" lease held by the former
owner. In April 2004, a lease was executed by East Coast and the Corporation.
The annual rental payment made by the Corporation to East Coast in fiscal 2010
was $185,605, and will be $123,737 in fiscal 2011, through termination of the
lease. See Footnote [6][A] to the Consolidated Financial Statements for
additional information.
During fiscal 2010, the Corporation did not enter into any transaction
with related persons that would be required to be disclosed under this caption
pursuant to Item 404(a) of Regulation S-K.
ITEM 13. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the aggregate fees billed to the
Corporation by MSPC during fiscal 2010 and 2009.
2010 2009
-------- --------
Audit Fees $ 65,000 $ 62,000
Audit Related Fees 22,500 22,500
Tax Fees 15,000 13,000
All Other Fees 9,500 11,000
Total $112,000 $109,000
The audit committee pre-approves all audit and permissible non-audit services
provided to the Corporation by MSPC. The non-audit services include
audit-related services, tax services and other services.
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
o Independent Auditor's Report.
o Consolidated Balance Sheets as of June 30, 2010 and June 30, 2009.
o Consolidated Statements of Operations for the Years Ended June 30,
2010 and 2009.
o Consolidated Statements of Stockholders' Equity for the Years Ended
June 30, 2010 and 2009.
o Consolidated Statements of Cash Flows for the Years Ended June 30,
2010 and 2009.
o Notes to Consolidated Financial Statements
3. EXHIBITS
o 23.1 Consent of Independent Public Accountant
o 31.1 Certification pursuant to Section 302
o 31.2 Certification pursuant to Section 302
o 32 Certifications pursuant to Section 906
[Download Table]
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 Exhibit to Definitive Schedule 144
to Certificate of Incorporation dated January 25, 1993
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
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 on
between W. Realty and the Form 10-K for year ended June 30,
Corporation for premises at 45 Columbia 1991
Road, Somerville (Branchburg), New Jersey
10.2 February 1, 1996 amendment to Exhibit 10.2 to Annual Report on
Lease Agreement between W. Realty and Form 10-K for year ended June 30,
the Corporation for premises at 1996
45 Columbia Road, Somerville, New Jersey
10.3 Employment Agreements extended Exhibit 10.3 to Annual Report on
to June 30, 2013 with Steven J. Wilk Form 10-K for year ended June 30,
and Jay A. Smolyn 2001
27
[Download Table]
10.4 Form of Rights Agreement dated Exhibit to Current Report on Form
as of February 6, 1990 between 8-K for January 25, 1990
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.
10.6 Lease between TransNet Corporation Exhibit 10.6 to Annual Report
and East Coast Management, LLC on Form 10-K for year ended
June 30, 2004
14 Code of Ethics Exhibit 14 to Annual Report on
Form 10-K for year ended
June 30, 2004
(b) REPORTS ON FORM 8-K
None.
(22) Subsidiaries - The following table indicates the sole wholly-owned
inactive subsidiary of TransNet Corporation and its state of incorporation.
Name State of Incorporation
---- ----------------------
Century American Corporation Delaware
28
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 13, 2010 BY /s/ Steven J. Wilk
--------------------------------------
Steven J. Wilk
Chief Executive Officer
Date: October 13, 2010 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: October 13, 2010
--------------------------------------------
Steven J. Wilk, Director
By /s/ JOHN J. WILK Date: October 13, 2010
--------------------------------------------
John J. Wilk, Director
By /s/ JAY A. SMOLYN Date: October 13, 2010
--------------------------------------------
Jay A. Smolyn, Director
By /s/ RAYMOND J. REKUC Date: October 13, 2010
--------------------------------------------
Raymond J. Rekuc, Director
By /s/ VINCENT CUSUMANO Date: October 13, 2010
--------------------------------------------
Vincent Cusumano, Director
By /s/ SUSAN M. WILK Date: October 13, 2010
--------------------------------------------
Susan M. Wilk, Director
29
Dates Referenced Herein and Documents Incorporated by Reference
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