SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: (DATE OF EARLIEST EVENT REPORTED) : JANUARY 31, 2003
COMMISSION FILE NO. 000-33231
SRM NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-486120
-------------------- --------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1840 BOY SCOUT DRIVE, FORT MYERS, FLORIDA 33907
-------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(239) 278-4111
--------------------------------------
(ISSUER TELEPHONE NUMBER)
HEGIBACHSTRASSE 22
8032 ZURICH
SWITZERLAND
-----------
FORMER ADDRESS
ITEM 1. CHANGES IN CONTROL OF THE REGISTRANT.
As a result of the acquisition of Hy-Tech Computer Systems, Inc., a
Florida corporation ("Hy-Tech"), the control of the Registrant shifted to the
former shareholders of Hy-Tech. The following individuals will exercise control
of the Registrant.
Name No. of shares Percentage
Gary F. McNear Revocable Trust(1) 3,959,612 16.5%
Susan M. McNear Revocable Trust(2) 3,959,612 16.5%
Craig W. Conklin Revocable Trust(3) 3,959,612 16.5%
Margaret L. Conklin Revocable Trust(4) 3,959,612 16.5%
(1) Gary F. McNear, the Registrant's new chief executive officer, serves as trustee of the
Gary F. McNear Revocable Trust.
(2) Susan M. McNear is the wife of Gary F. McNear, the Registrant's new chief executive
officer, and she serves as trustee of the Susan M. McNear Revocable Trust.
(3) Craig W. Conklin, the Registrant's new president, serves as trustee of the Craig W.
Conklin Revocable Trust.
(4) Margaret L. Conklin is the wife of Craig W. Conklin, the Registrant's new president, and
she serves as trustee of the Margaret L. Conklin Revocable Trust.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 31, 2003, the Registrant acquired 100% of the issued and
outstanding shares of Hy-Tech in exchange for 16,000,000 shares of the
Registrant's common stock. Following the exchange, there are 24,000,000 shares
of the Registrant's common stock outstanding.
BACKGROUND
Hy-Tech Computer Systems, Inc. began operations on November 3, 1992 in Fort
Myers, Florida. It is still headquartered in Fort Myers, Florida where it also
operates a local Hy-Tech distribution center and a National Distribution
operation. Hy-Tech also has sixteen other Hy-Tech computer distribution centers
throughout Florida, Alabama, Tennessee, Kentucky and in Madison, Wisconsin and
Colorado Springs, Colorado.
In the seventeen local Hy-Tech operations, and National Distribution, Hy-Tech's
mission is to supply quality computer systems, components and peripherals to
computer professionals in a timely manner with customer service that is
unparalleled in the computer industry. At each of these locations, Hy-Tech has
the ability to build custom Hy-Tech Brand Systems ranging in size from a simple
desktop computer to very complicated and sophisticated servers.
The two main markets in which the company operates are sales to computer
resellers and sales to Information Technology Departments, which are in the
commercial, government and education fields.
At all of its locations, Hy-Tech distributes quality components and peripherals
from such leading computer parts vendors as Intel, Microsoft, IBM, Iomega,
Kingston, Symantec, Seagate, AMD, and Logitech to name just a few.
During the ten years the company has been in existence, it has established
strong relationships with many of these superb companies. Hy-Tech enjoys Direct
OEM status with Microsoft, is an Intel Premier Provider, a Microsoft System
Builder Gold Member and Authorized Education Reseller, a Symantec Authorized
Education Reseller, and an Iomega Premier Partner to name just a few.
PRODUCTS & SERVICES
Currently, the products Hy-Tech sells can be categorized as follows;
1) Hy-Tech computer systems - desktops, notebooks and servers;
2) Computer components and peripherals;
3) Computer storage products;
4) Computer operating systems and office software;
5) Compaq computer systems - desktop and servers;
6) Computer service; and
7) Computer warranty work.
The Hy-Tech systems the company manufactures range in size from a simple desktop
to very complicated and sophisticated servers. The company estimates that 60%
of the revenue from Hy-Tech systems is from the sale of desktop/workstations,
30% is from the sale of servers, with 10% from the sale of notebook computers.
Overall, the sale of Hy-Tech systems represents approximately 50% of the
company's total revenue.
The company stocks and sells a full line of computer components and peripherals
for parts replacement, computer upgrades and to resellers who choose to build
there own systems. It also does a great deal of special order sales, product
that the company does not routinely stock but will purchase at the request of a
customer.
In addition to the standard storage products such as hard drives, ZIP drives,
and tape drives, the company is actively involved with the sale and promotion of
Iomega's Network Attached Storage (NAS) products. The Storage Area is growing
very rapidly and the Iomega product is priced very competitively. Sales of NAS
products are forecasted to grow tremendously. Hy-Tech also distributes a PCMCIA
Notebook Storage back-up product manufactured by CMS. As the sale of Notebooks
increases and the reality that the hard drives in these notebooks need to be
backed-up, sales of this product should increase dramatically.
Hy-Tech distributes Microsoft OEM operating systems and Office software products
utilizing its System Builder Gold Member status. It sells Microsoft operating
systems installed on its Hy-Tech systems utilizing its Direct OEM status. It
also sells Microsoft volume licenses on software to commercial and government IT
departments. Using its Microsoft Authorized Education Reseller status, the
company sells Microsoft software products into the education arena.
Sales of computer components, peripherals, storage products and Microsoft
licenses represent approximately 45% of the company's total revenue.
When its customers request a "Tier 1" product, Hy-Tech is also an authorized
reseller of workstations and certain Compaq servers. Hy-Tech does service work
for its customers both in-house and on-site. While this is a relatively new
emphasis by the company, many of the Hy-Tech stores are booking an increasing
number of service hours. The company also does warranty work for several of the
large third party computer service companies.
Currently, the total revenue generated by Compaq system sales, customer service,
and warranty work represents approximately 5% of the company's total revenue.
COMPETITVE SITUATION
The company has different competitors in the two basic markets in which it
currently operates - the reseller market and direct to the IT market.
The company's primary competitors for the reseller customers are the national or
large regional distribution companies. The main advantages of these competitors
are size and price. The advantages Hy-Tech has over these competitors is
convenience, immediate availability, product information, and hands-on technical
support.
In its direct sales to IT departments, be they in the commercial, government or
education fields, Hy-Tech competes primarily with the large computer
manufacturers. The large computer manufacturers have the advantage of size and
name recognition. They also have the disadvantage of size which are
historically weak customer relationships and little or no local presence. The
IT departments prefer to work with local sources, who they often view as
neighbors and friends, if the local entity can supply quality product at
reasonable prices. The company uses, in its systems, only quality components
and has the ability to custom build systems to the customer's specifications in
a fraction of the time it takes to get the custom built systems from the large
computer companies. Often, the technicians in the IT departments come to rely
on the expertise of Hy-Tech's technical staff, which is immediately available to
them as needed. In emergency situations, Hy-Tech has the ability to custom
build and deliver systems to these customers in three to four hours.
When the IT departments require parts rather than systems, Hy-Tech is in
competition for this business primarily with on-line computer components
suppliers. These companies treat this business as a commodity and compete
strictly on price. Again, the benefits of Hy-Tech's local service such as the
ability to immediately pick-up components, over-the-counter replacement of
defective parts as needed, and hands-on product support allow the company to
effectively compete for this business.
Competition in the company's two primary markets is very active, particularly in
the past two years when the total size of these markets has decreased. The
company believes it has been able to maintain its market share in these markets.
The reduction in the company's sales has been primarily the result of a
shrinking total market size.
DEPENDENCE ON ONE OR A FEW CUSTOMERS
The company estimates that it currently has approximately 2,000 active customers
with no one customer representing more than 5% of its total business. The
company's top ten customers represent less than 15% of total sales.
INTELLECTUAL PROPERTY
Hy-Tech holds no patents, or trademarks. Hy-Tech does hold the appropriate
business licenses to operate in each of its locations.
GOVERNMENT AUTHORIZATION
The only government approvals required for Hy-Tech's operations are local
business licenses.
RESEARCH AND DEVELOPMENT
Hy-Tech has developed two sophisticated web sites for providing technical
information to its customers, selling product to its existing customers, and the
second site has been developed for selling product to the end user customers
that Hy-Tech has not previously targeted. Development costs were $185,000 in
2001, and $335,000 in 2002.
EMPLOYEES
Hy-Tech currently employs sixty five full-time employees and three
part-time employees.
PROPERTY
Hy-Tech currently leases two buildings from related parties. The building
located at 1826 Boy Scout Drive, Fort Myers, FL consists of 4,600 square feet,
and Hy-Tech leases it for $3,400.00 monthly. The lease expires December 31,
2006, and Hy-Tech has the option of extending it for five more years with a rent
escalation equal to the consumer price index increase over the term of the first
lease period. The building located at 1840 Boy Scout Drive, Fort Myers, FL
consists of 11,320 square feet, and Hy-Tech leases it for $6,325 monthly. The
lease expires December 31, 2004, and Hy-Tech has an option to extend it for five
years with a rent escalation equal to the consumer price index increase over the
term of the first lease period. Both of these buildings are owned by Lee Coast
Enterprises, Inc. Margaret L. Conklin, (wife of Craig Conklin), as trustee,
owns 33% of the stock of Lee Coast Enterprises. Susan McNear, (wife of Gary
McNear), as trustee, owns 33% of the stock of Lee Coast Enterprises. Gary
McNear is President of Lee Coast Enterprises, Inc. Both of these buildings are
leased at market rates.
LEGAL PROCEEDINGS
SunTrust Bank has filed a lawsuit in the circuit court of the twentieth
judicial circuit in and for Lee County, Florida, civil division. This lawsuit
is against Hy-Tech Computer Systems, Inc., a Florida Corporation, f/k/a Datasys
USA, Incorporated, Craig W. Conklin, an individual, Thomas Z. Frosceno, Sr., an
individual, and Gary F. McNear, an individual. The lawsuit arises from three
promissory notes held by SunTrust. SunTrust is asking for $3,677,603.74 plus
interest accrued since November 6, 2002. Hy-Tech is also in default of a
provision of the SunTrust loan covenants restricting mergers and acquisitions.
It is anticipated that SunTrust will add this default to their lawsuit.
CERTAIN TRANSACTIONS
Bradley Conklin has loaned $52,054.79 to the company, this amount is due on or
before December 31, 2003, and is secured by a second mortgage on a building
owned by the company. This loan carries interest at six percent per annum.
Susan McNear, the wife of Gary McNear our chief executive officer, has loaned
the company $28,630.14. This amount is due on or before December 31, 2003, and
is secured by a third mortgage on a building owned by the company. This loan
bears interest at six percent per annum. Margaret Conklin, the wife of Craig
Conklin our president, has loaned the company $23,424.66. This amount is due on
or before December 31, 2003, and is secured by a fourth mortgage on a building
owned by the company. This loan carries interest at six percent per annum.
Gary McNear, our chief executive officer has loaned the company $124,369.86.
This loan is unsecured and carries interest at six percent per annum, and is due
May 31, 2003. Craig W. Conklin, our president, has loaned the company
$122,520.55. These loans are all from officers of the company, or relatives of
officers of the company, and the total amount of these loans is $353,000.
ITEM 5. OTHER EVENTS.
As a result of the acquisition of Hy-Tech and the change in focus of the
Registrant's business, the Registrant is changing its name from SRM Networks,
Inc. to Hy-Tech Technology Group, Inc. and expects to trade under a new stock
symbol shortly. In addition, the former directors and officers of SRM Networks,
Inc. resigned and the directors and officers of Hy-Tech have become the
directors and officers of the Registrant. The new directors and officers are as
follows: Gary F. McNear-Chief Executive Officer and Director; and Craig W.
Conklin-President and Director.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Financial Statements of Hy-Tech Computer Systems, Inc.
(a) Financial Statements of Businesses Acquired To Be Provided
b) Pro Forma Financial Information To Be Provided
c) Exhibits:
2.1 Exchange Agreement
Signatures
Pursuant to the requirement 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.
SRM NETWORKS, INC.
February 4, 2003
/s/ Gary F. McNear
---------------------
Gary F. McNear
Chief Executive Officer