SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File Number 0-22597
WESTERN TECHNOLOGY & RESEARCH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Wyoming 83-0273780
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
946 West Penn Avenue, Robesonia, PA 19551
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 693-3114
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, no par value
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B 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 Form 10-K or any
amendment to this Form 10-KSB. [ ]
Revenues for the Issuer's most recent fiscal year are $0.
The aggregate market value of the voting stock held by non-affiliates
of the Issuer as of March 30, 1999 was approximately $75,786 (based upon a
closing price of $.06 per share).
The number of outstanding shares of the Issuer's common stock as of
March 30, 1999 was 5,150,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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WESTERN TECHNOLOGY & RESEARCH, INC.
TABLE OF CONTENTS
PAGE
PART I
Business .................................................................. 1
Properties ................................................................ 11
Legal Proceedings ......................................................... 12
Submission of Matters to a Vote of Security Holders ....................... 12
PART II
Market for Common Equity and Related Stockholder Matters .................. 12
Management's Discussion and Analysis ...................................... 13
Financial Statements ...................................................... 16
Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure ............................................................. 16
PART III
Directors, Executive Officers, Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ...................... 17
Executive Compensation .................................................... 19
Security Ownership of Certain Beneficial Owners and Management ............ 20
Certain Relationships and Related Transactions ............................ 21
Exhibits, Lists and Reports on Form 8-K ................................... 22
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ITEM 1 BUSINESS
RECENT DEVELOPMENTS
As of December 30, 1998, Western Technology & Research, Inc. ("Western
Tech"), Cimnet, Inc. ("Cimnet" or the "Company") and Cimnet Acquisition Corp.
("MergerSub") entered into an Agreement and Plan of Merger, pursuant to which
MergerSub merged with and into Cimnet (the "Merger") on March 2, 1998. As a
result of the Merger, (i) Cimnet became a wholly owned subsidiary of Western
Tech, (ii) the stockholders of Cimnet became the beneficial owners of an
aggregate of 4,430,000 shares of the Western Tech's common stock ("Common
Stock") or 85.5% of the total shares of the Common Stock ("Common Stock")
outstanding and (iii) a new board of directors was appointed consisting of John
D. Richardson, David Birk and Andrew Roosevelt. Previously, Messrs. Zennith S.
Merrit and Thomas M. Hockaday were the directors of Western Tech. As a result of
the Merger, Mr. Richardson beneficially owns 3,645,000 shares of Common Stock,
or 70.8% of the shares of Common Stock outstanding. Mr. Richardson is also the
Chief Executive Officer of Western Tech and Cimnet. In addition, the Company has
agreed to pay Williams Investment Co. a consulting fee of $25,000 for services
rendered in connection with the Merger.
HISTORICAL INFORMATION
Western Tech was organized on September 19, 1984 under the laws of the
State of Wyoming to engage in investment and business development operations
related to mineral research and exploration. The primary area of mineral
exploration concerned small (less than 10 acres) jade mining leaseholds in
Wyoming, which were never brought to the development stage. Western Tech also
held options on both minor gold and minor oil & gas prospects, which were never
exercised, and the options were assigned to third-parties for nominal
consideration. All of these activities had ceased before 1990. All jade mine
claims were allowed to expire in 1993, for non-payment of rental fees, as
approved by unanimous action of the Board of Directors on August 19, 1993.
Western Tech never engaged in an active trade or business throughout
the period from 1990, until just recently. In December of 1994, the prior
management, Mr. H. Jean Baker and Mrs. Phyllis L. Baker, expressed the desire to
wind up Western Tech because of the lack of any business and the burdens of
carrying on the entity without any apparent purpose. Western Tech had just lost
its last business asset, an interest in real property, through foreclosure.
Prior management took over at that time, noting in 1994 that some new mining
prospects and potential claims were available for investigation by Western Tech.
However, despite additional investigation, no new claims were staked. On October
15, 1996, the directors determined that Western Tech should become active in
seeking potential operating businesses and business opportunities with the
intent to acquire or merge with such businesses. Western Tech then began to
consider and investigate potential business opportunities. The management of
Western Tech commenced a proactive review of all potential business
opportunities by means of their personal contacts and prior experience,
consisting of over thirty combined years of management of public companies in
the mineral extraction business, and private business operations including real
estate. Western Tech was until the consummation of the Merger considered a
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development stage company and, as a shell corporation, its principal business
purpose was to locate and consummate a merger or acquisition with a private
entity.
The executive offices of Western Tech and Cimnet are presently located
at 946 Penn Avenue, Robesonia, PA 19551, telephone (610) 693-3114.
THE BUSINESS OF CIMNET
CIMNET is engaged in the development, marketing, and sale of computer
software and specialized hardware for the manufacturing industry. The Company's
software, sold under the CIMNET(R) brand name, is a manufacturing execution
system (MES) for aerospace, automotive and discrete manufacturers, which enable
factories to distribute electronic media, collect labor and monitor work flows
on a real-time basis, ultimately becoming "paperless factories." Cimnet's
software and hardware products enable manufacturers to gather and display
information about the manufacturing process and permits workers to interact and
control that process. As a result, customers reduce operating costs and enhance
product quality by providing real-time information throughout the manufacturing
enterprise.
Cimnet's core software products are DNC Professional, CIMNET(R)
Folders, and CIMNET(R) Front Office. In addition, Cimnet offers a line of
hardware products that complement and support the direct numerical control (DNC)
and machine-monitoring portions of its software products. The software products
currently run on Windows(R) 3.1, 95, 98 and NT. As a complement to its software
and to support its customers Cimnet also sells and supports Oracle on Hewlett
Packard UNIX, Sun Microsystems OS/Solaris Novell and NT database servers. The
Company also provides computer consulting, maintenance services, and custom
software development in conjunction with the sale of its software on a contract
basis.
The Company's software products enable manufacturers to eliminate paper
in the factory and become more efficient in the production process. The term"
paperless factory" describes a production environment in which information and
data are transferred electronically over networked computers via internal
company networks or the internet. Instead of sending paper documents in a
traveling folder from machine to machine or factory to factory, information is
available to on-line to all employees who have authorization. Efficiency is
greatly enhanced because employees do not need to leave their location in order
to obtain vital product or production information.
The Company distributes its products primarily in North America through
multi-channel distribution that consists of direct and dealer sales to end
users; strategic joint marketing alliances, such as its recent strategic
marketing alliance with Intellution and original equipment manufacturing (OEMs).
Discrete manufacturing plants ranging from small businesses to Fortune 500
companies use the Company's products. The Company has an installed base at
various corporate accounts, including Raytheon, Nike, Lockheed Martin, Smith
International, Harley Davidson, Caterpillar, BIC Corporation, Penske Racing,
Brown & Sharpe, Emerson Electric, FMC, AMP and General Motors.
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INDUSTRY BACKGROUND
In the late 1960s, metal working industries began to see the emergence
of a new machining technology, that became practical as vacuum tubes gave way to
transistors - the conversion of machine tool controls from NC
(numerically-controlled) to CNC (computer numerically controlled). Prior to
this, machine tools were either operated manually by skilled machinists, or
mainframe-based Computer Aided Manufacturing (CAM) systems that produced punched
paper tape that was physically carried from the programming office to the shop
floor. These part programs would then be executed by the NC machine one move at
a time as it was read from tape. With the advent of CNC machines having limited
memory to store entire programs, the usability of these machines was enhanced,
and they become more common. Along with this change, machine controls also
gained the ability to communicate electronically with the computers producing
their programs, and the Distributed Numerical Control (DNC) business began.
Machine controls typically use RS-232 serial communication, as do computers, but
that is inherently a one-to-one connection. DNC networks were set up to
interconnect the one or two computers producing the part programs with the many
machine tools found in a typical factory.
A second significant change was also driven by electronics technology,
specifically the development of the integrated circuit which made minicomputers,
and later personal computers, viable. While CNC machines also incorporated this
new technology, its greater impact was initially on the programming side, where
such systems became affordable, and in the late 1980's, even commonplace.
PC-based solutions enabled even small manufacturers to enjoy the benefits of
accurate, repeatable parts that NC and CNC machining brought. As PC systems
proliferated, the volume of programs and information generated became a blizzard
for the factory floor to handle. This was of course added to the overflow of
other information that "office-based" computer systems were increasingly
generating - manufacturing resource planning (MRP, which later became enterprise
resource planning, also known as ERP as its scope widened), inventory control,
cost accounting, and scheduling systems. Managing this information by
transferring physical media (paper tapes, folders full of documentation,
blueprints, etc.) is time-consuming, error-prone, and expensive. Many companies
in the discreet marketplace looked at their existing DNC network infrastructure
as a base from which to start building their manufacturing execution systems
(MES) to distribute and collect other information to and from the factory floor.
The PC "revolution" has had another side effect, and that was the
gradual elimination of proprietary DNC hardware. Early DNC systems were usually
built from custom components because commercially available general purpose
computers were either too expensive, or not powerful enough to do the job. It
was cheaper to construct custom communications hardware to do the specific task
of delivering part programs. As computers, particularly PCs, became cheaper,
their volume increased, which further drove down costs, and made it possible to
use mostly COTS (commercial off-the-shelf) technology to accomplish the task of
delivering information to the shop floor. While some environments do demand
rugged hardware, these are mostly repackaged versions of the PCs found on
millions of desktops, capable of using the same peripherals, and compatible with
the same software. PCs have even begun to take over control of CNC's directly,
often using commercially available motion-control cards or accomplishing motion
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control via software. Value exists not so much in any electronics hardware
(which is increasingly a commodity item, except for some special purpose
devices), but in the software used to control them.
Another technology-driven factor in the computer-integrated
manufacturing business has been the widespread acceptance of Local-Area Networks
(LANs). While these have been commonplace in offices for years, they have
recently made their way onto the factory floor. This has increased the demand
for integrated systems, as opposed to "islands of automation". The LAN makes all
the resources of a company's computers available to supervisors and even
operators on the floor. Now the need is to enable those resources to work
together. Many times the common point of contact for these systems is the
manufacturing operation, and thus, until manufacturing was "computerized", there
was never a need (or as great a need) for them to communicate and present a
unified interface. Bringing other systems to manufacturing has had an impact of
the focus of those systems as well, since manufacturing is usually a
detail-intensive environment. Thus, for example, planning systems which focused
on month-by month or even year-by-year forecasts have now to deal with daily or
even hourly information. This difference is orientation, as well as differences
in functionality and presentation, are what distinguish Manufacturing Execution
Systems (MES) from more traditional MRP or ERP (Enterprise Resource Planning)
systems. While there is a degree of overlap between these product families, they
are usually complementary, not competitive, products.
It is important to realize that manufacturing related computer systems
are still in their growth phase. Even though plain DNC has been around for
years, there are still a large number of companies who have yet to install it.
Partly this is due to the longevity of manufacturing equipment, especially
machine tools. It is not uncommon to encounter 40+ year old equipment in
factories, being used every day for critical production. The environment of some
manufacturing operations (dirty, noisy, crowded,) has also been an impediment.
(Of course, some of these same factors make getting paper-based information off
the shop floor all the more imperative.) Manufacturing Execution systems have
only begun to appear in the last few years, and few companies have taken full
advantage of them. When these are installed, it is often only a portion of their
functionality that gets used to start with. Full implementation and integration
with other systems can take six months to two years.
PRODUCTS AND SERVICES
Since September 1994, Cimnet has offered software, hardware, and
related services to its customers for manufacturing automation and MES, driving
toward the ultimate goal of a "paperless company."
Cimnet's current software products, sold under the CIMNET(R) software
products, are poised for explosive growth in each sector of their respective
markets. The software offers customers upward growth and add-on options,
allowing customers to grow with the software. The Company is currently
developing web browser based software modules for its Folders and DNC Pro
software to enhance its customers internet based manufacturing monitoring and
reporting efforts.
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SOFTWARE PRODUCTS
DNC PROFESSIONAL: DNC refers to the technology used to interconnect
groups of computerized numerical control (CNC) machines to computer systems.
Using digital instructions, these machines produce a wide variety of precision
parts, such as engine components, aircraft parts, joint prostheses, and molds
for other parts. DNC allows the transmission of part programs to and from
computers and CNC machine tools.
DNC Professional, one of Cimnet's major products, is a DNC system that
provides a wide variety of features and benefits to its customers, including the
ability to view and edit electronically all of the documents and data that are
required to perform certain manufacturing functions. It also organizes these
documents and data utilizing a database (Oracle, Microsoft Sequel Server, Dbase)
that allow shop floor personnel the ability to easily locate pertinent
information easily and quickly.
DNC Professional is an ideal DNC solution for manufacturers to enhance
their CNC operations. It installs easily on to existing networks and industry
standard hardware, making it almost immediately productive. Easy-to-use, and
operating under Windows(R) 95, 98 and NT the software prompts the operators with
the appropriate job queue and documents to assure that components are
manufactured within the proper sequence and with the correct information. The
information that the operators can view includes machine code, textual
instructions, and graphical instructions with full multi-media capabilities.
Cimnet believes that DNC Professional was the first network resident
DNC system that functioned in a mixed database/operating system network
architecture. This open system approach provides companies with existing
hardware and networks to upgrade to Cimnet's fully functional MES solutions. DNC
Professional also provides the market with an entry-level solution for
manufacturing compliance to ISO 9000 standards.
FOLDERS: Folders is a Windows(R) based MES software targeted at
companies with 200 or more employees, offering manufacturing companies paperless
factory capabilities for mixed database/operating system environments, including
Windows(R) and UNIX based network and database servers. Folders offers DNC, SPC,
job and labor tracking, reporting, scheduling, document distribution and viewing
as well as electronic machine tool monitoring.
Wherever paper is used to transfer information or collect data within a
production environment, Folders can help replace it with instantaneous data
communication on the network. Folders assembles electronic production
information, such as part programs, part drawings, setup sheets, and tooling
lists, into a single "electronic folder." Operators at their workstations can
immediately access all information to do their jobs by simply clicking on a part
number, work center ID, or operation. Virtually, any paperwork now being sent to
the production floor can be transferred electronically.
The major benefit of Folders is that production management gains true
control over mission critical workflow. This is the result of having the most
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up-to-date information available at the work center when and where it is needed.
Other advantages of using this system are improved document management,
reduction of scrap, optimized processes, reporting, and assistance with ISO 9000
compliance and certification.
FRONT OFFICE: Front Office is a Windows(R) based manufacturing
management system especially designed for small to medium job shops with under
200 employees. It allows manufacturers to take complete, integrated control over
sales, production, inventory, scheduling, estimating, purchasing, labor and job
tracking and accounting.
Front Office is a powerful and effective total manufacturing management
system available to manufacturing job shops and secondary and tertiary
subcontractors of major corporations. It provides the necessities of running a
business and the technology to adhere to complex requirements as well as data
collection and analysis.
Front Office provides the smaller manufacturers and job shops with many
of the same benefits and features available too much larger companies (through
their ERP systems) at a considerably lower cost.
SERVICES
Cimnet believes that high quality customer service and support are
integral components of the application solutions that it offers. Accordingly,
Cimnet offers a range of fee-based training, installation, consulting, and
maintenance services to facilitate the installation and use of the Cimnet's
software.
Cimnet is geared to provide its customers with the technical expertise
required for networking and databases to successfully implement software
solutions for their factory operations. Cimnet continually invests in training
and certification programs for its technical experts.
TRAINING
Cimnet offers both classroom and on-site training for its software
products, with general courses in statistical process control, distributed
numerical control, document management and accounting as they relate to Cimnet's
software. Cimnet employs trainers to teach these courses. In addition, Cimnet
has created multi-media CDs and the latest applications to provide its customers
the most flexibility in training techniques.
INSTALLATION/CONSULTING
Cimnet provides complete installation services for all of its software,
as well as consulting services for installing and configuring computers and
networks purchased from third parties. Installation services are marketed on a
time and project basis.
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MAINTENANCE AND SUPPORT
Cimnet offers annual maintenance contracts for all of its hardware and
software products. The hardware maintenance contract provides the purchaser with
next-day replacement of the Cimnet hardware product that fails for any reason.
Purchasers of the software maintenance contracts are provided with free software
updates, new releases on physical media, and access to Cimnet via the internet
to obtain information on latest software releases and new features.
Both types of maintenance contracts include unlimited telephone
support. For users not covered by a maintenance contract, Cimnet offers
telephone technical support, which can be purchased per incident or for a flat
annual fee.
EMPLOYEES
As of December 31, 1998, Western Tech had no employees and Cimnet
employed 27 people, including 9 in new software design development and testing;
8 in customer service, technical support, and installation; 6 in sales and
marketing; and 4 in operations and order processing.
IN ADDITION TO OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-KSB,
THE FOLLOWING IMPORTANT FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE
COMPANY AND ITS BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT
IMPACT ON THE COMPANY'S BUSINESS, PROSPECTS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
SHORT OPERATING HISTORY; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.
Cimnet has a limited operating history and expects to experience significant
fluctuations in future quarterly operating results that may be caused by many
factors, including, among others: delays in introduction of products or product
enhancements by Cimnet, its competitors or other providers of hardware, software
and components for the industrial automation market; costs associated with
product or technology acquisitions; the size and timing of individual orders;
software "bugs" or other product quality problems; competition and pricing in
the software industry; seasonality of revenues; customer order deferrals in
anticipation of new products; market acceptance of new products; reductions in
demand for existing products and shortening of product life cycles as a result
of new product introductions; changes in operating expenses; changes in Cimnet's
strategy; personnel changes; foreign currency exchange rates; regulatory
requirements and political and economic instability in foreign markets; mix of
products sold; and general economic conditions. As a result, Cimnet believes
that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.
Because Cimnet ships software products within a short period after
receipt of an order, Cimnet typically does not have a material backlog of
unfilled orders, and revenues in any quarter are substantially dependent on
orders booked in that quarter. Cimnet's expense levels are based in part on its
expectations as to future revenues and Cimnet may be unable to adjust spending
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in a timely manner to compensate for any revenue shortfall. Accordingly,
operating results would be adversely affected by a reduction in revenues in that
quarter since the majority of the Cimnet's expenses are fixed. Any significant
weakening in demand would have an almost immediate adverse impact on the
Company's operating results and on the Cimnet's ability to achieve
profitability. In addition, the Company sells software and hardware maintenance
programs which are frequently prepaid by the Company's customers. As a result,
the Company may not under applicable accounting principles recognize certain
revenues as income until services have been rendered or time periods have
elapsed.
PRODUCT CONCENTRATION. Although the Cimnet sells a variety of hardware
and software products, the bulk of Cimnet's revenues are still concentrated in
the CIMNET(R) family of products for industrial automation applications. Cimnet
introduced the initial version of CIMNET(R) Folders in September, 1994. Revenues
from the family of products have grown rapidly and represented over 58% of the
Company's total revenues in 1998. The Company expects that revenues from these
products will continue to account for a substantial portion of the Company's
revenues. The life cycles of the Company's products are difficult to estimate
due in large measure to the recent emergence of some of the Company's market,
the future effect of product enhancements and future competition. Declines in
demand for these products, whether as a result of competition, technological
change or otherwise, or price reductions would have a material adverse effect on
the Company's operating results.
COMPETITION. The market for the Company's products is intensely
competitive. The Company expects competition to increase and the Company's
market share to decline as other companies introduce additional and more
competitive Microsoft Windows(R)-based products in this emerging market segment.
Many of the Company's present or anticipated competitors have substantially
greater financial, technical, marketing and sales resources than the Company.
There can be no assurance that the Company will be able to compete successfully
in the future.
DEPENDENCE ON OPERATING ENVIRONMENTS. The Company's software is
designed for use with computers running in the Microsoft Windows(R) operating
environment. Future sales of the Company's products are dependent upon continued
use of these operating environments. In addition, changes to these software
programs require the Company to continually upgrade its products. Any inability
to produce upgrades or any material delay in doing so would adversely affect the
Company's operating results. The successful introduction of new operating
systems or improvements of existing operating systems that compete with these
software programs also could adversely affect sales of the Company's products
and have a material adverse effect on the Company's operating results.
RAPID TECHNOLOGICAL CHANGE. The market for the Company's products is
characterized by rapid technological advances, evolving industry standards,
changes in end-user requirements and frequent new product introductions and
enhancements. While the Company is committed to the Microsoft Windows operating
system, the introduction of products embodying new technologies and the
emergence of new industry standards could render the Company's existing products
and products currently under development obsolete and unmarketable. The
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Company's future success will depend upon its ability to enhance its current
products and to develop and introduce new products that keep pace with
technological developments, respond to evolving end-user requirements and
achieve market acceptance. Any failure by the Company to anticipate or respond
adequately to technological developments or end-user requirements, or any
significant delays in product development or introduction, could result in a
loss of competitiveness or revenues. In the past, the Company occasionally
experienced delays in the introduction of new products and product enhancements.
There can be no assurance that the Company will be successful in developing and
marketing new products or product enhancements on a timely basis or that the
Company will not experience significant delays in the future, which could have a
material adverse effect on the Company's results of operations. In addition,
there can be no assurance that new products or product enhancements developed by
the Company will achieve market acceptance.
MANAGEMENT OF GROWTH. The Company has recently experienced rapid growth
in the number of employees, the scope of its operating and financial systems and
the geographic area of its operations. This growth has resulted in an increase
in the level of responsibility for both existing and new management personnel.
To manage its growth effectively, the Company will be required to continue to
implement and improve its operating and financial systems and to expand, train
and manage its employee base. There can be no assurance that the management
skills and systems currently in place will be adequate if the Company continues
to grow. The Company may make additional acquisitions in the future. The
Company's management has only limited experience with acquisitions, which
involve numerous risks, including difficulties in the assimilation of the
operations and products of the acquired companies, the diversion of management's
attention from other business concerns and the potential loss of key employees
of the acquired companies.
KEY EMPLOYEES. The Company's continued success will depend upon its
ability to retain a number of key employees, most of whom are not subject to
employment agreements or agreements that restrict their ability to compete with
the Company following the termination of their employment. In addition, the
Company believes that its future success will depend in large part on its
ability to attract and retain highly skilled technical, managerial and marketing
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. The loss of certain key employees or the Company's inability to
attract and retain other qualified employees could have a material adverse
effect on the Company's business.
RELIANCE UPON DISTRIBUTION CHANNEL. The Company has relied and expects
to continue to rely primarily on independent distributors for the marketing and
distribution of its products. These distributors may also represent other lines
of products, some of which may be complementary to or competitive with the
Company's products. The Company's distributors are not within the control of the
Company and are not obligated to purchase products from the Company. While the
Company encourages its distributors to focus primarily on the promotion and sale
of the Company's products, there can be no assurance that these distributors
will not give higher priority to the sale of other products, including products
developed by existing or potential competitors. A reduction in sales efforts or
discontinuance of sales of the Company's products by its distributors could lead
to reduced sales and could adversely affect the Company's operating results.
There can be no assurance as to the continued viability or financial stability
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of the Company's distributors, the Company's ability to retain its existing
distributors or the Company's ability to add new distributors in the future. In
addition, as a result of new product introductions or pricing actions by the
Company or others, the Company's distributors or end-users may alter the
expected timing of their product purchases, thereby exacerbating the possible
variability of the Company's quarterly operating results.
DEPENDENCE ON GENERAL ECONOMIC CONDITIONS. Based in part on the growth
in the overall market for and the Company's penetration of the industrial
automation software market, as well as the geographic and industry diversity of
the Company's customers, the Company believes that general economic conditions
have not had a material adverse effect on the Company's results of operation to
date. There can be no assurance, however, that economic conditions will not have
a material adverse effect on the Company in the future.
DEPENDENCE ON PROPRIETARY RIGHTS. The Company regards its software as
proprietary and attempts to protect it with copyrights, trademarks, trade secret
laws and restrictions on disclosure, copying and transferring title. However,
the Company has no patents, and existing copyright laws afford only limited
practical protection for the Company's software. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. The Company licenses its products
primarily under "shrink wrap" license agreements that are not signed by
licensees and therefore may be unenforceable under the laws of certain foreign
jurisdictions. In addition, in some instances the Company licenses its products
under agreements that give licensees limited access to the source code of the
Company's products. Accordingly, despite precautions taken by the Company, it
may be possible for unauthorized third parties to copy certain portions of the
Company's products or to obtain and use information that the Company regards as
proprietary. As the number of software products in the industry increases and
the functionality of these products further overlaps, the Company believes that
such software will become increasingly the subject of claims that such software
infringes the rights of others. Although the Company does not believe that its
products infringe on the rights of third parties, there can be no assurance that
third parties will not assert infringement claims against the Company in the
future or that any such assertion will not result in costly litigation or
require the Company to obtain a license to intellectual property rights of such
parties. In addition, there can be no assurance that such licenses will be
available on reasonable terms, or at all.
CONTINUED CONTROL BY JOHN RICHARDSON. John Richardson, the Company's
Chairman of the Board and Chief Executive Officer, beneficially owns 3,645,000
shares of Common Stock or approximately 70.8% of the shares outstanding. As a
result, Mr. Richardson will have the ability to control the business and affairs
of the Company.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. As of March 30,
1999, there were 300,000 Class A Common Stock Warrants issued and outstanding.
Each Warrant entitles the holder to purchase one share of the Company's common
stock at an exercise price of $2.50 per share any time prior to May 21, 1999.
The Warrants may be redeemed by the Company for $.05 per Warrant at any time
-10-
<PAGE>
upon thirty (30) days' prior written notice to the Warrantholders so long as the
shares of Common Stock trade for not less than $3.25 for ten (10) trading days
during any period of thirty (30) trading days. Notice of redemption of the
Warrants could force the holders to exercise the Warrants and pay the exercise
price at a time when it may be disadvantageous for them to do so, to sell the
Warrants at the current market price when they might otherwise wish to hold the
Warrants, or to accept the redemption price which would be substantially less
than the market value of the Warrants at the time of redemption.
NO DIVIDENDS AND NONE ANTICIPATED. To date, the Company has paid no
dividends. For the foreseeable future, earnings generated from the Company's
proposed operations will be retained for use in the Company's business.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE. This Memorandum
contains forward-looking statements and information that are based on
management's beliefs as well as assumptions made by, and information currently
available to, management. When used in this Memorandum (including Exhibits),
words such as "anticipate," "believe," "estimate," "except," and, depending on
the context, "will" and similar expressions, are intended to identify
forward-looking statements. Such statements reflect the Company's current views
with respect to future events and are subject to certain risks, uncertainties
and assumptions, including the specific risk factors described above. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, believed, estimated or expected. The Company does not intend to
update these forward-looking statements and information.
DEPENDENCE ON KEY PERSONNEL. The Company is dependent, in particular,
upon the services of John Richardson, its Chief Executive Officer and Chairman
of the Board. If Mr. Richardson was unable to provide services to the Company
for whatever reason, the business would be adversely affected. The Company does
not maintain a key person life insurance policy on Mr. Richardson.
YEAR 2000. The Company recognizes that a challenging problem exists in
that many computer systems worldwide do not have the capability of recognizing
the year 2000 or the years thereafter. No easy technological "quick fix" has yet
been developed for this problem. The Company has spent a considerable sum of
money to assure that all its software programs are year 2000 compliant and
believes that they are. This "Year 2000 Computer Problem" creates risk for the
company from unforeseen problems in its own software and from third parties with
whom the company deals. Such failures of the Company and/or third parties'
computer systems could have a material adverse effect on the Company and its
ability to conduct its business in the future.
ITEM 2. PROPERTIES.
The Company's principal facility is a 6,500 square foot building in
Robesonia, Pennsylvania. In addition, the Company has recently moved its some of
its new product development group to a 1,000 square foot space adjacent to the
principal facility. The Company believes that its current facilities are
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<PAGE>
adequate to meet the Company's current business requirements, and that suitable
additional space will be available as needed. The building is owned by John
Richardson, Western Tech's Chief Executive Officer and Chairman of the Board and
the lease is on a year to year basis. The monthly rent paid by the Company to
Mr. Richardson is $7,500 month which the Company considers to be no greater than
market rate for comparable space.
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings are pending, or to the Western Tech's
knowledge threatened, to which Western Tech or any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
No matters were submitted to a vote of the holders of the Company's
Common Stock during the last quarter of its fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Western Tech's shares of Common Stock were quoted since May 28, 1998 on
the OTC Bulletin Board under the symbol "WTNR". However, Western Tech is not
aware of any established trading market for its Common Stock nor is there any
record of significant trading in Western Tech's Common Stock.
The following table sets forth the range of high and low bid quotations
for the Common Stock, since May 28, 1998 as reported by the OTC Bulletin Board.
The quotes represent inter-dealer prices without adjustment or mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.
The trading volume of Western Tech's securities fluctuates and may be extremely
limited (or non-existent) during certain periods. As a result, the liquidity of
an investment in the Western Tech's securities may be adversely affected.
COMMON STOCK
------------
HIGH LOW
---- ---
1998
- ----
Quarter ended
June 30, 1998* $.01 $.01
Quarter ended
September 30, 1998 $.06 $.06
Quarter ended
December 31, 1998 $.06 $.06
* Limited trading on the OTC Bulletin Board commenced on May 28, 1998.
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<PAGE>
On March 25, 1999, the final quoted prices as reported by the OTC
Bulletin Board was $.06 for each share of Common Stock. As of March 25, 1999,
there were 5,150,000 shares of Common Stock outstanding, held of record by
approximately 56 record holders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS DOCUMENT AS WELL AS STATEMENTS
MADE IN PRESS RELEASES AND ORAL STATEMENTS THAT MAY BE MADE BY THE COMPANY OR BY
OFFICERS, DIRECTORS OR EMPLOYEES OF THE COMPANY ACTING ON THE COMPANY'S BEHALF
THAT ARE NOT STATEMENTS OF HISTORICAL OR CURRENT FACT CONSTITUTE "FORWARD
LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER UNKNOWN FACTORS THAT COULD CAUSE THE ACTUAL
RESULTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM THE HISTORICAL RESULTS OR
FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
IN ADDITION TO STATEMENTS WHICH EXPLICITLY DESCRIBE SUCH RISKS AND
UNCERTAINTIES, READERS ARE URGED TO CONSIDER STATEMENTS LABELED WITH THE TERMS
"BELIEVES", "BELIEF", "EXPECTS", "INTENDS", "ANTICIPATES" OR "PLANS" TO BE
UNCERTAIN FORWARD-LOOKING STATEMENTS. THE FORWARD LOOKING STATEMENTS CONTAINED
HEREIN ARE ALSO SUBJECT GENERALLY TO OTHER RISKS AND UNCERTAINTIES THAT ARE
DESCRIBED FROM TIME TO TIME IN THE COMPANY'S REPORTS AND REGISTRATION STATEMENTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
This section presents a review of the Company's financial condition and
results of operations and should be read in conjunction with the consolidated
financial statements of the Company and the notes included elsewhere herein. Per
share information has been restated to reflect the recapitalization as if it had
occurred at the beginning of the most recent period presented.
OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales for the year ended December 31, 1998 increased by 9.7% or $283,100
over net sales for the year ended December 31, 1997. This increase resulted from
an introduction of new software products.
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<PAGE>
Costs of goods sold for 1998 were $529,705 compared to $561,559 for 1997, a
decrease of $31,854 or 5.7%. This decrease in costs of goods sold is related to
the company focusing more on software and services sales and decreasing its
sales of hardware related items.
Gross Profit for 1998 was $2,662,020, compared to $2,347,066 for 1997, an
increase of $314,954 or 13.4%. This increase is due to the reduced cost of goods
associated with software and services sales verse hardware sales.
Selling, general and administrative expenses for 1998 were $1,680,989 or 52.7%
of net sales, and total R&D expenses were $981,065 or 30.7% of net sales
compared to selling, general and administrative expenses of $1,278,860 or 44.0%
of net sales and total R&D expenses were $965,856 or 33.2% of net sales for
1997. These increases are due to additional administrative personnel being
employed during the current year to support the release of new software
products. The Company issued 500,000 shares of common stock in 1997 for
consulting services rendered. This resulted in a $560,000 one time charge to
operations in 1997.
Income from operations for 1998 was $16 compared to a loss of $457,650 in 1997,
an increase of $457,666. This increase in operating income is primarily the
result of the one time charge of $560,000 for consulting service.
Interest expense for 1998 was $47,933 or 1.5% of net sales, compared to $52,498
or 1.8% of net sales for 1997.
Effective December 31, 1997, the Company terminated its S corporation election
and became a C corporation. In connection with the Company's change in tax
status, the Company recorded a deferred asset of $23,000 in 1998. As a C
corporation, the computation of deferred taxes is based on federal C corporation
tax rates, which are not applicable to S corporations, and C corporation state
tax rates, which are significantly larger than S corporation state tax rates. In
accordance with SFAS 109, the gain resulting from the increase in the deferred
tax asset is included as a credit to tax expense during the period ended
December 31, 1998.
Net loss for 1998 was $27,050 or $0.01 per share as compared to $510,148 or
$0.12 per share for 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales for the year ended December 31, 1997 decreased by 1.2% or $36,006 over
net sales for the year ended December 31, 1996. The decrease results can be
contributed to one large order placed with the company in 1996.
Costs of goods sold for 1997 were $561,559, compared to $787,654 in 1996, a
decrease of $226,095 or 28.7%. This decrease in costs can be attributed to the
company moving away from hardware related sales.
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<PAGE>
Gross Profit for 1997 was $2,347,066, compared to $2,156,977 in 1996, an
increase of $190,089 or 8.8%. The increase is attributed to the company's lower
cost of goods sold.
Selling, general and administrative expenses for 1997 were $1,278,860 or 44.0%
of net sales, and total R&D was $965,856 or 33.2% of net sales, compared to
$1,179.893 or 40.0% and R&D expenses were $808,606 or 27.5% of net sales for
1996. The increase in these expenses is the result of the company introducing
new software products to the marketplace. The Company issued 500,000 shares of
common stock in 1997 for consulting services rendered.
This resulted in a $560,000 one time charge to operations in 1997.
Income (loss) from operations for 1997 was $(457,650) or 15.7% of net sales
compared to $164,130 or 5.6% of net sales for 1996, a decrease of $621,780. This
decrease in operating income is primarily the result of the one time charge to
operations for consulting expense. Income from operations would have been
$102,350 or 3.5% of net sales in 1997, excluding the one time charge to
operation.
Interest expense for 1997 was $52,498 or 1.8% of net sales compared to $48,150
or 1.6% of net sales for 1996.
Net income (loss) for 1997 was $(510,148) or $(0.12) per share as compared to
$115,980 or $0.03 per share for 1996. This decrease in operating income is
primarily the result of the one time charge to operations for consulting
expense.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had current assets of $835,573 as compared to
$491,309 at December 31, 1997. This increase is due to additional accounts
receivable relating to the additional software and service sales. Current
liabilities increased $204,386 from 1997 to 1998. This increase is due to
additional costs associated with the increase in general, selling and
administrative costs relating to the release of new software products. The
Company believes that its existing cash, accounts receivable, and anticipated
revenues will be sufficient to meet its liquidity and cash requirements for the
next twelve months.
OPERATING ACTIVITIES
Cash provided by (used in) operations for fiscal 1998 and 1997 was $(158,044)
and $218,922, respectively. The decrease in cash provided by operations in 1998
was due to an increase in accounts receivable of $260,559. Accounts receivable
increased due to an increase in the company's sales.
INVESTING ACTIVITIES
Investing activities consumed $77,307 and 36,894 in 1998 and 1997, respectively,
for purchases of capital assets.
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<PAGE>
FINANCING ACTIVITIES
During fiscal 1998, financing activities provided of $240,196 in cash 1998
compared to $220,681 in cash used in 1997, an increase of $460,857 in cash from
financing activities in fiscal 1997. Financing activities in 1998, consisted
primarily of the Company's issuance of 100,000 units for $2.50 per unit through
a private placement which raised approximately $225,000, net of offering
expenses. In 1997, the Company repaid $145,000 on its line of credit.
CAPITAL RESOURCES
The Company has certain credit facilities with its bank including a line of
credit and two term loans. As of December 31, 1998, the Company had
approximately, $300,000 of unused credit available on its line of credit. The
Company is current with all its obligations to its bank and has met all
financial covenants in its loan documents.
The Company has no material commitments for capital expenditures and believes
that its cash from operations, existing balances and available credit line will
be sufficient to satisfy the needs of its operations and its capital commitments
for the foreseeable future. However, if the need arose, the Company would seek
to obtain capital from such sources as continuing debt financing or equity
financing.
NEW PRONOUNCEMENTS
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement redefines how operating
segments are determined and requires disclosures of certain financial and
descriptive information about the Company's operating segments. Under current
conditions, the Company is reporting one segment
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements following Item 13 of this Annual Report on
Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Jones, Jensen & Company, P.C. ("Jones Jensen") by the letter dated
April 8, 1999 was dismissed as the independent accountants for Western Tech. The
reports of Jones Jensen on the financial statements of Western Tech for the past
two fiscal years contain no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles. Western Tech's Board of Directors approved the dismissal of Jones
Jensen.
For the two most recent fiscal years and through April 8, 1999, there
have been no disagreements between Western Tech and Jones Jensen on any matter
of accounting principles or practices, financial statement disclosure, or
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<PAGE>
auditing scope or procedure, which would have caused Jones Jensen to make a
reference thereto in its report on Western Tech's financial statements for such
period. During the two most recent fiscal years and through April 8, 1999, there
have been no reportable events (as defined in Regulation S-K, Item
304(a)(1)(v)).
Western Tech has requested that Jones Jensen furnish it with a letter
addressed to the Securities and Exchange Commission stating whether or not Jones
Jensen agrees with the above statements. A copy of such letter will filed with
the Securities and Exchange Commission as an exhibit to Western Tech's Current
Report on Form 8-K.
Western Tech engaged Grant Thornton LLP ("GT"), as its new independent
accountants as of April 8, 1999. Prior to such date, Western Tech did not
consult with GT regarding (i) the application of accounting principles, (ii) the
type of audit opinion that might be rendered by GT, or (iii) any other matter
that was the subject of a disagreement between Western Tech and its auditor (as
defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as
described in Item 304(a) (1)(v) of Regulation S-K).
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT.
The names and ages of the directors and executive officers of Western
Tech are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
- ---- --- ----------------------------
<S> <C> <C>
Zenith S. Merritt(1) 69 President and Director of Western Tech
Thomas M. Hockaday(1) 62 Secretary-Treasurer and Director of Western Tech
Jo Juliano-Smith(2) 55 Director of Western Tech
John D. Richardson(3) 40 Chairman of the Board, Chief Executive Officer and
Chief Accounting Officer of Western Tech and Cimnet
David Birk(3) 58 Director of Western Tech and Cimnet
Andrew Roosevelt(3) 36 Director and Secretary of Western Tech and Cimnet
Joseph Vinhais 31 President of Cimnet
Keith Frantz 42 Vice President-Development of Cimnet
</TABLE>
(1) Resigned on March 2, 1999.
(2) Resigned on February 22, 1999.
(3) Became a director of Western Tech on March 2, 1999.
-17-
<PAGE>
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
Z.S. MERRITT. Mr. Merritt was the President and a director of Western
Tech from December 15, 1994 until March 2, 1999. For the last five years (and
previously), Mr. Merritt has also provided independent consulting services as a
geologist and landman, as well as acting as the owner and real estate broker for
Meritt Realty in Casper, Wyoming.
THOMAS M. HOCKADAY. Mr. Hockaday was Vice President and a director of
Western Tech from December 15, 1994 until March 2, 1999. For the last five years
(and previously), Mr. Hockaday worked as a real estate sales representative and
investment advisor for Merit Realty in Casper, Wyoming.
JO JULIANO SMITH. Ms. Smith was a director of Western Tech from April
1, 1997 through February 22, 1999. She has over fifteen years of experience as a
paralegal, and in recent years (including the last five years) has also worked
as a substance abuse counselor.
JOHN D. RICHARDSON. Mr. Richardson has been the Chairman of the Board,
Chief Executive Officer and Chief Accounting Officer of Western Tech since March
2, 1999. Mr. Richardson was a computer programmer at Rockwell International
Corporation from 1980 to 1982, where he programmed machine tools for the
manufacture of printing presses. In 1982, he joined the cutting tool division of
Sandvik Corporation during which time he served as a regional sales manager for
the company's Pennsylvania territory. In 1984, he left Sandvik to form Cimnet
and has served as its Chief Executive Officer and Chairman of the Board since
that time.
DAVID BIRK. Mr. Birk has been a director of Western Tech since March 2,
1999 and a director of Cimnet since January 1998. Mr. Birk is the sole
stockholder and President of ManSoft, a software distribution company in the
southwestern United States. ManSoft is a significant regional distributor of
Cimnet's product. From 1986 through 1994, Mr. Birk was a Regional Sales Manager
of Intercim (and its predecessors), a software developer of manufacturing
execution systems.
ANDREW ROOSEVELT. Mr. Roosevelt has been a director of Western Tech
since March 2, 1999 and a director of Cimnet since June 1998. Mr. Roosevelt
formed Go Glo Co., Inc., a venture capital firm, in 1990 and has served as its
President since that time. Go Glo Co., Inc. is a stockholder of Cimnet.
JOSEPH VINHAIS. Mr. Vinhais joined Cimnet in 1994 us a Statistical
Process Control Product Manager. He was then promoted to Regional Sales Manager,
Vice President of Sales and has served as its President since January 1, 1998.
Prior to his employment with Cimnet, Mr. Vinhais was employed as a staff
engineer by Textron Lycoming.
KEITH FRANTZ. Mr. Frantz joined Cimnet in 1989 and has served as its
Vice President of Development since 1992. Previously, he was a senior engineer
at Laser Communications, Inc.
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<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Western Tech's directors and executive officers, and persons who own more than
ten percent (10%) of a registered class of Western Tech's equity securities, to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of Western Tech. Officers, directors and greater than ten percent shareholders
are required by SEC regulation to furnish Western Tech with copies of all
Section 16(a) forms they file.
Except as set forth below, to Western Tech's knowledge, based solely on
its review of the copies of such reports furnished to Western Tech during the
year ended December 31, 1998, all Section 16(a) filing requirements applicable
to its officers and directors and greater than ten percent beneficial owners
were satisfied. The following table sets forth, as of the date of this report,
the name and relationship of each person who failed to file on a timely basis
any reports required pursuant to Section 16 of the Exchange Act:
NAME POSITION REPORT TO BE FILED
- ---- -------- ------------------
Zenith S. Merritt President, Director, >10% S/H Form 3
Thomas M. Hockaday Vice President and Director Form 3
Jo Juliano Smith Director Form 3
ITEM 10. EXECUTIVE COMPENSATION
Western Tech has not had a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or directors.
Western Tech has not paid any salaries or other compensation to its officers,
directors or employees for the years ended December 31, 1996 and 1997 or 1998.
Further, Western Tech has not entered into an employment agreement with any of
its officers, directors or any other persons and no such agreements are
anticipated in the immediate future.
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of March 30, 1999 the
beneficial ownership of the shares of Western Tech's Common Stock by (i) each
person known by Western Tech to beneficially own five percent (5%) or more of
the outstanding shares; (ii) Western Tech's officers and directors; and (iii)
Western Tech's officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES OF COMMON STOCK PERCENTAGE OF CLASS
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) BENEFICIALLY OWNED(3)
------------------- --------------------- ---------------------
<S> <C> <C>
Zenith S. Merritt(4) 251,400 4.9%
801 East "A" Street
Casper, Wyoming 82601
Thomas Hockaday(5) 500(7) *
1560 Nottingham
Casper, Wyoming 82609
Jo Juliano-Smith(6) ------- *
801 East "A" Street
Casper, Wyoming 82601
John D. Richardson(7) 3,645,000(8) 70.8%
David Birk(9) ------- *
Andrew Roosevelt(10) 50,000(11) *
Joseph Vinhais(12) 116,667(13) 2.3%
Keith Frantz(14) 32,000(15) *
All Officers and Directors
as a Group (3 persons) 4,095,567 79.5%
</TABLE>
* represents less than 1% of the total number of shares of the Company's
Common Stock outstanding
1. Unless noted otherwise, the address for such person is c/o Western
Technology & Research, Inc., 946 West Penn Avenue, Robesonia, PA 19551
2. Unless noted otherwise, all shares indicated as beneficially owned are held
of record by and the right to vote and transfer such shares lies with the
person indicated. A person is deemed to be a beneficial owner of any
securities of which that person has the right to acquire beneficial
ownership within sixty (60) days.
3. Calculated based upon 5,150,000 shares of common stock outstanding.
4. Mr. Merritt was the President and a director of Western Tech prior to the
consummation of the Merger.
5. Mr. Hockaday was the Secretary-Treasurer and a director of Western Tech
prior to the consummation of the Merger.
6. Ms. Smith was a director of Western Tech until February 22, 1999.
7. Mr. Richardson has been the Chairman of the Board, Chief Executive Officer
and Chief Accounting Officer of Western Tech since the consummation of the
Merger.
8. Mr. Richardson disclaims beneficial ownership of an aggregate of 55,000
shares of Common Stock beneficially owned by children and his parents.
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<PAGE>
9. Mr. Birk has been a director of Western Tech since the consummation of the
Merger.
10. Mr. Roosevelt has been a director of Western Tech since the consummation of
the Merger.
11. Includes (i) 20,000 shares of Common Stock and (ii) 30,000 Class A Common
Stock Purchase Warrants, each held by Go Glo Co., Inc., a company owned and
controlled by Mr. Roosevelt.
12. Mr. Vinhais is the President of Cimnet with his primary job function being
the growth of the Folders software division .
13. Includes (i) 16,667 shares of Common Stock issuable upon the exercise of a
stock option prior to January 1, 2000 at an exercise price of $.05 per
share and (ii) 100,000 shares of Common Stock issuable upon the exercise of
a stock option prior to January 1, 2002 at an exercise price of $1.25 per
share.
14. Mr. Frantz is the Vice President-Development of Cimnet.
15. Includes 12,000 shares of Common Stock issuable upon the exercise of a
stock option prior to May 21, 1999 at an exercise price of $2.50 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
To the best of Management's knowledge there were no material
transactions, or series of similar transactions, or any currently proposed
transactions, or series of similar transactions, to which the Company was or is
to be a party, in which the amount involved exceeds $60,000, and in which any
director or executive officer, or any security holder who is known by Western
Tech to own of record or beneficially more than 5% of any class of Western
Tech's common stock, or any member of the immediate family of any of the
foregoing persons, has an interest. H.D. Williams has advanced funds to pay for
attorneys fees and accounting fees for the preparation of filings with the
Securities and Exchange Commission. In addition, the Company has agreed to pay
Williams Investment Co. a consulting fee of $25,000 for services rendered in
connection with the Merger.
The Company's principal facility is a 6,500 square foot building in
Robesonia, Pennsylvania. In addition, the Company has recently moved its some of
its new product development group to a 1,000 square foot space adjacent to the
principal facility. The Company believes that its current facilities are
adequate to meet the Company's current business requirements, and that suitable
additional space will be available as needed. The building is owned by John
Richardson, Western Tech's Chief Executive Officer and Chairman of the Board and
the lease is on a year to year basis. The monthly rent paid by the Company to
Mr. Richardson is $7,500 month which the Company considers to be no greater than
market rate for comparable space.
On December 9, 1997, the Company issued 500,000 shares of its common
stock to two individuals for consulting and advisory services rendered through
that date and $15,000 cash ($0.03 per share). The difference between the fair
value of the common stock, $1.15 as determined by management based on the
private placement memorandum, and the cash consideration was charged to
operations in 1997.
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<PAGE>
PART IV
ITEM 13. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibits
3.01* Articles of Incorporation of the Company.
3.02* By-Laws of the Company.
4.01* Specimen Certificate for shares of Common Stock.
4.02 Class A Common Stock Purchase Warrant
10.01** Agreement and Plan of Merger dates as of December 30, 1998 among the
Company, Cimnet, Inc. and Cimnet Acquisition Corp.
21.01 Subsidiaries of Registrant
- -----------------
* Incorporated by reference from the Company's registration statement on Form
10-SB filed with the Commission, SEC File No. 022597.
** Previously filed with and incorporated hereby with reference to the
Company's Form 8-K filed with the Commission on January 27, 1999.
(b) Reports on Form 8-K
None.
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<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
WESTERN TECHNOLOGY AND RESEARCH, INC. AND SUBSIDIARY
DECEMBER 31, 1998 AND 1997
<PAGE>
C O N T E N T S
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Western Technology and Research, Inc.
We have audited the accompanying consolidated balance sheets of Western
Technology and Research, Inc. and Subsidiary as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for the years then ended. These 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Western
Technology and Research, Inc. and Subsidiary as of December 31, 1998 and 1997,
and the consolidated results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
- ----------------------
Grant Thornton LLP
Philadelphia, Pennsylvania
January 18, 1999, (except for
note B, as to which the date
is March 2, 1999)
F-1
<PAGE>
Western Technology and Research, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 31,505 $ 26,660
Accounts receivable, net of allowance of $32,915 and
$37,185 at December 31, 1998 and 1997, respectively 599,497 334,668
Inventories 88,505 51,139
Prepaid expenses 93,066 78,842
Deferred tax asset 23,000 --
----------- -----------
Total current assets 835,573 491,309
PROPERTY AND EQUIPMENT, NET 275,688 243,185
----------- -----------
$ 1,111,261 $ 734,494
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Line of credit $ 298,992 $ 227,090
Current portion of long-term debt 100,211 75,125
Accounts payable 110,698 54,210
Accrued expenses 54,086 43,969
Deferred income 496,658 455,865
----------- -----------
Total current liabilities 1,060,645 856,259
LONG-TERM DEBT, net of current portion 47,538 87,733
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, par value $.0001 per shares; 5,000,000
shares authorized (no shares issued and outstanding) -- --
Common stock, 50,000,00 shares authorized at no par value,
5,150,000 shares issued and outstanding 1,036,050 --
Common stock, par value, $.0001 per share; authorized,
15,000,000 shares, and 4,230,000 shares issued and
outstanding -- 423
Additional paid-in capital -- 763,301
Accumulated deficit (692,574) (665,524)
----------- -----------
343,476 98,200
Less
Cost of treasury stock, 30,000 shares in 1997 -- 7,772
Deferred compensation 36,667 --
Shareholder receivable 303,731 299,926
----------- -----------
3,078 (209,498)
----------- -----------
$ 1,111,261 $ 734,494
=========== ===========
</TABLE>
F-2
<PAGE>
Western Technology and Research, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 3,191,725 $ 2,908,625
Cost of goods sold 529,705 561,559
----------- -----------
Gross profit 2,662,020 2,347,066
----------- -----------
Operating expenses
Selling, general and administrative 1,680,939 1,278,860
Research and development 981,065 965,856
Noncash consulting fees -- 560,000
----------- -----------
2,662,004 2,804,716
----------- -----------
Operating income (loss) 16 (457,650)
Loss on disposal 2,133 --
Nonoperating interest expense 47,933 52,498
----------- -----------
Loss before income tax benefit (50,050) (510,148)
Income tax benefit 23,000 --
----------- -----------
NET LOSS $ (27,050) $ (510,148)
=========== ===========
Loss per common share - basic and diluted $ (0.01) $ (0.12)
=========== ===========
Weighted average shares outstanding basic and diluted 4,906,849 4,231,507
=========== ===========
</TABLE>
F-3
<PAGE>
Western Technology and Research, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------- Paid-in Accumulated Treasury Deferred Shareholder
Shares Amount Capital Deficit Stock Compensation Receivable
-------------- ---------- ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 70,000 $ 70,000 $ 118,724 $ (155,376) $ (7,222) $ -- $ (280,440)
Recapitalization 3,660,000 (69,627) 69,627 -- -- -- --
Issuance of capital stock in
exchange for consulting
services and cash 500,000 50 574,950 -- -- -- --
Net loss -- -- -- (510,148) -- -- --
Stockholder distribution -- -- -- -- -- -- $ (19,486)
----------- ----------- ----------- ----------- ----------- ----------- ----------
Balance at December 31, 1997 4,230,000 423 763,301 (665,524) (7,222) -- $ (299,926)
Excess of fair value of stock over
exercise price of options granted -- -- 55,000 -- -- (55,000) --
Issuance of common stock 200,000 20 249,980 -- -- -- --
Offering costs -- -- (24,902) -- -- --
Retirement of treasury stock (30,000) (3) (7,219) -- 7,222 -- --
Reclassification of .0001 par
common stock (4,400,000) (440) -- -- -- -- --
Issuance of no par common
stock 5,150,000 1,036,050 (1,036,160) -- -- -- --
Compensation expense -- -- -- -- -- 18,333 --
Stockholder distribution -- -- -- -- -- -- $ (3,805)
Net loss -- -- -- (27,050) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- ----------
Balance at December 31, 1998 5,150,000 $ 1,036,050 $ -- $ (692,574) $ -- $ (36,667) $ (303,731)
=========== =========== =========== =========== =========== =========== ==========
</TABLE>
F-4
<PAGE>
Western Technology and Research, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (27,050) $(510,148)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Depreciation and amortization 80,561 61,566
Loss on disposal of equipment 2,133 --
Noncash consulting fees -- 560,000
Allowance for future returns (4,270) 37,185
Issuance of employee stock options 18,333 --
(Increase) decrease in assets
Accounts receivable (260,559) 30,344
Inventories (37,366) 34,720
Deferred tax asset (23,000) --
Prepaid expenses (14,224) (4,464)
Increase (decrease) in liabilities
Accounts payable 56,488 (102,433)
Accrued expenses 10,117 (3,358)
Deferred income 40,793 115,510
--------- ---------
Net cash (used in) provided by operating activities (158,044) 218,922
--------- ---------
Cash flows from investing activities
Purchase of property and equipment (77,307) (36,894)
--------- ---------
Net cash used in investing activities (77,307) (36,894)
--------- ---------
Cash flows from financing activities
Net (payments on) proceeds from line of credit 71,902 (145,500)
Proceeds from long-term borrowings 30,000 --
Principal payments on long-term borrowings (82,999) (70,695)
Proceeds from issuance of common stock, net 225,098 15,000
Net advances to shareholder (3,805) (19,486)
--------- ---------
Net cash provided by (used in) financing activities 240,196 (220,681)
--------- ---------
NET INCREASE (DECREASE) IN CASH 4,845 (38,653)
Cash at beginning of year 26,660 65,313
--------- ---------
Cash at end of year $ 31,505 $ 26,660
========= =========
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 48,235 $ 53,520
========= =========
Noncash transactions
Acquisition of property and equipment via capital lease $ 37,890 $ 32,268
========= =========
Issuance of employee stock options $ 55,000 $ --
========= =========
</TABLE>
F-5
<PAGE>
Western Technology and Research, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - NATURE OF BUSINESS
Western Technology and Research , Inc. (Western Technology), organized under
the laws of the state of Wyoming, conducts its business through its wholly
owned subsidiary, Cimnet, Inc. (Cimnet or the Company).
Cimnet is in the business of the development, sale, and maintenance of
computer integrated manufacturing software. The Company also is engaged in
the resale of hardware that is incidental to the operation of its software
products. The Company's software is a manufacturing execution system which
enables factories to monitor work flows and manufacturing processes. The
Company's office is located in Robesonia, Pennsylvania, and the Company has
sales throughout the United States. Credit is granted on terms that the
Company establishes for individual customers. On December 31, 1997, J. N. L.
Industries, Inc., a Pennsylvania corporation, merged with and into Cimnet,
Inc., a newly formed Delaware corporation with no operations, assets or
liabilities.
NOTE B - BASIS OF PRESENTATION
On March 2, 1999, Western Technology a non-operating public company with
750,000 common shares outstanding and immaterial net assets, acquired 100%
of the outstanding common stock of Cimnet (the Acquisition). The Acquisition
resulted in the owners and management of Cimnet having effective operating
control of the combined entity after the Acquisition, with the existing
Western Technology investors continuing as only passive investors.
Under generally accepted accounting principles, the Acquisition is
considered to be a capital transaction in substance, rather than a business
combination. That is, the Acquisition is equivalent to the issuance of stock
by Cimnet for the net monetary assets of Western Technology, accompanied by
a recapitalization, and is accounted for as a change in capital structure.
Accordingly, the accounting for the Acquisition is identical to that
resulting from a reverse acquisition, except that no goodwill intangible is
recorded. Under reverse takeover accounting, the post reverse-acquisition
comparative historical financial statements of the "legal acquirer" (Western
Technology), are those of the "legal acquiree" (Cimnet) (I.E. the accounting
acquirer). The Securities and Exchange Commission requires that capital
transaction consummated after year end but prior to the issuance of the
consolidated financial statements should be given retroactive effect as if
the transaction had occurred on December 31, 1998.
Accordingly, the consolidated financial statements of Western Technology as
of December 31, 1998, and 1997 and for the years then ended, are the
historical financial statements of Cimnet for the same periods adjusted for
the exchange of the common stock as defined in the Agreement and Plan of
Merger (the Agreement) executed at consummation of the Acquisition.
F-6
<PAGE>
Western Technology and Research, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE B - BASIS OF PRESENTATION - Continued
Under the terms of the agreement, each outstanding common share, $0.0001 par
value, of Cimnet was converted into one common share of Western Technology's
common stock, no par value. The additional paid-in capital account has been
combined with common stock as presented in the statement of changes in
shareholders' equity. The common stock exchanged, in addition to the
existing Western Technology shares outstanding, collectively resulted in the
recapitalization of the Company. Earnings per share (EPS) calculations
include the Company's change in capital structure for all periods presented.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. REVENUE RECOGNITION
The Company generates revenue principally from the following sources.
SOFTWARE AND HARDWARE
Revenues are recorded when software or hardware products are shipped
and are recorded net of allowance for estimated returns, price
concessions, and other discounts.
MAINTENANCE AGREEMENTS
Maintenance agreements generally require the Company to provide
technical support and certain software updates to customers. Revenue
on technical support and software update rights is recognized ratably
over the term of the maintenance agreement.
The Company has adopted the provisions of the American Institute of
Certified Public Accountants (AICPA) Statement of Position 97-2,
SOFTWARE REVENUE RECOGNITION. The adoption did not have a material
effect on the Company's financial statements.
2. INVENTORIES
Inventories, which consist entirely of hardware purchased for resale, are
stated at the lower of average cost (first-in, first-out method) or market.
3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on equipment is
computed by the declining-balance method over the following estimated useful
lives:
Furniture and fixtures 5 to 10 years
Transportation equipment 3 to 5 years
Leasehold improvements 7 to 40 years
F-7
<PAGE>
Western Technology and Research, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Improvements to leased property are amortized over the lesser of the life of
the lease or the lives of the improvements. Software is amortized over three
years under the straight-line method.
Expenditures for betterments and additions are capitalized, while
maintenance and repairs are charged to expense when incurred. When
depreciable property is retired or otherwise disposed of, the related assets
and accumulated depreciation are removed from the accounts and any resultant
gain or loss is reflected in earnings.
4. INCOME TAXES
Effective December 31, 1997, the Company terminated its S corporation
election and became a C corporation. In connection with the Company's change
in tax status, the Company recorded a deferred asset of $23,000 in 1998. As
a C corporation, the computation of deferred taxes is based on federal C
corporation tax rates, which are not applicable to S corporations, and C
corporation state tax rates, which are significantly larger than S
corporation state tax rates. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, the gain resulting from the increase in
the deferred tax asset is included as a credit to tax expense during the
period ended December 31, 1998.
As of January 1, 1998, the Company accounts for its income taxes under the
liability method specified by SFAS No. 109, ACCOUNTING FOR INCOME TAXES.
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these
differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities. The Company files a consolidated
federal income tax return, and the amount of income tax expense or benefit
is computed and allocated on a separate return basis.
Prior to January 1, 1998, the Company, with the consent of its stockholders,
was taxed as a "S" corporation, with the stockholders separately accounting
for their pro rata shares of the Company's items of income, deductions,
losses, and credits.
5. LOSS PER COMMON SHARE
The Company reports earnings per share in accordance with the provisions of
SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128 requires presentation of
basic and diluted earnings per share in conjunction with the disclosure of
the methodology used in computing such earnings per share. Basic earnings
per share excludes dilution and is computed by dividing income available to
common shareholders by the weighted average common shares outstanding during
the period. Diluted earnings per share takes into account the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised and converted into common stock.
Options to purchase 50,000 shares of common stock for $0.05 per share were
outstanding during 1998. They were not included in the computation of
diluted earnings per share because the option exercise price was greater
than the average market price. Warrants to purchase 300,000 shares of common
stock for $2.50 per share were outstanding during 1998 and 1997. They were
not included in the computation of diluted earnings per share because the
option exercise price was greater than the average market price.
F-8
<PAGE>
Western Technology and Research, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. STOCK OPTIONS
The Company accounts for its stock option plans under APB Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Accordingly, no compensation
expense has been recognized for stock options issued to employees. The
Financial Accounting Standards Board issued SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, which contains a fair value-based method for
valuing stock-based compensation that entities may use, which measures
compensation cost at the grant date based on the fair value of the award.
Alternatively, SFAS No. 123 permits entities to continue accounting for
employee stock options and similar equity instruments under Accounting
Principles Board (APB) Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
Entities that continue to account for stock options using APB Opinion 25 are
required to make pro forma disclosures of net income and earnings per share,
as if the fair value-based method of accounting defined in SFAS No. 123 had
been applied. Pro forma information is not presented due to the
immateriality of total pro forma compensation expense.
7. 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.
8. SOFTWARE DEVELOPMENT COSTS
Under the criteria set forth in SFAS No. 86, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, capitalization
of software development costs begins upon the establishment of technological
feasibility of the product. The establishment of technological feasibility
and the ongoing assessment of the recoverability of these costs require
considerable judgment by management with respect to certain external
factors, including but not limited to, anticipated future gross product
revenue, estimated economic product lives, and changes in software and
hardware technology. Amounts that would have been capitalized under this
statement after consideration of the above factors were immaterial and,
therefore, no software development costs have been capitalized by the
Company.
Costs incurred internally to develop computer software products and the
costs to acquire externally developed software products (which have no
alternative future use) to be sold, leased, or otherwise marketed are
charged to expense as research and development until the technological
feasibility of the product has been established. Costs incurred after
technological feasibility has been established for software development,
maintenance, and product enhancements and acquisition costs are included in
cost of goods sold.
F-9
<PAGE>
Western Technology and Research, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
9. ADVERTISING COSTS
The Company expenses the cost of advertising the first time advertising
takes place, except for prepaid advertising. Prepaid advertising consists
principally of the costs of developing advertising materials including sales
literature and catalogs. These costs are expensed on a monthly basis over
the estimated useful life of the materials, generally over 12 to 24 months.
At December 31, 1998 and 1997, $32,502 and $24,038 of advertising costs,
respectively, were included in prepaid expenses. Advertising expense for the
years ended December 31, 1998 and 1997, was $136,268 and $84,428,
respectively
10. SEGMENT REPORTING
In 1998, the Company adopted SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement redefines how operating
segments are determined and requires disclosures of certain financial and
descriptive information about the Company's operating segments. Under
current conditions, the Company is reporting one segment.
11. RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements to
conform to the 1998 presentation.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
1998 1997
-------- --------
Furniture, fixtures and equipment $419,348 $328,035
Leasehold improvements 171,858 169,926
Computer software 15,545 --
-------- --------
606,751 497,961
Less accumulated depreciation and amortization 331,063 254,776
-------- --------
$275,688 $243,185
======== ========
Depreciation and amortization amounted to $80,561 and $61,566 for the years
ended December 31, 1998 and 1997, respectively.
NOTE E - DEFERRED TAXES
The Company has recorded a deferred tax asset of $23,000 reflecting the
benefit of approximately $70,000 in loss carryforwards. Realization is dependent
on generating sufficient taxable income prior to expiration of the loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be realized in
subsequent periods. No current income tax provision was made due to an estimated
taxable loss.Western Technology and Research, Inc. and Subsidiary.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE F - LINE OF CREDIT
The Company has a $600,000 line of credit with a bank. Interest is payable
monthly at the bank's prime interest rate plus .75%. The amount outstanding
at December 31, 1998 and 1997, was $298,992 and $227,090, respectively. The
line of credit expires April 30, 1999. The line of credit is collateralized
by a first lien security interest in all business assets, a second lien
mortgage on real estate owned by the shareholders, an unlimited surety
agreement with the shareholders, and assignment of a life insurance policy
on the principal shareholder in the amount of $500,000.
NOTE G - LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Note payable to bank in monthly payments of $5,000 plus interest at the
bank's prime interest rate plus 1% per annum to January 1, 2000;
collateralized along with the line of credit as described in Note D $ 65,000 $ 125,000
Note payable to bank in 36 monthly payments of $945, including interest at
8.25% per annum to April 2001; collateralized along with the line of
credit as described in Note D 23,943 --
Capital lease obligations for various equipment; interest rate imputed at
rates ranging from 12% to 26%; payable in monthly installments ranging
from $65 to $872 through November 1999 to July 2001; collateralized by
the equipment under capital lease 58,806 37,858
--------- ---------
147,749 162,858
Less current portion 100,211 75,125
--------- ---------
$ 47,538 $ 87,733
========= =========
</TABLE>
Aggregate maturities required on long-term debt at December 31, 1998, are as
follows:
1999 $ 108,605
2000 39,773
2001 9,752
---------
158,130
Less amount representing interest on capital leases 10,381
---------
$ 147,749
=========
Interest expense for the years ended December 31, 1998 and 1997, was $47,933 and
$52,498, respectively.
F-11
<PAGE>
Western Technology and Research, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE H - RELATED PARTY TRANSACTIONS
The Company is affiliated with High Printing and Graphics, Inc. The
Company's shareholder owns a 50% interest in High Printing and Graphics,
Inc. During the years ended December 31, 1998 and 1997, the Company
conducted transactions with the related party which were immaterial, both
individually and in the aggregate.
The Company rents space from the Company's shareholders on a month-to-month
basis. Rent expense for 1998 and 1997 relating to this arrangement was
$90,000 and $90,000, respectively. The Company formalized this arrangement
pursuant to a lease signed in early 1998. Under this agreement, the monthly
rental payment is $7,500.
The total rental expense, which includes various operating leases which have
immaterial future minimum rental commitments, included in the income
statements for the years ended December 31, 1998 and 1997, was $117,019 and
$123,270, respectively.
A director of the Company and persons associated with him were issued
500,000 shares of its common stock in 1997 (see note J).
NOTE I - EMPLOYEE DEFERRED SALARY PLAN
The Company has an employee savings plan subject to the provisions of
Section 401(k) of the Internal Revenue Code. Under the terms of the plan,
the Company will match 25% of the participant's contribution, up to 6% of
the participant's compensation. The total Company contributions included in
the income statements for the years ended December 31, 1998 and 1997, were
$16,782 and $13,535, respectively.
NOTE J - STOCKHOLDERS' EQUITY
In January 1998, the Company issued a private placement memorandum raising
$250,000 by the issuance of 100,000 units at $2.50 per unit. Each unit
consisted of two shares of common stock and three common stock purchase
warrants. No subscriptions have been accepted to date in connection with
this offering. The warrants have an exercise price of $2.50 and expire one
year from the closing date of the offering. As of December 31, 1998, there
are 300,000 warrants outstanding.
In January 1998, the Company decided to grant one of its officers 50,000
options to purchase the Company's stock at $0.05 per share. The difference
between the fair market value of the stock and the stock option price of
$55,000 will be recorded over the vesting period of the options.
Compensation expense charged to operation during 1998 was $18,333.
F-12
<PAGE>
Western Technology and Research, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE J - STOCKHOLDERS' EQUITY - Continued
On December 9, 1997, the Board of Directors and shareholders voted to: (a)
change the par value of the common stock from $1.00 to $.0001 par value, to
increase the authorized common stock from 500,000 shares to 15,000,000
shares, (b) declare a stock split resulting in the issuance of 93.25 shares
for each share outstanding at the time, (c) authorize 500,000 shares of
preferred stock at a par value of $.0001, and (d) issue 500,000 shares of
common stock for $15,000 and services rendered.
On December 9, 1997, the Company issued 500,000 shares of its common stock
to two individuals for consulting and advisory services rendered through
that date and $15,000 cash ($0.03 per share). The difference between the
fair value of the common stock, $1.15 as determined by management based on
the private placement memorandum, and the cash consideration was charged to
operations in 1997.
NOTE K - CONCENTRATION RISK
The Company currently purchases a significant portion, in the amount of 36%,
of its inventory from one supplier. Management believes that other suppliers
could provide inventory on comparable terms. A change in suppliers, however,
could cause delays adversely affecting operating results.
F-13
<PAGE>
SIGNATURE
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.
Dated: Robesonia, Pennsylvania
April 14, 1999
WESTERN TECHNOLOGY & RESEARCH, INC.
By:/s/ JOHN D. RICHARDSON
----------------------------------------------
John D. Richardson
Chairman of the Board, Chief Executive Officer
and Chief 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 in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JOHN D. RICHARDSON
- ---------------------------- Chairman of the Board, Chief Executive
John D. Richardson Officer and Chief Accounting Officer April 14, 1999
/s/ DAVIE BIRK
- ---------------------------- Director April 14, 1999
Davie Birk
/s/ ANDREW ROOSEVELT
- ---------------------------- Director April 14, 1999
Andrew Roosevelt
</TABLE>
EXHIBIT 21.01
SUBSIDIARIES OF REGISTRANT
NAME STATE OF INCORPORATION
- ------------------------------------------------------------------
Cimnet, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0001035901
<NAME> Western Technology & Research, Inc.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<EXCHANGE-RATE> 1 1
<CASH> 31,505 26,660
<SECURITIES> 0 0
<RECEIVABLES> 632,412 371,853
<ALLOWANCES> 32,915 37,185
<INVENTORY> 88,505 51,139
<CURRENT-ASSETS> 835,573 491,309
<PP&E> 606,751 497,961
<DEPRECIATION> 331,063 254,776
<TOTAL-ASSETS> 1,111,261 734,494
<CURRENT-LIABILITIES> 1,060,645 856,259
<BONDS> 0 0
0 0
0 0
<COMMON> 1,036,050 423
<OTHER-SE> (1,032,972) (209,921)
<TOTAL-LIABILITY-AND-EQUITY> 1,111,261 734,494
<SALES> 3,191,725 2,908,625
<TOTAL-REVENUES> 3,191,725 2,908,625
<CGS> 529,705 561,559
<TOTAL-COSTS> 3,191,709 2,087,415
<OTHER-EXPENSES> 2,133 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 47,933 52,498
<INCOME-PRETAX> (50,050) (510,148)
<INCOME-TAX> (23,000) 0
<INCOME-CONTINUING> (27,050) (510,148)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
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</TABLE>
