As filed with the Securities and Exchange Commission on November 12, 1999,
Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
CIMNET, INC.
(Name of Small Business Issuer in Its Charter)
-----------
DELAWARE 7372 82-0273780
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
946 West Penn Avenue
Robesonia, PA 19551
(610) 693-3114
(Address and Telephone Number
of Registrant's Principal Executive Offices and Principal Place of Business)
-----------
JOHN D. RICHARDSON
President and Chief Executive Officer
CIMNET, INC.
946 West Penn Avenue
Robesonia, PA 19551
(610) 693-3114
(Name, Address and Telephone Number of Agent for Service)
-----------
with a copy to:
Alan N. Forman, Esq.
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
212-704-0100
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================================
PROPOSED MAXIMUM MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO DOLLAR AMOUNT TO BE OFFERING PRICE PER OFFERING AMOUNT OF
BE REGISTERED REGISTERED (1) SHARE(2) PRICE(3) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, par value $.0001 per 1,724,300 $1.125 $1,939,837.50 $539.27
share
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL $539.27
============================================================================================================================
</TABLE>
(1) The shares of common stock set forth in the Calculation of Registration
Fee Table, and which may be offered pursuant to this Registration
Statement, includes, pursuant to Rule 416 of the Securities Act of
1933, as amended, such additional number of shares of the Registrant's
common stock that may become issuable as a result of any stock splits,
stock dividends or similar events.
(2) Estimated solely for the purpose of computing the amount of the
registration fee, based on the closing price of the Company's common
stock as reported on the OTC Bulletin Board on November 10, 1999 in
accordance with Rule 457 under the Securities Act of 1933.
(3) The Company will not receive any proceeds from this Offering.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1999
<PAGE>
PROSPECTUS
[CIMNET LOGO]
CIMNET, INC.
1,724,300 SHARES OF COMMON STOCK, PAR VALUE $.0001 PER SHARE
---------------------------
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE __ IN DETERMINING
WHETHER TO PURCHASE CIMNET, INC. COMMON STOCK.
-------------------------
The selling stockholders identified on pages of this prospectus are
offering these shares of common stock. For additional information on the methods
of sale, you should refer to the section entitled "Plan of Distribution" on page
[35]. We will not receive any portion of the proceeds from the sale of these
shares.
Cimnet, Inc.'s common stock is quoted on the OTC Bulletin Board under
the symbol "CIMK". On November 10, 1999, the last sale price of the common stock
on the OTC Bulletin Board was $1.125 per share. As of the date of this
Prospectus, there are 4,899,000 shares of common stock outstanding.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
----------------------
THE DATE OF THIS PROSPECTUS IS _________, 1999.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION..........................................................1
OUR COMPANY....................................................................1
RISK FACTORS...................................................................2
USE OF PROCEEDS...............................................................13
DIVIDEND POLICY...............................................................13
CAPITALIZATION................................................................14
DILUTION......................................................................14
SELECTED FINANCIAL DATA.......................................................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.........................................16
BUSINESS......................................................................22
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.................................................30
MANAGEMENT....................................................................31
EXECUTIVE COMPENSATION........................................................33
PRINCIPAL STOCKHOLDERS........................................................35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................36
PLAN OF DISTRIBUTION..........................................................37
SELLING STOCKHOLDERS..........................................................38
DESCRIPTION OF CAPITAL STOCK..................................................42
SHARES ELIGIBLE FOR FUTURE SALE...............................................45
LEGAL MATTERS.................................................................46
EXPERTS.......................................................................46
CHANGE IN INDEPENDENT ACCOUNTANTS.............................................46
ADDITIONAL INFORMATION........................................................47
FINANCIAL STATEMENTS..........................................................48
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
including annual and quarterly reports on Form 10-KSB and 10-QSB (the "1934 Act
Filings") with the Securities and Exchange Commission (the "Commission").
Reports and other information filed by the Company can be inspected and copied
at the public reference facilities maintained at the Commission at Room 1024,
450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can be
obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a web site on the Internet (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission through the
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
OUR COMPANY
We provide software that assists manufacturing companies in automating
the manufacturing process so that ultimately our software customers can operate
"paperless factories." Our software sold under the CIMNET(R) brand name is a
manufacturing execution system (MES) used by aerospace, automotive and discrete
manufacturers which enables them to monitor work flows on a real time basis.
"Discrete" manufacturers create products by assemblying component parts. Our
hardware and software products enable manufacturers to gather and display
information about the manufacturing process and permits workers to interact with
and control that process. As a result, we believe customers using our products
can reduce operating costs and improve the quality of the products being
produced by providing real time information to employees who are vital to the
manufacturing process.
Below is a list of some of our significant customers since January,
1998. These customers, in the aggregate, represented approximately 26% and 22%
of the total revenue in fiscal year 1998 and the six-month period ended June 30,
1999, respectively.
o AMP, Inc.
o Amphenol Corporation
o Boston Gear
o Carrier Corporation
o Catterpillar, Inc.
o FMC Corporation
o Morris Material Handling, LLC
o Motek Engineering and Manufacturing, Inc.
o Synthes USA Prototype Shop
o Toyo Tanso USA, Inc.
o Twin Precision Manufacturing Corporation
o Tyler Refrigeration Corporation
o United Defense LP
o U.S. Department of the Navy
1
<PAGE>
As of December 30, 1998, Western Technology & Research, Inc., an
inactive publicly held shell corporation ("Western Tech"), Cimnet, Inc.
("Cimnet") and Cimnet Acquisition Corp. ("Cimnet Acquisition"), a subsidiary of
Western Tech, entered into an Agreement and Plan of Merger, pursuant to which
Cimnet Acquisition merged with and into Cimnet (the "Merger") on March 2, 1999.
The merger was accounted for as a reverse acquisition followed by a
recapitalization. As a result of the Merger:
o Cimnet became a wholly owned subsidiary of Western Tech;
o the stockholders of Cimnet became the beneficial owners of an aggregate
of 4,430,000 shares of the Western Tech's common stock or 85.5% of the
total shares of the common stock outstanding; and
o the existing members of the Board of Directors resigned and 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. Also, as a result of the Merger, Mr. Richardson
became the beneficial owner of 3,645,000 shares of Western Tech common stock, or
approximately 71% of the shares of common stock outstanding. On June 8, 1999, a
majority of the Western Tech's stockholders approved a merger of Western Tech
with and into Cimnet. As a result, as of June 22, 1999 Western Tech became a
Delaware corporation, its name changed to Cimnet, Inc. and our symbol on the OTC
Bulletin Board changed to "CIMK". Our principal executive offices are located at
946 West Penn Avenue, Robesonia, Pennsylvania 19551, and our telephone number is
(610) 693-3114.
As used in this prospectus, the words "we", "us", "our", "Cimnet" and
the "Company" refer to Cimnet, Inc., a Delaware corporation.
RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before deciding to invest in shares of our common
stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE INCURRED SUBSTANTIAL LOSSES AND During the fiscal years ended
WE MAY NOT BE PROFITABLE IN THE FUTURE December 31, 1997 and 1998, we
reported losses of $510,148 and
$27,050, respectively. We cannot be
certain if or when we will become
profitable. Failure to achieve
profitability within the timeframe
expected by investors may adversely
affect the market price of our
common stock. As a result of
accumulated operating losses, at
June 30, 1999, we had an
accumulated deficit of $692,573. We
have generated relatively small
amounts of revenue, while in 1998
we increased expenditures in all
areas, particularly in research and
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<PAGE>
development and sales and
marketing, in order to execute our
business plan. During the six
months ended June 30, 1999,
however, we have reduced certain
expenses as a result of a reduction
in personnel, but such expenses may
increase in the future.
OUR QUARTERLY OPERATING RESULTS MAY We derive a significant portion of
FLUCTUATE BECAUSE WE DEPEND ON A SMALL our software license revenue in
NUMBER OF LARGE ORDERS each quarter from a small number of
relatively large orders. Our
operating results for a particular
fiscal period could be materially
adversely affected if we are unable
to complete one or more substantial
license sales planned for that
period. From time to time, we have
customers that account for more
than 25% of our total revenue
during a fiscal quarter. In
addition, the purchase and
implementation of our products
typically involve a significant
cost to our customers, including
the purchase of related hardware
and software, as well as training
and integration costs. These
implementations also include
substantial commitment of resources
by our customers or their
consultants over an extended period
of time. As a result, our sales
cycle is relatively long.
In addition, our services revenue,
which is largely correlated with
our license revenue, has fluctuated
and may fluctuate in the future due
to significant consulting and
implementation services performed
in a quarter. Investors should not
expect a commensurate increase in
services revenue between future
quarters.
DISAPPOINTING QUARTERLY REVENUE OR Our quarterly revenue and operating
OPERATING RESULTS COULD CAUSE THE PRICE results are difficult to predict
OF OUR COMMON STOCK TO FALL and may fluctuate significantly
from quarter to quarter. If our
quarterly revenue or operating
results fall below the expectations
of investors or securities
analysts, the price of our common
stock could fall substantially.
Our quarterly revenue may fluctuate
as a result of a variety of
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<PAGE>
factors, including the following
o the market for manufacturing
automation software operating
on personal computers is in
its preliminary stage of
development and it is
therefore difficult to
accurately predict customer
demand; and
o sales cycle for our
products and services varies
substantially from customer to
customer, and we expect the
sales cycle to be long. As a
result, we have difficulty
determining whether and when
we will receive license
revenue from a particular
customer.
In addition, because our revenue
from implementation, maintenance
and training services is largely
correlated with our license
revenue, a decline in license
revenue could also cause a decline
in our services revenue in the same
quarter or in subsequent quarters.
Most of our expenses, such as
employee compensation and rent, are
relatively fixed in the short term.
Moreover, our expense levels are
based, in part, on our expectations
regarding future revenue levels. As
a result, if revenue for a
particular quarter is below our
expectations, we could not
proportionately reduce operating
expenses for that quarter, and
therefore this revenue shortfall
would have a disproportionate
effect on our expected operating
results for that quarter.
OUR BUSINESS WILL BE ADVERSELY AFFECTED Our products address a relatively
IF MANUFACTURING AUTOMATION SOFTWARE new market for manufacturing
SOLUTIONS ARE NOT WIDELY ADOPTED automation software operating on
personal computers. Therefore, our
future success depends
substantially upon the adoption by
manufacturers of our software. The
failure of this market to further
develop, or a delay in the
development of this market, would
have a material adverse effect on
our business, financial condition
and operating results. The
manufacturing industry in the
United States has experienced, and
is expected to continue to
experience, significant shift to
overseas facilities which because
4
<PAGE>
of geographical and language
barriers makes it more difficult
for us to sell our products and
services. In addition, our software
could lose its viability due to
delays in the development or
adoption of new standards and
protocols in the manufacturing
industry.
INTENSE COMPETITION FROM OTHER The market for PC based
TECHNOLOGY COMPANIES MAY ADVERSELY manufacturing automation software
AFFECT OUR FINANCIAL CONDITION AND applications is intensely
OPERATING RESULTS competitive. If we are unable to
compete effectively, our business,
financial condition and operating
results would be materially
adversely affected. Many of our
current and potential competitors
have longer operating histories,
greater name recognition and
substantially greater financial,
technical, marketing, management,
service, support and other
resources than we do. Therefore,
they may be able to respond more
quickly than we can to new or
changing opportunities,
technologies, standards or customer
requirements. In addition, we
expect that new competitors will
enter the market with competing
products as the size and visibility
of the market opportunity
increases. We also expect that
competition will increase as a
result of software industry
consolidations and formations of
alliances among industry
participants. Increased competition
could result in pricing pressures,
reduced margins or the failure of
our products to achieve or maintain
market acceptance. See "Business
--Competition."
WE HAVE A LIMITED NUMBER OF PRODUCTS AND Although we sell a variety of
WE MAY NOT BE ABLE TO DEVELOP NEW hardware and software products, the
PRODUCTS OR ENHANCE EXISTING PRODUCTS ON bulk of our revenues are
A TIMELY BASIS concentrated in the CIMNET(R)
family of products for industrial
automation applications. We
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
and 29% during the six months ended
June 30, 1999. We expect that
revenues from these products will
continue to account for a
substantial portion of our
revenues. The life cycles of our
5
<PAGE>
products are difficult to estimate
due in large measure to the
relatively recent emergence of the
market for our products, 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.
To be competitive, we must develop
and introduce on a timely basis new
products and product enhancements
which meet the needs of companies
seeking to deploy PC based
manufacturing automation software
applications. We have in the past
failed to ship certain new products
or product enhancements by our
planned shipment date. If we fail
to develop and introduce new
products and enhancements
successfully and on a timely basis,
it could have a material adverse
effect on our business, operating
results and financial condition.
WE RELY ON INDEPENDENT DISTRIBUTORS We have relied and expect to
continue to rely on independent
distributors for the marketing and
distribution of our products. These
distributors may also represent
other lines of products, some of
which may be complementary to or
competitive with our products. Our
distributors are not within our
control and are not obligated to
purchase products from the Company.
While we encourage our distributors
to focus primarily on the promotion
and sale of our 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 our products by our distributors
could lead to reduced sales and
could adversely affect our
business, operating results and
financial condition.
6
<PAGE>
LOSS OF KEY PERSONNEL COULD ADVERSELY Our future success depends to a
AFFECT OUR BUSINESS significant degree on the skills,
experience and efforts of John D.
Richardson, III, our founder,
Chairman of the Board and Chief
Executive Officer. The loss of the
services of Mr. Richardson could
have a material adverse effect on
our business, operating results and
financial condition. We also depend
on the ability of our executive
officers and other members of
senior management to work
effectively as a team. The loss of
one or more of our executive
officers and other members of
senior management could have a
material adverse effect on our
business, operating results and
financial condition.
WE MAY BE UNABLE TO HIRE AND RETAIN THE Qualified personnel are in great
SKILLED PERSONNEL WE NEED TO SUCCEED demand throughout the software
industry. The demand for qualified
personnel is particularly acute in
our area because of a limited
supply of skilled workers within
commuting distance of our
headquarters in Robesonia,
Pennsylvania. Our success depends
in large part upon our ability to
attract, train, motivate and retain
highly skilled employees,
particularly marketing personnel,
software engineers and other senior
personnel. Our failure to attract
and retain the highly- trained
technical personnel that are
integral to our product
development, sales and marketing
and support teams may limit the
rate at which we can develop new
products or product enhancements.
This could have a material adverse
effect on our business, operating
results and financial condition.
WE MAY BE UNABLE TO PROTECT OUR Our success depends to a
PROPRIETARY TECHNOLOGY RIGHTS significant degree upon the
protection of our software and
other proprietary technology
rights. We rely on trade secret,
copyright and trademark laws and
confidentiality agreements with
employees and third-parties, all of
which offer only limited
protection. Moreover, the laws of
other countries in which we market
our products may afford little or
no effective protection of our
proprietary technology. The reverse
engineering, unauthorized copying
or other misappropriation of our
proprietary technology could enable
7
<PAGE>
third parties to benefit from our
technology without paying us for
it. This could have a material
adverse effect on our business,
operating results and financial
condition. If we resort to legal
proceedings to enforce our
intellectual property rights, the
proceedings could be burdensome and
expensive and could involve a high
degree of risk. See "Business --
Intellectual Property and
Proprietary Rights."
CLAIMS BY OTHER COMPANIES THAT OUR If any of our products violate
PRODUCTS INFRINGE THEIR COPYRIGHTS OR third party proprietary rights, we
PATENTS COULD ADVERSELY AFFECT OUR may be required to engineer our
FINANCIAL CONDITION products or seek to obtain licenses
from third parties to continue
offering our products without
substantial reengineering. Any
efforts to reengineer our products
or obtain licenses from third
parties may not be successful and,
in any case, would substantially
increase our costs and have a
material adverse effect on our
business, operating results and
financial condition. We do not
conduct comprehensive patent
searches to determine whether the
technology used in our products
infringes patents held by third
parties. In addition, product
development is inherently uncertain
in a rapidly evolving technological
environment in which there may be
numerous patent applications
pending, many of which are
confidential when filed, with
regard to similar technologies. See
"Business -- Intellectual Property
and Proprietary Rights."
OUR USE OF THE "CIMNET" TRADEMARKS MAY Our use of "CIMNET" as well as the
INFRINGE THE TRADEMARK RIGHTS OF OTHER use of other names, may result in
COMPANIES costly litigation, divert
management's attention and
resources, cause product shipment
delays or require Cimnet to pay
damages and/or to enter into
royalty or license agreements to
continue to use a product name.
Cimnet may be required to stop
using the name "Cimnet" or other
names currently used for its
products. Any of these events could
have a material adverse effect on
our business, operating results and
financial condition.
In June 1992, our predecessor
8
<PAGE>
company, J.N.L. Industries, Inc.
registered the Cimnet trademark
with the U.S. Patent and Trademark
Office for International Class 9.
In order to maintain the
effectiveness of a trademark
registration, the Patent and
Trademark Office requires that an
affidavit be filed with the Patent
and Trademark Office within the
fifth year following registration
confirming continued use of the
trademark. We failed to file an
affidavit in 1997, and therefore,
our registration of the Cimnet
trademark lapsed. However, in
August 1999, we filed another
application with the Patent and
Trademark Office for the Cimnet
trademark, and anticipate,
obtaining acceptance of our
registration of the trademark in
the near future.
WE MAY LOSE ACCESS TO THIRD-PARTY We incorporate into our products
TECHNOLOGY USED IN OUR PRODUCTS technology licensed from third
parties, such as Oracle Corp. The
loss of access to this technology
could result in delays in the
development and introduction of new
products or enhancements until
equivalent or replacement
technology could be accessed, if
available, or developed internally,
if feasible. These delays could
have a material adverse effect on
our business, operating results and
financial condition. It is possible
that technology from others will
not be available to us on
commercially reasonable terms, if
at all.
OUR BUSINESS COULD BE ADVERSELY AFFECTED Software products as complex as
IF OUR PRODUCTS FAIL TO PERFORM PROPERLY ours may contain undetected errors,
or bugs, which result in product
failures, or otherwise fail to
perform in accordance with customer
expectations. Our products may be
particularly susceptible to bugs or
performance degradation because of
the emerging nature of
manufacturing automation software
technologies. Product performance
problems could result in loss of or
delay in revenue, loss of market
share, failure to achieve market
acceptance, diversion of
development resources or injury to
our reputation, any of which could
have a material adverse effect on
our business, operating results and
financial condition. We warrant
some of our products for one year,
9
<PAGE>
providing customers a right to
refund a portion of the license fee
if we are unable to correct an
error in the product. To date, no
customer has requested a refund
under the warranty provisions.
However, if we are required to
refund significant portions of
license fees, our business,
operating results and financial
condition could be materially
adversely affected.
WE COULD INCUR SUBSTANTIAL COSTS AS A Our products are frequently
RESULT OF PRODUCT LIABILITY CLAIMS critical to the operations of our
RELATING TO OUR CUSTOMERS' CRITICAL customers' businesses. Despite
BUSINESS OPERATIONS employing software license
agreements that significantly
limited our liability, if one of
our products fails, a customer may
assert a claim for substantial
damages against us, regardless of
our responsibility for such
failure. Product liability claims
could require us to spend
significant time and money in
litigation or to pay significant
damages. Although we maintain
general liability insurance,
including coverage for errors and
omissions, there can be no
assurance that such coverage will
continue to be available on
reasonable terms or will be
available in amounts sufficient to
cover one or more large claims, or
that the insurer will not disclaim
coverage as to any future claim.
WE MAY BE AFFECTED BY UNEXPECTED YEAR Many existing computer systems and
2000 TECHNOLOGY PROBLEMS software products do not properly
recognize dates after December 31,
1999. This Year 2000 problem could
result in miscalculations, data
corruption, system failures or
disruptions of operations. We are
subject to potential Year 2000
problems affecting our products,
our customers' systems, our
internal systems and the systems of
our vendors, any of which could
have a material adverse effect on
our business, operating results and
financial condition.
Changing purchasing patterns of
customers impacted by Year 2000
issues may result in reduced
resources available for purchases
of automated software business
solutions. Although we believe all
10
<PAGE>
of our software products are Year
2000 compliant, there can be no
assurance that Year 2000 errors or
defects will not be discovered in
our internal software systems and,
if such errors or defects are
discovered, there can be no
assurance that the costs of making
such systems Year 2000 compliant
will not be material.
Year 2000 errors or defects in the
internal systems maintained by our
vendors could require us to incur
significant unanticipated expenses
to remedy any problems or replace
affected vendors. See "Management's
Discussion and Analysis of
Financial Condition and Results of
Operations -- Year 2000 Readiness
Disclosure."
RISKS ASSOCIATED WITH THIS OFFERING OF OUR COMMON STOCK
THE PRICE OF OUR COMMON STOCK AFTER The price of our common stock that will
THIS OFFERING MAY BE LOWER THAN THE prevail in the market after this
PRICE YOU PAY offering may be higher or lower than the
price you pay. Presently, we have had
extremely limited trading in our common
stock and an active trading market in
our stock might not develop and if it
does develop, it may not continue.
OUR COMMON STOCK IS PARTICULARLY The stock market in general has recently
SUBJECT TO VOLATILITY BECAUSE OF experienced extreme price and volume
THE INDUSTRY THAT WE ARE IN fluctuations. In addition, the market
prices of securities of technology
companies, particularly software
companies, have been extremely volatile,
and have experienced fluctuations that
have often been unrelated or
disproportionate to the operating
performance of such companies. These
broad market fluctuations could
adversely affect the market price of our
common stock.
THE SIGNIFICANT CONTROL OVER John D. Richardson, our founder, Chief
STOCKHOLDER VOTING MATTERS WHICH Executive Officer and Chairman of the
MAY BE EXERCISED BY OUR EXECUTIVE Board controls approximately 69% of the
OFFICERS AND DIRECTORS WILL DEPRIVE outstanding common stock. As a result,
YOU OF THE ABILITY TO INFLUENCE he will be able to control all matters
CORPORATE ACTIONS requiring stockholder approval,
including the election of directors and
approval of significant corporate
transactions. This concentration of
ownership may have the effect of
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delaying, preventing or deterring a
change in control of Cimnet, could
deprive our stockholders of an
opportunity to receive a premium for
their common stock as part of a sale of
Cimnet and might affect the market price
of our common stock.
FUTURE SALES BY EXISTING SECURITY If our existing stockholders sell a
HOLDERS COULD DEPRESS THE MARKET large number of shares of our common
PRICE OF OUR COMMON STOCK stock, the market price of the common
stock could decline significantly.
Moreover, the perception in the public
market that our existing stockholders
might sell shares of common stock could
depress the market price of the common
stock. As of the date of this
Prospectus, there are 4,899,000 shares
outstanding. Of these shares, 1,724,300
shares will be available for resale in
the public market without restriction
immediately upon the effectiveness of
Cimnet's Registration Statement that
includes this Prospectus, none of which
shares are subject to lock-up agreements
or other restrictions. In addition,
4,049,000 shares (which includes the
shares registered under the registration
statement that includes this Prospectus)
will be available for resale in the
public market subject to Rule 144 of the
Securities Act of 1933 commencing on
March 2, 2000.
After this offering, we intend to
register approximately 1,000,000 shares
of our common stock that we may issue
under our 1999 Stock Plans. Once we
register these shares, they can be
freely sold in the public market upon
issuance, subject to the lock-up
agreements described above.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Risk Factors" and elsewhere in this
prospectus constitute forward-looking statements. These statements relate to
future events or our future financial performance, and are identified by
terminology such as "may," "will," "should," "expects," "scheduled," "plans,"
"intends," "anticipates," "believes," "estimates," "potential," or "continue" or
the negative of such terms or other comparable terminology. These statements are
only predictions. Actual events or results may differ materially. In evaluating
these statements, you should specifically consider various factors, including
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the risks outlined under "Risk Factors." These factors may cause our actual
results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance, or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results.
USE OF PROCEEDS
The proceeds from the sale of the shares of common stock pursuant to
this Prospectus are solely for the account of the selling stockholders.
Accordingly, we will not receive any proceeds from the sale of the shares of
common stock from the selling stockholders.
DIVIDEND POLICY
Cimnet has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable future.
Cimnet currently intends to retain future earnings, if any, to fund the
expansion and growth of its business. Payment of future dividends, if any, will
be at the discretion of Cimnet's Board of Directors after taking into account
various factors, including Cimnet's financial condition, operating results,
current and anticipated cash needs and plans for expansion.
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CAPITALIZATION
The following information should be read in conjunction with Cimnet's
consolidated financial statements and notes thereto appearing elsewhere in this
prospectus. The following table sets forth the capitalization of Cimnet as of
June 30, 1999:
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED(1)
----------- -------------
<S> <C> <C>
STOCKHOLDERS' EQUITY
Preferred stock, par value $.0001 per share; 5,000,000
shares authorized (no shares issued and outstanding,
actual and as adjusted) $ -- $ --
Common Stock, $.0001 par value, authorized 15,000,000 Shares,
issued and outstanding 5,150,000 shares at
June 30, 1999 actual and 4,899,000 as adjusted(1) 515 490
Additional paid-in-capital 1,010,535 666,689
Accumulated deficit (571,514) (571,514)
----------- -----------
439,536 95,665
----------- -----------
Less
Deferred compensation 36,667 36,667
Shareholder receivable (1) 303,731 --
----------- -----------
Total $ 99,138 $ 58,998
=========== ===========
</TABLE>
- ----------
(1) In 1996, the Company loaned $303,731 to John D. Richardson, the
Company's Chairman of the Board and Chief Executive Officer. In October 1999,
Mr. Richardson repaid such loan from the Company by surrendering 221,700 shares
of Common Stock held by him. In addition, the Company repurchased an additional
29,300 shares of Common Stock of a price of $1.37 per share for an aggregate
purchase price of $40, 141. The 251,000 shares were retired immediately. See
"Certain Relationships and Related Transactions."
DILUTION
The sale of the shares being registered under this Prospectus will not cause any
dilution to existing stockholders of the Company.
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<PAGE>
SELECTED FINANCIAL DATA
The following information should be read in conjunction with Cimnet's
consolidated financial statements and notes thereto appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
As of and for the
Six Months Ended As of and for the year ended
------------------------- December 31,
June 30, June 30, -------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,763,944 $ 1,544,754 $ 3,191,725 $ 2,908,625 $ 2,944,631
Cost of Goods Sold 274,569 223,542 529,705 561,559 787,654
Gross Profit 1,489,375 1,321,212 2,662,020 2,347,066 2,156,977
Other Expenses 1,285,515 1,249,724 2,689,070 2,857,214 2,040,997
Income (loss) before income
taxes (benefit) 203,860 71,488 (50,050) (510,148) 115,980
Income taxes (benefit) 82,800 24,798 (23,000)
Net Income (loss) $ 121,060 $ 46,691 $ (27,050) $ (510,148) $ 115,980
Net Income (loss) per share
Basic and diluted $ 0.02 $ 0.01 $ (0.01) $ (0.12) $ 0.03
Weighted Average Shares
Outstanding
Basic 5,150,000 5,150,000 4,906,849 4,906,849 3,730,000
Diluted 5,259,043 5,150,000 4,906,849 4,906,849 3,730,000
Pro Forma Data (1)
Historical income (loss)
before pro forma income taxes
(benefit) (510,148) 115,980
Pro forma income tax (benefit) (204,059) 46,392
Pro forma net income (loss) (306,089) 69,588
Pro forma net income(loss)
per share - basic and diluted
(0.06) 0.02
Weighted average shares
outstanding 4,906,849 3,730,000
Total Assets 1,115,603 1,165,515 1,111,261 734,949 863,336
Long Term Debt 93,537 164,918 147,749 162,858 201,285
Stockholders Equity
(Deficiency) $ 99,139 $ 83,387 $ 3,078 $ (209,498) $ (254,864)
</TABLE>
(1) Effective December 31, 1997, the Company terminated its S Corporation
election and became a C corporation. Accordingly, no provision has been made for
federal or certain state income taxes. Pro forma net income has been computed as
if the Company had been subject to federal and state taxes.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of Cimnet should be read in conjunction with "Selected
Financial Data" and Cimnet's consolidated financial statements and notes thereto
appearing elsewhere in this prospectus. In addition to historical information,
this discussion and analysis contains forward-looking statements. The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected in the forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. Cimnet undertakes no obligation to publicly
revise or update these forward-looking statements to reflect events or
circumstances that arise after the date hereof.
RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1999
Net Sales for the three months ended June 30, 1999 decreased by 9.6% or $83,037
over net sales for the three months ended June 30, 1998. This decrease resulted
from one significant order which was placed during this time period of 1998
Costs of goods sold for the three months ended June 30, 1999 were $124,354 or
16.0% of sales compared to $95,679 or 11% of sales for the same period in 1998,
an increase of $28,676 or 30%. This increase in costs of goods sold is related
to the increase in sales of 3rd party software.
Gross Profit for the three months ended June 30, 1999 was $654,965 compared to
$766,677 for the three months ended June 30 1998, a decrease of $111,712 or
14.6%. This decrease is due to a decrease in sales and an increase in cost of
goods sold for the same period. The increase in cost of goods sold is a result
of offering more third party software and the decrease in sales is a result of a
significant order that was place during this time period in 1998.
Selling, general and administrative expenses for the second three months of 1999
were $395,042 or 50.7% of net sales, and total R&D expenses for the same period
were $189,398 or 24.3% of net sales compared to selling, general and
administrative expenses of $397,325 or 46.1% of net sales and total R&D expenses
were $238,263 or 27.6% net sales for the second three months of 1998. Both
administrative and R&D costs have gone down, the affect of these decreases were
not significant due to a decrease of 9.6% in net sales
Income from operations for the for the second three months of 1999 was $70,525
compared to income of $131,089 for the three months ended June 30, 1998, a
decrease of $60,564 or 46.2%.
Interest expense for the second three months of 1999 was $12,594 or 1.6% of net
sales, compared to $12,457 or 1.4% of net sales for the second three months of
1998.
Net income for the three months ended June 30, 1999 was $38,881 or $0.01 per
share as compared to net income of $93,834 or $0.02 per share for the three
months ended June 30, 1998.
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<PAGE>
RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1999
Net Sales for the six months ended June 30, 1999 increased by 14.2% or $219,190
over net sales for the six months ended June 30, 1998. This increase resulted
from an introduction of new software products (i.e. the new Window-based Machine
Tool Monitoring package) and key strategic partnership alliances (i.e. the new
relationship with Intellution, a reseller of "process" manufacturing automation
software and a subsidiary of Emerson Electric).
Costs of goods sold for the first six months of 1999 were $274,569 or 15.6% of
net sales compared to $223,542 or 14.5% of net sales for the same period in
1998, an increase of $51,027 or 22.8%. This increase in costs of goods sold is
related to the increase of net sales by 14.2% and to sale of third party
software.
Gross Profit for the first six months of 1999 was $1,489,375, compared to
$1,321,213 for the first six months of 1998, an increase of $168,162 or 12.7%.
This increase is due to an overall increase in sales.
Selling, general and administrative expenses for the first six months of 1999
were $829,637 or 47.0% of net sales, and total R&D expenses were $430,969 or
24.4% of net sales compared to selling, general and administrative expenses of
$741,402 or 48% of net sales and total R&D expenses were $482,681 or 31.2% of
net sales for the first six months of 1998. These decreases are due to an
overall increase in net sales without significant increase in staff.
Income from operations for the six months ended June 30, 1999 was $228,768
compared to income of $97,130 for the six months ended June 30, 1998, an
increase of $131,638. This increase is due to an overall increase in net sales
of 14.2%.
Interest expense for the first six months of 1999 was $24,909 or 1.4% of net
sales, compared to $25,641 or 1.7% of net sales for the first six months of
1998.
Net income for the six months ended June 30, 1999 was $121,060 or $0.02 per
share as compared to net income of $46,691 or $0.01 per share for the six months
ended June 30, 1998.
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.
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.
Costs of goods sold for 1998 were $529,705 or 16.6% of net sales compared to
$561,559 or 19.3% of net sales 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.
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<PAGE>
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 or 19.3% of net sales, compared to
$787,654 or 26.7% of net sales 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.
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
18
<PAGE>
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 June 30, 1999, the Company had current assets of $866,788 as compared to
$835,573 at December 31, 1998. This increase is due to increase in accounts
receivable related to increase in sales. Current liabilities decreased $117,888
from December 31, 1998. This decrease is due to payments made on liabilities
with cash provided from Accounts Receivable collections. 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.
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 the six months ended June 30, 1999 and
1998 was $31,818 and $(219,063), respectively. The increase in cash provided by
operations in 1999 was due to net income of $121,060 for the six months ended
June 30, 1999. 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.
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INVESTING ACTIVITIES
Investing activities consumed $77,307 and 36,894 in 1998 and 1997, respectively,
for purchases of capital assets. Investing activities consumed $11,516 and
$46,467 for the six months ended June 30, 1999 and 1998, respectively, for
purchases of capital assets.
FINANCING ACTIVITIES
Financing activities provided $16,788 in cash for the six months ended June 30,
1999 compared to $246,325 for the same period in 1998, a decrease of $229,537 in
cash provided from financing. This decrease is due to the Company being less
reliant on its line of credit and utilizing earnings generated through
operations. 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 June 30, 1999, the Company had approximately,
$205,008 of unused credit available on its line of credit, subject to borrowing
base formula. The Company 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.
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.
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.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with these Year
2000 requirements. The use of software and computer systems that are not Year
2000 ready could result in system failures or miscalculations causing
20
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disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
The purchasing patterns of customers or potential customers may be
affected by Year 2000 issues as companies expend significant resources to make
their current systems Year 2000 ready. These expenditures may result in reduced
funds available for purchases of manufacturing automation software, which could
have a material adverse effect on Cimnet's business, operating results and
financial condition.
Cimnet has conducted a review of its products, including the
third-party products embedded into the products, and believes that they are
substantially Year 2000 ready. Cimnet expects that modifications with respect to
any remaining Year 2000 issues will be made by the end of calendar year 1999.
Nevertheless, there can be no assurances that the implementation of
modifications to any embedded products will not be delayed or that Cimnet will
not experience unexpected Year 2000 problems with its products.
There is no assurance that other software applications, database
software or computer hardware of Cimnet's customers which interface with
Cimnet's products and which may be necessary in order to use Cimnet's products
are Year 2000 ready. Therefore, there can also be no assurance that
implementations of Cimnet's products on its customers' systems are, or will be,
Year 2000 ready.
Cimnet installed new internal software systems in June 1998, and it has
received written confirmations from software vendors that the software they
installed is Year 2000 ready. Based on the foregoing, Cimnet currently has no
reason to believe that its internal software systems are not Year 2000 ready.
Cimnet is in the process of obtaining written certifications from suppliers of
hardware systems to the effect that the hardware they provide are Year 2000
ready. These vendors are under no contractual obligation to provide written
certifications to Cimnet. Failure of the internal hardware or software systems
to operate properly with regard to the Year 2000 and thereafter could require
Cimnet to incur significant unanticipated expenses to remedy any problems or
replace affected vendors, and could have a material adverse effect on Cimnet's
business, operating results and financial condition.
To date, Cimnet has not incurred significant incremental costs in order
to comply with Year 2000 requirements for its products or internal systems, and
Cimnet does not believe it will incur significant incremental costs in the
foreseeable future. Cimnet has not currently developed a contingency plan for
unanticipated Year 2000 issues relating to its products. Cimnet has identified
the mission critical functions for its internal systems and is in the process of
developing a contingency plan for unanticipated Year 2000 problems that arise
with respect to those functions, including the identification of replacement
products for third-party products that may fail. There can be no assurance that
Year 2000 issues will not be discovered in Cimnet's products or internal
software systems and, if such issues are discovered, there can also be no
assurance that the costs of making such products and systems Year 2000 ready
will not have a material adverse effect on Cimnet's business, operating results
and financial condition.
21
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BUSINESS
We provide software that assists manufacturing companies in automating
the manufacturing process so that ultimately our software customers can operate
"paperless factories." Our software sold under the CIMNET(R) brand name is a
manufacturing execution system (MES) used by aerospace, automotive and discrete
manufacturers which enables them to monitor work flows on a real time basis.
("Discrete" manufacturers create products by assembling component parts.) Our
hardware and software products enable manufacturers to gather and display
information about the manufacturing process and permits workers to interact with
and control that process. As a result, we believe customers using our products
can reduce operating costs and improve the quality of the products being
produced by providing real time information to employees who are vital to the
manufacturing process.
Our core software products are DNC Professional, CIMNET(R) Folders, and
CIMNET(R) Front Office. In addition, we offer a line of hardware products that
complement and support the direct numerical control (DNC) and machine-monitoring
portions of our software products. The software products currently run on
Windows(R) 3.1, 95, 98 and NT. As a complement to our software and to support
our customers we also sell and support Oracle Hewlett Packard UNIX, Sun
Microsystems OS/Solaris and Novell database servers. We also provide computer
consulting, maintenance services, and custom software development in conjunction
with the sale of our software on a contract basis.
Our software products enable manufacturers to substantially eliminate
paper on the factory floor 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 on-line to all authorized employees. Efficiency is greatly enhanced
because employees do not need to leave their location in order to obtain vital
product or production information.
We distribute our 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, a subsidiary of Emerson Electric Company,
engaged in the creation and sale of manufacturing automation software to
"process" manufacturers ("Process" manufacturing typically requires the
combination of several ingredients to create a final product). Discrete
manufacturing plants ranging from small businesses to Fortune 500 companies use
the Company's products.
Below is a list of some of our significant customers since January,
1998. These customers represent approximately 26% and 22% of the aggregate
revenue in fiscal year 1998 and the six-month period ended June 30, 1999,
respectively.
o AMP, Inc.
o Amphenol Corporation
o Boston Gear
o Carrier Corporation
o Catterpillar, Inc.
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o FMC Corporation
o Morris Material Handling, LLC
o Motek Engineering and Manufacturing, Inc.
o Synthes USA Prototype Shop
o Toyo Tanso USA, Inc.
o Twin Precision Manufacturing Corporation
o Tyler Refrigeration Corporation
o United Defense LP
o U.S. Department of the Navy
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
23
<PAGE>
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
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, etc.) has also been an
impediment. 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, we have offered software, hardware, and related
services to our customers for manufacturing automation and MES, driving toward
the ultimate goal of a "paperless factory."
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<PAGE>
Our current software products, sold under the CIMNET(R) trademark offer
our customers upward growth and add-on options, allowing the software to expand
with the business of our customers. We are currently developing web browser
based software modules for our Folders and DNC Pro software to expand with the
business of our customers.
OUR SOFTWARE PRODUCTS
DNC PROFESSIONAL: DNC refers to the technology used to connect 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 our 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.
We believe 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 our 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
customers 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.
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<PAGE>
By using Folders, production management can gain control over mission
critical workflow because of its receipt of the most up-to-date information
available at the work center when and where it is needed. Other advantages of
using Folders are:
o improved document management,
o reduction of scrap,
o 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.
We believe that Front Office is a powerful and effective total
manufacturing management system. We sell it to manufacturing job shops and
secondary and tertiary subcontractors of major corporations. Front Office
provides the smaller manufacturers and job shops with many of the same benefits
and features available too much larger companies (through their enterprise
research planning systems) at a considerably lower cost.
SALES AND MARKETING
We sell our products primarily through a direct sales force and through
relationships with distributors. The sales process generally ranges from one to
nine months depending on the level of education prospective customers need
regarding the use and benefits of our products. As of October 31, 1999, our
direct sales organization consisted of 5 employees.
A key element of our market penetration strategy is the formation of
relationships with database and process control software providers, such as
Oracle and Intellution. We believe these relationships increase our market
exposure and presence, generate qualified opportunities for us to sell our
products and assist us in implementing our products.
We also have relationships with software and hardware vendors, such as
Hewlett Packard and Advanced Systems Design. These relationships are intended to
provide Cimnet opportunities to penetrate an emerging market where either
additional vertical products or services are needed to secure the sale, or an
understanding or expertise in a particular vertical market is needed to sell
effectively. As of October 31, 1999, we had 1 employee devoted to developing
corporate partnerships and strategic alliances.
TRAINING/IMPLEMENTATION
We offer to our customers both classroom and on-site training as well
as general courses in statistical process control, distributed numerical
control, document management and accounting as they relate to the use of our
software. We employ trainers to teach these courses and have created multi-media
compact disks to provide our customers training alternatives.
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<PAGE>
We provide to our customers complete installation services for all of
our software, as well as consulting services for installing and configuring
computers and networks purchased from third parties. As of October 31, 1999, we
had 7 employees dedicated to providing training and implementation services.
These employees often work closely with the staffs of third-party systems
integrators to train their consultants in the implementation of our software. A
typical implementation engagement lasts one to four weeks and involves the
planning, configuration, testing and implementation of the products. These
services are generally billed on a time and project basis. We believe that these
implementation projects not only help ensure a company's success with our
products, but also allow our systems engineers to gain industry-specific
knowledge that can be leveraged in future projects and products.
Our customers have a choice of support options depending on the level
of service desired. We maintain a technical support hotline staffed by engineers
from 8:00 a.m. to 5:00 p.m., Eastern time, Monday through Friday, from its
corporate headquarters in Robesonia, Pennsylvania. As of October 31, 1999,
Cimnet had 3 technical support engineers.
MAINTENANCE AND SUPPORT
We believe that high quality customer service and support are integral
components of the application solutions we offer. Therefore, we offer a range of
fee-based training, installation, consulting, and maintenance services to
facilitate the installation and use of our software.
We offer to our customers annual maintenance contracts for all of our
hardware and software products. The hardware maintenance contract provides our
customer with next-day replacement of the our hardware product that has failed
regardless of the reason. Purchasers of our software maintenance contracts are
provided with free software updates, new releases on physical media on an
average of two time per year, and internet access to our web site to obtain
information on latest software releases and new features from us.
Hardware and software maintenance contracts include unlimited telephone
support. For customers not covered by a maintenance contract, we offer telephone
technical support, which can be purchased per incident or for a flat annual fee.
RESEARCH AND DEVELOPMENT
We devote a substantial portion of our resources to developing new
products and product features, extending and improving its products and
technology, and researching new technological initiatives in the market for
manufacturing automation software. This market is characterized by rapid
technological change, new product introductions and enhancements, evolving
industry standards and rapidly changing customer requirements. The introduction
of products incorporating new technologies and the emergence of new industry
standards could render existing products obsolete and unmarketable. Our future
success will depend in part on our ability to anticipate changes, enhance our
current products, develop and introduce new products that keep pace with
technological advancements and address the increasingly sophisticated needs of
our customers. As an example of our technology initiatives, we are is currently
developing a Window-based Machine Tool Monitoring software package, scheduled
for release in the third quarter of calendar 1999. The Machine Tool Monitoring
software in an application which enables companies to electronically monitor the
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<PAGE>
production of equipment in their facilities. We are also working on new releases
of our Folders and DNCPro software packages.
As of October 31, 1999, we had 6 employees engaged in research and
development activities. Cimnet's research and development expenditures for
fiscal year 1997 and 1998 and for the six months ended June 30, 1999, were
approximately $965,856, $981,065 and $430,969, respectively. We expect to
continue to commit significant resources to research and development in the
future. To date, all research and development expenses have been expensed as
incurred. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
COMPETITION
The market for our products is rapidly evolving, and is expected to
become increasingly competitive as current competitors expand their product
offerings and new companies enter the market. The principal competitive factors
in the PC based manufacturing automation software market include:
o adherence to emerging operating system standards;
o comprehensives of applications;
o adaptability, flexibility and scalability;
o real-time, interactive capability internally and with vendors and
suppliers
o integration with a variety of communications media;
o ease of use;
o ease of implementation;
o customer service and support; and price.
Although we believe that we currently compete favorably with respect to
these factors, there can be no assurance that we can maintain our competitive
position against current and potential competitors, especially those with longer
operating histories, greater name recognition and substantially greater
financial, technical, marketing, management, service, support and other
resources.
Cimnet's current competitors include a number of companies offering one
or more solutions for the PC based manufacturing software automation market,
some of which are directly competitive with Cimnet's products. For example
Cimnet's competitors include InterCim, Greco Systems, Gage Talker and DataMyte.
We also may face competition from systems integrators and consulting
firms which design and develop custom software and systems. Some of these firms
may possess industry-specific expertise or reputations among potential customers
for offering solutions to manufacturing need.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our success and competitiveness are dependent to a significant degree
on the protection of our proprietary technology. We rely primarily on a
combination of copyrights, trademarks, licenses, trade secret laws and
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<PAGE>
restrictions on disclosure to protect our intellectual property and proprietary
rights. We generally control access to and distribution of our documentation and
other proprietary information. Despite these precautions, others may be able to
copy or reverse engineer aspects of our products, to obtain and use information
that we regard as proprietary or to independently develop similar technology.
Any such actions by competitors could have a material adverse effect on our
business, operating results and financial condition.
In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States, and
effective patent, copyright, trademark and trade secret protection may not be
available in these jurisdictions.
Litigation may be necessary in the future to enforce or defend our
intellectual property and proprietary rights, to protect our trade secrets or to
determine the validity and scope of the intellectual property and proprietary
rights of others. This litigation, whether successful or unsuccessful, could
result in substantial costs and diversion of management and technical resources,
either of which could have a material adverse effect on our business, operating
results and financial condition.
We attempt to avoid infringing known intellectual property and
proprietary rights of third parties in its product development efforts. However,
we have has not conducted and does not conduct comprehensive patent searches to
determine whether the technology used in its products infringes patents held by
third parties. In addition, product development is inherently uncertain in a
rapidly evolving technological environment in which there may be numerous patent
applications pending, many of them which are confidential when filed, with
regard to similar technologies.
In June 1992, our predecessor company, J.N.L. Industries, Inc.
registered the Cimnet trademark with the U.S. Patent and Trademark Office for
International Class 9. In order to maintain the effectiveness of a trademark
registration, the Patent and Trademark Office requires that an affidavit be
filed with the Patent and Trademark Office within the fifth year following
registration confirming continued use of the trademark. We failed to file an
affidavit in 1997, and therefore, our registration of the "Cimnet" trademark
lapsed. However, in August 1999, we filed another application with the Patent
and Trademark Office for the "Cimnet" trademark, and anticipate, obtaining
acceptance of our registration of the trademark in the near future.
Cimnet currently licenses technology from third parties that it
incorporates into its products. For example, Cimnet licenses AutoVue from
Cimmetry Systems, and Oracle database software from Oracle. There can be no
assurance that technology from these providers or others will continue to be
available to us on commercially reasonable terms, if at all. The loss or
inability to access such technology could result in delays in development and
introduction of new products or enhancements by us until equivalent or
replacement technology could be accessed, if available, or developed, if
feasible, by Cimnet, which could have a material adverse effect on our business,
operating results and financial condition. There can be no assurance that
infringement or invalidity claims arising from the incorporation of third party
technology, and claims for indemnification from Cimnet's customers resulting
from these claims, will not be asserted or prosecuted against Cimnet. These
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<PAGE>
claims, even if not meritorious, could result in the expenditure of significant
financial and managerial resources in addition to potential product
redevelopment costs and delays, all of which could materially adversely affect
our business, operating results and financial condition.
EMPLOYEES
As of October 31, 1999, we had 22 employees, including 6 in new
software design development and testing; 8 in customer service, technical
support, and implementation; 5 in sales and marketing; and 3 in operations and
order processing.
FACILITIES
Our principal facility is a 6,500 square foot building in Robesonia,
Pennsylvania. We also rent a 1,000 square foot space adjacent to our principal
facility which is used by our new product development group. We believe that our
current facilities are adequate to meet our current business requirements, and
that suitable additional space will be available as needed. Both buildings are
owned by John D. Richardson, our founder, Chief Executive Officer and Chairman
of the Board and leased on a year to year basis. The monthly rent paid by the
Company to Mr. Richardson is $7,500 month which we consider to be no greater
than market rate for comparable space.
LEGAL PROCEEDINGS
Cimnet is not a party to any material legal proceedings.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our shares of Common Stock were quoted since May 28, 1998 on the OTC
Bulletin Board under the symbol "WTNR" and since July 2, 1999 under the symbol
"CIMK". However, the trading market for our Common Stock is extremely limited.
The following table sets forth the range of high and low bid quotations
for our 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.
In the future, the trading volume of our common stock may be extremely limited
(or non-existent). As a result, the liquidity of an investment in our common
stock 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
1999
Quarter ended
March 31, 1999 $.06 $.06
Quarter ended
June 30, 1999 $2.00 $.06
Quarter ended
September 30, 1999 $2.00 $.75
- ----------
* Limited trading on the OTC Bulletin Board commenced on May 28, 1998.
On November 10, 1999, the final quoted prices as reported by the OTC
Bulletin Board was $1.125 for each share of Common Stock. As of November 10,
1999, there were 4,899,000 shares of Common Stock outstanding, held of record by
approximately 56 record holders.
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<PAGE>
MANAGEMENT
The directors and executive officers of Cimnet are as follows:
The names and ages of the directors and executive officers of Cimnet
are set forth below:
Name Age Position(s) With Cimnet
- ---- --- -----------------------
John D. Richardson 40 Chairman of the Board, Chief
Executive Officer and
Chief Accounting Officer
David Birk 58 Director and Secretary
William Nyman 35 Director and Vice President
of Integration Services
Keith Frantz 42 Vice President-Development
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
JOHN D. RICHARDSON. Mr. Richardson has been the Chairman of the Board,
Chief Executive Officer and Chief Accounting Officer of our Company 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 our Company since March 2,
1999 and a director of Cimnet since January 1998. Mr. Birk is the sole
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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.
WILLIAM NYMAN. Mr. Nyman has been a director of the Company since
October 1999 and has been the Company's Vice President of Integration Services
since 1997. Previously, Mr. Nyman served as the Company's Manager of Technical
Services since 1990.
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.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of our 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 our Company.
Officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Except as set forth below, to our knowledge, based solely on its review
of the copies of such reports furnished to us 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
DIRECTOR COMPENSATION
Non-employee directors are reimbursed for their reasonable
out-of-pocket expenses incurred in attending meetings of the Board of Directors.
No director who is an employee of Cimnet will receive separate compensation for
services rendered as a director. Directors are also eligible for participation
in Cimnet's 1999 Stock Plan. See "Management -- Stock Plans."
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows all the cash compensation paid by Cimnet to
the Chief Executive Officer, and all officers who received in excess of $100,000
in annual salary and bonus, for the fiscal years ended December 31,1998, 1997
and 1996:
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
-------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
LTIP All Other
Name and Principal Other Annual Restricted Options/ Payouts Compensation
Position Year Salary($) Bonus($) Compensation ($) Stock Awards SARs(#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John D. Richardson, 1998 $228,999 $11,073 $-0- -0- -0- -0- -0-
CEO
1997 $159,374 $10,482 $-0- -0- -0- -0- -0-
1996 $135,000 $10,752 $-0- -0- -0- -0- -0-
Joseph Vinhais,(1) 1998 $122,549 $ 7,000 $-0- -0- 350,000(2) -0- -0-
President
1997 $ 95,637 $23,392 $-0- -0- -0- -0- -0-
1996 $ 77,942 $ 6,000 $-0- -0- -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Vinhais resigned from Cimnet effective May 6, 1999.
(2) Such Options expired unexercised as of August 5, 1999.
The following table set forth certain information with respect to
options granted during the last fiscal year to the Company's Executive Officers
named in the above Summary Compensation Table.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(a) (b) (c) (d) (e)
Number of Securities % of Total Options
Underlying Option/ Options/SARs Granted for Exercise or Base
Name SARs/ Granted (#) Employees in Fiscal Year Price (# Share) Expiration Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John Vinhais 50,000(2) 14.3% $ .05 1/1/02
____ 300,000(2) 85.7% $1.25 1/1/02
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Vinhais resigned from Cimnet effective May 6, 1999.
(2) Such Options expired unexercised as of August 5, 1999.
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<PAGE>
The following table sets forth certain information with respect to
options exercised during the fiscal year ended December 31, 1998, by the
Company's Executive Officers named in the Summary Compensation Table, and with
respect to unexercised options held by such person at the end of the fiscal year
ended December 31, 1998.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARS at FY-End In-the-Money Options/SARS
Shares Acquired on Value Realized (#) Exercisable/ at FY-End Exercisable
Name Exercise (#) ($) Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph Vinhais(2) ---- ---- 116,667/233,333 $166/$233
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Based upon a closing price of $.06 per share of Cimnet's Common Stock as
of December 31, 1998.
2. Mr. Vinhais resigned from Cimnet effective May 6, 1999.
1999 STOCK PLAN
As of April 15, 1999, the Board of Directors of the Company, adopted
the 1999 Stock Plan (the "1999 Plan"), subject to approval of the Company's
stockholders. The stockholders approved the 1999 Plan at a meeting of
stockholders held on June 8, 1999. The purpose of the 1999 Plan is to provide a
means whereby directors and selected employees, officers, agents, consultants,
and independent contractors of the Company, may be granted incentive stock
options and/or nonqualified stock options to purchase shares of common stock, in
order to attract and retain the services or advice of such directors, employees,
officers, agents, consultants, and independent contractors and to provide
additional incentive for such persons to exert maximum efforts for the success
of the Company by encouraging stock ownership in the Company. The 1999 Plan is
expected to provide even greater flexibility to the Company's compensation
methods, after giving due consideration to competitive conditions and the impact
of federal tax laws. Except for 50,000 options issued to an employee in August
1999 at an exercise price of $2.00 per share (more than the fail market value at
the date of grant), no options or other awards have been granted under the 1999
Plan.
OPTIONS
Except for the options exercisable for 350,000 shares issued to Mr.
Vinhais in January 1998 which expired unexercised in August 1999, no stock
options have been granted to any officers, directors, or employees. In November
1999, the Company issued options to purchase 100,000 shares of its Common Stock
at an exercise price of $1.25 per share to Hanover Capital Corporation, a
consultant to the Company. See "Certain Relationships and Related Transactions."
EMPLOYMENT AGREEMENT
On January 1, 1998, we entered into an employment agreement with Joseph
Vinhais to serve as our President. As of May 6, 1999, Mr. Vinhais resigned from
Cimnet and Mr. Richardson as our Chief Executive Officer has assumed the duties
previously performed Mr. Vinhais.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Cimnet's common stock as of October 31, 1999, by:
o each person known by Cimnet to be the beneficial owner of more than
5% of its common stock;
o each named executive officer;
o each of Cimnet's directors; and
o all executive 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>
John D. Richardson(4) 3,394,000(5) 69.3%
David Birk(6) 5,000 *
William Nyman(7) 1,200 *
Keith Frantz(8) 12,800 *
All Officers and Directors as a
Group (4 persons) 3,413,000 69.7%
</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 Cimnet,
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 4,889,000 shares of common stock outstanding
4. Mr. Richardson is our founder, Chairman of the Board, Chief Executive
Officer.
5. Mr. Richardson disclaims beneficial ownership of an aggregate of 55,000
shares of Common Stock beneficially owned by his children and his
parents.
6. Mr. Birk is a director of our company.
7. Mr. Nyman is a director and the Vice President of Integration Services
of our company.
8. Mr. Frantz is the Vice President-Development of our company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as set forth below, to the best of our knowledge there were no
material transactions, or series of similar transactions, or any currently
proposed transactions, or series of similar transactions, to which the Cimnet
was or is to be a party, in which the amount involved exceeds $60,000, and in
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<PAGE>
which any director or executive officer, or any security holder who is known by
Cimnet to own of record or beneficially more than 5% of any class of Cimnet's
common stock, or any member of the immediate family of any of the foregoing
persons, has an interest. Prior to the merger of Cimnet and Cimnet Acquisition,
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 paid Williams Investment Co. a consulting fee of
$25,000 for services rendered in connection with the Merger.
Cimnet's principal facility is a 6,500 square foot building in
Robesonia, Pennsylvania. In addition, Cimnet has recently moved some of its new
product development group to a 1,000 square foot space adjacent to the principal
facility. We believe that our current facilities are adequate to meet our
current business requirements, and that suitable additional space will be
available as needed. The building is owned by John Richardson, our founder,
Chief Executive Officer and Chairman of the Board and the lease is on a year to
year basis. The monthly rent paid by Cimnet to Mr. Richardson is $7,500 month
which we consider to be no greater than market rate for comparable space.
On December 9, 1997, Cimnet issued 500,000 shares of its common stock
to two individuals for consulting and advisory services rendered through that
date and $15,000 in cash ($0.03 per share). The difference between the fair
value of the common stock, $1.15 as determined by management based on Cimnet's
private placement of its securities, and the cash consideration was charged to
Cimnet's operations in 1997.
On November 1, 1999 Cimnet entered into an agreement with Hanover
Capital Corporation, pursuant to which Hanover Capital was retained as the
Company's financial advisor until December 31, 2001. In exchange for services
rendered as a financial advisor, Cimnet agreed to pay Hanover Capital a monthly
fee of $5,000 per month (which amount is subject to increase in the event that
Cimnet sales and earnings achieve certain targets) and reimbursement of
expenses. In addition, the Company granted to Hanover Capital an option to
purchase 100,000 shares of the Company's Common Stock at an exercise price of
$1.25 per share for a period of three (3) years commencing on July 1, 2000. At
any time after July 1, 2000, if the Company's Common Stock has a closing price
equal to or in excess of $5 per share for five (5) consecutive trading days, the
Company may require that Hanover Capital exercise its option. Hanover Capital
may then require the Company to file a registration statement with the
Securities and Exchange Commission registering the 100,000 shares issuable upon
exercise of the option for sale to the public.
During 1996, the Company loaned $303,731 to John D. Richardson, the
Company's founder, Chairman of the Board and Chief Executive Officer. On October
12, 1999, the Company accepted the surrender by Mr. Richardson of 221,700 shares
of the Company's Common Stock held by him as repayment of the outstanding loan.
In addition, the Company repurchased an additional 29,300 shares at $1.37 per
share for an aggregate purchase price of $40,141.
PLAN OF DISTRIBUTION
Shares of common stock covered hereby may be offered and sold from time
to time by the selling stockholders. The selling stockholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. The selling stockholders may sell the Shares being offered
36
<PAGE>
hereby: (i) on OTC Bulletin Board, or otherwise at prices and at terms then
prevailing or at prices related to the then current market price; or (ii) in
private sales at negotiated prices directly or through a broker or brokers, who
may act as agent or as principal or by a combination of such methods of sale.
The selling stockholders and any underwriter, dealer or agent who participate in
the distribution of such shares may be deemed to be "underwriters" under the
Securities Act, and any discount, commission or concession received by such
persons might be deemed to be an underwriting discount or commission under the
Securities Act.
Any broker-dealer participating in such transactions as agent may
receive commissions from the selling stockholders (and, if acting as agent for
the purchaser of such shares, from such purchaser). Usual and customary
brokerage fees will be paid by the selling stockholders. Broker-dealers may
agree with the selling stockholders to sell a specified number of shares at a
stipulated price per share, and, to the extent such a broker-dealer is unable to
do so acting as agent for the selling stockholders, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
the selling stockholders. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or by a
combination of such methods of sale or otherwise at market prices prevailing at
the time of sale or at negotiated prices, and in connection with such resales
may pay to or receive from the purchasers of such shares commissions computed as
described above.
We have advised the selling stockholders that the anti-manipulation
rules under the Exchange Act may apply to sales of Shares in the market and to
the activities of the selling stockholders and their affiliates. The selling
stockholders have advised us that during such time as the selling stockholders
may be engaged in the attempt to sell shares registered hereunder, they will:
o not engage in any stabilization activity in connection with any of
our securities;
o bid for or purchase any of our securities or any rights to
acquire our securities, or attempt to induce any person to purchase
any of our securities or rights to acquire our securities other than
as permitted under the Exchange Act;
o not effect any sale or distribution of the Shares until after the
prospectus shall have been appropriately amended or supplemented, if
required, to set forth the terms thereof; and
o effect all sales of Shares in broker's transactions through
broker-dealers acting as agents, in transactions directly with
market makers, or in privately negotiated transaction where no
broker or other third party (other than the purchaser) is involved.
The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any such
37
<PAGE>
broker-dealers, and any profits received on the resale of such shares, may be
deemed to be underwriting discounts and commissions under the Securities Act if
any such broker-dealers purchase shares as principal.
In order to comply with the securities laws of certain states, if
applicable, our common stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
common stock may not be sold unless such shares have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
No sales may be made pursuant to this prospectus after such date unless
we amend or supplements this prospectus to indicate that it has agreed to extend
such period of effectiveness. There can be no assurance that the selling
stockholders will sell all or any of the shares of common stock offered
hereunder.
SELLING STOCKHOLDERS
All of the common stock registered for sale pursuant to this prospectus
is owned by the selling stockholders. All of the shares offered by the selling
stockholders were either purchased in a private offering conducted by Cimnet in
May 1998, acquired by John D. Richardson, as the founder of Cimnet and
subsequently gifted to his children (Heather Fry Dietrich, Sara Richardson and
John D. Richardson IV). None of the selling stockholders has a material
relationship with us, except that John D. Richardson is our founder, Chairman of
the Board and Chief Executive Officer, Keith Frantz is our Vice
President-Development, David Birk and William Nyman are directors of our Company
and Go Glo Corp. is owned by Andrew Roosevelt, a former director of our Company.
Heather Fry Dietrich, Sara Fry Richardson and John D. Richardson IV are the
children of John D. Richardson III and John D. Richardson II is the father of
John D. Richardson III. Messrs. Robert Frome and Michael Wainstein are
principals of Hanover Capital Corporation, a consultant to the Company. See
"Certain Relationships and Related Transactions."
The following table sets forth certain information known to us with
respect to beneficial ownership of Cimnet's common stock as of October 31, 1999,
by each selling stockholder. The following table assumes that the selling
stockholders sell all of the Shares and, unless otherwise noted, each of the
selling stockholders will own less than one percent (1%) of the Shares
outstanding after the offering. Cimnet is unable to determine the exact number
of Shares that actually will be sold.
38
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
OWNED BEFORE OFFERING SHARES BEING OFFERING/%
NAME/ADDRESS OFFERING OFFERED OUTSTANDING(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ira R. Abbott 10,102 10,102 0
- ----------------------------------------------------------------------------------------------------------------------
Andrea Abitbol 3,500 3,500 0
- ----------------------------------------------------------------------------------------------------------------------
Russ Adams 1,000 1,000 0
- ----------------------------------------------------------------------------------------------------------------------
David N. Antonson 800 800 0
- ----------------------------------------------------------------------------------------------------------------------
David Arbesman 7,000 7,000 0
- ----------------------------------------------------------------------------------------------------------------------
Big Brothers/Big Sisters of New York
- ----------------------------------------------------------------------------------------------------------------------
City, Inc. 28,000 28,000 0
- ----------------------------------------------------------------------------------------------------------------------
Birdie Capital Corporation 18,000 18,000 0
- ----------------------------------------------------------------------------------------------------------------------
David Birk 5,000 5,000 0
- ----------------------------------------------------------------------------------------------------------------------
Kristi A. & Ronald J. Boudreau 800 800 0
- ----------------------------------------------------------------------------------------------------------------------
Judith Brown 3,000 3,000 0
- ----------------------------------------------------------------------------------------------------------------------
Tom Byrne 2,000 2,000 0
- ----------------------------------------------------------------------------------------------------------------------
Derek R. Clark 800 800 0
- ----------------------------------------------------------------------------------------------------------------------
David Cornstein 4,041 4,041 0
- ----------------------------------------------------------------------------------------------------------------------
Edward F. Cowle 132,500 132,500 0
- ----------------------------------------------------------------------------------------------------------------------
Daytop Village Foundation 48,000 48,000 0
- ----------------------------------------------------------------------------------------------------------------------
Scott Daiagi 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
Heather Fry Dietrich and Jason James 5,000 5,000 0
Dietrich, JT TEN
- ----------------------------------------------------------------------------------------------------------------------
Ronald E. Eastman 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
William D. Feniger 2,500 2,500 0
- ----------------------------------------------------------------------------------------------------------------------
Keith R. Frantz 12,800 12,800 0
- ----------------------------------------------------------------------------------------------------------------------
Lauren Feltes 7,500 7,500 0
- ----------------------------------------------------------------------------------------------------------------------
Robert H. Friedman 2,000 2,000 0
- ----------------------------------------------------------------------------------------------------------------------
Robert L. Frome 222,475(2) 222,475(2) 0
- ----------------------------------------------------------------------------------------------------------------------
Frome & Co. 16,000 16,000 0
- ----------------------------------------------------------------------------------------------------------------------
LouAnn Frome 17,500 17,500 0
- ----------------------------------------------------------------------------------------------------------------------
Go Glo Co., Inc. 20,000 20,000 0
- ----------------------------------------------------------------------------------------------------------------------
Neil Grundman 3,000 3,000 0
- ----------------------------------------------------------------------------------------------------------------------
Joseph E. Haick IRA 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
Hospital for Joint Diseases Orthopedic
- ----------------------------------------------------------------------------------------------------------------------
Institute 33,000 33,000 0
- ----------------------------------------------------------------------------------------------------------------------
Jo Juliano 1,000 1,000 0
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
OWNED BEFORE OFFERING SHARES BEING OFFERING/%
NAME/ADDRESS OFFERING OFFERED OUTSTANDING(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Glenn Kershner 1,400 1,400 0
- ----------------------------------------------------------------------------------------------------------------------
Anthony K. Knirsch 20,000 20,000 0
- ----------------------------------------------------------------------------------------------------------------------
Ronald S. Koldon 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
Sidney Levine 3,031 3,031 0
- ----------------------------------------------------------------------------------------------------------------------
David Margules 1,500 1,500 0
- ----------------------------------------------------------------------------------------------------------------------
James L. Maynard 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
John McKenzie 3,000 3,000 0
- ----------------------------------------------------------------------------------------------------------------------
Pamela K. Miller 800 800 0
- ----------------------------------------------------------------------------------------------------------------------
Adam Modlin 2,000 2,000 0
- ----------------------------------------------------------------------------------------------------------------------
Bill Nyman 1,200 1,200 0
- ----------------------------------------------------------------------------------------------------------------------
Par Corp 5,051 5,051 0
- ----------------------------------------------------------------------------------------------------------------------
Portugal Investment Group, Inc. 5,600 5,600 0
- ----------------------------------------------------------------------------------------------------------------------
John D. Richardson, III 3,394,000 400,000 2,994,000/61.1%
- ----------------------------------------------------------------------------------------------------------------------
John D. Richardson, IV 5,000 5,000 0
- ----------------------------------------------------------------------------------------------------------------------
John D. & Virginia M. Richardson 15,000 15,000 0
- ----------------------------------------------------------------------------------------------------------------------
Sarah Fry Richardson 5,000 5,000 0
- ----------------------------------------------------------------------------------------------------------------------
Victor Rosenzweig 3,000 3,000 0
- ----------------------------------------------------------------------------------------------------------------------
Mitchell Rubinson 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
St. Daniels Lutheran Church 20,000 20,000 0
- ----------------------------------------------------------------------------------------------------------------------
Jerry J. Sample 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
Saratoga Holdings, Inc. 1,010 1,010 0
- ----------------------------------------------------------------------------------------------------------------------
Matthew and Marlene Schiff 2,000 2,000 0
- ----------------------------------------------------------------------------------------------------------------------
Joseph and Maria Scianni 4,000 4,000 0
- ----------------------------------------------------------------------------------------------------------------------
Jeffrey S. Silverman 20,203 20,203 0
- ----------------------------------------------------------------------------------------------------------------------
Mark Silverman 19,498 19,498 0
- ----------------------------------------------------------------------------------------------------------------------
Howard and Carole Silverstein 3,000 3,000 0
- ----------------------------------------------------------------------------------------------------------------------
Gregg A. Smith 41,718 41,718 0
- ----------------------------------------------------------------------------------------------------------------------
Elliot Smith 20,203 20,203 0
- ----------------------------------------------------------------------------------------------------------------------
Smiths Supermarket Inc. 20,203 20,203 0
- ----------------------------------------------------------------------------------------------------------------------
Donald K. Speicher 10,000 10,000 0
- ----------------------------------------------------------------------------------------------------------------------
Terry E. Star 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
Jan & Nancy Swanson 400 400 0
- ----------------------------------------------------------------------------------------------------------------------
The Estate of Max Tessler 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
Trans International Management Corp. 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
OWNED BEFORE OFFERING SHARES BEING OFFERING/%
NAME/ADDRESS OFFERING OFFERED OUTSTANDING(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trinity Lutheran Church 20,000 20,000 0
- ----------------------------------------------------------------------------------------------------------------------
Lamar Tyree 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
Frank J. Walsh 20,000 20,000 0
- ----------------------------------------------------------------------------------------------------------------------
Daniel Wainstein 15,000 15,000 0
- ----------------------------------------------------------------------------------------------------------------------
Deborah Wainstein 7,500 7,500 0
- ----------------------------------------------------------------------------------------------------------------------
Michael Wainstein(2) 237,475(3) 237,475(3) 0
- ----------------------------------------------------------------------------------------------------------------------
Sasha Wainstein 6,000 6,000 0
- ----------------------------------------------------------------------------------------------------------------------
Judith Weitzel 1,600 1,600 0
- ----------------------------------------------------------------------------------------------------------------------
Geoffrey D. Williams 44,350 44,350 0
- ----------------------------------------------------------------------------------------------------------------------
H.D. Williams 132,500 132,500 0
- ----------------------------------------------------------------------------------------------------------------------
Steven Wolosky 8,000 8,000 0
- ----------------------------------------------------------------------------------------------------------------------
Stanley Young 2,020 2,020 0
- ----------------------------------------------------------------------------------------------------------------------
TOTAL SHARES 4,453,416 1,724,300 --
</TABLE>
(1) Assumes the sale of all shares offered under this Prospectus.
(2) Includes (a) 17,500 shares owned by LouAnn Frome, Robert Frome's wife,
and (b) 16,000 shares owned by Frome & Co., a company owned and
controlled by Mr. Frome. See "Certain Relationships and Related
Transactions."
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
In accordance with Cimnet's Certificate of Incorporation as currently
in effect, Cimnet's authorized capital stock consists of 15,000,000 shares of
common stock, with a par value of $.0001 per share, and 5,000,000 shares of
preferred stock, with a par value of $.0001 per share.
COMMON STOCK
As of October 31, 1999, there were 4,899,000 shares of common stock
outstanding and held of record by 56 stockholders. Class A Warrants exercisable
for a total of 300,000 shares of common stock expired on May 21, 1999.
Holders of common stock are entitled to one vote per share for each
share held of record on all matters submitted to a vote of stockholders. The
holders of common stock are entitled to receive ratable such lawful dividends as
may be declared by the Board of Directors. However, such dividends are subject
to preferences that may be applicable to the holders of any outstanding shares
of preferred stock. In the event of a liquidation, dissolution or winding up of
the affairs of Cimnet, whether voluntary or involuntary, the holders of common
stock will be entitled to receive pro rata all of the remaining assets of Cimnet
available for distribution to its stockholders. Any such pro rata distribution
would be subject to the rights of the holders of any outstanding shares of
preferred stock. The common stock has no preemptive, redemption, conversion or
subscription rights. The rights, powers, preferences and privileges of holders
of common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock which Cimnet may
designate and issue in the future.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations
prescribed by Delaware law, without further stockholder approval, to issue from
time to time up to 5,000,000 shares of preferred stock, in one or more series.
The Board of Directors is also authorized, subject to the limitations prescribed
by Delaware law, to establish the number of shares to be included in each series
and to fix the voting powers, preferences, qualifications and special or
relative rights or privileges of each series. The Board of Directors is
authorized to issue preferred stock with voting, conversion and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of common stock. Cimnet has currently no shares of preferred stock
issued and outstanding.
Cimnet has no current plans to issue any preferred stock. However, the
issuance of preferred stock or of rights to purchase preferred stock could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of the
outstanding voting stock of Cimnet.
42
<PAGE>
REGISTRATION RIGHTS
Under the terms of the subscription agreements executed by Cimnet in
connection with the sale of 100,000 units (each unit included two shares of
common stock and three class A common stock purchase warrants) in May 1998,
Cimnet agreed to include the shares of common stock beneficially owned by
investors in the first registration statement filed by Cimnet.
In general, all fees, costs and expenses of this registration statement
covering such investors' shares of common stock, other than insurance costs and
fees and disbursements of counsel to the selling stockholders, will be borne by
Cimnet.
On November 1, 1999 Cimnet entered into an agreement with Hanover
Capital Corporation, pursuant to which Hanover Capital was retained as the
Company's financial advisor until December 31, 2001. In exchange for services
rendered as a financial advisor, Cimnet agreed to pay Hanover Capital a monthly
fee of $5,000 per month (which amount is subject to increase in the event that
Cimnet sales and earnings achieve certain targets) and reimbursement of
expenses. In addition, the Company granted to Hanover Capital an option to
purchase 100,000 shares of the Company's Common Stock at an exercise price of
$1.25 per share for a period of three (3) years commencing on July 1, 2000. At
any time after July 1, 2000, if the Company's Common Stock has a closing price
equal to or in excess of $5 per share for five (5) consecutive trading days, the
Company may require that Hanover Capital exercise its option. Hanover Capital
may then require the Company to file a registration statement with the
Securities and Exchange Commission registering the 100,000 shares issuable upon
exercise of the option for sale to the public.
DELAWARE GENERAL CORPORATION LAW
Cimnet may be subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder.
Section 203 does not apply if:
o prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
o upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares
outstanding those shares owned by persons who are directors and
also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a
tender or exchange offer; or
43
<PAGE>
o at or subsequent to such time, the business combination is
approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by
the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the interested stockholder.
The application of Section 203 may limit the ability of stockholders to approve
a transaction that they may deem to be in their best interests.
Section 203 defines "business combination" to include:
o any merger or consolidation involving the corporation and the
interested stockholder;
o any sale, transfer, pledge or other disposition of 10% or more of
the assets of the corporation to or with the interested
stockholder;
o subject to certain exceptions, any transaction which results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
o any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
o the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
In general, Section 203 defines an "interested stockholder" as any
entity or person beneficially owning 15% or more of the outstanding voting stock
of the corporation or is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the past three years, and any entity or person associated with,
affiliated with or controlling or controlled by such entity or person.
LIMITATION OF LIABILITY
Cimnet's Certificate of Incorporation provides that no director of
Cimnet shall be personally liable to Cimnet or to its stockholders for monetary
damages for breach of fiduciary duty as a director, except that the limitation
shall not eliminate or limit liability to the extent that the elimination or
limitation of such liability is not permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended.
Cimnet's Certificate of Incorporation further provides for the
indemnification of Cimnet's directors and officers to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, including
circumstances in which indemnification is otherwise discretionary. A principal
effect of these provisions is to limit or eliminate the potential liability of
Cimnet's directors for monetary damages arising from breaches of their duty of
care, subject to certain exceptions.
STOCK TRANSFER AGENT
The transfer agent and registrar for the common stock is Continental
Stock Transfer & Trust Company.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, Cimnet's common stock has traded on the OTC
Bulletin Board under the symbol "CIMK". Future sales of substantial amounts of
common stock in the public market could adversely affect prevailing market
prices from time to time.
As of October 31, 1999, Cimnet has outstanding an aggregate of
4,899,000 shares of common stock. Of these shares, the 1,724,300 shares sold in
this offering will be freely tradable without restrictions or further
registration under the Securities Act, unless such shares are purchased by an
existing affiliate of Cimnet as that term is defined in Rule 144 under the
Securities Act.
The remaining 2,994,000 shares of common stock held by John D.
Richardson III are restricted shares. Restricted shares may be sold in the
public market only if registered or if they qualify for an exception from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which are summarized below. All of these restricted shares will be
available for resale in the public market in reliance on Rule 144 in March 2000.
No stockholders and option holders of Cimnet have signed any lock-up
agreements or agreed to any other restrictions with respect to the sale of
Cimnet common stock.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares for at least one year would be entitled to
sell a certain number of shares within any three-month period. That certain
number of shares cannot exceed the greater of one percent of the number of
shares of common stock then outstanding, which presently equals approximately
51,500 shares, or the average weekly trading volume of the common stock on
national stock market or electronic exchange during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to such sale. The OTC
Bulletin board is not considered a national stock market or electronic exchange
so that this alternative calculation is not available to holders of Cimnet
common stock so long as such shares are listed on the OTB Bulletin Board. Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about Cimnet.
Rule 144 also provides that affiliates of Cimnet who are selling shares of
common stock that are not restricted shares must nonetheless comply with the
same restrictions applicable to restricted shares with the exception of the
holding period requirement.
Under Rule 144(k), a person who is not deemed to have been an affiliate
of Cimnet at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Accordingly,
unless otherwise restricted, these shares may therefore be sold immediately upon
the completion of this offering.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from Cimnet by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Exchange Act. To be
eligible for resale under Rule 701, shares must have been issued in connection
with written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the Securities and Exchange
45
<PAGE>
Commission has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Exchange Act, along with the shares acquired upon exercise of such options,
including exercises after the date of this offering. Securities issued in
reliance on Rule 701 are restricted securities and, subject to the contractual
restrictions described above, beginning 90 days after the date of this
prospectus, may be sold by persons other than affiliates, subject only to the
manner of sale provisions of Rule 144, and by affiliates, under Rule 144 without
compliance with its one-year minimum holding period requirements.
Following this offering, Cimnet intends to file registration statements
under the Securities Act covering approximately 1,000,000 shares of common stock
issued upon the exercise of stock options, subject to outstanding options or
reserved for issuance under Cimnet's 1999 Plan. Accordingly, shares registered
under such registration statements will, subject to Rule 144 provisions
applicable to affiliates, be available for sale in the open market, except to
the extent that such shares are subject to Cimnet's vesting restrictions or the
contractual restrictions described above. See "Management -- Stock Plans."
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for Cimnet by Berlack, Israels & Liberman LLP, New York, NY.
EXPERTS
The financial statements of Cimnet as of December 31, 1998 and 1997 and
for the years then ended, all of which are included in this prospectus, have
been audited by Grant Thornton LLP, independent certified public accountants, as
stated in their report appearing therein and have been included in reliance upon
the report of such firm given upon their authority of as experts in auditing and
accounting.
CHANGE IN INDEPENDENT ACCOUNTANTS
Cimnet believes that Jones, Jensen & Company, P.C. ("Jones Jensen") by
the letter dated April 8, 1999 was dismissed as the independent accountants for
the Company. 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, except that the report of Jones Jensen dated June 9, 1998
and March 24, 1997 was modified as to going concern. Our Board of Directors
approved the dismissal of Jones Jensen.
For the two most recent fiscal years and through April 8, 1999, there
were no disagreements between the Company and Jones Jensen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which would have caused Jones Jensen to make a reference
thereto in its report on the Company's financial statements for such period.
46
<PAGE>
During the two most recent fiscal years and through April 8, 1999, there were no
reportable events (as defined in Regulation S-K, Item 304(a)(1)(v)).
We have received a copy of a letter furnished by Jones Jensen to the
Securities and Exchange Commission stating that Jones Jensen agrees with the
above statements.
Cimnet engaged Grant Thornton LLP ("GT"), as its new independent
accountants as of April 8, 1999. Upon engagement, GT reaudited the financial
statements of Cimnet, Inc. (formerly, Western Technology & Research, Inc.) as of
and for the years ended December 31, 1998 and 1997 in conjunction with the
merger of Western Tech and Cimnet. No changes were made to the previous
statements audited by Jones Jensen. Prior to such date, the Company 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 the Company 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).
ADDITIONAL INFORMATION
Cimnet has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act with respect to the
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to Cimnet and the common stock, reference is made to the
registration statement. Statements contained in this prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of the contract
or document filed as an exhibit to the registration statement, and each such
statement is qualified in all respects by reference to such exhibit. Copies of
the registration statement may be examined without charge at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661
and 7 World Trade Center, Thirteenth Floor, New York, New York 10048. Copies of
all or any portion of the registration statement may be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, or by calling the Commission at
1-800-SEC-0330, at prescribed rates. The Commission also maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, such as Cimnet, that make electronic
filings with the Commission.
Cimnet intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm.
47
<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
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1999 (UNAUDITED)
AND DECEMBER 31, 1998 F-14
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED) F-15
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED) F-16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) F-17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Cimnet, Inc. (formerly Western Technology and Research, Inc.)
We have audited the accompanying consolidated balance sheets of Cimnet Inc.
(formerly Western Technology and Research, Inc.) 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 Cimnet, Inc.
(formerly Western Technology and Research, Inc.) 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>
Cimnet, Inc.
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
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>
<TABLE>
<CAPTION>
Cimnet, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
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)
-------- =========== ===========
Pro Forma Income Tax Benefit -- $ (204,059)
Pro Forma Net Loss -- $ (306,089)
Loss per common share - basic and diluted $ (0.01) $ (0.12)
=========== ===========
Pro Forma Loss per common share - basic and diluted -- $ (0.06)
Weighted average shares outstanding basic and diluted 4,906,849 4,231,507
=========== ===========
</TABLE>
F-3
<PAGE>
Cimnet, Inc.
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> <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>
Cimnet, Inc.
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>
Cimnet, Inc.
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>
Cimnet, Inc.
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>
Cimnet, Inc.
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>
Cimnet, Inc.
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>
Cimnet, Inc.
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.
F-10
<PAGE>
Cimnet, Inc.
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>
Cimnet, Inc.
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. 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>
Cimnet, Inc.
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>
CIMNET, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, 1999 DECEMBER 31, 1998
(UNAUDITED)
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 68,595 31,505
Accounts receivable, net of allowance of $28,206 and
$32,915 at June 30, 1999 and December 31, 1998, respectively 537,487 599,497
Inventories 101,645 88,505
Prepaid expenses 125,561 93,066
Deferred tax asset 33,500 23,000
----------- -----------
Total current assets 866,788 835,573
PROPERTY AND EQUIPMENT, NET 248,815 275,688
----------- -----------
$ 1,115,603 $ 1,111,261
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Line of credit $ 394,992 $ 298,992
Current portion of long-term debt 67,363 100,211
Accounts payable 87,028 110,698
Accrued expenses 28,968 54,086
Deferred income 411,940 496,658
----------- -----------
Total current liabilities 990,290 1,060,645
LONG-TERM DEBT, net of current portion 26,174 47,538
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, par value $.0001 per shares; 5,000,000
shares authorized (no shares issued and outstanding) -- --
Common Stock, $0.0001 par value, authorized 15,000,000 shares,
issued and outstanding 5,150,000 shares - June 30, 1999 and
5,150,000 shares with no stated par value - December 31, 1998 515 1,036,050
Additional paid-in capital 1,010,535 0
Accumulated deficit (571,514) (692,574)
----------- -----------
491,573 343,476
Less
Deferred compensation 36,667 36,667
Shareholder receivable 303,731 303,731
----------- -----------
$ 99,139 $ 3,078
----------- -----------
$ 1,115,603 $ 1,111,261
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE>
CIMNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 779,319 $ 862,356 $1,763,944 $1,544,754
Cost of goods sold 124,354 95,679 274,569 223,542
---------- ---------- ---------- ----------
GROSS PROFIT 654,965 766,677 1,489,375 1,321,213
------------ ---------- ---------- ---------- ----------
Operating expenses
Selling, general and administrative 395,042 397,325 829,637 741,402
Research and development 189,398 238,263 430,969 482,681
---------- ---------- ---------- ----------
584,440 635,588 1,260,606 1,224,083
Operating income 70,525 131,089 228,768 97,130
Non operating interest expense 12,594 12,457 24,909 25,641
---------- ---------- ---------- ----------
Income before income tax taxes 57,731 118,632 203,860 71,488
Income taxes 19,050 24,798 82,800 24,798
NET INCOME $ 38,881 $ 93,834 $ 121,060 $ 46,691
---------- ========== ========== ========== ==========
Net Income per common share - basic and diluted $ 0.01 $ 0.02 $ 0.02 $ 0.01
========== ========== ========== ==========
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
CIMNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended June 30,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net Income (loss) $ 121,060 $ 46,691
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Depreciation and amortization 38,389 30,885
Allowance for future returns (4,709) 48,792
(Increase) decrease in assets
Accounts receivable 66,719 (487,922)
Inventories (13,140) 11,961
Deferred tax asset (10,500) --
Prepaid expenses (32,495) 11,356
Increase (decrease) in liabilities
Accounts payable (23,670) 36,616
Accrued expenses (25,118) (58,447)
Deferred Income (84,718) 141,005
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES 31,818 (219,063)
--------------------------------------------------- --------- ---------
Cash flows from investing activities
Purchase of property and equipment (11,516) (46,467)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (11,516) (46,467)
------------------------------------- --------- ---------
Cash flows from financing activities
Net (payments on) proceeds from line of credit 96,000 16,902
Principal payments on long-term borrowings (54,212) (16,770)
Proceeds from the issuance of common stock, net -- 250,000
Payment of offering costs (25,000) --
Net advances to shareholder -- (3,805)
--------- ---------
Net cash provided by (used in) financing activities 16,788 246,325
NET INCREASE (DECREASE) IN CASH 37,090 (19,205)
Cash at beginning of the period 31,505 26,660
--------- ---------
Cash at end of the period $ 68,595 $ 7,455
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE>
CIMNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles.
Certain information and footnote disclosures normally included in
financial statements under generally accepted accounting principles have
been condensed or omitted pursuant to the Securities and Exchange
Commission rules and regulations. These financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in Form 10-KSB for the fiscal year ended December
31,1998. In the opinion of management, all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
consolidated financial statements have been included. The results of
operations for the six months ended June 30, 1999, are not necessarily
indicative of the results which may be expected for the entire fiscal
year.
On June 8, 1999, the shareholders of Western Technology & Research, Inc.
("the Company") approved the reincorporation of the Company in the State
of Delaware. In connection with the reincorporation, the Company changed
its name to Cimnet, Inc. and adopted Cimnet's certificate of
incorporation and bylaws. As a result of the change in the certificate of
incorporation, the number of authorized common shares was decreased from
50,000,000 shares with no stated par value to 15,000,000 shares with a
par value of $0.0001 per share. The change in par value has been
reflected in the Cimnet balance sheet.
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, Inc. ("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 for the six months ended June 30, 1999, 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.
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.
F-17
<PAGE>
CIMNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 NET INCOME PER COMMON SHARE
Basic net income per common share is calculated by dividing net income by
the weighted average number of shares of common stock outstanding.
Diluted net income per share is calculated by adjusting the weighted
average number of shares of common stock outstanding to include the
effect of stock options, if dilutive, using the treasury stock method.
The Company's calculation of earnings per share in accordance with SFAS No. 128
for the six months ended June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted
average
Income shares Per share
(Numerator) (Denominator) Amount
----------- ------------ ---------
<S> <C> <C> <C>
Basic earnings per share
Net income available to common stockholders $121,060 5,150,000 $0.02
Effect of dilutive securities
Options -- 109,043 --
-------- --------- -----
Diluted earnings per share
Net income available to common stockholders
plus assumed conversions $121,060 5,259,043 $0.02
======== ========= =====
</TABLE>
Warrants to purchase 300,000 shares of common stock for $2.50 per share
were outstanding during 1999 and expired in May, 1999. They were not
included in the computation of diluted earnings per share because the
option exercise price was greater than the average market price.
Weighted average shares for the six months ended June 30, 1998 were
5,150,000 shares. Options to purchase 50,000 and 300,000 shares of common
stock for $0.05 and $1.25 per share, respectively, 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. 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-18
<PAGE>
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with different information. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other that the date on
the front of this document.
TABLE OF CONTENTS
Page
----
Available Information................... 2
Risk Factors............................ 4
Use of Proceeds......................... 10
Selling Securityholder.................. 10
Plan of Distribution.................... 11
Legal Matters........................... 13
Experts................................. 13
Disclosure of Commission
Position on Indemnification of
Securities Act Liabilities ........... 13
CIMNET, INC.
1,526,800 SHARES OF COMMON STOCK
PROSPECTUS
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of Stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102 of the Delaware General Corporation Law and Article Tenth provides for
indemnification of officers and directors.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage
for its officers and directors.
ITEMS 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this Offering are as follows:
SEC filing fee...............................................$ 585.74
Accounting fees and expenses*................................$10,000.00
Legal fees and expenses*.....................................$20,000.00
Blue Sky fees and expenses*..................................$ 5,000.00
Printing and engraving*..................................... $ 5,000.00
Transfer Agent's and Registrar's fees*...................... $ 1,000.00
Miscellaneous expenses*..................................... $ 2,414.26
----------
Total........................................................$44,000.00
==========
- ----------------
* Estimated
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information sets forth all securities of the Company sold
by it since inception, which securities were not registered under the Securities
Act of 1933, as amended. There were no underwriting discounts and commissions
paid in connection with the issuance of any shares of Common Stock prior to the
date of this Registration Statement.
Cimnet, Inc. was incorporated on December 12, 1997 pursuant to the laws
of the State of Delaware as the successor to J.N.L. Industries, Inc., a
Pennsylvania corporation ("J.N.L."). The Company was organized to effectuate a
reincorporation of J.N.L. with and into the Company on January 9, 1998. In
connection with the merger, each share of J.N.L. common stock was converted into
one share of the Company's Common Stock, resulting in the issuance of 4,430,000
shares of Common Stock.
In connection with the execution of a Consulting Agreement with Hanover
Capital Corporation in June 1998, the Company issued an option to purchase
100,000 shares of common stock at an exercise price of $1.25 per share under
Section 4(2) of the Securities Act of 1933, as amended.
In May 1998, the Company completed the private sale of 200,000 units at
a price of $2.50 per unit. Each unit included 2 shares of Common Stock and 3
Class A Common Stock Purchase Warrants. The warrants were exercisable for a
period of one year at an exercise price of $2.50 per share and expired in May
1999. The Company sold units to the following investors based upon an exemption
provided by Rule 506 promulgated under Regulation D of the Securities Act of
1933, as amended:
-----------------------------------------------------
Alex Cech 20,000
-----------------------------------------------------
Keith R. Frantz 8,000
-----------------------------------------------------
Anthony K. Knirsch 20,000
-----------------------------------------------------
Portugal Investment Group, Inc. 5,600
-----------------------------------------------------
Saratoga Holdings, Inc. 48,800
-----------------------------------------------------
Adam Modlin 2,000
-----------------------------------------------------
Frank J. Walsh 20,000
-----------------------------------------------------
Birdie Capital Corporation 18,000
-----------------------------------------------------
Donald K. Speicher 10,000
-----------------------------------------------------
Go Glo Co., Inc. 20,000
-----------------------------------------------------
David N. Antonson 800
-----------------------------------------------------
Kristi A. & Ronald J. Boudreau 800
-----------------------------------------------------
Derek R. Clark 800
-----------------------------------------------------
Glenn Kershner 400
-----------------------------------------------------
Pamela K. Miller 800
-----------------------------------------------------
John D. & Virginia M. Richardson 10,000
-----------------------------------------------------
Jan & Nancy Swanson 400
-----------------------------------------------------
Judith Weitzel 1,600
-----------------------------------------------------
Sasha Wainstein 6,000
-----------------------------------------------------
Lorianne Moore 6,000
-----------------------------------------------------
Gregg A. Smith 150,000
-----------------------------------------------------
<PAGE>
On January 1, 1999, the Company issued an option to purchase 350,000
shares of Common Stock to Joseph Vinhais, then the Company's President. Mr.
Vinhais employment with the Company terminated in May 1999 and the option
terminated in August 1999.
On March 2, 1999, Cimnet Acquisition Corp., a Delaware corporation
wholly owned by Western Technology & Research, Inc., a Wyoming corporation
("Western Tech"), merged with and into Cimnet, Inc., a Delaware corporation. In
connection with the merger, each share of Cimnet common stock received one share
of Western Tech, resulting in the issuance of 4,430,000 shares of Western Tech
common stock.
On June 22, 1999, Western Technology & Research, Inc., a Wyoming
corporation and predecessor of Cimnet ("Western Tech"), effectuated a
reincorporation of Western Tech by merging with and into Cimnet, Inc. its wholly
owned Delaware subsidiary. In connection with the merger, each share of Western
Tech common stock received one share of Cimnet, Inc. common stock, resulting in
the issuance of 5,150,000 shares of Cimnet common stock.
ITEM 27. EXHIBITS.
(a) EXHIBITS.
Exhibit No. Exhibit
- ----------- -------
3.01* Certificate of Incorporation of Cimnet.
3.02* By-laws, as amended, of Cimnet.
4.01* Specimen Certificate for shares of Cimnet's Common Stock.
10.01* 1999 Stock Plan.
10.02* Lease Agreement for the executive offices.
23.02 Consent of Grant Thornton LLP.
* Previously filed with the Securities and Exchange Commission.
ITEM 28. UNDERTAKINGS.
(a) RULE 415 OFFERING
The undersigned Registrant will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually
or in the aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
<PAGE>
2. For determining liability under the Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the Offering of such securities at that time shall be deemed to be
the initial bona fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the Offering.
(b) EQUITY OFFERINGS OF NONREPORTING SMALL BUSINESS ISSUERS
The undersigned Registrant will provide to the Underwriter at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
(c) INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the provisions referred to in Item 24 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) RULE 430A
The undersigned Registrant will:
1. For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in the form of a prospectus filed by
the small business issuer under Rule 424(b)(1) or (4) or 497(h) under the Act as
part of this Registration Statement as of the time the Commission declared it
effective.
2. For any liability under the Act, treat each post-effective amendment
that contains a form of prospectus as a new registration statement for the
securities offered in the Registration Statement, and that the Offering of the
securities at that time as the initial bona fide Offering of those securities.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant, certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in
Robesonia, Pennsylvania on November 11,1999.
CIMNET, 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 Act of 1933, this
Registration Statement or Amendments thereto has been signed below by the
following persons 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 November 11, 1999
John D. Richardson Officer and Chief Accounting Officer
/s/ DAVIE BIRK Director November 11, 1999
- -------------------------------
Davie Birk
/s/ WILLIAM NYMAN
- ------------------------------- Director November 11, 1999
William Nyman
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 18, 1999 (except for note B, as to which
the date is March 2, 1999) accompanying the consolidated financial statements of
Cimnet, Inc. (formerly Western Technology and Research, Inc.) contained in this
Registration Statement. We consent to the inclusion in the Registration
Statement of the aforementioned report, and to the use of our name as it appears
under the caption "Experts."
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
November 11, 1999
