UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________to__________
Commission File Number: 022597
CIMNET, INC.
(Exact name of registrant as specified in charter)
DELAWARE 52-2075851
State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
946 W. Penn Avenue, Robesonia, Pennsylvania 19551
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (610) 693-3114
Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. (1) Yes [X] No [ ]
The Company has 5,150,000 shares of no par common stock outstanding as of
September 30, 1999.
1
<PAGE>
<TABLE>
<CAPTION>
Item 1 - FINANCIAL STATEMENTS
Cimnet, Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS September 30, 1999 December 31, 1998
(unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,689 31,505
Accounts receivable, net of allowance of $28,300 and
$32,915 at September 30, 1999 and December 31, 1998, respectively 538,426 599,497
Inventories 82,777 88,505
Prepaid expenses 74,095 93,066
Deferred tax asset -- 23,000
------------ ------------
Total current assets 696,987 835,573
PROPERTY AND EQUIPMENT, NET 239,554 275,688
------------ ------------
$ 936,541 $ 1,111,261
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Line of credit $ 71,992 $ 298,992
Current portion of long-term debt 53,310 100,211
Accounts payable 110,995 110,698
Accrued expenses 39,318 54,086
Deferred income 496,407 496,658
------------ ------------
Total current liabilities 772,022 1,060,645
LONG-TERM DEBT, net of current portion 14,917 47,538
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, par value $.0001 per shares; 5,000,000
shares authorized (no shares issued and outstanding) 515 --
Common stock, $0.0001 par value, authorized 15,000,000 shares.
issued and outstanding 5,150,000 shares, Sept 30,1999 and
5,150,000 shares with no stated par value- December 31, 1998
Additional paid in capital 1,010,535 1,036,050
Accumulated deficit (521,050) (692,574)
------------ ------------
490,000 343,476
Less
Deferred compensation 36,667 36,667
Shareholder receivable 303,731 303,731
------------ ------------
$ 149,602 $ 3,078
------------ ------------
$ 936,541 $ 1,111,261
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Cimnet, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
---------------------------- ---------------------------
September 30, September 30, September 30 September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 2,679,294 $ 2,282,853 $ 915,350 $ 738,099
Cost of goods sold 463,482 363,001 188,913 139,459
----------- ----------- ----------- -----------
Gross profit 2,215,812 1,919,852 726,437 598,640
----------- ----------- ----------- -----------
Operating expenses
Selling, general and administrative 1,173,173 1,184,403 343,536 443,001
Research and development 720,446 741,136 289,477 258,455
----------- ----------- ----------- -----------
1,893,619 1,925,539 633,013 701,456
Operating income 322,193 (5,687) 93,424 (102,816)
Non operating interest expense 32,369 36,464 7,460 10,823
----------- ----------- ----------- -----------
Income before income tax taxes 289,824 (42,151) 85,964 (113,640)
Income taxes 118,300 2,450 35,500 (22,348)
----------- ----------- ----------- -----------
NET INCOME $ 171,524 ($ 44,601) $ 50,464 $ (91,292)
=========== =========== =========== ===========
Net Income per common share - basic and diluted $ 0.03 ($ 0.01) $ 0.01 ($ 0.02)
----------- ----------- ----------- -----------
</TABLE>
3
<PAGE>
Cimnet, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1999 1998
--------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net Income (loss) $ 171,524 $ (44,601)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Depreciation and amortization 57,583 46,328
Allowance for future returns (4,615) 36,198
(Increase) decrease in assets
Accounts receivable 65,686 (361,973)
Inventories 5,728 (31,379)
Deferred tax asset 23,000 --
Prepaid expenses 18,971 11,759
Increase (decrease) in liabilities
Accounts payable 297 80,300
Accrued expenses (14,768) (70,667)
Deferred income (251) 89,473
--------- ---------
Net cash (used in) provided by operating activities 323,155 (244,563)
--------- ---------
Cash flows from investing activities
Purchase of property and equipment (21,449) (89,083)
--------- ---------
Net cash used in investing activities (21,449) (89,083)
--------- ---------
Cash flows from financing activities
Net (payments on) proceeds from line of credit (227,000) 77,902
Principal payments on long-term borrowings (79,522) (15,157)
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 (331,588) 308,940
NET (DECREASE) IN CASH (29,816) (24,707)
Cash at beginning of the period 31,505 26,660
--------- ---------
Cash at end of the period $ 1,689 $ 1,953
========= =========
The accompanying notes are an integral part of these statements.
4
<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
nine months ended September30, 1999, are not necessarily indicative of the
results which may be expected for the entire fiscal year.
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 nine months ended September 30, 1998, 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.
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.
5
<PAGE>
Cimnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's calculation of earnings per share in accordance with SFAS No. 128
for the nine months ended September 30, 1999 is as follows:
Weighted
average
Income shares Per share
(numerator) (denominator) amount
Basic earnings per share
Net income available to common stockholders $171,524 5,150,000 $ 0.03
Effect of dilutive securities
Options -- --
-------- ------
Diluted earnings per share
Net income available to common stockholders
plus assumed conversions $171,524 5,150,000 $ 0.03
======== ========= ======
</TABLE>
Stock options to purchase 50,000 shares of common stock for $1.25 per share
were outstanding during 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. Warrants to purchase 300,000 shares of
common stock at $2.50 per share expired on May 21, 1999. Options to
purchase 50,000 and 300,000 shares of common stock for $0.05 and $1.25 per
share respectively were forfeited upon resignation of the President.
Weighted average shares for the nine months ended September 30, 1998 were
5,150,000 shares. Options to purchase 50,000 and 350,000 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.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This section presents a review of the Corporation's financial condition and
results of operating and is intended to assist in the understanding and
evaluating major changes in the Corporation's financial position and earnings.
Per share information has been restated to reflect the recapitalization as if it
had occurred at the beginning of the most recent period presented.
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. The
Corporation undertakes no obligation to publicly revise or update these
forward-looking statements to reflect events or circumstances that arise after
the date hereof.
OPERATIONS
Results of operations nine months ended September 30, 1999
Net Sales for the nine months ended September 30, 1999 increased by 17.4% or
$396,441 over net sales for the nine months ended September 30, 1998. This
increase resulted from an introduction of new software products and key
strategic partnership alliances.
Costs of goods sold for the first nine months of 1999 were $463,482 or 17.3% of
net sales compared to $363,001 or 15.9% of net sales for the same period in
1998, an increase of $100,481 or 27.7%. This increase in costs of goods sold is
related to the increase of net sales by 17.4% (and to sale of 3rd party
software).
Gross Profit for the first nine months of 1999 was $2,215,812, compared to
$1,919,852 for the first nine months of 1998, an increase of $295,960 or 15.4%.
This increase is due to an overall increase in sales.
Selling, general and administrative expenses for the first nine months of 1999
were $1,173,173 or 43.8% of net sales, and total R&D expenses were $720,446 or
26.9% of net sales compared to selling, general and administrative expenses of
$1,184,403 or 51.9% of net sales and total R&D expenses were $741,136 or 32.5%
net sales for the first nine months of 1998. As a percentage of net sales, both
categories of expenses have gone down in 1999, due to the overall increase in
sales while keeping costs stabilized. Management believes that its current
staffing is sufficient to support the increased sales volume shown above.
However, as sales continue to increase it is expected that additional sales and
support staff will be needed.
Income from operations for the nine months ended September 30, 1999 was $322,193
compared to loss of $5,687 for the nine months ended September 30, 1998, an
increase of $327,880. This is due to the increase in sales of 17.4%.
Interest expense for the first nine months of 1999 was $32,369 or 1.2% of net
sales, compared to $36,464 or 1.6% of net sales for the nine months of 1998.
Net income for the nine months ended September 30, 1999 was $171,524 or $0.03
per share as compared to net loss of ($44,601) or ($0.01) per share for the nine
months ended September 30,1998.
Results of operations three months ended September 30, 1999
Net Sales for the three months ended September 30, 1999 increased by 24.0% or
$177,251 over net sales for the three months ended September 30, 1998.
Costs of goods sold for the three months ended September 30 1999 were $188,913
or 20.6% of net sales compared to $139,459 or 18.9% of net sales for the three
months ended September 30, 1998, an increase of $49,454 or 35.5%. This increase
in costs of goods sold is related to the increase in sale of 3rd party software.
Gross Profit for the three months ended September 30, 1999 was $726,437 compared
to $598,639 for the three months ended September 30 1998, an increase of
$127,798 or 21.3%. This increase is due to an increase in sales.
Selling, general and administrative expenses for the three months ended
September 30, 1999 were $343,536 or 37.5% of net sales, and total R&D expenses
for the same period were $289,479 or 31.60% of net sales compared to selling,
general and administrative expenses of $443,001 or 60.0% of net sales and total
R&D expenses were $258,455 or 35.0% net sales for the three months ended
September 30 1998. As a percentage of net sales, both categories of expenses
have gone down in 1999, due to the overall increase in sales while keeping costs
down. The decrease in selling costs can be attributed to a reorganization of the
sales force to better reflect our current and near future needs. The increase in
development cost is due to investment in new product design.
Income from operations for the three months ended September 30 1999 was $93,425
compared to loss of ($102,817) for the three months ended September 30, 1998, an
increase of $196,242.
Interest expense for the third quarter of 1999 was $7,460 or 0.8% of net sales,
compared to $10,823 or 1.5% of net sales for the third quarter of 1998. This
decrease in interest expense is the result of decrease in outstanding debt
during this period.
Net income for the three months ended September 30, 1999 was $50,464 or $0.01
per share as compared to net loss of ($91,292) or ($0.02) per share for the
three months ended September 30,1998.
7
<PAGE>
Liquidity and Capital Resources
At September 30, 1999, the Company had current assets of $696,987 as compared to
$835,573 at December 31, 1998. This decrease is due to decrease in accounts
receivable. Current liabilities decreased $288,623 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.
Operating Activities
Cash provided by (used in) operations for the nine months ended September 30,
1999 and 1998 was $323,155 and $(244,563), respectively. The increase in cash
provided by operations in 1999 was due to net income of $171,524 for the nine
months ended September 30, 1999 along with a decrease in Accounts Receivable due
to collections.
Investing Activities
Investing activities consumed $ 21,449 and $ 89,033 in 1999 and 1998,
respectively, for purchases of capital assets.
Financing Activities
Financing activities used $ 331,588 in cash for the nine months ended September
30,1999 compared to $308,940 cash provided for the same period in 1998, a
decrease of $640,528 in cash provided from financing. This decrease is due to
the Company being less reliant on their line of credit, proceeds from common
stock offering and utilizing earnings generated through operations.
Capital Resources
The Company has certain credit facilities with its bank including a line of
credit and two term loans. As of September 30, 1999, the Company had
approximately, $314,471 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.
8
<PAGE>
PART II OTHER INFORMATION
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27.1 Financial Data Schedule
b. Reports on Form 8-K. The Registrant filed the following Reports on
Form 8-K during the quarterly period ended September 30, 1999:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following person on behalf of the
Registrant and in the capacities and on the dates indicated:
Dated: Robesonia, Pennsylvania
November 12, 1999
Cimnet, Inc.
By: /s/ JOHN D. RICHARDSON
------------------------------------------
John D. Richardson
Chairman of the Board, Chief Executive Officer
and Chief Accounting Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001035901
<NAME> CIMNET, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,689
<SECURITIES> 0
<RECEIVABLES> 566,726
<ALLOWANCES> (28,300)
<INVENTORY> 82,777
<CURRENT-ASSETS> 696,987
<PP&E> 625,450
<DEPRECIATION> 385,896
<TOTAL-ASSETS> 936,541
<CURRENT-LIABILITIES> 772,022
<BONDS> 0
1,011,050
0
<COMMON> 0
<OTHER-SE> 164,519
<TOTAL-LIABILITY-AND-EQUITY> 936,541
<SALES> 2,679,294
<TOTAL-REVENUES> 2,679,294
<CGS> 463,482
<TOTAL-COSTS> 1,893,619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 94,646
<INTEREST-EXPENSE> 32,369
<INCOME-PRETAX> 289,824
<INCOME-TAX> 118,300
<INCOME-CONTINUING> 171,524
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171,524
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
