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 June 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, value $.0001 per share, outstanding as of July
31, 1999.
1
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<TABLE>
<CAPTION>
Item 1 - FINANCIAL STATEMENTS
CIMNET, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, 1999
(unaudited) December 31, 1998
------------- -----------------
<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
=========== ===========
The accompanying notes are an integral part of these statements.
2
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<TABLE>
<CAPTION>
CIMNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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>
3
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<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
========= =========
The accompanying notes are an integral part of these statements.
4
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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.
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
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CIMNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 -- 119,149 --
----------- --------- ---------
Diluted earnings per share
Net income available to common stockholders
plus assumed conversions $ 121,060 5,269,149 $ 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 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 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 compared to
$223,542 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.
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 second three months of 1999 were $124,354 compared
to $95,679 for the second three months of 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.
7
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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.
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.
Investing Activities
Investing activities consumed $11,516 and $46,467 in 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 their line of credit 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 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 is current with all its obligations to its bank and
has met all financial covenants in its loan documents.
The Company has no material commitments for capital expenditures and believes
that its cash from operations, existing balances and available credit line will
be sufficient to satisfy the needs of its operations and its capital commitments
for the foreseeable future. However, if the need arose, the Company would seek
to obtain capital from such sources as continuing debt financing or equity
financing.
8
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PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On June 8, 1999, a majority of shares outstanding of Western Technology
& Research, Inc. (the "Company") approved the reincorporation of the Company in
the State of Delaware by means of a merger with and into Cimnet, Inc., a
Delaware corporation wholly owned by the Company ("Cimnet"). Accordingly, on
June 22, 1999 the Company merged with and into Cimnet and effective on July 2,
1999 the Company's symbol on the OTC Bulletin Board changed from "WTNR" to
"CIMK". The Certificate of Incorporation and By-laws of Cimnet survive the
closing of the merger. See the Company's Proxy Statement filed with the
Securities and Exchange Commission regarding the rights of holders of common
stock under the General Corporation Law of the State of Delaware.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 8, 1999, the Company held its Annual Meeting of Stockholders
where the stockholders of the Company approved the following proposals:
(a) ELECTION OF DIRECTORS. The following directors to the Board of
Directors of the Company were elected for a term of one (1) year, each receiving
3,753,600 votes in favor of his election (73% of the shares outstanding): (i)
John D. Richardson, III; (ii) Andrew Roosevelt; and (iii) David Birk.
(b) 1999 STOCK PLAN. The Company' s 1999 Stock Plan covering 1,000,000
shares of Common Stock was approved by the stockholders of the Company
(3,753,600 votes for and no votes against nor withheld).
(c) REINCORPORATION IN DELAWARE. The merger of the Company with and
into Cimnet, Inc., a wholly owned Delaware subsidiary, was approved by the
stockholders of the Company (3,753,600 votes for and no votes against nor
withheld).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) Reports on Form 8-K.
(i) Current Report on Form 8-K filed on March 12, 1999, Items 1 and 2.
(ii) Current Report on Form 8-K filed on April 13, 1999, Item 4.
(iii) Current Report on Form 8-K filed on May 7, 1999, Item 4.
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
August 13, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 68,595
<SECURITIES> 0
<RECEIVABLES> 565,693
<ALLOWANCES> (28,209)
<INVENTORY> 101,645
<CURRENT-ASSETS> 866,788
<PP&E> 616,433
<DEPRECIATION> 367,619
<TOTAL-ASSETS> 1,115,603
<CURRENT-LIABILITIES> 990,290
<BONDS> 0
0
0
<COMMON> 515
<OTHER-SE> 590,196
<TOTAL-LIABILITY-AND-EQUITY> 1,115,603
<SALES> 1,763,944
<TOTAL-REVENUES> 1,763,944
<CGS> 274,569
<TOTAL-COSTS> 1,260,606
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,020
<INTEREST-EXPENSE> 24,909
<INCOME-PRETAX> 203,860
<INCOME-TAX> 82,800
<INCOME-CONTINUING> 121,060
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,060
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
