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 March 31, 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
WESTERN TECHNOLOGY & RESEARCH, INC.
(Exact name of registrant as specified in charter)
WYOMING 83-0273780
State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
801 East A Street, Casper, Wyoming 82601
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (307) 234-5310
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 April 30, 1999.
1
<PAGE>
Item 1 - FINANCIAL STATEMENTS
Western Technology and Research, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31, 1999
(unaudited) December 31, 1998
-------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 62,793 31,505
Accounts receivable, net of allowance of $36,272 and
$32,915 at March 31, 1999 and December 31, 1998, respectively 690,385 599,497
Inventories 99,041 88,505
Prepaid expenses 101,696 93,066
Deferred tax asset -- 23,000
----------- -----------
Total current assets 953,915 835,573
PROPERTY AND EQUIPMENT, NET 262,280 275,688
----------- -----------
$ 1,216,195 $ 1,111,261
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Line of credit $ 369,992 $ 298,992
Current portion of long-term debt 80,224 100,211
Accounts payable 157,766 110,698
Accrued expenses 57,661 54,086
Deferred income 453,506 496,658
----------- -----------
Total current liabilities 1,119,149 1,060,645
LONG-TERM DEBT, net of current portion 36,788 47,538
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 1,011,050 1,036,050
Accumulated deficit (610,394) (692,574)
----------- -----------
400,656 343,476
Less
Deferred compensation 36,667 36,667
Shareholder receivable 303,731 303,731
----------- -----------
$ 60,258 $ 3,078
----------- -----------
$ 1,216,195 $ 1,111,261
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Western Technology and Research, Inc. and Subsidiary,
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
March 31, March 31,
1999 1998
--------- ---------
Net sales $ 984,625 $ 682,398
Cost of goods sold 150,215 127,862
--------- ---------
Gross profit 834,410 554,536
--------- ---------
Operating expenses
Selling, general and administrative 434,595 344,077
Research and development 241,571 244,418
--------- ---------
676,166 588,495
Operating income (loss) 158,244 (33,959)
Non operating interest expense 12,315 13,184
--------- ---------
Income (Loss) before income tax taxes 145,929 (47,143)
Income taxes 63,750 --
--------- ---------
NET INCOME (LOSS) $ 82,179 $ (47,143)
========= =========
Net Income (Loss) per common share - basic and diluted $ 0.02 $ (0.01)
========= =========
3
<PAGE>
Western Technology and Research, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net Income (loss) $ 82,179 $ (47,143)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Depreciation and amortization 19,194 15,443
Allowance for future returns 3,357 19,812
(Increase) decrease in assets
Accounts receivable (94,245) (198,121)
Inventories (10,536) 3,105
Deferred tax asset 23,000 --
Prepaid expenses (8,630) 2,224
Increase (decrease) in liabilities
Accounts payable 47,068 132,643
Accrued expenses 3,575 (43,969)
Deferred income (43,152) 30,459
--------- ---------
Net cash (used in) provided by operating activities 21,810 (85,547)
--------- ---------
Cash flows from investing activities
Purchase of property and equipment (5,785) (26,345)
--------- ---------
Net cash used in investing activities (5,785) (26,345)
--------- ---------
Cash flows from financing activities
Net (payments on) proceeds from line of credit 71,000 117,000
Principal payments on long-term borrowings (30,737) (23,691)
Payment of offering costs (25,000) --
Net advances to shareholder -- (3,805)
--------- ---------
Net cash provided by (used in) financing activities 15,263 89,504
NET INCREASE (DECREASE) IN CASH 31,288 (22,388)
Cash at beginning of the period 31,505 26,660
--------- ---------
Cash at end of the period $ 62,793 $ 4,272
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Western Technology and Research. Inc. and Subsidiary
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 three
months ended March 31, 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 three months ended March 31, 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 (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is calculated by dividing net
income (loss) 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>
Western Technology and Research. Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's calculation of earnings per share in accordance with SFAS No.
128 for the three months ended March 31, 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 $ 82,179 5,150,000 $ 0.02
Effect of dilutive securities
Options -- 61,538 --
--------- --------- -------
Diluted earnings per share
Net income available to common stockholders
plus assumed conversions $ 82,179 5,211,538 $ 0.02
========= ========= =======
</TABLE>
Warrants to purchase 300,000 shares of common stock for $2.50 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.
Weighted average shares for the three months ended March 31, 1999 were
4,900,000 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
Net Sales for the three months ended March 31, 1999 increased by 44.3% or
$302,227 over net sales for the three months ended March 31, 1998. This increase
resulted from an introduction of new software products and key strategic
partnership alliances.
Costs of goods sold for the first quarter of 1999 were $150,215 compared to
$127,862 for the first quarter of 1998, an increase of $22,353 or 17.5%. This
increase in costs of goods sold is related to the increase of net sales by
44.3%.
Gross Profit for the first quarter of 1999 was $834,410, compared to $554,536
for the first quarter of 1998, an increase of $279,874 or 50.5%. This increase
is due to the reduced cost of goods associated with software and services sales
verse hardware sales and an overall increase in sales.
Selling, general and administrative expenses for the first three months of 1999
were $434,595 or 44.1% of net sales, and total R&D expenses were $241,571 or
24.5% of net sales compared to selling, general and administrative expenses of
$344,077 or 50.4% of net sales and total R&D expenses were $244,418 or 35.8% of
net sales for the first three months of 1998. These decreases are due to an
overall increase in net sales of 44.3 percent without the need to significantly
increase staff.
Income from operations for the three months ended March 31, 1999 was $158,244
compared to a loss of $33,959 for the three months ended March 31, 1998, an
increase of $192,203. This increase is due to an overall increase in net sales
of 44.3%.
Interest expense for the first three months of 1999 was $12,315 or 1.3% of net
sales, compared to $13,184 or 1.9% of net sales for the first three months of
1998.
Net income loss for the three months ended March 31, 1999 was $82,179 or $0.02
per share as compared to a loss of $47,143 or $0.01 per share for the three
months ended March 31,1998.
7
<PAGE>
Liquidity and Capital Resources
At March 31, 1999, the Company had current assets of $953,915 as compared to
$835,573 at December 31, 1998. This increase is due to additional accounts
receivable relating to the additional software and service sales. Current
liabilities increased $58,504 from 1998 to 1999. 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 three months ended March 31, 1999
and 1998 was $21,810 and $(85,547), respectively. The increase in cash provided
by operations in 1999 was due to net income of $82,179 for the three months
ended March 31, 1999.
Investing Activities
Investing activities consumed $ 5,785 and $ 26,345 in 1999 and 1998,
respectively, for purchases of capital assets.
Financing Activities
Financing activities provided $ 15,263 in cash for the three months ended March
31,1999 compared to $89,504 for the same period in 1998, a decrease of $74,241
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 March 31, 1999, the Company had approximately,
$225,000 of unused credit available on its line of credit. The Company is
current with all its obligations to its bank and has met all financial covenants
in its loan documents.
The Company has no material commitments for capital expenditures and believes
that its cash from operations, existing balances and available credit line will
be sufficient to satisfy the needs of its operations and its capital commitments
for the foreseeable future. However, if the need arose, the Company would seek
to obtain capital from such sources as continuing debt financing or equity
financing.
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 March 31, 1999:
Current Report on Form 8-K filed on January 27, 1999, Item 5
Current Report on Form 8-K filed on March 12, 1999, Items 1 and 2
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
May 17, 1999
WESTERN TECHNOLOGY & RESEARCH, 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> Western Technology & Research, Inc.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-1-1999 JAN-1-1998 JAN-1-1998 JAN-1-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998 JUN-30-1998 SEP-30-1998
<EXCHANGE-RATE> 1 1 1 1
<CASH> 62,793 4,272 7,455 1,953
<SECURITIES> 0 0 0 0
<RECEIVABLES> 726,657 56,974 859,775 733,825
<ALLOWANCES> 36,272 56,997 (85,978) 73,383
<INVENTORY> 99,041 48,034 39,178 82,518
<CURRENT-ASSETS> 953,915 641,902 887,916 817,719
<PP&E> 611,621 542,219 561,426 597,403
<DEPRECIATION> 349,341 269,302 283,828 298,354
<TOTAL-ASSETS> 1,216,195 914,819 1,165,514 1,116,768
<CURRENT-LIABILITIES> 1,119,149 1,115,265 998,984 1,041,529
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 1,011,050 755,952 1,005,952 1,005,952
<OTHER-SE> (950,792) (1,016,398) (922,564) (1,013,856)
<TOTAL-LIABILITY-AND-EQUITY> 1,216,195 914,819 1,165,515 1,116,768
<SALES> 984,625 682,398 1,544,754 2,282,853
<TOTAL-REVENUES> 984,625 682,398 1,544,754 2,282,853
<CGS> 150,215 127,862 223,542 363,001
<TOTAL-COSTS> 676,166 588,495 1,224,083 1,925,540
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 3,357 19,812 48,792 40,468
<INTEREST-EXPENSE> 12,315 13,184 25,641 36,464
<INCOME-PRETAX> 145,929 (47,143) 71,488 (42,152)
<INCOME-TAX> 63,750 0 24,798 2,450
<INCOME-CONTINUING> 82,179 (47,143) 46,691 (44,602)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 82,179 (47,143) 46,691 (44,602)
<EPS-PRIMARY> 0.02 (0.01) 0.01 (0.01)
<EPS-DILUTED> 0.02 (0.01) 0.01 (0.01)
</TABLE>
