SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File Number 0-22597
CIMNET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 52-2075851
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
946 West Penn Avenue, Robesonia, PA 19551
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 693-3114
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.0001 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Revenues for the Issuer's most recent fiscal year are $3,475,258.
The aggregate market value of the voting stock held by non-affiliates of
the Issuer as of March 20, 2000 was approximately $5,459,400 (based upon a
closing price of $3.37 per share).
The number of outstanding shares of the Issuer's common stock as of March
20, 2000 was 4,899,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
<PAGE>
CIMNET, INC.
TABLE OF CONTENTS
PAGE
PART I
Business.......................................................................1
Properties....................................................................16
Legal Proceedings.............................................................16
Submission of Matters to a Vote of Security Holders...........................16
PART II
Market for Registrant's Common Equity and Related Stockholder Matters.........17
Management's Discussion and Analysis or Plan of Operation.....................18
Financial Statements .........................................................21
Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure.................................................................21
PART III
Directors, Executive Officers, Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act of the Registrant.........22
Executive Compensation........................................................23
Security Ownership of Certain Beneficial Owners and Management................24
Certain Relationships and Related Transactions................................25
Exhibits and Financial Statement Schedules and Reports on Form 8-K............27
<PAGE>
ITEM 1. 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 permit 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 and CIMNET(R) Folders. 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 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 28% of the aggregate revenue in
fiscal year 1998 and 1999, respectively.
o AMP, Inc.
o Amphenol Corporation
o Boston Gear
<PAGE>
o Carrier Corporation
o Caterpillar, Inc.
o DMD Dresser
o FMC Corporation
o Morris Material Handling, LLC
o Motek Engineering and Manufacturing, Inc.
o Profitkey
o Raytheon
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
The Company's 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.
RECENT DEVELOPMENTS
In January 2000, we entered into a letter of intent to acquire RealTime
Information Systems PTY, Limited, an Australian company engaged in the business
of creating and developing software for shop floor control. The letter of intent
contemplates that at the closing of the proposed transaction Cimnet will issue
1,224,750 shares of Common Stock (or approximately 25% of our outstanding shares
of Common Stock) and the principals of RealTime will enter into employment
agreement with Cimnet. The proposed transaction is anticipated to be accounted
for under the purchase method of accounting. The proposed transaction is subject
to completion of legal, business and financial due diligence and the execution
and delivery of definitive agreements.
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
-2-
<PAGE>
computers producing their programs, and the Distributed Numerical Control (DNC)
business began. Machine controls typically use RS-232 serial communication, as
do computers, but that is inherently a one-to-one connection. DNC networks were
set up to interconnect the one or two computers producing the part programs with
the many machine tools found in a typical factory.
A second significant change was also driven by electronics technology,
specifically the development of the integrated circuit which made minicomputers,
and later personal computers, viable. While CNC machines also incorporated this
new technology, its greater impact was initially on the programming side, where
such systems became affordable, and in the late 1980's, even commonplace.
PC-based solutions enabled even small manufacturers to enjoy the benefits of
accurate, repeatable parts that NC and CNC machining brought. As PC systems
proliferated, the volume of programs and information generated became a blizzard
for the factory floor to handle. This was of course added to the overflow of
other information that "office-based" computer systems were increasingly
generating - manufacturing resource planning (MRP, which later became enterprise
resource planning, also known as ERP as its scope widened), inventory control,
cost accounting, and scheduling systems. Managing this information by
transferring physical media (paper tapes, folders full of documentation,
blueprints, etc.) is time-consuming, error-prone, and expensive. Many companies
in the discreet marketplace looked at their existing DNC network infrastructure
as a base from which to start building their manufacturing execution systems
(MES) to distribute and collect other information to and from the factory floor.
The PC "revolution" has had another side effect, and that was the gradual
elimination of proprietary DNC hardware. Early DNC systems were usually built
from custom components because commercially available general purpose computers
were either too expensive, or not powerful enough to do the job. It was cheaper
to construct custom communications hardware to do the specific task of
delivering part programs. As computers, particularly PCs, became cheaper, their
volume increased, which further drove down costs, and made it possible to use
mostly COTS (commercial off-the-shelf) technology to accomplish the task of
delivering information to the shop floor. While some environments do demand
rugged hardware, these are mostly repackaged versions of the PCs found on
millions of desktops, capable of using the same peripherals, and compatible with
the same software. PCs have even begun to take over control of CNC's directly,
often using commercially available motion-control cards or accomplishing motion
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
-3-
<PAGE>
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."
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.
-4-
<PAGE>
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.
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.
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 December 31, 1999, our
direct sales organization consisted of 5 employees.
-5-
<PAGE>
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 December 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.
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 December 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 December 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
-6-
<PAGE>
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 recently
developed a Window-based Machine Tool Monitoring software package. The Machine
Tool Monitoring software in an application which enables companies to
electronically monitor the production of equipment in their facilities. We are
also working on new releases of our Folders and DNCPro software packages.
As of December 31, 1999, we had 6 employees engaged in research and
development activities. Cimnet's research and development expenditures for
fiscal year 1998 and for 1999, were approximately $981,065 and $793,147,
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;
-7-
<PAGE>
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 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 not
conducted and do not conduct comprehensive patent searches to determine whether
the technology used in its products
-8-
<PAGE>
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
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 December 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.
HISTORICAL INFORMATION
Our predecessor corporation, Western Technology & Research, Inc. ("Western
Tech"), was organized on September 19, 1984 under the laws of the State of
Wyoming to engage in investment and business development operations related to
mineral research and exploration. The primary area of mineral exploration
concerned small (less than 10 acres) jade mining leaseholds in Wyoming, which
were never brought to the development stage. Western Tech also held options on
both minor gold and minor oil & gas prospects, which were never exercised, and
the options were assigned to third-parties for nominal consideration. All of
these activities had
-9-
<PAGE>
ceased before 1990. All jade mine claims were allowed to expire in 1993, for
non-payment of rental fees, as approved by unanimous action of the Board of
Directors on August 19, 1993.
Western Tech never engaged in an active trade or business throughout the
period from 1990, until just recently. In December of 1994, the prior
management, Mr. H. Jean Baker and Mrs. Phyllis L. Baker, expressed the desire to
wind up Western Tech because of the lack of any business and the burdens of
carrying on the entity without any apparent purpose. Western Tech had just lost
its last business asset, an interest in real property, through foreclosure.
Prior management took over at that time, noting in 1994 that some new mining
prospects and potential claims were available for investigation by Western Tech.
However, despite additional investigation, no new claims were staked. On October
15, 1996, the directors determined that Western Tech should become active in
seeking potential operating businesses and business opportunities with the
intent to acquire or merge with such businesses. Western Tech then began to
consider and investigate potential business opportunities. The management of
Western Tech commenced a proactive review of all potential business
opportunities by means of their personal contacts and prior experience,
consisting of over thirty combined years of management of public companies in
the mineral extraction business, and private business operations including real
estate.
As of December 30, 1998, Western Tech, an inactive publicly held shell
corporation, 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 change in corporate
domicile from Wyoming to Delaware by 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".
IN ADDITION TO OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-KSB, THE
FOLLOWING IMPORTANT FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE
COMPANY AND ITS BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT
IMPACT ON THE COMPANY'S BUSINESS, PROSPECTS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
-10-
<PAGE>
WE HAVE INCURRED SUBSTANTIAL LOSSES AND WE MAY NOT BE PROFITABLE IN THE
FUTURE. During the fiscal year ended December 31, 1999, we reported a net profit
of $88,637. However, during the fiscal year ended December 31, 1998, we reported
losses of $27,050. We cannot be certain that we will continue to be profitable.
Failure to achieve continued 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 December 31, 1999 we had an accumulated
deficit of $603,937. During the year ended December 31, 1999, however, we have
reduced certain expenses as a result of a reduction in personnel, but such
expenses may increase in the future, and therefore, our profitability may be
negatively affected.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE BECAUSE WE DEPEND ON A SMALL
NUMBER OF LARGE ORDERS. We derive a significant portion of our software license
revenue in 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 OPERATING RESULTS COULD CAUSE THE PRICE
OF OUR COMMON STOCK TO FALL. Our quarterly revenue and operating results are
difficult to predict 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 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 the 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.
-11-
<PAGE>
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 IF MANUFACTURING AUTOMATION
SOFTWARE SOLUTIONS ARE NOT WIDELY ADOPTED. Our products address a relatively new
market for manufacturing 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 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 TECHNOLOGY COMPANIES MAY ADVERSELY AFFECT
OUR FINANCIAL CONDITION AND OPERATING RESULTS. The market for PC based
manufacturing automation software applications is intensely 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 WE MAY NOT BE ABLE TO DEVELOP NEW
PRODUCTS OR ENHANCE EXISTING PRODUCTS ON A TIMELY BASIS. Although we sell a
variety of hardware and software products, the bulk of our revenues are
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 33% in 1999. We
expect that revenues from these products will continue to account for a
substantial portion of our revenues. The life cycles of our products are
-12-
<PAGE>
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.
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS. Our future
success depends to a 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 SKILLED PERSONNEL WE NEED TO
SUCCEED. Qualified personnel are in great 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 PROPRIETARY TECHNOLOGY RIGHTS. Our success
depends to a significant degree upon the protection of our software and other
-13-
<PAGE>
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 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 PRODUCTS INFRINGE THEIR COPYRIGHTS OR
PATENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION. If any of our products
violate third party proprietary rights, we may be required to engineer our
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 INFRINGE THE TRADEMARK RIGHTS OF
OTHER COMPANIES. Our use of "CIMNET" as well as the use of other names, may
result in 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 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 TECHNOLOGY USED IN OUR PRODUCTS. We
incorporate into 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
-14-
<PAGE>
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 IF OUR PRODUCTS FAIL TO PERFORM
PROPERLY. Software products as complex as 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, 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 RESULT OF PRODUCT LIABILITY CLAIMS
RELATING TO OUR CUSTOMERS' CRITICAL BUSINESS OPERATIONS. Our products are
frequently critical to the operations of our customers' businesses. Despite
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.
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
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
-15-
<PAGE>
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.
ITEM 2. PROPERTIES.
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.
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings are pending, or to the Western Tech's
knowledge threatened, to which Cimnet or any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the holders of the Company's Common
Stock during the last quarter of its fiscal year ended December 31, 1999.
-16-
<PAGE>
PART II
ITEM 5. 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 $2.0 $.06
Quarter ended
September 30, 1999 $2.0 $.75
Quarter ended
December 31, 1999 $1.5 $1.12
________________
* Limited trading on the OTC Bulletin Board commenced on May 28, 1998.
-17-
<PAGE>
On March 20, 2000, the final quoted prices as reported by the OTC Bulletin
Board was $3.38 for each share of Common Stock. As of March 20, 2000, there were
4,899,000 shares of Common Stock outstanding, held of record by approximately 56
record holders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS DOCUMENT AS WELL AS STATEMENTS
MADE IN PRESS RELEASES AND ORAL STATEMENTS THAT MAY BE MADE BY THE COMPANY OR BY
OFFICERS, DIRECTORS OR EMPLOYEES OF THE COMPANY ACTING ON THE COMPANY'S BEHALF
THAT ARE NOT STATEMENTS OF HISTORICAL OR CURRENT FACT CONSTITUTE "FORWARD
LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER UNKNOWN FACTORS THAT COULD CAUSE THE ACTUAL
RESULTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM THE HISTORICAL RESULTS OR
FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
IN ADDITION TO STATEMENTS WHICH EXPLICITLY DESCRIBE SUCH RISKS AND
UNCERTAINTIES, READERS ARE URGED TO CONSIDER STATEMENTS LABELED WITH THE TERMS
"BELIEVES", "BELIEF", "EXPECTS", "INTENDS", "ANTICIPATES" OR "PLANS" TO BE
UNCERTAIN FORWARD-LOOKING STATEMENTS. THE FORWARD LOOKING STATEMENTS CONTAINED
HEREIN ARE ALSO SUBJECT GENERALLY TO OTHER RISKS AND UNCERTAINTIES THAT ARE
DESCRIBED FROM TIME TO TIME IN THE COMPANY'S REPORTS AND REGISTRATION STATEMENTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
This section presents a review of the Company's financial condition and
results of operations and should be read in conjunction with the consolidated
financial statements of the Company and the notes included elsewhere herein. Per
share information has been restated to reflect the recapitalization as if it had
occurred at the beginning of the most recent period presented.
OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Sales for the year ended December 31, 1999 increased by 8.9% or $283,533
over net sales for the year ended December 31, 1998. This increase resulted from
an introduction of new software products at the end of 1998.
Costs of goods sold for 1999 were $635,828 compared to $529,705 for 1998, an
increase of $106,123 or 20.0%. This increase in costs of goods sold is related
to an increase in net sales of 8.9% and to sales of third party products with
smaller margins of profit. The sales of third party products began in the third
quarter of 1998 and was discontinued late in 1999.
Gross Profit for 1999 was $2,839,430, compared to $2,662,020 for 1998, an
increase of $177,410 or 6.7%. This increase is due to the overall increase in
sales.
-18-
<PAGE>
Selling, general and administrative expenses for 1999 were $1,866,682 or 53.7 %
of net sales, and total research and development expenses were $793,147 or 22.8%
of net sales compared to selling, general and administrative expenses of
$1,680,989 or 52.7% of net sales and total research and development expenses
were $981,065 or 30.7% of net sales for 1998. The decrease in research and
development expenses is due to a reduction of salaries as a result of the
discontinuation of Suite 2K product line and elimination of positions to support
this product.
Income from operations for 1999 was $179,601 compared to an income of $16 in
1998, an increase of $179,585. This increase in operating income is primarily
the result of an overall increase in sales while keeping operating costs down by
eliminating certain positions. This had a direct affect on payroll, benefits and
travel and entertainment expenses.
Interest expense for 1999 was $36,198 or 1.0% of net sales compared to 47,933 or
1.5% of net sales for 1998. The decrease is due to management's efforts to
reduce the line of credit and long term debt to the bank.
Net income for 1999 was $88,637 or 0.02 per share as compared to loss of
($27,050) or ($0.01) per share for 1998. The increase in earnings is the result
of an increase in overall sales.
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. The increase resulted from
introduction of new software products.
Costs of goods sold for 1998 were $529,705 compared to $561,559 in 1997, a
decrease of $31,854 or 5.7%. This decrease in cost of goods sold is related to
the company focusing more on software and services sales and decreasing its
sales of hardware related items.
Gross Profit for 1998 was $2,662,020, compared to $2,347,066 in 1997, an
increase of $314,954 or 13.4%. The increase is due to the reduced cost of goods
associated with software and services sales verses hardware sales.
Selling, general and administrative expenses for 1998 were $1,680,939 or 52.7%
of net sales, and total research and development was $981,065 or 30.7% of net
sales, compared to $1,278,860 or 44.0% and research and development expenses
were $965,856 or 33.2% of net sales for 1997. The increase in these expenses is
the result of the company introducing new software products to the marketplace.
The Company issued 500,000 shares of common stock in 1997 for consulting
services rendered. This resulted in a $560,000 charge to operations in 1997.
Income from operations for 1998 was $16 compared to a loss of $457,650 in 1997.
The increase in operating income is primarily the result of the charge of
$560,000 for consulting services in 1997.
-19-
<PAGE>
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.
Net loss for 1998 was $27,050 or $0.01 per share as compared to $510,148 or
$0.12 per share for 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had current assets of $761,780 compared to
$835,573 at December 31, 1998. This decrease is due to a decrease in accounts
receivable resulting from a decrease in fourth quarter sales over the prior year
and elimination of work in process. Current liabilities decreased by $197,940
from 1998 to 1999. This decrease is due to positive cash flow which resulted
from an increase in sales, and therefore, 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 fiscal 1999 and 1998 was $450,791 and
$(158,044) , respectively. The increase in cash provided by operations in 1999
was due to a decrease in accounts receivable of $118,692 and an increase in net
income of $115,687.
INVESTING ACTIVITIES
Investing activities consumed $ 35,251 and $ 77,307 in 1999 and 1998,
respectively, for purchases of capital assets. Capital expenditures in 1998
decreased the Company's need to make significant capital expenditures in 1999.
FINANCING ACTIVITIES
During fiscal 1999, net cash used in financing activities was $378,301 compared
to net cash provided by financing activities of $240,196 in 1998, an decrease of
$618,497 in cash provided from financing activities. In 1999, the Company repaid
$254,000 on its line of credit compared with 1998's increase in the line of
credit by $71,902 and proceeds from stock issuances of $225,098. An increase of
$203,533 in revenue in 1999 over 1998 enabled the Company to pay down its bank
debt.
CAPITAL RESOURCES
The Company has certain credit facilities with its bank including a line of
credit and two term loans. Credit line balance at December 31, 1999 was $44,992
with an annual interest rate of 9.25%. One of two term loans had $5,000 with an
annual interest rate of 9.5% and the other had $14,077 with an annual interest
rate of 8.25%. As of December 31, 1999, the Company had approximately, $555,000
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.
-20-
<PAGE>
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.
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements following Item 13 of this Annual Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Jones, Jensen & Company, P.C. ("Jones Jensen") by the letter dated April
8, 1999 was dismissed as the independent accountants for Western Tech. The
reports of Jones Jensen on the financial statements of Western Tech for the past
two fiscal years contain no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles. Western Tech's Board of Directors approved the dismissal of Jones
Jensen.
For the two most recent fiscal years and through April 8, 1999, there have
been no disagreements between Western Tech and Jones Jensen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which would have caused Jones Jensen to make a reference
thereto in its report on Western Tech's financial statements for such period.
During the two most recent fiscal years and through April 8, 1999, there have
been no reportable events (as defined in Regulation S-K, Item 304(a)(1)(v)).
Western Tech has requested that Jones Jensen furnish it with a letter
addressed to the Securities and Exchange Commission stating whether or not Jones
Jensen agrees with the above statements. A copy of such letter will filed with
the Securities and Exchange Commission as an exhibit to Western Tech's Current
Report on Form 8-K.
Western Tech engaged Grant Thornton LLP ("GT"), as its new independent
accountants as of April 8, 1999. Prior to such date, Western Tech did not
consult with GT regarding (i) the application of accounting principles, (ii) the
type of audit opinion that might be rendered by GT, or (iii) any other matter
that was the subject of a disagreement between Western Tech and its auditor (as
defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as
described in Item 304(a) (1)(v) of Regulation S-K).
-21-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT.
The names and ages of the directors and executive officers of Cimnet are
set forth below:
NAME AGE POSITION(S) WITH CIMNET
John D. Richardson 41 Chairman of the Board, Chief Executive
Officer and Chief Accounting Officer
David Birk 59 Director and Secretary
William Nyman 36 Director and Vice President of
Integration Services
Keith Frantz 43 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
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
-22-
<PAGE>
(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.
To our knowledge, based solely on review of the copies of such reports
furnished to us during the year ended December 31, 1999, all Section 16(a)
filing requirements applicable to its officers and directors and greater than
ten percent beneficial owners were satisfied.
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."
ITEM 10. 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 $100,000 in
annual salary and bonus, for the fiscal years ended December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Awards Payouts
Annual Compensation -------- ---------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Restricted LTIP All Other
Principal Other Annual Stock Options/ Payouts Compensation
Position Year Salary($) Bonus($) Compensation ($) Awards SARs(#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John D Richardson, 1999 $200,000 $ -0- $ 1,903
CEO
1998 $228,999 $ 11,073 $ -0- -0- -0- -0- -0-
1997 $159,374 $ 10,482 $ -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-
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Vinhais resigned from Cimnet effective May 6, 1999.
(2) Such Options expired unexercised as of August 5, 1999.
-23-
<PAGE>
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 a total of 500,000 options issued to employees
in August and November 1999 at exercise prices ranging from $.05 to $2.00 per
share, 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of Cimnet's common stock as of March 20, 2000, 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;
-24-
<PAGE>
o each of Cimnet's directors; and
o all executive officers and directors as a group.
NAME AND ADDRESS OF SHARES OF COMMON STOCK PERCENTAGE OF CLASS
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) BENEFICIALLY OWNED(3)
John D. Richardson(4) 3,260,000(5) 66.5%
David Birk(6) 5,000 *
William Nyman(7) 1,200 *
Keith Frantz(8) 12,800 *
All officers and 3,279,000 66.9%
directors as a Group
(4 persons)
- ------------
* 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 4,899,000 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.
ITEM 12. 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
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,
-25-
<PAGE>
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. The company recorded consulting expense of $72,000
for the year ended December 31, 1999. In the event that 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.
-26-
<PAGE>
PART IV
ITEM 13. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibits
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 of Cimnet.
_______________
*Previously filed with the Securities and Exchange Commission
(b) Reports on Form 8-K
None.
-27-
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CIMNET, INC.
DECEMBER 31, 1999 AND 1998
<PAGE>
C O N T E N T S
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEETS 4
STATEMENTS OF OPERATIONS 5
STATEMENT OF STOCKHOLDERS' EQUITY 6
STATEMENTS OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders
Cimnet, Inc.
We have audited the accompanying balance sheets of Cimnet, Inc. as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, 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 financial position of Cimnet, Inc. as of December
31, 1999 and 1998, and the 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 21, 2000
3
<PAGE>
<TABLE>
<CAPTION>
Cimnet, Inc.
BALANCE SHEETS
December 31,
ASSETS 1999 1998
-------------- --------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 68,744 $ 31,505
Accounts receivable, net of allowance of $25,686 and
$32,915 at December 31, 1999 and 1998, respectively 488,035 599,497
Inventories 34,814 88,505
Prepaid expenses 117,064 93,066
Deferred tax asset 53,123 23,000
-------------- --------------
Total current assets 761,780 835,573
PROPERTY AND EQUIPMENT, NET 232,097 275,688
-------------- --------------
$ 993,877 $ 1,111,261
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 44,992 $ 298,992
Current portion of long-term debt 38,368 100,211
Accounts payable 118,520 110,698
Accrued expenses 73,063 54,086
Due to related party 40,023 --
Deferred income 547,739 496,658
-------------- --------------
Total current liabilities 862,705 1,060,645
LONG-TERM DEBT, net of current portion 10,198 47,538
STOCKHOLDERS' EQUITY
Preferred stock, par value $.0001; 5,000,000
shares authorized (no shares issued and outstanding) -- --
Common stock, 15,000,000 shares authorized at $0.0001 par value,
4,899,000 shares issued and outstanding, December 31, 1999
and 15,000,000 shares authorized at no par value, 5,150,000
shares issued and outstanding, December 31, 1998 490 1,036,050
Additional paid-in capital 814,021 --
Accumulated deficit (603,937) (692,574)
-------------- --------------
210,574 343,476
Less
Deferred compensation 89,600 36,667
Shareholder receivable -- 303,731
-------------- --------------
120,974 3,078
$ 993,877 $ 1,111,261
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
Cimnet, Inc.
STATEMENTS OF OPERATIONS
Years ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 3,475,258 $ 3,191,725
Cost of goods sold 635,828 529,705
----------- -----------
Gross profit 2,839,430 2,662,020
----------- -----------
Operating expenses
Selling, general and administrative 1,866,682 1,680,939
Research and development 793,147 981,065
----------- -----------
2,659,829 2,662,004
Operating income 179,601 16
Loss on disposal -- 2,133
Nonoperating interest expense 36,198 47,933
----------- -----------
Income (loss) before income tax (benefit) 143,403 (50,050)
Income tax (benefit) 54,766 (23,000)
----------- -----------
NET INCOME (LOSS) $ 88,637 $ (27,050)
=========== ===========
Net income (loss) per common share - basic $ 0.02 $ (0.01)
=========== ===========
Net income (loss) per common share-diluted $ 0.02 $ (0.01)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
Cimnet, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
Common Stock
--------------------------- Additional
Shareholder paid-in Accumulated Treasury Deferred
Shares Amount capital deficit stock compensation receivable
----------- ------------ ----------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 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 $0.0001 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)
Reclassification of no par to
$0.0001 par common stock - (1,035,535) 1,035,535 - - - -
Expiration of stock options - - (36,667) - - 36,667 -
Excess of fair value of stock
over exercise price of
options granted - - 184,000 - - (184,000) -
Compensation expense - - - - - 94,400 -
Repayment of shareholder
receivable - - - - 303,731 - 303,731
Purchase of treasury stock - - - - 40,141 - -
Offering costs - - (25,000) - - - -
Retirement of treasury stock (251,000) (25) (343,847) - (343,872) - -
Net income - - - 88,637 - - -
--------- ----------- ----------- ----------- --------- --------- ----------
Balance at December 31, 1999 4,899,000 $ 490 $ 814,021 $ (603,937) $ - $ (89,600) $ -
========= =========== =========== =========== ========= ========= ==========
The accompanying notes are an integral part of this statement.
</TABLE>
6
<PAGE>
Cimnet, Inc.
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 88,637 $ (27,050)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
Depreciation and amortization 78,842 80,561
Loss on disposal of equipment - 2,133
Allowance for future returns (7,230) (4,270)
Employee stock options 22,400 18,333
Consulting stock options 72,000 -
(Increase) decrease in assets
Accounts receivable 118,692 (260,559)
Inventories 53,691 (37,366)
Deferred tax asset (30,123) (23,000)
Prepaid expenses (23,998) (14,224)
Increase in liabilities
Accounts payable 7,822 56,488
Accrued expenses 18,977 10,117
Deferred income 51,081 40,793
--------- --------
Net cash provided by (used in) operating activities 450,791 (158,044)
--------- ---------
Cash flows from investing activities
Purchase of property and equipment (35,251) (77,307)
--------- ---------
Net cash used in investing activities (35,251) (77,307)
--------- ---------
Cash flows from financing activities
Net (payments on) proceeds from line of credit (254,000) 71,902
Proceeds from long-term borrowings - 30,000
Principal payments on long-term borrowings (99,183) (82,999)
(Payments) proceeds from issuance of common stock, net (25,000) 225,098
Net advances to shareholder (118) (3,805)
--------- ---------
Net cash provided by (used in) financing activities (378,301) 240,196
--------- ---------
NET INCREASE IN CASH 37,239 4,845
Cash at beginning of year 31,505 26,660
--------- ---------
Cash at end of year $ 68,744 $ 31,505
========= =========
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 38,939 $ 48,235
========= =========
Income taxes $ 103,850 $ -
========= =========
Noncash transactions
Acquisition of property and equipment via capital lease$ $ - $ 37,890
========= =========
Issuance of employee stock options $ 112,000 $ 55,000
========= =========
Issuance of consulting stock options $ 72,000 $ -
========= =========
Expiration of employee stock options $ 36,667 $ -
========= =========
Stock purchase of 251,000 shares of common stock for cancellation of
shareholder receivable ($303,731) and additional amount due ($40,141) $ 343,871 $ -
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
Cimnet, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - NATURE OF BUSINESS
Cimnet Inc. (the Company) 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.
NOTE B - BASIS OF PRESENTATION
On June 8, 1999, a majority of the Western Technology stockholders approved a
merger of Western Technology with and into the Company. As a result, as of
June 22, 1999 Western Technology became a Delaware corporation, and its name
changed to Cimnet, Inc. Each share of the Western Technology outstanding no
par common stock was converted into one share of Cimnet common stock with a
par value of $0.0001.
On March 2, 1999, Western Technology a non-operating public company organized
under the laws of Wyoming 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 the
Company 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).
Accordingly, the financial statements as of December 31, 1998 and for the
year 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.
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
stockholders' 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.
8
<PAGE>
Cimnet, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
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 their estimated useful
lives. 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.
(Continued)
9
<PAGE>
Cimnet, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. INCOME TAXES
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.
Effective December 31, 1997, the Company terminated its S corporation
election and became a C corporation
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. NET INCOME (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.
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.
(Continued)
10
<PAGE>
Cimnet, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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.
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, 1999 and 1998, $2,765 and $32,502 of advertising costs,
respectively, were included in prepaid expenses. Advertising expense for the
years ended December 31, 1999 and 1998, was $87,094 and $136,268,
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 1998 financial statements to
conform to the 1999 presentation.
11
<PAGE>
Cimnet, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
Useful
Lives 1999 1998
------------- --------- ---------
<S> <C> <C> <C>
Furniture, fixtures and equipment 3 to 10 years $ 455,440 $ 419,348
Leasehold improvements 7 to 40 years 171,858 171,858
Computer software 3 to 5 years 15,545 15,545
--------- ---------
642,843 606,751
Less accumulated depreciation and amortization 410,746 331,063
--------- ---------
$ 232,097 $ 275,688
========= =========
</TABLE>
Depreciation and amortization amounted to $78,842 and $80,561 for the years
ended December 31, 1999 and 1998, respectively.
NOTE E - INCOME TAXES
The provision for income taxes was as follows:
Year Ended December 31,
------------------------
1999 1998
--------- ---------
Federal
Current $ 63,075 $ -
Deferred (25,994) (23,000)
State
Current 21,814 -
Deferred (4,129) -
--------- ---------
$ 54,766 $ (23,000)
========= =========
(Continued)
12
<PAGE>
Cimnet, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1999 and
1998
Cimnet, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE E - INCOME TAXES - Continued
The reconciliation of the tax computed at the statutory federal rate was
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
---------- ---------
<S> <C> <C>
Tax at statutory rate $ 48,757 $ (17,017)
Increase (reduction) in tax resulting from:
State income tax, net of federal benefit 11,672 -
Other (5,663) (5,983)
---------- ---------
Provision for income taxes $ 54,766 $ (23,000)
========== =========
</TABLE>
The net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
---------- ---------
<S> <C> <C>
Net operating loss carryforward $ - $ 23,000
Deferred compensation 37,194 -
Accrued vacation 15,929 -
========== =========
Total net deferred tax asset (included in other assets) $ 53,123 $ 23,000
========== =========
</TABLE>
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, 1999 and 1998, was $44,992 and $298,992, respectively. The
line of credit expires April 30, 2000. 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.
13
<PAGE>
Cimnet, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE G - LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<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 F $ 5,000 $ 65,000
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 F 14,211 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 29,355 58,806
---------- ---------
48,566 147,749
Less current portion 38,368 100,211
---------- ---------
$ 10,198 $ 47,538
========== =========
Aggregate maturities required on long-term debt at December 31, 1999, are as
follows:
2000 $ 38,368
2001 10,198
----------
$ 48,566
==========
</TABLE>
Interest expense for the years ended December 31, 1999 and 1998, was $36,198
and $47,933, respectively.
14
<PAGE>
Cimnet, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE H - EARNINGS PER SHARE
The Company's calculation of earnings per share in accordance with SFAS No.
128 is as follows:
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------
Weighted
Income average shares Per share
(numerator) (denominator) amount
--------- ----------- --------
Basic earnings per share
<S> <C> <C> <C>
Net income available to common stockholders $ 88,637 4,968,722 $ 0.02
Effect of dilutive securities
Options -- 153,291 --
-------- --------- --------
Diluted earnings per share
Net income available to common stockholders
plus assumed conversions $ 88,637 5,122,013 $ 0.02
======== ========= ========
</TABLE>
Weight average shares outstanding basic and diluted were 4,906,849 at
December 31, 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.
NOTE I - RELATED PARTY TRANSACTIONS
The Company is affiliated with High Printing and Graphics, Inc. The Company's
President owns a 50% interest in High Printing and Graphics, Inc. During the
years ended December 31, 1999 and 1998, 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 1999 and 1998 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
future minimum rental commitments, included in the income statements for the
years ended December 31, 1999 and 1998, was $105,013 and $117,019,
respectively.
15
<PAGE>
Cimnet, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE J - 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, 1999 and 1998, were
$15,883 and $16,782, respectively.
NOTE K - STOCKHOLDERS' EQUITY
On October 12, 1999, the Board of Directors voted to repurchase a total of
251,000 shares of its common stock at a price of $1.37 per share in exchange
for the cancellation of $303,731 owed by the President to the Company and the
payment of $40,139.
In January 1998, the Company issued a private placement memorandum raising
$250,000 by the issuance of 100,000 units at $2.50 per unit. Each unit
consisted of two shares of common stock and three common stock purchase
warrants. No subscriptions have been accepted to date in connection with this
offering. The warrants have an exercise price of $2.50 and expire one year
from the closing date of the offering. As of December 31, 1998, there are
300,000 warrants outstanding. On May 21, 1999, the 300,000 warrants expired.
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. These options were
cancelled in May, 1999 due to the resignation of the employee.
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 $0.0001, and (d) issue 500,000 shares of
common stock for $15,000 and services rendered.
NOTE L - STOCK OPTION PLAN
On June 8, 1999, the stockholders approved the adoption of the 1999 stock
option plan (the 1999 Plan). 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 . A total of 1,000,000 shares of common stock have been made
available. The options under this plan vest over a five year period, in 20%
increments on each successive anniversary of the date of the grant.
At December 31, 1999, 550,000 options have been granted of which 450,000 have
been granted below the market price. Compensation expense related to these
options (Directors' options) was $22,400 for the year ended December 31,
1999. In November 1999, the Company entered into an agreement with a
financial advisor firm in which a total of 100,000 options (Consulting
options) were granted and vest immediately. Consulting expense of $72,000 was
recognized for the year ended December 31, 1999 for the consulting options.
(Continued)
16
<PAGE>
Cimnet, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE L - STOCK OPTION PLAN - Continued
Had compensation cost for the plans been determined based on the fair value
of the options at the grant dates consistent with the method of SFAS No. 123,
the Company's net income and earnings per share of common stock would have
been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1999
----
<S> <C> <C>
Net income As reported $ 54,766
Pro forma 29,781
Earnings per share of common stock - basic As reported 0.02
Pro forma 0.01
Earnings per share of common stock - diluted As reported 0.02
Pro forma 0.01
</TABLE>
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes options-pricing model with the following weighted
average assumptions used for grants in 1999: dividend yield of -0-%, expected
volatility of 62%, the average risk-free interest rate of 6.158% for 1999; and
expected lives of 10.0 years and 2.6 years for the directors and consulting
options, respectively.
A summary of the status of the 1999 plan as of December 31, 1999, is
presented below:
<TABLE>
<CAPTION>
Weighted
average
exercise
Shares Price
------- --------
<S> <C> <C>
Outstanding, beginning of year - $ -
Granted 600,000 1.06
Exercised - -
Forfeited (50,000) 1.25
------- --------
Outstanding, end of year 550,000 $ 1.05
======= ========
Options exercisable at year-end 100,000 $ 1.25
======= ========
Weighted average fair value of
options granted during the year $ 0.81
========
</TABLE>
(Continued)
17
<PAGE>
Cimnet, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE L - STOCK OPTION PLAN - Continued
The following table summarizes information about nonqualified options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------- ---------------------------------
Weighted
Number average Number
outstanding at remaining Weighted outstanding at Weighted
Range of December 31, contractual average December 31, average
exercise prices 1999 life (years) exercise price 1999 exercise price
--------------- ------------ ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.05 50,000 9.80 $ 0.05 -- $ --
1.12 - 1 25 500,000 8.32 1.15 100,000 1.25
------- -------
550,000 100,000
======= =======
</TABLE>
NOTE M - COMMITMENTS
The Company leases various office equipment which are classified as operating
leases. The following is a schedule by years of minimum rental payments under
such operating leases that expire at various dates through 2004.
Years ending December 31,
-------------------------
2000 $ 19,232
2001 18,920
2002 18,608
2003 18,608
2004 10,535
---------
$ 85,903
=========
NOTE N - CONCENTRATION RISK
The Company currently purchases a significant portion, in the amount of 36%
and 36% as of December 31, 1999 and 1998, respectively, 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.
NOTE O - SUBSEQUENT EVENT
On January 19, 2000, the Company signed a letter of intent to merge with
Realtime Information Systems (Realtime). Realtime, which is based in Raleigh,
18
<PAGE>
North Carolina, is a company also involved in the development of
manufacturing computer software. Realtime will be merged into the Company
upon consummation of the merger. The merger is anticipated to be accounted
for under the purchase method of accounting.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: Robesonia, Pennsylvania
March 30, 2000
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 Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JOHN D. RICHARDSON
- ------------------------- Chairman of the Board, Chief Executive
John D. Richardson Officer and Chief Accounting Officer March 30, 2000
/s/ DAVID BIRK
- ------------------------- Director March 30, 2000
David Birk
/s/ WILLIAM NYMAN
- ------------------------- Director March 30, 2000
William Nyman
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001035901
<NAME> CIMNET, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 68,744
<SECURITIES> 0
<RECEIVABLES> 513,721
<ALLOWANCES> 25,686
<INVENTORY> 34,814
<CURRENT-ASSETS> 761,780
<PP&E> 642,843
<DEPRECIATION> 410,746
<TOTAL-ASSETS> 993,877
<CURRENT-LIABILITIES> 862,705
<BONDS> 0
0
0
<COMMON> 490
<OTHER-SE> 120,484
<TOTAL-LIABILITY-AND-EQUITY> 993,877
<SALES> 3,475,258
<TOTAL-REVENUES> 3,475,258
<CGS> 635,828
<TOTAL-COSTS> 635,828
<OTHER-EXPENSES> 2,659,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,198
<INCOME-PRETAX> 143,403
<INCOME-TAX> 54,766
<INCOME-CONTINUING> 88,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,637
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
