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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD
FROM ________TO__________
Commission File Number: 022597
CIMNET, INC.
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(Exact name of registrant as specified in charter)
Delaware 52-2075851
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
946 W. Penn Avenue, Robesonia, Pennsylvania 19551
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(Address of principal executive offices) (Zip Code)
(610) 693-3114
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(Issuer's telephone number, including area code)
Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The Company has 6,093,131 shares of common stock par value $.0001 per share
outstanding as of November 10, 2000.
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<TABLE>
<CAPTION>
CIMNET, INC.
INDEX
Page
Number
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PART I
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 (unaudited) AND DECEMBER 31, 1999 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE
AND THREE MONTHS ENDED SEPTEMBER 30, 2000 (unaudited)
AND DECEMBER 31, 1999 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
AND THREE MONTHS ENDED SEPTEMBER 30, 2000 (unaudited)
AND DECEMBER 31, 1999 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
</TABLE>
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<TABLE>
<CAPTION>
ITEM 1 - FINANCIAL STATEMENTS
CIMNET, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS September 30, 2000 December 31, 1999
------------------ ------------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 22,082 $ 68,744
Accounts receivable, net of allowance of $17,622 and $25,686
at September 30, 2000 and December 31, 1999, respectively 329,854 488,035
Inventories 59,801 34,814
Prepaid expenses 76,339 117,064
Deferred tax asset 53,123 53,123
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Total current assets 541,199 761,780
PROPERTY AND EQUIPMENT, NET 215,485 232,097
Goodwill 2,587,175 --
------------------ ------------------
$ 3,343,859 $ 993,877
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Line of credit $ 152,500 $ 44,992
Current portion of long-term debt 14,398 38,368
Accounts payable 111,111 118,520
Accrued expenses 69,159 73,063
Due to related parties 10,000 40,023
Deferred income 581,623 547,739
------------------ ------------------
Total current liabilities 938,791 862,795
LONG-TERM DEBT, net of current portion 2,000 10,198
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, par value $.0001 per shares; 5,000,000
shares authorized (no shares issued and outstanding) 609 490
Common stock, $0.0001 par value, authorized 15,000,000 shares
issued and outstanding 6,093,131 shares, September 30,2000
and 4,899,000 shares - December 31, 1999
Additional paid in capital 3,789,805 814,021
Accumulated deficit (1,047,652) (603,937)
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2,742,153 210,574
Less deferred compensation 339,694 89,600
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$ 2,402,459 $ 120,974
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$ 3,343,859 $ 993,877
================== ==================
</TABLE>
The accompanying notes are an integral part of these statements
3
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<TABLE>
<CAPTION>
CIMNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine months ended Three months ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 2,326,969 $ 2,679,294 $ 667,246 $ 915,350
Cost of goods sold 339,813 463,482 78,956 188,913
----------- ----------- ----------- -----------
Gross profit 1,987,157 2,215,812 588,290 726,437
----------- ----------- ----------- -----------
Operating expenses
Selling, general and administrative 1,631,913 1,173,173 475,859 343,536
Research and development 693,348 720,446 252,435 289,477
Amortization of Goodwill 89,212 -- 44,606 --
----------- ----------- ----------- -----------
2,414,473 1,893,619 772,934 633,013
Operating income (loss) (427,316) 322,193 (184,643) 93,424
Non operating interest expense 16,398 32,369 3,198 7,460
----------- ----------- ----------- -----------
Income (loss) before income tax taxes (443,714) 289,824 (187,807) 85,964
Income taxes -- 118,300 -- 35,500
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (443,714) $ 171,524 $ (187,807) $ 50,464
=========== =========== =========== ===========
Net Income per common share - basic and diluted $ (0.08) $ 0.03 $ (0.03) $ 0.01
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
<CAPTION>
CIMNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
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2000 1999
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<S> <C> <C>
Cash flows from operating activities
Net Income (loss) $ (463,765) $ 171,524
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Depreciation and amortization 47,373 57,583
Amortization of goodwill 89,212 --
Employee stock options 59,064 --
Allowance for future returns (8,064) (4,615)
(Increase) decrease in assets
Accounts receivable 186,653 65,686
Inventories (24,987) 5,728
Deferred tax asset -- 23,000
Prepaid expenses 40,725 18,971
Increase (decrease) in liabilities
Accounts payable (7,409) 297
Accrued expenses (3,904) (14,798)
Due to related parties (40,023) --
Deferred income 33,884 (251)
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Net cash (used in) provided by operating activities (90,241) 323,155
---------- ----------
Cash flows from investing activities
Purchase of property and equipment (30,761) (21,449)
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Net cash used in investing activities (30,761) (21,449)
---------- ----------
Cash flows from financing activities
Net (payments on) proceeds from line of credit 107,508 (227,000)
Principal payments on long-term borrowings (32,168) (79,522)
Payment of offering costs -- (25,000)
---------- ----------
Net cash provided by (used in) financing activities 75,340 (331,588)
NET (DECREASE) IN CASH (46,662) (29,816)
Cash at beginning of the period 68,744 31,505
---------- ----------
Cash at end of the period $ 22,082 $ 1,689
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
CIMNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles.
Certain information and footnote disclosures normally included in financial
statements under generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission
rules and regulations. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in Form 10-KSB for the fiscal year ended December 31,1999. In the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the consolidated financial
statements have been included. The results of operations for the three nine
months ended September 30, 2000, are not necessarily indicative of the
results which may be expected for the entire fiscal year.
Note 2 - Acquisition of RealTime
On April 14, 2000, Cimnet completed its acquisition of RealTime Information
Systems, PTY (RealTime) an Australian company engaged in the business of
creating and developing software for shop floor control. Under the terms of
the Purchase Agreement, the Ciment acquired all of the outstanding capital
stock of RealTime in exchange for (i) the payment by the Company of a total
of $10,000 and (ii) the issuance of 1,194,131 shares of the Company's common
stock. The transaction was accounted for under the purchase method of
accounting. Goodwill resulting from the purchase was $2.7 million and will
be amortized over 15 years.
The following represents the unaudited pro forma financial information of
Cimnet as if the acquisition occurred on the first date of the period
indicated. The pro forma information should be read in conjunction with the
related historical information and is not necessarily indicative of the
results that would have been attained had the transaction actually taken
place.
For the nine months ended For the year ended
September 30, 2000 December 31, 1999
------------------------- ------------------
Net sales $ 2,379,466 $ 3,928,017
Cost of goods sold 339,813 654,421
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Gross Profit 2,039,653 3,273,596
Operating expenses 2,561,073 3,239,702
Other expenses (income) 18,582 10,166
Income taxes -- 54,766
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Net loss $ (540,002) $ (31,038)
================== =================
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CIMNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
NOTE 3 - NET INCOME PER COMMON SHARE
Basic net income (loss) per common share is calculated by dividing net income
(loss) by the weighted average number of shares of common stock outstanding.
Diluted net income per share is calculated by adjusting the weighted average
number of shares of common stock outstanding to include the effect of stock
options, if dilutive, using the treasury stock method. Weighted average shares
for the three months ended September 30, 2000 were 6,093,131 and for the nine
months ended September 30, 2000 were 5,635,526. At September 30, 2000 there were
845,000 options to purchase Cimnet's common stock between $0.05 and $1.50. These
were not included in the calculation of net income per common share due to the
exercise price being greater than the market price.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section presents a review of the Corporation's financial condition
and results of operating and is intended to assist in the understanding and
evaluating major changes in the Corporation's financial position and earnings.
Per share information has been restated to reflect the recapitalization as if it
had occurred at the beginning of the most recent period presented.
In addition to historical information, this discussion and analysis
contains forward-looking statements. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Corporation undertakes no obligation to publicly revise or
update these forward-looking statements to reflect events or circumstances that
arise after the date hereof.
On April 14, 2000, Cimnet completed its acquisition of RealTime
Information Systems, PTY (RealTime) an Australian company engaged in the
business of creating and developing software for shop floor control. Under the
terms of the Purchase Agreement, the Ciment acquired all of the outstanding
capital stock of RealTime in exchange for (i) the payment by the Company of a
total of $10,000 and (ii) the issuance of 1,194,131 shares of the Company's
common stock. The transaction was accounted for under the purchase method of
accounting. Goodwill resulting from the purchase was $2.7 million and will be
amortized over 15 years
OPERATIONS
RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2000
Net Sales for the nine months ended September 30, 2000 decreased 13.1%
or $352,325 over net sales for the nine months ended September 30, 1999. This
decrease is due to a one time sale of software rights in 1999 in the amount of
$200,000, combined with the drop of a product line in 2000.
Costs of goods sold for the first nine months of 2000 were $339,813 or
14.6% of net sales compared to $463,482 or 17.3% of net sales for the same
period in 1999, a decrease of $123,669 or 26.7%. This decrease in costs of goods
sold is related to the decrease of net sales by 13.1%.
Gross Profit for the first nine months of 2000 was $1,987,157 compared
to $2,215,812 for the first nine months of 1999, a decrease of $228,655 or
10.3%. This decrease is due to the overall decrease in sales.
Selling, general and administrative expenses for the first nine months
of 2000 were $1,631,913 or 70.1% of net sales, and total research and
development expenses were $693,348 or 29.8% of net sales compared to selling,
general and administrative expenses of $1,173,173 or 43.8% of net sales, and
total research and development expenses were $720,446 or 26.9% of net sales for
the first nine months of 1999. As a percentage of net sales, general and
administrative expenses have gone up in 2000, due to the overall decrease in
sales and the absorption of the additional expenses related to the acquisition
of Real Time Information Systems in April 2000.
Loss from operations for the nine months ended September 30, 2000 was
$427,316 compared to income of $322,193 for the nine months ended September 30,
1999, a decrease of $749,509. Interest expense for the first nine months of
2000 was $16,398 or 0.7% of net sales, compared to $32,369 or 1.2% of net sales
for the nine months of 1999.
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<PAGE>
Net loss for the nine months ended September 30, 2000 was $443,714 or
$0.08 per share as compared to net income of 171,524 or $0.03 per share for the
nine months ended September 30,1999. This decrease is the combined result of
decrease in sales, increase in selling, general and administrative expenses is
due to absorption of the additional expenses related to the acquisition of Real
Time Information Systems and the amortization of the 2.7 million of goodwill
over 15 years.
RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000
Net sales for the three months ending September 30, 2000 and for the
three months ending June 30, 2000 were $667,246 and $939,839 respectively, a
decrease of $272,593, or 29.0%. This was due to the seasonal decline in business
in the manufacturing industry during the summer months.
Costs of goods sold for the three months ended September 30 2000 were
$78,956 or 11.8% of net sales compared to $188,913 or 20.6% of net sales for the
three months ended September 30, 1998, a decrease of $109,957 or 58.2%. This
decrease in costs of goods sold is related to the decrease in sales and the
introduction of Info link software sales due to the acquisition of Real Time
Information Systems.
Gross Profit for the three months ended September 30, 2000 was $588,290
compared to $726,437 for the three months ended September 30 1999, a decrease of
$138,147 or 19.0%. This decrease is due to an overall decrease in sales and the
absorption of the additional expenses related to the acquisition of Real Time
Information Systems.
Selling, general and administrative expenses for the three months ended
September 30, 2000 were $475,859 or 71.3% of net sales, and total research and
development expenses for the same period were $252,435 or 37.8% of net sales
compared to selling, general and administrative expenses of $343,536 or 37.5% of
net sales, and total research and development expenses for the same period were
$289,477 or 31.60% of net sales for the three months ended September 30 1999.
The increase in selling, general and administrative expenses are due to
absorption of the additional expenses related to the acquisition of Real Time
Information Systems.
Research and development expenses for the three months ending September
30, 2000 and June 30, 2000 were $252,435 and $215,177 respectively, an increase
of $37,258 or 17.3%. This was due to new hires and regular salary increase that
came up in that time period.
General and administrative expenses for the three months ending
September 30, 2000 and for the three months ending June 30, 2000 were $475,859
and $668,692 respectively, a decrease by 192,833 or 28.8%. This decrease
represents the lack of additional expenses that were absorbed in the second
quarter for the acquisition of Real Time Systems.
Loss from operations for the three months ended September 30 2000 was
$184,643 compared to an income of $93,425 for the three months ended September
30, 1999, and decrease of $278,067. This decrease is the combined result of
decrease in sales, increase in Selling, general and administrative expenses is
due to absorption of the additional expenses related to the acquisition of Real
Time Information Systems and the amortization of the 2.7 million of goodwill
over 15 years.
Interest expense for the third quarter of 2000 was $3,198 or 0.5% of
net sales, compared to $7,460 or 0.8% of net sales for the third quarter of
1999. This decrease in interest expense is the result of decrease in outstanding
debt during this period.
9
<PAGE>
Net loss for the three months ended September 30, 2000 was ($187,807)
or $(0.03) per share as compared to net income of $50,464 or $0.01 per share for
the three months ended September 30,1999. This loss is the combined result of a
decrease in sales, an increase in selling, general and administrative expenses
due to absorption of the additional expenses related to the acquisition of Real
Time Information Systems and the amortization of the 2.7 million of goodwill
over 15 years.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had current assets of $541,199 as
compared to $761,780 at December 31, 1999. This decrease is due to decrease in
accounts receivable and prepaid expenses. Current liabilities increased $75,996
from December 31, 1999. This increase is due to an increase in line of credit to
subsidize the limited cash on hand.
OPERATING ACTIVITIES
Cash provided by (used in) operations for the nine months ended
September 30, 2000 and 1999 was $(91,241) and $323,155, respectively. The
decrease in cash provided by operations in 2000 was due to net loss of
$(443,714) for the nine months ended September 30, 2000. Inventories were at
$59,801 on September, 30 2000 compared to $34,814 on December 31, 1999, an
increase of $24987 or 71.7% due to purchase of new hardware for stock to be used
for maintenance contract customers to upgrade them.
INVESTING ACTIVITIES
Investing activities consumed $30,761 and $21,449 in 2000 and 1999,
respectively, for purchases of capital assets.
FINANCING ACTIVITIES
Financing activities used $75,340 in cash for the nine months ended
September 30,2000 compared to $331,588 cash provided for the same period in
1999, a decrease of $256,248 in cash provided from financing. This decrease is
due to the Company being less reliant on their line of credit, and collections
of accounts receivables.
CAPITAL RESOURCES
The Company has certain credit facilities with its bank including a
line of credit and two term loans. As of September 30, 2000, the Company had
approximately, $84,178 of unused credit available on its line of credit, subject
to borrowing base formula. The Company is current with all its obligations to
its bank and has met all financial covenants in its loan.
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.
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PART II OTHER INFORMATION
Lyle-Kearsley Systems, Inc. ("LKS"), a former supplier of software to the
Company, has filed an action against the Company in the United States District
Court for the Eastern District of Virginia, entitled, LYLE-KEARSLEY SYSTEMS,
INC. V. ADVANCED SYSTEMS & DESIGNS, INC. AND CIMNET, INC., Case No. 00-1091-A .
In its complaint, LKS asserts a variety of claims including breach of contract;
conspiracy with another distributor, Advanced Systems & Design, Inc., to injure
LKS' business; tortious interference with LKS' business and contacts; fraud;
false designation; civil RICO; copyright infringement; and conversion. The
complaint seeks damages in excess of $75,000, plus punitive damages and
interest. The Company believes that it has meritorious defenses to the claims
asserted in the action and intends to vigorously defend it. Moreover, the
Company has asserted counterclaims against LKS based on LKS' own breach of the
contract and tortious conduct. The damages that the Company seeks from LKS on
the counterclaims exceed the amount sought by LKS in the complaint.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K. The Registrant filed the following Reports on
Form 8-K during the quarterly period ended September 30, 2000:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following person on behalf of
the Registrant and in the capacities and on the dates indicated:
CIMNET, INC.
By: /s/ JOHN D. RICHARDSON
-----------------------------------
Name: John D. Richardson
Title: Chairman of the Board,
Chief Executive Officer and
Chief Accounting Officer
Dated: Robesonia, Pennsylvania
November 12, 2000
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