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UNITED STATES
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
For the Fiscal Year Ended September 30, 2000
[ ] Transition Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File No. 0-31047
RIM.COM INC.
(Name of Small Business Issuer in Its Charter)
Nevada 86-0995730
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7579 E Main, Suite 600, Scottsdale, AZ 85251
(Address of Principal Executive Offices) (Zip Code)
(as of Date of Filing)
Issuer's Telephone Number (480) 970-3336
Securities to be Registered Under Section 12(b) of the Act:
None
Securities Registered Under Section 12(g) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock None
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 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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 amendments to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $667,395
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days. $291,950 - price at which sold
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date. 4,734,171
DOCUMENTS INCORPORATED BY REFERENCE - None
<PAGE>
RIM.COM INC.
FORM 10-KSB
Page
----
PART I
Item 1. Description of Business.................................. 1
Item 2. Description of Property.................................. 1
Item 3. Legal Proceedings........................................ 3
Item 4. Submission of Matters to a Vote of Security Holders...... 3
PART II
Item 5. Market for Common Equity and Related Stockholders
Matters................................................. 4
Item 6. Management's Discussion and Analysis or Plan of
Operation............................................... 5
Item 7. Financial Statements..................................... 6
Item 8. Changes In and Disagreement with Accountants on
Accounting and Financial Disclosure..................... 6
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons................................................. 7
Item 10. Executive Compensation................................... 8
Item 11. Security Ownership of Certain Beneficial Owners
and Management.......................................... 10
Item 12. Certain Relationships and Related Transactions........... 11
PART IV
Item 13. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K............................................. 12
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Rim.Com Inc (the "Company" or the "Registrant") was organized in Nevada on
February 14, 2000. On April 6, 2000, the Company closed its acquisition of its
subsidiary, Rimmer Computer Inc., an Arizona corporation which had been in
business in Phoenix, Arizona for over thirteen years ("Rimmer"). The acquisition
of Rimmer was accomplished by exchanging 3,400,000 shares of Company restricted
common stock for 100% of the outstanding shares of Rimmer. The acquisition of
Rimmer by the Company was conditioned upon the Company raising a minimum of
$250,000 from private placement offerings. On June 30, 2000 the Company
simultaneously closed an offering of $260,000 to 13 accredited investors and an
offering of $26,750 to 26 non-accredited investors.
RIMMER COMPUTER
Rimmer Computer, Inc. ("Rimmer") was started on March 1, 1987. The business
started out as a brokerage computer hardware company - buying, selling, and
leasing computer equipment specializing in IBM 3270 terminals or compatibles. By
1990 Rimmer began to do network consulting helping small business set up and use
networked PC's. This line of business continued to grow, initial growth being in
large part supported by a large project management contract with the Arizona
Department of Transportation. As networking systems became more common, Rimmer
became approved as a Novell technical service provider, and Rimmer's target
customer group became larger businesses. Today Rimmer, as a company, is an
approved technical service provider for computer hardware and software system
manufacturers such as Novell, Microsoft, IBM, Compaq, Hewlett Packard, Cisco and
others. Rimmer employs ten people and the individual technicians have received
certifications such as Microsoft Certified System Engineer and Certified NetWare
Engineer. All of Rimmer's customers are currently located in the Phoenix,
Arizona area, although Rimmer expects to obtain some national accounts within
the next year. None of Rimmer's customers accounts for more than 10% of its
annual revenues.
SERVICES OFFERED
Rimmer specializes in refining or upgrading customer computer systems to
achieve full-time and optimum usage by the maximum number of customer employees.
The number one request from Rimmer's customers is for their computer system to
be operating all of the time instead of being "down," because the customer's
employees are not working productively when the computer system is inoperatable.
The second common request from Rimmer's customers is that the existing computer
software perform all of the functions which were advertised for it in the format
the customer wants it. The third common customer request is that all employees,
including those at the new branch offices with newer computers, be fully
integrated into the old computer system. Each customer situation is unique based
upon that customer's hardware and software and that customer's information
needs. Rimmer analyzes the customer's hardware, software and needs and then
spends several hours of time adjusting the hardware and software to the
customer's needs. After refining the computer system to meet the customer's
needs, Rimmer's employees typically return to the customer each month to
maintain the system or to deal with new problems as they develop. The only
training Rimmer provides to a customer's employees is to answer an individual
employee's questions about the computer system. Rimmer charges its customers an
hourly rate between $75 and $135 for the services performed by its six
technicians.
During fiscal year 2000 Rimmer served approximately 110 different
customers, most of which it anticipates serving in fiscal year 2001.
Rimmer executed a one-page engagement agreement with each of its customers.
In this agreement Rimmer offers the customer its full line of services,
including computer and network support, troubleshooting, repair, training,
planning, technical advice, installation of new hardware/software, upgrades to
existing hardware/software and other tasks as required or requested by the
customer.
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Rimmer bills each customer monthly. Regularly scheduled service is billed
in one-half day increments and unscheduled on-site service is billed at a
two-hour minimum. Service provided over the telephone to a customer is billed at
a minimum of one-quarter hour. Rimmer's customer engagement agreement provides
for an annual interest charge of 18% to be paid on services not paid within 30
days of billing. Rimmer's customer engagement agreement warrants that Rimmer's
customer service will be performed in a professional manner, but disclaims any
other warranties on the services it provides or the products it installs. From
each new customer Rimmer currently attempts to obtain an advance on the first
month's bill equal to one week of service.
SERVICE BENEFITS
Rimmer provides customers with a stable, easy-to-manage information
technology infrastructure, which directly affects the customers' bottom line. A
company's information technology infrastructure includes its computer hardware,
software, cables, servers, workstations and network operating system and is the
base upon which a specific application software is run. All of these components,
regardless of when purchased or where located, must be made compatible to each
other and the application software in order for the computer system to work
effectively. Rimmer believes a stable, easy to manage information technology
infrastructure greatly increases employee productivity: the information system
tools are always available for use, and the data is accessible. Rimmer believes
the impact on employee productivity that is provided by a stable computer system
can be enormous.
TARGET MARKET DEFINED
Any businesses that use IBM-compatible microcomputers (PCs) and are
interested in utilizing technology to create a competitive advantage for
themselves are potential clients. Historically, Rimmer has targeted small to
medium businesses with 10 to 250 workstations.
COMPETITION
There are three types of competitors: large, multi-location companies, such
as Novell, EDS and MicroAge; regional and local firms of similar size, such as
JJ Croney & Associates, Sentinel Technologies, and Hughes Callahan; and one-man
companies.
The Company believes most of the one-man companies in the industry are
technology oriented with little or no marketing skills. In contrast, Mr.
Korndorffer and Ms. Strauch, the Company's Chairman and President, both have
sales and marketing experience in the computer industry. The Company believes it
will have a marketing advantage over the one-man companies.
The Company believes most of its competitors who are a similar size are
service companies that merely "fix" the customer's computer system when it
breaks down, instead of providing the customers with a system that meets their
continuing needs. The Company believes some larger competitors limit their
service to specific one-time projects, such as installing a new network or a new
software application throughtout the entire network. These competitors focus on
making the one-time sale instead of serving the customers needs on a continuing
basis. Rimmer believes its approach of providing its customers with long-term
computer system stability and performance is superior to its competitors.
FUTURE ACQUISITIONS
The Company believes that there are dozens of computer consulting companies
in the United States which are similar to Rimmer and which would welcome the
opportunity to join the Company. Most likely, these companies would generate
annual revenues in the $500,000 to $2,000,000 range, but would have little or no
net income. The Company is hopeful that it would be able to acquire such
companies in exchange for its restricted common stock in order to preserve its
cash. The Company would hope that these companies could then be made profitable
by economies of scale or improving gross profit margins.
Since the Company has not completed any acquisitions other than Rimmer,
there is no assurance that the Company will be able to complete any acquisitions
in the
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future, or that any such companies acquired will ever be profitable. Further,
certain expenses of any future acquisition, such as legal and accounting costs
which may be substantial, would be required to be paid in cash.
The Company will most likely accomplish any future acquisition by merging
the target company into a subsidiary of the Company. Under Nevada law such a
merger would not require shareholder approval if the total number of shares to
be issued in the transaction did not exceed 20% of the Company's total
outstanding shares. Therefore, investors in this offering should plan on the
Company conducting all future acquisitions without receiving shareholder
approval.
EMPLOYEES
At September 30, 2000 Rimmer employed 6 systems engineers, one salesman,
two administrative/accountant, in addition to management. In November 2000
Rimmer hired six additional system engineers and two additional salesmen. Rimmer
has no plans for additional hirings at this time.
ITEM 2. DESCRIPTION OF PROPERTY
The Company is currently leasing for two (2) years approximately 1,200
square feet of space at its principal offices at a monthly rent of approximately
$1,212 plus tax. In November 2000 the Company entered into a two-year lease on
an additional 700 square feet of space located at 7510 E. Main Street,
Scottsdale, Arizona for a monthly rent of $700. These two sites are suitable for
the current operations. No difficulty is seen in acquiring additional space in
the same general area as it is needed in the future.
ITEM 3. LEGAL PROCEEDINGS
There were no legal proceedings involving the Company pending or threatened
at December 15, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's shareholders during the
Company's fourth quarter.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION. The Company's common stock has not previously been
actively traded. The principal market in which the Company's common shares will
be trading is the over-the-counter market automated quotation system commonly
known as the Bulletin Board. The Company does not know what its trading symbol
will be at this time. Such over-the-counter market quotations reflect
inter-dealer prices without retail markup, markdown or commission and may not
necessarily represent actual transactions.
HOLDERS. As of December 15, 2000 the Company had 49 stockholders of record.
DIVIDENDS. The Company has not paid or declared any dividends upon its
common shares since its inception and, by reason of its present financial status
and its contemplated financial requirements, does not intend to pay or declare
any dividends upon its common shares in the near future.
RECENT SALES OF UNREGISTERED SECURITIES. On February 15, 2000 the Company
issued 200,000 restricted shares of its common stock to the sole officer and
Director of the Company in exchange for services and cash valued at $5,200. This
transaction was made without a general solicitation to the public and the sole
officer and Director of the Company qualified as an "accredited investor"
pursuant to Rule 501 of Regulation D. Therefore, the Company believes this
transaction was exempt from registration pursuant to Section 4(2) of the Act.
On April 6, 2000 the Company issued 3,400,000 restricted shares of its
common stock to a total of 7 non-accredited individuals and trusts in the
acquisition of Rimmer. At March 31, 2000, the book value of Rimmer was negative
$7,157. This transaction was accounted for as a reverse acquisition with Rimmer
as the acquiring entity. (See "Financial Statements.") The Company made its
stock offering to the four officers and directors of Rimmer and the three
additional shareholders of Rimmer without general public solicitation and
pursuant to a Plan of Reorganization and Exchange. Therefore, the Company
believes this transaction was exempt from registration pursuant to Section 4(2)
of the Act and Rule 506 of Regulation D as promulgated under the Act.
On June 30, 2000 the Company issued 866,671 shares of its common stock to
13 accredited investors in exchange for $260,000 of gross offering proceeds. The
Company made this offering to a limited number of potential investors located in
states which permit Rule 504 offerings, by means of a written private placement
memorandum without general public solicitation. The investors executed
subscription agreements which contained representations concerning the
investor's income, wealth and level of financial sophistication, acknowledging
the receipt of unregistered shares and declaring the intention to hold for an
indefinite time period. Therefore, the Company believes this transaction was
exempt from registration pursuant to Section 3(b) of the Act and Rule 504 of
Regulation D as promulgated under the Act. The Company made a commitment to
these investors to make application to list the Company's common stock for
trading after the completion of this offering.
On June 30, 2000 the Company issued 267,500 restricted shares of its common
stock to 26 non-accredited investors in exchange for $26,750 of gross offering
proceeds. Fifteen of these investors were employees of the Company and the
remaining eleven of these investors were friends and relatives of Company
employees prior to this offering. These 26 investors received a private
placement memorandum which contained the information required to be in a
registration statement of the Company, including audited financial statements.
The Company limited each investor's investment to $5,000. These investors
executed subscription agreements which contained representations concerning the
investors' income and wealth in relation to their investment, acknowledging the
receipt of unregistered and legended shares, and declaring the intention to hold
the shares for an indefinite time. Therefore, the Company believes this
transaction is exempt from registration pursuant to Rule 505 of Regulation D as
promulgated under Section 3(b) of the Act.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The statements contained in this document which are not historical are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those expressed in the
forward- looking statements, including, but not limited to, the Company's
ability to market its products and services and future customer acceptance for
its products and services, and other risks detailed in this document and other
documents made available to investors.
OVERVIEW
Rim.Com was formed in February 2000 and had no tangible assets and no
liabilities before its acquisition of Rimmer on April 6, 2000. Therefore, the
discussion below focuses on the operations of Rimmer, Rim.Com's wholly-owned
subsidiary. Rimmer has been in existence since 1987 and has been a SubChapter S
corporation since 1991. During February 2000 Rimmer changed its fiscal year end
to September 30 and terminated its SubChapter S status.
RESULTS OF OPERATION
YEAR ENDING SEPTEMBER 30, 2000
During the year ended September 30, 2000 the Company produced a net loss of
$278,524 on revenues of $667,395, as compared to a net loss of $72,140 on
revenues of $851,207 for the prior year. The Company's revenues in the year
ended September 30, 2000 were $183,812 less than the preceding year. This
revenue reduction resulted from a $72,814 decrease in hardware/software sales
and service revenues decreasing in the 2000 year by $110,998 over the prior
year.
The Company's gross profit in the year ended September 30, 2000 decreased
by only $40,201 over the prior year on revenues of $183,812 less. The Company
plans on continuing the de-emphasis of hardware/software sales unless such sales
provide the same high profit margin as consulting services. The Company's cost
of goods sold in the year ended September 30, 2000 was $143,611 less than the
prior year. This cost decrease resulted primarily from $156,763 less
hardware/software sale costs during the year 2000.
Rimmer's general and administrative expense increased by $145,677 during
the year ended September 30, 2000 in comparison to the prior year. This cost
increase resulted primarily from: (i) an increase in depreciation expense of
$21,688 over the prior year; (ii) the addition of two new officers's salaries of
$39,000 in year 2000; and (iii) additional legal and accounting expenses of
approximately $50,000 incurred as a result of attempting to become a "fully
reporting company." The Company will likely incur additional legal expenses in
fiscal year 2001 as the Company attempts to list its common stock for trading.
Interest expense increased by $24,591 during the year ended September 30,
2000 over the prior year, as a result of the Company's debt (accounts payable)
increasing by approximately $70,000 during the last half of the 1999 fiscal year
and the average interest rate on the credit card debt increasing to 18.7% at
September 30, 2000 from 11.8% at September 30, 1999. The Company is hopeful this
debt can be reduced substantially in the next year from internally generated
cash flow. The Company is also hoping to consolidate this credit card debt into
a debt with a lower interest rate.
YEAR ENDED SEPTEMBER 30, 1999
During the year ended September 30, 1999 Rimmer produced a net loss of
$72,140 on revenues of $851,207, as compared to a net loss of $7,760 on revenues
of $659,160 for the prior year. Rimmer's revenues in the 1999 fiscal year were
$192,047 higher than in the prior year, because hardware/software sales
increased by approximately $74,500 and consulting sales increased by
approximately $116,000. However, Rimmer's cost of goods sold increased by
$185,057 in the 1999 fiscal year as well, as a result of increased
hardware/software costs, sales commissions paid, and labor cost increases.
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Rimmer's general and administrative expense increased by $66,908 during the
1999 fiscal year in comparison to the prior year, as a result increased
professional and consulting expenses, depreciation and office rent. The Company
hopes to increase revenues and its profit margin in fiscal year 2000, but it
will also attempt to manage its cost of goods sold and its general and
administrative expenses in the next year as well.
Interest expense increased in fiscal year 1999 over 1998 by $4,496, as a
result of the debt increasing by approximately $41,000. The Company is hopeful
this debt can be reduced substantially in the next year with internally
generated cash flow.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 2000 the Company obtained additional gross proceeds of $286,750
of capital from its two stock offerings. These funds will provide working
capital for Company growth through approximately December 31, 2000. After that
period, the Company will attempt to secure additional equity or debt financing
to sustain additional growth. There is no assurance the Company will be able to
secure additional financing if needed in the future, because the Company does
not have any commitment for such financing at this time.
The Company's cash flow has been adversely impacted by the hiring of eight
additional employees in November 2000, because the cash flow produced from their
additional sales will likely not be received by the Company until January or
February 2001. The Company presently believes (without assurance) that the sales
revenue generated by these additional eight employees will make the Company
almost profitable in the first quarter of fiscal 2001.
The Company's debt resources have been utilized for a total of $125,825,
with Rimmer securing additional credit card debt in the amount of $5,000 during
the year ended September 30, 2000. This debt is comprised of one bank loan and
several credit card loans. Rimmer is paying an annual rate of approximately
11.85% on the bank line and 18.7% on the credit card debt at September 30, 2000.
The bank debt of $80,825 became due in the last quarter of fiscal year 2000,
although the bank has not requested repayment as of December 15, 2000. During
the coming year the Company is hopeful of reducing the amount of this debt
through internally generated cash flow or, possibly, re- financing the credit
card debt at a lower interest rate.
Future acquisitions of the Company will be funded by using the Company's
common stock. The Company does anticipate expending cash to expand the revenues
of any business it may acquire in the future, so the Company may need to obtain
additional funds for such expansion, as well as Rimmer's expansion, in the
future. There is no assurance that the Company will be able to acquire any
business in the future, since the Company has not yet completed any
acquisitions.
ITEM 7. FINANCIAL STATEMENTS.
The Company's financial statements and an index to the financial statements
are set forth on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
The Company has not changed its accountants or had any disagreements with
its accountants since Semple & Cooper, LLP, was engaged in February 2000. Rimmer
had not engaged any independent accountants prior to July 2000.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of the Company as of December 15, 2000
were as follows:
Name and Address Age Position
---------------- --- --------
Robert H. Korndorffer 66 Director and Chairman
7579 E. Main St., Suite 600
Scottsdale, AZ 85251
Christina M. Strauch 45 Director and President
7579 E. Main St., Suite 600
Scottsdale, AZ 85251
Bruce M. King 47 Director and
7579 E. Main St., Suite 600 Vice President
Scottsdale, AZ 85251
Merlin W. Gunderson 78 Director and
7579 E. Main St., Suite 600 Secretary/Treasurer
Scottsdale, AZ 85251
ROBERT H. KORNDORFFER became a Director and President of the Company on
April 6, 2000. On July 5, 2000 he became Chairman of the Company. Mr.
Korndorffer has been a principal shareholder and officer of Rimmer Computer Inc.
since its formation in 1987 and is currently President of Rimmer. He has a BS in
Chemical Engineering from the University of Mississippi (1956). He redirected
his interest in computers in the chemical industry when he left in 1965 to work
for IBM as a data processing sales representative for 13 years and for the ITT
Corporation for five years. After starting Rimmer Computer, Mr. Korndorffer has
continued his technical education in various curricula such as becoming a
Certified NetWare Engineer for the Novell Corporation.
CHRISTINA M. STRAUCH became a Director and Vice President - Marketing of
the Company on April 6, 2000. On July 5, 2000 she became President. Ms. Strauch
has been a principal shareholder and officer of Rimmer Computer Inc. since April
1990 and is currently Secretary of Rimmer. She was awarded an MBA in finance and
marketing from UCLA in 1981, and worked for IBM in technical sales for five and
a half years. After that she worked in commercial real estate for two years,
then returned to the technology sector in 1989 with Rimmer Computer, Inc. She is
a certified Novell sales professional and a certified Cisco salesperson. She is
also currently an adjunct faculty member in the Business and Technology division
of Scottsdale and Gateway Community Colleges.
BRUCE M. KING became a Director and Chairman of the Company on April 6,
2000. On July 5, 2000 he resigned as Chairman of the Company and became Vice
President. Mr. King has a Master in Business Administration and Administrative
Management from Bowie State University (1995) and a Masters in Spanish from
Middlebury College (1984). From June 1995 until September 1997, Mr. King served
as chief financial officer for Kings Onion House, Inc., a produce distributor in
Phoenix, Arizona. From September 1997 to present Mr. King has been the majority
shareholder and President of Commerce General, Inc., a management consulting
company in Mesa, Arizona. Previously Mr. King had a twenty-year career as a
professional military officer, which included experience in business management
and international relations.
MERLIN W. GUNDERSON has been a Director and Treasurer of the Company since
April 6, 2000. On July 11, 2000 he became Secretary as well. Mr. Gunderson has a
CPA degree from the University of Illinois. As senior partner, Mr. Gunderson
grew a two person accounting firm (Clifton-Gunderson, LLC) to be the 18th
largest CPA firm in the United States. Since 1989 Mr. Gunderson has served as an
independent consultant, assisting numerous clients in restructuring,
capitalization and financial management. In 1997 he assisted a manufacturing
company with a public offering that raised $1,500,000 and assisted in debt
financing of $1,200,000. Mr. Gunderson served several years on lecture circuits
and participated actively with the American Institute of CPAs. He was also an
adjunct Professor of Accounting for Bradley University.
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ITEM 10. EXECUTIVE COMPENSATION
Rimmer has employment contracts with Mr. Korndorffer, Ms. Strauch, Mr. King
and Mr. Gunderson. The contracts with Mr. Korndorffer and Ms. Strauch have a
two-year term ending January 25, 2002 and the contracts with Mr. King and Mr.
Gunderson have a one-year term ending March 1, 2001. These employment agreements
provide for no severance arrangements with these officers. These employment
agreements prohibit these officers from being engaged in or involved with any
competitive or similar business within 100 miles of Scottsdale, Arizona for a
period of four years. These employment agreements also prohibit these officers
from disclosing any information relating to Rimmer's business to third parties.
The current annual salaries of the Company's current officers are as
follows: Mr. Korndorffer - $60,000, Ms. Strauch - $60,000; Mr. King - $36,000
and Mr. Gunderson - $36,000. The Company may, at some future time, increase
salaries or grant bonuses to its officers, but such increases and/or bonus
payments, and the actual payment of salaries will be made only if the Company is
successful and they do not materially adversely affect the Company's cash flow
from operations.
STOCK OPTIONS
On April 6, 2000 the Company and its shareholders adopted its 2000
Management and Employee Stock Option Plan (the "Plan"). 3,000,000 Company shares
are reserved for issuance under the Plan.
The Plan provides for the granting of stock options which, at the
discretion of the Board, may be either "incentive stock options" within the
meaning of Section 422A of the U.S. Internal Revenue Code or non-qualified stock
options which do not qualify as incentive stock options. With respect to any
participant who owns stock possessing more than 10% of the voting rights of the
Company's outstanding capital stock, the exercise price of any incentive stock
option under the Plan to such a participant must be not less than 110% of fair
market value on the date of grant. Options under the Plan may be granted to
officers, directors, key employees of, and professional consultants to, the
Company and its subsidiaries. Under the terms of the Plan, the aggregate fair
market value (determined at the time an option is granted, which will normally
be equal to the option exercise price per share) of Common Stock exercisable
under an incentive stock option for the first time in any calendar year may not
exceed $100,000.
The maximum term for each option under the Plan is ten years or less. No
option granted may be transferred by the optionee other than by will, the laws
of descent and distribution, or by a qualified domestic relations order, and
each option will be exercisable during the lifetime of the optionee only by such
optionee. Options under the Plan will be exercisable in whole or in part at such
times after the date of grant as set forth in an option agreement as determined
by the Committee or the Board of Directors. Each option granted will be for a
term, and exercisable only in accordance with option agreements approved by the
Board.
The Plan contains provisions which authorize the Board in the event of a
sale or merger of all or substantially all of the Company's assets, or a merger
or consolidation in which the Company is not the surviving corporation, to take
certain action in its discretion. In the event of such a transaction the Board
may accelerate the exercisability of any option to permit its exercise in full
during such period as the Board may prescribe following the public announcement
of a sale of assets or merger, and may elect to earlier grant that right at the
time an individual option is granted. The Board may also require an optionee in
the event of such a transaction to surrender an option in return for a
substitute option issued by a surviving corporation which is determined by the
Committee to have a value substantially equal to the value of the surrendered
option.
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The Board of Directors will determine who will receive any stock options,
the number of shares subject to each option granted, the option period, any
vesting schedules which defer the optionee's rights to exercise an option and
the exercise price. The issuance of any stock options may have the effect of
diluting the percentage of ownership in the Company of the then existing
shareholders.
As of December 15, 2000 the Company had outstanding stock options for the
following number of shares to the indicated persons, all exercisable at $.30 per
share: Robert Korndorffer - 500,000; Christina Strauch - 500,000; Bruce King -
200,000 and Merlin Gunderson - 250,000. 300,000 of the share options to
Korndorffer and Strauch and Gunderson's option are intended to qualify as IRS
incentive stock options and, as such, may not be exercised until April 7, 2001.
200,000 of the share options to Korndorffer, Strauch and King do not qualify as
IRS incentive stock options and, as such, may be exercised immediately.
The compensation of the Company's chief executive officer and each other
executive officer who received more than $100,000 is set forth in the table
below.
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
------------------------------------ ------------------------- ----------
Name and Other Restricted Securities
Principal Annual Stock Underlying LTIP All Other
Position Year Salary ($) Bonus($) Compensation($) Award(s)($) Options/SARs(#) Payouts($) Compensation($)
-------- ---- ---------- -------- --------------- ----------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Korndorffer 2000 60,000 -- -- -- 500,000 -- --
Chairman
</TABLE>
The following table sets forth certain information concerning the stock
options (with stock appreciation rights) granted during the fiscal year to the
Copmany's chief executive officer and each other executive officer who received
more than $100,000 in compensation.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
---- ----------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Robert H. Korndorffer 500,000 34.5% $.30 April 5, 2010
</TABLE>
The following table sets forth information concerning each exercise of
stock options and the value of unexercised options (with stock appreciation
rights) at year-end for the Company's chief executive officer and each other
officer who received more than $100,000 in compensation.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options/SARs at FY-End(#) Options/SARs at FY-End($)
Shares Acquired ------------------------- -------------------------
Name on Exercise (#) Value Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- ------------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert H. Korndorffer -- -- 200,000/300,000 --/-- (1)
</TABLE>
----------
(1) Since the Company's stock does not yet trade it is not known whether these
options are "in the money."
9
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 15, 2000 there were 4,734,171 shares of Company common stock
outstanding. The following table sets forth the name, address, number of shares
beneficially owned and which could be purchased in the next 60 days, and the
percentage of the Company's total outstanding common stock shares owned by: (i)
each of the Company's Officers and Directors; (ii) the Company's Officers and
Directors as a group; and (iii) other shareholders of 5% or more of the
Company's total outstanding common stock shares.
Number of Percent of
Name of Owner Shares(1) Outstanding
------------- --------- -----------
Robert H. Korndorffer (2)(3) 1,326,300 26.9%
Christina M. Strauch (2)(4) 1,193,700 24.2%
Bruce M. King (2)(5) 450,000 9.1%
Merlin W. Gunderson (2)(6) 250,000 5.3%
James R. Korndorffer (8)
416 Kenilworth Ave.
Gulf Breeze, FL 32561 400,000 8.4%
Michael K. Hair
7407 E. Ironwood Ct.
Scottsdale, AZ 85258 266,666 5.6%
All Officers and Directors,
as a Group (4 people) (7) 3,222,000 60.4%
----------
(1) Represents shares in which the individual has a beneficial interest.
(2) The address of this person is 7579 E. Main Street, Suite 600, Scottsdale,
AZ 85251.
(3) Includes 200,000 shares which may be immediately purchased at $.30 per
share. This percentage has not been adjusted for the potential exercise of
Mr. Korndorffer's 300,000 stock options which are not exercisable until
April 7, 2001. In the event Mr. Korndorffer exercises those options, he
would own 1,641,300 shares, which would be 32.6% of the shares currently
outstanding. (See "Management - Compensation.")
(4) Includes 200,000 shares which may be immediately purchased at $.30 per
share. This percentage has not been adjusted for the potential exercise of
Ms. Strauch's 300,000 stock options which are not exercisable until April
7, 2001. In the event Ms. Strauch exercises those options, she would own
1,508,700 shares, which would be 30.0% of the shares currently outstanding.
(See "Management - Compensation.")
(5) Represents 250,000 shares held in the name of Commerce General, Inc. of
which Mr. King is President, a Director and the majority shareholder and
includes 200,000 shares which may be immediately purchased at $.30 per
share. (See "Management - Compensation.")
(6) Represents shares held in the name of a trust of which Mr. Gunderson is a
beneficiary. This percentage has not been adjusted for the potential
exercise of Mr. Gunderson's 250,000 stock options which are not exercisable
until April 7, 2001. In the event Mr. Gunderson exercises those options, he
would own 500,000 shares, which would be 10.0% of the shares currently
outstanding. (See "Management - Compensation.")
(7) Includes 600,000 shares which may be immediately purchased at $.30 per
share. This percentage has not been adjusted for the potential exercise of
management's 850,000 stock options which are not exercisable until April 7,
2001. In the event management exercises all of those options, management
would own 4,099,700 shares, which would be 66.3% of the shares currently
outstanding. (See "Management - Compensation.")
(8) James R. Korndorffer is the brother of the Company's Chairman.
10
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon the incorporation of the Company on February 14, 2000, 200,000 shares
of common stock were issued to Michael K. Hair, the sole officer and Director at
that time. In exchange, $200 cash was paid for the incorporation and for
services totalling $5,000 in value. Mr. Hair continues to serve as securities
counsel to the Company.
On April 6, 2000 in an exchange agreement with Rimmer an additional
3,400,000 shares were issued by the Company to 8 individuals, companies and
trusts. The distributions to affiliates were as follows:
Bruce M. King (to a corporation of which he is President and a limited
liability company of which he is a member) - 1,248,600 shares; Robert H.
Korndorffer - 442,000 shares; Christina M. Strauch - 309,400; Norman King (Bruce
King's brother) Family Trust - 1,000,000 shares; Merlin Gunderson (to a trust of
which he is a beneficiary) - 250,000 shares. In July 2000 Mr. Korndorffer and
Ms. Strauch purchased some of Mr. Bruce King's and Mr. Norman King's shares. See
"Item 4" above.
At December 31, 1999 Rimmer owed Mr. Korndorffer approximately $12,326 from
loans Mr. Korndorffer had made to Rimmer over the years. This debt bears no
interest. In March 2000, Mr. Korndorffer converted this debt to equity with no
additional shares being issued.
At December 31, 1999 Christina M. Strauch owed Rimmer approximately $73,636
as interest free salary advances. On January 25, 2000 Ms. Strauch repaid $20,000
of this advance. Ms. Strauch intends to repay the balance of this advance over
the next two years from her salary.
On January 25, 2000 Commerce General, Inc., a company of which Mr. Bruce M.
King is President and majority shareholder invested $27,500 into Rimmer as a
contribution of capital.
On May 25, 2000 Michael K. Hair, then an Officer and Director of the
Company, loaned Rimmer $20,000. This sum was repaid on July 3, 2000 with no
interest.
11
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits to this filing are set forth below.
(b) There were no Form 8--K filings by the Company during the last quarter
of its fiscal year.
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1* Agreement of Exchange and Plan of Reorganization
3.1* Articles of Incorporation
3.2* Bylaws
10.1* 2000 Stock Option Plan
10.2* Stock Option Agreement with Bruce M. King
10.3* Stock Option Agreement with Robert H. Korndorffer
10.4* Stock Option Agreement with Robert H. Korndorffer
10.5* Stock Option Agreement with Christina M. Strauch
10.6* Stock Option Agreement with Christina M. Strauch
10.7* Stock Option Agreement with Merlin W. Gunderson
10.8* Employment Agreement with Bruce M. King
10.9* Employment Agreement with Robert H. Korndorffer
10.10* Employment Agreement with Christina M. Strauch
10.11* Employment Agreement with Merlin W. Gunderson
10.12* Office Lease
10.13* Office Lease
21.1* Subsidiaries
27 Financial Data Schedule
----------
* Incorporated herein by reference to the same numbered exhibit in the
Company's Registration Statement on Form 10SB and its amendments intitally
filed with the SEC on July 14, 2000.
12
<PAGE>
SIGNATURES
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 on December 15th, 2000 by the undersigned, thereunto authorized.
RIM.COM INC.
By: /s/ Robert H. Korndorffer
---------------------------
Robert H. Korndorffer, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities on the date(s) indicated.
/s/ Robert H. Korndorffer Chairman (Chief Dated: December 15, 2000
--------------------------- Executive Officer)
Robert H. Korndorffer Director
/s/ Christina M. Strauch President (Chief Dated: December 15, 2000
--------------------------- Operating Officer),
Christina M. Strauch Director
--------------------------- Vice President Dated:
Bruce M. King Director
/s/ Merlin W. Gunderson Secretary/Treasurer Dated: December 15, 2000
--------------------------- (Chief Financial
Merlin W. Gunderson Officer), Director
13
<PAGE>
FINANCIAL STATEMENTS
RIM.COM INC.
For the Years Ended
September 30, 1999 and 1998 and
for the Nine Month Periods Ended
June 30, 2000 and 1999 (Unaudited)
Page
----
Independent Auditors' Report F-1
Balance Sheets September 30, 1999 and June 30, 2000 (Unaudited) F-2
Statements of Operations for the Years Ended September 30, 1999
and 1998 and for the Nine Month Periods Ended June 30, 2000
and 1999 (Unaudited) F-4
Statements of Stockholders' Equity (Deficit) for the Years Ended
September 30, 1999 and 1998 and for the Nine Month Periods Ended
June 30, 2000 and 1999 (Unaudited) F-5
Statements of Cash Flows for the Years Ended September 30, 1999 and
1998 and for the Nine Month Periods Ended June 30, 2000
and 1999 (Unaudited) F-6
Notes to Financial Statements F-8
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors of
Rim.Com, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Rim.Com, Inc. and
Subsidiary as of September 30, 2000 and 1999, and the related consolidated
statements of operations, changes in stockholders' equity (deficit), and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rim.Com, Inc. and
Subsidiary as of September 30, 2000 and 1999, and the results of its operations,
changes in stockholders' equity (deficit), and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 6 to the
financial statements, the Company has negative working capital and a deficit
stockholders' equity. These conditions raise substantial doubt about its ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Certified Public Accountants /s/Semple & Cooper LLP
Phoenix, Arizona
November 21, 2000
F-1
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
ASSETS
2000 1999
--------- ---------
Current Assets:
Cash (Note 1) $ 103,662 $ 7,641
Accounts receivable - trade, net (Note 1) 71,463 28,196
Inventory (Note 1) 2,250 796
--------- ---------
Total Current Assets 177,375 36,633
--------- ---------
Property and Equipment: (Note 1)
Furniture and fixtures 1,995 1,996
Computer equipment 10,718 10,098
Computer system 77,520 64,904
Copying equipment 807 672
Office equipment 7,134 5,706
--------- ---------
98,174 83,376
Less: accumulated depreciation (41,924) (14,395)
--------- ---------
56,250 68,981
--------- ---------
Other Assets:
Licenses, net (Note 1) 18,000 --
Cash surrender value of life insurance 9,303 7,862
Note receivable - related party (Note 3) 52,220 73,346
--------- ---------
79,523 81,208
--------- ---------
Total Assets $ 313,148 $ 186,822
========= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-2
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
2000 1999
--------- ---------
Current Liabilities:
Notes payable (Note 2) $ 80,825 $ 80,727
Note payable - related party (Note 3) -- 12,326
Accounts payable
- trade 167,300 73,117
- other (Note 4) 45,000 40,365
Deferred Revenues (Note 1) 22,823 --
Accrued expenses 28,601 15,077
--------- ---------
Total Current Liabilities 344,549 221,612
--------- ---------
Commitments: (Note 5) -- --
Stockholders' Equity (Deficit):
Preferred Stock, 10,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, .001 par value,
20,000,000 shares authorized; 4,734,171 and
3,400,000 outstanding at September 30, 2000
and 1999, respectively 4,734 2,000
Additional paid in capital 279,179 --
Accumulated deficit (315,314) (36,790)
--------- ---------
Total Stockholders' Equity (Deficit) (31,401) (34,790)
--------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ 313,148 $ 186,822
========= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-3
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
----------- -----------
Revenues:
Service $ 390,799 $ 501,797
Products 276,596 349,410
----------- -----------
667,395 851,207
Cost of Revenues:
Service 310,997 297,845
Products 164,992 321,755
----------- -----------
475,989 619,600
----------- -----------
Gross Profit 191,406 231,607
----------- -----------
General and Administrative Expenses 438,482 292,805
----------- -----------
Loss from Operations (247,076) (61,198)
----------- -----------
Other Income (Expense):
Interest income 4,119 34
Interest expense (35,567) (10,976)
----------- -----------
(31,448) (10,942)
----------- -----------
Net Loss $ (278,524) $ (72,140)
=========== ===========
Basic Loss per Share $ (.07) $ (.02)
=========== ===========
Weighted Average Shares Outstanding 3,814,460 3,400,000
=========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-4
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
Stock-
Common Stock Additional Retained holders'
--------------------- Paid-in Earnings Equity
Shares Amount Capital (Deficit) (Deficit)
------ ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998 3,400,000 $3,400 $ (1,400) $ 35,350 $ 37,350
Net loss for the year ended
September 30, 1999 -- -- -- (72,140) (72,140)
--------- ------ --------- --------- ---------
Balance at September 30, 1999 3,400,000 3,400 (1,400) (36,790) (34,790)
Stock offerings 1,334,171 1,334 234,153 -- 235,487
Conversion of debt to equity -- -- 12,326 -- 12,326
Additonal capital contribution-
stockholder -- -- 27,500 -- 27,500
Stock options for services -- -- 1,600 -- 1,600
Additional capital contribution-
officers -- -- 5,000 -- 5,000
Net Loss for the year ended
September 30, 2000 -- -- -- (278,524) (278,524)
--------- ------ --------- --------- ---------
Balance at September 30, 2000 4,734,171 $4,734 $ 279,179 $(315,314) $ (31,401)
========= ====== ========= ========= =========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
F-5
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
--------- ---------
Increase (Decrease) in Cash:
Cash flows from operating activities:
Cash received from customers $ 624,128 $ 918,138
Cash paid to suppliers and employees (746,072) (883,214)
Interest paid (35,567) (10,720)
Interest received 4,119 34
--------- ---------
Net cash provided (used) by operating
activities (153,392) 24,238
--------- ---------
Cash flows from investing activities:
Collection of note receivable related party 21,126 16,238
Purchase of licenses (20,000) --
Purchase of fixed assets (14,798) (70,797)
--------- ---------
Net cash used by investing activities (13,672) (54,559)
--------- ---------
Cash flows from financing activities:
Proceeds from debt 98 37,396
Proceeds from stock 262,987 --
Repayment of debt -- (14,932)
--------- ---------
Net cash provided by financing activities 263,085 22,464
--------- ---------
Net increase (decrease) in cash 96,021 (7,857)
Cash at beginning of period 7,641 15,498
--------- ---------
Cash at end of period $ 103,662 $ 7,641
========= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-6
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
--------- ---------
Reconciliation of Net Loss to Net Cash
Provided (Used) by Operating Activities:
Net Income (Loss) $(278,524) $ (72,140)
--------- ---------
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation/Amortization 29,529 8,008
Stock and options issued for services 6,600 --
Changes in Assets and Liabilities:
Accounts receivable
- trade (43,267) 66,931
Inventory (1,454) 1,121
Cash surrender value of life insurance (1,441) (1,085)
Accounts payable
- trade 94,183 1,807
- other 4,635 18,687
Accrued expenses 13,524 909
Deferred revenue 22,823 --
--------- ---------
125,132 96,378
--------- ---------
Net cash provided (used) by operating activities $(153,392) $ 24,238
========= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-7
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND
USE OF ESTIMATES:
BASIS OF PRESENTATION:
On April 6, 2000, Rim.Com Inc. acquired all of the outstanding common stock
of Rimmer Computer, Inc. in a transaction accounted for as a
recapitilization. Under the terms of the merger agreement the stockholder's
of Rimmer Computer, Inc. received 94.4% of the outstanding common stock of
Rim.Com Inc. in exchange for 100% of the stock of Rimmer Computer, Inc..
Rimmer Computer, Inc. was incorporated in Arizona on June 19, 1991. The
accompanying financial statements represent the operating activity of Rimmer
Computer, Inc. for all periods presented.
Rim.Com Inc. was incorporated in Nevada on February 14, 2000 and had no
operating activity prior to the time of the merger on April 6, 2000. As
such, the merger has been accounted for as a recapitilization. The effect of
the recapitilization has been presented retroactively.
NATURE OF OPERATIONS:
Rim.Com, Inc. (the "Company") provides installation and consulting services
pertaining to computer hardware, software and systems. It provides the
majority of its services to small businesses throughout the Southwestern
United States.
PERVASIVENESS 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.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the financial position,
results of operations, and cash flows of Rim.Com Inc. and its wholly-owned
subsidiary, Rimmer Computer, Inc.. All material intercompany transactions,
accounts and balances have been eliminated in consolidation.
F-8
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND
USE OF ESTIMATES: (CONTINUED)
ACCOUNTS RECEIVABLE:
The Company provides for potentially uncollectible accounts receivable by
use of the allowance method. The allowance is provided based upon a review
of the individual accounts outstanding, and the Company's prior history of
uncollectible accounts receivable. As of September 30, 2000 and 1999, no
allowance has been provided for potentially uncollectible accounts
receivable and, in the opinion of management, all accounts are considered
fully collectible.
INVENTORY:
Inventory consists of various computer cables and other computer hardware to
be used on an as needed basis. Inventories are stated at the lower of cost
or market. Cost is determined using the average cost method. Market is based
upon anticipated current sales prices. Provisions are made periodically for
obsolete and slow moving inventory.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is provided for on
the straight-line method over the estimated useful lives of the assets. The
average lives range from three (3) to seven (7) years. Maintenance and
repairs that neither materially add to the value of the property nor
appreciably prolong its life are charged to expense as incurred. Betterments
or renewals are capitalized when incurred. For the years ended September 30,
2000 and 1999, depreciation expense was $27,529 and $8,008, respectively.
LICENSES:
Licenses are comprised of the rights to market intellectual properties
comprised primarily of software packages. The licenses are amortized over
their expected economic useful lives of 5 years. Accumulated amortization
and amortization expense for the period ended September 30, 2000 was $2,000.
F-9
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS
AND USE OF ESTIMATES: (CONTINUED)
REVENUE RECOGNITION:
The Company derives its revenues from the sale of computer systems as well
as sales of application software, parts and components. The Company also
derives revenues by providing maintenance, consulting and educational
services to its customers. The Company recognizes revenues from sales of its
systems, application software, parts and components at the time of shipment.
Revenues from consulting and maintenance services are recognized as the
service is provided.
Retainer fees are recorded as deferred revenues when received. They are
recognized as income when they are earned, which is calculated on an hours
charged basis.
IMPAIRMENT OF LONG-LIVED ASSETS:
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeded the fair
value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying values of cash, accounts receivable, accounts payable and
current notes payable approximate their fair values because of the short
maturity of these instruments.
INCOME TAXES:
Rimmer Computer, Inc. previously operated as a Sub-Chapter S tax option
corporation. As such, all taxable income and related tax credits were passed
through to the stockholders who were responsible for any resulting income
tax. In January, 2000, the Sub-Chapter S tax option was terminated, and the
Company became a C-Corporation.
F-10
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS
AND USE OF ESTIMATES: (CONTINUED)
Deferred income taxes are provided on an asset and liability method, whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable. The Company
performs ongoing credit evaluations of its customers' financial condition,
but does not require collateral to support customer receivables.
EMPLOYEE STOCK OPTIONS:
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options and to adopt
the "disclosure only" alternative treatment under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123). SFAS No. 123 requires the use of fair value option valuation
models that were developed for use in valuing employee stock options.
NET LOSS PER SHARE:
Basic net loss per common share is computed based on weighted average shares
outstanding and excludes any potential dilution from stock options, warrants
or other common stock equivalents. Basic net loss per share is computed by
dividing loss available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted net loss per
common share reflects potential dilution from the exercise or conversion of
securities into common stock or from other contracts to issue common stock.
F-11
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS
AND USE OF ESTIMATES: (CONTINUED)
Assumed exercise of the outstanding options at September 30, 2000 of
1,750,000 have been excluded from the calculation of diluted net loss per
common share as their effect is antidilutive. In addition, as the Company
has a net loss available to common shareholders for all periods presented,
the calculation of diluted net loss per share has been excluded from the
financial statements.
2. NOTES PAYABLE:
Notes payable at September 30, 2000, and 1999, consisted of three (3) notes
and four (4) notes, respectively, with outstanding combined balances of
$80,825 and $80,727. The balances consist primarily of a line of credit,
with interest at prime plus 2.35% per annum (11.85% on September 30, 2000),
due June, 2000. The total credit limit of $72,500 was fully utilized. As of
September 30, 2000 the line of credit was considered delinquent as it
expired in June of 2000. However, as of the date of the auditors report the
bank had not declared the note in default. The remaining notes are made up
of various short-term, callable notes with average interest rates of
approximately 6.2% per annum.
3. RELATED PARTY TRANSACTIONS:
NOTE RECEIVABLE - RELATED PARTY:
As of September 30, 2000, and 1999, the note receivable from a related party
consisted of one (1) note. Prior to September 30, 1999 the note was
considered non-interest bearing. Subsequent to September 30, 1999 the note
commenced accruing interest at a rate of 8% per annum. The note is due
September 30, 2002 and is secured by common stock of the Company.
NOTE PAYABLE - RELATED PARTY:
As of September 30, 1999, the note payable to a related party consisted of a
non-interest bearing short-term note to an officer and director of Rimmer
Computer, Inc., with an outstanding balance of $12,326. The note payable was
converted to equity subsequent to September 30, 1999.
STOCKHOLDERS EQUITY:
During the year ended September 30, 2000, Commerce General, Inc., a
stockholder of Rim.Com Inc., made an additional capital contribution in the
amount of $27,500.
F-12
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACCOUNTS PAYABLE - OTHER:
Accounts payable - other consists of various credit card balances at
September 30, 2000 and 1999. The average interest rates at September 30,
2000 and 1999 were approximately 18.7% and 11.8%, respectively, due on
demand.
5. COMMITMENTS:
The Company has entered into a non-cancelable operating lease agreement for
office space through October 31, 2002. In addition, the Company entered into
an additional one year operating lease agreement beginning October 1, 2000.
The approximate future minimum lease payments under the operating lease
agreement, are as follows:
Year Ending
September 30, Amount
------------- ------
2001 $25,108
2002 16,044
2003 1,377
-------
$42,489
=======
6. GOING CONCERN:
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
has a stockholders' deficit at September 30, 2000, in the amount of $31,401,
and negative working capital in the amount of $167,174. The Company has also
generated losses from operations in the prior years. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
7. STOCK OPTION PLAN:
Effective April 6, 2000 the Company's Board of Directors and stockholders
formally approved the Company's 2000 Stock Option Plan, which permits the
granting of options to purchase shares of the Company's stock to eligible
employees and directors. The Plan reserves 3,000,000 shares of the Company's
common stock for grant. The plan provides that the options may be either
incentive or non-incentive stock options. The exercise price for the
F-13
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTION PLAN: (CONTINUED)
incentive stock options shall not be less than 100% of the fair market value
of the stock at the date of grant and 50% of the fair market value with
respect to the non-incentive stock options. Options granted under the Plan
must be exercised in whole or in part within an average of 10 years of the
date of grant. As of September 30, 2000, 1,550,000 stock options under the
Plan were available for grant, with 1,950,000 options granted, 500,000
forfeited, and 1,450,000 exercisable at $.30 per share.
The per share weighted average fair value of the stock options granted
during 2000 was $.16 on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
expected dividend yield 0%, expected volatility of 0%, and an expected life
of 10 years. The risk free interest rate was 8% for 2000.
The Company applies APB Opinion No. 25 in accounting for its Plan.
Accordingly, no compensation cost has been recognized in the financial
statements for its stock options to employees. Had the Company determined
compensation cost based on the fair value of the grant date for its stock
options under SFAS No. 123, the Company's net loss and net loss per common
share for the year ended September 30, 2000 would have been adjusted to the
proforma amounts indicated below.
Year Ended
September 30, 2000
------------------
Net income (loss):
As reported $(278,524)
Proforma $(590,524)
Loss per common share:
As reported $ (.07)
Proforma $ (.15)
F-14
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTION PLAN: (CONTINUED)
A summary of the aformentioned stock plan for the year ended September 30,
2000 is as follows:
Weighted Average
Number Exercise
of Share Price
-------- -----
Balance at October 1, 1999 -- $ --
Granted 1,950,000 .30
Forfeited 500,000 --
Exercised -- --
--------- -------
Balance at September 30, 2000 1,450,000 $ .30
========= =======
Exercisable at September 30, 2000 1,450,000 $ .30
========= =======
All 1,450,000 stock options outstanding are exercisable as of September 30,
2000, with remaining contractual lifes of approximately 9 years and 6
months.
8. INCOME TAXES:
Years Ended
September 30,
-------------------------
2000 1999
--------- ---------
Proforma
Tax benefit of net operating loss $ 116,000 $ 24,000
Less: Valuation allowance (116,000) (24,000)
--------- ---------
Income tax effect $ -- $ --
========= =========
As of September 30, 2000 the Company has approximately $280,000 of net
operating loss carryforward available to offset future federal and state
taxable income through 2019.
F-15
<PAGE>
RIM.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES: (CONTINUED)
As of September 30, 2000 the Company had a deferred tax asset valuation
allowance in the approximate amount of $116,000. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management believes
that the inability to utilize net operating loss carryforwards to offset
future taxable income within the carryforward periods is more likely than
not. Accordingly, a 100 percent valuation allowance has been recorded
against the net deferred tax assets.
Rimmer Computer, Inc. had no current income taxes for the year ended
September 30, 1999 due to the fact that the Company operated as a
Sub-Chapter S tax option corporation until January, 2000.
9. NON-CASH TRANSACTIONS:
During the period ended September 30, 2000, the Company had a non-cash
financing transaction from the conversion of debt to equity in the amount of
$12,326.
During the period ended September 30, 2000, the Company had non-cash
operating transactions in the amount of $6,600 for stock and stock options
issued for services.
F-16
