UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2011
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to ______
Commission File Number: 0-16454
CIMETRIX INCORPORATED
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) | 87-0439107 (I.R.S. Employer Identification No.) |
6979 South High Tech Drive, Salt Lake City, Utah (Address of principal executive office) | 84047-3757 (Zip Code) |
Registrant's telephone number, including area code: (801) 256-6500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨ No o
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-3 of the Exchange Act. (Check one):
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | ý |
| (Do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No ý
The number of shares outstanding of the registrant's common stock as of August 5, 2011:
Common stock, par value $.0001 – 45,043,256 shares
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2011
INDEX
ITEM 1. FINANCIAL STATEMENTS
| CIMETRIX INCORPORATED AND SUBSIDIARIES | |
| Consolidated Condensed Balance Sheets | |
| | | | | | | |
| | | June 30, 2011 | | | December 31, | |
| ASSETS | | (Unaudited) | | | 2010 | |
| Current assets: | | | | | | |
| Cash | | $ | 1,260,000 | | | $ | 1,559,000 | |
| Accounts receivable, net | | | 1,325,000 | | | | 673,000 | |
| Prepaid expenses and other current assets | | | 42,000 | | | | 33,000 | |
| Total current assets | | | 2,627,000 | | | | 2,265,000 | |
| | | | | | | | | |
| Property and equipment, net | | | 122,000 | | | | 100,000 | |
| Goodwill | | | 64,000 | | | | 64,000 | |
| Other assets | | | 20,000 | | | | 20,000 | |
| | | | | | | | | |
| | | $ | 2,833,000 | | | $ | 2,449,000 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 403,000 | | | $ | 332,000 | |
| Accrued expenses | | | 386,000 | | | | 570,000 | |
| Deferred revenue | | | 236,000 | | | | 237,000 | |
| Current portion of notes payable and capital lease obligations | | | - | | | | 5,000 | |
| Total current liabilities | | | 1,025,000 | | | | 1,144,000 | |
| | | | | | | | | |
| Long-term liabilities: | | | | | | | | |
| Notes payable - related parties, net | | | 321,000 | | | | 396,000 | |
| Long-term portion of notes payable | | | 376,000 | | | | 376,000 | |
| Total long-term liabilities | | | 697,000 | | | | 772,000 | |
| | | | | | | | | |
| Total liabilities | | | 1,722,000 | | | | 1,916,000 | |
| | | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
| Common stock; $.0001 par value, 100,000,000 shares | | | | | | | | |
| authorized, 45,068,256 and 44,842,767 shares issued, | | | | | | | | |
| respectively | | | 4,000 | | | | 4,000 | |
| Additional paid-in capital | | | 33,552,000 | | | | 33,488,000 | |
| Treasury stock, 25,000 shares at cost | | | (49,000 | ) | | | (49,000 | ) |
| Accumulated deficit | | | (32,396,000 | ) | | | (32,910,000 | ) |
| Total stockholders’ equity | | | 1,111,000 | | | | 533,000 | |
| | | | | | | | | |
| | | $ | 2,833,000 | | | $ | 2,449,000 | |
| | | | | | | | | |
| See accompanying notes to consolidated financial statements |
|
| Consolidated Condensed Statements of Operations |
| (Unaudited) |
| | | | | | | | | | | | | |
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| Revenues: | | | | | | | | | | | | |
| New software licenses | | $ | 1,483,000 | | | $ | 1,107,000 | | | $ | 2,931,000 | | | $ | 1,858,000 | |
| Software license updates and product support | | | 215,000 | | | | 207,000 | | | | 437,000 | | | | 379,000 | |
| Total software revenues | | | 1,698,000 | | | | 1,314,000 | | | | 3,368,000 | | | | 2,237,000 | |
| Professional services | | | 571,000 | | | | 170,000 | | | | 954,000 | | | | 346,000 | |
| | | | | | | | | | | | | | | | | |
| Total revenues | | | 2,269,000 | | | | 1,484,000 | | | | 4,322,000 | | | | 2,583,000 | |
| | | | | | | | | | | | | | | | | |
| Operating costs and expenses: | | | | | | | | | | | | | | | | |
| Cost of revenues | | | 957,000 | | | | 312,000 | | | | 1,781,000 | | | | 603,000 | |
| Sales and marketing | | | 279,000 | | | | 206,000 | | | | 552,000 | | | | 408,000 | |
| Research and development | | | 443,000 | | | | 136,000 | | | | 720,000 | | | | 243,000 | |
| General and administrative | | | 337,000 | | | | 317,000 | | | | 702,000 | | | | 626,000 | |
| Depreciation and amortization | | | 12,000 | | | | 6,000 | | | | 23,000 | | | | 13,000 | |
| | | | | | | | | | | | | | | | | |
| Total operating costs and expenses | | | 2,028,000 | | | | 977,000 | | | | 3,778,000 | | | | 1,893,000 | |
| | | | | | | | | | | | | | | | | |
| Income from operations | | | 241,000 | | | | 507,000 | | | | 544,000 | | | | 690,000 | |
| | | | | | | | | | | | | | | | | |
| Other income (expenses): | | | | | | | | | | | | | | | | |
| Interest income | | | 1,000 | | | | - | | | | 2,000 | | | | - | |
| Interest expense | | | (17,000 | ) | | | (26,000 | ) | | | (31,000 | ) | | | (54,000 | ) |
| | | | | | | | | | | | | | | | | |
| Total other expenses, net | | | (16,000 | ) | | | (26,000 | ) | | | (29,000 | ) | | | (54,000 | ) |
| | | | | | | | | | | | | | | | | |
| Income before income taxes | | | 225,000 | | | | 481,000 | | | | 515,000 | | | | 636,000 | |
| | | | | | | | | | | | | | | | | |
| Provision for income taxes | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
| Net income | | $ | 225,000 | | | $ | 481,000 | | | $ | 515,000 | | | $ | 636,000 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net Income per common share: | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.00 | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.01 | |
| Diluted | | $ | 0.00 | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.01 | |
| | | | | | | | | | | | | | | | | |
| Weighted average number of shares | | | | | | | | | | | | | | | | |
| outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 45,196,000 | | | | 47,277,000 | | | | 45,107,000 | | | | 47,163,000 | |
| Diluted | | | 46,813,000 | | | | 48,251,000 | | | | 46,742,000 | | | | 48,060,000 | |
| | | | | | | | | | | | | | | | | |
| See accompanying notes to consolidated financial statements |
| |
| Consolidated Statements of Cash Flows | |
| (Unaudited) | |
| | | | | | | |
| | | Six Months Ended | |
| | | June 30, | |
| | | 2011 | | | 2010 | |
| Cash flows from operating activities: | | | | | | |
| Net income | | $ | 515,000 | | | $ | 636,000 | |
| Adjustments to reconcile net income to net | | | | | | | | |
| cash (used in) provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 23,000 | | | | 13,000 | |
| Write off of fully paid note payable and capital lease | | | (4,000 | ) | | | - | |
| Stock-based compensation | | | 27,000 | | | | 41,000 | |
| Amortization of bond discount | | | - | | | | 1,000 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (652,000 | ) | | | (287,000 | ) |
| Inventories | | | - | | | | (1,000 | ) |
| Prepaid expenses and other current assets | | | (6,000 | ) | | | (27,000 | ) |
| Accounts payable | | | 64,000 | | | | 20,000 | |
| Accrued expenses | | | (160,000 | ) | | | 65,000 | |
| Deferred revenue | | | (1,000 | ) | | | 81,000 | |
| | | | | | | | | |
| Net cash (used in) provided by operating activities | | | (194,000 | ) | | | 542,000 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property and equipment | | | (41,000 | ) | | | (18,000 | ) |
| | | | | | | | | |
| Net cash (used in) investing activities | | | (41,000 | ) | | | (18,000 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds from exercise of options and warrants | | | 11,000 | | | | 3,000 | |
| Payments of debt to related parties | | | (75,000 | ) | | | - | |
| Proceeds from the issuance of debt | | | - | | | | 147,000 | |
| Payments of debt | | | - | | | | (404,000 | ) |
| | | | | | | | | |
| Net cash (used in) financing activities | | | (64,000 | ) | | | (254,000 | ) |
| | | | | | | | | |
| Net (decrease) increase in cash and cash equivalents | | | (299,000 | ) | | | 270,000 | |
| Cash and cash equivalents, beginning of period | | | 1,559,000 | | | | 139,000 | |
| | | | | | | | | |
| Cash and cash equivalents, end of period | | $ | 1,260,000 | | | $ | 409,000 | |
| | | | | | | | | |
| | | | | | | | | |
| Supplemental schedule of cash amounts for interest and income taxes | | | | | | | | |
| | | Six Months Ended | |
| | | June 30, |
| | | | 2011 | | | | 2010 | |
| Cash paid for interest | | $ | 39,000 | | | $ | 53,000 | |
| Cash paid for income taxes | | $ | - | | | $ | - | |
| See accompanying notes to consolidated financial statements |
Notes to Consolidated Condensed Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization – Cimetrix Incorporated, a Nevada corporation, and its subsidiaries (“Cimetrix” or the “Company”) are primarily engaged in the development and sale of computer software for controlling electronic equipment, and communication products that allow communication between equipment on the factory floor and host systems.
Basis of Presentation – The consolidated condensed financial statements include the accounts of the Company and its wholly owned subsidiaries, Cimetrix Japan K.K., Cimetrix Europe, Inc. and Cimetrix Data Management Solutions, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation. The interim financial information of the Company as of June 30, 2011 and for the three and six month periods ended June 30, 2011 and 2010 is unaudited, and the balance sheet as of December 31, 2010 is derived from audited financial statements. The accompanying consolidated condensed financial statements have been prepared in accordance with U. S. generally accepted accounting principles for interim financial statements. Accordingly, they omit or condense footnotes and certain other information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles. The accounting policies followed for quarterly financial reporting conform with the accounting policies disclosed in Note 1 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. In the opinion of management, all adjustments that are necessary for a fair presentation of the financial information for the interim periods reported have been made. All such adjustments are of a normal recurring nature. The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the results that can be expected for the entire year ending December 31, 2011. The unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.
NOTE 2 – STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) Topic 718. Stock-based compensation cost is measured at the grant date based on the estimated fair value of the award granted and recognized as expense over the period in which the award is expected to vest.
The stock-based compensation expense for the three-month and six-month periods ended June 30, 2011 and June 30, 2010 has been allocated to the various categories of operating costs and expenses in a manner similar to the allocation of payroll expense as follows:
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| Cost of revenues | | $ | 1,000 | | | $ | 2,000 | | | $ | 2,000 | | | $ | 4,000 | |
| Sales and marketing | | | 3,000 | | | | 4,000 | | | | 6,000 | | | | 12,000 | |
| Research and development | | | 3,000 | | | | 2,000 | | | | 4,000 | | | | 4,000 | |
| General and administrative | | | 9,000 | | | | 7,000 | | | | 15,000 | | | | 21,000 | |
| Total stock-based compensation expense | | $ | 16,000 | | | $ | 15,000 | | | $ | 27,000 | | | $ | 41,000 | |
| | | | | | | | | | | | | | | | | |
During the six months ended June 30, 2011, options to purchase 190,000 shares of the Company’s common stock were granted to the Company’s employees, with an exercise price ranging from of $0.36 to $0.40 per share.
During the six months ended June 30, 2011 and 2010, 75,000 and 700,000 shares, respectively, of restricted stock awards were granted. The total stock-based compensation costs from vesting restricted stock shares in the six month periods of June 30, 2011 and 2010 was $13,000 and $26,000, respectively.
As of June 30, 2011, the total future compensation cost related to non-vested stock-based awards not yet recognized in the condensed consolidated statements of operations was $102,000, and the weighted average period over which these awards are expected to be recognized was 1.12 years.
In May 2011, the shareholders approved an amendment to the Company’s 2006 Long-Term Incentive Plan to authorize an additional 3,000,000 shares of common stock to be made available for awards.
NOTE 3 – EARNINGS PER SHARE
The computation of basic earnings per common share is based on the weighted average number of shares outstanding, including unissued and vested restricted stock shares deemed as participating securities, during the period. Diluted earnings per common share is computed by dividing the net income or loss by the sum of the weighted-average number of common shares outstanding plus the weighted average common stock equivalents, which would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding options and unvested restricted stock. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury method.
The following table sets forth the computation of basic and diluted earnings per common share for the three and six month periods ended June 30, 2011 and 2010:
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| Numerator: | | | | | | | | | | | | |
| Net income | | $ | 225,000 | | | $ | 481,000 | | | $ | 515,000 | | | $ | 636,000 | |
| Denominator: | | | | | | | | | | | | | | | | |
| Basic weighted average shares outstanding | | | 45,196,000 | | | | 47,277,000 | | | | 45,107,000 | | | | 47,163,000 | |
| Effect of dilutive securities: | | | | | | | | | | | | | | | | |
| Stock options | | | 1,229,000 | | | | 497,000 | | | | 1,254,000 | | | | 359,000 | |
| Unvested restricted stock | | | 244,000 | | | | 215,000 | | | | 237,000 | | | | 317,000 | |
| Warrants | | | 144,000 | | | | 262,000 | | | | 144,000 | | | | 221,000 | |
| Diluted weighted average shares outstanding | | | 46,813,000 | | | | 48,251,000 | | | | 46,742,000 | | | | 48,060,000 | |
| | | | | | | | | | | | | | | | | |
| Net income per share | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.00 | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.01 | |
| Diluted | | $ | 0.00 | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.01 | |
| | | | | | | | | | | | | | | | | |
Potentially dilutive securities representing approximately 530,000 and 1,900,000 shares of common stock at June 30, 2011 and 2010, respectively, were not included in the computation of net income per diluted share because the options’ exercise prices were greater than the average market price of the underlying shares.
NOTE 4 – NOTES PAYABLE
Related Party and Senior Notes – At June 30, 2011, the Company had a total of $697,000 in outstanding Senior Notes, of which $321,000 were held by related parties. The Senior Notes are unsecured, with interest at 10%, payable semiannually on April 1 and October 1 and mature September 30, 2012.
As of June 30, 2011, the Senior Note holders held warrants to purchase a total of 166,000 common shares of the Company at an exercise price of $0.05 per share. The warrants expire on September 30, 2012.
In February, 2011, the Company paid $75,000 to a related party for repayment of a Senior Note.
NOTE 5 – COMMON STOCK
During the six months ended June 30, 2011, the Company issued 225,000 shares of its common stock on the exercise of warrants associated with Senior Notes for proceeds of $11,000.
The Company had 191,000 and 182,000 vested restricted stock awards for which shares of common stock have not been issued as of June 30, 2011 and December 31, 2010, respectively.
NOTE 6 – RELATED PARTY TRANSACTIONS
During the three and six months ended June 30, 2011 and 2010, the Company had the following revenues from two customers that were also shareholders of the Company:
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| New software licenses | | $ | 169,000 | | | $ | 74,000 | | | $ | 225,000 | | | $ | 118,000 | |
| Software license updates and product support | | | 29,000 | | | | 16,000 | | | | 53,000 | | | | 23,000 | |
| Total software revenues | | | 198,000 | | | | 90,000 | | | | 278,000 | | | | 141,000 | |
| Professional services | | | - | | | | - | | | | - | | | | 3,000 | |
| Total software revenues | | $ | 198,000 | | | $ | 90,000 | | | $ | 278,000 | | | $ | 144,000 | |
The Company had accounts receivable from two related customers totaling $61,000 and $96,000 at June 30, 2011 and 2010, respectively.
NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash, receivables, payables, and notes payable. The carrying amount of cash, receivables and payables approximates fair value because of the short-term nature of these items. The carrying amount of the notes payable approximates fair value as the individual borrowings bear interest at rates that approximate market interest rates for similar debt instruments.
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2011, the Company adopted the Financial Accounting Standards Board (“FASB”) revised accounting guidance related to revenue arrangements with multiple deliverables. The guidance applies to all deliverables under contractual arrangements in which a vendor will perform multiple revenue-generating activities. The guidance addresses how arrangement consideration should be allocated to the separate units of accounting, when applicable. The new guidance retains the criteria when delivered items in a multiple-deliverable arrangement should be considered separate units of accounting, but it removes the previous separation criterion that objective and reliable evidence of fair value of any undelivered items must exist for the delivered items to be considered a separate unit or separate units of accounting. The adoption of this new guidance did not result in any new units of accounting. In accordance with the guidance, consideration for multi revenue-generating activities are allocated to the units of accounting using the relative selling price method proportionally to each deliverable based on the vendor specific objective evidence of fair value of each specific deliverable. Adoption of this guidance did not have a significant impact on the timing or amount of revenue recognized by the Company for multiple-deliverable arrangements.
In June 2011, the FASB issued new guidance, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The guidance eliminates the option to present components of other comprehensive income as part of the statement of equity. The guidance will be effective beginning after December 15, 2011. The Company does not expect the adoption of this guidance to have a material effect on its operating results or financial position.
NOTE 9 – SUBSEQUENT EVENTS
Management has evaluated events through the date the financial statements were filed with the Securities and Exchanges Commission and concluded there were no events to report except the following: The Company notified the holders of the Cimetrix 10% Senior Notes due September 30, 2012 that it intends to pay these notes in full during the third quarter 2011. The Company paid in full all outstanding interest on the Senior Notes on August 1, 2011 and is working with individual note holders to collect the notes and make final principal payments. These repayments of the Company’s Senior Notes, including those held by related parties, total $697,000 and will reduce the Company’s long-term debt to $0. The Company is using the cash generated from operations over the past two years to pay off this debt, which will reduce the remaining interest expense due on these notes through September 30, 2012 by $80,000.
Overview
The following is a brief discussion and explanation of significant financial data, which is presented to help the reader understand the results of the Company’s financial performance for the three-month and six-month periods ended June 30, 2011 and June 30, 2010 and the Company’s financial position at June 30, 2011. The information includes discussions of sales, expenses, capital resources and other significant financial items.
This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The ensuing discussion and analysis contains both statements of historical fact and forward-looking statements. Forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, generally are identified by the words “expects,” “believes,” “anticipates” or words of similar import. Examples of forward-looking statements include: (a) projections regarding sales, revenue, liquidity, capital expenditures and other financial items; (b) statements of the plans, beliefs and objectives of the Company or its management; (c) statements of future economic performance; and (d) assumptions underlying statements regarding the Company or its business. Forward-looking statements are subject to factors and uncertainties that could cause actual results to differ materially from the forward-looking statements, including, but not limited to, those factors and uncertainties described below under “Liquidity and Capital Resources,” “Factors Affecting Future Results” and “Risk Factors,” and those factors set forth under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
Cimetrix is a software company that designs, develops, markets and supports factory automation and tool control products for today’s smart, connected factories. The Company’s primary customers are original equipment manufacturers (OEM’s) that supply precision electronics equipment for semiconductor wafer fabrication, solar/photovoltaic (PV) and other electronics manufacturing.
Revenues are derived from the sales of software and services. Software includes the initial sale of software development kits (SDK’s), the ongoing runtime licenses for each machine shipped with Cimetrix software and annual contracts for software license updates and product support. Services include the sale of professional services that provide customers with software solutions typically incorporating Cimetrix software products. While Cimetrix products are installed in a wide range of industries, the Company has focused over the past several years on the global semiconductor and electronics industries, which includes the growing solar photovoltaic (PV) and light emitting diode (“LED”) markets.
Critical Accounting Policies
The Company prepares its condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles. The Company's condensed consolidated financial statements are based on the application of certain accounting policies, the most significant of which are described in Note 1—Summary of Significant Accounting Policies included in the Company’s 2010 Annual Report filed on Form 10-K. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or be subject to variations and may significantly affect the Company's reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on the Company's future financial condition and results of operations.
Operations Review
The following table sets forth the percentage of costs and expenses to total revenues derived from the Company's Consolidated Condensed Statements of Operations.
Revenues
The following table summarizes revenues by category and as a percent of total revenues:
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| New software licenses | | $ | 1,483,000 | 65% | | | $ | 1,107,000 | 75% | | | $ | 2,931,000 | 68% | | | $ | 1,858,000 | 72% | |
| Software license updates and product support | | | 215,000 | 10% | | | | 207,000 | 14% | | | | 437,000 | 10% | | | | 379,000 | 15% | |
| | | | | | | | | | | | | | | | | | | | | |
| Total software revenues | | | 1,698,000 | 75% | | | | 1,314,000 | 89% | | | | 3,368,000 | 78% | | | | 2,237,000 | 87% | |
| | | | | | | | | | | | | | | | | | | | | |
| Professional services | | | 571,000 | 25% | | | | 170,000 | 11% | | | | 954,000 | 22% | | | | 346,000 | 13% | |
| | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | $ | 2,269,000 | 100% | | | $ | 1,484,000 | 100% | | | $ | 4,322,000 | 100% | | | $ | 2,583,000 | 100% | |
Total revenues increased by $785,000, or 53%, to $2,269,000 for the three months ended June 30, 2011, from $1,484,000 for the three months ended June 30, 2010. For the six months ended June 30, 2011, total revenues increased $1,739,000 or 67% to $4,322,000 from $2,583,000 for the six months ended June 30, 2010. The increase in revenues was primarily attributable to the increase in new software licenses, which increased from $1,858,000 in the first half of 2010 to $2,931,000 in the first half of 2011. New software license revenues include the initial sale of software development kits and the ongoing runtime licenses that equipment suppliers purchase for each machine shipped with Cimetrix software. The primary markets served by Cimetrix customers are the semiconductor, PV, LED, and other electronics markets, all of which are experiencing growth in 2011.
Revenue associated with software license updates and product support increased 4% for the three months ended June 30, 2011 as compared to the prior year period. For the six months ended June 30, 2011, revenues associated with software license updates and product support increased 15% over the six months ended June 30, 2010. The increase in revenues from software license updates and product support was a result of new customers added since June 30, 2010.
Total software revenues increased to $1,698,000 for the three months ended June 30, 2011, as compared to $1,314,000 for the three months ended June 30, 2010. For the six months ended June 30, 2010, software revenues increased to $3,368,000 as compared to $2,237,000 for the six months ended June 30, 2010. Again, this increase in revenues is primarily attributable to the increase in new software license revenues as discussed above.
Professional services revenues increased 176% year-over-year for the six months ended June 30, 2011. In the third quarter of 2010, the Company modified its business model with regards to professional services. The Company formed relationships with services partners capable of providing qualified Microsoft developers and/or industry knowledgeable engineers to augment Cimetrix project teams. Cimetrix will continue to maintain a cadre of staff to perform some professional services engagements directly. When increased business opportunities for professional services projects present themselves, as they did in the first half of 2011, Cimetrix can quickly arrange project teams using one or more of its services partners. This approach increases Cimetrix’s costs of services for these projects, but these costs are variable costs that are only incurred if and when Cimetrix secures these additional projects.
Results of Operations
The following table sets forth the percentage of costs and expenses to total revenues derived from the Company's Consolidated Condensed Statements of Operations:
| | | Three Months Ended | | Six Months Ended |
| | | June 30, | | June 30, |
| | | 2011 | | 2010 | | 2011 | | 2010 |
| Net sales | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| Operating costs and expense: | | | | | | | | | | | | | | | | |
| Cost of revenues | | | 42 | | | | 21 | | | | 41 | | | | 23 | |
| Sales and marketing | | | 12 | | | | 14 | | | | 13 | | | | 16 | |
| Research and development | | | 20 | | | | 9 | | | | 17 | | | | 9 | |
| General and administrative | | | 15 | | | | 21 | | | | 16 | | | | 24 | |
| Depreciation and amortization | | | 1 | | | | 0 | | | | 1 | | | | 1 | |
| | | | | | | | | | | | | | | | | |
| Total operating costs and expenses | | | 90 | | | | 65 | | | | 88 | | | | 73 | |
| | | | | | | | | | | | | | | | | |
| Income from operations | | | 10 | | | | 35 | | | | 12 | | | | 27 | |
| Other expense, net | | | 0 | | | | (2 | ) | | | 0 | | | | (2 | ) |
| Net income | | | 10 | % | | | 33 | % | | | 12 | % | | | 25 | % |
The Company’s operating results for the three-month and six-month periods ended June 30, 2011 reflect the effects of the recovery in the economy as well as changes made to our business model to be more efficient and concentrate on our core strengths of developing leading software products.
The Company reported net income of $225,000 for the three months ended June 30, 2011, compared to $481,000 for the three months ended June 30, 2010. The net results for all periods include non-cash stock-based compensation expense and non-cash depreciation and amortization expense. For the three-month periods ended June 30, 2011 and June 30, 2010, stock-based compensation expense was $16,000 and $15,000, respectively, and depreciation and amortization expense was $12,000 and $6,000, respectively. The Company reported net income of $515,000 for the six months ended June 30, 2011 as compared to the net income of $636,000 for the six months ended June 30, 2010. For the six-month periods ended June 30, 2011 and June 20, 2010, the Company did not have any bad debt expense. For the six-month periods ended June 30, 2011 and June 30, 2010, stock-based compensation expense was $27,000 and $41,000 respectively and depreciation and amortization expense was $23,000 and $13,000, respectively.
The Company used net cash in operating activities totaling $194,000 for the six months ended June 30, 2011, compared to net cash generated from operating activities of $542,000 for the six months ended June 30, 2010. The net difference between 2011 and 2010 is attributable mostly to the increase in accounts receivable from $719,000 on June 30, 2010 to $1,325,000 at June 30, 2011.
Cost of Revenues
The Company's cost of revenues as a percentage of total revenues for the three months ended June 30, 2011 was 42%, compared to 21% for the three months ended June 30, 2010. Cost of revenues as a percentage of total revenues for the six months ended June 30, 2011 and 2010 was 41% and 23%, respectively. This increase was a combination of investment in our current products, payroll costs related to increased staff and the use of service partners to augment our engineering team to deliver Professional Services. Cost of revenues as a percentage of total revenues will vary from period to period depending on the mix of software and professional service revenues, the type of service projects completed, the pricing strategy for the projects, the extent of utilization of outside resources, and other factors.
Sales and Marketing
Sales and marketing expenses increased $73,000, or 35%, to $279,000 during the three months ended June 30, 2011, from $206,000 during the three months ended June 30, 2010. During the six months ended June 30, 2011, sales and marketing expenses increased $144,000 or 35% to $552,000 from $408,000 for the six months ended June 30, 2010. The increase was primarily a result of increased sales and marketing activities for the Company’s products and commissions on higher revenues. Although sales and marketing expenses increased over 2010, the percentage of revenue for sales and marketing expenses decreased from 16% of total revenues for the six months ended June 30, 2010 to 13% of total revenues for the six months ended June 30, 2011 due to increased revenues. Sales and marketing expenses reflect the direct payroll and related travel expenses of the Company’s sales and marketing staff, the development of product brochures and marketing materials, costs associated with press releases, branding, search engine optimization, website design improvements and costs related to the Company’s representation at industry trade shows.
Research and Development
Research and development expenses increased $307,000, or 226%, to $443,000 during the three months ended June 30, 2011, from $136,000 during the three months ended June 30, 2010. During the six months ended June 30, 2011, research and development expenses increased $477,000 or 196% to $720,000 from $243,000 for the six months ended June 30, 2010. The increase is primarily due to a resurgence of investment in our current products as well as our new CIMControlFramework™ software product. Research and development expenses include only direct costs for wages, benefits, materials, and education of technical personnel involved in new product development activities. All indirect costs such as rents, utilities, depreciation and amortization are included in general and administrative expenses, as discussed below.
General and Administrative
General and administrative expenses increased $20,000 or 6%, to $337,000 in the three months ended June 30, 2011, from $317,000 in the three months ended June 30, 2010. During the six months ended June 30, 2011, general and administrative expenses increased $76,000 or 12% to $702,000 from $626,000 for the six months ended June 30, 2010. The increase in general and administrative expenses is mostly attributable to professional and legal fees related to improvements made to customer contracts to protect Company intellectual property and recruiting practices as well as investments in improving internal systems. Although general and administrative expenses increased over 2010, the percentage of revenue for general and administrative expenses decreased from 24% of total revenues for the six months ended June 30, 2010 to 16% of total revenues for the six months ended June 30, 2011 due to increased revenues. General and administrative expenses include all direct costs for administrative and accounting personnel, and all rents and utilities for maintaining Company offices.
Depreciation and Amortization
Depreciation and amortization expense increased $6,000 or 100% to $12,000 in the three months ended June 30, 2011, from $6,000 in the three months ended June 30, 2010. During the six months ended June 30, 2011, depreciation and amortization increased $10,000 or 77%, to $23,000 from $13,000 in the six months ended June 30, 2010. The increase is attributable to the Company’s investment in equipment upgrades and new financial software.
Other Income (Expense)
Interest expense for the three months ended June 30, 2011 decreased by $9,000, to $17,000, from $26,000 for the three months ended June 30, 2010. During the six months ended June 30, 2011, interest expense decreased $23,000 or 43%, to $31,000 from $54,000 in the six months ended June 30, 2010. The decrease in interest expense for the three and six month periods ended June 30, 2011, compared to the same periods in 2010 was due, primarily, to the termination of the Company’s bank loan with Silicon Valley Bank in July 2010.
Interest income for the three months ended June 30, 2011 was $1,000 compared to $0 for the same period in 2010. During the six months ended June 30, 2011, interest income was $2,000 compared to $0 for the same period in 2010. The increase in interest income is a result of higher cash balances, year over year.
Liquidity and Capital Resources
At June 30, 2011, the Company had current assets of $2,627,000, including cash and cash equivalents of $1,260,000, and current liabilities of $1,025,000, resulting in a working capital of $1,602,000 compared to $405,000 for the same period in 2010. Excluding deferred revenue of $236,000, which requires the Company to provide services and support, but does not represent a scheduled obligation requiring the outlay of Company, the Company’s current assets exceeded current liabilities by $1,838,000 at June 30, 2011.
Related Party and Senior Notes – At June 30, 2011, the Company had a total of $697,000 in outstanding Senior Notes, of which $321,000 were held by related parties. The Senior Notes are unsecured, with interest at 10%, payable semiannually on April 1 and October 1 and mature September 30, 2012.
In July, 2011 the Company notified the holders of the Senior Notes that it intends to pay these notes in full during the third quarter 2011. The Company paid in full all outstanding interest on the Senior Notes on August 1, 2011 and is working with individual note holders to collect the notes and make final principal payments. These repayments of the Company’s Senior Notes, including those held by related parties, total $697,000 and will reduce the Company’s long-term debt to $0. The Company is using the cash generated from operations over the past two years to pay off this debt, which will reduce the remaining interest expense due on these notes through September 30, 2012 by $80,000.
As of June 30, 2011, there were warrants issued to Senior Note holders to purchase a total of 166,000 common shares of the Company at an exercise price of $0.05 per share. The warrants expire on September 30, 2012.
In February, 2011, The Company paid $75,000 to a related party for repayment of a Senior Note.
Results of Operations and Cash Flows – While the Company has posted eight consecutive quarters of positive net income beginning in mid-2009, the Company has a prior history of net losses and negative cash flows from operations. As of June 30, 2011, the Company had an accumulated deficit of $32,396,000 and total stockholders’ equity of $1,111,000. During the six months ended June 30, 2011, the Company reported net income of $515,000 compared to $636,000 for the same period in 2010. The Company used net cash in operating activities of $194,000 for the six months ended June 30, 2011 as compared to net cash provided by operating activities of $542,000 for the same period in 2010. The decrease in net cash from operating activities in the current year over the same period in 2010 was primarily due to the increase in accounts receivable from June 30, 2010 which was $719,000 compared to $1,325,000 at June 30, 2011.
Net cash used in investing activities during the six months ended June 30, 2011, was $41,000 and consisted of software and hardware upgrades. Net cash used in investing activities during the six months ended June 30, 2010, was $18,000 and consisted of hardware upgrades.
Net cash used in financing activities for the six months ended June 30, 2011 was $64,000, comprised of $11,000 in proceeds from the issuance of common stock related to the exercise of Senior Note warrants, and payments of debt to related parties of $75,000.
The Company has not been adversely affected by inflation. Revenues from foreign customers were $1,904,000 during the six months ended June 30, 2011, representing 44% of the Company’s total revenues, compared to $1,243,000 or 48%, of total revenues during the same period in 2010. There are potential economic risks inherent in foreign trade. To minimize the risk from changes in foreign currency exchange rates, the Company’s export sales are transacted in United States dollars.
Factors Affecting Future Results
Total revenues for the first six months of 2011 increased 67% compared to the first six months of 2010, reflecting increased purchases of Cimetrix new software licenses as our customers shipped more capital equipment, generating revenues from new software licenses including sales of software development kits and runtime revenue associated with OEM customer machine shipments. Runtime revenue increased year-over-year as new customer shipments were increased due to the overall growth in capital equipment shipments by the Company’s customers. Sales of software development kits are difficult for the Company to forecast, as the Company is highly dependent on the timing of the equipment suppliers’ decision to initiate a new machine development program and utilize the Company’s products.
The Company continues to focus on incrementally expanding its customer base and product line in order to increase revenues. In 2008, the Company announced its new CIMControlFramework software for tool control, which should enable the Company to provide equipment makers with a complete software solution that will reduce their time-to-market for new tool developments. As equipment makers reduce their costs and internal resources, Cimetrix believes the market for CIMControlFramework will grow as equipment makers begin to invest in new machine development programs.
Ultimately, the Company’s business is driven by the global demand for electronic devices by consumers and businesses. Even though the outlook for 2011 appears to suggest a continued recovery, any changes in the global economic conditions could adversely affect Cimetrix’s business and the results of operations. In the current environment, the Company’s ability to accurately predict future operating results associated with our customer shipments of machines is particularly low.
The Company continues to pursue customers through its professional services group, which is available to assist customers by providing professional services and complete turnkey solutions. The ability of the Company to provide both products and services to its customer base is becoming a more important factor as customers seek to limit the number of suppliers, reduce their internal staff, and prefer single source responsibility. The experience gained delivering professional services also provides valuable inputs to new product development roadmaps.
The Company’s future operating results and financial condition are difficult to predict and will be affected by a number of factors. The markets for the Company’s products are emerging and specialized. There can be no assurance that the markets for industrial motion control, connectivity, and tool control that are served by the Company will continue to grow, or that the Company’s existing and new products will satisfy the requirements of those markets and achieve a successful level of customer acceptance.
Because of these and other factors, past financial performance is not necessarily indicative of future performance, and historical trends should not be used to anticipate future operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is not subject to this requirement since it is not an accelerated filer.
Disclosure Controls and Procedures
The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the required time periods and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure.
As required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation, under the supervision and with the participation of our management, including the chief executive officer and the chief financial officer, of the effectiveness and the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the chief executive officer and the chief financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in internal controls
During the most recent fiscal quarter covered by this report, and since that date there has been no change in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any pending litigation.
ITEM 1A. RISK FACTORS
The Company has disclosed risk factors in its Annual Report on Form 10-K for the year ended December 31, 2010 which could materially affect its business, financial condition or future results of operations to which the reader is referred. There have been no material changes to the risk factors disclosed in that Form 10-K.
During the six months ended June 30, 2011, in connection with the exercise of previously outstanding Senior Note warrants, the Company issued 225,000 shares of its restricted common stock, par value $0.0001 per share, for a price of $0.05 per share, or aggregate proceeds of $11,000.
The sales were made in reliance on the exemptions from the registration requirements provided by Regulation D of the Securities Act of 1933, as amended. The sales were made to two accredited purchasers. The certificates representing the shares sold will bear a legend indicating that they have been issued in reliance on an exemption from the registration requirements of U.S. Securities laws and cannot be sold or transferred without compliance with such registration requirements or the availability of an exemption from such registration requirements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 5. OTHER INFORMATION
None.
Exhibit No. | Description |
| 31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
| 31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
| 32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
| 32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
| 99.1 | Press Release dated August 11, 2011* |
______________________________________ * Exhibits filed with this report |
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REGISTRANT
CIMETRIX INCORPORATED
Dated: August 15, 2011
| | By: /S/ Robert H. Reback Robert H. RebackPresident and Chief Executive Officer (Principal Executive Officer) By: /S/ Jodi M. Juretich Jodi M. Juretich Chief Financial Officer (Principal Financial and Accounting Officer) |
