UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
[ ] 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 87-0439107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6979 South High Tech Drive, Salt Lake City, UT 84047
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 256-6500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
Par Value $.0001
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 31, 1998, the registrant had 24,143,928 shares of its
common stock, par value $.0001, issued and outstanding. The aggregate market
value of the common stock held by non-affiliates of the registrant was
approximately $50,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to
shareholders in connection with the Annual Meeting of Shareholders to be held
May 16, 1998 are incorporated by reference into Part III hereof.
Page 1 of 54 consecutively numbered pages.
CIMETRIX INCORPORATED
FORM 10-K
For the Fiscal Year Ended December 31, 1997
TABLE OF CONTENTS
PART I
Item 1. Business...........................................................1
Item 2. Properties........................................................14
Item 3. Legal Proceedings.................................................14
Item 4. Submission of Matters to a Vote of Security Holders...............14
PART II
Item 5. Market for Company's Common Stock and Related Stockholder Matters.15
Item 6. Selected Financial Data...........................................16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................17
Item 8. Financial Statements and Supplementary Data.......................20
Item 9. Changes and Disagreements with Accountants on Accounting
and Financial Disclosures.........................................20
PART III
Item 10. Directors and Executive Officers of the Company...................20
Item 11. Executive Compensation............................................20
Item 12. Security Ownership of Certain Beneficial Owners and Management....20
Item 13. Certain Relationships and Related Transactions....................20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...21
Signatures...................................................................23
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PART I
ITEM 1. BUSINESS
Cimetrix Incorporated ("Cimetrix" or the "Company") was incorporated
under the laws of the State of Utah on December 23, 1985. In September, 1990,
Cimetrix merged with a newly incorporated Nevada company, effectively changing
its domicile to Nevada.
In October, 1989, Cimetrix began developing and marketing software
products that control the motion of automated manufacturing devices by entering
into an exclusive license agreement with Brigham Young University. The license
agreement granted Cimetrix the rights to develop and market robot inaccuracy
compensation techniques developed in conjunction with an off-line programming
system (known as ROBLINE) and an accuracy enhancing calibration technique (known
as ROBCAL). Effective July 5, 1995, the Company purchased the technology that
was then being licensed from Brigham Young University, referred to as ROBLINE
and ROBCAL.
ROBLINE and ROBCAL, together with other technology developed by the
Company, have enabled the Company to develop the Cimetrix Open Development
Environment ("CODE") which includes "open architecture" standards-based,
operating systems software and controller hardware that allow manufacturing
engineers to replace cumbersome proprietary systems with open systems when
designing automated work cells. The Company's products are designed to allow the
customer to select "best of class" automation components and to help reduce
costs and time involved in designing, implementing and maintaining automation
systems.
On June 7, 1994, Cimetrix formed a subsidiary, Cimetrix (USA)
Incorporated, which was organized under the laws of the State of Florida. In
July, 1994, Cimetrix acquired 20,000,000 shares of the common stock of Cimetrix
(USA) Incorporated in exchange for the transfer of substantially all of the
assets of Cimetrix and the assumption of $635,000 of convertible promissory
notes payable. Cimetrix (USA) Incorporated subsequently sold shares of its
common stock to private investors resulting in an approximate 12% minority
interest. Effective August 31, 1995, Cimetrix purchased the minority interest in
Cimetrix (USA) Incorporated by exchanging one share of Cimetrix common stock for
one share of Cimetrix (USA) Incorporated common stock held by the minority
shareholders. Simultaneously, effective August 31, 1995, Cimetrix (USA)
Incorporated was merged into Cimetrix.
General
Cimetrix is the developer of the world's first open architecture,
standards-based, personal computer (PC) software for controlling machine tools,
robots and electronics industry equipment that operates on the factory floor.
Cimetrix software products are based on standard computer platforms (Intel
Pentium CPU with ISA/PCI/CPCI bus and Motorola PowerPC with VME bus) and run on
standard operating systems (Microsoft WindowsNT and UNIX). Cimetrix believes
that manufacturing companies will increasingly demand open architecture,
PC-based controllers on the equipment that they purchase, transforming the
worldwide controller market from proprietary solutions to open architecture,
PC-based solutions.
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Cimetrix software is currently operational in production installations
on a wide variety of general industrial robots and specialized electronics
industry assembly and surface mount technology (SMT) machines. Cimetrix also has
developed two additional software products, GEM Equipment Manager and GEM Host
Manager. These software products enable compliance with Generic Equipment Model
("GEM"), which is a standard for communications between manufacturing equipment
and the factory's host computer. The GEM software products are designed to run
on PCs and UNIX workstations.
The Industrial Motion Controller Market
The worldwide market for industrial motion control is comprised of four
distinct segments: electronics, machine tools, industrial robots and high-end
programmable logic controllers (PLCs). All four segments utilize some form of
computerized motion controller technology to run automated mechanisms.
Electronics Industry
The electronics industry is not only one of the largest, but is among
the fastest growing industrial sectors using automated manufacturing technology.
The electronics market consists of a variety of vertical niches, including
semiconductor wafer fabrication, semiconductor back end, printed circuit board
assembly (Surface Mount Technology), electronic component and disk drive
assembly. The products of the companies involved in these processes represent
"leading edge" technology and many manufacturers have had to develop
specialized, proprietary equipment that operate in "clean room" environments.
Automation equipment developed by the electronics industry is very expensive,
with individual mechanisms costing up to $500,000 each, versus $30,000 to
$100,000 for general industrial robots.
Since many electronics assembly end-users have been forced to develop
"in-house" manufacturing technology for specialized applications, they have
typically used internally developed, PC-based or UNIX-based controllers written
in C/C++ code. The Company believes that end-users are in need of a standard,
low cost open architecture set of tools to enable them to efficiently develop
specialized control applications quickly. Responding to this, the United States
segment of the industry has formed an association known as NEMI (National
Electronics Manufacturing Initiative). One of the NEMI teams has produced and
released a specification on "Low Cost Controller APIs" aimed at defining an
industry standard for an Open Architecture Controller Application Programming
Interface ("API"). Cimetrix has been significantly involved in the development
of this specification. As worldwide applications for computer chip technology
continue to expand, the variety and volume of automation equipment in the
electronics assembly industry is expected to continue to grow rapidly.
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Machine Tool Industry (CNC Controllers)
Machine tools consist of metal cutting machines such as milling
machines, lathes, machining centers, grinders, and lasers; and metal forming
equipment such as press brakes, turret punches and tube benders. These machine
tools, which are used by a wide variety of manufacturers, utilize a computer
numerical control, or CNC type controller. Despite the PC revolution that has
taken place over the past decade, the underlying technology and software for
machine tool controllers has changed very little during the same period. Most
major machine tool manufacturers purchase proprietary controllers from several
CNC controller vendors. The interest level of tool manufacturers in open
architecture CNCs is very high. The proprietary CNC manufacturers are developing
ways to configure the graphical user interface of the CNCs so they appear to be
open. However, none of the CNC manufacturers has developed a true open
architecture controller that runs on a PC.
Robotics Industry
Industrial robots are used for tasks that are tedious, repetitive and
exhausting for humans and typically are employed to reduce the costs and improve
the quality of highly labor-intensive tasks. Industrial robots are multi-axis
manipulators used for welding, painting and material handling applications. The
automotive industry is the primary end-user of robots. Other end-users include
the aerospace, steel, heavy equipment and electronics industries. To date,
attempts by robot manufacturers to diversify sales outside the automotive sector
have been only moderately successful, principally because the early products
have been costly and difficult to use.
Driven by its high labor costs, Japan is the dominant user of robots in
manufacturing, with the United States second. Few industries outside of Japan
and the automotive sector have adopted robot technology because it is currently
expensive to implement. Nearly all robot controllers are proprietary devices
manufactured by the major industrial robot vendors, which are supplied with
their own robot systems as a complete, proprietary solution. These robot
controllers are only compatible with robots supplied by the same vendor, and in
many cases, are only compatible with specific robot models of that vendor. These
systems represent an enormous technology investment "legacy," and are difficult
and time consuming to program, configure, implement and modify.
Programmable Logic Controllers(PLC)
Discrete control units such as those that run conveyers or equipment
using sensors and on/off controls were historically controlled by bulky
mechanical relays that lacked reliability in the dusty environment of the
factory floor. Over time, PLCs replaced banks of relays. The growth of the PLC
industry is driven by increasing product functionality and better
price/performance to the end-user. The Company believes that high-end PLCs are
being replaced by PC-based solutions which are more flexible and which can
increase the PLC's functionality.
The Movement Towards an Open Architecture Controller
Over the past 15 years, the primary driver for the revolution in and
proliferation of office technology was the standardization of the PC's operating
system, processors and buses. Expensive hardware components became commodities,
with powerful software applications delivering value to the
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system. The Company believes this movement to standards-based systems is
beginning in manufacturing.
Currently, the automation control industry consists of a heterogeneous,
complex environment of vendor-specific machines and proprietary control systems
which are limited in function and expensive to use. Motion controllers were
originally developed without the benefit of the powerful PCs available today.
Robot and controller vendors were forced to develop motion controllers
internally, creating an environment in which each vendor's system remains
incompatible with the programming and interface methods of the others. As a
result, companies today have factory floors with islands of automation,
including robots, machine tools and sensors, each separated by vendor-specific
hardware peripherals, operating systems and programming languages. The
proprietary nature of these systems constrains the design of optimal workcells
and prevents end-users from managing the factory floor as a coordinated and
unified technology platform. The current environment significantly constrains
overall flexibility, responsiveness and productivity. Proprietary control
systems create numerous constraints for end-users including:
o High initial cost for the equipment, high maintenance costs and high
training costs o Inability to deploy, redeploy and easily integrate
components (no "mixing and matching") o Duplicative development and
implementation programming required by each vendor o Inflexible
technology development dictated by vendors (legacy technology)
Management believes the Company is uniquely positioned to become an
industry leader in providing software for both the general manufacturing
industries that currently use machine tool CNC-style controllers, robot
controllers, and certain "high-end" PLC controllers, as well as the electronic
industries that are currently using in-house developed controllers.
Manufacturing industries are taking a proactive role in demanding a switch from
proprietary controllers to standard, open architecture solutions.
Enabling Technologies Drive the Solution
The current environment of multiple, vendor-specific technology
platforms emerged from the machine tool industry at a time when PCs were too
slow and lacked the power and flexibility required for motion control
operations. Vendors developed motion controllers with proprietary hardware
platforms, operating systems and assembly code programming languages that often
locked end-users into older, slower processors. The software tools on these
controllers are constrained by older, legacy hardware and proprietary operating
platforms. Hardware upgrades for simple items, such as expanded memory, can cost
ten times that of equivalent PC upgrades.
o PC technology has now advanced so significantly that today's low
cost PCs have several times more processing power than many higher
cost proprietary controllers.
o The rapid growth and acceptance of PC technology has facilitated a
similar increase in the development of software applications.
o Modern operating systems such as Microsoft WindowsNT and UNIX
offer features such as multi-tasking, multi-threading, prioritized
processing, symmetrical multi-processors and real-time
capabilities, which set the stage for a common software solution
for machine motion control.
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o New and advanced motion control servo cards, machine vision
processor cards and I/O cards are now available from a variety of
vendors for use on standard hardware platforms in the industrial
environment.
The Cimetrix Solution
Cimetrix Open Development Environment (CODE) software is the only
software that currently provides all of the following advantages:
1. Lower Hardware Costs. Because Cimetrix software products are based
on standard computer platforms (Intel Pentium CPU with ISA/PCI bus
and Motorola PowerPC with VME bus) and run on standard operating
systems (Microsoft WindowsNT and UNIX), Cimetrix customers benefit
from the tremendous price/performance advantage of the PC
platform. In addition, the open architecture of Cimetrix software
enables Cimetrix customers to "mix and match" components to obtain
the optimal motion card, I/O subsystem and vision system for the
application.
2. Increased Software Reliability. The Cimetrix CODE product is the
same software that is used to control machine tools, industrial
robots and electronics industry equipment. Since this core
software has been thoroughly tested in production installations
across many industries, there is increased reliability and lower
risk when developing a controller for a new application.
3. Reduced Application Development Time. CODE utilizes an extensive
library of APIs to access the underlying Cimetrix motion control
algorithms, which enable application developers to program at very
high levels using the programming languages of their choice.
Cimetrix customers estimate this reduces development efforts for
new applications by approximately 50%.
4. Reduced Time to Market. CODE contains two nearly identical
versions: (i) an off-line simulation version with output to a
video driver (CIMulation), and (ii) an on-line version with output
to motion control equipment (CIMControl). Unlike existing systems,
simulation and control are achieved with the same application
software and API set, enabling concurrent engineering and reduced
time to market. Cimetrix customers estimate the ability to
develop, test and debug an entire application in simulation mode
prior to any hardware becoming available reduces the overall time
to market by approximately 50%.
5. Customers control their own destiny. Cimetrix software provides
all of the software source code hooks for Cimetrix customers to
implement their own custom software or algorithms. This ensures
that Cimetrix customers control their own destiny and are able to
develop specialized or proprietary software to differentiate their
products.
STRATEGY AND CUSTOMERS
Cimetrix has targeted three key audiences for the commercialization of
its products:
1. End-User Production Installations
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2. OEM Customers Through Pilot Projects
3. Systems Integrators to Service Additional End-Users
The first step of the Cimetrix strategy is the installation of Cimetrix
software to continuous (i.e., 24 hours a day, 7 days a week) production
environments across a wide variety of applications. Cimetrix targeted strategic
end-users promoting open architecture standards for their own manufacturing and
production systems. Cimetrix obtained contracts to provide open architecture
controller solutions for specific projects for end-user customers. These initial
end-user installations, which typically range from 1 to 25 controllers, provide
valuable reference accounts that can validate the benefits of Cimetrix's open
architecture technology. These end-user customers also provide strong
recommendations and endorsements to their strategic equipment suppliers to make
arrangements with the Company to utilize Cimetrix software.
The second step of the Cimetrix strategy is to work closely with
strategic OEM customers that build Electronics Assembly/SMT equipment, CNC
Machine Tools and Industrial Robots. Cimetrix has identified the leading machine
suppliers in these markets that produce over one thousand machines per year and
represent the highest volume sales channel for Cimetrix. The control software
for these customers is a critical decision that affects the future of their
companies. Accordingly, Cimetrix has developed an OEM customer sales cycle that
involves a pilot project undertaken in cooperation with the OEM customer to
validate that Cimetrix software can effectively control the OEM customer's
machine as well as provide the anticipated benefits. Cimetrix is currently in
various stages of the OEM sales cycle with several leading OEM customers in the
Electronic Assembly/SMT, CNC Machine Tool and Industrial Robots markets.
The third step of the Cimetrix strategy is to use systems integrators
to meet the needs of additional end-user customers. Cimetrix is utilizing this
approach to re-direct the Cimetrix systems integration staff to work directly
with leading OEM customers. Cimetrix has now established a small, but growing
network of systems integrators across the United States and Canada, with
expertise in Machine Tools, Robotics and Electronics Assembly.
PRODUCTS
The Company's product suite is called the Cimetrix Open Development
Environment (CODE), which is an integrated suite of software tools designed to
run on PCs that enables rapid off-line controller programming, applications
development, simulation and debugging of automated workcells, as well as the
seamless implementation of workcell control. CODE runs on Microsoft WindowsNT,
as well as several variations of the UNIX operating system, including Lynx, a
hard real-time operating system (OS). Unlike any other system available today,
CODE makes concurrent engineering possible because simulation and control are
accomplished using the same application program, thereby dramatically reducing
application development and implementation times. CODE's multi-platform
capability enables users to choose from the entire spectrum of computer
suppliers, resulting in "best of class" hardware and software configurations.
The core component of the CODE architecture is the CIMServer. There are
two nearly identical versions of the CIMServer, an off-line simulation version
with output to a video drive (CIMulation) and an
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on-line control version with output to motion control and I/O control card
drivers for controlling machines (CIMControl). In both versions, the CIMServer
communicates with and coordinates application programs, communicates with the
actual or simulated physical devices, performs motion planning, maintains the
workcell model and provides I/O services between the controller and the workcell
sensors and actuators. Unlike existing systems, simulation and control are
achieved with the same software, enabling concurrent engineering and reduced
implementation time. This technology has been packaged into a set of standard
products consisting of the core products and a variety of supporting products.
o CIMulation. A version of the CIMServer in which workcell operation is
simulated on a graphical workstation. The graphical simulation provides the
programmer with an off-line, virtual workcell, viewed as a
three-dimensional solid or wire frame graphical model with fully functional
kinematics. All application programs can be directly transported for use
with CIMControl. CIMulation includes CODE API which is a standard C/C++
library of over 400 function calls used for automation application
development. Functions are provided for motion control, machine vision, I/O
control, off-line collision checking and other common workcell operations.
In addition to C/C++, the CODE API is provided for Visual Basic and
Borland's Delphi, two popular rapid application development environments
for Microsoft WindowsNT.
o CIMControl. A version of the CIMServer which allows on-line mechanism and
I/O control through off-the-shelf servo and I/O control cards. It turns any
standards-based computer (PC or VME) into an open architecture controller.
Unlike competing, proprietary workcell controller software, CIMControl's
client/server architecture simultaneously can drive several, dissimilar
types of mechanisms, such as robots and machine tools, manufactured by
different vendors. CIMControl also includes the CODE API.
CIMulation and CIMControl are separate versions of the same CODE
Server. Applications developed using the CODE API run the same with either
server seamlessly. No complex translation is required from workcell design and
simulation to workcell control because applications run in the native CODE
Environment.
Cimetrix has also developed supporting products aimed at shrinking our
customer's devlopment cycle.
o CODE Support Tools: A set of software tools designed to increase the speed
of deployment of systems based on CODE. CIMTools provides a fast method to
interact with the CODE database model and tools to correct with debug.
CIMCal is a calibration tool. CIMTune is a servo tuning tool. CODE Support
Tools is included with CIMulation or CIMControl
o GEM Equipment Manager and GEM HOST Manager: GEM is a standard for
communications between manufacturing equipment and the factory's host
computer. Equipment builders have been reluctant to provide GEM-compliant
technology because of the difficulty in obtaining GEM compliance. Without
GEM Manager, it takes end-users between six months and two years to add GEM
to their equipment. Recognizing the need to simplify this process, one of
the Company's customers urged Cimetrix to develop a comprehensive tool set
for implementing the GEM standard. The resulting products, GEM Equipment
Manager and GEM HOST Manager, have broad application not only for CODE-
based controllers but for many other types of factory equipment. These
products enable
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GEM compliance in a matter of weeks. GEM Equipment Manager
provides easy-to-use, graphical tools for configuring, testing and
administering all standard requirements, including the
communication process and process state model. GEM HOST Manager
provides a standard API to link the communication process with
application programs at the host level. Both GEM products can be
used in conjunction with CODE or with other controllers.
The Company continues to invest heavily in research and development to
continue to build its leading position in open architecture controllers and open
systems automation products. Cimetrix's goal is to build its API set into the
most complete and robust open architecture API available. New product
developments are prioritized and scheduled based on customer input and ongoing
evaluations of new software technologies as they apply to the Cimetrix business
model. After end-user or OEM requirements are documented, manpower estimates are
established and new products are scheduled for release. This process is
documented in the Cimetrix Software Quality Standards.
COMPETITION
The manufacture and sale of automation technology is a highly
competitive industry. Cimetrix believes that its competition is divided into
five groups: robot manufacturers, machine tool controller manufacturers,
simulation developers, electronics assembly equipment manufacturers and open
controller suppliers.
There are several robot manufacturers who design and sell proprietary
controllers and software for their robots. Most of these companies are much
larger than Cimetrix, including Adept Technologies, Asea Brown Boveri Group
(ABB), Fanuc, Kawasaki, Kuka Welding, Mitsubishi Electric, Nachi, Panasonic,
Sankyo, Seiko, Sony, Staubli, Yamaha, and Yaskawa Electric(Motoman), and have
significantly greater resources than the Company. While their hardware is
generally considered very good, management believes the competition's software
and controllers are limited in their applications because of the closed,
proprietary design. While the Company will not be manufacturing robot devices in
direct competition with these companies, its software will directly compete with
their proprietary software. This results in a make vs. buy decision for these
potential customers.Management believes the Company's products are generally
less expensive than the competing products, and that the Company's products
generally permit greater flexibility of function and ease of use.
There are two or three other manufacturers of robot controllers that
claim to have "open architecture" design (i.e., useable with robots made by
different manufacturers). Management believes that they are not "open
architecture" designs. Management believes the most popular of these, made by
Adept Technologies, Inc. ("Adept"), uses a closed, proprietary computer language
that is translatable into other proprietary languages, but that is not easily
expandable. This can make modification of the controller's functions difficult.
Machine tools consist of metal-forming equipment, such as press brakes,
turret punches and tube benders, and metal cutting machines, such as milling
machine equipment, lathes and lasers, and are used by a wide variety of
manufacturers. Machine tools utilize a computer numerical control, or CNC-type
controller. Despite the PC revolution that has taken place over the past decade,
the underlying
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technology and software for machine tool controllers has changed very little
during the same period. Most major machine tool manufacturers purchase
proprietary controllers from several CNC control system vendors, including
Allen-Bradley, Fanuc, Mitsubishi, Siemens, and Toshiba.
Cimetrix has identified at least three major competitors in the field
of robot software simulation development and robot accuracy correction,
including Deneb Robotics, Inc., Silma (a subsidiary of Adept), and Technomatics.
While these three companies market systems which are competitive on a
stand-alone basis for simulation, management believes they are unable to match
the Company's ability to achieve both simulation and control with the same
program, enabling concurrent engineering and reduced implementation time.
Management also believes that other simulation companies do not have the same
flexibility of off-line programming or precision robot control in their products
as compared to the Company's products.
The fourth group of competitors is composed of electronics assembly
equipment manufacturers who supply controllers with their electronics assembly
equipment. This group includes Fuji, Panasonic, Universal Instruments, Siemens,
and numerous others. Their hardware design is either proprietary or PC-based.
Their software is developed in-house and is very difficult to quickly modify for
new machine designs. Management believes the Company's products allow faster
time to market through reusable software objects.
The final group is just evolving as the market starts to embrace open
architecture controllers. These are mostly small companies. Steeplechase,
Nematron, Wizdom and ASAP all market PC-based controllers aimed primarily at
sequence control (I/O). These typically do not have robust motion solutions and
target different markets than Cimetrix. Hewlett Packard's Trellis division has
developed both robot and CNC PC based solutions. Management expects to see
additional competitors emerge in this group.
Management believes that most, if not all, of the Company's competitors
currently have greater financial resources and market presence than Cimetrix.
Accordingly, these competitors may be able to compete very effectively on
pricing and to develop technology to increase the flexibility of their products.
Further, each of these competitors has already established a share of the market
for their products, and may find it easier to limit market penetration by the
Company because of the natural tie-in of their controllers and software to their
mechanisms. Management is uninformed as to whether any of these competitors are
presently developing additional technology that will directly compete with the
Company's product offerings.
SALES AND MARKETING
The Company's sales and marketing team targets three primary markets:
Electronics Assembly/SMT, Robotics, and CNC Machine Tools. The sales and
marketing team is responsible for identifying key end-user customers and the
top-tier OEM machine suppliers in each primary market. The Company's direct U.S.
sales force is coordinated by an Executive Vice President of Sales and two
supporting regional sales managers. Each salesperson is responsible for pursuing
potential customer leads in his or her territory and for qualifying customer
relationships. International sales and marketing responsibilities are addressed
by the Executive Vice President of Sales. The Company's sales offices are
located in Salt Lake City, Milwaukee and Boston.
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OPERATIONS
The Company's operations are conducted through four principal teams:
Software Development, Customer Service, Customer Support, and Technical
Services. These teams are responsible for defining and developing new products,
performing initial product integration with key OEMs and all aspects of customer
support and manufacturing. The Company's strategy is to develop standard
software products that have been thoroughly tested and deliver/support these
products using major OEMs as the key channel to market. A comprehensive Software
Quality Program and rigid coding standards are keys to the development process.
The Customer Support team supports Cimetrix customers and development
engineers. Working closely with Software Development and Customer Service
professionals, they provide Cimetrix customers with twenty-four hour technical
support on the entire Cimetrix product line.
The Technical Services team supports all Cimetrix professionals as well
as providing for fulfillment of customer software demonstration, software
product, and documentation orders. This team works closely with their
counterparts in Cimetrix to support standard operational systems and software
quality systems, including a comprehensive configuration management system,
which ensures proper release methods.
INTELLECTUAL PROPERTY RIGHTS
The open architecture controller technology upon which the Company's
software is based was developed from 1984 to 1989 by a team of Brigham Young
University engineers led by Dr. W. Edward Red, Dr. Steven Sorensen, and Dr.
Xuguang Wang. In 1989, Cimetrix signed an exclusive license with Brigham Young
University for the development of these technologies for commercial purposes.
Shortly thereafter, Dr. Sorensen and Dr. Wang joined Cimetrix. Effective July 5,
1995, Cimetrix purchased from Brigham Young University all the rights, title,
interest and benefit from this intellectual property. To date, more than 250
man-years have been invested in the development of Cimetrix's open architecture
software technology.
The technology purchased from Brigham Young University, along with
other technology developed internally, is proprietary in nature. The Company has
obtained two patents on certain aspects of the technology, issued in May 1989
and March 1994, respectively. In addition, the Company has registered its entire
CODE software system with the Copyright Office of the United States, and will
continue to timely register any updates to current products or any new products.
For the most part, other than the two patents and the copyright registrations,
the Company relies on confidentiality and non-disclosure agreements with its
employees and customers, appropriate security measures, and the encoding of its
software to protect the proprietary nature of its technology. No cost has been
capitalized with respect to the patents.
MAJOR CUSTOMERS AND FOREIGN SALES
Approximately 28% and 16% of the Company's revenues during the year
ended December 31, 1997 were from Fuji Machine Manufacturing Co. and Motorola,
respectively . No other single customer accounted for more than 10% of the
Company's revenues during 1997. In 1996, two customers accounted for 34% and 14%
of the Company's revenues respectively, with no other single customer accounting
for more than 10% of revenues. The Company had four customers, AT&T (16%), Cybex
Technologies (10%), Hewlett-Packard (26%) and Motorola (29%), which individually
were 10% or more
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of the Company's revenues during the year ended December 31, 1995 and which
together accounted for approximately 81% of the Company's total revenue during
1995. Although the Company values its relationships with all of its customers,
the Company does not believe the loss of any single customer would have a
material adverse impact on the Company.
During the year ended December 31, 1997, approximately 40% of the
Company's revenues were from companies based in foreign countries, principally
Japan, of which 10% were from affiliates. At December 31, 1997, the Company
continues to sign support service agreements which are estimated to generate
approximately $250,000 in revenues over the term of the agreements, principally
1998.
PERSONNEL
As of March 31, 1998, the Company had 34 employees, 24 of whom are
involved in the technical development and support of customers and products,
five in sales and marketing, and five in administrative and clerical. None of
the employees of the Company are represented by a union or subject to a
collective bargaining agreement, and the Company considers its relations with
its employees to be favorable.
Executive Officers
Paul A. Bilzerian, President, Chief Executive Officer and Director, age
47, has been involved in Cimetrix in various capacities since 1994. Mr.
Bilzerian has been involved in more than $10 billion dollars of corporate
transactions and financing. He has a B.S. Degree from Stanford University and a
Masters Degree in Business Administration from Harvard University.
David P. Faulkner, Executive Vice President of Marketing, age 42,
joined the Company in August 1996. Mr. Faulkner was previously employed as the
Manager of PLC Marketing, Manager of Automotive Operations and District Sales
Manager for GE Fanuc Automation, a global supplier of factory automation
computer equipment specializing in programmable logic controllers, factory
software and computer numerical controls from 1986-1996. Mr. Faulkner has a B.S.
Degree in Electrical Engineering and a Masters Degree in Business Administration
from Rensselaer Polytechnic Institute.
Robert H. Reback, Executive Vice President of Sales, age 38, joined
Cimetrix as Vice President of Sales in January 1996 and was promoted to
Executive Vice President of Sales and Marketing in January, 1997. Mr. Reback was
the District Manager of Fanuc Robotics' West Coast business unit from 1994-1995.
From 1985-1993 he was Director of Sales/Account Executives for Thesis, Inc., a
privately-owned supplier of factory automation software and was previously a
Senior Automation Engineer for Texas Instruments. Mr. Reback has a B.S. Degree
in Mechanical Engineering and a M.S. Degree in Industrial Engineering from
Purdue University.
Bradley A. Palser, Executive Vice President of Software Engineering, age
41, joined the company in November 1997. Mr. Palser was previously employed as
the Director of Engineering and General Manager of several Software Engineering
facilities for Unisys Corporation from 1983-1997. Prior to that, Westinghouse
Electric employed Mr. Palser as a principal software engineer automating power
plants and steel mills. Mr. Palser has a B.S. Degree in Mathematics from
Carnegie Mellon University.
Riley G. Astill, Vice President of Finance, Chief Financial Officer, age
37, originally joined
-13-
Cimetrix as Controller, in July, 1994. He remained Controller until
October, 1996, when he left the Company prior to its moving to Tampa. Mr. Astill
rejoined Cimetrix as Vice President of Finance in December, 1997. Mr. Astill was
Controller of a privately held Salt Lake City publisher from 1991-1994. From
1990-1991, he was a Senior Accountant for Oryx Energy Company. From 1988-1990 he
was an Accountant for Ernst & Young in Dallas. He has a B.S. Degree in
Accounting from the University of Utah and a Masters Degree in Accounting from
Utah State University.
Ronald E. Hair, Vice President of Technical Services, age 41, joined
Cimetrix in March, 1996. Mr. Hair served as the Director in Information Systems
at Evans and Sutherland Computer Corporation, where he worked from 1982-1996.
Mr. Hair has a B.S. Degree in Computer Graphics from Brigham Young University.
Norman J. Ibrahim, Vice President of Sales, age 44, joined Cimetrix in
June, 1996 as Midwest Manager of Sales. He was promoted to Vice President of
Sales in January, 1997. Mr. Ibrahim was the Vice President of Sales for
Framework Technologies, an Allan Bradley Technology spin-off, from 1994- 1996.
From 1993-1994 he was East Coast Sales Manager of Thesis, Inc. His previous
responsibilities include various marketing and sales positions at Honeywell,
Measurex Systems and Mentor Graphics. Mr. Ibrahim has a B.S. Degree in Chemical
Engineering from the University of Washington.
Dr. Steven Sorensen, Vice President and Chief Engineer, age 37, has worked
for Cimetrix during the past six years. Prior to joining Cimetrix, Dr. Sorensen
was an Associate Professor at Brigham Young University, where he received his
Ph.D. in Mechanical Engineering. Dr. Sorensen has been working to develop the
Cimetrix technology for the past ten years and is one of the principal
architects of many of the Company's most important products.
Dr. Xuguang Wang, Vice President of Strategic Programs, age 34, has worked
for Cimetrix during the past seven years. Dr. Wang has been working to develop
the Cimetrix technology for the past ten years. He received his Ph.D. in
Mechanical Engineering from Brigham Young University and is an expert in
computer graphics, robot kinematics, control tool and sensor calibration and
robot accuracy enhancement compensation.
ITEM 2. PROPERTIES
The Company sold its 18,500 square foot facility in Provo, Utah during
September, 1996 and leased the space back from the purchaser until February 28,
1997. Cimetrix signed a five year lease effective March 1, 1997 and moved on
that date to a facility at 6979 S. High Tech Drive in Midvale, Utah (about six
miles south of Salt Lake City). The new facility consists of 32,000 square feet,
of which 20,000 square feet is office and engineering space and 12,000 square
feet is warehouse and storage space. Management intends to sublease any excess
warehouse and storage space, pursuant to their decision to end its hardware
product lines. The Company has no other offices, either owned or leased.
The Company has entered into a 12 month lease for 1998, for a
residential property, which it provides rent-free to the President, in order to
retain his services and to offset the cost of his temporary relocation to Salt
Lake City.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings
and, to the best of its knowledge, no such proceedings by or against the Company
have been threatened. To the knowledge of management, there are no material
proceedings pending or threatened against any director or executive officer of
the Company, whose position in any such proceeding would be adverse to that of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
-14-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The common stock of the Company is being quoted on the NASDAQ Bulletin
Board under the symbol "CMXX". The table below sets forth the high and low bid
prices of the Company's common stock for each quarter during the past two fiscal
years. The quotations presented reflect inter-dealer prices, without retail
markup, markdown, or commissions, and may not necessarily represent actual
transactions in the common stock.
Period (Calendar Year) Price Range
1996 High Bid Low Bid
---------------- -------- -------
First quarter $ 15.75 $ 9.75
Second quarter $ 11.25 $ 6.50
Third quarter $ 7.63 $ 5.25
Fourth quarter $ 8.38 $ 5.50
1997
First quarter $ 7.02 $ 5.50
Second quarter $ 5.88 $ 3.50
Third quarter $ 4.06 $ 1.50
Fourth quarter $ 4.13 $ 1.44
1998
First quarter $ 2.13 $ 1.25
On March 27, 1998, the closing quotation for the common stock on the
NASDAQ Bulletin Board was $1.94 per share. Potential investors should be aware
that the price of the common stock in the trading market can change dramatically
over short periods as a result of factors unrelated to the earnings and business
activities of the Company.
On March 27, 1998, there were 24,143,928 shares of common stock issued
and outstanding, held by approximately 1,500 beneficial shareholders.
The Company has not paid dividends with respect to its common stock.
There are no restrictions on the declaration or payment of dividends set forth
in the Articles of Incorporation of Cimetrix or any other agreement with its
shareholders. Management anticipates retaining any potential earnings for
working capital and investment in growth and expansion of the business of the
Company and does not anticipate paying dividends on the common stock in the
foreseeable future.
-15-
On March 27, 1998, there were $3,316,000 of the Company's Senior Notes
issued and outstanding, held by 53 bondholders. There were also 3,316 warrants
related to the Senior Notes, issued and outstanding, held by 61 warrant holders.
The number of potential shares represented by these warrants is 829,000, or 250
shares for each warrant. The Company's Senior Notes are trading at par. The
Company's warrants are trading on the NASDAQ Bulletin Board, under the symbol
CMXXW.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of Cimetrix is not covered by an
opinion of independent auditors and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 of this Form 10-K and the financial statements and
notes thereto included in Item 8 of this Form 10-K.
Statements of Operations Data
Years ended December 31,
1997 1996 1995 1994 1993
(in thousands, except per share data)
Revenues $ 2,195 $ 2,396 $ 664 $ 463 $ 1,142
Operating Expenses:
Cost of revenues 1,057 1,342 446 297 727
Selling, marketing and
customer support 1,066 1,494 947 217 115
Research and development 2,008 1,179 930 198 507
General and administrative 2,288 1,577 1,231 1,217 857
Compensation - stock options 234 685 - - -
---------- ---------- --------- --------- -------
Total operating expenses 6,653 6,277 3,554 1,929 2,206
---------- ---------- --------- --------- -------
Loss from operations (4,458) (3,881) (2,890) (1,466) (1,064)
---------- ---------- --------- --------- -------
Net loss $ (4,490) $ (3,455) $ (2,544) $ (1,145) $ (1,074)
========= ======= ======= ======= ==========
Loss per common share $ (.20) $ (.19) $ (.16) $ (.08) $ (.07)
========= ======= ======= ======= ==========
Dividends per common share - - - - -
========= ======= ======= ======= ==========
-16-
Balance Sheet Data
Current assets $ 2,802 $ 4,220 $ 3,268 $ 3,835 $ 230
Current liabilities 623 1,344 338 1,451 857
Working capital 2,179 2,876 2,930 2,384 (627)
Total assets 8,019 9,227 9,722 5,632 356
Total long-term debt 3,546 296 338 44 41
Stockholders' equity (deficit) 3,850 7,631 9,070 3,613 (535)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth the percentage of costs and expenses to
net revenues derived from the Company's Statements of Operations for each of the
three preceding fiscal years.
Year Ended December 31,
1997 1996 1995
Net revenues 100.0% 100.0% 100.0%
------ ------ ------
Operating expenses:
Cost of revenues 48.2 56.0 67.2
Selling, marketing and customer support 48.6 62.3 142.6
Research and development 91.5 49.3 140.0
General and administrative 104.1 65.8 185.4
Compensation - stock options 10.7 28.6 -
------ ------ ------
Total operating expenses 303.1 262.0 535.2
------ ------ ------
Loss from operations (203.1) (162.0) (435.2)
Interest income, net of expense (2.0) 2.3 22.0
Other income (expenses) .6 15.5 0.1
------ ------ ------
Loss before minority interest (204.6) (144.2) (413.1)
Minority interest in loss - - 30.0
------ ------ ------
Net Loss (204.6)% (144.2)% (383.1)%
======= ======== ========
-17-
Net Revenues
Net revenues for the three fiscal years ended December 31, 1997, 1996,
and 1995 were $2,195,000, $2,396,000, and $664,000, respectively. Net revenues
for 1997 included approximately $1.3 million of software revenues, $86,000 of
hardware revenues, $530,000 of applications engineering revenues and the
remainder from support agreements and training. Revenues for 1996 included
approximately $1.4 million of software revenues, $680,000 of hardware revenues
and the remainder from applications engineering and support agreements. Revenues
for 1995 represented sales of products to customers for testing and evaluation
and approximately 56% of revenues during 1995 were from the sale of hardware
products.
Cost of Revenues
The Company's cost of revenues as a percentage of net revenues for the
years ended December 31, 1997, 1996, and 1995 were approximately 48%, 56%, and
67%, respectively. The cost of revenues decreased in 1997 in part because the
percentage of hardware sales to total revenues decreased from approximately 28%
during 1996 to approximately 4% during 1997. The cost of revenues did not
decrease in direct proportion to the decrease in hardware revenues because
certain labor, contract labor and travel costs are classified as costs of
revenues, rather than as research and development costs. In addition, certain
inventory items were written off as cost of revenues due to the decision by the
Company to end its hardware product lines.
The cost of revenues decreased in part because the revenues from
software products as a percentage of total revenues increased from 58% of
revenues during 1996 to 60% of revenues during 1997. The cost of revenues from
software revenue was less than 5% while the cost of revenues from applications
engineering and support varied from 40% to 60%.
Selling, Marketing and Customer Support
Selling, marketing and customer support expenses increased significantly
from $947,000 in 1995,
to $1,494,000 in 1996. The decrease of $428,000 in 1997, to $1,066,000 reflected
management's efforts to concentrate sales and marketing efforts on key target
markets, thus reducing personnel and related travel and office expenses.
Selling, marketing and customer support expenses in 1997 and 1996 reflected the
hiring and related travel expenses of full-time marketing and sales personnel,
the development of product brochures and other marketing material and the costs
related to the Company's representation at trade shows.
Research and Development
Research and development expenses have continued to increase from
$930,000 in 1995, to $1,179,000 in 1996, and to $2,008,000 in 1997. The
Company's extensive effort to develop its products for Microsoft WindowsNT and
the continued development of its GEM products represented the majority of the
research and development expenditures during 1997.
General and Administrative
General and administrative expenses have increased from approximately
$1.2 million in 1995, to approximately $1.6 million during 1996, and to
approximately $2.2 million in 1997. The primary increases in general and
administrative expenses in 1997 when compared to 1996 are expenses to maintain
an office in Tampa, amortization of goodwill, amortization of technology,
amortization of capitalized software, depreciation, and expenses related to
-18-
raising of additional capital. The Company closed its Tampa office in December
1997.
Compensation - Stock Options
During 1997, the Company recorded, in accordance with APB 25, the
compensation cost related to all options granted during 1997 and any currently
outstanding options that have been previously granted to employees.
Additionally, the Company has expensed that portion of the compensation cost
related to employee services rendered during 1997. Employee services are assumed
to be rendered over the two year vesting period of the options. Compensation
expense recorded during 1997 was $234,000.
In 1995, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("FAS 123"), which was effective for the Company's fiscal year ending December
31, 1996. FAS 123 encourages, but does not require, companies to recognize
compensation expense based on the fair value of grants of stock, stock options
and other equity investments to employees. Although expense recognition for
employee stock-based compensation is not mandatory, FAS 123 requires that
companies not adopting must disclose the pro forma effect on net income and
earnings per share. The Company will continue to apply prior accounting rules
and make pro forma disclosures in 1998.
Gain on Disposition of Assets
The Company sold its facility in Provo, Utah in September, 1996 and
recognized a gain of $352,000. The Company had gains from the sale of various
other assets of $8,000 during 1996. In 1997 the Company had no gains from the
sale of assets.
Minority Interest in Loss from Operations of Subsidiary
The Company's loss in the operations of its subsidiary, Cimetrix (USA)
Incorporated was reduced by $199,000 in 1995 to reflect the share of the loss
attributable to the minority interest of Cimetrix (USA) Incorporated. Cimetrix
(USA) Incorporated was merged into Cimetrix effective August 31, 1995.
Liquidity and Capital Resources
On September 3, 1997, the Company's S-2 registration statement, for an
offering of a minimum of $3,000,000 and a maximum of $10,000,000 aggregate
principal amount of its unsecured 10% Senior Notes due 2002 at 100% of face
value, coupled with Warrants to purchase 250 shares of the Company's Common
Stock for each $1,000 principal amount of Senior Notes purchased, was declared
effective by the Securities and Exchange Commission. The offering was sold by
the Company and was not underwritten. On November 21, 1997, the offering was
closed. At that time the Company had received proceeds of $3,316,000. The
Company netted $3,168,000 after offering costs of $145,000. The proceeds
of the offering will be used for working capital and other general corporate
purposes throughout 1998.
The Company had $2,179,000 in working capital at December 31, 1997,
compared with $2,876,000 and $2,930,000 at the end of fiscal years 1996 and
1995, respectively. The availability of working capital at December 31, 1997 was
attributable to the sale of the Company's Senior Notes in the third quarter of
1997, which generated approximately $3.3 million in cash. Cash in the amount of
$1,475,000 was also generated from the exercise of stock options. The Company's
-19-
future liquidity will continue to be dependent on the Company's operating cash
flow and management of trade receivables. Management believes that the Company's
working capital is sufficient to maintain its current and immediately
foreseeable levels of operations.
The Company had negative cash flow from operating activities of
approximately $4.1 million for fiscal year 1997 compared to approximately $2.0
million for fiscal year 1996 and approximately $2.9 million for fiscal year
1995.
The Company anticipates that capital expenditures for fiscal year 1998,
primarily for computer equipment and software, will be approximately $150,000.
Management believes that the Company has sufficient funds to meet its capital
expenditure requirements for 1998.
The Company has not been adversely affected by inflation as
technological advances and competition within the software industry have
generally caused prices of the products sold by the Company to decline. The
Company has not been adversely affected by poor economic conditions existing in
Asia because the Company's software represents a small portion of our customers
product costs. However, there are continued economic risks inherent in foreign
trade, particularly with respect to Japan.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Company called for by this item are
contained in a separate section of this report. See "Index to Financial
Statements" on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
On January 30, 1998, the Company terminated its relationship with its
independent auditor, Pritchett, Siler & Hardy. On the same date, the Company
signed an engagement letter with Tanner + Co., Certified Public Accountants,
based in Salt Lake City, Utah, to perform an independent audit of the Company's
1997 financial statements and to prepare its state and federal tax returns. The
change in accountants was not due to any disagreements over accounting
principles or financial disclosure.
PART III
ITEMS 10 - 13.
Pursuant to General Instruction G(3) of Form 10-K, the information required by
Items 10-13 of Form 10- K (except for the information regarding executive
officers who are not directors of the Company, which is included as a
Supplemental Item under Part I of this Report) is incorporated by reference from
the information included in the Proxy Statement under the headings "Security
Ownership Of Certain Beneficial Owners And Management", "Election of Directors",
"Executive Compensation" and "Certain Relationships And Related Transactions".
The Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the end of the fiscal year
covered by this report.
-20-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements and Schedules
The independent auditors' report with respect to the above-listed
financial statements appears on page F-2 of this report.
The financial statements of Cimetrix as set forth under Item 8 are
filed as part of this report and appear on page F-3 of this report
Financial statement schedules have been omitted since they are
either not required, not applicable, or the information is
otherwise included in the financial statements and notes thereto.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended
December 31, 1997.
(c) Exhibit Listing
Exhibit No. Description
3.1 Articles of Incorporation (1)
3.2 Articles of Merger of Cimetrix (USA)
Incorporated with Cimetrix Incorporated (6)
3.3 Bylaws (1)
10.1 Proxy Agreements between Keith Seolas and
his family, and Paul Bilzerian,
transferring voting rights to Mr.
Bilzerian (4)
10.2 Consulting and option agreement between
Cimetrix and Paul Bilzerian to resolve
management difficulties (4)
10.3 Indemnity agreement between Cimetrix and
former officers and directors of Cimetrix
for return of shares and release from
related payables/receivables (5)
10.4 Technology Sale and Purchase Agreement
between Cimetrix and Brigham Young
University (6)
10.5 Stock Option Plan of Cimetrix
Incorporated (2)
10.6 Supplementary Consulting Agreement between
Cimetrix and Bicoastal Holding Company for
services of Paul Bilzerian (3)
27 Financial Data Schedule
- ------------------------
(1) Incorporated by reference to Annual Report on Form 10-K For The Fiscal Year
Ended December 31, 1993.
(2) Incorporated by reference to Annual Report on Form 10-K For The Fiscal Year
Ended December 31, 1994.
-21-
(3) Incorporated by reference to Annual Report on Form 10-K For The Fiscal Year
Ended December 31, 1995.
(4) Incorporated by reference to the Quarterly Report on Form 10-QSB For The
Quarter Ended March 31, 1994.
(5) Incorporated by reference to the Quarterly Report on Form 10-QSB For The
Quarter Ended June 30, 1994.
(6) Incorporated by reference to the Quarterly Report on Form 10-QSB For The
Quarter Ended September 30, 1995.
-22-
SIGNATURES
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 on March 20,
1997.
CIMETRIX INCORPORATED
By: /S/ RILEY G. ASTILL
----------------------------------------
RILEY G. ASTILL
Vice President of Finance and Chief
Financial Officer (Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on March 20, 1997.
SIGNATURE CAPACITY
/S/ PAUL A. BILZERIAN President and Chief Executive Officer
- ------------------------------- and Director (as Director and Principal
PAUL A. BILZERIAN Executive Officer)
/S/ DOUGLAS A. DAVIDSON Director
- -------------------------------
DOUGLAS A. DAVIDSON
/S/ DR RONALD LUMIA Director
- -------------------------------
DR RONALD LUMIA
/S/ RANDALL A. MACKEY Director
- -------------------------------
RANDALL A. MACKEY
/S/ DR. LOWELL K. ANDERSON Director
- -------------------------------
DR. LOWELL K. ANDERSON
-23-
CIMETRIX INCORPORATED
Index to Financial Statements
- --------------------------------------------------------------------------------
Page
Report of Tanner + Co. F-2
Report of Pritchett, Siler & Hardy, P.C. F-3
Balance sheet F-4
Statement of operations F-5
Statement of stockholders' equity F-6
Statement of cash flows F-7
Notes to financial statements F-8
- --------------------------------------------------------------------------------
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Cimetrix Incorporated
We have audited the balance sheet of Cimetrix Incorporated as of December 31,
1997, and the related statements of operations, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cimetrix Incorporated as of
December 31, 1997, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
TANNER+Co.
Salt Lake City, Utah
March 3, 1998
F-2
INDEPENDENT AUDITORS' REPORT
Board of Directors
CIMETRIX INCORPORATED
We have audited the accompanying balance sheet of Cimetrix Incorporated at
December 31, 1996 and the related statements of operations, stockholders' equity
and cash flows for the years ended December 31, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of Cimetrix Incorporated as of
December 31, 1996, and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
PRITCHETT, SILER & HARDY, P.C.
Salt Lake City, Utah
February 26, 1997
- -------------------------------------------------------------------------------
F-3
CIMETRIX INCORPORATED
Balance Sheet
(In thousands, except share amounts)
December 31,
- ----------------------------------------------------------------------------------------------------------
Assets 1997 1996
------
-----------------------------------
Current assets:
Cash and cash equivalents $ 1,927 $ 2,785
Receivables, net 701 617
Inventories 53 533
Prepaid expenses and other current assets 121 285
-----------------------------------
Total current assets 2,802 4,220
Property and equipment, net 2,274 2,036
Goodwill, net 2,753 2,971
Other assets 190 -
-----------------------------------
$ 8,019 $ 9,227
===================================
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 355 $ 671
Accrued expenses 183 459
Customer deposits 49 170
Current portion of long-term debt 36 44
-----------------------------------
Total current liabilities 623 1,344
-----------------------------------
Long-term debt 3,546 252
-----------------------------------
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.0001 par value, 100,000,000 shares
authorized; 24,343,928 and 18,121,428 shares
issued and outstanding, in 1997 and 1996, respectively 2 2
Additional paid-in capital 19,881 18,406
Unearned compensation - stock options - (234)
Treasury stock, at cost (1,000) -
Accumulated deficit (15,033) (10,543)
-----------------------------------
Total stockholders' equity 3,850 7,631
-----------------------------------
$ 8,019 $ 9,227
===================================
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-4
CIMETRIX INCORPORATED
Statement of Operations
(In thousands, except share amounts)
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------
Net sales $ 2,195 $ 2,396 $ 664
-----------------------------------------------------
Operating expenses:
Cost of sales 1,057 1,342 446
General and administrative 2,288 1,577 1,231
Selling, marketing and customer support 1,066 1,494 947
Research and development 2,008 1,179 930
Compensation expense - stock options 234 685 -
-----------------------------------------------------
6,653 6,277 3,554
-----------------------------------------------------
Loss from operations (4,458) (3,881) (2,890)
-----------------------------------------------------
Other income (expense):
Interest income 53 108 172
Interest expense (97) (52) (26)
Other income 12 10 1
Gain on disposition of assets - 360 -
-----------------------------------------------------
(32) 426 147
-----------------------------------------------------
Loss before minority interest and income taxes (4,490) (3,455) (2,743)
Less minority interest in loss from operations
of subsidiary - - 199
-----------------------------------------------------
Loss before income taxes (4,490) (3,455) (2,544)
Benefit from income taxes - - -
Net loss $ (4,490)$ (3,455)$ (2,544)
=====================================================
Loss per common share $ (.20)$ (.19)$ (.16)
=====================================================
Loss per common share - assuming dilution $ (.20)$ (.19)$ (.16)
=====================================================
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-5
CIMETRIX INCORPORATED
Statement of Stockholders' Equity
(In thousands, except share amounts)
Years Ended December 31, 1997, 1996 and 1995
- ----------------------------------------------------------------------------------------------------------
Unearned
Compen-
Additional sation on
Treasury Stock Common Stock Paid-In Stock Accumulated
----------------------------------------
Shares Amount Shares Amount Capital Options Deficit Total
---------------------------------------------------------------------------------
Balance at January 1, 1995 - $ - 14,506,684 $ 2 $ 8,155 $ - $ (4,544) $ 3,613
Shares issued for technology - - 120,000 - 450 - - 450
Shares issued to acquire
minority interest in former
subsidiary - - 2,829,419 - 4,067 - - 4,067
Net effect of merger of
minority interest - - - - (487) - - (487)
Stock issued through private
placement memorandum - - 1,000,000 - 3,971 - - 3,971
Net loss - - - - - - (2,544) (2,544)
---------------------------------------------------------------------------------
Balance at December 31, 1995 - - 18,456,103 2 16,156 - (7,088) 9,070
Stock options exercised - - 340,325 - 1,081 - - 1,081
Warrants exercised - - 125,000 - 250 - - 250
Cancellation of shares
returned by former
directors - - (800,000) - - - - -
Stock compensation - - - - 919 (234) - 685
Net loss - - - - - - (3,455) (3,455)
---------------------------------------------------------------------------------
Balance, December 31, 1996 - - 18,121,428 2 18,406 (234) (10,543) 7,631
Warrants exercised - - 6,192,500 - 1,385 - - 1,385
Purchase of treasury stock 200,000 1,000 - - - - - (1,000)
Stock options exercised - - 30,000 - 90 - - 90
Stock compensation - - - - - 234 - 234
Net loss - - - - - - (4,490) (4,490)
---------------------------------------------------------------------------------
Balance at December 31,
1997 200,000 $ 1,000 24,343,928 $ 2 $ 19,881 $ - $ (15,033)$ 3,850
=================================================================================
- --------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-6
CIMETRIX INCORPORATED
Statement of Cash Flows
(In thousands)
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------------------
Cash flows from operating activities:
Net loss $ (4,490)$ (3,455)$ (2,544)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization and depreciation 754 635 390
Provision for losses on receivables 116 - -
(Gain) loss on disposition of assets - (360) 3
Stock compensation expense 234 685 -
Minority interest in operations of subsidiary - - (199)
(Increase) decrease in:
Receivables (200) (549) (22)
Inventories 284 86 (321)
Prepaid expenses and other current assets 164 (57) (110)
Other assets (190) 9 1
Increase (decrease) in:
Accounts payable (316) 497 (174)
Accrued expenses (276) 337 32
Customer deposits (221) 170 -
--------------------------------------------
Net cash used in
operating activities (4,141) (2,002) (2,944)
--------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (478) (256) (979)
Purchase of real estate property - (198) -
Proceeds from disposal of real estate property - 453 -
Payments for other assets, net - (20) (4)
Proceeds from disposal of property - 1,174 -
--------------------------------------------
Net cash (used in) provided by
investing activities (478) 1,153 (983)
--------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,475 1,331 4,000
Proceeds from long-term debt 3,333 (22) -
Payments on long-term debt (47) (20) (1,064)
Retirement of common stock (1,000) - -
Payments of stock offering costs - - (29)
--------------------------------------------
Net cash provided by
financing activities 3,761 1,289 2,907
--------------------------------------------
Net (decrease) increase in cash and cash equivalents (858) 440 (1,020)
Cash and cash equivalents at beginning of year 2,785 2,345 3,365
--------------------------------------------
Cash and cash equivalents at end of year $ 1,927 $ 2,785 $ 2,345
============================================
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-7
CIMETRIX INCORPORATED
Notes to Financial Statements
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
1. Summary of Business and Significant Accounting Policies
Organization
Cimetrix Incorporated (Cimetrix or the Company) is primarily engaged in the
development and sale of open architecture, standards-based, personal computer
software for controlling machine tools, robots, and electronics industry
equipment. The Company was organized under the laws of the State of Utah on
December 31, 1985. In September 1990, Cimetrix merged with a newly incorporated
Nevada company, effectively changing its domicile to that state. Cimetrix (USA)
Incorporated, a former wholly-owned subsidiary of Cimetrix, was organized under
the laws of the State of Florida on June 7, 1994. In July 1994, Cimetrix
acquired 20,000,000 shares of common stock of Cimetrix (USA) Incorporated in
exchange for the transfer of substantially all of the assets of Cimetrix, and
the assumption of $635,000 of convertible promissory notes payable. Cimetrix
(USA) Incorporated subsequently sold shares of its common stock to private
investors resulting in an approximate 12% minority interest. Effective August
31, 1995, Cimetrix purchased the minority interest in Cimetrix (USA)
Incorporated stock held by the minority shareholders. Simultaneously, Cimetrix
(USA) Incorporated was merged into Cimetrix leaving Cimetrix as the surviving
entity. From June 7, 1994 to August 31, 1995, the financial statements included
the results of Cimetrix and Cimetrix (USA) Incorporated, adjusted for minority
interests.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been within the range
of management's expectations.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such account and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Use of Estimates in the Preparation of Financial Statements 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.
- --------------------------------------------------------------------------------
F-8
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Business and Significant Accounting Policies Continued
Cash Equivalents
For purposes of the statement of cash flows, cash includes all cash and
investments with original maturities to the Company of three months or less.
Inventories
Inventories are recorded at the lower of cost or market, cost being determined
on a first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation and amortization on capital leases and property and equipment is
determined using the straight-line method over the estimated useful lives of the
assets or terms of the lease. Expenditures for maintenance and repairs are
expensed when incurred and betterments are capitalized. Gains and losses on sale
of property and equipment are reflected in operations.
Software Development Costs
Certain software development costs are capitalized when incurred in accordance
with Financial Accounting Standards Board Statement No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" (SFAS 86).
Capitalization of software development costs begins upon the establishment of
technological feasibility. Costs incurred prior to the establishment of
technological feasibility are expensed as incurred. The Company also expenses
hardware design and prototype expenses as incurred as research and development
costs. The establishment of technological feasibility and the ongoing assessment
of recoverability of capitalized software development costs requires
considerable judgement by management with respect to certain external factors,
including, but not limited to, technological feasibility, anticipated future
gross revenues, estimated economic life and changes in software and hardware
technologies.
Amortization of capitalized software development costs is provided on a product-
by-product basis at the greater of the amount computed using (a) the ratio of
current gross revenues for a product to the total of current and anticipated
future gross revenues or (b) the straight-line method over the remaining
estimated economic life of the product. Software costs are carried at the net of
unamortized cost or net realizable value. Net realizable value is reviewed on an
annual basis after assessing potential sales of the product in that the
unamortized capitalized cost relating to each product is compared to the net
realizable value of that product and any excess is written off as required by
SFAS No. 86.
- --------------------------------------------------------------------------------
F-9
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Business and Significant Accounting Policies Continued
Goodwill
Goodwill reflects the excess of the costs of purchasing the minority interest of
Cimetrix (USA) Incorporated over the fair value of the related net assets at the
date of acquisition, and is being amortized on the straight line basis over 15
years. At December 31, 1997 and 1996, the accumulated amortization was
approximately $508,000 and $290,000, respectively. Amortization expense charged
to operations for 1997, 1996, and 1995 was approximately $218,000, 218,000, and
$72,000, respectively.
Technology
The Company has purchased technology that is referred to as ROBLINE and ROBCAL.
ROBLINE and ROBCAL, together with other technology developed by the Company,
have enabled the Company to develop the Cimetrix Open Development Environment
("CODE") which includes "open architecture" standards-based, operating systems
software and controller hardware that allow manufacturing engineers to replace
cumbersome proprietary systems with open systems when designing automated
workcells. The Company purchased all rights, title, interest, and benefit in and
to the intellectual property for cash payments of $50,000 per year for ten
years, plus 120,000 shares of restricted common stock of the Company valued at
$3.75 per share. The cash payments were discounted using an incremental
borrowing rate of 9.5% and recorded as a note payable of approximately $344,000
The technology is included in property and equipment and is being amortized on a
straight-line basis over 15 years.
Patents and Copyrights
The Company has obtained two patents related to certain technology. In addition,
the Company has registered its entire CODE software system products with the
Copyright Office of the United States, and will continue to timely register any
updates to current products or any new products. For the most part, other than
the two patents and the copyright registrations, the Company relies on
confidentiality and nondisclosure agreements with its employees and customers,
appropriate security measures, and the encoding of its software in order to
protect the proprietary nature of its technology. No cost has been capitalized
with respect to the patents.
Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting, principally related
to depreciation.
- --------------------------------------------------------------------------------
F-10
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Business and Significant Accounting Policies Continued
Earnings per Share
The computation of basic earnings per common share is based on the weighted
average number of shares outstanding during each year.
The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the year plus the common stock
equivalents which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the year.
Revenue Recognition
Revenue is recognized upon shipment of product or performance of services.
Reclassifications
Certain amounts in the 1996 and 1995 financial statements have been reclassified
to conform with the 1997 presentation.
2. Detail of Certain Balance Sheet Accounts
December 31,
------------------------------------
1997 1996
------------------------------------
Receivables (in thousands):
Trade receivables $ 797 $ 610
Other receivables 20 7
------------------------------------
817 617
Less allowance for doubtful
accounts (116) -
------------------------------------
$ 701 $ 617
====================================
- --------------------------------------------------------------------------------
F-11
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
2. Detail of Certain Balance Sheet Accounts Continued
December 31,
------------------------------------
1997 1996
------------------------------------
Inventories (in thousands):
Parts and supplies $ 53 $ 211
Work-in-process - 128
Finished goods - 194
------------------------------------
$ 53 $ 533
====================================
3. Property and Equipment
Property and equipment consists of the following (in thousands):
December 31,
-----------------------------------
1997 1996
-----------------------------------
Software development costs $ 984 $ 984
Technology 794 794
Equipment 977 495
Office equipment and software 455 305
Furniture and fixtures 267 208
Leasehold improvements 83 -
Automobiles 13 13
-----------------------------------
3,573 2,799
Accumulated depreciation and
amortization (1,299) (763)
-----------------------------------
$ 2,274 $ 2,036
===================================
- --------------------------------------------------------------------------------
F-12
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
4. Long-Term Debt
Long-term debt is comprised of the following (in thousands):
December 31,
-----------------------------------
1997 1996
-----------------------------------
Unsecured 10% senior notes, due 2002,
with interest payable semiannually
on April 1 and October 1 of each year,
commencing April 1, 1998 (see note 6)
$ 3,316 $ -
Note payable to a university in annual
installments of $50,000, including
imputed interest at 9.5%, secured by
technology 248 272
Capital lease obligations (see
note 5) 18 24
-----------------------------------
3,582 296
Less current portion (36) (44)
-----------------------------------
$ 3,546 $ 252
===================================
Future maturities of long-term debt are as follows (in thousands):
Year Amount
------------------
1998 $ 36
1999 36
2000 34
2001 35
2002 3,354
Thereafter 87
------------------
$ 3,582
==================
- --------------------------------------------------------------------------------
F-13
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
5. Lease Obligations
The Company leases certain office equipment under noncancellable capital leases.
Assets held under capital leases are included in property and equipment as
follows (in thousands):
December 31,
-----------------------------------
1997 1996
-----------------------------------
Office equipment $ 84 $ 63
Accumulated amortization (44) (28)
-----------------------------------
$ 40 $ 35
===================================
Amortization expense (in thousands) on capital leases for the years ended
December 31, 1997, 1996, and 1995 was $15, $13, and $12, respectively.
Future minimum lease payments under capital lease obligations at December 31,
1997 are as follows: (in thousands):
Year Amount
------------------
1998 $ 11
1999 7
2000 2
------------------
20
Less amount representing interest (2)
------------------
$ 18
==================
- --------------------------------------------------------------------------------
F-14
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
5. Lease Obligations Continued
The Company leases certain office space, vehicles, and residential apartments
under noncancellable operating lease agreements. Future minimum lease payments
required under operating leases are as follows (in thousands):
Year Amount
------------------
1998 $ 289
1999 248
2000 245
2001 245
2002 63
------------------
$ 1,090
==================
Rental expense for the years ended December 31, 1997, 1996, and 1995 on
operating leases was (in thousands) $269, $43, and $6, respectively.
6. Senior Notes Payable
During the year ended December 31, 1997, the Company sold $3,316,000 of its 10%
unsecured Senior Notes Due 2002 (Senior Notes) in a public offering. Interest on
the Senior Notes is payable semiannually on April 1 and October 1 of each year
commencing April 1, 1998, and mature on September 30, 2002.
Each purchaser of a Senior Note also received, for no additional consideration,
one common stock purchase warrant (a Warrant) for each $1,000 principal amount
of Senior Notes purchased. Each Warrant entitles the holder to purchase 250
shares of the Company's common stock (Common Stock) for $2.50 per share. The
Warrants are exercisable any time after October 31, 1998, and on or before
September 30, 2002, as a whole, in part, or increments, but only if the shares
of Common Stock issuable upon exercise of the Warrants are registered with the
Securities and Exchange Commission pursuant to a current and effective
registration statement and qualified for sale under the securities laws of the
various states where the Warrant holders reside. The Company will use its best
efforts to register the shares issuable pursuant to the Warrants before November
1, 1998. The exercise price of the Warrants is payable at the holder's option,
either in cash or by the surrender of Senior Notes at their face amount plus
accrued interest. The Warrants will be immediately transferable separately from
the Senior Notes.
- --------------------------------------------------------------------------------
F-15
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
6. Senior Notes Payable Continued
The Senior Notes are not redeemable by the Company before October 1, 1999.
Beginning October 1, 1999, the Senior Notes will be redeemable at the Company's
option, as a whole or in part, in increments of $1,000, at any time or from time
to time, at the redemption prices stated below plus accrued interest, upon not
fewer than 30 or more than 60 days advance notice. The redemption prices
(expressed in percentages of principal amount) for the 12-month period
commencing on October 1 of each year indicated are as follows:
Redemption
Period Price
------------------
1999 105%
2000 103%
2001 101%
Under certain circumstances related to a change in ownership control, the
Company may be required to repurchase the Senior Notes prior to the maturity
date.
7. Income Taxes
The benefit for income taxes is different than amounts which would be provided
by applying the statutory federal income tax rate to loss before income taxes
for the following reasons (in thousands):
Years Ended
December 31,
----------------------------------------------
1997 1996 1995
----------------------------------------------
Federal income tax
benefit at statutory rate $ 1,527 $ 1,175 $ 865
Life insurance and meals (15) - -
Valuation allowance (1,512) (1,175) (865)
----------------------------------------------
$ - $ - $ -
==============================================
- --------------------------------------------------------------------------------
F-10
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
7. Income Taxes Continued
Deferred tax assets (liabilities) are comprised of the following (in thousands):
December 31,
-----------------------------------
1997 1996
-----------------------------------
Net operating loss carryforwards $ 4,984 $ 3,484
Depreciation (316) (342)
Allowance for doubtful accounts 39 -
Accrued vacation 22 24
Deferred income 17 68
-----------------------------------
4,746 3,234
Less valuation allowance (4,746) (3,234)
-----------------------------------
$ - $ -
===================================
At December 31, 1997, the Company has a net operating loss carryforward
available to offset future taxable income of approximately $14,658,000, which
will begin to expire in 2004. If substantial changes in the Company's ownership
should occur, there would also be an annual limitation of the amount of NOL
carryforwards which could be utilized.
8. Supplemental Cash Flow Information
During the year ended December 31, 1997:
o The Company received $100,000 of equipment as customer deposits.
o The Company reclassified $196,000 of inventory to property and equipment.
During the year ended December 31, 1996, compensation expense of approximately
$685,000 was recognized for all currently outstanding and unexercised options.
- --------------------------------------------------------------------------------
F-17
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
8. Supplemental Cash Flow Information Continued
During the year ended December 31, 1995:
o The Company purchased the technology it had been licensing from Brigham
Young University by issuing 120,000 shares of common stock valued at $3.75
per share, and signing an agreement to make 10 annual payments of $50,000
cash. A note payable of $343,765 was recorded to reflect the discounted
present value of the 10 annual payments.
o The Company purchased the interest held by minority shareholders in the
Company's subsidiary by issuing 2,829,419 restricted shares of Cimetrix in
exchange for an equal number of shares of the subsidiary, Cimetrix (USA)
Incorporated, held by those minority shareholders. The subsidiary was then
merged into Cimetrix, effective August 31, 1995. The effect of the
purchase of the minority interest was to create goodwill in the amount of
$3,260,646 that was recorded by the Company. This amount is being
amortized on a straight-line basis over 15 years.
Actual amounts paid for interest and income taxes are as follows (in thousands):
Years Ended
December 31,
--------------------------------------------
1997 1996 1995
--------------------------------------------
Interest $ 35 $ 52 $ 26
============================================
Income taxes $ - $ - $ -
============================================
- --------------------------------------------------------------------------------
F-18
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
9. Major Customers
Sales to major customers which exceeded 10 percent of net sales are
approximately as follows (in thousands):
Years Ended
December 31,
--------------------------------------------
1997 1996 1995
--------------------------------------------
Company A $ 603 $ 815 $ -
Company B $ 355 $ - $ 193
Company C $ - $ 335 $ -
Company D $ - $ - $ 173
Company E $ - $ - $ 106
Company F $ - $ - $ 66
Export sales to unaffiliated customers were approximately $653,000, $1,080,000,
and $30,000 in 1997, 1996, and 1995, respectively. All major export sales were
made to Japan.
10. Employee Benefit Plan
The Company has a defined contribution retirement savings plan, which is
qualified under Section 401(K) of the Internal Revenue Code. The plan provides
retirement benefits for employees meeting minimum age and service requirements.
Participants may contribute up to 15% of their gross wages.
The Company will match 50% of the employees' contribution up to a maximum of 2%
of the employees' annual pay. Participants vest in the employers' contribution
over a five year period. For the years ended December 31, 1997, 1996, and 1995,
the Company contributed approximately $19,000, $19,000, and $16,000,
respectively, to the plan.
- --------------------------------------------------------------------------------
F-19
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Minority Interest
On July 31, 1994, the Company's subsidiary, Cimetrix (USA) Incorporated, sold
(by private placement memorandum) 2,500,000 shares of its common stock at $2.00
per share for total cash proceeds of $5,000,000. The sale of the common stock,
along with the conversion of $635,000 of convertible notes payable to the
subsidiary's common stock, created a 12.4% minority interest in the subsidiary.
In July 1995, the shareholders of the Company's subsidiary approved a merger of
the subsidiary into the Cimetrix through the exchange of one share of the
Company's restricted common stock for each of the 2,829,419 shares of the
subsidiary's common stock held by the minority interest shareholders. The merger
was effective August 31, 1995, and left Cimetrix as the sole surviving entity.
12. Related Party Transactions
During the year ended December 31, 1997, 1996, and 1995, the Company incurred
consulting fees of approximately $90,000, $50,000, and $50,000, respectively, to
a corporation controlled by the current President of the Company. During 1995,
the Company also provided the use of a furnished home to the corporation
controlled by the president of the Company.
The Company has an insignificant investment in an entity. The investment is
accounted for at the lower of cost or market and is included in other assets.
During the year ended December 31, 1997, the Company recognized sales of
$216,000 to this entity and as of December 31, 1997, had receivables of
approximately $155,000.
13. Stock Option Plan
Under the Stock Option Plan (the Option Plan), a maximum of 1,993,816 options
may be granted to purchase common stock at prices generally not less than the
fair market value of common stock at the date of grant. Under the Option Plan,
grants of options may be made to selected officers and key employees without
regard to any performance measures. The options may be immediately exercisable
or may vest over time as determined by the Board of Directors. However, the
maximum term of an option may not exceed five years.
- --------------------------------------------------------------------------------
F-20
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
13. Stock Option Plan Continued
Information regarding the stock options and warrants is summarized below:
Number of Weighted
Options Average
and Exercise
Warrants Price
-----------------------------------
Outstanding at January 1, 1995 8,121,166 $ .82
Granted 543,000 4.89
Forfeited (171,000) 2.42
-----------------------------------
Outstanding at December 31, 1995 8,493,166 1.03
Granted 669,500 7.83
Exercised (465,325) 2.86
Forfeited (593,953) 3.36
-----------------------------------
Outstanding at December 31, 1996 8,103,388 1.32
Granted 1,533,500 6.00
Exercised (6,222,500) .24
Forfeited (832,500) 5.93
-----------------------------------
Outstanding at December 31, 1997 2,581,888 $ 4.42
===================================
- --------------------------------------------------------------------------------
F-21
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
14. Stock-Based Compensation
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123) which established financial accounting and reporting standards for
stock-based compensation. The new standard defines a fair value method of
accounting for an employee stock option or similar equity instrument. This
statement gives entities the choice between adopting the fair value method or
continuing to use the intrinsic value method under Accounting Principles Board
(APB) Opinion No. 25 with footnote disclosures of the pro forma effects if the
fair value method had been adopted. The Company has opted for the latter
approach. Accordingly, no compensation expense has been recognized for stock
options. Had compensation expense for the Company's stock options been
determined based on the fair value at the grant date for awards in 1997, 1996,
and 1995 consistent with the provisions of SFAS No. 123, the Company's results
of operations would have been reduced to the pro forma amounts indicated below
(in thousands):
Years Ended
December 31,
----------------------------------------------
1997 1996 1995
----------------------------------------------
Net loss - as reported $ (4,490)$ (3,455)$ (2,544)
Net loss - pro forma $ (4,490)$ (3,514)$ (2,551)
Loss per share - as reported $ (.20)$ (.19)$ (.16)
Loss per share - pro forma $ (.20)$ (.19)$ (.16)
==============================================
The fair value of each option grant is estimated in the date of grant using the
Black-Scholes option pricing model with the following assumptions:
December 31,
--------------------------------------------
1997 1996 1995
--------------------------------------------
Expected dividend yield $ - $ - $ -
Expected stock price volatility 69% 89% 94%
Risk-free interest rate 5.5% 6.0% 6.4%
Expected life of options 2-5 years 5 years 5 years
--------------------------------------------
The weighted average fair value of options granted during 1997, 1996, and 1995
are $3.39, $.73, and $.42 respectively.
- --------------------------------------------------------------------------------
F-22
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
14. Stock-Based Compensation Continued
The following table summarizes information about stock options outstanding at
December 31, 1997:
Outstanding Exercisable
------------------------------------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding atContractual Average Exercisable Average
Exercise Prices 12/31/97 Life Exercise Price at Exercise Price
(Years) 12/31/97
- --------------------------------------------------------------------------------
$ 3.00 1,747,988 1.9 $ 3.00 918,888 $ 3.00
4.00-5.00 197,000 2.2 4.49 155,000 4.61
6.00-8.00 437,500 2.0 7.00 179,000 7.01
9.00-10.00 199,500 2.0 9.26 105,750 9.31
- --------------------------------------------------------------------------------
$3.00-10.00 2,581,888 3.0 $ 4.11 1,358,638 $ 4.20
================================================================================
15. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share," which
requires companies to present basic earnings per share (EPS) and diluted
earnings per share, instead of the primary and fully diluted EPS as previously
required. The new standard also requires additional informational disclosures,
and makes certain modifications to the previously applicable EPS calculations
defined in Accounting Principles Board No. 15. The new standard is required to
be adopted by all public companies for reporting periods ending after December
15, 1997, and requires restatement of EPS for all prior periods reported. During
the year ended December 31, 1997, the Company adopted this standard.
- --------------------------------------------------------------------------------
F-23
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
15. Earnings Per Share Continued
Earnings per share information in accordance with SFAS 128 is as follows:
Year Ended December 31, 1997
-----------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------
Net loss $ (4,490,000)
Less preferred stock
dividends -
----------------
Basic EPS
Loss available to
common stockholders (4,490,000) 22,185,000 $ (.20)
==============
Effect of Dilutive Securities
Stock options and warrants - -
---------------------------------
Diluted EPS
Loss to common
stockholders plus assumed
conversions $ (4,490,000) 22,185,000 $ (.20)
===============================================
Year Ended December 31, 1996
-----------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------
Net loss $ (3,455,000)
Less preferred stock
dividends -
----------------
Basic EPS
Loss available to
common stockholders (3,455,000) 18,517,000 $ (.19)
==============
Effect of Dilutive Securities
Stock options - -
---------------------------------
Diluted EPS
Loss available to common
stockholders plus assumed
conversions $ (3,455,000) 18,517,000 $ (.19)
===============================================
- --------------------------------------------------------------------------------
F-24
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
15. Earnings Per Share Continued
Year Ended December 31, 1995
-----------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------
Net loss $ (2,544,000)
Less preferred stock
dividends -
----------------
Basic EPS
Loss available to
common stockholders (2,544,000) 16,265,000 $ (.16)
==============
Effect of Dilutive Securities
Stock options - -
---------------------------------
Diluted EPS
Loss available to common
stockholders plus assumed
conversions $ (2,544,000) 16,265,000 $ (.16)
===============================================
16. Fair Value of Financial Instruments
None of the Company's financial instruments are held for trading purposes. The
Company estimates that the fair value of all financial instruments at December
31, 1997, does not differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance sheet. The estimated
fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. Considerable judgement is
necessarily required in interpreting market data to develop the estimates of
fair value, and, accordingly, the estimates are not necessarily indicative of
the amounts that the Company could realize in a current market exchange.
17. Continuing Operations
During its existence, the Company has incurred operating losses each year from
inception, including $4,490,000, $3,455,000, and $2,544,000 during the years
ended December 31, 1997, 1996, and 1995, respectively. Net cash used by
operations amounted to approximately $4,141,000, $2,002,000, and $2,944,000
during the same periods.
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F-25
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
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17. Continuing Operations Continued
Historically, the Company has raised the required financing for its activities
through the sale of the Company's common shares and from short-term borrowing.
During 1997, the Company sold $3,316,000 of its 10% unsecured senior notes due
2002 in a public offering (see note 6). The Company has also taken steps to
decrease general and administrative expenses. Management of the Company believes
that at December 31, 1997, the Company is capable of financially meeting the
demands inherent as normal sales continue to develop during 1998.
Because of the cash position of the Company at December 31, 1997, changes in
operating costs, and increases in sales activity, the accompanying financial
statements do not contain any adjustments relating to the recoverability and
classification of recorded asset amounts or the amount and classification of
liabilities that might be necessary, should the Company be unable to achieve
profitable operations and generate sufficient working capital to fund operations
and pay or refinance its current obligations.
18. Commitments and Contingencies
License Agreement
The Company entered into a license/royalty agreement with a provider of
real-time development licenses, which allowed the Company to resell real-time
development licenses to its customers. The Company has prepaid licenses, which
is being amortized until licenses and services from the provider have been
consumed. At December 31, 1997, 1996, and 1995, the amortized prepayment was
approximately $73,000, $130,000, and $165,000, respectively, and is included in
prepaid expenses and other current assets on the Company's balance sheet. The
agreement also provides the Company with the option, expiring on July 25, 1998,
to purchase all existing development operating system source code from the
provider.
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F-26
CIMETRIX INCORPORATED
Notes to Financial Statements
Continued
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18. Commitments and Contingencies Continued
Product Warranties
The Company provides certain product warranties to customers including repayment
or replacement for defect in materials and workmanship of hardware products. The
Company also warrants that software and firmware products will conform to
published specifications and not fail to execute the Company's programming
instructions due to defects in materials and workmanship. In addition, if the
Company is unable to repair or replace any product to a condition warranted,
within a reasonable time, the Company will provide a refund to the customer. As
of December 31, 1997, 1996, and 1995, no provision for warranty claims has been
established since the Company has not incurred substantial sales from which to
develop reliable estimates. Also, no refund has been paid to any customer as of
December 31, 1997. Management believes that any allowance for warranty would be
currently immaterial to the financial condition of the Company.
Litigation
The Company may become or is subject to investigations, claims or lawsuits
ensuing out of the conduct of its business, including those related to
environmental safety and health, product liability, commercial transactions etc.
The Company is currently not aware of any such items which it believes could
have a material adverse effect on its financial position.
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F-27