UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
|_| 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, Utah 84047-3757
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 256-6500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 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 |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's common stock as of
July 27, 1998 was 24,743,928.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share and share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
1998 1997 1998 1997
----- ---- ---- ----
NET SALES $ 1,096 $ 541 $ 1,859 $ 1,053
---------- ----------- ------------- -------------
OPERATING EXPENSES
Cost of sales 34 340 76 459
Selling, marketing and customer support 191 293 384 673
Research and development 374 498 694 922
General and administrative 444 635 820 1,065
---------- ----------- ------------- -------------
Total operating expenses 1,043 1,766 1,974 3,119
---------- ----------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 53 (1,225) (115) (2,066)
---------- ----------- -------------- --------------
OTHER INCOME (EXPENSES)
Interest income 13 12 28 33
Interest expense (60) (16) (152) (21)
----------- ----------- -------------- --------------
Total other income (expense) (47) (4) (124) 12
----------- ----------- -------------- -------------
INCOME(LOSS) BEFORE INCOME TAXES 6 (1,229) (239) (2,054)
CURRENT INCOME TAX EXPENSE
(BENEFIT) - - - -
NET INCOME (LOSS) $ 6 $ (1,229) $ (239) $ (2,054)
---------- ----------- -------------- --------------
BASIC AND DILUTED INCOME (LOSS)
PER COMMON SHARE $ .00 $ (.05) $ (.01) $ (.10)
=== ===== ===== =====
WEIGHTED AVERAGE SHARES
OUTSTANDING 24,743,928 22,438,428 24,743,928 21,142,678
========== ========== ========== ==========
2
CIMETRIX INCORPORATED
CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
June 30, December 31,
1998 1997
-------------- -------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,551 $ 1,927
Accounts receivable, net 1,140 701
Inventories 48 53
Prepaid expenses and other current assets 115 121
------------ ------------
Total current assets 2,854 2,802
Property and equipment, net 956 1,101
Capitalized software costs, net 413 511
Technology, net 635 662
Goodwill, net 2,645 2,753
Other assets 183 190
------------ ------------
$ 7,686 $ 8,019
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 33 $ 36
Accounts payable 101 355
Accrued expenses 135 183
Customer deposits 12 49
------------ ------------
Total current liabilities 281 623
LONG TERM DEBT, net of current portion 2,919 3,546
------------ ------------
Total Liabilities 3,200 4,169
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value: 100,000,000 shares
Authorized; 24,743,928 and 24,343,928 shares issued
And outstanding, respectively 2 2
Additional paid-in capital 19,756 19,881
Treasury stock, at cost - (1,000)
Accumulated deficit (15,272) (15,033)
------------- -------------
Net Stockholders' Equity 4,486 3,850
------------ ------------
$ 7,686 $ 8,019
------------ ------------
3
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1998 1997
---- ----
Cash Flows to Operating Activities:
Net Loss $ (239) $ (2,054)
Adjustments to reconcile net loss to net cash used by
Operating activities:
Amortization and depreciation 399 351
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (439) (186)
(Increase) decrease in inventory 5 132
(Increase) decrease in prepaid expenses 6 85
(Increase) decrease in other assets 7 --
Increase (decrease) in accounts payable (254) (87)
Increase (decrease) in accrued expenses (48) (316)
Increase (decrease) in customer deposits (37) (59)
------------- ----------
Net Cash Flow Used by Operating Activities (600) (2,134)
------------- ----------
Cash Flows to Investing Activities:
Purchase of property and equipment, net of retirements (21) (358)
------------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock -- 475
Sale of Treasury stock 275 --
Payments for capital lease obligations, net (3) (10)
Retirement of long-term debt (27) --
------------- ----------
Net Cash Flow Provided by
Financing Activities 245 465
------------ ----------
Net Decrease in Cash and Cash Equivalents (376) (2,027)
Cash and Cash Equivalents at the Beginning of Period 1,927 2,785
Cash and Cash Equivalents at the End of Period $ 1,551 $ 785
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 146,641 $ 10
Income taxes $ -- $ --
Supplemental Schedule of Noncash Investing and Financing
Activities:
Issuance of stock upon exercise of non-qualified
Options or warrant, net of repurchase $ -- $ 475
Issuance of stock in exchange for Senior Notes $ 600 $ --
4
CIMETRIX INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited condensed financial
statements of Cimetrix Incorporated have been prepared in accordance with
the Securities and Exchange Commission's instructions to Form 10-Q and,
therefore, omit or condense footnotes and certain other information
normally included in financial statements prepared in accordance with
generally accepted accounting principles. The accounting policies followed
for quarterly financial reporting conform with generally accepted
accounting policies disclosed in Note 1 to the Notes to Financial
Statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. In the opinion of management, all adjustments
of a normal recurring nature that are necessary for a fair presentation of
the financial information for the interim periods reported have been made.
Certain amounts for the six month period ended June 30, 1997 have been
reclassified to conform to the June 30, 1998 classification. The results of
operations for the six month period ended June 30, 1998 are not necessarily
indicative of the results that can be expected for the entire year ending
December 31, 1998. The unaudited condensed financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
NOTE 2 - STOCK OPTIONS AND WARRANTS
On January 23, 1998, the Company's Board of Directors adopted,
effective January 1, 1998, which received shareholder approval at the
annual meeting of shareholders held May 16, 1998, a stock option plan under
which options may be granted to officers, employees, directors and others.
The plan is intended to replace all prior option agreements between the
Company and its employees. A total of 2,000,000 shares of common stock have
been reserved for issuance under the plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the Company's Condensed
Financial Statements and Notes thereto included elsewhere in this Quarterly
Report. The ensuing discussion and analysis contains both statements of
historical fact and forward-looking statements. Forward-looking statements
generally are identified by the words "expects," "believes" and "anticipates" or
words of similar import. Examples of forward-looking statements include: (a)
projections regarding sales, revenue, liquidity, capital expenditures and other
financial items; (b) statements of the plans, beliefs and objectives of the
Company or its management; (c) statements of future economic performance, and
(d) assumptions underlying statements regarding the Company or its business.
Forward-looking statements are subject to certain factors and uncertainties that
could cause actual results to differ materially from the forward-looking
statements, including, but not limited to, those factors and uncertainties
described below under "Liquidity and Capital Resources" and "Factors Affecting
Future Results."
5
Overview
The Company is the developer of the world's first open
architecture, standards-based, personal computer (PC) software for
controlling machine tools, industrial robots and industrial automation
equipment that operates on the factory floor. The following table sets
forth the percentage of costs and expenses to net revenues derived from the
Company's Condensed Statements of Operations for the three and six months
ended June 30, 1998 and 1997:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
NET SALES 100% 100% 100% 100%
---- ---- ---- ----
OPERATING EXPENSES
Cost of sales 3 63 4 52
Selling, marketing and customer support 17 54 21 56
Research and development 34 92 37 87
General and administrative 41 117 44 101
---------- ------------ ------------ -----------
Total operating expenses 95 326 106 296
---------- ------------ ------------ -----------
INCOME (LOSS) FROM OPERATIONS 5 (226) (6) (196)
Interest income 1 2 1 3
Interest expense (6) (3) (8) (2)
----------- ------------ ------------- ------------
NET INCOME (LOSS) 1% (227%) (13%) (195%)
----------- ------------ ------------- ------------
Results of Operations
Three and Six Months Ended June 30, 1998 Compared to Three and Six Months Ended
June 30, 1997
Net Sales
Net sales increased by $555,000, or 103%, to $1,096,000 for the three
months ended June 30, 1998 from $541,000 for the three months ended June 30,
1997. Net sales increased by $806,000, or 77%, to $1,859,000 for the six months
ended June 30, 1998 from $1,053,000 for the six months ended June 30, 1997. The
increase in sales represents a greater acceptance of the Company's products by
customers in the SMT market.
Cost of Sales
Cost of sales decreased by $306,000, or 90%, to $34,000 for the three
months ended June 30, 1998 from $340,000 for the comparable period in 1997. Cost
of sales decreased by $383,000, or 83%, to $76,000 for the six months ended June
30, 1998 from $459,000 for the comparable period in 1997. This decrease was
attributable to the elimination of sales of hardware products, effective cost
control measures and an increase in chargeable engineering services.
6
Selling, Marketing and Customer Support
Selling, marketing and customer support costs decreased by $102,000, or
35%, to $191,000 for the three months ended June 30, 1998 from $293,000 for the
comparable period in 1997. Selling, marketing and customer support costs
decreased by $289,000, or 43%, to $384,000 for the six months ended June 30,
1998 from $673,000 for the comparable period in 1997. This decrease was
primarily due to the closure of sales offices and the elimination of the
associated overhead costs. There was also a decrease in the number of sales
personnel and related support staff.
Research and Development
Research and development expenses decreased by $124,000, or 25%, to
$374,000 for the three months ended June 30, 1998 from $498,000 for the
comparable period in 1997. Research and development expenses decreased by
$228,000, or 25%, to $694,000 for the six months ended June 30, 1998 from
$922,000 for the comparable period in 1997. The Company's extensive effort to
develop its products for WindowsNT and the continued development of the
Company's GEM software products represents most of the research and development
expenditures. The Company has a need and plans to continue to make significant
investments in research and development and expects to incur research and
development expenses of approximately $1.5 million during 1998.
General and Administrative
General and administrative expenses decreased by $191,000, or 30%, to
$444,000 for the three months ended June 30, 1998 from $635,000 for the
comparable period in 1997. General and administrative expenses decreased by
$245,000, or 23%, to $820,000 for the six months ended June 30, 1998 from
$1,065,000 for the comparable period in 1997. The primary reason for this
decrease was the closure of the Company's Tampa, Florida office. The closure
eliminated the need for administrative and support personnel and associated
overhead costs. Discontinuing the sale of hardware products also eliminated the
need for additional support personnel and overhead. A decrease in legal expenses
also contributed to the reduction in costs.
Liquidity and Capital Resources
The Company had approximately $2.6 million of working capital at June
30, 1998, compared with approximately $2.2 million at December 31, 1997. The
increase in working capital from December 31, 1997 to June 30, 1998 was
principally due to the sale of 200,000 shares of the Company's treasury stock.
The Company also issued 400,000 shares of its common stock to retire $600,000 of
its Senior Notes, resulting in significant interest expense savings. Cash used
in investing activities for the period ended June 30, 1998 was $21,000 compared
with $358,000 for the same period in 1997. Cash provided by financing activities
for the period ended June 30, 1998, was $245,000, compared to $465,000 for the
same period in 1997. The Company had negative cash flow from operating
activities of $600,000 for the quarter ended June 30, 1998, compared to
$2,134,000 for the same period in 1997.
The Company's 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 existing working capital is sufficient to maintain
its current and foreseeable levels of operations. Management also believes that
the Company has sufficient funds to meet its capital expenditure requirements
for 1998. The Company anticipates that capital expenditures for fiscal year
1998, primarily for computer equipment and software, will be approximately
$150,000.
7
The Company does not believe it has been significantly affected by
inflation as technological advances and competition within the software industry
have generally caused prices of the products purchased by the Company to
decline.
Sales to foreign customers account for a significant percentage of the
Company's revenues. Thus far, all the Company's international sales are payable
in United States dollars, so foreign currency exchange rates have not had any
effect on the Company's liquidity or results of operations. However, there are
continued risks inherent in foreign trade with respect to worldwide economic
conditions. Management continues to consider such risks with respect to its
decision making and strategic planning.
Factors Affecting Future Results
The Company entered into a new contract with an OEM customer, which
establishes a significant long-term relationship. This contract provides for
fixed quarterly payments that total $2.6 million over the next 18 months.
Management believes this relationship has the potential to generate significant
additional sales above the contract amount.
The Company's future operating results and financial condition are
difficult to predict and will be affected by a number of factors. The markets
for the Company's products are emerging and specialized, and the Company's
technology has been commercially available for a relatively short time.
Accordingly, the Company has limited experience with the commercial use and
acceptance of its products and the extent of the modifications, adaptations and
custom applications that are required to integrate its products and satisfy
customer performance requirements. There can be no assurance that the emerging
markets for industrial motion control that are served by the Company will
continue to grow or that the Company's existing and new products will satisfy
the requirements of those markets and achieve a successful level of customer
acceptance.
Because of these and other factors, past financial performance is not
necessarily indicative of future performance, historical trends should not be
used to anticipate future operating results, and the trading price of the
Company's common stock may be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results and market conditions.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on May 16,
1998 with proxies for the meeting solicited by the Company's Board of Directors,
pursuant to Regulation 14A under the Securities and Exchange Act of 1934. The
matters voted on at the meeting were as follows: the election of directors;
approval of the Company's 1998 Stock Option Plan. There was not any proxy
solicitation in opposition to management's proposals or nominees for election as
directors.
Both proposals were approved and adopted by the margins indicated below:
1. To elect five directors to the Company's Board of Directors to serve for one
year terms.
Number of Shares
For Withheld
Paul A. Bilzerian 18,808,528 182,155
Dr. Lowell K. Anderson 18,815,565 162,118
Dr. Ron Lumia 18,833,839 143,844
Randall A. Mackey 18,833,639 144,044
Bill Van Drunen 18,817,128 160,555
2. To approve the Cimetrix Incorporated 1998 Stock Option Plan.
For: 14,973,835
Against: 400,766
Abstain: 150,543
Broker Non-Vote: 8,618,784
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Document Name
3.1 Articles of Incorporation (1)
3.2 Articles of Merger with Cimetrix (USA)
Incorporated (5)
3.3 Bylaws (1)
10.1 Proxy Agreement between the Seolas family and
Paul A. Bilzerian (3)
10.2 Consulting and Option Agreement with Paul A.
Bilzerian (3)
10.3 Indemnity Agreement with former officers and
directors (4)
10.4 Technology Sale and Purchase Agreement with
Brigham Young University (5)
10.5 1994 Stock Option Plan (2)
10.6 Lease with Capitol Properties Four, L.C. (6)
10.7 Agreement with Bicoastal Holding Company for
services by Paul A. Bilzerian and
9
Terri L. Steffen. (6)
10.8 1998 Incentive Stock Option Plan. (7)
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. (3) Incorporated by reference to Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994. (4)
Incorporated by reference to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994. (5) Incorporated by reference to
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995. (6) Incorporated by reference from the Registration
Statement on Form S-2, File No. 333-60, as filed on July 2, 1997.
(7) Incorporated by reference from the Proxy Statement dated April
20, 1998, pertaining to the 1998 Annual Meeting of
Shareholders.
(b) Reports on Form 8-K
None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT
CIMETRIX INCORPORATED
Dated: July 30, 1998 By: /s/ Riley G. Astill
--------------------
RILEY G. ASTILL
Vice President of Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11