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 September 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
November 4, 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 Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
1998 1997 1998 1997
----- ---- ---- ----
NET SALES $ 1,103 $ 543 $ 2,962 $ 1,596
---------- ----------- ------------- -------------
OPERATING EXPENSES
Cost of sales 18 162 94 621
Selling, marketing and customer support 181 319 565 992
Research and development 334 583 1,027 1,505
General and administrative 453 584 1,273 1,649
---------- ----------- ------------- -------------
Total operating expenses 986 1,648 2,959 4,767
---------- ----------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 117 (1,105) 3 (3,171)
---------- ------------ ------------- --------------
OTHER INCOME (EXPENSES)
Interest income 17 1 45 34
Interest expense (58) (22) (210) (43)
----------- ------------ -------------- --------------
Total other income (expense) (41) (21) (165) (9)
----------- ------------ -------------- --------------
INCOME(LOSS) BEFORE INCOME TAXES 76 (1,126) (162) (3,180)
CURRENT INCOME TAX EXPENSE
(BENEFIT) - - - -
---------- ----------- ------------- -------------
NET INCOME (LOSS) $ 76 $ (1,126) $ (162) $ (3,180)
---------- ------------ -------------- --------------
BASIC AND DILUTED INCOME (LOSS)
PER COMMON SHARE $ .00 $ (.04) $ (.01) $ (.14)
=== ===== ===== =====
WEIGHTED AVERAGE SHARES
OUTSTANDING 24,743,928 24,143,928 24,319,686 22,143,095
========== ========== ========== ==========
2
CIMETRIX INCORPORATED
CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
September 30, December 31,
1998 1997
----------------- -----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,789 $ 1,927
Accounts receivable, net 986 701
Inventories 48 53
Prepaid expenses and other current assets 122 121
------------ ------------
Total current assets 2,945 2,802
Property and equipment, net 865 1,101
Capitalized software costs, net 364 511
Technology, net 622 662
Goodwill, net 2,590 2,753
Other assets 168 190
------------ ------------
$ 7,554 $ 8,019
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 1 $ 36
Accounts payable 101 355
Accrued expenses 188 183
Customer deposits 12 49
------------ ------------
Total current liabilities 302 623
LONG TERM DEBT, net of current portion 2,689 3,546
------------ ------------
Total Liabilities 2,991 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 (15,195) (15,033)
------------- -------------
Net Stockholders' Equity 4,563 3,850
------------ ------------
$ 7,554 $ 8,019
------------ ------------
3
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
1998 1997
---- ----
Cash Flows to Operating Activities:
Net Loss $ (162) $(3,180)
Adjustments to reconcile net loss to net cash used by
Operating activities:
Amortization and depreciation 604 541
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (285) 153
(Increase) decrease in inventory 5 277
(Increase) decrease in prepaid expenses 1 144
(Increase) decrease in other assets 22 (123)
Increase (decrease) in accounts payable (254) 68
Increase (decrease) in accrued expenses 5 (334)
Increase (decrease) in customer deposits (37) (74)
------- -------
Net Cash Flow Used by Operating Activities (101) (2,528)
------- -------
Cash Flows to Investing Activities:
Purchase of property and equipment, net of retirements (20) (556)
------- -------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock -- 475
Sale of Treasury stock 275 --
Payments for capital lease obligations, net (35) --
Retirement of long-term debt (257) --
------- -------
Net Cash Flow (Used In) Provided by
Financing Activities (17) 475
------- -------
Net Decrease in Cash and Cash Equivalents (138) (2,609)
Cash and Cash Equivalents at the Beginning of Period 1,927 2,785
------- -------
Cash and Cash Equivalents at the End of Period $ 1,789 $ 176
------- -------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 147 $ 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 nine month period ended September 30, 1997 have
been reclassified to conform to the September 30, 1998 classification. The
results of operations for the nine month period ended September 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 a stock
option plan, effective January 1, 1998, under which options may be granted
to officers, employees, directors and others. The plan received shareholder
approval at the annual meeting of shareholders held May 16, 1998. 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, at an exercise price of $2.50. To
date 1,279,500 options have been issued to employees, none of which have
been exercised.
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 nine months
ended September 30, 1998 and 1997:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
NET SALES 100% 100% 100% 100%
---- ---- ---- ----
OPERATING EXPENSES
Cost of sales 2 30 3 39
Selling, marketing and customer support 16 59 19 62
Research and development 30 107 35 94
General and administrative 41 108 43 103
---------- ------------ ------------ -----------
Total operating expenses 89 304 100 298
---------- ------------ ------------ -----------
INCOME (LOSS) FROM OPERATIONS 11 (203) 0 (199)
Interest income 2 0 2 2
Interest expense (5) (4) (7) (3)
----------- ------------ ------------- ------------
NET INCOME (LOSS) 7% (207%) (5%) (199%)
----------- ------------ ------------- ------------
Results of Operations
Three and Nine Months Ended September 30, 1998 Compared to Three and Nine Months
Ended September 30, 1997
Net Sales
Net sales increased by $560,000, or 103%, to $1,103,000 for the three
months ended September 30, 1998 from $543,000 for the three months ended
September 30, 1997. Net sales increased by $1,366,000, or 86%, to $2,962,000 for
the nine months ended September 30, 1998 from $1,596,000 for the nine months
ended September 30, 1997. The increase in sales represents a greater acceptance
of the Company's products by customers in the Surface Mount Technology ("SMT")
market.
Cost of Sales
Cost of sales decreased by $144,000, or 89%, to $18,000 for the three
6
months ended September 30, 1998 from $162,000 for the comparable period in 1997.
Cost of sales decreased by $527,000, or 85%, to $94,000 for the nine months
ended September 30, 1998 from $621,000 for the comparable period in 1997. This
decrease was attributable to the elimination of sales of hardware products,
royalties on products sold, effective cost control measures and an increase in
chargeable engineering services.
Selling, Marketing and Customer Support
Selling, marketing and customer support costs decreased by $138,000, or
43%, to $181,000 for the three months ended September 30, 1998 from $319,000 for
the comparable period in 1997. Selling, marketing and customer support costs
decreased by $427,000, or 43%, to $565,000 for the nine months ended September
30, 1998 from $992,000 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. These cost reductions were achieved while
the Company continued to increase sales and cultivate significant new customers.
Research and Development
Research and development expenses decreased by $249,000, or 43%, to
$334,000 for the three months ended September 30, 1998 from $583,000 for the
comparable period in 1997. Research and development expenses decreased by
$478,000, or 32%, to $1,027,000 for the nine months ended September 30, 1998
from $1,505,000 for the comparable period in 1997. This decrease was primarily
attributable to the elimination of the sales of hardware products. During 1997,
significant amounts were spent in the development of hardware products,
including wages, product development and product testing. Additional decreases
in research and development expenses were attributable to the fact that, with
its focus on only software products, the Company was better able to control its
software research and development expenses.
The Company's extensive effort to develop its products for WindowsNT
and the continued development of the Company's Generic Equipment Model ("GEM")
software products represents a large portion of the research and development
expenditures. The Company is also devoting its research and development
resources towards the development of new software products. Management believes
this is necessary to remain competitive in the rapidly changing software markets
in which the Company competes.
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. Similar expenses
are also planned in 1999. Research and development expenses include only direct
costs for wages, benefits, supplies and education of technical personnel.
Indirect costs are reflected in General and administrative expenses.
General and Administrative
General and administrative expenses decreased by $131,000, or 22%, to
$453,000 for the three months ended September 30, 1998 from $584,000 for the
comparable period in 1997. General and administrative expenses decreased by
$376,000, or 23%, to $1,273,000 for the nine months ended September 30, 1998
from $1,649,000 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
7
need for additional support personnel and overhead. A decrease in legal expenses
also contributed to the reduction in costs.
General and administrative costs include all direct costs for
administrative and accounting personnel, all rents and utilities. It also
includes all indirect costs such as depreciation of fixed assets and
amortization of intangible assets. Depreciation and amortization expense for the
three months ended September 30, 1998 was $205,000, or 45% of all general and
administrative expenses, compared to $191,000, or 33% for the comparable period
in 1997. Depreciation and amortization expense was $604,000, or 47% of all
general and administrative expenses for the nine months ended September 30,
1998, compared to $541,000, or 33% for the comparable period in 1997.
Other Income (expenses)
Interest income increased by $16,000, or 1600%, to $17,000 for the
three months ended September 30, 1998 from $1,000 for the comparable period in
1997. Interest income increased by $11,000, or 32%, to $45,000 for the nine
months ended September 30, 1998 from $34,000 for the comparable period in 1997.
Improved operating results have allowed the Company to maintain a cash reserve,
resulting in increased interest income. Cash reserves are invested in
conservative money market fund accounts.
Interest expense increased by $36,000, or 164%, to $58,000 for the
three months ended September 30, 1998 from $22,000 for the comparable period in
1997. Interest expense increased by $167,000, or 388% to $210,000 for the nine
months ended September 30, 1998 from $43,000 for the comparable period in 1997.
This increase was primarily attributable to interest expense on the Company's
10% Senior Notes. The balance outstanding on the Senior Notes as of September
30, 1998 was $2,691,000. Interest expense is accrued monthly and is paid
semi-annually on April 1, and October 1.
Liquidity and Capital Resources
The Company had approximately $2.6 million of working capital at
September 30, 1998, compared with approximately $2.2 million at December 31,
1997. The increase in working capital from December 31, 1997 to September 30,
1998 was due to the sale of 200,000 shares of the Company's treasury stock, and
increased sales. 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 September 30,
1998 was $20,000 compared with $556,000 for the same period in 1997. In 1997 the
Company moved to a new facility, which required capital improvements and
technical equipment. The shift away from hardware sales eliminated the need for
additional equipment in 1998. Technical equipment for programming and testing
will continue to be upgraded in the remainder of 1998 and the fiscal period
ended December 31, 1999. Net cash used by financing activities for the period
ended September 30, 1998, was $17,000. Retirement of long-term debt represented
the largest use of cash in financing activities, with the sale of treasury stock
providing all of the cash from financing activities. For the same period in
1997, proceeds from the issuance of common stock provided $475,000 of cash for
financing activities. The Company had negative cash flow from operating
activities of $101,000 for the period ended September 30, 1998, compared to
$2,528,000 for the same period in 1997.
In September 1998, the Company entered into an agreement with Brigham
Young University, whereby the Company's note payable to BYU was eliminated. This
results in net cash savings to the Company of $50,000 per year for the next
8
seven years. The agreement allows Brigham Young University the right to use the
Company's software products in engineering research projects over a limited
period of time.
Subsequent to the end of the third quarter, in October 1998, the
Company purchased and resold 180,722 shares of its common stock, resulting in a
positive cash flow to the Company of approximately $55,000.
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
$50,000.
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. Management is not aware of any
significant impact on its sales or operations, from the Asian or world economic
problems.
Factors Affecting Future Results
In the second quarter of 1998 the Company entered into a new contract
with an Original Equipment Manufacturer ("OEM") customer, which established a
significant long-term relationship. This contract provides for fixed quarterly
payments that total $2.6 million over the next 18 months. The first payment has
been received and the contract is progressing as anticipated. 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 this, the Company continues to devote research and
development resources to improve its existing products and devotes additional
resources to the development of new products (see Research and Development).
Because of these and other factors, past financial performance is not
necessarily indicative of future performance, historical trends should not be
9
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
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On August 31, 1998 the Company filed a Registration Statement on Form
S-3 relating to the resale of Common Stock issuable upon the exercise of
outstanding warrants and options and to certain Common Stockholders. The total
amount of Common Stock being registered is 8,408,500 shares. The Registration
Statement has not yet become effective.
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 Terri
L. Steffen. (6)
10
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
11
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: November 4, 1998 By: /s/ Riley G. Astill
--------------------
RILEY G. ASTILL
Vice President of Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
12