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, 1999
[ ] 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 84047-3757
(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. [X]
As of March 28, 2000, the registrant had 24,825,690 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
$88,000,000.
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 20, 2000 are
incorporated by reference into Part III hereof.
Page 1 of 50
FORM 10-K
For the Fiscal Year Ended December 31, 1998
TABLE OF CONTENTS
PART I
Item 1. Business............................................................3
Item 2. Properties.........................................................12
Item 3. Legal Proceedings..................................................12
Item 4. Submission of Matters to a Vote of Security Holders................13
PART II
Item 5. Market for Company's Common Stock and Related Stockholder Matters..13
Item 6. Selected Financial Data............................................15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................16
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....................21
Item 11. Executive Compensation.............................................21
Item 12. Security Ownership of Certain Beneficial Owners and Management.....21
Item 13. Certain Relationships and Related Transactions.....................21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....22
Signatures....................................................................23
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS.
The following Annual Report on Form 10-K contains various "forward
looking statements" within the meaning of federal securities laws. These forward
looking statements represent management's expectations or beliefs concerning
future events, including statements regarding anticipated product introductions,
changes in markets, customers and customer order rates, expenditures in research
and development, growth in revenue, taxation levels, the effects of pricing, and
the ability to continue to price foreign transactions in US currency. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties and several factors could cause actual results to differ
materially from those in the forward-looking statements.
These, and other forward looking statements made by the Company, must
be evaluated in the context of a number of factors that may affect the Company's
financial condition and results of operations, including, but not limited to,
those factors contained in Exhibit 99 attached to this Form 10-K.
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, the Company began developing and marketing UNIX based
software products that control the motion of automated manufacturing equipment
by entering into an exclusive license agreement with Brigham Young University.
The license agreement granted the Company 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.
General
Cimetrix is the developer of the world's first open architecture,
standards-based, personal computer (PC) software for controlling motion oriented
equipment that operates on the factory floor. The Cimetrix Open Development
Environment (CODE (TM))software products are based on industry and defacto
standards and use Microsoft's Windows NT operating systems. 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 software solutions.
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 has also
developed communications software products that enable compliance with the
Generic Equipment Model ("GEM"), which is a standard for communications between
manufacturing equipment and the factory's host computer in the electronics
industry. The GEM software products are designed to run on PCs and are capable
of migrating to new or different communications standards.
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Considerable R&D investments have been made and will continue to be
made to transition the original software products to use the latest object
oriented technology and add new features required by the market. Management
feels confident this investment will make both the Cimetrix CODE and
communication products more reliable, easier to deploy and feature rich.
The Industrial Motion Controller Market
The worldwide market for industrial motion control can be segmented
into single axis motion control and multiple axis motion control. Cimetrix
products are designed for the multiple axis segment and would be used in
applications such as electronics equipment, industrial robots and machine tools.
These industry segments utilize some form of computerized motion controller
technology to run automated mechanisms. Cimetrix is currently targeting the
electronics equipment and industrial robot markets.
Electronics Equipment Industry
The electronics equipment market consists of a variety of vertical
niches, including equipment for semiconductor wafer fabrication, semiconductor
back end, printed circuit board assembly (Surface Mount Technology), electronic
component assembly 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. Automation
equipment developed by the electronics industry is very expensive, with
individual mechanisms costing up to $500,000 each, versus $50,000 to $100,000
for general industrial robots.
The Company believes that end-users in this industry 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"). This specification was subsequently released by the IEEE
standards organization as IEEE PR 1533-1998 Low-Cost Open Architecture
Controller API Specification. Cimetrix has been significantly involved in the
development of this specification and has enhanced the CODE product to comply
with the 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.
The Company also believes that the SECS/GEM communications standards
used in the semiconductor and SMT industries will be of growing importance to
end users to increase information flow on the plant floor. At the request of a
major end user customer with extensive semiconductor and SMT operations, the
Company has developed SECS/GEM products to provide low cost connections between
plant floor and host level systems.
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.
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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. The RIA (Robotic Industries
Association) has started an effort to address the use of open architecture
controllers for robots. The Company plans to play an active role in this effort.
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.
The Movement Towards Open Architecture Controllers
Over the past 16 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 system. The
evolution of software standards and Object Oriented design techniques
significantly increased the reliability of software applications due to software
re-use. The Company believes this movement to standards-based systems is still
in the beginning stages 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 and software design
tools 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 assembly equipment, each
separated by vendorspecific 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. Proprietary control
vendors have responded to this challenge by introducing controllers with PC
"front-ends" that allow some level of changes primarily in the user interface.
True open architecture must occur from an open software design, which few
suppliers are willing to offer. At this point, it is unclear whether the
manufacturing end users will accept a PC front-end as a long term solution.
Enabling Technologies Drive the Solution
The current environment of multiple, vendor-specific technology
platforms emerged from the motion control industry at a time when PCs were too
slow and standard computer operating systems lacked the power and flexibility
required for motion control operations. Until now, these vendors developed
motion
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controllers with proprietary hardware platforms, operating systems and assembly
code programming languages that often locked end-users into older, slower
solutions. 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. Today, the following improvements in PC technology have made most
vendor-specific motion control solutions less desirable:
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 Software architecture design has shifted to using OO (Object
Oriented) analysis and design techniques, which result in
component based software solutions. This technology delivers
increased reliability and maximizes software re-use.
o The Microsoft Windows NT operating system has become the defacto
operating system in manufacturing. Features such as COM,
multi-tasking, multi-threading and real time capabilities have set
the stage for a common open software solution for machine motion
control. The recent introduction of NT Embedded allows further
tailoring of NT for industrial applications.
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(TM)) software is
the only software that currently provides all of the following
advantages:
1. Lower Hardware Costs. Because Cimetrix software products are
based on the PC computer platform and run on Microsoft's Windows
NT operating system,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 products are
designed to allow our OEM and integrator customers to maximize
design and code re-use. By using OO design and redeploying
standard packages over multiple applications, reliability is
greatly enhanced.
3. Reduced Application Development Time. CODE utilizes an
extensive library of APIs to access the underlying Cimetrix motion
control and I/O 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(TM)), and (ii) an on-line version with
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output to motion control equipment (CIMControl(TM)). 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 reduces the overall time to market
by approximately 30%.
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.
6. Conforms to NEMI/IEEE Standard. Cimetrix CODE software
substantially conforms to the NEMI/IEEE standard for PC motion
controllers.
PRODUCTS
The Company's main product family is called the
Cimetrix Open Development Environment (CODE(TM)). This technology
has been packaged into a set of standard products consisting of
the core products and a variety of supporting products.
o CIMulation(TM): 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 model with fully
functional kinematics. All application programs can be directly
transported for use with CIMControl. CIMulation includes the CODE
API(TM), which is a standard C/C++ library of over 400 function
calls used for automation application development. It is also
available as an OO class structure. 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++, customers can also develop their applications using Visual
Basic, Borland' Delphi and Cimetrix' CIMBuilder, a non-programmers
development environment based on the popular IEC-61131-3 style of
graphical programming.
o CIMControl(TM): 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 PC into an open
architecture controller. CIMControl also includes the CODE API.
Customer developed applications using CIMulation are directly
transportable to run on the physical mechanism using CIMControl.
Cimetrix has also developed supporting products aimed at shrinking
our customers' development cycle.
o CIMAppObjects(TM): A set of object oriented packages that solve
basic needs in customer's applications. This includes an
implementation of COM for the communication of data between
software components, a recipe handler, a diagnostics engine, and a
logging package. These packages allow faster development of OEM's
software applications, but still allow machine design
differentiation.
o CIMBuilder(TM): An Integrated Development Environment (IDE) that
can be used to build customer applications instead of C++,VB or
Delphi. CIMBuilder is technology purchased from Plug-N-Work
(Object Factory) and provides a graphical programming technique
complying with IEC-61131-3, a standard developed to program
programmable logic controllers. CIMBuilder enhances the standard
by allowing customers to use object oriented techniques without
being computer programmers. Also included in the IDE is a
browser-based Human Machine Interface
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(HMI) builder using Java Beans technology, a database connection,
a machine statistics package, and robot programming commands.
o CODE Support Tools: A set of software tools designed to increase
the speed of deployment of systems based on CODE. CIMTools(TM)
provides a fast method to interact with the CODE database model
and tools to assist with debug.
o CIMConnect(TM) and CIMHost(TM): These second generation
communications products are designed to provide protocol and
message format neutral object oriented solutions that allow
communication between equipment on the factory floor and host
level systems. GEM is the current 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 and cost associated with
obtaining GEM compliance. CIMConnect allows rapid implementation
of GEM with a clear migration to new emerging Internet based
standards. Without CIMConnect, it takes equipment builders between
six months to one year to add GEM compliance to their equipment.
Recognizing the need to simplify this process, one of the
Company's customers in the SMT industry urged Cimetrix to develop
a comprehensive tool set for implementing the GEM standard. The
resulting products, CIMConnect and CIMHost, have broad application
not only for CODE-based machines but also for many other types of
factory equipment. These products enable GEM compliance in a
matter of weeks. Cimetrix acquired technology from SDI, in
Vancouver, WA in December 1999 to broaden the communication line
to solve semiconductor communications in addition to those in the
SMT industry. This technology is currently being integrated into
CIMConnect and CIMHost and will allow Cimetrix to address a
broader communications market.
Competition
The manufacture and sale of automation technology is a highly
competitive industry. Cimetrix believes that its competition is divided into two
groups: in-house developed controllers and open controller suppliers.
In-house developed controllers are potentially competition, but more
importantly, they are potential customers. Robot manufacturers, CNC suppliers,
and electronics equipment suppliers all develop there own controllers, some on
PC platforms and some on proprietary hardware. They have problems hiring top
software talent that have experience with the latest Microsoft technologies.
Cimetrix offers a distinct advantage to them by increasing software quality
through our re-use techniques, decreasing the time to market for a new open
architecture controller, and assisting the transition of their engineering staff
to the latest technologies such as COM, UML and object oriented analysis and
design techniques. The Company's CODE and equipment communications software
products offer these advantages.
Open controller suppliers are currently a small segment of the overall
controls market. They are mostly small undercapitalized companies. Steeplechase,
Nematron, and ASAP all market PC-based controllers aimed primarily at sequence
control (I/O). Several of them have recently been purchased by larger
proprietary controller companies. They typically do not have robust motion
solutions and target different markets than Cimetrix. Trellis, a traditional
Cimetrix competitor, was recently purchased by KUKA Robotics. Management expects
to see additional competitors emerge in this group. None of these competitors
offer equipment communications software products.
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.
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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
During 1999, the Company's sales and marketing team targeted two
primary markets: Electronics Assembly/SMT and Robotics. 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 sales force is
coordinated by an Executive Vice President of Sales and four supporting regional
sales managers. Each salesperson is responsible for pursuing potential customer
leads in his or her territory and for qualifying customer relationships. The
Company's sales offices are located in Salt Lake City, UT, Boston, MA, Monmouth
Junction, NJ and Greenville, SC.
Operations
The Company's software operations are conducted through three principal
teams: Software Development, Quality/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 Software Development team is responsible for designing and
developing new software products. Working closely with customers and other
Company teams, they are also responsible for the deployment of software
products. This team is also responsible for product enhancements and bug fixes.
The Quality/Support team supports Cimetrix customers and development
engineers. Working closely with Software Development, Quality/Support provides
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 produces the Company's software
products on CD-ROM, from supplies and materials readily available in the
marketplace. 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
CODE software is based was developed from 1984 to 1989 by a team of Brigham
Young University engineers led by Dr. W. Edward Red. Effective July 5, 1995,
Cimetrix purchased from Brigham Young University all the rights, title, interest
and benefit from this intellectual property.
In December of 1999, the Company purchased the software products of
Plug n' Work, Inc., formerly known as Object Factory, Inc. of Greenville, South
Carolina. Plug n' Work's software products, which were marketed under the name
AART(TM), provide a graphical programming technique complying with IEC-61131- 3,
a standard developed to program programmable logic controllers. This technology
will now be marketed
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under the product name CIMBuilder, and will enhance the standard by allowing
customers to use object oriented techniques without being computer programmers.
In December of 1999, the Company also purchased the software products
of Systematic Designs International, Inc. ("SDI"), of Vancouver, WA. These newly
acquired products will broaden the Company's communication product line, now
focused in the SMT industry, to solve semiconductor industry communications.
This technology is currently being integrated into the Company's CIMConnect and
CIMHost products.
The technology purchased from Brigham Young University, Plug n' Work,
Inc, and SDI, 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 acquired through acquisitions. 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
In 1999, two customers accounted for 34% and 12% of the Company's
revenues, respectively, with sales to affiliates accounting for 17% of revenues.
No other single customer accounted for more than 10% of Company revenues in
1999. In 1998, three customers accounted for 37%, 11% and 10% of the Company's
revenues, respectively. No other single customer accounted for more than 10% of
the Company's revenues in 1998. In 1997, two customers accounted for 27% and 16%
of the Company's revenues respectively, with sales to affiliates accounting for
10% of revenues. No other single customer accounted for more than 10% of
revenues in 1997. With 46% of the Company's revenues for 1999 coming from two
major customers, the loss of either customer could have a significant adverse
effect on the Company's operations.
Subsequent to year end, the Company strengthened its relationship with
its Japanese affiliate, Aries, Inc., by investing an additional $478,000 for the
purchase of an additional 500 shares of Aries stock, bringing the Company's
holdings to 600 shares. The stock was purchased in a sale of 2,950 shares by
Aries and brings the Company's total ownership in Aries to approximately 18%.
Aries is the Company's distributor in Japan and sales to Aries represented 17%
of the Company's total sales in 1999.
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The following table summarizes sales to major customers, as a percent of total
sales:
Year Ended December 31,
1999 1998 1997
---- ---- ----
Company A 34 37 0
Company B 9 11 27
Company C 3 10 16
Company D 12 8 5
Affiliates 17 8 10
All Others 25 26 42
During the year ended December 31, 1999, approximately 67% of the
Company's revenues were from export sales, of which 17% were to affiliates.
The following table summarizes domestic and export sales, as a percent of total
sales:
Year Ended December 31,
1999 1998 1997
---- ---- ----
Domestic sales 33 46 61
Export sales 67 54 39
As of December 31, 1999, the Company continues to sign support service
agreements which are estimated to generate approximately $400,000 in revenues
over the term of the agreements, principally in the year 2000.
Personnel
As of March 28, 2000, the Company had 32 employees, 23 of whom are involved
in the technical development and support of customers and products, six in sales
and marketing and the remainder in finance and administrative positions. 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
49, 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 44,
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.
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Robert H. Reback, Executive Vice President of Sales, age 40, 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.
Michael D. Feaster, Vice President of Software Development, age 29,
joined the Company in April 1998, as Director of Customer Services. In December
1998, Mr. Feaster was promoted to Vice President of Software Development. From
1994 to 1998, Mr. Feaster was employed at Century Software, Inc., as the Vice
President of Software Development, directing 25 engineers. Century Software,
Inc., is a global supplier of PC to UNIX connectivity software, specializing in
internet access of Windows to legacy mission critical applications. From 1988 to
1994 he served as a software engineer contractor/subcontractor for such
companies as Fidelity Investments, IAT, Inc., NASA, and Mexico's Border
Inspection Division.
Riley G. Astill, Vice President of Finance, Chief Financial Officer, age
39, originally joined Cimetrix as Controller, in July, 1994. He remained
Controller until October, 1996, when he left the Company prior to its moving to
Tampa, Florida. 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
Texas. He has a B.S. Degree in Accounting from the University of Utah and a
Masters Degree in Accounting from Utah State University.
Dr. Steven K.Sorensen, Vice President and Chief Engineer, age 41, joined
the Company in 1990. 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 twelve years and is one of the principal architects of many of the
Company's most important products.
ITEM 2. PROPERTIES
The Company operates in a leased facility located at 6979 South High
Tech Drive, Midvale, Utah (about six miles south of Salt Lake City). The Company
signed a five year lease beginning in March of 1997. The 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.
In December 1999, the Company entered into a six month lease, for
$2,350 per month, for a residential property, which it provides rent-free to the
President and other employees as temporary accommodations.
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.
-12-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders
during the quarter ended December 31, 1999.
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 three
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.
Common Stock
Period (Calendar Year) Price Range
1997 High Bid Low Bid
--------------------- -------- -------
First quarter $ 7.50 $ 5.50
Second quarter $ 6.25 $ 3.25
Third quarter $ 4.42 $ 1.50
Fourth quarter $ 4.13 $ 1.42
1998
First quarter $ 2.13 $ 1.44
Second quarter $ 1.97 $ 1.25
Third quarter $ 2.56 $ 1.19
Fourth quarter $ 1.50 $ .56
1999
First quarter $ 1.19 $ .31
Second quarter $ 1.03 $ .45
Third quarter $ 4.06 $ .56
Fourth quarter $ 3.50 $ 1.88
2000
First quarter (as of 3/28/00) $ 7.00 $ 2.25
On March 28, 2000, the closing quotation for the Company's common stock
on the NASDAQ Bulletin Board was $4.69 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 28, 2000, there were 24,425,690 shares of common stock issued
and outstanding, held by approximately 2,500 beneficial shareholders.
-13-
The total outstanding shares of 24,425,690, includes the issuance of
2,160,000 shares used to acquire the software products and intellectual property
rights of Systematic Designs International, Inc., of Vancouver, WA, ("SDI"), and
Plug n' Work, Inc., of Greenville, SC, formerly known as Object Factory.
To date, 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.
Treasury stock of the Company is recorded at cost and is disclosed in
the Stockholders' Equity section of the Company's financial statements. The
Company has no plan to resell its treasury shares or issue additional shares of
stock unless it has a need for additional working capital.
Acquisitions
On December 1, 1999, the Company closed its transaction to acquire the
software products of Plug n' Work, in exchange for 1,200,000 shares of common
stock and approximately $300,000 in cash. The acquired software products
specialize in component-based machine control using open software standards. The
combination of the Plug n' Work products with those of Cimetrix will provide
customers with a complete solution for building component-based workcells on
open standards.
On December 3, 1999, the Company closed its transaction to acquire the
software products of SDI, in exchange for 960,000 shares of common stock. The
acquired software products enable the communication of data across the plant
floor using the SECS/GEM communications standard designed for the semiconductor
industry.
Options
A total of 2,000,000 shares of common stock have been reserved for
issuance under the Company's stock option plans. As of March 28, 2000, there
were issued and outstanding a total of 1,668,000 options for the purchase of the
Company's common stock. Each of the Company's stock option plans is discussed
below.
As of March 28, 2000, there were issued and outstanding , options for
the purchase of 1,410,000 shares of the Company's common stock, under the
Company's 1998 Stock Option Plan. Of these options, 1,067,500 are exercisable at
$2.50 per share with the remaining 342,500 exercisable at $3.00 per share.
Approximately 725,000 of these options are registered for resale, pursuant to a
Form S-3 Registration Statement, which became effective December 9, 1998. These
options will begin to expire in December 2002, and continue to expire through
January 2005.
As of March 28, 2000, there were issued and outstanding , options for
the purchase of 258,000 shares of the Company's common stock, under the
Company's Director Stock Option Plan. All of these options are exercisable at
$2.50 per share. Approximately 160,000 of these options are registered for
resale, pursuant to the Form S-3 Registration Statement discussed earlier in
this section. These options will begin to expire in January 2003, and continue
to expire through June 2004.
As of December 31, 1999, all options previously outstanding under the
Company's 1995 Stock Option Plan, which were exercisable at $3.00 to $10.00 per
share, expired.
-14-
Senior Notes and Common Stock Warrants
As of March 28, 2000, there were $2,681,000 of the Company's Senior
Notes issued and outstanding, held by 52 bondholders. The Senior Notes are due
and payable September 30, 2002. There were also 3,306 warrants issued with the
Senior Notes, issued and outstanding, held by 52 warrant holders. The number of
potential shares represented by these outstanding warrants is 826,500, or 250
shares for each warrant. The exercise price for the warrants is $2.50 per share,
with the warrants expiring October 1, 2002. On December 9, 1998, the underlying
shares from the outstanding warrants were registered for resale pursuant to the
Form S-3 Registration Statement discussed earlier in this section.
Subsequent Events
Significant events which occurred subsequent to the close of the
Company's fiscal year ended December 31, 1999 are discussed below.
On March 1,2000, the Company agreed to repurchase 250,000 shares of its
common stock, issued to SDI as part of the technology acquisition, for $500,000.
SDI will receive a one-time cash payment in the amount of $500,000, which is due
April 15, 2000.
Beginning on March 10, 2000, the Company sold 1,700,000 shares of its
common stock for $4,250,000 in a Private Placement. The net proceeds to the
Company from the private placement was approximately $4,243,000 The shares were
offered only to "accredited investors" as that term is defined in Regulation D
promulgated under the 1933 Act. The shares sold in the offering were restricted
shares and were therefore discounted from the existing market price at that
time. This item is not reflected in the Company's audited financial
statements as of December 31, 1999, but will be reflected in the appropriate
Forms 10-Q for the first and second quarters of 2000.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the Company's
audited financial statements, 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.
-15-
Statements of Operations Data
Years ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except per share data)
Revenues $ 3,853 $ 4,161 $ 2,195 $ 2,396 $ 664
Operating Expenses:
Cost of revenues 103 454 1,057 1,342 446
Selling, marketing and
customer support 734 713 1,066 1,494 947
Research and development 1,508 1,479 2,008 1,179 930
General and administrative 1,281 1,854 2,288 1,577 1,231
Impairment loss - 3,526 - - -
Compensation - stock options 12 20 234 685 -
---------- -------- -------- ------ ------
Total operating expenses 3,638 8,046 6,653 6,277 3,554
---------- -------- -------- ------ ------
Income (loss) from operations 215 (3,885) (4,458) (3,881) (2,890)
---------- -------- -------- ------ -------
Net Income (loss) $ 102 $(4,070) $ (4,490) $ (3,455) $(2,544)
========== ======== ======== ====== =======
Income (Loss) per
common share $ .01 $ (.17) $ (.20) $ (.19) $ (.16)
===== ===== ===== ===== =====
Dividends per common share - - - - -
===== ===== ===== ===== ======
Balance Sheet Data
Current assets $ 2,590 $ 2,839 $ 2,802 $ 4,220 $ 3,268
Current liabilities 883 398 623 1,344 338
Working capital 1,707 2,441 2,179 2,876 2,930
Total assets 9,374 3,762 8,019 9,227 9,722
Total long-term debt 2,681 2,691 3,546 296 338
Stockholders' equity 5,810 673 3,850 7,631 9,070
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Following is a brief discussion and explanation of significant
financial data, which is presented to help the reader better understand the
results of the Company's financial performance for 1999. The information
includes discussions of revenues, expenses, capital resources and other
significant items. Generally the information is presented in a three year
comparison format using 1999, 1998 and 1997 data.
-16-
Statements of Operations Summary
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,
1999 1998 1997
Net revenues 100% 100% 100%
------ ------ ------
Operating expenses:
Cost of revenues 3 11 48
Selling, marketing and customer support 19 17 49
Research and development 39 36 92
General and administrative 33 45 104
Compensation - stock options 0 1 11
Impairment Loss 0 85 0
------ ------ -----
Total operating expenses 94 193 303
------ ------ -----
Income (loss) from operations 6 (93) (203)
Interest income, net of expense (5) (5) (2)
Other income (expenses) 2 1 1
------ ------ ------
Net Income (loss) 3% (98)% (205)%
====== ====== ======
Net Revenues
Net revenues for the three fiscal years ended December 31, 1999, 1998,
and 1997 were $3,853,000, $4,161,000, and $2,195,000 respectively. Net revenues
for 1999 decreased $308,000, or 7%, from the same period in 1998. The decrease
in revenues was primarily due to the decrease in sales of engineering services,
as the Company continues to concentrate its efforts on the sale of its software
products.
Net revenues for 1999 included approximately $3.1 million of software
revenues, $265,000 of application engineering, and the remainder from support
agreements and training. Net revenues for 1998 included approximately $3 million
of software revenues, $685,000 of application engineering revenues and the
remainder from support agreements and training. Net revenues for 1997 included
approximately $1.3 million of software revenues, $86,000 of hardware revenues,
$530,000 of application engineering revenues and the remainder from support
agreements and training.
The following table summarizes net revenues by categories, as a percent
of total net revenues:
Year Ended December 31,
1999 1998 1997
---- ---- ----
Software revenues 81 73 59
Hardware revenues 0 0 4
Application revenues 7 17 24
Support/training revenue 12 10 13
The above results from 1999 reflect the Company's efforts to focus on
its OEM software sales channels and cultivate new OEM software customers.
-17-
Cost of Revenues
The Company's cost of revenues as a percentage of net revenues for the
years ended December 31, 1999, 1998, and 1997 were approximately 3%, 11%, and
48%, respectively. The cost of revenues decreased $351,000, or 77% to $103,000
in 1999, from $454,000 in 1998. This decrease is attributable to the decrease in
the sales of engineering services and the associated costs of those sales. It is
also attributable to the decline in the use of materials used to produce the
Company's software products such as manuals, which are now available on CD-Rom.
Many sales are also delivered via the Internet and do not require the shipment
of media which eliminates shipping costs.
As software revenues increase as a percentage of total revenues, the
cost of revenues will continue to decline. The cost of revenues from software
revenue was approximately 1% while the cost of revenues from applications
engineering and support was approximately 16%. In 2000, the cost of revenues for
software sales should remain less than 2%.
Selling, Marketing and Customer Support
Selling, marketing and customer support expenses increased $21,000, or
3%, to $734,000 in 1999, from $713,000 in 1998. This minimal increase, reflects
the Company's efforts to concentrate sales and marketing efforts on key target
markets, thus reducing the need for additional personnel and related travel and
office expenses in 1999.
Selling, marketing and customer support expenses in 1999, 1998 and 1997
reflected the payroll and related travel expenses of full-time sales, marketing
and customer support 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 increased by $29,000, or 2%, to
$1,508,000 in 1999, from $1,479,000 in 1998. These costs remained fairly
constant due to the Company's efforts to better allocate and control software
development expenditures. The large decrease in research and development costs
from 1997 to 1998 resulted from the elimination of research and development
costs related to hardware products. In 1997, considerable amounts were spent on
the development of hardware products, including wages, product development and
product testing, which were no longer required in 1998.
The Company's continued efforts 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 1999.
Research and development expenses include only direct costs for wages,
benefits, materials, and education of technical personnel. All indirect costs
such as rents, utilities, depreciation and amortization are reflected in general
and administrative expenses.
General and Administrative
General and administrative expenses decreased $573,000, or 31%, to
$1,281,000 in 1999, from $1,854,000 in 1998. This decrease was primarily
attributable to the reduction of depreciation and amortization expenses. Certain
assets which were being depreciated and amortized, were written-off in 1998,
resulting in lower expenses in 1999. Continued efforts to reduce operating and
legal expenses also contributed to the savings in 1999.
-18-
General and administrative costs include all direct costs for
administrative and accounting personnel, all rents and utilities for maintaining
company offices. These costs also include all indirect costs such as
depreciation of fixed assets and amortization of intangible assets. Depreciation
and amortization expense for 1999 decreased $492,000 or 62%, to $306,000, from
$798,000 in 1998. In 1999 depreciation and amortization expenses represented 24%
of all general and administrative expenses, compared to 43% in 1998.
Other Income (expenses)
Interest income increased by $2,000, or 3%, to $65,000 for 1999, from
$63,000 for 1998. 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 decreased by $7,000, or 3%, to $270,000 for1999, from
$277,000 for 1998. This decrease was primarily attributable to the retirement of
a portion of the Company's 10% Senior Notes through stock transactions. The
balance outstanding on the Senior Notes as of December 31, 1999 was $2,681,000.
Interest expense is accrued monthly and is paid semi-annually on April 1, and
October 1.
Compensation - Stock Options
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("FAS
123"). FAS 123 encourages, but does not require, companies to recognize
compensation expense based on the fair value of grants of 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 for stock option grants to employees. During 1999, the Company
recorded, in accordance with FAS 123, the compensation cost related to all
options granted for non-employee services rendered during 1999.
Liquidity and Capital Resources
The Company had $1,707,000 in working capital at December 31, 1999,
compared with $2,441,000 at December 31, 1998. The decrease of working capital
in 1999 resulted from a decrease in cash, which was used to acquire treasury
shares and used in acquisition transactions. Positive operating results allowed
the Company to maintain its working capital position.
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 working capital is sufficient to maintain its
current and immediately foreseeable levels of operations.
The Company had positive cash flow from operating activities of $86,000 for
1999, compared to a negative cash flow from operating activities of $504,000 and
$4,141,000 for 1998 and 1997 respectively. Reduced costs were primarily
responsible for this improvement.
-19-
The Company anticipates that capital expenditures for fiscal year 2000,
primarily for computer equipment and software, will be approximately $50,000.
Management believes that the Company has sufficient funds to meet its capital
expenditure requirements for 2000.
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 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, because sales to foreign customers account for a significant portion of
the Company's revenues.
Year 2000 Issues
The Company experienced no significant or material Year 2000 issues nor
did any such issues have an effect on the Company's day to day business, its
operations or financial condition. The Company is also not aware of any Year
2000 issues which affected its customers through the use of the Company's
software products.
Contacting Cimetrix
In an effort to make information available to shareholders and
customers, the Company has established its World Wide Web site www.cimetrix.com.
All shareholders or other interested parties are encouraged to access the
Company's web site before contacting the Company directly. We are committed to
keep the information on this site up to date. The Company's web site contains
the Company's public filings with the SEC, press releases, letters from the
president, detailed product information, customer information, and employment
opportunities.
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
None
-20-
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.
-21-
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 F2 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 F3 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, 1999.
(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 Agreement 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 A. 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)
27.0 Financial data schedule (7)
99.0 Forward Looking Statements Cautionary
Statement (7)
(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 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.
(7) Attached.
-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 28,
2000.
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 28, 2000.
SIGNATURE CAPACITY
/S/ PAUL A. BILZERIAN President and Chief Executive Officer
and Director (as Director and Principal
- --------------------- Executive Officer)
PAUL A. BILZERIAN
/S/ BILL VAN DRUNEN Director
- ---------------------
BILL VAN DRUNEN
/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-
EXHIBIT 99.0
FORWARD LOOKING STATEMENTS CAUTIONARY STATEMENT
Statements regarding the future prospects of the Company must be
evaluated in the context of a number of factors that may materially affect its
financial condition and results of operations. Disclosure of these factors is
intended to permit the Company to take advantage of the safe harbor provisions
of the PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Most of these factors
have been discussed in prior filings by the Company with the Securities and
Exchange Commission. Although the Company has attempted to list the factors that
it is currently aware may have an impact on its operations, other factors may in
the future prove to be important and the following list should not necessarily
be considered comprehensive.
1. EMPHASIS OF MATTER IN AUDITOR'S REPORT. The opinion rendered by
Tanner + Co., the Company's independent auditors, on the financial statements of
the Company states as of December 31, 1999 the Company earned a net income of
$102,000. The Company had an accumulated deficit of $19,001,000 at December 31,
1999.
2 LIMITED WORKING CAPITAL; Limited Operating History; Accumulated
Deficit; Anticipated Losses. As of December 31, 1999, the Company had working
capital of $1,707,000. The Company also has an accumulated deficit of
$19,001,000 as of December 31, 1999. Such losses have resulted principally from
costs incurred in connection with research and development and marketing of the
Company's CODE and GEM software product suites. CODE software was introduced
commercially in October 1995, and GEM was introduced during 1997. The likelihood
of success of the Company must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in connection with
the development of new products and the competitive environments in the industry
in which the Company operates. There can be no assurance that the Company will
not encounter substantial delays and unexpected expenses related to research,
development, production, marketing or other unforeseen difficulties.
3. INCOME TAXES. The Company had available at December 31, 1999, unused
tax operating loss carry forwards of approximately $15,000,000 that may be
applied against future taxable income, which begin to expire in 2004. Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes (FASB
109) requires the Company to provide a net deferred tax asset or liability equal
to the expected future tax benefit or expense of temporary reporting differences
between book and tax accounting and any available operating loss or tax credit
carry forwards. At December 31, 1999, the total of all deferred tax assets was
approximately $6,200,000 and the total of all deferred tax liabilities was
approximately $100,000. Because of the uncertainty about whether the Company
will generate sufficient future taxable income to realize the deferred tax
assets, the Company has established a valuation allowance of $6,100,000 to
offset all its deferred tax assets.
4. DEPENDENCE ON SIGNIFICANT CUSTOMERS. Customer "A" accounted for
approximately 34% and 37% of the Company's revenues in 1999 and 1998,
respectively. Customer "B" accounted for approximately 9% and 11% of the
Company's revenues in 1999 and 1998, respectively. Customer "C" accounted for
approximately 3% and 10% of the Company's revenues in 1999 and 1998,
respectively. Customer "D" accounted for approximately 12% and 8% of the
Company's revenues in 1999 and 1998, respectively. The loss of any customer's
business could have a material adverse effect on the
-24-
Company. Additionally, the quantity of each customer's business with the Company
depends substantially on market acceptance of their products that utilizes the
Company's software products. The Company could be materially adversely affected
by a downturn in either Company's sales or their failure to meet sales
expectations. The Company will likely from time to time have other customers
that account for a significant portion of its business.
5. DEPENDENCE ON RELATIVELY NEW PRODUCTS. The Company has only recently
begun to install and implement its products with customers. The Company's CODE
software system was introduced commercially in October 1995, and its GEM
software product suite has been developed during the past three years and was
commercially introduced during 1997. In addition, the Company will only begin to
introduce commercially in 2000, its new software products recently purchased
from SDI and Plug n' Work. As a result, the Company has only limited history
with these products, and there can be little assurance that they will achieve
market acceptance. The Company's future success will depend on sales of these
products, and the failure of these products to achieve market acceptance would
have a materially adverse effect on the Company. In addition, the Company has
limited experience with the installation, implementation and operation of its
products at customer sites. There is no assurance that the Company's products
will not require substantial modifications to satisfy performance requirements
or to fix previously undetected errors. If customers were to experience
significant problems with the Company's products, or if the Company's customers
were dissatisfied with the products' functionality, performance, or support, the
Company would be materially adversely affected.
6. PRODUCT LIFE CYCLE; NEED TO DEVELOP NEW PRODUCTS AND ENHANCEMENTS.
The markets for the Company's products are new and emerging. As such, these
markets are characterized by rapid technological change, evolving requirements,
developing industry standards, and new product introductions. The dynamic nature
of these markets can render existing products obsolete and unmarketable within a
short period of time. Accordingly, the life cycle of the Company's products is
difficult to estimate. The Company's future success will depend in large part on
its ability to enhance its products and develop and introduce, on a timely
basis, new products that keep pace with technological developments and emerging
industry standards. The success of the Company's software development efforts
will depend on various factors, including its ability to integrate these
products with third-party products. If competitor succeeds in duplicating or
surpassing the Company's technological advances, the Company's prospects might
be materially adversely affected.
7. COMPETITION. The automation technology market is extremely
competitive. Management believes that most, if not all, of the Company's
competitors currently have greater financial resources and market presence than
it does. Accordingly, these competitors may be able to compete very effectively
on pricing and to develop technology to increase the flexibility of their
products. Further, manufacturers of industrial robots, machine tools, and other
automation equipment which use their own proprietary controllers and software
have 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.
8. EXPORT SALES. Export sales accounted for approximately 67%, 54% and
39% of the Company's business in 1999, 1998 and 1997, respectively. To service
the needs of these customers, the Company must provide worldwide sales and
product support services. There are a number of risks inherent in international
expansion, including language barriers, increased risk of software piracy,
unexpected changes in regulatory requirements, tariffs and other trade barriers,
costs and risks of localizing
-25-
products for foreign companies, longer account receivable cycles and increased
collection risks, potentially adverse tax consequences, difficulty in
repatriating earnings, and the burdens of complying with a wide variety of
foreign laws. Thus far, all the Company's export sales have been payable in
United States dollars.
9.DEPENDENCE ON CERTAIN INDIVIDUALS. The Company is highly dependent on
the services of its key managerial and engineering personnel, including Paul A.
Bilzerian, President and Chief Executive Officer, Michael D. Feaster, Vice
President of Software Development, David P. Faulkner, Executive Vice President
of Marketing and Robert H. Reback, Executive Vice President of Sales. Any
material change in the Company's senior management team could adversely affect
the Company's profitability and business prospects. The Company does not
maintain key man insurance for any of its key management and engineering
personnel.
10. COPYRIGHT PROTECTION AND PROPRIETARY INFORMATION. The Company's
software innovations are proprietary in nature, and the Company has obtained
copyright protection for them. It is possible, however, for infringement to
occur. Although the Company intends to prosecute diligently any infringement of
its proprietary technology, copyright litigation can be extremely expensive and
time-consuming, and the results of litigation are generally uncertain. Further,
the use by a competitor of the Company's proprietary software to create similar
software through "reverse engineering" may not constitute an infringing use. The
Company relies on confidentiality and nondisclosure agreements with employees
and customers for additional protection against infringements, and the Company's
software is encoded to further protect it from unauthorized use.
11. CONTROL. Investors in the Common Stock (through exercise of the
Options or Warrants) will be entitled to vote in the election of the Company's
directors, but will not be entitled to separate board representation. The
executive officers and directors of the Company have direct or may be deemed to
have direct ownership of approximately 24% of the outstanding shares of Common
Stock of the Company. The voting power represented by these shares, though not
an absolute majority, is probably sufficient to provide effective control over
most affairs of the Company.
12.MARKETABILITY OF COMMON STOCK.The Company's Common Stock is currently
traded through three market makers, but is not listed on any securities exchange
or quoted on an automated interdealer quotation system, which would provide
automated quotations of the stock's price. Trading through market makers tends
to limit the volume of sales and can cause wide fluctuations in a stock's price,
based on the available supply and demand for the stock at any particular time.
13. ANTI-TAKEOVER PROVISIONS. Certain provisions of the Nevada General
Corporation Law have anti-takeover effects and may inhibit a non-negotiated
merger or other business combination. These provisions are intended to encourage
any person interested in acquiring the Company to negotiate with, and to obtain
the approval of, the Company's Board of Directors in connection with such a
transaction. However, certain of these provisions may discourage a future
acquisition of the Company, including an acquisition in which the shareholders
might otherwise receive a premium for their shares. As a result, shareholders
who might desire to participate in such a transaction may not have the
opportunity to do so. See "Description of Securities -- Certain Provisions of
Nevada Law."
14. QUARTERLY FLUCTUATIONS. The Company has experienced quarterly
fluctuations in operating results and anticipates that these fluctuations will
continue. These fluctuations have been caused by various factors, including the
capital procurement practices of its customers and the electronics industry in
general, the timing and acceptance of new product introductions and
enhancements, and the timing of
-26-
product shipments and marketing. Future operating results may fluctuate as a
result of these and other factors, including the Company's ability to continue
to develop innovative products, the introduction of new products by the
Company's competitors, the Company's product and customer mix, the level of
competition and overall trends in the economy.
15. POSSIBLE VOLATILITY OF STOCK PRICE. The Company believes that
factors such as the announcement of new products by the Company or its
competitors, market conditions in the electronics and precision measurement
industries in general and quarterly fluctuations in financial results could
cause the market price of the Common Stock to vary substantially. In recent
years, the stock market has experienced price and volume fluctuations that have
particularly affected the market prices for many high technology companies and
which often have been unrelated to the operating performance of such companies.
The market volatility may adversely affect the market price of the Company's
Common Stock.
-27-
CIMETRIX INCORPORATED
Financial Statements
December 31, 1999 and 1998
CIMETRIX INCORPORATED
Index to Financial Statements
- --------------------------------------------------------------------------------
Page
Independent auditors' report F-2
Balance sheet F-3
Statement of operations F-4
Statement of stockholders' equity F-5
Statement of cash flows F-7
Notes to financial statements F-8
- --------------------------------------------------------------------------------
-28- 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,
1999 and 1998, and the related statements of operations, stockholders' equity,
and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cimetrix Incorporated as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Salt Lake City, Utah
February 11, 2000, except for
note 19, which is dated
March 24, 2000
-29- F-2
CIMETRIX INCORPORATED
Balance Sheet
(In thousands, except share amounts)
December 31,
- --------------------------------------------------------------------------------
Assets 1999 1998
------
-----------------------------------
Current assets:
Cash and cash equivalents $ 1,042 $ 1,645
Receivables, net 1,440 1,175
Inventories 102 -
Prepaid expenses and other current assets 6 19
----------------------------------
Total current assets 2,590 2,839
Property and equipment, net 459 716
Technology, net 6,149 -
Other assets 176 207
-----------------------------------
$ 9,374 $ 3,762
-----------------------------------
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 170 $ 159
Accrued expenses 643 155
Deferred support revenue 70 84
-----------------------------------
Total current liabilities 883 398
-----------------------------------
Notes payable 2,681 2,691
-----------------------------------
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.0001 par value, 100,000,000 shares
authorized; 23,125,690 and 24,743,928 shares
issued and outstanding, respectively 2 2
Additional paid-in capital 24,810 19,787
Treasury stock 6,722 and 12,722 shares, at cost (1) (1)
Stock subscription receivable - (12)
Accumulated deficit (19,001) (19,103)
-----------------------------------
Total stockholders' equity 5,810 673
-----------------------------------
$ 9,374 $ 3,762
-----------------------------------
-30- F-3
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
Statement of Operations
(In thousands, except share amounts)
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------------------
Net sales $ 3,853 $ 4,161 $ 2,195
-----------------------------------------------------
Operating expenses:
Cost of sales 103 454 1,057
General and administrative 1,281 1,854 2,288
Selling, marketing and customer support 734 713 1,066
Research and development 1,508 1,479 2,008
Compensation expense - stock options 12 20 234
Impairment loss - 3,526 -
-----------------------------------------------------
3,638 8,046 6,653
-----------------------------------------------------
Income (loss) from operations 215 (3,885) (4,458)
-----------------------------------------------------
Other income (expense):
Interest income 65 63 53
Interest expense (270) (277) (97)
Other income 92 23 12
Gain on disposition of assets - 6 -
-----------------------------------------------------
(113) (185) (32)
-----------------------------------------------------
Income (loss) before income taxes 102 (4,070) (4,490)
Provision for income taxes - - -
-----------------------------------------------------
Net income (loss) $ 102 $ (4,070 $ (4,490)
-----------------------------------------------------
Income (loss) per common share -
basic and diluted $ .01 $ (.17) $ (.20)
-----------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-31- F-4
CIMETRIX INCORPORATED
Statement of Stockholders' Equity
(In thousands, except share amounts)
Years Ended December 31, 1999, 1998 and 1997
- -------------------------------------------------------------------------------------------------------------------
Unearned
Compen-
Additional sation on Stock
Treasury Stock Common Stock Paid-In Stock Subscription Accumulated
-----------------------------------------
Shares Amount Shares Amount Capital Options Receivable Deficit Total
------------------------------------------------------------------------------------------------
Balance at
January 1, 1997 - $ - 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)
Common stock
options exercised - - 30,000 - 90 - - - 90
Amortization of
unearned
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
Purchase of
treasury stock 192,722 (125) - - - - - - (125)
Treasury stock issued for:
Cash (353,091) 990 - - (617) - - - 373
Senior notes
payable (18,182) 91 - - (66) - - 25
Receivable (8,727) 43 - - (31) - (12) - -
Common stock issued
for senior notes
payable - - 400,000 - 600 - - - 600
Stock compensation - - - - 20 - - - 20
Net loss - - - - - - - (4,070) (4,070)
------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-32- F-5
CIMETRIX INCORPORATED
Statement of Stockholders' Equity
(In thousands, except share amounts)
Continued
Years Ended December 31, 1999, 1998 and 1997
- -------------------------------------------------------------------------------------------------------------------
Unearned
Compen-
Additional sation on Stock
Treasury Stock Common Stock Paid-In Stock Subscription Accumulated
-----------------------------------------
Shares Amount Shares Amount Capital Options Receivable Deficit Total
------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 12,722 (1) 24,743,928 2 19,787 - (12) (19,103) 673
Treasury stock issued
as compensation (6,000) - - - 4 - - - 4
Retirement of common
stock - - (3,528,238) - (351) - - - (351)
Collection of stock
subscription
receivable - - - - - - 12 - 12
Common stock issued
for technology - - 1,910,000 - 5,358 - - - 5,358
Stock option
compensation - - - - 12 - - - 12
Net income - - - - - - - 102 102
------------------------------------------------------------------------------------------------
Balance at
December 31, 1999 6,722 $ (1) 23,125,690 $ 2 $24,810 $ - $ - $ (19,001) $ 5,810
------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-33- F-6
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- -------------------------------------------------------------------------------------------------------------------
Statement of Cash Flows
(In thousands)
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 102 $ (4,070) $ (4,490)
Adjustments to reconcile net income(loss) to net
cash provided by (used in) operating activities:
Amortization and depreciation 306 798 754
Provision for losses on receivables (145) 94 116
Gain on disposition of assets - (6) -
Stock compensation expense 16 20 234
Impairment loss - 3,526 -
Other - (247) -
(Increase) decrease in:
Receivables (120) (568) (200)
Inventories (102) 53 284
Prepaid expenses and other current assets 13 62 164
Other assets 31 23 (190)
Increase (decrease) in:
Accounts payable 11 (196) (316)
Accrued expenses (12) (28) (276)
Deferred support revenue (14) 35 (221)
------------------------------------------
Net cash provided by (used in)
operating activities 86 (504) (4,141)
------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (13) (42) (478)
Purchase of technology (327) - -
Proceeds from disposal of property - 21 -
------------------------------------------
Net cash used in
investing activities (340) (21) (478)
------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 373 1,475
Proceeds from long-term debt - - 3,333
Payments on long-term debt (10) (5) (47)
Collection of stock subscription receivable 12 - -
Retirement of common stock (351)
Purchase of treasury stock - (125) (1,000)
------------------------------------------
Net cash (used in) provided by
financing activities (349) 243 3,761
------------------------------------------
Net decrease in cash and cash equivalents (603) (282) (858)
Cash and cash equivalents at beginning of year 1,645 1,927 2,785
------------------------------------------
Cash and cash equivalents at end of year $ 1,042 $ 1,645 $ 1,927
------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-34- F-7
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
1. Organization 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 electronic equipment.
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.
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 consist of finished goods and are recorded at the lower of cost or
market, cost being determined on a first-in, first-out (FIFO) method.
- --------------------------------------------------------------------------------
-35- F-8
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies (Continued)
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 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.
Technology
Technology consists of the costs to obtain the Company's AART and SDI SECS/GEM
technology (see Note 4). The technology is being amortized on the straight-line
method over twelve years.
- --------------------------------------------------------------------------------
-36- F-9
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization 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. During the year ended December 31, 1998 the unamortized portion of the
goodwill was written off (see note 8). Amortization expense charged to
operations for 1998 and 1997 was approximately $217 and $218, respectively.
Patents and Copyrights
The Company has obtained two patents related to certain technology. In addition,
the Company has registered its entire 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.
Revenue Recognition
Revenue is recognized upon shipment of product or performance of services.
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.
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. Common stock equivalents are not included in the diluted
per share calculation when their effect is antidilutive.
- --------------------------------------------------------------------------------
-37- F-10
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
2. Receivables
December 31,
------------------------------------
1999 1998
------------------------------------
Receivables:
Trade receivables $ 1,505 $ 1,355
Other receivables - 30
------------------------------------
1,505 1,385
Less allowance for doubtful
accounts (65) (210)
------------------------------------
$ 1,440 $ 1,175
------------------------------------
3. Property and Equipment
Property and equipment consists of the following:
December 31,
-----------------------------------
1999 1998
-----------------------------------
Software development costs $ 464 $ 464
Equipment 362 351
Office equipment and software 306 304
Furniture and fixtures 214 214
Leasehold improvements 83 83
-----------------------------------
1,429 1,416
Accumulated depreciation and
amortization (970) (700)
-----------------------------------
$ 459 $ 716
-----------------------------------
- --------------------------------------------------------------------------------
-38- F-11
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
4. Technology
AART
During the year ended December 31, 1999, the Company purchased technology that
is referred to as AARTTM. This technology uses a component-based approach to
control machines using industry standard languages. When combined with the
Company's other products, the combined product line now offers an integrated
complete solution for building component-based workcells using open software
standards. The Company purchased all rights, title, interest, and benefit in and
to the technology for 1,200,000 shares of restricted common stock of the Company
valued at $3,450 plus cash of $327.
SDI SECS/GEM
During the year ended December 31, 1999, the Company purchased technology that
is referred to as the sdiStationTM. This technology is used in the semiconductor
and electronics industries. The Company purchased all rights, titles, interest,
and benefit in and to the technology for 710,000 shares of restricted common
stock of the Company as well as a payable for $500,000. The shares were valued
at $1,908.
Amortization expense on this technology for 1999 was approximately $36.
Robcal and Robline
The Company purchased technology that is referred to as ROBLINE and ROBCAL.
ROBLINE and ROBCAL, together with other technology developed by the Company, has
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 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. During the year
ended December 31, 1998 the unamortized portion of the technology was written
off (see note 8). Amortization expense charged to operations for 1998, and 1997
was approximately $53 per year.
- --------------------------------------------------------------------------------
-39- F-12
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
5. Lease Obligations
The Company leases certain office space and vehicles under noncancellable
operating lease agreements. Future minimum lease payments required under
operating leases are as follows:
Year Ending December 31: Amount
------------------
2000 $ 246
2001 246
2002 63
------------------
$ 555
------------------
Rental expense for the years ended December 31, 1999, 1998, and 1997 on
operating leases was $244, $273, and $269, respectively.
The Company subleases certain office space under a noncancellable operating
lease arrangement. Future minimum rentals to be received under the sublease are
as follows:
Year Ending December 31:
2000 $ 27
2001 27
2002 7
------------------
$ 61
------------------
Rental income for the years ended December 31, 1999, 1998, and 1997 on subleases
was $16, $0, $0, respectively.
6. Senior Notes Payable
The Company has 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 and mature on September 30, 2002.
- --------------------------------------------------------------------------------
-40- F-13
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
6. Senior Notes Payable Continued
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 for $2.50 per share. The Warrants are
exercisable any time 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. During
the year ended December 31, 1998, the Company registered the common stock
issuable upon exercise of the warrants. 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 are transferable
separately from the Senior Notes.
The Senior Notes were not redeemable by the Company prior to October 1, 1999.
Beginning October 1, 1999, the Senior Notes are 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.
The balance due to senior note holders at December 31, 1999 and 1998 were $2,681
and $2,691.
- --------------------------------------------------------------------------------
-41- F-14
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
7. Income Taxes
The (provision) benefit for income taxes is different than amounts which would
be provided by applying the statutory federal income tax rate to income (loss)
before income taxes for the following reasons:
Years Ended
December 31,
-------------------------------------------
1999 1998 1997
-------------------------------------------
Federal income tax
(provision) benefit at
statutory rate $ (34) $ 1,384 $ 1,527
Life insurance and meals (6) (3) (15)
Change in valuation
allowance 40 (1,381) (1,512)
-------------------------------------------
$ $ - $ -
-------------------------------------------
Deferred tax assets (liabilities) are comprised of the following:
December 31,
-----------------------------------
1999 1998
-----------------------------------
Net operating loss carryforwards $ 5,020 $ 6,149
Asset impairment 1,105 -
Depreciation and amortization (105) (140)
Allowance for doubtful accounts 22 71
Accrued vacation 21 18
Deferred income 24 29
-----------------------------------
6,087 6,127
Less valuation allowance (6,087) (6,127)
-----------------------------------
$ - $ -
-----------------------------------
At December 31, 1999, the Company has a net operating loss carryforward
available to offset future taxable income of approximately $15,000 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
carryforward which could be utilized.
- --------------------------------------------------------------------------------
-42- F-15
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
8. Impairment Loss
During 1998, the Company settled ongoing litigation associated with the purchase
of technology and a related subsidiary. Management also determined that the
related assets (i.e. goodwill, software development costs, and technology) had
been impaired. Consequently, the following adjustments were recorded to
write-down these assets to their estimated realizable values:
Goodwill $ 2,536
Technology 608
Software development costs 104
Fixed assets 278
-----------------
$ 3,526
-----------------
9. Supplemental Cash Flow Information
During the year ended December 31, 1999 the Company issued common stock in
exchange for technology of $5,358 and a payable of $500.
During the year ended December 31, 1998:
o The Company retired $625 senior notes payable through the issuance of
common stock.
o The Company satisfied a capital lease obligation through decreasing
property and equipment and long-term debt by $14.
o The Company issued common stock in exchange for a stock subscription
receivable of $12.
Actual amounts paid for interest and income taxes are as follows:
Years Ended
December 31,
--------------------------------------------
1999 1998 1997
--------------------------------------------
Interest $ 269 $ 274 $ 35
--------------------------------------------
Income taxes $ - $ - $ -
--------------------------------------------
- --------------------------------------------------------------------------------
-43- F-16
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
10. Major Customers
Sales to major customers which exceeded 10 percent of net sales are
approximately as follows:
Years Ended
December 31,
--------------------------------------------
1999 1998 1997
--------------------------------------------
Company A $ 1,317 $ 1,530 $ -
Company B $ 446 $ - $ -
Company C $ - $ 438 $ 603
Company D $ - $ 429 $ 355
Export sales to unaffiliated customers were approximately $1,908, $1,913, and
$653, in 1999, 1998, and 1997, respectively. All major export sales were made to
Germany and Japan.
11. 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 20% 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, 1999, 1998, and 1997,
the Company contributed approximately $25, $25, and $19, respectively, to the
plan.
12. Related Party Transactions
During the years ended December 31, 1999, 1998, and 1997, the Company incurred
fees of approximately $120, $120, and $90, respectively, to a corporation
managed by the current President of the Company. The fees were paid for the
individual to act as President of the Company. In addition the Company leased a
home and vehicle for the President. Lease expense paid during the years ended
December 31, 1999, 1998 and 1997 was approximately $20 each year.
- --------------------------------------------------------------------------------
-44- F-17
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
12. Related Party Transactions (Continued)
The Company has an investment in a corporate entity. The investment is accounted
for at the lower of cost or market and is included in other assets. During the
years ended December 31, 1999 and 1998, the Company recognized sales of
approximately $671 and $331 to this entity, respectively. In addition as of
December 31, 1999 and 1998, the Company had receivables of approximately $862
and $237, respectively.
13. Stock Options and Warrants
The Company has a stock option plan (Incentive Option Plan), which allows a
maximum of 2,000,000 options which 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 Incentive 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
ten years.
The Company has a stock option plan (Directors Option Plan), which allows a
maximum of 400,000 shares of common stock to be granted to purchase, at a price
of the greater of $2.50 or 100% of the fair market value at the date of grant.
Under the Directors Option Plan, Directors will receive 24,000 shares annually
on each anniversary date during the term of this plan.
- --------------------------------------------------------------------------------
-45- F-18
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
13. Stock Options and Warrants Continued
Information regarding the stock options and warrants is summarized below:
Number of Weighted
Options Average
and Exercise
Warrants Price
----------------------------------
Outstanding at January 1, 1997 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
Granted 1,554,500 2.50
Forfeited (1,565,888) 4.48
----------------------------------
Outstanding at December 31, 1998 2,570,500 2.50
Granted 463,000 2.57
Forfeited (869,000) 2.50
----------------------------------
Outstanding at December 31, 1999 2,164,500 $ 2.52
----------------------------------
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-46- F-19
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
13. Stock Options and Warrants (Continued)
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation expense has been recognized for stock options
granted to employees. Had compensation expense for the Company's stock options
been determined based on the fair value at the grant date 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:
Years Ended
December 31,
----------------------------------------------
1999 1998 1997
----------------------------------------------
Net income (loss) - as
reported $ 102 $ (4,070) $ (4,490)
Net loss - pro forma $ (342) $ (4,438) $ (4,490)
Income (loss) per share -
as reported $ .01 $ (.17) $ (.20)
Loss per share - pro forma $ (.02) $ (.18) $ (.20)
----------------------------------------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
December 31,
--------------------------------------------
1999 1998 1997
--------------------------------------------
Expected dividend yield $ - $ - $ -
Expected stock price volatility 114% 148% 69%
Risk-free interest rate 5.5% 5.5% 5.5%
Expected life of options 5 years 5 years 2-5 years
--------------------------------------------
The weighted average fair value of options granted during 1999, 1998, and 1997
was $.91, $1.26, and $3.39, respectively.
- --------------------------------------------------------------------------------
-47- F-20
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
13. Stock Options and Warrants (Continued)
The following table summarizes information about stock options and warrants
outstanding at December 31, 1999:
Outstanding Exercisable
- --------------------------------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Exercise Number Life Exercise Number Exercise
Price Outstanding (Years) Price Exercisable Price
- --------------------------------------------------------------------------------
$ 2.50 - 3.00 2,164,500 3.19 $ 2.52 1,400,750 $ 2.50
- --------------------------------------------------------------------------------
14. Earnings Per Share
Financial accounting standards requires companies to present basic earnings per
share (EPS) and diluted earnings per share along with additional informational
disclosures. Information related to earnings per share is as follows:
Years Ended
December 31,
-----------------------------------------
1999 1998 1997
-----------------------------------------
Basic EPS:
Net income (loss) available to
common stockholders $ 102 $ (4,070) $ (4,490)
-----------------------------------------
Weighted average common
shares 22,080,000 24,433,000 22,185,000
-----------------------------------------
Net income (loss) per share $ .01 $ (.17) $ (.20)
-----------------------------------------
Diluted EPS:
Net income (loss) available to
common stockholders $ 102 $ (4,070) $ 4,490
-----------------------------------------
Weighted average common
shares 22,161,000 24,433,000 22,185,000
-----------------------------------------
Net income (loss) per share $ .01 $ (.17) $ (.20)
-----------------------------------------
- --------------------------------------------------------------------------------
-48- F-21
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
15. Fair Value of Financial Instruments
The Company's financial instruments consist of cash, receivables, payables, and
notes payable. The carrying amount of cash, receivables and payables
approximates fair value because of the short-term nature of these items. The
carrying amount of the notes payable approximates fair value as to the
individual borrowings bear interest at market interest rates.
16. Continuing Operations
During its existence, the Company has incurred operating losses, with the
exception of the current year, including $4,070, and $4,490, during the years
ended December 31, 1998 and 1997, respectively. Net cash used by operations
amounted to approximately $504 and $4,141, during the same periods.
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.
The Company has also taken steps to decrease general and administrative
expenses. Management of the Company believes that at December 31, 1999, the
Company is capable of financially meeting the demands inherent as normal sales
continue to develop during 2000.
Because of the cash position of the Company at December 31, 1999, 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.
17. Commitments and Contingencies
Employment Agreements
The Company has entered employment agreements with certain employees which
requires annual aggregate payments of $415 through 2001 and $220 through 2002.
In addition, the Company has agreed to reimburse each employee associated with
these agreements up to $15 to relocate.
- --------------------------------------------------------------------------------
-49- F-22
CIMETRIX INCORPORATED
Notes to Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
17. 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, 1999, 1998, and 1997, 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, 1999. Management believes that any allowance for warranty would be
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.
18. Recent Accounting Pronouncements
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective date of FASB
Statement No. 133." SFAS 133 establishes accounting and reporting standards for
derivative instruments and requires recognition of all derivatives as assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. SFAS 133 is now effective for fiscal years beginning
after June 15, 2000. The Company believes that the adoption of SFAS 133 will not
have any material effect on the financial statements of the Company.
19. Subsequent Event
On March 24, 2000, the Company completed a private placement of common stock,
selling 1,700,000 shares at a price of $2.50 per share. The net proceeds to the
Company from the private placement was approximately $4,243,000.
- --------------------------------------------------------------------------------
-50- F-23