2
12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number: 0-16454
CIMETRIX INCORPORATED
(Exact name of registrant as specified in its charter)
Nevada 87-0439107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6979 South High Tech Drive, Salt Lake City, Utah 84047-3757
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 256-6500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's common stock as of
November 13, 2001: Common stock, par value $.0001 - 24,025,968
CIMETRIX INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
INDEX
PART I Financial Information
Item 1. Financial Statements
a) Condensed Statements of Operations.................................1
b) Condensed Balance Sheets...........................................2
c) Condensed Statements of Cash Flows.................................3
d) Notes to Condensed Financial Statements............................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........13
PART II Other Information
Item 1. Legal Proceedings....................................................14
Item 2. Changes in Securities................................................15
Item 3. Defaults Upon Senior Securities......................................15
Item 4. Submission of Matters to a Vote of Security Holders..................15
Item 5. Other Information....................................................15
Item 6. Exhibits and Reports on Form 8-K.....................................15
Signatures....................................................................16
<page>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share and share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
---- ---- ---- ----
NET SALES $ 654 $ 1,775 $ 3,161 $ 4,120
---------- ---------- ------------- -------------
OPERATING EXPENSES
Cost of sales 118 90 492 161
Selling, marketing and customer support 518 332 1,409 837
Research and development 448 345 1,462 1,280
General and administrative 525 434 1,442 1,261
---------- ---------- ------------- -------------
Total operating expenses 1,609 1,201 4,805 3,539
---------- ---------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS (955) 574 (1,644) 581
----------- ---------- -------------- -------------
OTHER INCOME (EXPENSES)
Interest income 31 49 192 126
Interest expense (67) (67) (201) (200)
Loss on asset disposal (3) - (8) -
----------- ---------- -------------- -------------
Total other income (expense) (40) (18) (17) (74)
----------- ----------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES (994) 556 (1,661) 507
CURRENT INCOME TAX EXPENSE
(BENEFIT) - - - -
NET INCOME (LOSS) $ (994) $ 556 $ (1,661) $ 507
=========== ========== ============== =============
BASIC INCOME (LOSS) PER
COMMON SHARE $ (.04) $ .02 $ (.07) $ .02
===== === ===== ===
DILUTED INCOME (LOSS) PER
COMMON SHARE $ (.04) $ .02 $ (.07) $ .02
===== === ===== ===
WEIGHTED AVERAGE SHARES
OUTSTANDING, BASIC 24,026,000 24,835,000 24,114,000 24,194,000
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING, DILUTED 24,026,000 25,191,000 24,114,000 24,907,000
========== ========== ========== ==========
See notes to condensed financial statements
-1-
CIMETRIX INCORPORATED
CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
September 30, December 31,
2001 2000
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 2,898 $ 3,525
Accounts receivable, net 1,959 2,365
Inventories 165 121
Prepaid expenses and other current assets 24 29
------------ ------------
Total current assets 5,046 6,040
Property and equipment, net 245 359
Technology, net 4,744 5,675
Related party note receivable -- 416
Investment in affiliates 522 522
Other assets 84 114
------------ ------------
$ 10,641 $ 13,126
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 276 $ 200
Accrued expenses 280 532
Deferred revenue 220 43
Current portion, notes payable -- 4
Current portion, senior notes 2,181 --
------------ ------------
Total current liabilities 2,957 779
LONG TERM DEBT, net of current portion 500 2,704
------------ ------------
Total Liabilities 3,457 3,483
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value: 100,000,000 shares
Authorized, 24,025,968 and 24,456,690 shares issued
and outstanding, respectively 2 2
Additional paid-in capital 27,381 28,130
Treasury stock, at cost (50) (1)
Accumulated deficit (20,149) (18,488)
------------ ------------
Net Stockholders' Equity 7,184 9,643
------------ ------------
$ 10,641 $ 13,126
============ ============
See notes to condensed financial statements
-2-
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2001 2000
---- ----
Cash Flows from Operating Activities:
Net income (loss) $ (1,661) $ 507
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Amortization and depreciation 558 619
Common stock retired as payment for product -- (1,000)
Increase in receivables allowance account 150 34
Write-off of accounts receivable 223 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 32 66
(Increase) decrease in inventory (44) (69)
(Increase) decrease in prepaid expenses 5 (28)
Increase (decrease) in accounts payable 76 (12)
Increase (decrease) in accrued expenses (252) (377)
Increase (decrease) in other assets 30 (54)
Increase (decrease) in customer deposits 177 15
------------ -------------
Net cash flow used in operating activities (706) (299)
------------ -------------
Cash Flows from Investing Activities:
Purchase of property and equipment, net of retirements (46) (68)
Investment in affiliates -- (478)
Purchase of technology (215) --
Principal advances on note receivable 416 (415)
Net cash flow provided by (used in)
investing activities 155 (961)
------------ -------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock -- 4,320
Payment of notes payable (27) --
Purchase of treasury stock (49) --
Net cash flow (used in) provided by
financing activities (76) 4,320
------------- -------------
Net (Decrease) Increase in Cash and Cash Equivalents (627) 3,060
Cash and Cash Equivalents at the Beginning of Period 3,525 1,042
------------ -------------
Cash and Cash Equivalents at the End of Period 2,898 4,102
============ =============
See notes to condensed financial statements
-3-
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(CONTINUED)
Nine Months Ended
September 30,
2001 2000
---- ----
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 134 $ 135
Income taxes $ 27 $ --
Supplemental Schedule of Noncash Investing and Financing
Activities:
The Company received back 400,000 shares of its common $ 749 $ --
stock that had been issued to acquire technology. This
resulted in a decrease of technology of $749 and a
corresponding decrease in stockholders' equity.
Equipment acquired in satisfaction of $ -- $ 30
accounts receivable.
See notes to condensed financial statements
-4-
CIMETRIX INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited condensed financial
statements of Cimetrix Incorporated have been prepared in accordance with
the Securities and Exchange Commission's instructions to Form 10-Q and,
therefore, omit or condense footnotes and certain other information
normally included in financial statements prepared in accordance with
generally accepted accounting principles. The accounting policies followed
for quarterly financial reporting conform with generally accepted
accounting policies disclosed in Note 1 to the Notes to Financial
Statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000. In the opinion of management, all adjustments
of a normal recurring nature that are necessary for a fair presentation of
the financial information for the interim periods reported have been made.
The results of operations for the three and nine month periods ended
September 30, 2001 are not necessarily indicative of the results that can
be expected for the entire year ending December 31, 2001. The unaudited
condensed financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.
NOTE 2 - STOCK OPTIONS AND WARRANTS
As of November 13, 2001, there were issued and outstanding to the
Company's employees, options for the purchase of 1,612,000 shares of the
Company's common stock, under the Company's 1998 Stock Option Plan as
amended. The following table summarizes the quantity and exercise price of
the options.
Option Price Quantity
----------------------------------
$1.00 35,000
$2.50 892,000
$3.00 420,000
$3.50 265,000
-------
Total Options 1,612,000
Approximately 452,000 of these outstanding options are registered for
resale, pursuant to a Form S-3 Registration Statement, which became
effective December 9, 1998. A total of 3,000,000 shares of common stock
have been reserved for issuance under the plan. This total includes an
additional 1,000,000 options that were authorized by a vote of shareowners
at the June 2, 2001 Annual Meeting, held in Salt Lake City, Utah. These
options will begin to expire in December 2002, and continue to expire
through July 2006.
As of November 13, 2001, there were issued and outstanding options for
the purchase of 754,000 shares of the Company's common stock, under the
Company's Director Stock Option Plan. Of these options, 400,000 are
exercisable at $1.00 per share, 258,000 are exercisable at $2.50 per share,
and 96,000 are exercisable at $3.50 per share. Approximately 162,000 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
2006.
-5-
NOTE 2 - STOCK OPTIONS AND WARRANTS (continued)
There are also 3,306 warrants issued and outstanding, which were
issued to purchasers of the Company's 10% Senior Notes, that are presently
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.
NOTE 3 - SENIOR NOTES
As of November 13, 2001, there were $2,681,000 of the Company's 10%
Senior Notes issued and outstanding, held by approximately 52 noteholders.
These Senior Notes are due and payable September 30, 2002.
On October 8, 2001, the Company presented an offer to its 10% Senior
Noteholders to exchange their 10% Senior Notes due September 30, 2002 for
10% Senior Notes due September 30, 2004. Any noteholder exchanging their
Senior Notes due September 30, 2002 for Senior Notes due September 30, 2004
will also receive for no additional consideration one common stock purchase
warrant for each $1,000 principal amount of Senior Notes due 2002
exchanged. Each warrant entitles the holder to purchase 250 shares of the
Company's common stock for $1.00 per share.
If all of the noteholders were to participate in this exchange,
additional warrants would be issued to purchase a total of 670,250 shares
of common stock. These warrants will be exercisable anytime after November
1, 2001 and on or before September 30, 2004 as a whole, in part, or in
increments. The offer is not conditional upon any minimum amount of Senior
Notes due September 30, 2002 being exchanged for Senior Notes due September
30, 2004. This offer, which was to have expired on October 31, 2001, was
extended until November 30, 2001.
The portion of the 10% Senior Notes due 2002 that have not yet been
exchanged for 10% Senior Notes due September 30, 2004, have been classified
as current liabilities.
The Company will use its best efforts to prepare and file a
Registration Statement with the Securities and Exchange Commission to
register the shares issuable pursuant to the exercise of the warrants.
NOTE 4 - COMMON STOCK
On November 13, 2001, the closing quotation for the Company's common
stock on the NASDAQ Bulletin Board was $.32 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 November 13, 2001, there were 24,457,690 (including treasury
shares) of common stock issued, and 24,025,968 shares of common stock
outstanding, held by approximately 2,000 beneficial shareholders.
-6-
NOTE 5 - EARNINGS PER SHARE
A reconciliation of the shares used in the computation of the Company's
basic and diluted earnings per common shares is as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
Weighted average common shares
Outstanding 24,026 24,835 24,114 24,194
Dilutive effect of :
Stock options -- 204 -- 454
Warrants -- 152 -- 259
------ ------ ------ ------
Weighted average common shares
outstanding, assuming dilution 24,026 25,191 24,114 24,907
------ ------ ------ ------
Weighted average common shares outstanding, assuming dilution,
includes the incremental shares that would be issued upon the assumed
exercise of stock options and warrants (see Note 2 - Stock Options and
Warrants and Note 3 - Senior Notes). During the three and nine months ended
September 30, 2001, stock options and warrants to exercise 3,200 and 3,200
shares, respectively, were excluded from the calculation of diluted
earnings per share because they were antidilutive. These options and
warrants could be dilutive in the future.
ITEM 2. 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 the third quarter of 2001. The information
includes discussions of sales, expenses, capital resources and other significant
items. Generally the information is presented in a two-year comparison format
using the third quarter data of 2001 and 2000.
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Condensed Financial
Statements and Notes thereto included elsewhere in this Quarterly Report. The
ensuing discussion and analysis contains both statements of historical fact and
forward-looking statements. Forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, generally are identified by the
words "expects," "believes" and "anticipates" or words of similar import.
Examples of forward-looking statements include: (a) projections regarding sales,
revenue, liquidity, capital expenditures and other financial items; (b)
statements of the plans, beliefs and objectives of the Company or its
management; (c) statements of future economic performance; and (d) assumptions
underlying statements regarding the Company or its business. Forward-looking
statements are subject to certain factors and uncertainties that could cause
actual results to differ materially from the forward-looking statements,
including, but not limited to, those factors and uncertainties described below
under "Liquidity and Capital Resources" and "Factors Affecting Future Results."
-7-
Overview
The Company 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 Company introduced its first
motion control products (CODE) in 1989, and has developed considerable expertise
through working with demanding original equipment manufacturer (OEM) customers.
In 2000, the Company introduced two new product families using the latest
in software technologies. Both products complement the Company's CODE motion
control family of products. CIMConnect is a next generation design for enabling
production equipment in the electronics industries to communicate data to the
factory's host computer using the SECS/GEM SEMI (Semi Conductor Equipment and
Materials International) standard. CIM300 is a family of seven software products
that reduces the time required to connect new 300mm semiconductor tools to each
other and host computers into a factory by using the new SEMI 300mm standards.
On October 23, 2001, Cimetrix introduced CODE 6 with Core Motion after six
months of field beta testing at customer sites. A press tour to major industry
publications was launched resulting in many online and print copies of the new
product. CODE 6 with Core Motion is the result of 18 months of R&D effort
resulting in new technology to move motion control from proprietary motion
boards onto the PC. This can result in up to a 50% savings in hardware costs for
our OEM customers and positions us for the evolution to network based drives.
This release also contains many new features such as conveyor tracking and
enhanced calibration routines.
-8-
<page>
Statement of Operations Summary
The following table sets forth the percentage of costs and expenses to
net revenues derived from the Company's Condensed Statements of Operations for
the three and nine months ended September 30, 2001 and 2000:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
NET SALES 100% 100% 100% 100%
---- ---- ---- ----
OPERATING EXPENSES
Cost of sales 18 5 16 4
Selling, marketing and customer support 79 19 45 20
Research and development 69 19 46 31
General and administrative 80 24 46 31
---------- ---------- ---------- ----------
Total operating expenses 246 68 152 86
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (146) 32 (52) 14
Interest income 5 3 6 3
Interest expense (10) (4) (6) (5)
---------- ---------- ---------- ----------
NET INCOME (LOSS) (152)% 31% (53)% 12%
---------- ---------- ---------- ----------
Results of Operations
Three and Nine Months Ended September 30, 2001 Compared to Three and Nine Months
Ended September 30, 2000
Net Sales
Net sales decreased by $1,121,000, or 63%, to $654,000 for the three months
ended September 30, 2001, from $1,775,000 for the three months ended September
30, 2000. Net sales for the three months ended September 30, 2001, consisted of
sales of software (57%), engineering services (22%), and support and training
(21%). Net sales for the same period in 2000 consisted of sales of software
(91%), engineering services (4%), and support and training (5%).
The decrease in third quarter sales is primarily the result of a
significant drop in software revenues. The Company's OEM customers in the robot,
SMT and semiconductor markets continue to be negatively impacted by the current
economic slowdown. Orders for new equipment in these markets, which would
include the Company's software products, remain significantly below prior
periods. While the Company cannot predict market conditions for subsequent
quarters, it continues to market its products aggressively in order to broaden
its customer base.
-9-
Net sales decreased by $959,000, or 23%, to $3,161,000 for the nine months
ended September 30, 2001, from $4,120,000 for the nine months ended September
30, 2000. Net sales for the nine months ended September 30, 2001, consisted of
sales of software (73%), engineering services (16%), and support and training
(11%). Net sales for nine months ended September 30, 2000, consisted of sales of
software (81%), engineering services (10%), and support and training (9%). This
decrease in year to date sales over the prior year is due to a significant drop
in software revenues, particularly in the second and third quarters.
Major Customers
Sales to two non-affiliated customers accounted for 22% and 13% of the
Company's revenues for the three months ended September 30, 2001. Sales to one
non-affiliated customer accounted for 57% of the Company's revenues for the
three months ended September 30, 2000. No other non-affiliated customer
accounted for 10% or more of the Company's revenues for the three months ended
September 30, 2001 and 2000.
Sales to two non-affiliated customers accounted for 27% and 21% of the
Company's revenues for the nine months ended September 30, 2000. No other
non-affiliated customer accounted for 10% or more of the Company's revenues for
the nine months ended September 30, 2001 and 2000.
Sales to Aries, Inc., the Company's Japanese affiliate, accounted for 12%
and less than 10% of the Company's revenues for the three months ended September
30, 2001 and 2000, respectively. Sales to Aries accounted for 15% and less than
10% of the Company's revenues for the nine months ended September 30, 2001 and
2000, respectively.
Cost of Sales
Cost of sales increased by $28,000, or 31%, to $118,000 for the three
months ended September 30, 2001, from $90,000 for the comparable period in 2000.
Cost of sales increased by $331,000, or 206%, to $492,000 for the nine months
ended September 30, 2001, from $161,000 for the comparable period in 2000. This
increase was attributable to the sale of outside engineering services. While the
Company's focus is on the sale of software products, it does provide application
and integration services to its customers that want to purchase a complete
turnkey system. When possible, the Company contracts with resellers and
distributors, such as Systematic Designs International, Inc., of Vancouver
Washington to perform these engineering services.
Selling, Marketing and Customer Support
Selling, marketing and customer support costs increased by $186,000, or
56%, to $518,000 for the three months ended September 30, 2001, from $332,000
for the comparable period in 2000. Selling, marketing and customer support costs
increased by $572,000, or 68%, to $1,409,000 for the nine months ended September
30, 2001, from $837,000 for the comparable period in 2000. These increases were
due in part to the additional costs incurred to operate the Company's new
semiconductor division, which markets and sells the Company's new CIM300 family
of products. They were also due to an increase in general corporate marketing
expenditures for marketing personnel and outside public relations services in an
effort to expand the Company's customer base.
-10-
Selling, marketing and customer support expenses reflect the direct payroll
and related travel expenses of the Company's sales, marketing and customer
support staff, the development of product brochures and marketing material,
press releases, and the costs related to the Company's representation at
industry trade shows.
Research and Development
Research and development expenses increased by $103,000, or 30%, to
$448,000 for the three months ended September 30, 2001, from $345,000 for the
comparable period in 2000. Research and development expenses increased by
$182,000, or 14%, to $1,462,000 for the nine months ended September 30, 2001,
from $1,280,000 for the comparable period in 2000. These increases were due to
the addition of software development personnel for the development of the
Company's products.
The Company continues to make significant investments in research and
development and expects to incur research and development expenses of
approximately $2 million during 2001. 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 costs.
General and Administrative
General and administrative expenses increased by $91,000, or 21%, to
$525,000 for the three months ended September 30, 2001, from $434,000 for the
comparable period in 2000. General and administrative expenses increased by
$181,000, or 14%, to $1,442,000 for the nine months ended September 30, 2001,
from $1,261,000 for the comparable period in 2000. This year to date increase
was due in part to increased legal expenses, mainly in the first six months of
the year, which are expected to be minimal throughout the remainder of the year.
This increase was also attributable to the write-off of $85,000 of receivables
that were no longer collectible and an additional $50,000 of bad debt reserve
that was accrued due to the slowing economy. All other general and
administrative expenses, taken as a whole, decreased slightly for the year.
General and administrative expenses include all direct costs for
administrative and accounting personnel, and 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, such as
capitalized software and technology. Amortization and depreciation expense for
the nine months ended September 30, 2001, was approximately $558,000, or 39%, of
all general and administrative expenses, compared to $619,000, or 49%, for the
same period in 2000.
Other Income (Expenses)
Interest income decreased by $18,000, or 37%, to $31,000 for the three
months ended September 30, 2001, from $49,000 for the comparable period in 2000.
This decrease is a result of a reduction in the Company's cash reserves during
the quarter that were used to fund operations.
Interest income increased by $66,000, or 52%, to $192,000 for the nine
months ended September 30, 2001, from $126,000 for the comparable period in
2000. During the first six months of the year, investments in bond fund accounts
matured, providing the overall year to date increase. Such investments have
provided additional interest income above that which could be earned in money
market accounts.
-11-
Interest expense remained constant at $67,000 for the three months ended
September 30, 2001 and 2000, with only a $1,000 increase in total interest
expense for the nine months ended September 30, 2001 compared to the same period
in 2000. Essentially all interest expense is attributable to the Company's 10%
Senior Notes, with interest payable April 1st and October 1st of each year, the
principal balance of $2,681,000 coming due September 30, 2002.
Other Items
The Company was involved in a legal action that was settled during the
quarter. This action is discussed in Item 1. Legal Proceedings of Part II -
Other Information, below in this document.
During the quarter ended September 30, 2001, the Company received back and
subsequently disposed of a passenger automobile that had been purchased for the
use of Paul A. Bilzerian, former President and Chief Executive Officer of the
Company. The Company incurred a loss of approximately $10,000 on the disposal of
this automobile.
Liquidity and Capital Resources
The Company had approximately $2.1 million of working capital at September
30, 2001, compared to $5.3 million as of December 31, 2000. The majority of this
decrease was due to the classification of $2.2 million of the 10% Senior Notes,
which are due September 30, 2002, as current liabilities. The remainder of the
decrease was due to poor operating results, which have consumed working capital.
The portion of the Senior Notes that have been exchanged for 10% Senior
Notes due September 30, 2004, remain as long term liabilities. Management
believes that a significant portion of the $2.2 million of Senior Notes that are
now classified as current liabilities will be exchanged for Senior Notes due
September 30, 2004, which will substantially increase the Company's working
capital.
Cash used by operating activities for the nine months ended September 30,
2001, was $706,000, compared to $299,000 for the same period in 2000. Cash
provided by investing activities for the nine months ended September 30, 2001,
was $155,000 compared to cash used by investing activities of $961,000 for the
same period in 2000. In 2001, cash from investing activities was used to acquire
new equipment and technology, and the source of cash from investing activities
was from the collection of a note receivable. Cash used by financing activities
for the period ended September 30, 2001, was $76,000 as compared to cash
provided by financing activities of $4,320,000 for the same period in 2000. In
2000, the increase resulted from the sale of common stock.
The Company's future liquidity will continue to be dependent on the
Company's operating cash flow and management of trade receivables. Management
also believes that it is critical that a sufficient number of holders of the
Company's 10% Senior Notes due 2002, exchange their notes for the 10% Senior
Notes due 2004. If all of the noteholders participate in the exchange, $2.7
million of working capital would be freed up, which may be needed to fund
operations if the Company's operating results do not improve.
-12-
While Management believes that the Company's existing working capital is
sufficient to maintain its current level of operations and that the Company has
sufficient funds to meet its capital expenditure requirements for the remainder
of 2001, there is no assurance that the amount of capital will be adequate for
fiscal 2002. If the Company does not become profitable, its ability to sustain
and expand its business will be adversely affected. The Company's ability to
repay principal and interest on the 10% Senior Notes would also be adversely
affected by lack of profitability.
Factors Affecting Future Results
Third quarter revenues decreased significantly compared to the prior year,
and follow an equally disappointing second quarter, both quarters coming in well
below the Company's target revenues. Management believes that the economic
slowdown that is affecting the Company's customers was further worsened by the
terrorist attacks of September 11, 2001. The additional uncertainty has led to
delays in placing orders by the Company's OEM customers. As the end-user
customers have cut back on capital equipment expenditures, the Company's OEM
customers have also cut back on their orders for the Company's software
products. Because of this, Management has increased its sales and marketing
efforts in order to expand its customer base. Management remains hopeful that
these new customers will provide the needed revenues to sustain operations.
The Company's future operating results and financial condition are
difficult to predict and will be affected by a number of factors. The markets
for the Company's products are emerging and specialized, and the Company's
technology has been commercially available for a relatively short time.
Accordingly, the Company has limited experience with the commercial use and
acceptance of its products and the extent of the modifications, adaptations and
custom applications that are required to integrate its products and satisfy
customer performance requirements. There can be no assurance that the emerging
markets for industrial motion control that are served by the Company will
continue to grow or that the Company's existing and new products will satisfy
the requirements of those markets and achieve a successful level of customer
acceptance. Because of this, the Company continues to devote significant
research and development resources to improve its existing products and to the
development of new products.
Because of these and other factors, past financial performance is not
necessarily indicative of future performance, historical trends should not be
used to anticipate future operating results, and the trading price of the
Company's common stock may be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results and market conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company has no activities in derivative financial or commodity
instruments. The Company's exposure to market risks, (i.e. interest rate risk,
foreign currency exchange rate risk, equity price risk) through other financial
instruments, including cash equivalents, accounts receivable, and lines of
credit, is not material.
-13-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
An action was brought against the Company in August 1998 by Peter and Jana
Manley in the Third District Court of Salt Lake County, State of Utah. The
thrust of the claims by the Manleys relates to rights pertaining to
approximately 180,000 shares of stock in the Company. In the Complaint,
declaratory relief is sought to have all restrictions removed from the stock of
the Manleys and that the Company not hinder in any way the transfer or sale of
the stock. Other claims include conversion, refusal to allow transfer of stock,
lost profits because of an asserted inability to have restrictions removed and
the Manleys being able to transfer their stock, breach of Stock Option Agreement
and Stock Option Plan, intentional interference with economic relations,
quantum-meruit-contract implied in fact, promissory estoppel/detrimental
reliance, civil conspiracy and breach of good faith and fair dealing.
In the prayer for relief, the Manleys seek a declaration that all
restrictions including the Rule 144 restrictive legend be removed from the
stock, stop transfer orders be removed, that the Company cease and desist from
preventing the Manleys from selling their stock, judgment for direct and
consequential damages, punitive damages, costs, attorney's fees and a demand for
a jury trial.
On or about February 9, 2001, the Manleys filed a Motion for Partial
Summary Judgment, seeking a declaration that they are the sole owners of the
Cimetrix shares of stock, that the shares be held free of any restrictions and a
judgment for damages based on the difference in the value of the stock on the
date the Rule 144 restrictions should have been lifted and the date on which
they were actually lifted, $5.50 per share for the 180,722 shares of Cimetrix
stock, totaling $993,971.
The Company answered the Complaint and filed a Counterclaim. The
Counterclaim asserts material misrepresentations concerning the Company's
technology. Claims against Mr. Manley include fraud in the inducement, common
law fraud, declaration and return of shares of stock against both of the
Manleys, breach of contract against both of the Manleys, fraud in the inducement
against Mr. Manley, breach of covenant of good faith and fair dealing against
Mr. Manley.
In June 2001 an agreement in principal was reached to settle this
litigation, with the formal settlement agreement subsequently executed on August
9, 2001. Under the terms of the settlement, the Manley's were provided with an
option to require the Company to redeem up to 80,000 shares of their Cimetrix
stock during a period of time from December 1, 2002, through December 31, 2002,
at a redemption price of $2.80 per share, or a maximum total repurchase cost to
the Company of $224,000. The Manley's also have the right to redeem their shares
at $2.80 per share at an earlier date if the Company's average daily cash
balance computed on a monthly basis, is at or below $1,250,000 or if Paul A.
Bilzerian, who formerly served as president and a director of the Company,
becomes an officer, director, employee or agent of the Company prior to December
31, 2002.
-14-
ITEM 2. CHANGES IN SECURITIES
Exchange of 10% Senior Notes
On October 8, 2001, the Company presented an offer to its 10% Senior
Noteholders to exchange their 10% Senior Notes due September 30, 2002 for 10%
Senior Notes due September 30, 2004. Any noteholder exchanging their Senior
Notes due September 30, 2002 for Senior Notes due September 30, 2004 will also
receive for no additional consideration one common stock purchase warrant for
each $1,000 principal amount of Senior Notes due 2002 exchanged. Each warrant
entitles the holder to purchase 250 shares of the Company's common stock for
$1.00 per share. See Note 3 to Condensed Financial Statements (Unaudited),
earlier in this document.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT
CIMETRIX INCORPORATED
Dated: November 14, 2001 By: /s/ Robert H. Reback
------------------------
ROBERT H. REBACK
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Riley G. Astill
-----------------------
RILEY G. ASTILL
Vice President of Finance, Treasurer
and Chief Financial Officer
(Principal Financial and Accounting Officer)
-16-