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, 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, 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. [ ]
As of March 27, 2002, the registrant had 24,457,690 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 as of that date was
approximately $9,413,524.
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 June 1, 2002,
are incorporated by reference into Part III hereof.
FORM 10-K
For the Fiscal Year Ended December 31, 2001
TABLE OF CONTENTS
PART I
Item 1. Business............................................................3
Item 2. Properties.........................................................17
Item 3. Legal Proceedings..................................................17
Item 4. Submission of Matters to a Vote of Security Holders................20
PART II
Item 5. Market for Company's Common Stock and Related Stockholder Matters..20
Item 6. Selected Financial Data............................................23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................24
Item 7A Quantitative and Qualitative Disclosures about Market Risk.........29
Item 8. Financial Statements and Supplementary Data........................29
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosures..............................................29
PART III
Item 10. Directors and Executive Officers of the Company....................29
Item 11. Executive Compensation.............................................29
Item 12. Security Ownership of Certain Beneficial Owners and Management.....30
Item 13. Certain Relationships and Related Transactions.....................30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....31
Signatures....................................................................32
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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 listed at the end of Part I, Item 1. Business, titled
"FORWARD-LOOKING STATEMENTS CAUTIONARY STATEMENT".
PART I
ITEM 1. BUSINESS
==================
Business Overview
Cimetrix designs, develops and markets machine control software products
that are tailored to meet the needs of original equipment manufacturers (OEM's).
The Company has three primary machine control software product lines: advanced
motion control, general purpose equipment connectivity and specialized
connectivity for 300mm semiconductor wafer fabrication facilities. Revenues are
derived from the initial sale of software development tools and the ongoing
runtime software licenses that OEMs purchase for each machine shipped with
Cimetrix software.
In the advanced motion control market, Cimetrix introduced a breakthrough
product in 2001 with the release of Cimetrix Open Development Environment
version Six (CODE 6) with Core Motion. CODE 6 includes a number of new features,
such as enhanced calibration and simulation features, specifically targeted for
Surface Mount Technology (SMT) OEM customers. The Core Motion technology marked
a significant technical achievement by our engineers, because it moves the
low-level motion control functions from a specialized, intelligent motion card
into Cimetrix software on the PC. This allows the OEM customer to reduce
proprietary hardware costs, protect proprietary algorithms, and provides greater
flexibility in the overall system architecture. This is accomplished by using a
simple I/O interface card together with Core Motion software in place of a
specialized motion card. Cimetrix shipped its first 100 licenses of CODE 6 with
Core Motion in 2001 to OEM customers, which are scheduled to ship production
machines in the first half of 2002.
The Company's CIMConnect connectivity product was widely recognized as the
"best technical solution" by a wide range of customers in the SMT, semiconductor
wafer fab and semiconductor back-end markets, which enabled the Company to
obtain a number of significant design wins from OEM customers. Communications
and connectivity between the tool on the factory floor and the host system are
becoming increasingly important as mission-critical applications require these
communications for operation.
-3-
CIMConnect is designed for general purpose equipment connectivity and
enables production equipment in the electronics industries to communicate data
to the factory's host computer through the semiconductor equipment communication
standard (SECS)/ generic equipment model (GEM) and extensible markup language
(XML) based communication standards. CIMConnect can also support other emerging
communications standards for maximum flexibility. CIMConnect is used primarily
in the SMT and semiconductor industries.
Typically used in conjunction with CIMConnect, the Company's CIM300 family
is a set of standards-based software products designed specifically for 300mm
semiconductor wafer fabrication facilities. CIM300 reduces total integration
time required to connect new 300mm semiconductor tools to each other and to the
host computer in a wafer fab. The semiconductor industry is rapidly changing to
the 300mm wafer size, and the Company expects the market for 300mm tools to
continue to grow.
The business relationships that Cimetrix establishes with its customers go
beyond sales of its products. The Company partners with its OEM customers to
provide them with solutions that include software tools, consulting, services,
and support. Company engineers are comprised of industry leading experts in
motion control, communications, connectivity, and associated technologies and
implementation processes. This experience and technical knowledge provides a
unique and invaluable benefit to our customers and is a core part of our
strategy to build long-term relationships with global electronics equipment
OEMs.
Key Markets
The Company serves customers in a wide variety of technology and
manufacturing industries, including SMT, semiconductor wafer fabrication,
semiconductor back-end, packaging, small parts assembly, and robotics. The
Company will continue to serve customers in all these industries and explore
opportunities for growth in industries that are challenged by the problems that
the Company's products solve.
The Company is now focused on OEM customers in two key industries: SMT and
semiconductor. Short-term revenue growth will stem primarily from opportunities
explored in these industries. Both the SMT and semiconductor industries are a
natural fit for the Company's solutions because of the demand for high- speed,
motion intensive applications with pinpoint accuracy that can communicate with
host computers throughout the process.
In general, the semiconductor and SMT industries represent some of the
fastest-growing and most dynamic industries. Rapid industry changes require
tools that are flexible and can adapt quickly to new requirements. The Company
is uniquely positioned to meet these challenges with PC-based motion control and
communications software that is based on open standards and uses the latest in
object-oriented design to provide end users with the necessary flexibility and
customization required to meet industry demands.
By focusing efforts on these two industries, the Company intends to obtain
a dominant position for its products in these segments. This will provide the
momentum and cash flow to penetrate other industries.
-4-
Surface Mount Technology Industry
The SMT market includes all factory equipment to produce and test printed
circuit boards. Applications involve high-speed multi-axis motion control with
very tight vision system integration. The need to connect factory equipment to
host computer systems is growing in importance. SMT equipment can typically cost
around $500,000. This industry has quickly adopted the use of PCs as equipment
controllers and uses very few proprietary controllers. With electronic
components changing very rapidly, OEMs are under pressure to create newer faster
machines in shorter time periods. The Company provides software to many major
suppliers in this industry and is actively involved in industry organizations
such as the National Electronics Manufacturing Initiative (NEMI) and the
Institute for Interconnecting and Packaging Electronic Circuits (IPC). 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 Institute for Electrical and Electronics Engineers (IEEE)
standards organization as IEEE PR 1533-1998 Low-Cost Open Architecture
Controller API Specification. The Company has been significantly involved in the
development of this specification and has enhanced the CODE product to comply
with the specification. The IPC has released new connectivity standards called
CAMX. These XML based standards and our involvement in the committee were the
primary reason behind the development of the CIMConnect product.
Diagram of a modern SMT line:
(Graphic Omitted)
A modern SMT line can include: a loader, screen printer, post print
inspection, adhesive dispenser, several placement machines (mounters), odd form
placement, post placement inspection, reflow soldering, post reflow inspection,
unloader, and finally system test. The Company has targeted the mounter tool as
a desirable market for its CODE and CIMConnect products and has current
development contracts under way with several major mounter equipment
manufacturers.
-5-
Semiconductor Industry
The semiconductor industry includes the manufacturing, packaging and
testing of semiconductor wafers. It is a cyclical industry that experienced its
largest downturn ever last year. Industry revenues were down approximately 40
percent. Due to the downturn in the economy, semiconductor fab capital spending
shrank by 29 percent last year. In 2000, the semiconductor industry began the
migration from building 8-inch (200 mm) wafers to building 12-inch (300 mm)
wafers. Despite reduced capital spending, the trend to 300mm fabs continued in
2001 and is projected to increase even more in 2002, with six additional fabs
expected to begin equipping this year. (Source: Semiconductor International,
January and March 2002 issues) The Company's CIMConnect and CIM300 products are
well positioned to take advantage of increased demand for 300mm semiconductor
tools. In 2001, Cimetrix garnered over twenty new OEM customers in this
industry.
Additional Markets
While the SMT and semiconductor industries are the two key markets that the
Company is focused on for the short term, there are also opportunities in other
industries for the Company's products. The Company remains committed to
developing and strengthening relationships with current customers and prospects
in other industries, such as:
Small Parts Assembly Industry
This industry assembles small parts such as cell phones, engine control
modules and disk drives. Accuracy, integration with vision, time to market, and
open architecture are all needs of this diverse industry. Operations typically
involve a small Cartesian, SCARA or Delta style robot and require integration
with many other automation components. The CODE solution allows all these
components to be controlled with one PC instead of several different proprietary
controllers. In this market, the Company is currently working with SIGPack, a
large European packaging robotics OEM and several companies in the area of fiber
optic assembly among other applications.
Robotics Industry
Industrial robots are used for tasks that are tedious, repetitive and
exhausting for humans and are employed to reduce the costs and improve the
quality of highly labor-intensive tasks. Industrial robots are typically
multi-axis manipulators used for welding, painting and material handling
applications. The automotive industry is currently the primary end-user of
robots. Other end-users include the aerospace, steel, heavy equipment, packaging
and electronics industries.
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 Robotic Industries Association (RIA) has
started to address the use of open architecture controllers for robots, but is
meeting significant resistance from the traditional robot OEMs. The Company
targets progressive robot manufacturers who see the need for modern open
solutions.
-6-
Packaging Industry
The packaging industry supplies equipment that handles and prepares
products for shipment and display to customers. Packaging machines involve
high-speed motion control and cover a wide range in terms of complexity.
Currently, proprietary controllers are used extensively, but the Open Modular
Architecture Controls (OMAC) group has formed a working group to specifically
drive packaging toward open controllers. Cimetrix, together with our partner
Siemens ISBU, has a good opportunity to grow in this industry depending on their
adoption of open controllers.
Machine Tool Industry (Computer Numerical Control or 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 (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.
General Automation Industry
(Programmable Logic Card (PLC) general-purpose motion controllers)
This segment includes general-purpose machinery, automotive, textiles,
packaging, food & beverage, and pharmaceutical markets. These markets typically
require less sophisticated motion control and very little communications with
host computers. The transition from proprietary to PC-based controllers has been
slow, partly because they use older software technologies. Soon this segment
will recognize the cost savings possible with the open architecture approach.
Notable Achievements of 2001
The Company achieved major milestones in 2001 in the areas of product
development, customer acquisition and company growth.
Product Development
Last year the Company introduced the latest version of its motion control
software, CODE 6. The latest release of CODE features the breakthrough Core
Motion technology, which eliminates the need for a specialized, intelligent
motion card. Core Motion allows OEMs to control a wide range of intensive motion
control applications through software in the PC rather than with a proprietary
motion card.
Historically, machinery OEMs who had transitioned from proprietary
controllers to PC based motion control software were required to use an
intelligent motion card to augment the lack of PC performance. Now with the
increasing power of PCs, Cimetrix's engineers, utilizing Core Motion technology,
have moved the motion card functionality onto the PC, allowing for a direct
connection from the PC to amplifiers and feedback devices. This enables the PC
software to control trajectory generation, position loop, velocity loop,
input/output scanning, and event generation at the servo rate.
-7-
By taking advantage of CODE 6 with Core Motion, OEMs can reduce hardware
costs by up to 50 percent while achieving greater flexibility in hardware
selection, development environments, and system architecture.
Two other Company products, CIMConnect and CIM300, were recognized for
outstanding quality by Semiconductor International magazine last year. Both
products were nominated for and received the Editor's Choice Best Product Award
from the publication. The award is impressive because customers must nominate
the product in order for it to be considered. The nomination and receipt of the
award for CIM300 is especially notable as 2001 was the first full year CIM300
was released as a product and it has already been recognized as the best product
in its class.
New Customers
Despite a down economy in 2001 for the industries Cimetrix serves, the
Company achieved a high degree of success in signing new customers. Over 20 new
OEM customers signed development agreements in 2001. The majority of new
customers are in the semiconductor industry, one of the Company's two key
industries.
Company Growth
Last year the Company expanded overseas, with the opening of its first
European office. The Company reaffirmed its commitment to providing the best
possible sales and service to its European customers with the opening of the
sales and technical support office in France.
The European office is directed by Messrs. Bruce Febvret and Stuart
Johnston. Mr. Febvret, an industry veteran in machine control, will direct
sales. Mr. Johnston, a 13-year veteran in machine control engineering, will
function as the principal engineer for technical support of machine control
products.
In addition to opening an office in Europe, last year the Company selected
M&M Software GmbH as its exclusive communications products distributor for
Europe. M&M will work in cooperation with Cimetrix Europe to provide sales and
technical support of the Cimetrix communications products, CIM300 and
CIMConnect.
Cimetrix Product Line
CODE
The Cimetrix Open Development Environment (CODE(TM)) is a suite of open
architecture machine modeling and motion control software products designed to
control the most challenging multi-axis machine control applications. CODE
contains both a powerful off-line simulation development environment known as
CIMulation, and a robust, real-time motion and I/O control system called
CIMControl.
Applications written and tested using CIMulation are fully compatible with
CIMControl and can be deployed with no conversion or programming changes
required. Applications can be developed using standard computer languages such
as C++, Visual Basic, or Delphi or with PLC languages such as ladder logic or
flow charts.
-8-
Core Motion
Core Motion technology was introduced last year as part of CODE 6. Core
Motion allows customers to eliminate the cost and complexity of a specialized
motion card. With Core Motion, these expensive specialized motion cards are
replaced through software. Using the proven real-time extensions for Windows
2000 and NT, PC processing power is used to move these specialized software
functions from the motion card to the PC. A network or low-cost interface card
is used to interface the PC controller to the servo hardware.
Connect Family
CIMConnect (TM) - CIMConnect is an object-oriented service and toolkit for
equipment suppliers to quickly develop communication interfaces for their
manufacturing equipment. CIMConnect supports all major communication protocols,
including SECS/GEM, XML, and others. It also supports multiple host interfaces
simultaneously, which allows customers to support any legacy, custom, and GEM
interfaces.
GEM Host Manager(TM) - GEM Host Manager allows a host computer to receive data
from GEM enabled equipment and format the data for use by host computer
applications to monitor and control factories. GEM Host Manager has been
designed specifically for use in printed circuit board facilities.
TESTConnect(TM) - TESTConnect is a SECS/GEM host emulator used to test equipment
to ensure it complies with the SECS standards. TESTConnect simplifies the
process of testing SECS implementations through the use of an intuitive,
graphical user interface and menu-driven property screens that allow customers
to construct message sets and test them without any programming.
CIM300 Family
CIM300(TM) is a family of software tools for manufacturers of 300mm
semiconductor equipment that allow for quick implementation of the new required
Semiconductor Equipment and Materials International (SEMI) standards, including
E4, E5, E30, E37, E39, E40, E41, E58, E87, E90, and E94. Components of CIM300
include:
CIMFoundation(TM) - Provides an abstraction layer for SECS/GEM products and an
implementation of SEMI E39 Object Services. Object services are provided for the
CIM300 functional modules and user-written modules. The abstraction layer allows
the CIM300 family to work with either the state-of-the-art Cimetrix CIMConnect
product or older legacy products.
CIM87-Carrier Management(TM) - Provides carrier management functionality as
defined in SEMI E87. The CIM87 interface provides methods that logically
correspond to carrier management system (CMS) functions. The package has two
component object model (COM) objects, representing the carrier and CMS package,
and a callback interface used to notify the client application of CMS services
requested by the host.
CIM40-Process Job(TM) - Provides process job functionality as defined in SEMI
E40. This module provides two COM objects representing the E39 OSS process job
object and process job package. A callback interface is provided to notify the
client application of process job creation and a process job queue is provided
with the application program interface (API) functions necessary for process job
management.
CIM90-Substrate Tracking(TM) - Provides substrate tracking functionality as
defined in SEMI E90. This module provides COM objects for the E39 OSS substrate
and substrate location objects as well as the E90 package object. It is possible
to connect CIM90 to CIM87 for automatic substrate lifetime control.
-9-
CIM94-Control Job(TM) - Provides control job functionality as defined in SEMI
E90. This module provides COM objects for the E39 OSS control job object as well
as the E94 package object. All control job services are supported. A callback
interface is provided to notify the client application of requested control job
services. A control job queue is provided with API functions for queue
management.
Competition
The Company's main product lines face competition from other companies,
technologies, and products. These competitive threats are summarized below:
The manufacture and sale of automation technology is a highly competitive
industry. Competition in this area is primarily divided between in-house
developed controllers and open controller suppliers.
In-house developed controllers are potentially competition, but they are
also potential customers. Robot manufacturers, CNC suppliers, and electronics
equipment suppliers all develop their 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, unified modeling language (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. Larger
proprietary controller companies have recently purchased several of them. They
typically do not have robust motion solutions and target different markets than
Cimetrix. Management expects to see additional competitors emerge in this group.
None of these competitors offer equipment communications software products.
With the introduction of Core Motion technology in CODE 6, manufacturers of
intelligent motion cards can be considered competitors for part of the CODE
product, although CODE 6 also supports a number of popular motion cards.
In the 300mm connectivity market, Cimetrix has several competitors that
include; Asyst, which acquired GW Associates, Brooks Automation, Excelerate and
Yokogawa. All competitors have varying levels of expertise in semiconductor
fabs.
Management believes that most, if not all, of the Company's competitors
currently have greater financial resources and market presence than Cimetrix.
Accordingly, these competitors may be able to compete very effectively on
pricing and to develop technology to increase the flexibility of their products.
Further, each of these competitors has already established a share of the market
for their products, and may find it easier to limit market penetration by the
Company because of the natural tie-in of their controllers and software to their
mechanisms. Management is uninformed as to whether any of these competitors are
presently developing additional technology that will directly compete with the
Company's product offerings. By focusing on the SMT and Semiconductor markets
for the short term, management believes the Company can earn a dominant position
in the face of other competitors.
-10-
Sales and Marketing
The sales and marketing staff are responsible for identifying key end-user
customers and the top-tier OEM machine suppliers in each primary market. Company
president, Bob Reback, oversees the operations and management of the Company's
worldwide semiconductor business unit out of Salt Lake City. Sales and marketing
efforts are combined into one unified force, supporting both communications and
motion control products under Dave Faulkner, executive vice president. The
Company's sales offices are located in Salt Lake City, Utah, Boston,
Massachusetts, and Archamps, France. In addition, the Company has distributors
or resellers located in Vancouver, Washington, Europe, and Japan.
Operations
The Company's software operations are conducted under the direction of the
Company's vice president of software development, Michael D. Feaster. His group,
which includes Software Development, Quality Assurance and Applications, is
responsible for developing new products, testing such products, and performing
initial product integration with key OEMs. 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.
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 similar to programming a
programmable logic controller. Due to licensing problems, the Company did not
actively market AART to new customers during 2001, but did continue to support
existing AART customers. In the fourth quarter of 2001, due to the fact that the
licensing issues were still not resolved, forecasted sales for AART remained
low, and the high cost of integrating the product into the Company's CODE
product, management determined that it could no longer justify devoting any
additional working capital or resources to the AART products. Therefore the
Company wrote-off its remaining intangible asset related to the AART technology
acquisition, in the amount of $2,490,000.
In December of 1999, the Company also purchased the software products of
Systematic Designs International, Inc. ("SDI"), of Vancouver, Washington. These
newly acquired products have broadened the Company's communication product line
to include semiconductor industry communications solutions.
-11-
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 CODE software system with the US Copyright Office,
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 2001, no single customer accounted for more than 10% of the Company's
revenues, while sales to affiliates accounted for 9% of revenues. In 2000, three
customers accounted for 18%, 16% and 15% of the Company's revenues respectively,
while sales to affiliates accounted for 5% of revenues. No other single customer
accounted for more than 10% of Company revenues in 2000. 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 the Company's revenues in 1999.
The Company's affiliate, Aries, Inc., is a private Japanese corporation of
which the Company currently holds approximately 11% of its outstanding shares of
stock. Aries, Inc. is the Company's distributor in Japan. Sales to Aries
represented 9%, 5% and 17% of the Company's total sales in 2001, 2000 and 1999,
respectively.
For the year ended December 31, 2001, revenues from export sales were 41%,
of which 9% were to affiliates.
The following table summarizes domestic and export sales, as a percent of
total sales, for the three years ended 2001, 2000 and 1999:
Year Ended December 31,
--------------------------------------------
2001 2000 1999
---- ---- ----
Domestic sales 59 60 33
Export sales 41 40 67
In 2001, sales to Germany and Japan accounted for 10% and 19% of the
Company's total revenues, respectively. In 2000, sales to Japan and Switzerland
accounted for 13% and 17% of the Company's total revenues, respectively. In
1999, sales to Germany and Japan accounted for 34% and 26% of the Company's
total revenues, respectively. No other single country accounted for more than
10% of the Company's revenues in the fiscal periods ended 2001, 2000 and 1999,
respectively.
Personnel
As of March 27, 2002, the Company had 35 employees, 17 of whom are involved
in the technical development and support of customers and products, 14 in sales,
marketing, and customer support, with 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.
-12-
Executive Officers
Robert H. Reback, President and Chief Executive Officer, age 42, joined
Cimetrix as Vice President of Sales in January 1996, was promoted to Executive
Vice President of Sales in January, 1997 and was promoted to President on June
25, 2001. Mr. Reback was the District Manager of Fanuc Robotics' West Coast
business unit from 1994 to 1995. From 1985 to 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.
David P. Faulkner, Executive Vice President and Managing Director of
Machine Control Products, age 46, 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 to 1996. Mr. Faulkner has a B.S. degree in Electrical Engineering and
an MBA degree from Rensselaer Polytechnic Institute.
Steven D. Hausle, President Semiconductor Division, age 51, joined Cimetrix
in May 2000. Prior to coming to Cimetrix Mr. Hausle was Executive Vice President
for GW Associates from 1998-2000, which is a privately owned software developer.
As President of the sales and marketing firm Bridgetek, Inc. from 1988 to 1998
he brought leading edge technology start-up firms to market. From 1986 to 1988,
Mr. Hausle was Vice President Sales and Marketing for Flexible Manufacturing
Systems, a very early adopter of Automated Material handling and CIM software.
And in 1983 to 1986, he was a key member of the management team that started
Prometrix Inc., which is now part of KLA-Tencor. Mr. Hausle holds a B.S. degree
from Santa Clara University.
Michael D. Feaster, Vice President of Software Development, age 31, 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. During that time, Century Software, Inc., was 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. Mr.
Feaster attended Southwest Missouri University from 1987 to 1990.
Riley G. Astill, Vice President of Finance, Chief Financial Officer, age
41, originally joined Cimetrix as Controller, in July 1994. He remained
Controller until October 1996, when he left the Company prior to its moving the
Finance Department 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 to 1994. From 1990 to 1991, he was a
senior accountant for Oryx Energy Company. From 1988 to 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 43, 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 thirteen years and is one of the principal architects of many of
the Company's most important products.
-13-
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 FINANCIAL STATEMENTS. The financial statements of
the Company as of December 31, 2001, reflect a net loss of $5,620,000, and an
accumulated deficit of $24,108,000.
2 LIMITED WORKING CAPITAL; Limited Operating History; Accumulated Deficit;
Anticipated Losses. As of December 31, 2001, the Company had working capital of
$1,308,000. The Company also has an accumulated deficit of $24,108,000. Such
losses have resulted principally from costs incurred in connection with research
and development and the selling and marketing of the Company's software
products. CODE motion control software was introduced commercially in October
1995. The Company's communications products, GEM, CIMConnect and CIM300 were
introduced during 1997, 2000, and 2000 respectively. 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, 2001, unused tax
operating loss carry forwards of approximately $16,800,000 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, 2001, the total of all deferred tax assets was
approximately $9,062,000. 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 approximately
$9,062,000 to offset all of its deferred tax assets.
4. DEPENDENCE ON SIGNIFICANT CUSTOMERS. In 2001, no single customer
accounted for more than 10% of the Company's revenues, while sales to affiliates
accounted for 9% of revenues. Customer "A", "B" and "C" accounted for
approximately 18%, 16% and 15% of the Company's revenues, respectively, in 2000.
Customer "D" and "E" accounted for approximately 34% and 12% of the Company's
revenues in 1999, respectively. The loss of any customer's business could have a
material adverse effect on the 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 and the
development cycle of the customer's products. The Company could be materially
adversely affected by a downturn in either customer'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.
-14-
5. DEPENDENCE ON RELATIVELY NEW PRODUCTS. CODE motion control software was
introduced commercially in October 1995. The Company's communications products,
GEM, CIMConnect and CIM300 were introduced during 1997, 2000, and 2000
respectively. In addition, the Company only began to introduce commercially in
2000, its new software products recently purchased from SDI. 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 a 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 41%, 40% and 67%
of the Company's business in 2001, 2000 and 1999, 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 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.
-15-
9. DEPENDENCE ON CERTAIN INDIVIDUALS. The Company is highly dependent on
the services of its key managerial and engineering personnel, including, Robert
H. Reback, President and CEO, David P. Faulkner, Executive Vice President and
Managing Director of Machine Control Products, Michael D. Feaster, Vice
President of Software Development and Steven K. Sorensen, Vice President and
Chief Engineer. 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 many of 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 non-disclosure 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 9% of the outstanding shares of Common
Stock of the Company.
12. MARKETABILITY OF COMMON STOCK. The Company's Common Stock is currently
listed on the OTC Bulletin Board under the trading symbol CMXX. There are
presently only 15 market makers. Obtaining a listing on a national securities
exchange or being quoted on an automated interdealer quotation system 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.
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 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.
-16-
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 industry 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.
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, and is currently reviewing
its options for renewing the lease or relocating. The present 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. All operations of
the Company are conducted from its headquarters, with its satellite offices
serving only as remote sales and technical support offices.
ITEM 3. LEGAL PROCEEDINGS
==========================
Manley Litigation,
Peter H. Manley and Jana Kay Manley, Plaintiffs, v. Cimetrix, Inc., a Nevada
corporation, and Paul A. Bilzerian, an individual, Defendants; Paul A.
Bilzerian, Counterclaimant v. Peter H. Manley, Counterclaim Defendant;Cimetrix,
Incorporated, Nevada corporation, Counterclaimant v. Peter H. Manley, an
individual, and Jana Kay Manley, an individual, Counterclaim Defendants. Third
Judicial District Court, Salt Lake County, State of Utah, Civil No. 980907797.
An action was brought against the Company and Paul A. Bilzerian, the then
President of the Company, in August 1998 by Peter and Jana Manley in the Third
Judicial District Court, Salt Lake County, 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.
-17-
The Company answered the Complaint and filed a Counterclaim, as did Mr.
Bilzerian. The Counterclaim asserted 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.
The above claims were dismissed with prejudice except that the claims of
the Manleys against Mr. Bilzerian were dismissed without prejudice and the court
dismissed the counterclaims of Mr. Bilzerian against the Manleys without
prejudice. The dismissal of the claims against the Manleys by Mr. Bilzerian were
not done by Stipulation of Mr. Bilzerian. In the settlement agreement between
the Manleys and the Company, Cimetrix is also obligated to indemnify and hold
the Manleys harmless from and against the Bilzerian Claims. The indemnity also
includes payment, when incurred, of the Manleys' attorneys' fees and costs in
connection with their defense of the Bilzerian Claims asserted in the lawsuit or
in any other forum by Bilzerian or any of his successors and/or assigns.
To date no costs related to the above indemnity have been incurred nor is
the Company aware of any action that may result in any such costs.
Plug n' Work Litigation,
Cimetrix Incorporated v. Plug n Work, John L. Fisher and Scott M. McCrary; Plug
n Work v Cimetrix Incorporated, Paul A. Bilzerian, Overseas holdings Limited
Partnership, the Paul A. Bilzerian and Terri L. Steffen Family Trust of 1995,
Overseas Holding Company, Bi-Coastal Holding Company, the Paul A. Bilzerian and
Terri L. Steffen 1994 Irrevocable Trust f/b/o Adam J. Bilzerian and Dan B.
Bilzerian and John Does I-X; John F. Fisher v. Cimetrix Incorporated; Third
Judicial District Court, Salt Lake County, State of Utah, Civil No. 0009020744;
and Alice O. McCrary et al. v. Cimetrix Incorporated, U.S. District Court,
District of South Carolina, Greenville, Division, C.A. No. 6-00-1176-13.
On April 5, 2000, the Company filed suit in the Third Judicial District
Court, of Salt Lake County, Utah, against Plug n' Work, Scott McCrary and John
Fisher (the "Plug n' Work Shareholders"). The Company brought this action
alleging that the Plug n' Work Shareholders failed to disclose significant
material liabilities with respect to the intellectual property purchased from
Plug n' Work in December 1999, in exchange for 1,200,000 shares of Cimetrix
stock and approximately $300,000 in cash.
On September 19, 2000, the Company also filed suit in the Third Judicial
District Court, of Salt Lake County, Utah, against Advanced Automation. The
Company brought this action alleging that Advanced Automation failed to disclose
significant material liabilities with respect to the intellectual property
purchased from Plug n' Work in December 1999.
-18-
The defendants filed counterclaims, claiming that they were entitled to
receive the 1,200,000 shares of stock, and sought damages in an amount in excess
of $2,000,000. In the counterclaims Mr. Bilzerian was named as a defendant.
Cimetrix refused to transfer the shares and counterclaimed in the lawsuit
asserting that the transfer of the shares should not take place because of the
pendency of claims against Plug n' Work involving the material non-disclosures
at the time of acquisition.
On February 2, 2001, the Company settled all outstanding claims and
counterclaims with Plug n' Work, and all plaintiffs involved. In all, seven
legal actions were settled and brought to a close, those being, 1) Cimetrix
Incorporated v Plug n' Work, filed March 17, 2000, Federal Court, District of
Utah, 2) Cimetrix Incorporated v Plug n' Work, John J. Fisher and Scott McCrary,
filed April 5, 2000, Utah 3d Jud. District, 3) Alice O. McCrary, Brian C.
Claycomb, etc. (Shareholders of Plug n' Work) v Cimetrix Incorporated, filed
April 14, 2000, Federal Court, District of Utah, 4) Plug n' Work v Cimetrix
Incorporated, Paul A. Bilzerian, Overseas Holdings LP, Steffen Family Trust of
1995, Overseas Holdings Co., Bicoastal Holding Company, 1994 Family Trust, filed
May 4, 2000, Utah 3d Jud. District, 5) John J. Fisher v Cimetrix Incorporated,
filed May 4, 2000, Utah 3d Jud. District, 6) Cimetrix Incorporated v Colonial
Stock Transfer Company, filed September 13, 2000, Utah 3d Jud. District, and 7)
Cimetrix Incorporated v Advanced Automation, filed September 19, 2000, Utah 3d
Jud. District.
As part of the settlement, 400,000 shares of the original 1,200,000 shares
issued for the purchase, were returned to the Company. Additionally the Company
entered into a hold harmless-indemnity agreement. This indemnity covered Plug n'
Work and Advanced Automation and all of their respective current and former
officers, directors, owners, shareholders, employees, agents, attorneys,
insurers, trustees, beneficiaries, heirs, representatives, successors, and
assigns, from and against any claim that has or may hereafter be asserted
against any of those persons by Paul A. Bilzerian or any Bilzerian related
entity, or anyone claiming by or through any of them or acting on their behalf.
The Bilzerian entities referred to above include Overseas Holdings Limited
Partnership, Paul A. Bilzerian and Terri L. Steffen Family Trust of 1995,
Overseas Holding Company, Bi-Coastal Holding Company, and the Paul A. Bilzerian
and Terri L. Steffen 1994 Irrevocable Trust f/b/o Adam J. Bilzerian and Dan B.
Bilzerian.
To date no costs related to the above indemnity have been incurred nor is
the Company aware of any action that may result in any such costs.
Shaw Pittman Litigation,
Shaw Pittman, LLP v. Cimetrix, Inc. and Paul A. Bilzerian, Defendants, Superior
Court of the District of Columbia, Civil Division, Case No. 02-0000223.
The complaint in this matter was filed against the Company and Paul A.
Bilzerian in January 2002. The claims concern an alleged breach of contract
pertaining to a purported retainer agreement signed by Mr. Bilzerian on behalf
of the Company as well as on behalf of Mr. Bilzerian himself. This related to
the performance of legal services for Mr. Bilzerian relative to legal matters of
a personal nature involving him and the Securities and Exchange Commission. The
amount of money being claimed in the case is $39,594 plus court costs and
attorney fees. The Company has taken the position that the retainer agreement
purportedly signed on behalf of Cimetrix when Mr. Bilzerian was the president
was not authorized and that Shaw Pittman did not make reasonable inquiry about
Mr. Bilzerian's authority to sign the agreement pursuant to which the services
rendered would be for Mr. Bilzerian and his personal benefit. Among other
things, Shaw Pittman takes the position that there was an appearance of
authority relative to Mr. Bilzerian so as to bind the Company. The Company filed
an answer, but no formal discovery has commenced.
-19-
The Company is not a party to any other material pending legal proceedings
and, to the best of its knowledge, no such proceedings by or against the Company
have been threatened. To the knowledge of management, there are no material
proceedings pending or threatened against any director or executive officer of
the Company, whose position in any such proceeding would be adverse to that of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the quarter ended December 31, 2001.
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 NASD OTC 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
1999 High Bid Low Bid
- ---------------- -------- -------
First quarter $ 1.19 $ .31
Second quarter $ 1.03 $ .45
Third quarter $ 4.06 $ .56
Fourth quarter $ 3.50 $ 1.88
2000
- ----------------
First quarter $ 7.00 $ 2.25
Second quarter $ 5.31 $ 3.00
Third quarter $ 3.50 $ 1.88
Fourth quarter $ 2.38 $ 1.13
2001
- ----------------
First quarter $ 3.31 $ 1.25
Second quarter $ 1.60 $ .57
Third quarter $ .95 $ .40
Fourth quarter $ .51 $ .30
2002
- ----------------
First quarter (as of March 27, 2002) $ .68 $ .33
-20-
On March 27, 2002, the closing quotation for the Company's common stock on
the NASD OTC Bulletin Board was $.43 per share. Potential investors should be
aware that the price of the common stock in the trading market can change
dramatically over short periods as a result of factors unrelated to the earnings
and business activities of the Company.
On March 27, 2002, there were 24,457,690 shares of common stock issued and
outstanding, held by approximately 2,700 beneficial shareholders.
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. Presently
there are 431,722 shares held as treasury stock by the Company. 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.
Common Stock Options
As of March 27, 2002, there were issued and outstanding, option grants for
the purchase of 3,619,500 shares of the Company's common stock under the
Company's 1998 Stock Option Plan. A total of 3,000,000 shares of common stock
have been reserved for issuance under this plan, as approved by a vote of
shareholders at the June 2, 2001 annual meeting. Option forfeitures and expiring
options may be sufficient to cover the 619,500 options that have been granted in
excess of the plan amount. Otherwise, some option grants will be rescinded if
additional shares are not approved for issuance under the plan at the June 2002
annual shareholders meeting.
The following table summarizes the quantity and exercise price of the options
currently granted to employees:
Option Price Quantity
----------------------------------
$1.00 2,042,500
$2.50 957,000
$3.00 360,000
$3.50 260,000
-------
Total Options 3,619,500
Approximately 530,500 of these outstanding 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 December 2006.
As of March 27, 2002, there were issued and outstanding , option grants
for the purchase of 554,000 shares of the Company's common stock, under the
Company's Director Stock Option Plan. A total of 600,000 shares of common stock
have been reserved for issuance under this plan.
-21-
The following table summarizes the quantity and exercise price of the
options currently granted to directors:
Option
Price Quantity
----- --------
$1.00 200,000
$2.50 258,000
$3.50 96,000
-------
Total Options 554,000
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
July 2006.
Senior Notes and Common Stock Warrants
In November 1997, the Company issued approximately $3.3 Million of 10%
Senior Notes due September 30, 2002. For no additional consideration, each
purchaser also received one common stock purchase 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. To date,
none of the warrants have been exercised. Interest on the Senior Notes has been
paid on April 1 and October 1 of each year since issuance. Approximately
$600,000 of the Senior Notes were retired in exchange for common stock of the
Company, leaving an outstanding principal balance of $2,681,000.
In an effort to preserve its working capital, on October 8, 2001, the
Company presented an offer to its existing 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 at 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.
The offer to exchange the Senior Notes has been extended until April 30,
2002. As of March 27, 2002, $457,000 of these Senior Notes had been exchanged
for Senior Notes maturing September 30, 2004, leaving a principal balance of
$2,224,000 due September 30, 2002. Of the $457,000 of Senior Notes that were
exchanged, approximately $18,000 of the face value was attributable to the value
of the Warrants issued. Therefore the face value of these Senior Notes on the
Company's balance sheet is $439,000. This $18,000 is being amortized as
additional interest expense over the life of the Senior Notes, which results in
approximately an additional $600 of interest expense monthly.
There are presently 3,306 warrants outstanding that were issued with the
Senior Notes due September 30, 2002, held by approximately 50 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. The underlying
shares from the outstanding warrants were registered for resale pursuant to the
Form S-3 Registration Statement discussed earlier in this section.
The 457 warrants that were issued in connection with the Senior Notes due
September 30, 2004, represent 114,250 potential shares , or 250 shares for each
warrant. The exercise price for these warrants is $1.00 per share, with the
warrants expiring October 1, 2004. 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 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.
-22-
Subsequent Events
Significant events which occurred subsequent to the close of the Company's
fiscal year ended December 31, 2001:
Subsequent to year end, on March 18, 2002, the Company moved operations of
its semiconductor division, previously located in Los Gatos, California, to its
headquarters in Salt Lake City, Utah. This move was made in order to reduce
operating costs and streamline business operations.
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.
Statements of Operations Data
Years ended December 31,
(in thousands, except per share data)
---------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Revenues $ 4,075 $ 5,900 $ 3,853 $ 4,161 $ 2,195
Operating Expenses:
Cost of revenues 718 647 103 454 1,057
Selling, marketing and
customer support 2,002 1,128 734 713 1,066
Research and development 1,899 1,595 1,508 1,479 2,008
General and administrative 1,932 1,995 1,281 1,854 2,288
Impairment loss 3,112 - - 3,526 -
Compensation - stock options - - 12 20 234
--------- -------- --------- --------- ---------
Total operating expenses 9,663 5,365 3,638 8,046 6,653
--------- -------- --------- --------- ---------
Income (loss) from operations (5,588) 535 215 (3,885) (4,458)
--------- -------- --------- ---------- ----------
Net Income (loss) $ (5,620) $ 513 $ 102 $ (4,070) $ (4,490)
========= ======== ======== ========== ==========
Income (Loss) per
common share $ (.23) $ .02 $ .01 $ (.17) $ (.20)
========= ======== ========= ========== ==========
Dividends per common share - - - - -
========= ======== ========= ========== ==========
Balance Sheet Data
Current assets $ 4,479 $ 6,040 $ 2,590 $ 2,839 $ 2,802
Current liabilities 3,171 779 883 398 623
Working capital 1,308 5,261 1,707 2,441 2,179
Total assets 6,854 13,126 9,374 3,762 8,019
Total long-term debt 439 2,704 2,681 2,691 3,546
Stockholders' equity 3,020 9,643 5,810 673 3,850
-23-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
=====================
Following is a 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 2001. 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 2001, 2000
and 1999 data.
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,
--------------------------------
2001 2000 1999
---- ---- ----
Net revenues 100% 100% 100%
---- ---- ----
Operating expenses:
Cost of revenues 18% 11% 3%
Selling, marketing and customer support 49 19 19
Research and development 47 27 39
General and administrative 47 34 33
Compensation - stock options 0 0 0
Impairment Loss 76 0 0
-- -- --
Total operating expenses 237 91 94
--- -- --
Income (loss) from operations (137) 9 6
Interest income, net of expense (1) (1) (5)
Other income (expenses) 1 1 2
-- -- --
Net Income (loss) (138)% 9% 3%
=== == ==
Net Revenues
Net revenues for the three fiscal years ended December 31, 2001, 2000, and
1999 were $4,075,000, $5,900,000, and $3,853,000, respectively. Net revenues for
2001 decreased $1,825,000, or 31%, from the same period in 2000. This decrease
was primarily due to a significant reduction in the volume of software sales,
rather than a reduction in the selling price of the software . The Company's
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. Competitive pressures may also be
contributing to this decrease in revenues. The Company continues to aggressively
market its products, but does not anticipate a significant increase in sales
over the present levels, until the electronics and semiconductor markets
recover. Moreover the Company cannot predict when such a recovery will occur.
Net revenues for 2001 included approximately $2.93 million of software
revenue, which is significantly below software revenue for 2000, $633,000 of
application engineering revenue, and $507,000 of support revenue. Net revenues
for 2000 included approximately $4.87 million of software revenue, $571,000 of
application engineering revenue, and the remainder from support agreements and
training. Net revenues for 1999 included approximately $3.1 million of software
revenue, $265,000 of application engineering revenue and the remainder from
support agreements and training.
-24-
The following table summarizes net revenues by categories, as a percent of
total net revenues:
Year Ended December 31,
----------------------------------------
2001 2000 1999
---- ---- ----
Software revenues 72 83 81
Application revenues 16 10 7
Support/training revenue 12 7 12
Cost of Revenues
The Company's cost of revenues as a percentage of net revenues for the
years ended December 31, 2001, 2000, and 1999 were approximately 18%, 11%, and
3%, respectively. The cost of revenues increased $71,000, or 11%, to $718,000 in
2001, from $647,000 in 2000. This increase is attributable to the sale of
outside engineering services. While its focus is on the sale of software
products, the Company provides application and integration services to its
customers that want to purchase a complete turnkey system.
Selling, Marketing and Customer Support
Selling, marketing and customer support expenses increased $874,000, or
77%, to $2,002,000 in 2001, from $1,128,000 in 2000. This substantial increase
was attributable to the costs the Company incurred to add additional personnel
in each of the selling, marketing and customer support areas. As acceptance of
the Company's products grows, additional technical resources were added to
support new customers.
A new office was established in Europe in October 2001, which is located in
Archamps, France. This office includes two personnel, one sales person who is
responsible for direct sales and account management in Europe and one engineer
who is responsible for providing technical support to customers in Europe.
A new office was established in Los Gatos California in June 2000, which
remained open during 2001. This office included four personnel, including direct
sales, marketing and customer support. This office was subsequently closed in
March 2002, with operations consolidated into the Company's Salt Lake City
headquarters, in order to reduce expenses.
Selling, marketing and customer support expenses for 2001, 2000 and 1999
reflect 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 $304,000, or 19%, to
$1,899,000 in 2001, from $1,595,000 in 2000. These expenses increased due to the
addition of technical personnel that were needed to continue work on the
development of new products and maintenance of existing products. The Company's
efforts to develop its motion control and communications products for Microsoft
WindowsNT/2000 represented the majority of the research and development
expenditures during 2001.
Research and development expenses included only direct costs for wages,
benefits, materials, and education of technical personnel. All indirect costs
such as rents, utilities, depreciation and amortization were reflected in
general and administrative expenses, discussed below.
-25-
General and Administrative
General and administrative expenses decreased $63,000, or 3%, to $1,932,000
in 2001, from $1,995,000 in 2000. The majority of this decrease is due to the
reduction in amortization expense of capitalized software costs. Software
development expenses that had been capitalized in 1995, and were being amortized
over a five year period, are now fully amortized. Acquired software
technologies, with a book value of approximately $2,500,000, which were being
amortized over a period of 12 years, were written-off at year end. This will
reduce future amortization expense by approximately $260,000 annually.
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 2001 decreased $35,000 or 4%, to $760,000, from
$795,000 in 2000. In 2001 depreciation and amortization expenses represented 39%
of all general and administrative expenses, compared to 40% in 2000.
Impairment Loss
The Company incurred an impairment loss of $3,112,000 in the fourth quarter
of 2001. This loss, which consisted of the write-off of technology, the
write-off of an investment in the Company's Japanese affiliate, and a reserve
for divisional closing costs, is explained below.
In the fourth quarter of 2001, due to software licensing ownership issues,
low forecasted sales, and the high cost of integrating the AART product into the
Company's CODE products, management determined that it could no longer justify
devoting any additional working capital or resources to the Company's AART
products. Without a plan or the ability to recover its investment in this asset,
its valuation was in question. Therefore the Company wrote-off its remaining
intangible asset related to the AART technology acquisition of approximately
$2,490,000. This asset, which had been acquired in December 1999, for 1,200,000
shares of common stock, minus 400,000 shares that were subsequently returned,
and approximately $326,000 in cash, was being amortized over a period of 12
years. The Company will continue to support its present customers, but has no
other plans to market and sell this product.
Due to poor economic conditions worldwide and especially in Japan, the
Company wrote-off its investment in its Japanese affiliate, Aries, Inc. Aries is
the Company's primary distributor of its products in the Japanese market. The
Company invested approximately $522,000 in fiscal 2000 by purchasing 600 shares
of Aries common stock through the exchange of accounts receivable from Aries.
The Company plans to continue to work with and sell to Aries in fiscal 2002, and
continues to hold its shares. Should the Company recover any of this investment
in the future, an adjustment will be made to reflect that recovery.
In the fourth quarter 2001, the Company took a one time charge against
income of approximately $90,000 for anticipated costs related to the closing of
its sales office located in Los Gatos, California. In order to reduce expenses,
management is closing this office, which is primarily responsible for the
selling and marketing of the Company's CIM300 software products. These
operations will be moved and consolidated into its Utah operations, the
Company's headquarters.
Other Income (Expenses)
Interest income decreased by $11,000, or 5%, to $211,000 for 2001, from
$222,000 for 2000. This resulted from the decrease in the Company's cash
reserves as cash was used to fund operations. All cash reserves are invested in
conservative money market and bond mutual fund accounts.
-26-
Interest expense remained the same at $268,000 for 2001, compared to
$268,000 for 2000. Interest expense is attributable to the Company's 10% Senior
Notes. The principle balance outstanding on the Senior Notes at December 31,
2001 was $2,681,000, the same as at December 31, 2000. Interest expense on the
Senior Notes is accrued monthly and paid semi-annually on April 1and 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. This
information is disclosed in Note 14, Stock Options and Warrants, of the audited
financial statements, following in this document. The Company will continue to
apply prior accounting rules and make pro forma disclosures for stock option
grants to employees.
During 2001, no options were granted for non-employee services and,
accordingly, the Company was not required to record any compensation cost
related to such options.
Liquidity and Capital Resources
The Company's future liquidity is uncertain due to the following factors:
First, approximately $2,224,000 of the Company's 10% Senior Notes are
maturing on September 30, 2002, which could potentially consume most of the
Company's working capital.
Second, a contingent liability exists which amount is not estimable at the
present time, but will be known in December of this year. As part of the
settlement of the Manley litigation, which litigation is discussed earlier in
Part I, Item 3, Legal Proceedings, of this Form 10-K, the Company may be
required to purchase up to 80,000 shares of Cimetrix common stock from the
Manleys at $2.80 per share, or a maximum total repurchase cost of $224,000,
beginning on December 1, 2002. The Manley's also have the right to redeem these
shares 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. The
$224,000 potential repurchase cost is reflected on the Company's balance sheet
after the liabilities section but before the stockholders' equity section.
Third, a potential liability exists related to an indemnity agreement
entered into by the Company in the settlement with the Manleys. Cimetrix is
obligated to indemnify and hold the Manleys harmless from and against the
Bilzerian Claims in the original legal actions. The indemnity also includes
payment, when incurred, of the Manleys' attorneys' fees and costs in connection
with their defense of the Bilzerian Claims asserted in the lawsuit or in any
other forum by Bilzerian or any of his successors and/or assigns. To date no
costs related to the above indemnity have been incurred nor is the Company aware
of any action that may result in any such costs.
-27-
Fourth, a potential liability exists related to an indemnity agreement
entered into by the Company in the settlement with Plug n' Work, et. al., which
action is also discussed in Part I, Item 3, Legal Proceedings, earlier in this
Form 10-K. The Company indemnified Plug n' Work, et. al. from and against any
claim that has or may be asserted by Bilzerian or any Bilzerian related entity.
To date no costs related to the above indemnity have been incurred nor is the
Company aware of any action that may result in any such costs.
While management believes that it does have sufficient working capital to
maintain its current level of operations for the next 12 months, it does not
believe that its existing working capital is sufficient to maintain operations
and retire the Senior Notes in the next 12 months. Management also believes that
curtailing its current level of operations would be detrimental to the future
viability of the Company and is therefore seeking additional working capital
through external financing of debt securities in order to retire its current
debt. There is no assurance that the Company will be successful in its efforts
to raise additional working capital and be able to redeem its outstanding Senior
Notes.
Since inception, the Company has generated an operating deficit, makings
its liquidity dependent on obtaining external financing through debt or equity
securities. The current operating deficit makes obtaining working capital
through traditional bank loans or credit lines unlikely.
At December 31, 2001, the Company had cash and other current assets of
$4,479,000 with current liabilities of $3,171,000, resulting in working capital
of $1,308,000, compared with $5,261,000 at December 31, 2000. A major part of
this decrease is due to the classification of $2.2 million of the Senior Notes,
which are due September 30, 2002, as current liabilities. The remainder of the
decrease was due to the use of working capital to fund operations.
Cash used by operating activities increased by $1,199,000, or 526%, to
$971,000 in 2001, from cash provided by operating activities of $228,000 in
2000. This negative cash flow resulted from the net losses for the period.
Expenses increased as the Company aggressively marketed and updated its
products, while sales volumes slowed.
Cash used by investing activities increased by $672,000, or 63%, to
$1,737,000 in 2001, from $1,065,000 in 2000. The majority of this increase was
due to the purchase of marketable securities, which are held in current assets.
Cash used in financing activities for 2001 was $74,000, compared to cash
provided by financing activities of $3,320,000 in 2000. The cash provided by
financing activities in 2000 was from the issuance of common stock.
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's software
represents a small portion of our customers product costs and therefore
management remains optimistic that demand for the Company's products will
continue. 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.
-28-
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, detailed product
information, customer information, and employment opportunities.
ITEM 7A. 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, lines of credit,
is not material.
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 34.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
=========================
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
===========================================================
Incorporated by reference from the information in the Company's Proxy
Statement for the 2002 Annual Meeting of Stockholders, which the Company will
file with the Securities and Exchange Commission within 120 days of the end of
the fiscal year to which this report relates.
ITEM 11. EXECUTIVE COMPENSATION
===============================
Incorporated by reference from the information in the Company's Proxy
Statement for the 2002 Annual Meeting of Stockholders, which the Company will
file with the Securities and Exchange Commission within 120 days of the end of
the fiscal year to which this report relates.
-29-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
=======================================================================
Incorporated by reference from the information in the Company's Proxy
Statement for the 2002 Annual Meeting of Stockholders, which the Company will
file with the Securities and Exchange Commission within 120 days of the end of
the fiscal year to which this report relates.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
=======================================================
Incorporated by reference from the information in the Company's Proxy
Statement for the 2002 Annual Meeting of Stockholders, which the Company will
file with the Securities and Exchange Commission within 120 days of the end of
the fiscal year to which this report relates.
-30-
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 35 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 37 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, 2001.
(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)
10.7 Security Agreement with Michael and Barbara
Feaster (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) Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended December 31, 2000.
-31-
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 the 29th
day of March, 2002.
REGISTRANT
CIMETRIX INCORPORATED
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)
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 and on the dates indicated:
Signature Title Date
/S/Robert H. Reback President and Chief Executive Officer March 29, 2002
- -------------------- (Principal Executive Officer)
Robert H. Reback
/S/Riley G. Astill Vice President of Finance, Treasurer March 29, 2002
- ------------------- and Chief Financial Officer
Riley G. Astill (Principal Financial and
Accounting Officer)
/S/Randall A. Mackey Chairman of the Board and Director March 29, 2002
- ---------------------
Randall A. Mackey
/S/DR.Lowell K.Anderson Director March 29, 2002
- -----------------------
Lowell K. Anderson
/S/Richard Gommermann Director March 29, 2002
- ----------------------
Richard Gommermann
/S/Joe K. Johnson Director March 29, 2002
- ------------------
Joe K. Johnson
-32-
Consolidated Financial Statements
December 31, 2001 and 2000
-33-
CIMETRIX INCORPORATED AND SUBSIDIARY
Index to Consolidated Financial Statements
------------------------------------------
Independent auditors' report F-2
Consolidated balance sheet F-4
Consolidated statement of operations F-5
Consolidated statement of stockholders' equity F-6
Consolidated statement of cash flows F-8
Notes to consolidated financial statements F-9
- --------------------------------------------------------------------------------
F-1
-34-
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Cimetrix Incorporated and Subsidiary
We have audited the consolidated balance sheet of Cimetrix Incorporated and
Subsidiary as of December 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 2001, 2000 and 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cimetrix
Incorporated and Subsidiary as of December 31, 2001 and 2000, and the results of
its operations and its cash flows for the years ended December 31, 2001, 2000
and 1999 in conformity with accounting principles generally accepted in the
United States of America.
- --------------------------------------------------------------------------------
F-2
-35-
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2, the
Company has significant liabilities in the form of senior notes payable that
will come due in September 2002. During the year ended December 31, 2001, the
Company's operating activities used funds of approximately $971, thus indicating
the need for substantial liquid assets on hand to fund such operating
activities. Payment of the senior notes would substantially decrease the amount
of working capital available thus reducing the Company's ability to fund
operations on an ongoing basis. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/S/ TANNER + CO.
Salt Lake City, Utah
February 9, 2001
- --------------------------------------------------------------------------------
F-3
-36-
CIMETRIX INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheet
(In thousands, except share amounts)
December 31,
- --------------------------------------------------------------------------------
Assets 2001 2000
------
--------------------------------
--------------------------------
Current assets:
Cash and cash equivalents $ 743 $ 3,525
Marketable securities 1,785 -
Receivables, net 1,712 2,365
Inventories 156 121
Prepaid expenses and other current assets 83 29
--------------------------------
--------------------------------
Total current assets 4,479 6,040
Property and equipment, net 230 359
Note receivable - related party - 416
Technology, net 2,120 5,675
Other assets 25 636
--------------------------------
--------------------------------
$ 6,854 $ 13,126
--------------------------------
--------------------------------
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 262 $ 200
Accrued expenses 504 532
Deferred support revenue 181 43
Current portion of notes payable - 4
Current portion of senior notes payable 2,224 -
--------------------------------
--------------------------------
Total current liabilities 3,171 779
Notes payable - 23
Senior notes payable 439 2,681
--------------------------------
--------------------------------
Total liabilities 3,610 3,483
--------------------------------
--------------------------------
Commitments and contingencies - -
Redeemable common stock 224 -
Stockholders' equity:
Common stock, $.0001 par value, 100,000,000 shares
authorized; 24,457,690 and 24,456,690 shares
issued and outstanding, respectively 2 2
Additional paid-in capital 27,926 28,130
Treasury stock 431,722 shares, at cost (800) (1)
Accumulated deficit (24,108) (18,488)
--------------------------------
--------------------------------
Total stockholders' equity 3,020 9,643
--------------------------------
--------------------------------
$ 6,854 $ 13,126
--------------------------------
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-4
-37-
CIMETRIX INCORPORATED AND SUBSIDIARY
Consolidated Statement of Operations
(In thousands, except share amounts)
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------
2001 2000 1999
-----------------------------------------------------
-----------------------------------------------------
Net sales $ 3,692 $ 5,576 $ 3,182
Net related party sales 383 324 671
-----------------------------------------------------
-----------------------------------------------------
4,075 5,900 3,853
-----------------------------------------------------
-----------------------------------------------------
Operating expenses:
Cost of sales 718 647 103
General and administrative 1,932 1,995 1,281
Selling, marketing and customer support 2,002 1,128 734
Research and development 1,899 1,595 1,508
Compensation expense - stock options - - 12
Impairment loss 3,112 - -
-----------------------------------------------------
-----------------------------------------------------
9,663 5,365 3,638
-----------------------------------------------------
-----------------------------------------------------
Income (loss) from operations (5,588) 535 215
-----------------------------------------------------
-----------------------------------------------------
Other income (expense):
Interest income 211 222 65
Interest expense (268) (268) (270)
Other income 25 29 92
-----------------------------------------------------
-----------------------------------------------------
(32) (17) (113)
-----------------------------------------------------
-----------------------------------------------------
Income (loss) before income taxes (5,620) 518 102
Provision for income taxes - (5) -
-----------------------------------------------------
-----------------------------------------------------
Net income (loss) $ (5,620) $ 513 $ 102
-----------------------------------------------------
-----------------------------------------------------
Income (loss) per common share -
basic and diluted (see note 15) $ (.23) $ .02 $ .01
-----------------------------------------------------
-----------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-5
-38-
CIMETRIX INCORPORATED AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
(In thousands, except share amounts)
Years Ended December 31, 2001, 2000 and 1999
- -------------------------------------------------------------------------------------------------------------------
Treasury Stock Common Stock Additional Stock
------------------------------------------- Paid-In Subscription Accumulated
Shares Amount Shares Amount Capital Receivable Deficit Total
-------------------------------------------------------------------------------------------
Balance at 12,722 $ (1) 24,743,928 $ 2 $ 19,787 $ (12) $ (19,103) $ 673
January 1, 1999
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
Common stock
issued for cash - - 1,300,000 - 3,244 - - 3,244
Common stock
options exercised - - 31,000 - 76 - - 76
Net income - - - - - - 513 513
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-6
-39-
CIMETRIX INCORPORATED AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
(In thousands, except share amounts)
Years Ended December 31, 2001, 2000 and 1999
Continued
- -------------------------------------------------------------------------------------------------------------------
Additional
Treasury Stock Common Stock Additional Stock
------------------------------------------- Paid-In Subscription Accumulated
Shares Amount Shares Amount Capital Receivable Deficit Total
--------------------------------------------------------------------------------------------
Balance at
January 1, 2001 6,722 (1) 24,456,690 2 28,130 - (18,488) 9,643
Common stock
issued for
services - - 1,000 - 2 - - 2
Common stock
returned to
treasury from
lawsuit
settlement 400,000 (752) - - - - - (752)
Reclassification
of
common stock
to redeemable
common stock
due to settlement
of lawsuit (see
Note 7) - - - - (224) - - (224)
Issuance of
common stock
warrants
attached to
senior notes - - - - 18 - - 18
Purchase of
treasury shares 25,000 (47) - - - - - (47)
Net income - - - - - - (5,620) (5,620)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Balance at
December 31,
2001 431,722 $ (800) 24,457,690 $ 2 27,926 $ - $ (24,108) $ 3,020
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-7
-40-
CIMETRIX INCORPORATED AND SUBSIDIARY
Consolidated Statement of Cash Flows
(In thousands)
Years Ended December 31,
- --------------------------------------------------------------------------------
2001 2000 1999
-------------------------------------
-------------------------------------
Cash flows from operating activities:
Net income (loss) $ (5,620) $ 513 102
Adjustments to reconcile net income(loss)
to net cash provided by (used in)
operating activities:
Amortization and depreciation 760 795 306
Provision for losses on receivables (46) 97 (145)
Loss (gain) on disposition of assets 5 8 -
Stock compensation expense - - 16
Impairment loss on technology 2,490 - -
Impairment of equity investment 522 - -
Issuance of common stock for services 2 - -
(Increase) decrease in:
Receivables 699 (1,022) (120)
Inventories (35) (19) (102)
Prepaid expenses and other current assets (54) (23) 13
Other assets 58 (13) 31
Increase (decrease) in:
Accounts payable 138 30 11
Accrued expenses (28) (111) (12)
Deferred support revenue 138 (27) (14)
-------------------------------------
-------------------------------------
Net cash (used in) provided by
operating activities (971) 228 86
-------------------------------------
-------------------------------------
Cash flows from investing activities:
Purchase of marketable securities (1,785) - -
Purchase of property and equipment (162) (117) (13)
Payment (issuance) of note receivable -
related party 416 (416) -
Increase in other assets - (478) -
Purchase of technology (217) (56) (327)
Proceeds from disposal of property 11 2 -
-------------------------------------
-------------------------------------
Net cash used in
investing activities (1,737) (1,065) (340)
-------------------------------------
-------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 3,320 -
Payments on long-term debt (27) - (10)
Collection of stock subscription receivable - - 12
Retirement of common stock - - (351)
Purchase of treasury stock (47) - -
-------------------------------------
-------------------------------------
Net cash provided by (used in)
financing activities (74) 3,320 (349)
-------------------------------------
-------------------------------------
Net increase (decrease) in cash and
cash equivalents (2,782) 2,483 (603)
Cash and cash equivalents at beginning of year 3,525 1,042 1,645
-------------------------------------
-------------------------------------
Cash and cash equivalents at end of year $ 743 $ 3,525 $ 1,042
-------------------------------------
- --------------------------------------------------------------------------------
F-8
-41-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
Organization
Cimetrix Incorporated and subsidiary (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, electronic equipment, communication products that allow
communication between equipment on the factory floor and host systems,
and semiconductor connectivity products that connect new semiconductor
tools to each other and host systems.
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 and
brokerage investment accounts. At times, the bank deposits may exceed
federally insured limits and the brokerage investment accounts are not
insured. The Company has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risk in its
cash deposits.
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.
Principles of Consolidation
The consolidated financial statements include those of the
Company and its subsidiary. All intercompany accounts and transactions
have been eliminated in consolidation.
- --------------------------------------------------------------------------------
F-9
-42-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies (Continued)
Cash Equivalents
For purposes of the statement of cash flows, cash includes all
cash and investments with original maturities to the Company of three
months or less.
Marketable Securities
The Company classifies its marketable debt and equity securities
as "held to maturity" if it has the positive intent and ability to
hold the securities to maturity. All other marketable debt and equity
securities are classified as "available for sale." Securities
classified as "available for sale" are carried in the financial
statements at fair value. Realized gains and losses, determined using
the specific identification method, are included in earnings;
unrealized holding gains and losses are reported as accumulated other
comprehensive income which is a separate component of stockholders'
equity. Securities classified as held to maturity are carried at
amortized cost.
For both categories of securities, declines in fair value below
amortized cost that are other than temporary are included in earnings.
At December 31, 2001 the Company had an investment in a mutual
fund that was classified as a marketable security "Available for
Sale". The fair market value of the Company's investment at December
31, 2001 was $1,785, which also was the cost basis of the investment.
Because the fair market value and cost of the investment were the
same, no unrealized holding gain or loss has been recorded as a
separate component of stockholders' equity.
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.
- --------------------------------------------------------------------------------
F-10
-43-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated 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 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.
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 judgment 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.
Technology
Technology consists of the costs to obtain the Company's AART and
SDI SECS/GEM technology (see Note 5). The technology is being
amortized on the straight-line method over twelve years.
- --------------------------------------------------------------------------------
F-11
-44-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies (Continued)
Patents and Copyrights
The Company has obtained two patents related to certain
technology. In addition, the Company has registered much of its
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
The software component of the Company's products is an integral
part of its functionality. As such, the Company applies the provisions
of the American Institute of Certified Public Accountants ("AICPA")
Statement of Position ("SOP") 97-2, "Software Revenue Recognition."
The Company's products are fully functional at the time of
shipment. The software components of the Company's products do not
require significant production, modification or customization. As
such, revenue from product sales is recognized upon shipment provided
that (1) a purchase order has been received or a contract has been
executed; (2) title has transferred; (3) the fee is fixed and
determinable; and (4) collectibility is deemed probable.
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, asset impairment, and accrued
liabilities.
(Loss) Earnings Per Share
The computation of basic (loss) earnings per common share is
based on the weighted average number of shares outstanding during each
year.
- --------------------------------------------------------------------------------
F-12
-45-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies (Continued)
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. Options and
warrants to purchase 5,114,250 and 2,635,500 shares of common stock at
prices ranging from $1.00 to $3.50 per share were outstanding at
December 31, 2001 and 2000, respectively. At December 31, 2001 common
stock equivalents were not included in the diluted earnings (loss) per
share calculation because the effect would have been antidilutive. At
December 31, 2000, 461,000 common stock equivalents were included in
the diluted earning per share calculation.
2. Going Concern
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. The Company has significant liabilities in the form of
senior notes payable that will come due in September 2002. Payment of
the senior notes would substantially decrease the amount of working
capital available to fund ongoing operation. Historically, the Company
has not demonstrated the ability to generate sufficient cash flows
from operations to satisfy these liabilities and sustain operations.
These factors may indicate the Company's inability to continue as a
going concern for a reasonable period of time.
The Company's continuation as a going concern is dependent on its
ability to generate sufficient income and cash flow to meet its
obligations on a timely basis and to obtain additional financing as
may be required. The Company is actively seeking options to obtain
additional capital and financing. There is no assurance the Company
will be successful in its efforts.
- --------------------------------------------------------------------------------
F-13
-46-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
3. Receivables
December 31,
-----------------------------------
2001 2000
-----------------------------------
Receivables:
Trade receivables $ 1,828 $ 2,516
Employee receivables - 11
------------------------------------
1,828 2,527
Less allowance for doubtful
accounts (116) (162)
------------------------------------
$ 1,712 $ 2,365
====================================
4. Property and Equipment
Property and Equipment consists of the following:
December 31,
-----------------------------------
2001 2000
-----------------------------------
Software development costs $ 464 $ 464
Equipment 482 439
Office equipment and software 368 324
Furniture and fixtures 181 225
Leasehold improvements 83 83
Vehicle - 27
-----------------------------------
1,578 1,562
Accumulated depreciation and
amortization (1,348) (1,203)
-----------------------------------
$ 230 $ 359
===================================
- --------------------------------------------------------------------------------
F-14
-47-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
5. Technology
SDI SECS/GEM
Technology 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. The shares were valued at
$1,908.
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 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.
Due to certain disputes regarding the technology acquired, the
Company entered into litigation regarding the purchase price of such
technology. In February 2001, the Company settled all litigation
related to the acquisition of the technology through the return of
400,000 of the original 1,200,000 shares issued in the acquisition.
This settlement resulted in a net reduction of approximately $752 to
technology and a corresponding increase to treasury stock.
During the fourth quarter 2001, the Company discontinued use of
the AARTTM technology due to poor sales, integration and legal
concerns. The Company has removed the technology from its software
applications and has recorded an impairment loss for $2,490, the
carrying value at the date of the impairment.
Amortization expense of technology costs for 2001, 2000 and 1999
was approximately $530, $530 and $36, respectively. Accumulated
amortization was $460, $566 and $36 as of December 31, 2001, 2000 and
1999, respectively.
- --------------------------------------------------------------------------------
F-15
-48-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
6. Lease Obligations
The Company leases certain office space and one vehicle under
noncancelable operating lease agreements. Lease payments required
under operating leases are as follows
Year Ending December 31: Amount
----------------------- -----------
2002 $ 105
2003 34
-----------
$ 139
===========
Rental expense for the years ended December 31, 2001, 2000 and
1999 on operating leases was $301, $291 and $244, respectively.
The Company subleases certain office space under a noncancelable
operating lease arrangement. Future minimum rentals to be received
under the sublease are as follows:
Year Ending December 31:
-----------------------
2002 $ 7
-----------
7
===========
Rental income for the years ended December 31, 2001, 2000, and
1999 on subleases was $25, $27 and $16 respectively.
7. Senior Notes Payable
The Company has 10% unsecured Senior Notes (Senior Notes) with
interest payable semiannually on April 1 and October 1 of each year
and the principal maturing on September 30, 2002.
- --------------------------------------------------------------------------------
F-16
-49-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
7. Senior Notes Payble (Continued)
Each purchaser of a Senior Note also received, for no additional
consideration, one common stock purchase warrant (a Warrant) for each
$1 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.
During the fourth quarter 2001, the Company initiated an offer to
all holders of 10% Senior Notes that would extend the maturity date
from the current date of September 30, 2002 to September 30, 2004. If
accepted, each Senior Note holder would receive, for no additional
consideration, one common stock purchase warrant (a Warrant) for each
$1 in principal amount of Notes extended. Each Warrant would entitle
the holder to purchase 250 shares of the Company's stock for $1.00 per
share. At December 31, 2001, holders of $457 of Senior notes had
elected to extend the maturity date of their Senior notes and were
issued new senior notes and the attached warrants on December 31,
2001.
Under the terms of the extensio ssued 457 warrants to purchase
114,250 shares of the Company for $1.00 per share. The fair value of
the warrants was e date of grant using the Black-Scholes pricing model
wit ssumptions:
Expected dividend yield $ -
Expected stock price volatility 102%
Risk-free interest rate 4.0%
Expected life of warrants 3.75 years
- --------------------------------------------------------------------------------
F-17
-50-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
7. Senior Notes Payble (Continued)
Using these assumptions, the value of the warrants was estimated
to be $18, and was recorded as a reduction in the principal value of
the senior notes and an addition to additional paid-in capital. This
discount will be accreted over the life of the senior notes.
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.
Future maturities of Senior notes are as follows:
2002 $ 2,224
2003 -
2004 457
-------------
$ 2,681
Less amount representing
interest to be accreted (18)
-------------
2,663
Less current portion of senior notes (2,224)
-------------
Long-term portion of senior notnotes $ 439
=============
- --------------------------------------------------------------------------------
F-18
-51-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
8. Income Taxes
The benefit (provision) for income taxes is different than
amounts which would be provided by applying the statutory federal
income tax rate to (loss) income before income taxes for the following
reasons:
Years Ended
December 31,
-----------------------------------
2001 2000 1999
-----------------------------------
Income tax benefit (provision)
at statutory rate $ 2,113 $ (191) $ (34)
Life insurance and meals (9) (8) (6)
Change in valuation allowance (2,104) 194 40
-----------------------------------
$ - $ (5) $ -
===================================
Deferred tax assets (liabilities) are comprised of the following:
December 31,
-----------------------------------
2001 2000
-----------------------------------
Net operating loss carryforwards $ 6,281 $ 5,291
Asset impairment 2,336 1,249
Depreciation and amortization (14) (17)
Allowance for doubtful accounts 43 60
Accrued vacation and bonus 27 43
Deferred income 72 16
Inventory reserve 18 18
Capital loss carryover 100 99
Research & development credit 199 199
-----------------------------------
9,062 6,958
Less valuation allowance (9,062) (6,958)
-----------------------------------
$ - $ -
===================================
- --------------------------------------------------------------------------------
F-19
-52-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
8. Income Taxes (Continued)
At December 31, 2001, the Company has a net operating loss
carryforward available to offset future taxable income of
approximately $16,800 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.
9. Impairment Loss
During 2001, the Company discontinued its use of a purchased
technology. Due to integration and legal concerns, management has
determined that the asset is impaired and has recorded a loss of
$2,490, the carrying value of the asset at the time of impairment (see
note 5).
The Company has an investment in a corporate entity (see note
13). During the year ended, December 31, 2001 the Company determined
that the likelihood of recovering the cost of its investment was
remote. As a result, the Company recorded a loss of $522 related to
this investment.
10. Supplemental Cash Flow Information
During the year ended December 31, 2001:
o The Company reduced technology in exchange for treasury stock
valued at $752.
o The Company returned equipment with a cost of $76 and decreased
the corresponding payable amount.
During the year ended December 31, 2000 the Company financed the
purchase of a vehicle with debt in the amount of $27.
During the year ended December 31, 1999 the Company issued common
stock in exchange for technology of $5,358 and a payable of $500.
- --------------------------------------------------------------------------------
F-20
-53-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
10. Supplemental Cash Flow Information (Continued)
Actual amounts paid for interest and income taxes are as follows:
Years Ended December 31,
-----------------------------------------------
2001 2000 1999
-----------------------------------------------
Interest $ 268 $ 271 $ 269
----------------------------------------------
Income taxes $ 17 $ 5 $ -
----------------------------------------------
11. Major Customers
Sales to major customers which exceeded 10 percent of net sales
are approximately as follows:
Years Ended December 31,
-----------------------------------------------
2001 2000 1999
-----------------------------------------------
Company A $ - $ 1041 $ -
Company B $ - $ 960 $ -
Company C $ - $ 885 $ -
Company D $ - $ - $ 1,317
Company E $ - $ - $ 446
Export sales to unaffiliated customers were approximately $1,310,
$2,048, and $1,908, in 2001, 2000 and 1999, respectively.
Export sales to countries which exceeded 10 percent of net sales
were as follows:
Year Ended December 31,
--------------------------------------------
2001 2000 1999
--------------------------------------------
Japan 19% 13% 26%
Germany 10% 5% 34%
Switzerland 7% 17% 2%
- --------------------------------------------------------------------------------
F-21
-54-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
12. Employee Benefit Plans
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, 2001, 2000 and 1999, the Company contributed
approximately $28, $31 and $25, respectively, to the plan.
13. Related Party Transactions
The Company has an investment in a corporate entity. The
investment is Related accounted for at the lower of cost or market and
is included in other assets. During the year ended December 31, 2001
the Company determined that Party the likelihood of recovering the
cost of its investment was remote. As a result, the Company recorded a
loss of $522 related to this investment. Transactions During the years
ended December 31, 2001, 2000 and 1999, the Company recognized sales
of approximately $383, $324 and $671 to this entity, respectively. In
addition as of December 31, 2001, 2000 and 1999, the Company had net
receivables from this entity of approximately $269, $159 and $862,
respectively.
During the year ended December 31, 2000 the Company purchased a
vehicle for use by the family of the Company's former president in the
amount of $27. The automobile was subsequently disposed of in 2001.
14. Stock Options and Warrants
The Company has a stock option plan (Incentive Option Plan),
which allows a maximum of 3,000,000 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 five years.
- --------------------------------------------------------------------------------
F-22
-55-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
14. Stock Options and Warrants (Continued)
The Company has a stock option plan (Directors Option Plan),
which allows a maximum of 600,000 shares of common stock to be granted
at prices not less than the fair market value at the date of grant.
Under the Directors Option Plan, Directors will receive 24,000 shares
annually, or amounts as determined by the board of directors, on each
anniversary date during the term of this plan.
Information regarding the stock options and warrants is
summarized below:
Number of Weighted
Options Average
and Exercise
Warrants Price
-------------------------------
Outstanding at January 1, 1999 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
Granted 726,000 2.89
Exercised (31,000) 2.45
Forfeited (224,000) 2.62
-------------------------------
Outstanding at December 31, 2000 2,635,500 2.71
Granted 2,493,750 1.04
Exercised - -
Forfeited (15,000) 3.33
-------------------------------
Outstanding at December 31, 2001 5,114,250 $ 1.91
-------------------------------
- --------------------------------------------------------------------------------
F-23
-56-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
14. 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,
-------------------------------------------
2001 2000 1999
-------------------------------------------
Net (loss) income - as reported $ (5,620) $ 513 $ 102
Net (loss) income - pro forma (6,269) 206 (342)
(Loss) income per share -
as reported (.23) .02 .01
(Loss) income per share
pro forma (.26) .01 (.02)
-------------------------------------------
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:
Decemeber 31,
-------------------------------------------
2001 2000 1999
-------------------------------------------
Expected dividend yield $ - $ - $ -
Expected stock price
volatility 102% 105% 114%
Risk-free interest rate 4.0% 6.0% 5.5%
Expected life of options 5 years 5 years 5 years
-------------------------------------------
The weighted average fair value of options granted during 2001,
2000, and 1999, was $.32, $2.23, and $.91, respectively.
- --------------------------------------------------------------------------------
F-24
-57-
CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
14. Stock Options and Warrants (Continued)
The following table summarizes information about stock options
and warrants outstanding at December 31, 2001:
Outstanding Exercisable
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Exercise Number Life Exercise Number Exercise
Price Outstanding (Years) Price Exercisable Price
- -------------------------------------------------------------------------------
$ 1.00 2,356,750 4.78 $ 1.00 83,333 $ 1.00
$ 2.50-3.50 2,757,500 1.82 $ 2.69 1,908,400 $ 2.61
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 1.00 - 3.50 5,114,250 3.18 $ 1.91 1,991,733 $ 2.54
- -------------------------------------------------------------------------------
15. 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,
-------------------------------------------
2001 2000 1999
-------------------------------------------
Basic EPS:
Net (loss) income available to
common stockholders $ (5,620) $ 513 $ 102
------------------------------------------
Weighted average common
shares 24,092,000 24,160,000 22,080,000
------------------------------------------
Net income (loss) per share $ (.23) $ .02 $ .01
------------------------------------------
Diluted EPS:
Net income (loss) available to
common stockholders $ (5,620) $ 513 $ 102
------------------------------------------
Weighted average common
shares 24,092,000 24,621,000 22,161,000
------------------------------------------
Net income (loss) per share $ (.23) $ .02 $ .01
------------------------------------------
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F-25
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CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
16. Fair Value of Financial Instruments
The Company's financial instruments consist of cash, marketable
securities, receivables, payables, and notes payable. The carrying
amount of cash, marketable securities, 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.
17. Commitments and Contingencies
Employment Agreements
The Company has entered into employment agreements with certain
employees, which require annual aggregate payments of $605 through
2003.
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, 2001, 2000, and
1999, 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, 2001. Management believes that any allowance for
warranty would be immaterial to the financial condition of the
Company.
Litigation
Manley Litigation
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.
- --------------------------------------------------------------------------------
F-26
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CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
17. Manley Litigation (Continued)
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-merit-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
$994.
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.
- --------------------------------------------------------------------------------
F-27
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CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
17. Commitments and Contingencies (Continued)
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.
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 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.
Shaw Pittman Litigation
Subsequent to year end an action was brought against the Company
and its former president, Paul A. Bilzerian, by Shaw Pittman, LLP in
the superior court of the District of Columbia, Civil Division. The
plaintiff alleges a breach of contract pertaining to a retainer
agreement signed by Mr. Bilzerian.
The Company contends that the agreement related to the
performance of legal services for Mr. Bilzerian relative to legal
matters of a personal nature between Mr. Bilzerian and the Securities
and Exchange Commission. The Company further contends that Mr.
Bilzerian was not authorized to enter into such an agreement on behalf
of the Company.
The Company filed answer to the claim, but no formal discovery
has commenced.
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.
- --------------------------------------------------------------------------------
F-28
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CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
18. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141 "Business
Combinations" (SFAS No. 141) and No. 142 "Goodwill and Other
Intangibles" (SFAS No. 142). SFAS No. 141 and No. 142 are effective
for the Company on July 1, 2001. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001. The statement also establishes specific
criteria for recognition of intangible assets separately from goodwill
and requires unallocated negative goodwill to be written off
immediately as an extraordinary gain. SFAS No. 142 primarily addresses
the accounting for goodwill and intangible assets subsequent to their
acquisition. The statement requires that goodwill and indefinite lived
intangible assets no longer be amortized and be tested for impairment
at least annually. The amortization period of intangible assets with
finite lives will no longer be limited to forty years. Management does
not expect the adoption of SFAS No. 141 and 142 to have a significant
impact on the financial position or results of operations of the
Company.
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 143, "Accounting for
Asset Retirement Obligations." This Statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. This Statement is effective for financial statements
issued for fiscal years beginning after June 15, 2002. This Statement
addresses financial accounting and reporting for the disposal of
long-lived assets. Management does not expect the adoption of SFAS No.
143 to have a significant impact on the financial position or results
of operations of the Company.
- --------------------------------------------------------------------------------
F-29
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CIMETRIX INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
18. Recent Accounting Pronouncements (Continued)
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for
the Impairment of Long-Lived Assets." This Statement addresses
financial accounting and reporting for the impairment of long-lived
assets and for long-lived assets to be disposed of. This Statement
supercedes FASB Statement 121 and APB Opinion No. 30. This Statement
retains certain fundamental provisions of Statement 121, namely;
recognition and measurement of the impairment of long-lived assets to
be held and used, and measurement of long-lived assets to be disposed
of by sale. The Statement also retains the requirement of Opinion 30
to report discontinued operations separately from continuing
operations. This Statement also amends ARB No. 51 to eliminate the
exception of consolidation for a temporarily controlled subsidiary.
The provisions of this statement are effective for financial
statements issued for fiscal years beginning after December 15, 2001.
Management does not expect the adoption of SFAS No. 144 to have a
significant impact on the financial position or results of operations
of the Company.
- --------------------------------------------------------------------------------
F-30
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