31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From_____________to_____________
Commission File Number: 0-16454
CIMETRIX INCORPORATED
(Exact name of registrant as specified in its charter)
Nevada 87-0439107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6979 South High Tech Drive, Salt Lake City, Utah 84047-3757
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 256-6500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's common stock
as of May 14, 2002: Common stock, par value $.0001 - 24,025,968
CIMETRIX INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2002
INDEX
PART I Financial Information
Item 1. Financial Statements
a) Consolidated Condensed Statements of Operations...........................3
b) Consolidated Condensed Balance Sheets.....................................4
c) Consolidated Condensed Statements of Cash Flows...........................5
d) Notes to Consolidated Condensed Financial Statements......................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........16
PART II Other Information
Item 1. Legal Proceedings....................................................17
Item 2. Changes in Securities................................................17
Item 3. Defaults Upon Senior Securities......................................17
Item 4. Submission of Matters to a Vote of Security Holders..................17
Item 5. Other Information....................................................17
Item 6. Exhibits and Reports on Form 8-K.....................................19
Signatures....................................................................20
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMETRIX INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share and share amounts)
(Unaudited)
Three Months Ended
March 31,
--------------------------------
2002 2001
---- ----
NET SALES $ 519 $ 1,538
--- -----
OPERATING EXPENSES
Cost of sales 104 133
Selling, marketing and customer support 449 425
Research and development 398 447
General and administrative 486 421
--- ---
Total operating expenses 1,437 1,426
----- -----
INCOME (LOSS) FROM OPERATIONS (918) 112
---- ---
OTHER INCOME (EXPENSES)
Interest income 16 32
Interest expense (69) (67)
---- ----
Total other income (expense) (53) (35)
---- ----
INCOME (LOSS) BEFORE INCOME TAXES (971) 77
INCOME TAX EXPENSE (BENEFIT) -- --
---- ----
NET (LOSS) INCOME $ (971) $ 77
===== ==
BASIC AND DILUTED (LOSS) INCOME
PER COMMON SHARE $ (.04) $ .00
===== ===
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC AND DILUTED 24,026,000 24,320,000
========== ==========
See notes to consolidated condensed financial statements
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CIMETRIX INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
March 31, December 31,
2002 2001
------------- ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 629 $ 743
Marketable Securities 1,741 1,785
Accounts receivable, net 817 1,712
Inventories 181 156
Prepaid expenses and other current assets 82 83
------------ ------------
Total current assets 3,450 4,479
Property and equipment, net 199 230
Technology, net 2,054 2,120
Other assets 38 25
------------ ------------
$ 5,741 $ 6,854
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 203 $ 262
Accrued expenses 370 504
Deferred revenue 292 181
Current portion, senior notes 2,224 2,224
------------ ------------
Total current liabilities 3,089 3,171
LONG TERM DEBT, net of current portion 439 439
------------ ------------
Total Liabilities 3,528 3,610
COMMITMENTS AND CONTINGENCIES - --
REEDEMABLE COMMON STOCK 224 224
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value: 100,000,000 shares
Authorized, 24,025,968 and 24,457,690 shares issued
and outstanding, respectively 2 2
Additional paid-in capital 27,926 27,926
Treasury stock, at cost (800) (800)
Accumulated deficit (25,079) (24,108)
Accumulated other comprehensive income (60) (--)
------------- -------------
Net Stockholders' Equity 1,989 3,020
------------ ------------
$ 5,741 $ 6,854
============ ============
See notes to consolidated condensed financial statements
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CIMETRIX INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2002 2001
---- ----
Cash Flows from Operating Activities:
Net income (loss) $ (971) $ 77
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Amortization and depreciation 109 210
Increase in receivables allowance account 121 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 774 (29)
(Increase) decrease in inventory (25) (10)
(Increase) decrease in prepaid expenses 1 --
Increase (decrease) in accounts payable (59) (5)
Increase (decrease) in accrued expenses (134) (191)
Increase (decrease) in other assets (13) (2)
Increase (decrease) in customer deposits 111 77
------------ -------------
Net cash flow (used in) provided by
operating activities (86) 127
------------ -------------
Cash Flows from Investing Activities:
Purchase of property and equipment, net of retirements (12) (19)
Purchase of marketable securities (16) --
Purchase of technology -- (213)
Principal advances on note receivable -- (2)
------------ --------------
Net cash flow (used in)
investing activities (28) (234)
------------- -------------
Cash Flows from Financing Activities: -- --
------------- -------------
Net (Decrease) Increase in Cash and Cash Equivalents (114) (107)
Cash and Cash Equivalents at the Beginning of Period 743 3,525
------------ -------------
Cash and Cash Equivalents at the End of Period $ 629 $ 3,418
============ =============
See notes to consolidated condensed financial statements
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CIMETRIX INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(CONTINUED)
Three Months Ended
March 31,
2002 2001
---- ----
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ -- $ --
Income taxes $ 7 $ --
Supplemental Schedule of Noncash Investing and Financing
Activities:
During the three months ended March 31, 2001, the $ -- $ 749
Company received back 400,000 shares of its common
stock that had been issued to acquire technology. This
resulted in a decrease of technology of $749 and a
corresponding decrease in stockholders' equity.
See notes to consolidated condensed financial statements
-6-
CIMETRIX INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited condensed financial
statements of Cimetrix Incorporated have been prepared in accordance with
the Securities and Exchange Commission's instructions to Form 10-Q and,
therefore, omit or condense footnotes and certain other information
normally included in financial statements prepared in accordance with
generally accepted accounting principles. The accounting policies followed
for quarterly financial reporting conform with generally accepted
accounting policies disclosed in Note 1 to the Notes to Financial
Statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001. In the opinion of management, all adjustments
of a normal recurring nature that are necessary for a fair presentation of
the financial information for the interim periods reported have been made.
The results of operations for the three month period ended March 31, 2002
are not necessarily indicative of the results that can be expected for the
entire year ending December 31, 2002. The unaudited condensed financial
statements should be read in conjunction with the financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001.
NOTE 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 operations. 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.
NOTE 3 - STOCK OPTIONS AND WARRANTS
As of May 14, 2002, the Company had a significant number of derivative
securities outstanding, in the form of stock options and warrants
representing a potential total of 5,114,250 shares of common stock, which
are explained in the following tables.
As of May 14, 2002, there were issued and outstanding to the Company's
employees, options for the purchase of 3,619,500 shares of the Company's
common stock, under the Company's 1998 Stock Option Plan as amended. The
following table summarizes the quantity and exercise price of the options.
Option Price Quantity
------------------------------
$1.00 2,042,500
$2.50 957,000
$3.00 360,000
$3.50 260,000
-------
Total Options 3,619,500
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Approximately 452,000 of the shares underlying these outstanding
options are registered for resale, pursuant to a Form S-3 Registration
Statement, which became effective December 9, 1998. A total of 3,000,000
shares of common stock have been reserved for issuance under the plan.
Option forfeitures and expiring options may be sufficient to cover the
619,500 options that have been granted in excess of the plan amount.
Authorization to issue options to purchase an additional 1,000,000 shares
of common stock under the plan is being sought by the Board of Directors at
the June 2002 annual shareholders meeting. If these additional options are
not authorized, some option grants will be rescinded. The existing options
will begin to expire in December 2002, and continue to expire through
November 2006.
As of May 14, 2002, there were issued and outstanding options for the
purchase of 554,000 shares of the Company's common stock, under the
Company's Director Stock Option Plan. The following table summarizes the
quantity and exercise price of the options.
Option Price Quantity
------------------------------
$1.00 200,000
$2.50 258,000
$3.50 96,000
------
Total Options 554,000
Approximately 162,000 of these options are registered for resale,
pursuant to the Form S-3 Registration Statement discussed earlier in this
section. These options will begin to expire in January 2003, and continue
to expire through July 2006.
As of May 14, 2002, there were issued and outstanding warrants for the
purchase of 940,750 shares of the Company's common stock, that were issued
to holders of the Company's 10% Senior Notes due September 30, 2002, and
September 2004, respectively, which are discussed below in Note 3 - Senior
Notes. The following table summarizes the quantity and exercise price of
the warrants.
Warrant Price($) Quantity (#) Potential Shares (#)
-----------------------------------------------------------------
$1.00 457 114,250
$2.50 3,306 826,500
----- -------
Totals 3,763 940,750
The $2.50 warrants were issued November 1997 to purchasers of the
Company's 10% Senior Notes due September 30, 2002. Any unexercised $2.50
warrants expire October 1, 2002. The $1.00 warrants were issued December
2001, in connection with the Company's 10% Senior Notes due September 30,
2004, discussed below in Note 3 - Senior Notes.The $1.00 warrants are
exercisable anytime after November 1, 2001 and on or before September 30,
2004. To date, none of the warrants have been exercised. The Company
intends to 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 $1.00 warrants.
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NOTE 4 - SENIOR NOTES
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 June
1998, 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 a private offering to its existing 10% Senior
Noteholders, which were accredited investors, to exchange their 10% Senior
Notes due September 30, 2002 for 10% Senior Notes due September 30, 2004.
Any noteholder exchanging 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 which is 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 due September 30, 2002 was
extended until April 30, 2002. As of that date, $457,000 of these Senior
Notes had been exchanged for Senior Notes due 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 10% 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 any unexercised
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 Note 2 - Stock Options and
Warrants.
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 any unexercised warrants expiring October 1, 2004. These warrants are
exercisable anytime after November 1, 2001 and on or before September 30,
2004 as a whole, in part, or in increments. The Company intends to 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.
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NOTE 5 - EARNINGS PER SHARE
A reconciliation of the shares used in the computation of the
Company's basic and diluted earnings per common shares is as follows (in
thousands):
Three Months Ended
March 31,
2002 2001
---- ----
Weighted average common shares
Outstanding 24,026 24,320
Dilutive effect of :
Stock options -- --
Warrants -- --
---------- ----------
Weighted average common shares
outstanding, assuming dilution 24,026 24,320
---------- ----------
Weighted average common shares outstanding, assuming dilution,
includes the incremental shares that would be issued upon the assumed
exercise of stock options and warrants (see Note 2 - Stock Options and
Warrants and Note 3 - Senior Notes). During the three months ended March
31, 2002, stock options and warrants to exercise 5,114,250 shares, were
excluded from the calculation of diluted earnings per share because they
were antidilutive. These options and warrants could be dilutive in the
future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Following is a brief discussion and explanation of significant financial
data, which is presented to help the reader better understand the results of the
Company's financial performance for the first quarter of 2002. The information
includes discussions of sales, expenses, capital resources and other significant
items. Generally the information is presented in a two-year comparison format
using the first quarter data of 2002 and 2001.
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Condensed Financial
Statements and Notes thereto included elsewhere in this Quarterly Report. The
ensuing discussion and analysis contains both statements of historical fact and
forward-looking statements. Forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, generally are identified by the
words "expects," "believes" and "anticipates" or words of similar import.
Examples of forward-looking statements include: (a) projections regarding sales,
revenue, liquidity, capital expenditures and other financial items; (b)
statements of the plans, beliefs and objectives of the Company or its
management; (c) statements of future economic performance; and (d) assumptions
underlying statements regarding the Company or its business. Forward-looking
statements are subject to certain factors and uncertainties that could cause
actual results to differ materially from the forward-looking statements,
including, but not limited to, those factors and uncertainties described below
under "Liquidity and Capital Resources" and "Factors Affecting Future Results."
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Overview
The Company is the developer of the world's first open architecture,
standards-based, personal computer (PC) software for controlling motion-oriented
equipment that operates on the factory floor. The Company introduced its first
motion control products (CODE) in 1989, and has developed considerable expertise
through working with demanding original equipment manufacturer (OEM) customers.
In 2000, the Company introduced two new product families using the latest
in software technologies. Both products complement the Company's CODE motion
control family of products. CIMConnect is a next generation design for enabling
production equipment in the electronics industries to communicate data to the
factory's host computer using the SECS/GEM SEMI (Semi Conductor Equipment and
Materials International) standard. CIM300 is a family of seven software products
that reduces the time required to connect new 300mm semiconductor tools to each
other and host computers into a factory by using the new SEMI 300mm standards.
On October 23, 2001, Cimetrix introduced CODE 6 with Core Motion after six
months of field beta testing at customer sites. A press tour to major industry
publications was launched resulting in many online and print copies of the new
product. CODE 6 with Core Motion is the result of 18 months of R&D effort
resulting in new technology to move motion control from proprietary motion
boards onto the PC. This can result in up to a 50% savings in hardware costs for
our OEM customers and positions us for the evolution to network based drives.
This release also contains many new features such as conveyor tracking and
enhanced calibration routines.
Statement of Operations Summary
The following table sets forth the percentage of costs and expenses to net
revenues derived from the Company's Condensed Statements of Operations for the
three months ended, respectively, March 31, 2002 and 2001:
Three Months Ended
March 31,
2002 2001
---- ----
NET SALES 100% 100%
---- ----
OPERATING EXPENSES
Cost of sales 20 9
Selling, marketing and customer support 86 28
Research and development 77 29
General and administrative 93 27
---------- ----------
Total operating expenses 276 93
---------- ----------
INCOME (LOSS) FROM OPERATIONS (176) 7
Interest income 3 2
Interest expense (13) (4)
----------- -----------
NET INCOME (LOSS) (187)% 5%
----------- -----------
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Results of Operations
Three Months Ended March 31, 2002 Compared to the Three Months Ended March 31,
2001
Net Sales
Net sales decreased by $1,019,000, or 66%, to $519,000, for the three
months ended March 31, 2002, from $1,538,000, for the three months ended March
31, 2001. Net sales for the three months ended March 31, 2002, consisted of
sales of software (44%), engineering services (27%), and support and training
(29%). Net sales for the same period in 2001 consisted of sales of software
(80%), engineering services (14%), and support and training (6%).
The decrease in first quarter sales was primarily the result of a
significant drop in software revenues. The Company's OEM customers in the robot,
SMT and semiconductor markets continue to be negatively impacted by the current
economic slowdown. However, during the period ended March 31, 2001, the Company
entered into contracts with three new OEM customers. Orders for new equipment in
the robot, SMT and semiconductor markets, which would include the Company's
software products, remain significantly below prior periods. Competitive
pressures may also be contributing to the drop in revenues. While the Company
cannot predict market conditions for subsequent quarters, it continues to market
its products aggressively in order to broaden its customer base.
Major Customers
Sales to two non-affiliated customers accounted for 15% and 17%,
respectively, of the Company's revenues for the three months ended March 31,
2002. Sales to four non-affiliated customers accounted for 14%, 14%, 17% and
16%, respectively, of the Company's revenues for the three months ended March
31, 2001. No other non-affiliated customer accounted for 10% or more of the
Company's revenues for the three months ended March 31, 2002 and 2001,
respectively.
Sales to Aries, Inc., the Company's Japanese affiliate, accounted for 8%
and less than 14% of the Company's revenues for the three months ended March 31,
2002 and 2001, respectively. Export sales were approximately 35% and 46% for the
three months ended March 31, 2002 and 2001, respectively. All export sales are
made in US dollars.
Export sales to countries that exceeded 10 percent of net sales were as
follows:
Three Months Ended
March 31,
2002 2001
------------------
Japan 15% 18%
Germany 9% 24%
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Cost of Sales
Cost of sales decreased by $29,000, or 22%, to $104,000 for the three
months ended March 31, 2002, from $133,000 for the comparable period in 2001.
This decrease was attributable to a reduction in the sale of outside engineering
services. While the Company's focus is on the sale of software products, it does
provide application and integration services to its customers that want to
purchase a complete turnkey system. When possible, the Company contracts with
resellers and distributors, such as Systematic Designs International, Inc., of
Vancouver Washington to perform these engineering services.
Selling, Marketing and Customer Support
Selling, marketing and customer support costs increased by $24,000, or 6%,
to $449,000 for the three months ended March 31, 2002, from $425,000 for the
comparable period in 2001. This increase was due in part to the additional costs
incurred to consolidate the Company's semiconductor division, located in Los
Gatos, California, which markets and sells the Company's new CIM300 family of
products, with operations in Salt Lake City, Utah. The Los Gatos office was
closed in March 2002, in order to reduce operating expenses. The increase was
also due to general corporate marketing expenditures for marketing personnel and
outside public relations services in an effort to expand the Company's customer
base.
Selling, marketing and customer support expenses reflect the direct payroll
and related travel expenses of the Company's sales, marketing and customer
support staff, the development of product brochures and marketing material,
press releases, and the costs related to the Company's representation at
industry trade shows.
Research and Development
Research and development expenses decreased by $49,000, or 11%, to $398,000
for the three months ended March 31, 2002, from $447,000 for the comparable
period in 2001. This decrease was due to the reduction of software development
personnel for the development of the Company's products, and is considered
within normal operating fluctuations.
The Company continues to make significant investments in research and
development and expects to incur research and development expenses of
approximately $1,500,000 during 2002, compared to $2,000,000 during 2001.
Research and development expenses include only direct costs for wages, benefits,
materials and education of technical personnel. All indirect costs such as
rents, utilities, depreciation and amortization are reflected in general and
administrative costs.
General and Administrative
General and administrative expenses increased by $65,000, or 15%, to
$486,000 for the three months ended March 31, 2002, from $421,000 for the
comparable period in 2001. This increase was attributable to an additional
$121,000 of bad debt reserve that was accrued due to the slowing economy. All
other general and administrative expenses, taken as a whole, decreased slightly
for the year, and are considered within normal operating fluctuations.
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General and administrative expenses include all direct costs for
administrative and accounting personnel, and all rents and utilities for
maintaining company offices. These costs also include all indirect costs such as
depreciation of fixed assets and amortization of intangible assets, such as
capitalized software and technology. Amortization and depreciation expense for
the three months ended March 31, 2002, was approximately $109,000, or 22%, of
all general and administrative expenses, compared to $210,000, or 50%, for the
same period in 2001. Depreciation and amortization decreased overall due to the
write-off of technology assets at December 31, 2001.
Other Income (Expenses)
Interest income decreased by $16,000, or 50%, to $16,000 for the three
months ended March 31, 2002, from $32,000 for the comparable period in 2001.
This decrease was a result of a reduction in the Company's cash reserves during
the quarter that were used to fund operations, and a reduction in the rate of
interest the Company earned on its cash reserves, due to market conditions and
an overall drop in interest rates.
Interest expense increased $2,000, or 3%, to $69,000 for the three months
ended March 31, 2002, from $67,000 for the comparable period in 2001. All
interest expense is attributable to the Company's 10% Senior Notes, with
interest expense accrued monthly and being payable April 1st and October 1st of
each year. The increase was due to the amortization of bond discount,
attributable to the 457 warrants issued with the Senior Notes due 2004,
resulting in additional interest expense per month over the life of the
securities. (See Note 3 to the Consolidated Condensed Financial Statements
above.)
Other Items
The Company is involved in a legal action, which began April 12, 2002,
which is discussed in Item 1. Legal Proceedings of Part II, below in this
document.
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 all 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 2002. As part of the settlement
of the Manley litigation, which litigation is discussed in Part I, Item 3, Legal
Proceedings, of the Company's Annual Report on Form 10-K, for the fiscal year
ended December 31, 2001, 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 require the Company 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, as redeemable common
stock.
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While management believes that the Company does have sufficient working
capital to maintain its current level of operations for the remainder of fiscal
2002, it does not have sufficient capital to maintain its current level of
operations and retire the 10% Senior Notes September 30, 2002. Management is
therefore seeking additional working capital through external financing of debt
securities, through a private offering only to accredited investors, 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, making 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 March 31, 2002, the Company had cash and other current assets of
$3,450,000, with current liabilities of $3,089,000, resulting in working capital
of only $361,000, compared to working capital of $1,308,000, at December 31,
2001. This decrease of $947,000 was due to the use of working capital to fund
operations for the current period.
Cash used by operating activities for the period ended March 31, 2002 was
$86,000, compared to cash provided by operating activities of $127,000, for the
same period in 2001. The negative cash flow for the current period resulted
primarily from the net loss from operations of $971,000. Net cash used in
operating activities would have been significantly higher, had it not been for
the collection of $774,000, of the Company's outstanding receivables during the
current period.
Cash used in investing activities for the period ended March 31, 2002 was
$28,000, compared to cash used in investing activities of $234,000, for the same
period in 2001.
The Company has not been adversely affected by inflation but does believe
that 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 accounted for 35% and 46%, of the
Company's net sales for the three months ended March 31, 2002 and 2001,
respectively.
The Company's future liquidity will be dependent on the Company's ability
to generate cash flow from operations, management of its trade receivables, and
whether or not it is able to raise additional working capital through debt or
equity securities. Management also believes that it is critical that a
sufficient number of holders of the Company's 10% Senior Notes due September 30,
2002, exchange their notes for the 10% Senior Notes due September 30, 2004. If
all of the noteholders participate in the exchange, approximately $2.7 million
of working capital would be freed up, which may be needed to fund operations if
the Company's operating results do not improve. Management has extended the
deadline to exchange the Senior Notes until May 31, 2002, but there is still
significant risk that noteholders may not accept the offer to exchange.
While Management believes that the Company's existing working capital is
sufficient to maintain its current level of operations and is sufficient to meet
its capital expenditure requirements for the remainder of 2002, there is no
assurance that the amount of capital will be adequate for fiscal 2003. If the
Company does not become profitable, its ability to sustain and expand its
business will be adversely affected. The Company's ability to repay principal
and interest on the 10% Senior Notes would also be adversely affected by a lack
of profitability.
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<page>
Factors Affecting Future Results
First quarter revenues decreased significantly compared to the prior year,
coming in well below the Company's target revenue. The economic slowdown has led
to significant delays in placing orders by the Company's OEM customers. As the
end-user customers have cut back on capital equipment expenditures, the
Company's OEM customers have also cut back on their orders for the Company's
software products. Because of this, Management has increased its sales and
marketing efforts in order to expand its customer base. Management remains
hopeful that these new customers will provide the needed revenues to sustain
operations.
The Company's future operating results and financial condition are
difficult to predict and will be affected by a number of factors. The markets
for the Company's products are emerging and specialized, and the Company's
technology has been commercially available for a relatively short time.
Accordingly, the Company has limited experience with the commercial use and
acceptance of its products and the extent of the modifications, adaptations and
custom applications that are required to integrate its products and satisfy
customer performance requirements. There can be no assurance that the emerging
markets for industrial motion control that are served by the Company will
continue to grow or that the Company's existing and new products will satisfy
the requirements of those markets and achieve a successful level of customer
acceptance. Because of this, the Company continues to devote significant
research and development resources to improve its existing products and to the
development of new products.
Because of these and other factors, past financial performance is not
necessarily indicative of future performance, historical trends should not be
used to anticipate future operating results, and the trading price of the
Company's common stock may be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results and market conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company has no activities in derivative financial or commodity
instruments. The Company's exposure to market risks, (i.e. interest rate risk,
foreign currency exchange rate risk, equity price risk) through other financial
instruments, including cash equivalents, accounts receivable, and lines of
credit, is not material.
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<page>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 18, 2002, Mr. Steven D. Hausle, the then President of the
Company's semiconductor division was suspended, pending investigation by the
Company into alleged violations of Company policy and Company proprietary
interests. On April 12, 2002, Mr. Hausle, Daniel J. Garnett M.D., Stephanie A.
Garnett, Axcient Corporation, and Ronald Tripiano, as plaintiffs, filed suit
against the Company, Robert H. Reback and Randall A. Mackey, as defendants, in
United States District Court, Northern District of California, San Jose
Division, Case Number C02-01769. The complaint alleges breach of oral and
written contract, fraud, negligent misrepresentation, breach of privacy, unfair
competition, wrongful termination, negligence and shareholder derivative claims
for breach of fiduciary duties, constructive fraud, negligence, and seeks
injunctive and declaratory relief. The plaintiffs are demanding $16,000,000 and
a jury trial. The Company believes the complaint is without merit and intends to
vigorously defend the action.
ITEM 2. CHANGES IN SECURITIES
During the period covered by this report, there have been no changes
required to be reported under this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Employment Agreements
The Company has entered into an employment agreement, effective November
30, 2001, with Robert H. Reback. The agreement provides that Mr. Reback be
employed as President and Chief Executive Officer of the Company for a term
ending December 31, 2003. In the agreement, Mr. Reback is to receive an annual
salary of $150,000, which is subject to increases as the Board of Directors
determines. In addition, Mr. Reback is eligible to receive a cash bonus at the
end of each fiscal year, upon the satisfaction of the performance objectives
that shall be determined by the Board of Directors on an annual basis.
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<page>
The employment agreement also provides for the grant of stock options under
the 1998 Incentive Stock Option Plan to purchase 650,000 shares of the Company's
common stock, at an exercise price of $1.00 per share. The options are
exercisable over a five year period from the date of grant and vest in equal
amounts on December 31, 2001, 2002 and 2003. In addition, the employment
agreement provides that Mr. Reback cannot compete with the Company during the
term of the agreement and for a period of two years thereafter.
The agreement further provides for severance pay equal to Mr. Reback's
annual salary in effect, but not more than the salary left to be paid during the
remainder of the agreement, if Mr. Reback is terminated without cause by the
Company or resigns for "good reason" (as such terms are defined in the
agreement) and, in such events, all of Mr. Reback's options under the Company's
stock option plan become fully exercisable for their remaining term. If a change
in control of the Company occurs, Mr. Reback is entitled to accelerated vesting
of his options.
The Company has entered into employment agreements, effective November 30,
2001, with each of David P. Faulkner, Michael D. Feaster, Dr. Steven K. Sorensen
and Riley G. Astill. The respective agreements provide that Mr. Faulkner be
employed as Executive Vice President and Managing Director of Machine Control
Products, that Mr. Feaster be employed as Vice President of Software
Development, that Dr. Sorensen be employed as Vice President and Chief Technical
Officer, and that Mr. Astill be employed as Vice President of Finance and Chief
Financial Officer. The term of each agreement ends on December 31, 2003. Under
the respective agreements, Mr. Faulkner's annual salary is $150,000, Mr.
Feaster's annual salary is $125,000, Dr. Sorensen's annual salary is $100,000
and Mr. Astill's annual salary is $80,000 or, in each case, such higher salary
as the Board of Directors determines. Each agreement provides that the executive
officer is eligible to receive a cash bonus at the end of each fiscal year, upon
the satisfaction of performance objectives as shall be determined by the
President and Chief Executive Officer of the Company on an annual basis.
The respective employment agreements provide for the granting of stock
options under the 1998 Incentive Stock Option Plan to purchase shares of the
Company's common stock, at an exercise price of $1.00 per share. The options are
exercisable over a five-year period from the date of grant and vest in equal
amounts on December 31, 2001, 2002 and 2003. Under the respective agreements,
Mr. Faulkner is granted options to purchase 500,000 shares of common stock, Mr.
Feaster is granted options to purchase 200,000 shares of common stock, Dr.
Sorensen is granted options to purchase 300,000 shares of common stock and Mr.
Astill is granted options to purchase 150,000 shares of common stock. Each
agreement also provides that the executive officer cannot compete with the
Company during the term of the agreement and for a period of two years
thereafter.
Proxy Statement
On April 30, 2002, the Company filed its Definitive Proxy Statement on
Schedule 14A, which was simultaneously mailed to its shareholders, announcing
the upcoming shareholders meeting to be held June 1, 2002, at the Company's
headquarters, beginning at 9:00 a.m. Any shareholder desiring a copy of the
Proxy Statement may do so by requesting a copy from the Company.
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<page>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit listing
The following exhibits are provided with this report:
Exhibit No. Description
- ---------- -----------
3.1 Articles of Incorporation (1)
3.2 Articles of Merger of Cimetrix (USA) Incorporated with Cimetrix
Incorporated (2)
3.3 Bylaws (1)
10.1 Lease with Capitol Properties Four, L.C. (3)
10.2 1998 Incentive Stock Option Plan (4)
10.3 Security Agreement with Michael and Barbara Feaster (5)
10.4 Employment Agreement with Robert H. Reback, President and Chief
Executive Officer(6)
10.5 Employment Agreement with David P. Faulkner, Executive Vice
President and Managing Director of Machine Control Products(6)
10.6 Employment Agreement with Michael D. Feaster, Vice President
of Software Development(6)
10.7 Employment Agreement with Steven K. Sorensen, Vice President
and Chief Technical Officer(6)
10.8 Employment Agreement with Riley G. Astill, Vice President of
Finance, Chief Financial Officer, Treasurer and Secretary(6)
- ---------------------------------
(1) Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
(2) Incorporated by reference to Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1995.
(3) Incorporated by reference from the Registration Statement on Form S-2, File
No. 333-60, as filed on July 2, 1997.
(4) Incorporated by reference to Proxy Statement on Schedule 14A dated April 20,
1998.
(5) Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended December 31, 2000.
(6) Attached.
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT
CIMETRIX INCORPORATED
Dated: May 15, 2002 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)
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