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, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number: 0-16454
CIMETRIX INCORPORATED
(Exact name of registrant as specified in its charter)
Nevada 87-0439107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6979 South High Tech Drive, Salt Lake City, 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:
Number of shares outstanding of each of the issuer's classes of common
stock as of May 14, 1999:
Common stock, par value $.0001 - 21,208,968.
CIMETRIX INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
PART I Financial Information
Item 1. Financial Statements
a) Condensed Statements of Operations...........................1
b) Balance Sheets...............................................2
c) Statements of Cash Flows.....................................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................5
PART II Other Information
Item 1. Legal Proceedings..............................................11
Item 2. Changes in Securities..........................................11
Item 3. Defaults Upon Senior Securities................................11
Item 4. Submission of Matters to a Vote of Security Holders............11
Item 5. Other Information..............................................11
Item 6. Exhibits and Reports on Form 8-K...............................11
Signature...............................................................12
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share and share amounts)
(Unaudited)
Three Months Ended
March 31,
--------------------------------
1999 1998
----- ----
NET SALES $ 1,021 $ 764
----- ---
OPERATING EXPENSES
Cost of sales 15 42
Selling, marketing and customer support 192 194
Research and development 374 320
General and administrative 300 376
--- ---
Total operating expenses 881 932
--- ---
INCOME (LOSS) FROM OPERATIONS 140 (168)
--- -----
OTHER INCOME (EXPENSES)
Interest income 17 15
Interest expense (69) (92)
---- ----
Total other income (expense) (52) (77)
---- ----
INCOME (LOSS) BEFORE INCOME TAXES 88 (245)
INCOME TAX EXPENSE (BENEFIT) -- --
NET INCOME (LOSS) $ 88 $ (245)
== =====
BASIC AND DILUTED INCOME (LOSS)
PER COMMON SHARE $ (.00) $ (.01)
===== =====
WEIGHTED AVERAGE SHARES
OUTSTANDING 22,695,800 24,143,928
========== ==========
1
CIMETRIX INCORPORATED
CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
March 31, December 31,
1999 1998
------------------------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,569 $ 1,645
Accounts receivable, net 1,293 1,175
Inventories 45 -
Prepaid expenses and other current assets 43 59
-- --
Total current assets 2,950 2,879
Property and equipment, net 456 505
Capitalized software costs, net 187 211
Other assets 160 167
--- ---
$ 3,753 $ 3,762
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 324 $ 159
Accrued expenses 128 155
Customer deposits 147 84
--- --
Total current liabilities 599 398
LONG TERM DEBT, net of current portion 2,690 2,691
----- -----
Total Liabilities 3,289 3,089
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value: 100,000,000 shares
Authorized; 21,338,863 and 23,343,928 shares issued
And outstanding, respectively 2 2
Additional paid-in capital 19,490 19,787
Treasury stock, at cost (1) (1)
Stock subscription receivable (12) (12)
Accumulated deficit (19,015) (19,103)
-------- --------
Net Stockholders' Equity 464 673
--- ---
$ 3,753 $ 3,762
===== =====
2
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1999 1998
---- ----
Cash Flows to Operating Activities:
Net Income (Loss) $ 88 $ (245)
Adjustments to reconcile net loss to net cash used by
Operating activities:
Amortization and depreciation 89 197
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (118) (67)
(Increase) decrease in inventory (45) --
(Increase) decrease in prepaid expenses 16 2
Increase (decrease) in accounts payable 165 (152)
Increase (decrease) in accrued expenses (27) 43
Increase (decrease) in customer deposits 63 (25)
Net Cash Flow Provided (Used)by Operating Activities 231 (247)
--- -----
Cash Flows to Investing Activities:
Purchase of property and equipment, net of retirements (6) (12)
Net Cash Flow Used by Investing Activities (6) (12)
--- ----
Cash Flows from Financing Activities:
Proceeds from issuance of common stock -- --
Purchase of Treasury Stock (301) --
Payments for capital lease obligations, net -- (4)
Net Cash Flow Provided by (Used in)
Financing Activities (301) (4)
----- ---
Net Decrease in Cash and Cash Equivalents (76) (263)
Cash and Cash Equivalents at the Beginning of Period 1,645 1,927
Cash and Cash Equivalents at the End of Period $ 1,569 $ 1,664
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ -- $ --
Income taxes $ -- $ --
Supplemental Schedule of Noncash Investing and Financing
Activities:
Issuance of stock upon exercise of non-qualified
Options or warrant, net of repurchase $ -- $ --
3
CIMETRIX INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited condensed financial
statements of Cimetrix Incorporated have been prepared in accordance with
the Securities and Exchange Commission's instructions to Form 10-Q and,
therefore, omit or condense footnotes and certain other information
normally included in financial statements prepared in accordance with
generally accepted accounting principles. The accounting policies followed
for quarterly financial reporting conform with generally accepted
accounting policies disclosed in Note 1 to the Notes to Financial
Statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. 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, 1999
are not necessarily indicative of the results that can be expected for the
entire year ending December 31, 1999. 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, 1998.
NOTE 2 - STOCK OPTIONS AND WARRANTS
As of May 14, 1999, there were issued and outstanding, options for the
purchase of 1,649,500 shares of the Company's common stock, under the
Company's 1998 Stock Option Plan. All currently outstanding options under
the plan are exercisable at $2.50 per share. Approximately 1,400,000 of
these outstanding options are registered for resale, pursuant to a Form S-3
Registration Statement, which became effective December 9, 1998. A total of
2,000,000 shares of common stock have been reserved for issuance under the
plan. These options will begin to expire in December 2002, and continue to
expire through April 2004.
As of May 14, 1999, there were issued and outstanding, options for the
purchase of 462,000 shares of the Company's common stock under the
Company's 1994 Stock Option Plan. Of these options, 450,000 are exercisable
at $3.00 per share, and expire in September 1999. The remaining 12,000
options are exercisable at $9 and $10 per share and expire in December
1999. These options have not been registered for resale.
As of May 14, 1999, there were issued and outstanding, warrants for
the purchase of 826,500 shares of the Company's common stock. Such warrants
were issued to purchasers of the Company's 10% Senior Notes, and are
exercisable at the price of $2.50 per share. The shares underlying the
warrants are registered for resale, pursuant to the Form S-3 Registration
Statement discussed earlier in this section.
NOTE 3 - COMMON STOCK
As of May 14, 1999, pursuant to the settlement of all outstanding
litigation between the Company and two former Directors, the Company
received at no cost 1,293,000 shares of its common stock and purchased
2,235,238 shares of its common stock, for a total of 3,528,238 shares of
common stock. All 3,528,238 shares have been retired to reduce the total
number of outstanding shares to 21,208,968.
4
The purchase of the 2,235,238 shares differs from the amount of shares
reported in the Company's Annual Report and Form 10-K, filed on March 31,
1999. The difference is the result of a settlement of a dispute that arose
with respect to the transaction.
NOTE 4 - CONTRACT WITH PRESIDENT
On April 1, 1999 the Company entered into a new agreement with
Bicoastal Holding Company providing for the continued services of Paul A.
Bilzerian, as President of Cimetrix. The agreement provides that the
Company pays Bicoastal Holding Company for his services at a rate of
$10,000 per month through December 31, 2000. In addition, the Company will
provide a $1,500 monthly living allowance and reimbursement for reasonable
travel expenses.
The agreement also authorizes Mr. Bilzerian to make special bonus
payments, in the event of a sale of a majority of the common stock of
Cimetrix to a third party or the sale of substantially all of the assets of
Cimetrix. Such bonus payments shall not exceed 5% of the total sales price
of the Company's stock or assets, up to a maximum amount of $5,000,000.
Such bonus payments shall be payable to Cimetrix employees whom Mr.
Bilzerian believes, in his sole discretion, contributed most to the success
of Cimetrix.
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 1999.
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 1999 and 1998.
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."
5
Overview
The Company is the developer of the world's first open architecture,
standards-based, personal computer (PC) software for controlling machine tools,
industrial robots and industrial automation equipment that operates on the
factory floor. The Cimetrix Open Development Environment (CODE(TM)) software
products are based on standard computer platforms using Microsoft Windows NT
operating system. Cimetrix believes that manufacturing companies will
increasingly demand open architecture, PC-based controllers on the equipment
they purchase, transforming the worldwide controller market from proprietary
solutions to open architecture, PC-based solutions.
Statements of Operations Summary
The following table sets forth the percentage of costs and expenses to
net sales derived from the Company's Condensed Statements of Operations for the
three months ended March 31, 1999 and 1998:
Three Months Ended
March 31,
1999 1998
---- ----
NET SALES 100% 100%
---- ----
OPERATING EXPENSES
Cost of sales 1 5
Selling, marketing and customer support 19 25
Research and development 37 42
General and administrative 29 49
Total operating expenses 86 121
-- ---
INCOME (LOSS) FROM OPERATIONS 14 (22)
Interest income 2 2
Interest expense ( 7) ( 12)
---- -----
NET INCOME (LOSS) 9% (32%)
== =====
6
Results of Operations
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Net Sales
Net sales increased by $257,000, or 34%, to $1,021,000 for the first
quarter 1999, from $764,000 for the comparable period in 1998. Net sales for the
first quarter of 1999 consisted of sales of software (80%), engineering services
(8%) and support and training (12%). Net sales for the same period in 1998
consisted of sales of software (60%), engineering services (25%) and support and
training (15%). The increase in revenue is attributable to the addition of a
significant new customer. It was also attributable to increased sales to the
Company's existing customers.
Major Customers
Sales to major customers that exceeded 10 percent of net sales are approximately
as follows (in thousands):
Three Months Ended
March 31,
1999 1998
---- ----
Company A 179 70
Company B 145 35
Company C 66 145
Company D 45 176
Company E 432 110
Cost of Sales
Cost of sales decreased by $27,000, or 64%, to $15,000 for the first
quarter 1999, from $42,000 for the comparable period in 1998. This decrease was
due in part to effective cost control measures. It was also due in part to a
decrease in chargeable engineering services with their related costs of sales.
In the first quarter 1999, engineering services represented 8% of sales,
compared to 25% in the first quarter of 1998. The profit margin on software is
higher than the profit margin on sales of engineering services.
Selling, Marketing and Customer Support
Selling, marketing and customer support decreased slightly by $2,000,
or 1%, to $192,000 for the first quarter of 1999, from $194,000 for the
comparable period in 1998. Effective cost control measures held costs constant,
while revenues were increased. The number of personnel involved in selling and
marketing also remained constant. The current selling and marketing personnel
have narrowed their focus to market segments in which the Company can best
compete. Through the use of better-trained customer support personnel, the
Company is able to provide higher quality support at lower costs.
7
Research and Development
Research and development expenses increased by $54,000, or 17% to
$374,000 for the first quarter of 1999, from $320,000 for the comparable period
in 1998. The increase was attributable to the addition of research and
development personnel. Personnel costs represent the most significant portion of
the Company's research and development costs, due to its focus on software
products. The Company's extensive effort to develop its products for Microsoft
Windows NT and the continued development of the Company's GEM software products
represents most of the research and development expenditures. The Company plans
to continue to make significant investments in research and development and
expects to incur research and development expenses of approximately $1.7 million
during 1999. Research and development expenses include only direct costs for
wages, benefits, materials and education of technical personnel. All indirect
costs such as rents, utilities, depreciation and amortization are reflected in
general and administrative costs.
8
General and Administrative
General and administrative expenses decreased by $76,000, or 20%, to
$300,000 for the first quarter of 1999, from $376,000 for the comparable period
in 1998. The primary reason for this decrease was the reduction of amortization
and depreciation expenses. In the fourth quarter of 1998, it was determined that
the value of certain assets, which were being amortized and depreciated, were
impaired and should be written-off. The result of those write-offs is lower
amortization and depreciation expense in future periods.
General and administrative expenses 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, such as
capitalized software. Amortization and depreciation expense for the first
quarter of 1999 was $89,000, or 30% of all general and administrative expenses,
compared to $197,000, or 52%, for the same period in 1998.
Other Income (expenses)
Interest income increased by $2,000, or 13% to $17,000 for the period
ended March 31, 1999, from $15,000 for the same period in 1998. Improved
operating results have allowed the Company to maintain a cash reserve. Cash
reserves are invested in conservative money market fund accounts.
Interest expense decreased by $23,000, or 25%, to $69,000 for the
period ended March 31, 1999, from $92,000 for the same period in 1998. The
decrease was attributable to the retirement of a significant portion of the
Company's 10% Senior Notes through stock transactions.
Liquidity and Capital Resources
The Company had approximately $2.35 million of working capital at March
31, 1999, compared with approximately $2.48 million at December 31, 1998. The
Company was able to maintain its working capital primarily because of positive
operating results.
Cash used in investing activities for the period ended March 31, 1999
was $6,000, compared with $12,000 for the same period in 1998, and was for the
purchase of computer equipment. Cash used in financing activities for the period
ended March 31, 1999, was $301,000 compared to $4,000 for the same period in
1998. The Company used the $301,000 to purchase and retire its own stock. The
Company had positive cash flow from operating activities of $231,000 for the
period ended March 31, 1999, compared to a negative cash flow of $247,000 for
the same period in 1998. This improvement is due to a net income of $88,000 for
the first quarter of 1999, compared to a loss of $245,000 for the same period in
1998.
The Company's future liquidity will continue to be dependent on the
Company's ability to achieve positive operating results. Management believes
that the Company's existing working capital is sufficient to maintain its
current and foreseeable levels of operations. Management also believes that the
Company has sufficient funds to meet its capital expenditure requirements for
1999. The Company anticipates that capital expenditures for fiscal year 1999,
primarily for computer equipment and software, will be approximately $80,000,
compared to $42,000 for 1998.
9
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.
Year 2000 Issues
The Company is committed to ensuring that its customers will have
"date-safe" or Y2K compliant software products as they move toward, through and
past the year 2000. In keeping with this commitment, the Company has conducted a
thorough assessment of its products. A complete list of products and their
compliance with Y2K standards can be obtained via the Company's World Wide Web
site, www.cimetrix.com. The Company continues to modify its software products
bringing them into year 2000 compliance, along with normal ongoing product
enhancements. Those products that are not yet Y2K compliant will be so before
the end of 1999.
Vendors supply the vast majority of the software used in the Company's
business applications and virtually all of the hardware systems used in the
Company's business. The Company has obtained documentation from its vendors
supplying software for its primary business applications confirming year 2000
compliance. The company has tested all critical hardware systems and confirmed
that they are also year 2000 compliant. The testing of all remaining minor
systems will be completed prior to the end of the year.
In management's opinion, year 2000 issues will not have a material
effect on the Company's day to day business, its operations or financial
condition. The Company will continue to monitor and disclose any material change
in its year 2000 readiness in future financial reports.
Factors Affecting Future Results
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.
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (Filed electronically with this 10Q).
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
March 31, 1999.
11
SIGNATURE
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
Registrant
Dated: May 14, 1999 By: /s/ Riley G. Astill
----------------------------------------
RILEY G. ASTILL
Vice President of Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
12