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 June 30, 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:
The number of shares outstanding of the registrant's common stock
as of August 13, 1999:
Common stock, par value $.0001 - 21,208,968.
CIMETRIX INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 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......................................................9
Item 2. Changes in Securities.................................................9
Item 3. Defaults Upon Senior Securities......................................10
Item 4. Submission of Matters to a Vote of Security Holders..................10
Item 5. Other Information....................................................10
Item 6. Exhibits and Reports on Form 8-K.....................................10
Signature.....................................................................11
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 Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----- ---- ---- ----
NET SALES $ 934 $ 1,096 $ 1,954 $ 1,859
---------- ---------- ------------- -------------
OPERATING EXPENSES
Cost of sales 16 34 31 76
Selling, marketing and customer support 189 191 381 384
Research and development 366 374 740 694
General and administrative 299 444 599 820
---------- ---------- ------------- -------------
Total operating expenses 870 1,043 1,751 1,974
---------- ---------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 64 53 203 (115)
---------- ---------- ------------- --------------
OTHER INCOME (EXPENSES)
Interest income 15 13 32 28
Interest expense (67) (60) (136) (152)
----------- ----------- -------------- --------------
Total other income (expense) (52) (47) (104) (124)
----------- ----------- -------------- --------------
INCOME(LOSS) BEFORE INCOME TAXES 12 6 99 (239)
CURRENT INCOME TAX EXPENSE
(BENEFIT) - - - -
NET INCOME (LOSS) $ 12 $ 6 $ 99 $ (239)
---------- ---------- ------------- --------------
BASIC AND DILUTED INCOME (LOSS)
PER COMMON SHARE $ .00 $ .00 $ .00 $ (.01)
=== === === =====
WEIGHTED AVERAGE SHARES
OUTSTANDING 21,217,628 24,743,928 21,956,714 24,743,928
========== ========== ========== ==========
1
CIMETRIX INCORPORATED
CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
June 30, December 31,
1999 1998
------------------------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,376 $ 1,645
Accounts receivable, net 1,459 1,175
Inventories 45 -
Prepaid expenses and other current assets 41 59
-- --
Total current assets 2,921 2,879
Property and equipment, net 414 505
Capitalized software costs, net 164 211
Other assets 152 167
--- ---
$ 3,651 $ 3,762
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 140 $ 159
Accrued expenses 220 155
Customer deposits 185 84
--- --
Total current liabilities 545 398
LONG TERM DEBT, net of current portion 2,680 2,691
----- -----
Total Liabilities 3,225 3,089
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value: 100,000,000 shares
Authorized; 21,208,968 and 24,743,928 shares issued
and outstanding, respectively 2 2
Additional paid-in capital 19,440 19,787
Treasury stock, at cost (1) (1)
Stock subscription receivable (12) (12)
Accumulated deficit (19,003) (19,103)
-------- --------
Net Stockholders' Equity 426 673
--- ---
$ 3,651 $ 3,762
===== =====
2
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1999 1998
---- ----
Cash Flows to Operating Activities:
Net Income (Loss) $ 99 $ (239)
Adjustments to reconcile net loss to net cash used by
Operating activities:
Amortization and depreciation 169 399
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (284) (439)
(Increase) decrease in inventory (45) 5
(Increase) decrease in prepaid expenses 18 6
(Increase) decrease in other assets - 7
Increase (decrease) in accounts payable (19) (254)
Increase (decrease) in accrued expenses 65 (48)
Increase (decrease) in customer deposits 101 (37)
------------ -----------
Net Cash Flow Provided (Used) by
Operating Activities 104 (600)
------------ -----------
Cash Flows to Investing Activities:
Purchase of property and equipment, net of retirements (12) (21)
------------ -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock -- --
Sale (purchase) of Treasury stock (351) 275
Payments for capital lease obligations, net -- (3)
Retirement of long-term debt (10) (27)
------------ -----------
Net Cash Flow Provided (Used) by
Financing Activities (361) 245
------------ -----------
Net Decrease in Cash and Cash Equivalents (269) (376)
Cash and Cash Equivalents at the Beginning of Period 1,645 1,927
Cash and Cash Equivalents at the End of Period $ 1,376 $ 1,551
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 136 $ 147
Income taxes $ -- $ --
Supplemental Schedule of Noncash Investing and Financing
Activities:
Issuance of stock upon exercise of non-qualified
Options or warrant, net of repurchase $ -- $ --
Issuance of stock in exchange for Senior Notes $ -- $ 600
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 six month period ended June 30, 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 August 13, 1999, there were issued and outstanding, options for
the purchase of 1,283,500 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 937,500 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 June 2004.
As of August 13, 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 August 13, 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
On April 6, 1999, the Company completed the purchase of its own shares
of common stock from two former Directors pursuant to the settlement of all
outstanding litigation between the Company and two former Directors. As of
August 13, 1999, the Company has 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.
This agreement was ratified by the shareholders at the Annual Meeting
of Shareholders, which was held May 15, 1999.
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 second 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 second quarter and six months 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."
Overview
The Company is the developer of the world's first open
architecture, standards-based, personal computer (PC) software for
5
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.
The following table sets forth the percentage of costs and
expenses to net revenues derived from the Company's Condensed Statements of
Operations for the three and six months ended June 30, 1999 and 1998:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
NET SALES 100% 100% 100% 100%
---- ---- ---- ----
OPERATING EXPENSES
Cost of sales 2 3 2 4
Selling, marketing and customer support 20 17 19 21
Research and development 39 34 38 37
General and administrative 32 41 31 44
---------- ------------ ------------ ------------
Total operating expenses 93 95 90 106
---------- ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 7 5 10 (6)
Interest income 1 1 2 1
Interest expense (7) (5) (7) (8)
----------- ------------ ------------ ------------
NET INCOME (LOSS) 1% 1% 5% (13%)
----------- ------------ ------------ ------------
Results of Operations
Three and Six Months Ended June 30, 1999 Compared to Three and Six Months Ended
June 30, 1998
Net Sales
Net sales decreased by $162,000, or 15%, to $934,000 for the three
months ended June 30, 1999 from $1,096,000 for the three months ended June 30,
1998. Net sales for the second quarter of 1999 consisted of sales of software
(80%), engineering services (5%), and support and training (15%). Net sales for
the same period in 1998 consisted of sales of software (55%), engineering
services (20%), and support and training (25%). While software sales increased
significantly for the period, the increase was not enough to offset the large
decrease in the sales of engineering services, support and training.
Net sales increased by $95,000, or 5%, to $1,954,000 for the six months
ended June 30, 1999 from $1,859,000 for the six months ended June 30, 1998. Net
sales for the six months ended June 30, 1999 consisted of sales of software
(80%), engineering services (7%), and support and training (13%). Net sales for
the same period in 1998 consisted of sales of software (56%), engineering
services (20%), and support and training (24%). While engineering services and
support and training sales decreased, sales of software increased significantly
and accounted for the overall increase in sales.
6
Major Customers
Sales to major customers that exceeded 10 percent of net sales are approximately
as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
Company A 145 * 324 *
Company B 116 * 261 *
Company C * 225 * 401
Company D 435 563 867 673
* Less than 10 percent for the period
Cost of Sales
Cost of sales decreased by $18,000, or 53%, to $16,000 for the three
months ended June 30, 1999 from $34,000 for the comparable period in 1998. Cost
of sales decreased by $45,000, or 59%, to $31,000 for the six months ended June
30, 1999 from $76,000 for the comparable period in 1998. This decrease was
attributable to the decline in the use of materials used to produce the
Company's software products such as manuals, which are now available on CD-Rom.
Many sales are delivered via the internet and do not require the shipment of any
media or materials. The decrease in cost of sales in both periods is also
attributable to the decrease in the sales of engineering services and the
associated costs of those sales.
Selling, Marketing and Customer Support
Selling, marketing and customer support costs decreased by $2,000, or
1%, to $189,000 for the three months ended June 30, 1999 from $191,000 for the
comparable period in 1998. Selling, marketing and customer support costs
decreased by $3,000, or 1%, to $381,000 for the six months ended June 30, 1999
from $384,000 for the comparable period in 1998. The Company believes its
current staffing is adequate to service its present customer base, allowing
costs to remain fairly constant.
Research and Development
Research and development expenses decreased by $8,000, or 2%, to
$366,000 for the three months ended June 30, 1999 from $374,000 for the
comparable period in 1998. Research and development expenses increased by
$46,000, or 7%, to $740,000 for the six months ended June 30, 1999 from $694,000
for the comparable period in 1998. The Company's extensive effort to develop its
products for WindowsNT and the continued development of the Company's GEM
software products represents most of the research and development expenditures.
The Company has a need and 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.
7
General and Administrative
General and administrative expenses decreased by $145,000, or 33%, to
$299,000 for the three months ended June 30, 1999 from $444,000 for the
comparable period in 1998. General and administrative expenses decreased by
$221,000, or 27%, to $599,000 for the six months ended June 30, 1999 from
$820,000 for the comparable period in 1998. The primary reason for these
decreases is reduced depreciation and amortization expenses. Certain assets
which were being depreciated and amortized, were written-off in 1998, resulting
is lower depreciation and amortization expense in future periods.
Other Income (expenses)
Interest income increased by $2,000, or 15% to $15,000 for the three
months ended June 30, 1999, from $13,000 for the comparable period in 1998.
Interest income increased by $4,000, or 14% to $32,000 for the six months ended
June 30, 1999, from $28,000 for the comparable 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 increased by $7,000, or 12%, to $67,000 for the three
months ended June 30, 1999, from $60,000 for the comparable period in 1998.
Interest expense decreased by $16,000, or 11%, to $136,000 for the six months
ended June 30, 1999 from $152,000 for the comparable period in 1998. This
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 $2.38 million of working capital at June
30, 1999, compared with approximately $2.48 million at December 31, 1998. This
overall decrease in working capital was principally due to the purchase of
treasury stock. See Note 3 of Item 1, Financial Statements. Positive operating
results have allowed the Company to maintain its working capital.
Cash used in investing activities for the period ended June 30, 1999
was $12,000 compared with $21,000 for the same period in 1998. All amounts were
used to purchase computer equipment and software. Cash used in financing
activities for the period ended June 30, 1999, was $361,000, compared to cash
provided by financing activities of $245,000 for the same period in 1998. The
Company purchased a large block of treasury stock with these funds, which is
discussed in detail in Note 3 of Item 1, Financial Statements. The Company had
positive cash flow from operating activities of $104,000 for the quarter ended
June 30, 1999, compared to negative cash flow of $600,000 for the same period in
1998.
The Company's future liquidity will continue to be dependent on the
Company's operating cash flow and management of trade receivables. Management
believes that the Company's 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
$50,000, compared to $42,000 for 1998.
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.
8
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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None.
9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on May 15,
1999 with proxies for the meeting solicited by the Company's Board of Directors,
pursuant to Regulation 14A under the Securities and Exchange Act of 1934. The
matters voted on at the meeting were as follows: the election of directors; to
ratify a contract with Bicoastal Holding Company. There was not any proxy
solicitation in opposition to management's proposals or nominees for election as
directors.
Both proposals were approved and adopted by the margins indicated below:
1. To elect five directors to the Company's Board of Directors to serve for
one-year terms.
Number of Shares
For Withheld
---------- --------
Paul A. Bilzerian 15,413,188 331,950
Dr. Lowell K. Anderson 15,415,688 329,450
Dr. Ron Lumia 15,415,688 329,450
Randall A. Mackey 15,415,688 329,450
Bill Van Drunen 15,415,688 329,450
2. To ratify the contract with Bicoastal Holding Company.
For: 10,548,835
Against: 392,335
Abstain: 83,750
Broker Non-Vote: 3,144,353
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
June 30, 1999.
10
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
Dated: August 13, 1999 By:/s/ Riley G. Astill
-------------------
RILEY G. ASTILL
Vice President of Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
11