UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-16454
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CIMETRIX INCORPORATED
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(Exact name of registrant as specified in charter)
NEVADA 87-0439107
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
2222 South 950 East, Provo, Utah 84606
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(Address of principal executive offices) Zip code
801-344-7000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months ( or 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
As of October 21, 1996, the Registrant had 18,246,428 shares of its
common stock, par value $.0001, that were outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q
CIMETRIX Incorporated (the "Registrant") files herewith unaudited
condensed balance sheets of the Registrant as of September 30, 1996 and
December 31, 1995 (the Registrant's most recent fiscal year), unaudited
condensed statements of operations for the three months and nine months
ended September 30, 1996 and 1995 and unaudited condensed statements of
cash flows for the nine months ended September 30, 1996 and 1995,
together with unaudited condensed notes thereto. In the opinion of
management of the Registrant, the financial statements reflect all
adjustments, all of which are normal recurring adjustments, necessary to
fairly present the financial condition of the Registrant for the
interim periods presented. The financial statements included in this
report on Form 10-Q should be read in conjunction with the audited
financial statements of the Registrant and the notes thereto included in
the annual report of the Registrant on Form 10-KSB for the year ended
December 31, 1995.
CIMETRIX INCORPORATED
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
(Audited)
September 30, December 31,
1996 1995
CURRENT ASSETS:
Cash $ 2,482,811 $ 2,345,483
Accounts receivable 1,188,375 67,544
Inventories 661,248 619,192
Prepaid expenses 367,438 217,818
Current deferred tax asset, net 17,727 17,727
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Total Current Assets 4,717,599 3,267,764
PROPERTY AND EQUIPMENT, net 856,563 1,732,247
OTHER ASSETS:
Other Assets 10,248 9,242
Capitalized software cost, net 750,364 757,400
Technology, net 727,706 767,306
Goodwill, net 3,025,151 3,188,186
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Total Other Assets $ 4,513,469 $ 4,722,134
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Total Assets $ 10,087,631 $ 9,722,145
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 359,147 $ 174,126
Accrued payroll and vacation 131,445 121,424
Accrued expenses 4,470 100
Notes payable-current portion 24,191 22,092
Capital lease obligation-current portion 19,901 19,901
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Total Current Liabilities 539,154 337,643
DEFERRED TAX LIABILITY 17,727 17,727
NOTES PAYABLE, net of current portion 247,482 271,673
CAPITAL LEASE OBLIGATION, net of
current portion 11,142 24,471
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Total Liabilities $ 815,505 $ 651,514
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STOCKHOLDERS' EQUITY:
Common stock $ 1,905 $ 1,846
Additional paid in capital 18,863,579 16,156,458
Accumulated deficit (9,159,811) (7,087,673)
Unearned compensation expense, stock options (433,547) -
Total Stockholders' Equity 9,272,126 9,070,631
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Total Liabilities and Stockholders' Equity $ 10,087,631 $ 9,722,145
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NOTE: The accompanying notes are an integral part of these financial
statements.
CIMETRIX INCORPORATED
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Nine Months ended
September 30, September 30,
1996 1995 1996 1995
NET SALES $ 1,311,690 $ 174,844 $ 1,769,835 $ 415,575
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OPERATING EXPENSES:
Cost of Goods Sold 179,368 56,482 420,072 132,571
Selling, Marketing and Customer Support 349,408 260,858 987,840 722,141
Research and Development 424,479 188,478 1,135,220 629,011
General and Administrative 342,515 239,280 991,709 809,294
Compensation related to options - - 692,658 -
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Total Operating Expenses 1,295,770 745,098 4,227,499 2,293,017
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INCOME (LOSS) FROM OPERATIONS 15,920 (570,254) (2,457,664) (1,877,442)
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OTHER INCOME (EXPENSE):
Interest income 28,102 48,239 74,131 136,411
Interest expense (37,613) (1,464) (40,515) (13,784)
Gain (Loss) on disposition of assets 351,910 - 351,910 (3,485)
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Total Other Income (Expense) 342,399 46,775 385,526 119,142
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INCOME (LOSS) BEFORE MINORITY
INTEREST AND INCOME TAXES 358,319 (523,479) (2,072,138) (1,758,300)
LESS MINORITY INTEREST IN OPERATIONS
LOSS OF SUBSIDIARY - (50,631) - (198,810)
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INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 358,319 (472,848) (2,072,138) (1,559,490)
CURRENT INCOME TAX EXPENSE (BENEFIT) - - - -
DEFERRED INCOME TAX EXPENSE (BENEFIT) - - - -
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 358,319 (472,848) (2,072,138) (1,559,490)
EXTRAORDINARY ITEM - - - -
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NET INCOME (LOSS) $ 358,319 $ (472,848) $ (2,072,138) $ (1,559,490)
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INCOME (LOSS) PER COMMON SHARE
PRIMARY $ .02 $ (.03) $ (.11) $ (.10)
FULLY DILUTED $ .01 $ N/A $ N/A $ N/A
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13
NOTE: The accompanying notes are an integral part of these financial
statements.
CIMETRIX INCORPORATED
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
For the Nine
Months Ended
September 30,
1996 1995
Cash Flows To Operating Activities:
Net loss (2,072,138) (1,559,490)
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Adjustments to reconcile net loss
to net cash used by operating activities:
Amortization and depreciation 481,041 178,466
Minority interest in operation of Subsidiary - (198,810)
Compensation related to options 692,658 -
Gain on sale of building (351,910) -
Changes in assets and liabilities:
Decrease (increase) in inventory (42,056) (211,754)
Decrease (increase) in accounts receivable (1,120,831) (90,622)
Decrease (increase) in prepaids & deposits (150,626) (133,903)
Increase (decrease) in accounts payable
and accrued expenses 189,391 (363,557)
Increase (decrease) in accrued payroll 10,021 (41,735)
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Total adjustments (292,312) (861,915)
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Net Cash Flow Used by Operating Activities (2,364,450) (2,421,405)
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Cash Flows From (To) Investing Activities:
Payments for capitalized software costs (122,264) (181,955)
Purchase of PP&E (96,012) (925,999)
Proceeds from disposal of PP&E 1,174,500 -
Proceeds from receivable-related party - -
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Net Cash Provided By (Used In)
Investing Activities 956,224 (1,107,954)
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Cash Flows from Financing Activities:
Proceeds from issuance of common stock 1,580,975 4,000,000
Payment of stock offering costs - (26,069)
Net change in capitalized leases (13,329) 8,420
Proceeds from notes payable - -
Payments for notes payable (22,092) (1,050,000)
Payments on payable-related party - -
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Net Cash Provided by Financing Activities 1,545,554 2,932,351
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Net Increase (Decrease) in Cash 137,328 (597,008)
Cash at Beginning of Period 2,345,483 3,365,186
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Cash at End of Period 2,482,811 2,768,178
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18
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest 40,514 14,055
Income taxes - -
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19
Supplemental Schedule of Noncash Investing and Financing Activities:
For the nine months ended September 30, 1995:
The company issued 2,829,419 shares of Cimetrix, Inc., stock, in exchange for
the minority interest in Cimetrix (USA) Incorporated, resulting in goodwill
of $3,260,646.
For the nine months ended September 30, 1996:
Compensation expense of $692,658, was recognized for all currently outstanding
and unexercised options. [See Note 10].
NOTE: The accompanying notes are an integral part of these financial
statements.
CIMETRIX INCORPORATED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments ) necessary to present fairly
the financial position and results of operations at September 30, 1996
and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed unaudited financial statements be read in
conjunction with the financial statements and notes thereon included in
the Company's December 31, 1995 audited financial statements. The
results of operations for the period ended September 30, 1996 are not
necessarily indicative of the operating results for the full year.
Cash and Cash Equivalents - For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents. At September
30, 1996, the Company had cash equivalents of $917,047 invested in
commercial paper maturing in October, 1996, which are readily
convertible into cash and are not subject to significant risk from
fluctuation in interest rates; there were no cash equivalents at
September 30, 1995.
Net Income (Loss) per Common Share - The computation of net income
(loss) per share of common stock is based on the weighted average
shares outstanding during the periods presented. Fully diluted loss per
share is not presented because the effect of outstanding options and
other common stock equivalents is antidilutive.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined on the first-in, first-out method.
Depreciation Methods - The cost of property and equipment is depreciated
using the straight-line method over the estimated useful lives of the
related assets. The estimated useful lives range from 3 - 40 years.
Research and Development - The Company expenses software development
costs incurred prior to the establishment of technological feasibility
as research and development costs. The Company also expenses hardware
design and prototype expenses as incurred.
Capitalized Software Costs - The Company capitalizes software
development costs incurred after technological feasibility of the
software product has been established. Amortization of the capitalized
costs is computed on a product by product basis over the estimated
useful lives of the products. Software costs are carried at the net of
unamortized cost or net realizable value. Net realizable value is
reviewed on an annual basis after assessing potential sales of the
product.
Goodwill - Goodwill represents the excess of the cost of purchasing the
minority interest of Cimetrix (USA) Incorporated, a former subsidiary,
over the fair value of the net assets at the date of acquisition, and is
being amortized on the straight line method over 15 years. [See Note 8].
Allowance for Doubtful Accounts - Through September 30, 1996, the
Company has had no bad debt experience; therefore no allowance for
doubtful accounts has been established.
NOTE 2 - LICENSE AGREEMENTS
During the early part of 1994, the Company entered into a license /
royalty agreement with Lynx Real-Time Systems, Inc. ("LYNX"), wherein
the Company is allowed to incorporate certain binary products of LYNX
into the controller products of the Company. The Company will pay a fee
of $235 per each unit sold which contains a LYNX run-time license
product.
Pursuant to an agreement dated July 26, 1995, the Company entered into
an additional agreement with LYNX allowing the Company to resell
development licenses to its customers. The Company will pay a fee of
$500 per development license for each license sold, and has committed to
pay an up-front royalty / license fee for the purchase of 250 licenses,
for a total of $125,000. This additional agreement also provides the
Company with the option, expiring on July 25, 1998, to purchase all
existing LYNX development operating system source code. In addition,
the Company will receive a substantial discount from the standard list
price for any new LYNX source code product through July 25, 1998.
The original up-front royalty of $58,750, combined with the additional
$125,000 from the latest agreement (for a total of $183,750), is being
amortized through the purchase of LYNX products and services until the
total payment has been consumed.
NOTE 3 - TECHNOLOGY
Effective July 5, 1995, the Company purchased the technology that was
then being licensed from Brigham Young University (BYU), referred to as
ROBLINE and ROBCAL. The Company purchased all rights, title, interest
and benefit in and to the intellectual property for cash payments of
$50,000 per year for ten years which were discounted using an
incremental borrowing rate of 9.5% per annum and has been recorded as a
note payable, plus 120,000 shares of previously unissued, restricted
common stock of the Company for a total purchase value of $793,765. The
technology is being amortized over a period of 15 years on a straight-
line basis. This technology consists primarily of robot inaccuracy
compensation technologies, as integrated by an off-line programming
system, and an inaccuracy calibration technique. The proprietary robot
inaccuracy calibration technology can be configured to function with
virtually any off-line programming software and any robot.
Pursuant to the now canceled license agreement with BYU, the Company was
required to make royalty payments of 3/4 of one percent of net sales of
the Company. Minimum royalty payments equaled $40,000 per year. In
connection with the previous licensing of the technology, the Company
issued 180,000 shares of restricted common stock to BYU, valued at $.10
per share. The Company also issued a total of 440,000 shares of
restricted common stock, valued at $.0001 per share, to a director and
other employees of the Company for their efforts in the development of
the licensed technology. Subsequently, the Company issued 180,000
restricted common shares in 1990 and another 180,000 restricted common
shares in 1991 (both valued at $.0001 per share ) to employees of the
Company for their continued active participation in the commercialization
and distribution of the licensed technology.
NOTE 4 - SOFTWARE DEVELOPMENT COSTS
In 1994, it was determined the Company had passed the point of
"technological feasibility" with its Cimetrix Open Development
Environment ("CODE," formerly "ROBLINE") system software, and, hence,
according to FASB 86 - "Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed," further development costs
should be capitalized. During 1996, 1995, and 1994, the Company has
capitalized $122,264, $341,416, and $519,984, respectively, of direct
and indirect costs associated with the effort to bring the Company's
software products to a point of general release to customers.
Amortization began in January 1995, and is computed as the greater of
the amount computed using (a) the ratio that current gross revenues for
a product bear to the total of current and anticipated future gross
revenues for that product or (b) the straight-line method over five
years. As the Company develops ancillary, complementary software tools
and applications products, it is expected there may be capitalization of
additional software costs.
NOTE 5 - PATENTS AND COPYRIGHTS
The technology purchased from BYU, along with other technology developed
internally, is proprietary in nature. The Company has obtained two
patents on certain of the technology, issued in May 1989, and March
1994, respectively. In addition, the Company has registered its entire
CODE software system with the Copyright Office of the United States, and
will continue to register on a timely basis any updates to current
products or any new products. For the most part, other than the two
patents and the copyright registrations, the Company relies on
confidentiality and non-disclosure agreements with its employees and
customers, appropriate security measures, and the encoding of its
software in order to protect the proprietary nature of its technology.
No cost has been capitalized with respect to the patents.
NOTE 6 - NOTES PAYABLE
In connection with the purchase of the technology from BYU [See Note 3]
the Company agreed to make payments of $50,000 each year for ten years.
This stream of payments was discounted using an incremental borrowing
rate of 9.5% per annum, and has been recorded as a note payable with a
beginning balance of $343,765. The first payment was due and paid on
September 1, 1995. The principal balance at September 30, 1996 is
$271,673.
NOTE 7 -COMMON STOCK TRANSACTIONS
During the quarter ended September 30, 1996, the Company awarded stock
options representing 216,000 shares of restricted common stock in
connection with the hiring of new personnel for the Company. The
options all have an exercise term of five years, with partial vesting
occurring on the anniversaries of the individual grant dates. The
exercise price was $7.00 per share for all options granted.
During August and September, 1996, two former Directors and a current
Director exercised their individual options to purchase 50,000 shares
each of common stock of the Company at exercise prices of $5.00 and
$4.00 per share, respectively. The exercise of these three options
resulted in total cash proceeds to the Company of $700,000. The shares
have been purchased for investment purposes.
In May, 1996, the Company received cash proceeds of $250,000 from the
exercise of warrants to purchase 125,000 restricted common shares at
$2.00 per share.
In February 1996, four option holders, who are no longer employed or
under contract with the Company, elected to exercise all or part of
their options to purchase restricted shares from the Company. A total
of 315,000 shares were purchased at the option exercise price of $2.00
per share. Also, 325 shares were purchased for an option exercise price
of $3.00 per share. Based on the quoted market price at the time of
exercise of approximately $10.00 per share, the Company will recognize
for tax purposes a compensation deduction of approximately $1,002,300 in
1996.
On December 15, 1995, the Board of Directors elected a new director to
the Board of the Company, effective January 1, 1996 and until the
election of directors at the next annual shareholders' meeting. In
connection with his compensation for service as a Board member, the
Company restructured its obligations under a previous option agreement
negotiated with the individual pursuant to a consulting agreement dated
July 15, 1995. In exchange for the consultant's release of the Company
from its previous obligations, the Company has granted him non-qualified
options to purchase 40,000 shares of restricted common stock at $5.00
per share, which will vest immediately.
NOTE 8 - MINORITY INTEREST
On July 31, 1994, the Company's subsidiary sold by private placement
memorandum 2,500,000 shares of its common stock at $2.00 per share, for
total cash proceeds of $5,000,000. The sale of the common stock, along
with the conversion of $635,000 of convertible notes payable to the
subsidiary's common stock, created a 12.4% minority interest in the
subsidiary.
Effective August 31, 1995, the Company purchased the minority interest
in the subsidiary by exchanging one share of its common stock for one
share of subsidiary stock held by the minority shareholders.
Simultaneously, the subsidiary was merged into Cimetrix Incorporated,
leaving it as the surviving single entity.
NOTE 9 - COMPENSATION RELATED TO STOCK OPTIONS
For book purposes, and according to APB Opinion No. 25, "Accounting for
Stock Issued to Employees," the Company is required to record
compensation cost related to employee stock option grants as of the
"measurement date" computed as the difference between the quoted market
price of the stock at the measurement date, less the amount, if any,
that the employee is required to pay. The compensation should be
expensed in each of the periods in which the employee performs the
services as part or all of the consideration for his receiving the
options.
In a change of accounting estimate, the Company has recorded in the nine
months ended September 30, 1996, the compensation cost related to all
options granted during those nine months, and any currently outstanding
options that have been previously granted to employees. Additionally,
the Company has expensed that portion of the compensation cost related
to employee services rendered through September 30, 1996. Employee
services are assumed to be rendered over the two year vesting period of
the options. Compensation expense for the nine months ended September
30, 1996, was computed to be $692,658.
NOTE 10 - CONTINGENCIES
On February 8, 1996, the Company filed a lawsuit against Claude O.
Goldsmith ("Goldsmith"), the Company's former President and director,
and W. Keith Seolas ("Seolas"), a former director of the Company, and
members of his family. The lawsuit, styled Cimetrix Incorporated v.
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Waldron Keith Seolas et al., pending in the Fourth Judicial Court of
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Utah County, Utah seeks declaratory relief and a determination of the
validity of the issuance of approximately 2,000,000 shares of stock to
Seolas and his family members. The lawsuit also seeks damages and
declaratory relief against Goldsmith, and a determination of the
validity of the issuance to Goldsmith of 45,000 shares of stock. Two
other former officers and directors have settled potential declaratory
relief claims against them by returning to the Company an aggregate of
100,000 shares of common stock. Goldsmith has filed an answer,
defenses, and certain counterclaims against the Company and certain of
its officers and directors for breach of contract, fraud, conversion,
tortious interference, breach of fiduciary duty, and for
indemnification. The Company believes that it has strong defenses to
all of Goldsmith's counterclaims and intends to vigorously defend them.
Discovery is continuing in the proceedings against Seolas and
Goldsmith.
On April 26, 1996, Seolas filed a separate action in the United States
District Court for Utah, against the Company, all of its directors, and
Paul A. Bilzerian, the Registrant's consultant. In his lawsuit, styled
Waldron Keith Seolas et al. v. Paul A. Bilzerian et at., Seolas alleges
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that Mr. Bilzerian violated Sections 10 (b), 13, and 14 (a) of the
Securities Exchange Act of 1934, and alleges fraud, breach of fiduciary
duty, breach of contract in connection with proxies granted by Seolas to
Mr. Bilzerian to vote Seolas' shares on routine shareholder matters and
in connection with the acquisition by Mr. Bilzerian of options to
acquire 6,000,000 shares of the Company's stock granted in exchange for
his consulting services. Seolas also alleges various breaches of
fiduciary duties by the members of the Board of Directors and fraud by
the Company in connection with the return of certain shares by Seolas to
the Company. The Company believes that it has strong defenses to all
of Seolas' claims and intends to vigorously defend them. Counsel
believes the claims against the Company are frivolous and
inconsistent because Seolas also purports to derivatively sue Mr.
Bilzerian on behalf of the Company. Mr. Bilzerian and the members of
the Company's Board of Directors also believe that they have strong
defenses to Seolas' claims and intend to vigorously defend them.
NOTE 11 - IMPENDING MOVE
The Company's current building was listed for sale on July 3, 1996 and a
sale of the facility was closed on September 18, 1996. The building was
sold for a sales price of $1,275,000, resulting in a gain on sale of
approximately $352,000. Cash proceeds from the sale were approximately
$1,174,000. The Company intends to lease the space of a new location.
As of October 21, 1996, the Company has not entered into any lease
agreements for a new location, but still anticipates being relocated to
Salt Lake County by no later than March 1, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
OEM Agreement with Major Japanese Manufacturer
Effective September 25, 1996, the Registrant entered into an OEM
agreement with a Japanese manufacturer of automated machine equipment in
which the manufacturer was sold a non-transferable, non-exclusive
license to bundle the Registrant's software in combination with the
manufacturers' machine products. On the same date, the Registrant also
entered into a Software Support Agreement and a Custom Application and
Services Agreement. Revenues associated with the three agreements total
$1,750,000, of which $830,000 has been recognized in the quarter ended
September 30, 1996.
Annual Shareholders' Meeting
On August 24, 1996, the Registrant held its 1996 Annual Meeting of
Shareholders in Salt Lake City, Utah. A Notice of Annual Meeting, an
Annual Report to Stockholders, a Proxy Statement and Form of Proxy were
mailed to all shareholders of record as of July 1, 1996. The Registrant
nominated 4 individuals to serve as Directors until the next Annual
Meeting, all of whom were elected by the shareholders.
Headquarters Move
During July, 1996, the management of the Registrant, under the direction
of the Board of Directors, began the process of moving the headquarters
of the Registrant approximately 35 miles north to the southern part of
Salt Lake County, Utah. It is anticipated the move will relocate the
Registrant into a much more diverse labor pool, both from an
administrative and engineering standpoint, facilitating the future
hiring of qualified, experienced personnel. The move will also
dramatically shorten the distance between the headquarters and the Salt
Lake International Airport, making the ingress and egress much easier
for visitors from outside the State of Utah and the United States. In
addition, the Registrant anticipates leasing approximately 25,000
square feet within the next couple of months.
The Registrant's current building was listed for sale on July 3, 1996,
and a sale of the facility was closed on September 18, 1996. The
building was sold for a sales price of $1,275,000, resulting in a gain
on sale of approximately $352,000. Cash proceeds from the sale were
approximately $1,174,000. The Registrant intends to lease the space of
a new location. As of October 21, 1996, the Registrant has not entered
into any lease agreements for a new location, but still anticipates
being relocated to Salt Lake County by no later than March 1, 1997.
New Personnel
During the quarter ended September 30, 1996, Mr. David Faulkner became
the Executive Vice President of Operations of the Registrant, effective
August 5, 1996. Prior to joining the Registrant, Mr. Faulkner was most
recently employed as the Manager of PLC Marketing for GE Fanuc
Automation, a global supplier of factory automation computer equipment
specializing in programmable logic controllers, factory software and
computer numerical controls. He held that position from October, 1992,
to the present. Mr. Faulkner has also served as Manager of Automotive
Operations, and District Sales Manager during his employment term with
GE Fanuc, which began in 1986. During 1985 and part of 1986, he was
employed as the Manager of Marketing and Sales for Transimatics, Inc.
located in Burlington, Massachusetts. From 1978 through mid-1985, Mr.
Faulkner was employed by General Electric Company in the Automation
Controls Department and Technical Marketing Program. Mr. Faulkner holds
a Bachelor of Science degree in Electrical Engineering and a Master of
Business Administration degree from Rensselaer Polytechnic Institute.
CAPITAL AND LIQUIDITY
At September 30, 1996, the Registrant had total current assets of
$4,717,599 and total current liabilities of $539,154 resulting in a
working capital ratio of 8.75: 1. Current assets at September 30, 1996,
included a cash balance of $2,482,811.
At September 30, 1996, the level of inventory had increased slightly to
$661,248 from $619,192 at December 31, 1995 as inventory sold in the
third quarter was replaced in continued anticipation of increasing sales
volume.
Accounts receivable increased to $1,188,375 at September 30, 1996 from
$67,544 at December 31, 1995, reflecting significantly increased sales
activity in the third quarter, and the recent sale of software licenses
to a Japanese manufacturer. (See "Recent Developments" above). Current
liabilities increased to $539,154 at September 30, 1996 from $337,643 at
December 31, 1995.
Currently, the Registrant's policy is to pay all accounts payable on a
net/30 basis. Also, the Registrant has continued to fund the hiring of
critical path personnel and to fund the purchase of equipment and
software tools needed to further the commercialization of the
Registrant's products. Approximately $29,600 was spent on capital
equipment and property during the quarter ended September 30, 1996, and
management anticipates additional spending may exceed $100,000 during
the balance of the 1996 fiscal year for additional capital equipment
necessary to meet anticipated growth.
Management of the Registrant believes that product sales will constitute
a growing, significant source of funds during the remainder of this
fiscal year and into the future. At present, the Registrant anticipates
there will be no need for selling additional equity securities in the
near future. During the quarter ended September 30, 1996, the Registrant
received cash proceeds of $700,000 from the exercise of stock warrants.
Also, the Registrant received approximately $1,174,000 in cash proceeds
from the sale of its building which closed September 18, 1996. (See
"Headquarters Move" above).
RESULTS OF OPERATIONS
Three Months Ended-September 30, 1996
The Registrant's revenues from operations for the quarter ended
September 30, 1996 were $1,311,690 as compared to $174,844 for the
quarter ended September 30, 1995. The Registrant anticipates the trend
of growing sales volume will continue through the end of the fiscal year
as new customers are added, additional OEM agreements are pursued, and
current customers continue to purchase the Registrant's products.
Overall operating expenses have increased to $1,295,770 for the three
months ended September 30, 1996, from a total of $745,098 for the same
period in 1995. The overall increase reflects the overall increased
activity of the Registrant, including additional employees, and
increased marketing activities.
Selling, marketing and customer support expenses increased to $349,408
for the quarter ended September 30, 1996, as compared to $260,858 for
the same period in 1995. The quarter ended September 30, 1996, reflects
the expenditures of increased travel by all sales personnel, in addition
to new marketing personnel and their associated satellite sales office
costs.
Research and development expenses increased to $424,479 (net of
capitalized software costs) for the quarter ended September 30, 1996, as
compared to $188,478 for 1995. Management continues its commitment to
improving, updating, and creating new applications for the Registrant's
proprietary software. The increase also reflects the increase in the
number of engineers hired to assist in this area of effort.
General and administrative expenses of the Registrant increased for the
third quarter of 1996 to $342,515 from $239,280 for the second quarter
of 1995. For the most part, the net increase is a result of increased
legal fees and amortization of intangible assets that have been offset
by decreases in consulting fees and travel expenses for the Board of
Directors and Advisory Board, as compared to the same period in 1995.
During the quarter ended September 30, 1996, the Registrant recorded
operating income of $15,920 for the three months then ended ( the first
quarterly operating earnings in the history of the Registrant). With
the inclusion of the non-operating net gain on sale of the building of
$351,910, the Registrant had an overall net income of $358,319 for the
three months ended September 30 ,1996, as compared to a net loss of
$472,848 for the three months ended September 30, 1995.
Nine Months Ended September 30, 1996
Revenues for the nine months ended September 30,1996, were $1,769,834,
an approximate increase of 426% over the revenues of $415,575 recorded
during the first nine months of 1995. For the most part, the increase
was the result of sales to new customers and the sale of software
licenses to a Japanese manufacturer.
Operating expenses for the first nine months of 1996 have increased to
$4,227,499 from a total of $2,293,017 for the nine months ended
September 30, 1995, an increase of approximately 84%. The largest
single component of this increase was in connection with compensation
related to stock options previously given to employees ($692,658).
Cost of goods sold increased to $420,072 for the first nine months of
1996 from $132,571 for the same period in 1995. Research and
development expenses also increased an approximate 94% from $629,011
during the first nine months of 1995 to $1,135,220 for the first nine
months of 1996. R & D expenses reflect increased efforts by an
increased number of personnel working in that area with a smaller
percentage of those expenses being capitalized as software development
costs. Additionally, management has continued its commitment to more
resources for the selling and marketing efforts, with these expenses
totaling $987,840 for the nine months ended September 30, 1996 as
compared to a total of $722,141 for the same period in 1995. General
and administrative expenses ( not including the compensation related to
stock options noted above) totaling $991,709 reflect an approximate 23%
increase in the first nine months of 1996 as compared to the similar
period in 1996. This increase is, for the most part, a function of
increased professional fees connected with legal matters of the
Registrant.
Other income (expense) represents net interest income of $33,617 for the
first nine months of 1996 as compared to a net interest income of
$119,142 for the first nine months of 1995. The Registrant also
recorded a net gain on the sale of the building of $351,910 during the
nine months ended September 30, 1996.
The Registrant has a net loss of $2,072,138 for the nine months ended
September 30, 1996 as compared to a net loss of $1,559,490 for the nine
months ended September 30, 1995. Although the Registrant recorded an
operating and overall net income during the quarter ended September 30,
1996 ($15,920 and $358,319 respectively), previous quarters have
reflected losses which have not been erased by subsequent earnings in
the third quarter. The level of sales for the first nine months of 1996
exceeds the prior year by approximately 420%, and appears to be growing
as the Registrant's products gain wider acceptance in an expanding
customer base.
Significant Customers
Through the end of the third quarter, only the Japanese manufacturer
(See "Recent Developments-OEM Agreement" above) with approximately 47%
of year to date sales accounted for at least 10% of the Registrant's
sales during the first nine months of 1996.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 24, 1996, the Registrant held it Annual Meeting of
Shareholders in Salt Lake City, Utah with the stated purpose of electing
a new Board of Directors, and reviewing the directions of the
Registrant. There were 10,409,381 shares, out of a total of 18,796,428
shares entitled to vote, represented, in person and by proxy, at the
meeting. All of the Registrant's nominees for director were elected to
continue to serve as directors of the Registrant until the next Annual
Meeting. Messrs. Douglas Davidson, Ron Lumia, and David Redmond all
received 8,170,586 votes, and each had 2,221,245 votes cast against
their election. Mr. Bilzerian received 7,850,536 votes cast for him,
and 2,541,295 votes cast against. 17, 550 votes were withheld from each
of those elected. In addition, Mr. Thomas Cheatham, a member of the
Registrant's Advisory Board received write-in votes representing a total
of 2,423,512 shares, which was short of the number needed to elect him
to the Board.
No other matters were put to a vote of shareholders during the quarter
ended September 30, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
None.
Reports on Form 8-K
The Registrant filed a report on Form 8-K dated September 20, 1996,
disclosing the exercise of options by a certain director and former
directors of the Registrant, and disclosing the sale of the Registrant's
building.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CIMETRIX INCORPORATED
Date: October 23, 1996 By /s/ Kitt R. Finlinson
Kitt R. Finlinson, Vice President
of Finance (Duly Authorized
Officer and Principal Financial
Officer)