1
===============================================================================
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, 1997
[ ] 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.)
100 N. TAMPA ST., TAMPA, FLORIDA 33602
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (813)277-9199
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 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 section 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:
Number of shares outstanding of each of the issuer's classes of common
stock as of August 8, 1997:
Common stock, par value $.0001 - 24,143,928.
===============================================================================
EXHIBIT INDEX ON PAGE 21
2
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,
------------------------- -----------------------
1997 1996 1997 1996
----- ---- ---- ----
NET REVENUES $ 541 $ 177 $ 1,053 $ 458
---------- ---------- ---------- ----------
OPERATING EXPENSES
Cost of revenues, including customer support 340 123 549 287
Sales and marketing 293 293 583 592
Research and development 498 422 922 711
General and administrative 635 332 1,065 649
Compensation expense - stock options - - - 693
---------- ---------- ---------- ----------
-
Total operating expenses 1,766 1,170 3,119 2,932
----------- ---------- ---------- ----------
LOSS FROM OPERATIONS (1,225) (993) (2,066) (2,474)
----------- ---------- ---------- ----------
OTHER INCOME (EXPENSES)
Interest income 12 23 33 46
Interest expense (16) (1) (21) (3)
----------- ---------- ---------- ----------
Total other income (expense) (4) 22 12 43
----------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES (1,229) (971) (2,054) (2,431)
CURRENT INCOME TAX EXPENSE
(BENEFIT) - - - -
DEFERRED INCOME TAX EXPENSE
(BENEFIT) - - - -
NET LOSS $ (1,229) $ (971) $ (2,054) $ (2,431)
========== ========= ========== ==========
LOSS PER COMMON SHARE $ (.05) $ (.05) $ (.10) $ (.13)
========== ========= ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 22,438,428 18,813,095 21,142,678 18,707,986
========== ========== ========== ==========
The accompanying notes are an integral part of these
financial statements(unaudited).
2
3
ITEM 1. FINANCIAL STATEMENTS (CONT.)
CIMETRIX INCORPORATED
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
JUNE 30, DECEMBER 31,
CURRENT ASSETS: 1997 1996
-------- -----------
(UNAUDITED)
Cash and cash equivalenets $ 758 $ 2,785
Accounts receivable, net 803 617
Inventories 401 533
Prepaid expenses and other current assets 200 285
-------- -------
Total current assets 2,162 4,220
PROPERTY AND EQUIPMENT, net 871 614
CAPITALIZED SOFTWARE COSTS, net 609 707
TECHNOLOGY, net 688 715
GOODWILL, net 2,862 2,971
-------- -------
Total Assets $ 7,192 $ 9,227
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 41 $ 44
Accounts payable 584 671
Accrued expenses 143 459
Customer deposits 111 170
-------- -------
Total current liabilities 879 1,344
LONG TERM DEBT, net of current portion 261 252
-------- -------
Total Liabilities 1,140 1,596
-------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value: 100,000,000 shares
authorized; 24,143,928 and 18,096,428 shares issued
and outstanding, respectively 2 2
Additional paid-in capial 18,881 18,406
Accumulated deficit (12,597) (10,543)
Unearned compensation - stock options (234) (234)
-------- --------
Net Stockholders' Equity 6,052 7,631
$ 7,192 $ 9,227
======== ========
The accompanying notes are an integral part of these
financial statements (unaudited).
3
4
ITEM 1. FINANCIAL STATEMENTS (CONT.)
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-------------------------
1997 1996
---- ----
CASH FLOWS TO OPERATING ACTIVITIES:
Net Loss $ (2,054) $ (2,431)
Adjustments to reconcile net loss to net cash used by --------- ---------
operating activities:
Amortization and depreciation 351 321
Compensation related to stock options 693
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (186) (17)
(Increase) decrease in inventory 132 (30)
(Increase) decrease in prepaid expenses 85 10
Increase (decrease) in accounts payable (87) 50
Increase (decrease) in accrued expenses (316) (17)
Increase (decrease) in customer deposits (59) --
--------- ---------
Total adjustments (80) 1,010
--------- ---------
Net Cash Flow Used by Operating Activities (2,134) (1,421)
--------- ---------
CASH FLOWS TO INVESTING ACTIVITIES:
Payments for capitalized software costs -- (72)
Purchase of property and equipment, net of retirements (358) (68)
--------- ---------
Net Cash Flow Used by Investing Activities (358) (140)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 475 881
Payments for capital lease obligations, net (10) (9)
--------- ---------
Net Cash Flow Provided by Financing Activities 465 872
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,027) (689)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 2,785 2,345
--------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD 785 1,656
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 10 $ 3
Income taxes $ -- $ --
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Compensation expense - stock options $ -- 693
Issuance of stock upon exercise of non-qualified
options or warrant, net of repurchase 475 881
======== ========
The accompanying notes are an integral part of these
financial statements(unaudited).
4
5
ITEM 1. FINANCIAL STATEMENTS (CONT.)
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, 1996. 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. Certain amounts for the three and six-month periods ended
June 30, 1996 have been reclassified to conform to the June 30, 1997
classification. The results of operations for the three and six-month
periods ended June 30, 1997 are not necessarily indicative of the results
that can be expected for the entire year ending December 31, 1997. 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, 1996.
CASH AND CASH EQUIVALENTS - For purposes of the statements 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 June 30, 1997,
the Company had cash equivalents of $757,866 invested in money market
accounts, which are readily convertible into cash and are not subject to
significant risk from fluctuation in interest rates. There were cash
equivalents of approximately $1,656,527 at June 30, 1996. The carrying
value of the cash equivalents approximates their fair value because of the
short maturity of the investments.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out method. Inventories at June 30,
1997 and December 31, 1996 are summarized as follows (in thousands):
1997 1996
---- ----
Parts and supplies $ 156 $ 211
Work in process 36 128
Finished goods 209 194
------ ------
$ 401 $ 533
====== ======
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost and
depreciated using the straight-line method over the estimated useful lives
of the related assets. The estimated lives are as follows: buildings, 40
years; leasehold improvements, the lease term; computer equipment and
other, three to seven years.
5
6
ITEM 1. FINANCIAL STATEMENTS (CONT.)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
SOFTWARE DEVELOPMENT COSTS - Certain software development costs are
capitalized when incurred in accordance with Financial Accounting
Standards Board (FASB) Statement No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed."
Capitalization of software development costs begins upon the establishment
of technological feasibility. Costs incurred prior to the establishment of
technological feasibility are expensed as incurred. The Company also
expenses hardware design and prototype expenses as incurred as research
and product development costs. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized
software development costs requires considerable judgment by management
with respect to certain external factors, including, but not limited to,
technological feasibility, anticipated future gross revenues, estimated
economic life and changes in software and hardware technologies.
Amortization of capitalized software development costs is provided on a
product-by-product basis at the greater of the amount computed using (a)
the ratio of current gross revenues for a product to the total of current
and anticipated future gross revenues or (b) the straight-line method over
the remaining estimated economic life of the product. As of June 30, 1997,
the unamortized portion of capitalized software development costs was
approximately $609,000. Amortization of software development costs was
approximately $49,000 and $43,000 for the three months ended June 30, 1997
and 1996, respectively. Amortization of software development costs was
approximately $98,000 and $86,000 for the six months ended June 30, 1997
and 1996, respectively.
GOODWILL - Goodwill reflects the excess of the costs of purchasing the
minority interest of Cimetrix (USA) Incorporated over the fair value of
the related net assets at the date of acquisition (August 31, 1995) and is
being amortized on the straight line basis over 15 years. Amortization
expense charged to operations for both the periods ended June 30, 1997 and
1996 was approximately $54,300. At June 30, 1997, the accumulated
amortization was approximately $398,530. The Company evaluates the
impairment of long-lived assets, such as goodwill, in accordance with
Statement of Financial Accounting Standards No. 121. The Company evaluates
on a quarterly basis the projected undiscounted cash flows to determine,
when indicators of impairment are present, whether or not there has been
permanent impairment of its long-lived assets and accrues expenses for the
amount, if any, determined to be permanently impaired. Management of the
Company does not believe any impairment exists as of June 30, 1997.
INCOME TAXES - The Company records income taxes in accordance with
Statement of Financial Account Standards No. 109, "Accounting for Income
Taxes." Under the asset and liability method of accounting for income
taxes of Statement 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Because of uncertainty about whether the
Company will generate sufficient future taxable income to realize its
deferred tax assets, the Company has established a valuation allowance to
offset all its deferred tax assets. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. Under Statement
6
7
ITEM 1. FINANCIAL STATEMENTS (CONT.)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
NET LOSS PER COMMON SHARE - The Company has adopted Financial Accounting
Standards Board (FASB) Statement No. 128, "Earnings Per Share." All loss
per share amounts for 1997 and 1996 have been calculated in accordance
with FASB Statement No. 128. Loss per share of common stock is computed on
the basis of the weighted average number of common shares outstanding
during the periods presented. Fully diluted loss per share is not
presented because the effect is anti-dilutive.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosures of contingent assets
and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Actual
results could differ from those estimated.
RECLASSIFICATIONS - Certain reclassifications have been made for
consistent presentation.
NOTE 2 - PREPAID LICENSE AGREEMENTS
Pursuant to an agreement dated July 26, 1995, which incorporated
provisions of a 1994 agreement, the Company entered into a license/royalty
agreement with a provider of real-time development licenses which allowed
the Company to resell real-time development licenses to its customers. The
Company has prepaid for development licenses and this prepayment will be
amortized until licenses and services from the provider have been
consumed. At June 30, 1997 and December 31, 1996, the unamortized
prepayment was $122,235 and $130,235, respectively, and is included in
"Prepaid expenses and other current assets" on the Company's Balance
Sheets. The agreement also provides the Company with the option, expiring
on July 25, 1998, to purchase all existing development operating system
source code from the provider.
NOTE 3 - TECHNOLOGY
Effective July 5, 1995, the Company purchased the technology that was then
being licensed from Brigham Young University (BYU) and 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 recorded as a note payable of
$343,765, plus 120,000 shares of previously unissued, restricted common
stock of the Company valued at $3.75 per share, for a total purchase value
of $793,765. The technology is being amortized on a straight-line basis
over 15 years. Amortization expense was approximately $13,500 during both
the three-month periods ended June 30, 1997 and 1996 and was approximately
$27,000 during both the six-month periods ended June 30, 1997 and 1996.
7
8
ITEM 1. FINANCIAL STATEMENTS (CONT.)
NOTE 4 - LONG-TERM DEBT
Long-term debt at June 30, 1997 and December 31, 1996 consisted of the
following ( in thousands):
1997 1996
---- ----
Note payable to BYU $ 272 $ 272
Capital lease obligations 30 24
------ ------
302 296
Less current maturities 41 44
------ ------
Net long-term debt $ 261 $ 252
====== ======
In connection with the purchase of the technology from BYU discussed in
Note 3, the Company agreed to make payments of $50,000 per year for ten
years. This stream of payments was discounted using an incremental
borrowing rate of 9.5% per annum and was recorded as a note payable with a
beginning balance of $343,765.
NOTE 5 - SIGNIFICANT CUSTOMERS
Approximately 53.5% and 36.9% of the Company's net revenues during the
three and six-month periods ended June 30, 1997, respectively, were
attributable to Fuji Machine Mfg. Co., Ltd. ("Fuji"). The Company did not
have any revenues from Fuji during the three and six-month periods ended
June 30, 1996. Aries, Inc. ("Aries"), the Company's distributor in Japan,
accounted for approximately 4.8% and 13.7% of the Company's net revenues
for the three and six month periods ended June 30, 1996, respectively.
Aries accounted for approximately 7% of the Company's net revenues during
both the three and six-month periods ended June 30, 1997.
NOTE 6 - STOCK OPTIONS AND WARRANTS
On December 21, 1994, the Company's Board of Directors adopted effective
immediately, subject to shareholder approval at the annual meeting of
shareholders held in July 1995, a stock option plan under which options
may be granted to officers, employees, directors and others. The plan
specifically replaced all prior option agreements between the Company, its
employees and its consultants. A total of 1,993,816 shares of common stock
had been reserved for issuance under the plan. On May 31, 1997, the
shareholders of the Company approved an amendment to the Cimetrix
Incorporated 1994 Stock Option Plan to increase the number of shares of
the Company's common stock reserved for issuance thereunder by 506,184
shares to an aggregate of 2,500,000 shares. Options granted under the plan
are exercisable at a price not less than the fair market value of the
shares at the date of the grant, and one-half of the granted options vest
on the first anniversary of the date of grant, with the remaining one half
vesting on the second anniversary of the date of grant. The option period
and exercise price will be specified for each option granted, as
determined by the Board of Directors, but in no case shall the option
period exceed five years from the date of grant, and the exercise price
cannot be less than one-half the market price of the Company's common
shares on the date of grant.
8
9
NOTE 6 - STOCK OPTIONS AND WARRANTS [CONTINUED]
On March 21, 1994, the Company entered into a separate consulting
agreement with its current President, granting him warrants to purchase
6,000,000 restricted shares of the Company's common stock for a cash
payment of $1,000,000. The warrants were assignable, irrevocable and
exercisable for a period of five years. On April 15, 1997, these warrants
were exercised, and the Company concurrently repurchased 200,000 of the
6,000,000 shares from Bicoastal Holding Company, an affiliate of the
President, for $1,000,000. On May 31, 1997, the shareholders of the
Company ratified an agreement with Bicoastal Holding Company providing for
the services of Paul Bilzerian as an officer, director, and management
consultant of the Company and for the exercise of the warrants and stock
repurchase described above.
During July 1994, in connection with conversion of three notes payable
into common shares of the subsidiary, the Company issued warrants to
purchase up to an aggregate of 317,500 shares of its common stock for
$2.00 per share. The warrants were exercisable until April 29, 1997.
Warrants for 125,000 shares were exercised during 1996, and the remaining
warrants for 192,500 shares were exercised during April 1997.
On September 12, 1994, the Board of Directors approved the issuance of
stock warrants to members of its advisory panel. Each panel member was
granted warrants to purchase 50,000 restricted shares of the Company's
common stock at an exercise price of $3.00 per share for a period of five
years. At the time of the grant, there was no trading market for either
the warrants or the Company's common shares, although the Company had
received a price of $2.00 per share for common stock of the Company's
privately-owned, sole subsidiary. Consequently, no compensation has been
recorded in connection with the granting of these warrants. As of December
31, 1996, none of the warrants granted to members of the advisory panel
have been exercised.
NOTE 7 - VOTING RIGHTS ASSIGNED TO PRESIDENT
The President of the Company has an irrevocable proxy agreement with W.
Keith Seolas, a former director of the Company, and members of his family
wherein they assigned the voting rights of their common stock
(approximately 2,000,000 shares) to the President. The proxy agreement has
a term expiring on December 31, 1998. (See Note 8, "Litigation.")
NOTE 8 - COMMITMENTS AND CONTINGENCIES
PRODUCT WARRANTIES - The Company provides certain product warranties to
customers including repair or replacement for defects in materials and
workmanship of hardware products. The Company also warrants that software
and firmware products will conform to published specifications and not
fail to execute the Company's programming instructions due to defects in
materials and workmanship. In addition, if the Company is unable to repair
or replace any product to a condition warranted, within a reasonable time,
the Company will provide a refund to the customer. As of June 30, 1997, no
provision for warranty claims has been established since the Company has
not incurred substantial sales from which to develop reliable estimates.
Also, no refunds have been paid to any customer as of June 30, 1997.
Management believes that any allowance for warranty would be currently
immaterial to the financial condition of the Company.
9
10
NOTE 8 - COMMITMENTS AND CONTINGENCIES [CONTINUED]
LITIGATION - The Company filed a lawsuit on February 8, 1996 and an
amended complaint on March 7, 1997 against W. Keith Seolas ("Seolas"), a
former director of the Company, and members of his family. The lawsuit,
styled Cimetrix Incorporated v. Waldron Keith Seolas, et al., is pending
in the Fourth Judicial District Court of Utah County, Utah, and 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.
Seolas filed a separate lawsuit against the Company on April 26, 1996 and
an amended complaint on March 17, 1997 in the United States District Court
for Utah. In his lawsuit, styled Waldron Keith Seolas et al. v. Cimetrix
Incorporated, Seolas alleges fraud by the Company in connection with his
return of approximately 200,000 shares to the Company in 1994. The Company
believes that it has strong defenses to Seolas' claims and intends to
vigorously defend them. The Company's counsel believes the claims against
the Company are without merit.
Other than as stated above, the Company is not a party to any material
pending legal proceedings and, to the knowledge of the Company's
management, no such proceedings by or against the Company have been
threatened. To the knowledge of the Company's management, there are no
material proceedings pending or threatened against any director or
executive officer of the Company, whose position in such proceeding would
be adverse to that of the Company.
NOTE 9 - SUBSEQUENT EVENT
On July 2, 1997, the Company filed a registration statement with the
Securities and Exchange Commission for an offering of a minimum of
$3,000,000 and a maximum of $10,000,000 aggregate principal amount of its
unsecured 10% Senior Notes Due 2002 at 100% of face value, coupled with
warrants to purchase 100 shares of the Company's common stock for each
$1,000 principal amount of Senior Notes purchased. The offering will be
made directly by the Company on best efforts basis and will not be
underwritten. Accordingly, there is no assurance that any or all of the
Senior Notes will be sold. The proceeds of the offering would be used for
working capital and other general corporate purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This 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
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."
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
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 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, 1997 and 1996:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
NET REVENUES 100% 100% 100% 100%
---- ---- ---- ----
OPERATING EXPENSES
Cost of revenues, including customer support 62.8 69.5 52.1 62.7
Sales and marketing 54.2 165.5 55.4 129.3
Research and development 92.0 238.4 87.6 155.2
General and administrative 117.4 187.6 101.1 141.7
Compensation expense - stock options - - - 151.3
-------- -------- --------- --------
Total operating expenses 326.4 661.0 296.2 640.2
-------- -------- --------- --------
LOSS FROM OPERATIONS (226.4) (561.0) (196.2) (540.2)
-------- -------- --------- --------
Interest income, net of expense (0.8) 12.4 1.1 9.4
-------- -------- --------- --------
NET LOSS (227.2%) (548.6%) (195.1%) (530.8%)
======== ======== ========= ========
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1997
NET REVENUES
Net revenues for the second quarters of 1997 and 1996 were
approximately $541,000 and $177,000, respectively. Net revenues for the second
quarter of 1997 included approximately $268,000, or 49.6%, from custom
applications and programming and system integration projects primarily with
original equipment manufacturers ("OEMs"), approximately $210,000, or 38.8%,
from the sale of software products, approximately $46,000, or 8.5%, from
customer support and approximately $17,000, or 3.1%, from the sale of hardware
products. Net revenues for the second quarter of 1996 included approximately
$69,000, or 39%, from the sale of hardware products, approximately $46,000, or
26%, from the sale of software products and approximately $62,000, or 35%, from
training, support services and custom applications and systems integration
projects.
Net revenues for the first half of 1997 and 1996 were approximately
$1,053,000 and $458,000, respectively. Net revenues for the first half of 1997
included approximately $308,000, or 29.3%, from
11
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
custom applications and programming and system integration projects primarily
with OEMs, approximately $627,000, or 59.5%, from the sale of software
products, approximately $82,000, or 7.8%, from customer support, approximately
$36,000, or 3.4%, from the sale of hardware products. Net revenues for the
first half of 1996 included approximately $204,000, or 44.5%, from the sale of
hardware products, approximately $122,000, or 26.6%, from the sale of software
products and approximately $132,000, or 28.9%, from training, customer support
and custom applications and systems integration projects.
The increase in net revenues for the second quarter and first half of
1997 compared to the comparable periods in 1996 are primarily attributable to
increased revenues from the sale of software products ($210,000 and $627,000
for the second quarter and first half of 1997, respectively, compared to
$46,000 and $122,000 for the second quarter and first half of 1996,
respectively) and to increased revenues from custom applications and
programming and systems integration projects primarily for OEMs ($268,000 and
$308,000 for the second quarter and first half of 1997, respectively, compared
to $62,000 and $132,000 for the second quarter and first half of 1996,
respectively). The increased revenues in 1997 reflect the company's marketing
strategy of increased software sales and increased custom applications and
system integration projects with OEMs to help them integrate the Company's
software products with their equipment and a significantly reduced amount of
hardware sales because most of the hardware necessary for the software products
is available through other normal distribution channels. The increases in
revenues were primarily attributable to volume and did not include any
significant price increases.
Fuji Machine Mfg. Co., Ltd. ("Fuji") accounted for approximately 53.5%
and 36.9% of the Company's net revenue for the second quarter and first half of
1997, respectively. On June 25, 1997, the Company announced that Fuji had
selected the Company's CODE software suite of products as the control standard
for Fuji's surface mount technology ("SMT") equipment. The Company has expended
significant time and resources working with Fuji during the past year, and the
Company expects Fuji to continue to be a significant customer, although the
Company does not expect its revenues from Fuji, as a percentage of the
Company's net revenues, to continue at the levels reflected during the second
quarter and first half of 1997. Aries, Inc. ("Aries"), the Company's
distributor in Japan, accounted for approximately 4.8% and 13.7% of the
Company's net revenues in the second quarter and first half of 1996,
respectively. Aries accounted for approximately 7% of the Company's net
revenues in both the second quarter and first half of 1997.
COST OF REVENUES
Cost of revenues as a percentage of net revenues was 62.8% in the
second quarter of 1997 compared to 69.5% in the second quarter of 1996, and
52.1% in the first half of 1997 versus 62.7% in the first half of 1996. The
decrease in cost of revenues was primarily attributable to the increased
percentage of revenues from custom applications and systems integration
projects primarily with OEMs and a reduction in sales of hardware products. The
profit margin on custom applications and systems integration projects is higher
than the profit margin on sales of hardware products.
12
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
SALES AND MARKETING
Sales and marketing expenses were approximately $293,000 in both the
second quarter of 1997 and the second quarter of 1996 and were approximately
$583,000 in the first half of 1997 compared to approximately $592,000 in the
first half of 1996. Sales and marketing expenses as a percentage of net
revenues were 54.2% and 165.5% in the second quarters of 1997 and 1996,
respectively, and were 55.4% and 129.3% in the first half of 1997 and 1996,
respectively. The number of sales personnel and related sales and marketing
expenses have been relatively constant, but the percentage of these expenses to
net revenues has decreased as revenues have increased.
RESEARCH AND DEVELOPMENT
Research and development expenses increased approximately 18% to
$498,000, or 92% of net revenues, in the second quarter of 1997 from
approximately $422,000, or 238% of net revenues, in the second quarter of 1996.
Research and development expenses during the first half of 1997 were
approximately $922,000 compared to approximately $711,000 during the first half
of 1996. The Company's extensive effort to develop its products for WindowsNT
and the continued development of the Company's GEM software products
represented most of the increase in 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 $1,500,000 to $2,000,000 per year during 1997 and 1998.
GENERAL AND ADMINISTRATIVE
General and administrative expenses have increased from approximately
$332,000 in the second quarter of 1996 to approximately $635,000 in the second
quarter of 1997. General and administrative expenses increased 62.7% to
approximately $1,065,000, or 101% of net revenues, in the first half of 1997
compared to approximately $649,000, or 141.7% of net revenues, in the first
half of 1996. The primary increases in general and administrative expenses are
approximately $80,000 in rent and related costs associated with the new offices
in Midvale, Utah and Tampa, Florida, $90,000 in legal expenses related
primarily to the Seolas litigation, approximately $66,000 in increased
recruiting costs, and approximately $100,000 of increased payroll for
administrative officers and employees.
COMPENSATION - STOCK OPTIONS
During the six months ended June 30, 1996, the Company recorded in
accordance with APB 25 the compensation cost related to all options granted
during 1996 and any currently outstanding options that had been previously
granted to employees. Additionally, the Company expensed that portion of the
compensation cost related to employee services rendered during 1996. Employee
services are assumed to be rendered over the two-year vesting period of the
options. Compensation expense recorded during the six months ended June 30
,1996 was approximately $693,000.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), which is effective for the Company's fiscal year
ending December 31, 1996. FAS 123 encourages, but does not require, companies
to recognize compensation expense based on the fair value of grants of stock,
stock options and other
13
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
equity investments to employees. Although expense recognition for employee
stock-based compensation is not mandatory, FAS 123 requires that companies not
adopting must disclose the pro forma effect on net income and earnings per
share. The Company will continue to apply prior accounting rules and make pro
forma disclosures in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $1,283,000 of working capital at June
30, 1997, compared with approximately $2,876,000 at December 31, 1996. The
decrease in working capital from December 31, 1996 to June 30, 1997 was
primarily attributable to the $2,134,000 of cash used to fund the Company's net
loss during the six months ended June 30, 1997.
The Company had negative cash flow from operating activities of
approximately $2,134,000 for the six months ended June 30, 1997 compared to
approximately $1,421,000 for the six months ended June 30, 1996. The Company's
negative cash flow from operations for the six months ended June 30, 1997 was
approximately equal to the net loss for the period. Negative cash flow from
operations for the six months ended June 30, 1996 was approximately equal to
the Company's net loss for the period, minus depreciation, amortization and
compensation expense for stock options.
The Company's future liquidity is subject to significant uncertainty.
The Company has incurred operating losses since its inception and remains
primarily dependent on external financing for liquidity. Management does not
believe that the Company's existing working capital is sufficient to maintain
its foreseeable short-term or long-term levels of operations.
On July 2, 1997, the Company filed a registration statement with the
Securities and Exchange Commission for an offering of a minimum of $3,000,000
and a maximum of $10,000,000 aggregate principal amount of its unsecured 10%
Senior Notes due 2002 at 100% of face value, coupled with warrants to purchase
100 shares of the Company's common stock for each $1,000 principal amount of
Senior Notes purchased. The offering will be made directly by the Company on a
best efforts basis and will not be underwritten. Accordingly, there is no
assurance that any or all the Senior Notes will be sold. The proceeds of the
offering would be used for working capital and other general corporate
purposes.
The Company's future liquidity is dependent on its proposed offering
of the Senior Notes, its future operating cash flow and its management of trade
receivables, inventories and payables. Management expects that, if the offering
of the Senior Notes is successful, the Company's working capital will be
sufficient to maintain its current and foreseeable levels of operations for 12
to 15 months, if the minimum proceeds of $3,000,000 are realized, and for at
least 36 months, if the maximum proceeds of $10,000,000 are realized. The
Company's ability to continue to operate would be jeopardized if its offering
of the Senior Notes were unsuccessful and it were unable to find alternative
sources of working capital. The Company currently does not have an alternative
plan to provide for its future liquidity.
The Company anticipates that capital expenditures for fiscal year
1997, primarily for computer equipment, will be approximately $400,000 to
$600,000. Management does not believe that the Company currently has sufficient
funds to meet its capital expenditure requirements for 1997.
14
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
The Company has not been adversely affected by inflation as
technological advances and competition within the software industry have
generally caused prices of the products sold by the Company to decline.
Management believes that any price increases could be passed on to its
customers.
Sales to foreign customers account for a significant percentage of the
Company's revenues. Thus far, all the Company's international sales are payable
in United States dollars, so foreign currency exchange rates have not had any
effect on the Company's liquidity or results of operations.
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, including the
following:
- The level of market acceptance of the Company's products and
technology;
- Delays or difficulties encountered in customer testing,
evaluation and integration of the Company's software
products;
- The ability and willingness of manufacturers of automated
manufacturing devices to substitute the Company's technology
for their own proprietary technology;
- The willingness of industrial users of robots, machine tools
and other automated manufacturing equipment to acquire new or
more advanced models;
- General business and economic conditions in the United States
and international markets;
- External competitive factors, such as price pressures and the
development of substitute or competitive technology;
- The economic and political risks inherent in foreign trade,
including currency controls, expropriation of property,
foreign taxation of sales, changes in currency exchange rates
and laws, taxes, tariffs, and governmental policies that
restrict, prohibit, or adversely affect foreign trade,
particularly with respect to Japan;
- Technological changes that adversely affect the life cycle of
the Company's products, that require adaptation or
enhancement of the Company's products or that enhance or
diminish industrial use of automated manufacturing devices
that use computerized motion control;
- Fluctuations in sales attributable to the extended sales
process for the Company's products, changes in customer order
patterns or the new product cycle for manufacturers of
automated manufacturing devices; and
- The loss of, or a significant reduction in purchases by,
significant customers, such as Fuji.
15
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
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 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
The Company filed a lawsuit on February 8, 1996 and an amended
complaint on March 7, 1997 against W. Keith Seolas ("Seolas"), a former
director of the Company, and members of his family. The lawsuit, styled
Cimetrix Incorporated v. Waldron Keith Seolas et al., is pending in the Fourth
Judicial District Court of Utah County, Utah, and seeks declaratory relief and
a determination of the validity of the issuance of approximately 2,000,000
shares of the Company's common stock to Seolas and his family members.
Seolas filed a separate lawsuit against the Company on April 26, 1996
and an amended complaint on March 17, 1997 in the United States District Court
for Utah. In his lawsuit, styled Waldron Keith Seolas et al. v. Cimetrix
Incorporated, Seolas alleges fraud by the Company in connection with his return
of approximately 200,000 shares to the Company in 1994. The Company believes
that it has strong defenses to Seolas' claims and intends to vigorously defend
them. The Company's counsel believes the claims against the Company are without
merit.
Other than as stated in the preceding paragraphs, the Company is not a
party to any material pending legal proceedings and, to the knowledge of its
management, no such proceedings by or against the Company have been threatened.
To the knowledge of the Company's management, there are no material proceedings
pending or threatened against any director or executive officer of the Company,
whose position in any such proceeding would be adverse to that of the Company.
ITEM 2. CHANGES IN SECURITIES
None.
16
17
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 31,
1997, and proxies for the meeting were solicited by the Company`s Board of
Directors pursuant to Regulation 14A under the Securities Exchange Act of 1934.
The matters voted on at the meeting were as follows: the election of directors;
approval of an amendment to the Company's stock option plan to increase the
number of shares reserved for issuance thereunder by 506,814 shares to a total
of 2,500,000 shares; ratification of the issuance to David L. Redmond, the
Company's new Chief Financial Officer, of warrants to purchase 325,000 shares
of the Company's common stock; ratification of the grant to non-employee
directors of the Company of options to purchase a total of 132,000 shares of
the Company's common stock; and ratification of a contract with Bicoastal
Holding Company to retain the services of Paul A. Bilzerian and Terri L.
Steffen, his wife, and to repurchase 200,000 shares of the Company's common
stock acquired by Bicoastal Holding Company pursuant to the exercise of stock
purchase warrants issued in 1994. There was not any proxy solicitation in
opposition to management's proposals or nominees for election as directors.
The proposals that were submitted to the shareholders were 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 16,507,214 796,229
Douglas A. Davidson 16,812,136 491,307
Paul A. Johnson 16,812,536 490,907
Dr. Ron Lumia 16,812,136 491,307
David L. Redmond 16,805,536 497,907
2. To approve an amendment to the Cimetrix Incorporated 1994 Stock
Option Plan to increase the number of shares of the Company's
common Stock reserved for issuance thereunder by 506,184 shares
to an aggregate of 2,500,000 shares.
For: 16,351,951
Against: 613,320
Abstain: 34,098
Broker Non-Vote: 304,074
17
18
3. To ratify the issuance to David L. Redmond, the Company's new
Chief Financial Officer, of warrants to purchase 325,000 shares
of the Company's common stock.
For: 16,328,376
Against: 609,245
Abstain: 61,748
Broker Non-Vote: 304,074
4. To ratify the issuance of options to purchase 132,000 shares of
the Company's common stock to non-employee directors of the
Company.
For: 16,353,403
Against: 595,968
Abstain: 49,998
Broker Non-Vote: 304,074
5. To ratify a contract with Bicoastal Holding Company for Paul
Bilzerian's continuing services to Cimetrix as its President.
For: 15,607,842
Against: 1,056,479
Abstain: 335,048
Broker Non-Vote: 304,074
ITEM 5. OTHER INFORMATION
See Note 9 of the Notes to Condensed Financial Statements (Unaudited)
included elsewhere in this Quarterly Report and Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources in Part I of this Quarterly Report for information regarding
the Company's filing of a registration statement with the Securities and
Exchange Commission for an offering of a minimum of $3,000,000 and a maximum of
$10,000,000 aggregate principal amount of its unsecured 10% Senior Notes due
2002 coupled with warrants to purchase up to 1,000,000 shares of the Company's
common stock.
Following the annual meeting of shareholders held on May 31, 1997, the
Company's Board of Directors elected officers for the next year. All executive
officers listed in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 were re-elected to the same offices. In addition, Paul
A. Johnson was elected Executive Vice President of Software Development.
18
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
The Company did not file a Current Report on Form 8-K during the
quarterly period ended June 30, 1997.
EXHIBITS
The following exhibits are filed as part of this Quarterly
Report:
Exhibit No. Exhibits Description
- ----------- ---------------------
10.2 Lease dated November 22, 1996 between Cimetrix Incorporated
and Capitol Properties Four, L.C. with a commencement date of
April 1, 1997.(1)
10.3 Agreement dated March 21, 1997 between Cimetrix
Incorporated and Bicoastal Holding Company for the
services of Paul A. Bilzerian and Terri L. Steffen, his
wife (1)
10.6 Amendment No. 1 to the Cimetrix Incorporated Stock Option Plan (2)
10.8 Sublease Agreement dated June 30, 1997 between Cimetrix
Incorporated and Just In Time Solutions, Inc. (1)
10.9 Stock Purchase Warrant dated April 15, 1997 issued by Cimetrix
Incorporated to David L. Redmond (2)
10.11 Consulting Agreement dated May 15, 1997 between Cimetrix
Incorporated and PAJ Software Development for the services of
Paul A. Johnson
10.12 Letter dated June 26, 1997 from Paul A. Bilzerian to Shirley
Dastrup, Linda Dastrup, and Lincoln Dastrup, releasing
irrevocable proxies previously granted to Mr. Bilzerian
10.13 Settlement Agreement and Mutual Release dated February 24,
1997 between Cimetrix Incorporated and Claude O. Goldsmith,
settling litigation over the validity of certain stock issuances
and a stock option exercised by Mr. Goldsmith
19
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONT.)
10.14 Lease Agreement dated January 29, 1997
between Cimetrix Incorporated and Plaza IV Associates,
Ltd., with a commencement date of April 9, 1997
27 Financial Data Schedule (for SEC use only)
- --------------------------------------
(1) Incorporated by reference from the Registration Statement on
Form S-2, File No. 333-60, filed with the Securities and
Exchange Commission on July 2, 1997.
(2) Incorporated by reference from the Proxy Statement dated May
2, 1997, pertaining to the 1997 Annual Meeting of
Shareholders.
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.
CIMETRIX INCORPORATED
By: /s/ David L. Redmond
-------------------------------
DAVID L. REDMOND
Executive Vice President
and Chief Financial Officer
(Its Duly Authorized Officer)
Date: August 11, 1997
20
21
EXHIBITS INDEX
--------------
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
10.2 Lease dated November 22, 1996 between Cimetrix Incorporated *
and Capitol Properties Four, L.C. with a commencement date
of April 1, 1997
10.3 Agreement dated March 21, 1997 between Cimetrix *
Incorporated and Bicoastal Holding Company for the services
of Paul A. Bilzerian and Terri L. Steffen, his wife
10.6 Amendment No. 1 to the Cimetrix Incorporated Stock Option *
Plan
10.8 Sublease Agreement dated June 30, 1997 *
between Cimetrix Incorporated and Just In Time
Solutions, Inc.
10.9 Stock Purchase Warrant dated April 15, 1997 issued by *
Cimetrix Incorporated to David L. Redmond
10.11 Consulting Agreement dated May 15, 1997 between Cimetrix **
Incorporated and PAJ Software Development for the services
of Paul A. Johnson
10.12 Letter dated June 26, 1997 from Paul A. Bilzerian to **
Shirley Dastrup, Linda Dastrup, and Lincoln Dastrup,
releasing irrevocable proxies previously granted to Mr. Bilzerian
10.13 Settlement Agreement and Mutual Release dated February 24, **
1997 between Cimetrix Incorporated and Claude O. Goldsmith,
settling litigation over the validity of certain stock
issuances and a stock option exercised by Mr. Goldsmith
10.14 Lease Agreement dated January 29, 1997 between Cimetrix **
Incorporated and Plaza IV Associates, Ltd., with a commencement date
of April 9, 1997
27 Financial Data Schedule (for SEC use only) **
- ----------------------------------
* Incorporated by reference
** Electronically filed with Form 10-Q
21