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 EXHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16454
CIMETRIX INCORPORATED
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(Exact name of registrant as specified in charter)
NEVADA 87-0439107
(State or other (I.R S. Employer
jurisdiction of incorporation ) Identification No.)
2222 SOUTH 950 EAST, PROVO, UTAH 84606
(Address of principal executive offices) (Zipcode)
801-344-7000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 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 May 13, 1996, the Registrant had 18,806,428 shares of its common stock,
par value $.0001, that were outstanding.
<PAGE>
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 March 31, 1996 and December 31, 1995 (
the Registrant's most recent fiscal year ), unaudited condensed statements of
operations for the three months ended March 31, 1996 and 1995 and unaudited
condensed statements of cash flows for the three months ended March 31, 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.
<PAGE>
CIMETRIX, INC.
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
(AUDITED)
March 31, December 31,
1996 1995
-------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,138,611 $ 2,345,483
Accounts receivable 191,452 67,544
Inventories 552,017 619,192
Prepaid expenses 238,702 217,818
Current deferred tax asset, net 17,727 17,727
-------------- -------------
Total Current Assets 3,138,509 3,267,764
PROPERTY AND EQUIPMENT, net 1,724,325 1,732,247
OTHER ASSETS:
Other Assets 9,241 9,242
Capitalized software cost, net 748,462 757,400
Technology, net 754,106 767,306
Goodwill, net 3,133,841 3,188,186
-------------- -------------
Total Other Assets $ 4,645,650 $ 4,722,134
-------------- -------------
Total Assets $ 9,508,484 $ 9,722,145
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 119,038 $ 174,126
Accrued payroll and vacation 94,214 121,424
Accrued expenses 10,484 100
Notes payable-current portion 22,092 22,092
Capital lease obligation-current portion 19,901 19,901
-------------- -------------
Total Current Liabilities 265,729 337,643
DEFERRED TAX LIABILITY 17,727 17,727
NOTES PAYABLE, net of current portion 271,673 271,673
CAPITAL LEASE OBLIGATION, net of
current portion 18,826 24,471
-------------- -------------
Total Liabilities $ 573,955 $ 651,514
-------------- -------------
STOCKHOLDERS' EQUITY:
Common stock $ 1,877 $ 1,846
Additional paid in capital 17,913,607 16,156,458
Accumulated deficit (8,547,408) (7,087,673)
Unearned compensation expense,
stock options (433,547) -
-------------- -------------
Total Stockholders' Equity 8,934,529 9,070,631
-------------- -------------
Total Liabilities and Stockholders'
Equity $ 9,508,484 $ 9,722,145
============= =============
NOTE:The accompanying notes are an integral part of these financial statements.
<PAGE>
CIMETRIX, INC.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended March 31
------------------------------------
1996 1995
--------------- ---------------
NET SALES $ 280,876 $ 70,836
--------------- ---------------
OPERATING EXPENSE:
Cost of Goods Sold $ 140,455 $ 19,869
Selling, Marketing and Customer Support 322,762 107,795
Research and Development 288,801 221,329
General and administrative 317,192 281,599
Compensation related to options 692,658 -
--------------- ---------------
Total operating Expenses 1,761,868 630,592
--------------- ---------------
LOSS FROM OPERATIONS $ (1,480,992) $ (559,756)
--------------- ---------------
OTHER INCOME (EXPENSE):
Interest income $ 23,120 $ 27,999
Interest expense (1,863) (11,258)
--------------- ---------------
Total Other Income (Expense) $ 21,257 $ 16,741
--------------- ---------------
LOSS BEFORE MINORITY INTEREST AND
INCOME TAXES (1,459,735) (543,015)
LESS MINORITY INTEREST IN OPERATIONS
OF SUBSIDIARY - (65,162)
--------------- ---------------
LOSS BEFORE INCOME TAXES (1,459,735) (477,853)
CURRENT INCOME TAX EXPENSE (BENEFIT) - -
DEFERRED INCOME TAX EXPENSE (BENEFIT) - -
--------------- ---------------
NET LOSS $ (1,459,735) $ (477,853)
=============== ===============
LOSS PER COMMON SHARE: $ (.08) $ (.03)
=============== ===============
NOTE: The accompanying notes are an integral part of these financial statements.
<PAGE>
CIMETRIX, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months
Ended March 31,
-----------------------
1996 1995
--------- ----------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net loss (1,459,735) (477,853)
----------- -----------
Adjustments to reconcile net loss
to net cash used by operating activities:
Amortization and depreciation 159,113 49,000
Minority interest in operation of Subsidiary - (65,162)
Compensation related to options 692,658 -
----------- -----------
Changes in assets and liabilities:
Decrease (increase) in inventory 67,175 (123,581)
Decrease (increase) in accounts receivable (123,908) (5,669)
Decrease (increase) in prepaids & deposits (20,883) 14,275
Increase (decrease) in accounts payable
and accrued expenses (44,704) (236,771)
Increase (decrease) in accrued payroll (27,210) (41,735)
----------- -----------
Total adjustments 702,241 (409,643)
----------- -----------
Net Cash Flow Used by Operating Activities (757,494) (887,496)
----------- -----------
CASH FLOWS TO INVESTING ACTIVITIES:
Payments for capitalized software costs (34,162) (47,726)
Purchase of PP&E - net of retirements (40,546) (119,245)
Proceeds from receivable-related party - (183)
----------- -----------
Net Cash Used in Investing Activities (74,708) (167,154)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 630,975 4,000,000
Payment of stock offering costs - (24,525)
Net change in capitalized leases (5,645) 4,727
Proceeds from notes payable - -
Payments for notes payable - (1,000,000)
Payments on payable-related party - -
----------- -----------
Net Cash Provided by Financing Activities 625,330 2,980,202
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (206,872) 1,925,552
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,345,483 3,365,186
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 2,138,611 5,290,738
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest 1,863 11,258
Income taxes - -
----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
For the three months ended March 31, 1995:
None
For the three months ended March 31, 1996:
Option holders exercised options to purchase 315,000 shares of
restricted stock at $2.00 per share and 325 shares at $3.00 per share,
resulting in proceeds to the Company of $630,975. [See Note 7].
Compensation expense of $692,658,was recognized for all options issued
during the quarter and for certain previously issued options
[See Note 10].
NOTE: The accompanying notes are an integral part of these financial statements.
<PAGE>
CIMETRIX, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the For the
Three Months Ended Nine Months ended
September 30, September 30,
---------------------- -----------------------
1995 1994 1995 1994
---------------------- -----------------------
NET SALES $ 174,844 $ 254,100 $ 415,575 $ 419,490
---------- ---------- ---------- -----------
OPERATING EXPENSES:
Cost of Goods Sold 56,482 128,640 132,571 166,219
Selling, Marketing and
Customer Support 260,858 78,620 722,141 102,571
Research and Development 188,478 72,573 629,011 400,704
General and Administrative 239,280 341,261 809,294 847,273
Total Operating Expenses 745,098 621,094 2,293,017 1,516,767
LOSS FROM OPERATIONS (570,254) (366,994) (1,877,442) (1,097,277)
---------- ---------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income 48,239 33,075 136,411 33,075
Interest expense (1,464) (14,245) (13,784) (31,723)
Gain (Loss) on disposition
of assets - - (3,485) -
Total Other Income (Expense) 46,775 18,830 119,142 1,352
---------- ---------- ---------- -----------
LOSS BEFORE MINORITY INTEREST
AND INCOME TAXES (523,479) (348,164) (1,758,300) (1,095,925)
LESS MINORITY INTEREST IN
OPERATIONS OF SUBSIDIARY (50,631) (47,051) (198,810) (47,051)
---------- ---------- ---------- -----------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (472,848) (301,113) (1,559,490) (1,048,874)
CURRENT INCOME TAX
EXPENSE (BENEFIT) - - - -
DEFERRED INCOME TAX
EXPENSE (BENEFIT) - - - -
---------- ---------- ---------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (472,848) (301,113) (1,559,490) (1,048,874)
EXTRAORDINARY ITEM - 126,053 - 126,053
---------- ---------- ---------- -----------
NET LOSS $(472,848) $(175,060)$(1,559,490) $(922,821)
---------- ---------- ---------- -----------
LOSS PER COMMON SHARE $ (.03) $ (.01) $ (.10) $ (.06)
---------- ---------- ---------- -----------
NOTE: The accompanying notes are an integral part of these financial statements.
<PAGE>
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 March 31, 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 March 31, 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 March 31, 1996, the Company
had cash equivalents of $1,540,135 invested in commercial paper maturing in
April 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 March 31, 1995.
NET LOSS PER COMMON SHARE - The computation of 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 anti-dilutive.
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 March 31, 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 will
be 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 $.01 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 1995 and 1994, the
Company capitalized $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 March 31, 1996 is $293,765.
NOTE 7 -COMMON STOCK TRANSACTIONS
During the quarter ended March 31, 1996, the Company awarded stock options
representing 105,000 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 prices are either $9.00 or $10.00.
Employees who have left the Company since December 31, 1995 have forfeited
options representing a total of 55,000 shares with exercise prices of $4.00 and
$5.00 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 - SALE OF RESIDENTIAL PROPERTY
In January 1996, the Company accepted an earnest money offer to purchase the
residential real estate owned by the Company. The offer was tendered by a
shareholder of the Company at a purchase price of $275,000. As of May 15, 1996,
the earnest money agreement has been terminated and the Company does not
anticipate selling the property in the near future. The Company's president
currently resides in this home.
NOTE 10 - 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 quarter
ended March 31, 1996, the compensation cost related to all options granted
during the quarter, 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
March 31, 1996. Employee services are assumed to be rendered over the two year
vesting period of the options. Compensation expense for the quarter ended March
31, 1996, was computed to be $692,658.
NOTE 11 - 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. Waldron Keith Seolas et al., pending in
----------------------------------------------------
the Fourth Judicial Court of 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, based on his failure to pay to the Company
approximately $200,000 in withholding taxes that became payable upon exercise by
Goldsmith of a stock option 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 has commenced 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 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. Although the lawsuit was only
recently filed, 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS
INVESTMENT BANKER ENGAGED
In an agreement signed January 8, 1996, the Registrant engaged Cowen & Company
("Cowen") to act as the Registrant's investment banker. The Registrant is
exploring with Cowen the possibility of establishing strategic and financial
relationships with one or more companies, which may include the sale or merger
of the Registrant. The term of this engagement extends through December 31,
1996. Currently, there has been no letter of intent or other contractual
agreement signed beteween the Registrant and any potential candidate.
NEW PERSONNEL AND PROMOTIONS
During the quarter ended March 31, 1996, the Registrant's Board of Directors
appointed Paul A. Bilzerian as President. In addition, the Registrant employed
Mr. Robert Reback as the new Vice President of Sales and Marketing, along with
two other individuals to serve as regional sales managers for the East Coast and
West Coast, respectively. The Registrant also continued to hire new engineers
and other support people. Options to purchase a total of 105,000 shares of the
Registrant's common stock were also granted to certain of the new hires. In the
opinion of management, each of these individuals brings unique experience and
background necessary to assist the Registrant to fully develop its projected
commercial potential. Additionally, Dr. Steve Sorensen, an employee since
1989, has been promoted to Executive Vice President of Engineering, and Larry
Fluckiger has been promoted to Vice President of Software Development, further
enhancing the coordination and supervision of the Registrant's commercialization
efforts.
CAPITAL AND LIQUIDITY
At March 31, 1996, the Registrant had total current assets of $3,138,509and
total current liabilities of $265,729 resulting in a working capital ratio of
11.81: 1. Current assets at March 31, 1996, included a cash balance and cash
equivalents of $2,138,611.
At March 31, 1996, the level of inventory had decreased slightly to
$552,017 from $619,192 at December 31, 1995 as inventory sold in the first
fiscal quarter was replaced somewhat in continued anticipation of expanding
sales volumes.
Accounts receivable increased to $191,452 at March 31, 1996 from $67,544 at
December 31, 1995, reflecting an increased level of sales in the month of March
1996 as compared to December 1995. Current liabilities decreased to $265,729 at
March 31, 1996 from $337,643 at December 31, 1995.
Currently, all accounts payable are paid 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 $41,000 was spent
on capital equipment during the quarter ended March 31, 1996, and management
anticipates that spending for additional capital equipment necessary to meet
anticipated growth may exceed $250,000 during the 1996 fiscal year and will be
funded by use of cash or other working capital of the Registrant.
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, but that some
equity funds may come to the Registrant through the exercise of options
currently outstanding. During the quarter ended March 31, 1996, the Registrant
received cash proceeds of approximately $631,000 from the exercise of options.
RESULTS OF OPERATIONS
THREE MONTHS ENDED--MARCH 31, 1996
The Registrant's revenues from operations for the quarter ended March 31,
1996 were $280,876 as compared to $70,836 for the quarter ended March 31, 1995.
Although not a large numerical increase, the revenues for 1996 actually reflect
sales to new customers, and further represent the beginning of the expected
establishment of regular sales revenue streams from a larger variety of
customers.
Overall operating expenses have increased to $1,761,868 for the three
months ended March 31, 1996 from a total of $630,592 for the same period in
1995. Operating expenses for the quarter ended March 31, 1996 include
compensation expense of $692,658 related to option grants made previously to
employees, directors, and consultants of the Registrant. Additional explanations
may be found in the following paragraphs.
Selling, marketing and customer support expenses increased to $322,762 for
the quarter ended March 31, 1996 as compared to $107,795 for the same period in
1995. This increase reflects the Registrant continued focus on new personnel,
and additional cash resources in penetrating the markets for its products. New
advertising materials have been created. Travel expenses related to marketing
efforts during the first quarter of 1996 are significantly higher when compared
to the first quarter of 1995 because of the increasing marketing efforts. Also,
the Registrant participated in the NEPCON West trade show in Anaheim, California
in February 1996. There was no similar activity in the first quarter of 1995.
Research and development expenses increased to $288,801 (net of capitalized
software costs) for the quarter ended March 31, 1996, as compared to $221,329
for 1995. Management of the Registrant continues its commitment to improving,
updating, and creating new applications for the CODE software.
General and administrative expenses of the Registrant are also
significantly greater for the first quarter of 1996 ($1,009,850) as compared to
the first quarter of 1995 ($281,599). The major portion of that increase
($692,658) is attributable to compensation expense associated with the previous
granting of options that is being recognized in the current quarter. The
remaining general and administrative expenses ($317,192) is comparable to the
first quarter of the prior year given the increasing activity of the Registrant.
At the quarter ended March 31, 1996, there were 45 employees, as compared to 32
at March 31, 1995, many of them hired as professional engineering and
management personnel at the higher end of salary levels for the Registrant.
Due to increased operating expenses that surpassed increases in revenues,
the Registrant incurred a net loss of $1,459,735, for the three months ended
March 31, 1996 as compared to a net loss of $477,853 for the three months ended
March 31, 1995. Management believes that the Registrant will be able to
develop a stream of regular sales and anticipates sales revenues to increase
through the end of fiscal 1996. However, there is no guarantee the Registrant
will be able to develop profitable operations during 1996.
SIGNIFICANT CUSTOMERS
During the quarter ended March 31, 1996, major customers of the Registrant
included 3M (18%), Delco (15%), Motorola (13%), and Robodyne (18%). In
addition, the Registrant had sales to a Japanese firm, Aries, which accounted
for 15% of sales for the quarter.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 8, 1996, the Registrant filed a lawsuit against Claude O. Goldsmith
("Goldsmith"), the Registrant's former President and director, and W. Keith
Seolas ("Seolas"), a former director of the Registrant, and members of his
family. The lawsuit, styled Cimetrix Incorporated v. Waldron Keith Seolas et
------------------------------------------------
al., pending in the Fourth Judicial Court of 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, based on his failure to
pay to the Registrant approximately $200,000 in withholding taxes that became
payable upon exercise by Goldsmith of a stock option 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 Registrant an aggregate of 100,000 shares of
common stock. Goldsmith has filed an answer, defenses, and certain
counterclaims against the Registrant and certain of its officers and directors
for breach of contract, fraud, conversion, tortious interference, breach of
fiduciary duty, and for indemnification. The Registrant believes that it has
strong defenses to all of Goldsmith's counterclaims and intends to vigorously
defend them. Discovery has commenced 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 Registrant, 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 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 Registrant'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 Registrant in connection with the return of certain shares by Seolas to
the Registrant. The Registrant believes that it has strong defenses to all of
Seolas' claims and intends to vigorously defend them. Although the lawsuit was
only recently filed, counsel believes the claims against the Registrant are
frivolous because Seolas also purports to derivatively sue Mr. Bilzerian on
behalf of the Registrant. Mr. Bilzerian and the members of the Registrant's
Board of Directors also believe that they have strong defenses to Seolas' claims
and intend to vigorously defend them.
Other than as stated above, the Registrant is not a party to any material
pending legal proceedings and, to the best of its knowledge, no such proceedings
by or against the Registrant have been threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant anticipates holding an annual shareholders' meeting on
Saturday, August 24, 1996, at the Red Lion Hotel, 255 South West Temple, Salt
Lake City, Utah 84101.
No matters were submitted to a vote of shareholders during the quarter
ended March 31, 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 January 8, 1996 related to
changes in the Board of Directors. There were no other reports on Form 8-K for
the quarter ended March 31, 1996.
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: May 15, 1996 By/s/ Kitt R. Finlinson, Vice President of Finance
(Duly Authorized Officer and Principal
Financial and Accounting Officer )
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1996, AND STATEMENT OF OPERATIONS FOR THE PERIOD ENDED
MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,138,611
<SECURITIES> 0
<RECEIVABLES> 191,452
<ALLOWANCES> 0
<INVENTORY> 552,017
<CURRENT-ASSETS> 3,138,509
<PP&E> 2,034,544
<DEPRECIATION> 310,219
<TOTAL-ASSETS> 9,508,484
<CURRENT-LIABILITIES> 265,729
<BONDS> 0
<COMMON> 1,877
0
0
<OTHER-SE> 8,932,652
<TOTAL-LIABILITY-AND-EQUITY> 9,508,484
<SALES> 280,876
<TOTAL-REVENUES> 302,996
<CGS> 140,455
<TOTAL-COSTS> 1,761,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,863
<INCOME-PRETAX> (1,459,735)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,459,735)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,459,735)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
</TABLE>
