<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
The number of shares outstanding of the registrant's common stock, par
value $.0001, as of May 1, 1997 was 24,143,928.
================================================================================
-1-
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
NET REVENUES $ 512 $ 281
------------ ------------
OPERATING EXPENSES:
Cost of revenues, including customer support 209 140
Selling and marketing 290 315
Research and development 361 229
General and administrative 330 226
Depreciation and amortization 163 159
Compensation expense - stock options -- 693
------------ ------------
Total operating expenses 1,353 1,762
------------ ------------
LOSS FROM OPERATIONS (841) (1,481)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 21 23
Interest expense (5) (2)
------------ ------------
Total other income (expense) 16 21
------------ ------------
LOSS BEFORE INCOME TAXES (825) (1,460)
CURRENT INCOME TAX EXPENSE (BENEFIT) -- --
DEFERRED INCOME TAX EXPENSE (BENEFIT) -- --
------------ ------------
NET LOSS $ (825) $ (1,460)
============ ============
LOSS PER COMMON SHARE: $ (.05) $ (.08)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 18,136,428 18,551,266
============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements (unaudited).
-2-
<PAGE> 3
CIMETRIX INCORPORATED
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
--------- ------------
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,379 $ 2,785
Accounts receivable, net 721 617
Inventories 532 533
Prepaid expenses and other current assets 255 285
-------- --------
Total current assets 2,887 4,220
PROPERTY AND EQUIPMENT, net 759 614
CAPITALIZED SOFTWARE COSTS, net 658 707
TECHNOLOGY, net 701 715
GOODWILL, net 2,916 2,971
-------- --------
Total Assets $ 7,921 $ 9,227
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 44 $ 44
Accounts payable 459 671
Accrued expenses 86 459
Customer deposits 190 170
-------- --------
Total current liabilities 779 1,344
LONG-TERM DEBT, net of current portion 246 252
-------- --------
Total Liabilities 1,025 1,596
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock; 100,000,000 shares
authorized, $.0001 par value; 18,151,428
and 18,121,428 shares issued and
outstanding, respectively 2 2
Additional paid-in capital 18,496 18,406
Accumulated deficit (11,368) (10,543)
Unearned compensation - stock options (234) (234)
-------- --------
Net Stockholders' Equity 6,896 7,631
-------- --------
$ 7,921 $ 9,227
======== ========
</TABLE>
The accompanying notes are an integral part of these
financial statements (unaudited).
-3-
<PAGE> 4
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS TO OPERATING ACTIVITIES:
Net Loss $ (825) $(1,460)
------- -------
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization and depreciation 163 159
Compensation related to stock options -- 693
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (104) (124)
(Increase) decrease in inventory 1 67
(Increase) decrease in prepaid expenses 30 (21)
Increase (decrease) in accounts payable (212) (44)
Increase (decrease) in accrued expenses (373) (27)
Increase (decrease) in customer deposits 20 --
------- -------
Total Adjustments (475) 703
------- -------
Net Cash Flow Used by Operating
Activities (1,300) (757)
------- -------
CASH FLOWS TO INVESTING ACTIVITIES:
Payments for capitalized software costs -- (34)
Purchase of property and equipment, net of retirements (190) (40)
------- -------
Net Cash Flow Used by Investing Activities (190) (74)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 90 631
Payments for capital lease obligations, net (6) (6)
------- -------
Net Cash Flow Provided by
Financing Activities 84 625
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,406) (206)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 2,785 2,345
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,379 $ 2,139
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6 $ 2
Income taxes $ -- $ --
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Compensation expense - stock options $ -- $ 693
Issuance of stock upon exercise of non-
qualified options $ 90 $ 631
======= =======
</TABLE>
The accompanying notes are an integral part of these
financial statements (unaudited).
-4-
<PAGE> 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
month period ended March 31, 1996 have been reclassified to conform to
the March 31, 1997 classification. The results of operations for the
three months ended March 31, 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 March 31, 1997, the Company had cash equivalents of
$1,028,982 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 $2,019,927 at March 31, 1996.
INVENTORIES - Inventories are stated at the lower of cost or market.
Cost is determined by the first-in, first-out method. Inventories at
March 31, 1997 and December 31, 1996 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Parts and supplies $266 $211
Work in process 57 128
Finished goods 209 194
---- ----
$532 $533
==== ====
</TABLE>
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-
<PAGE> 6
ITEM 1. FINANCIAL STATEMENTS (CONT.)
CIMETRIX INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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
March 31, 1997, the unamortized portion of capitalized software
development costs was approximately $658,000. Amortization of software
development costs was approximately $49,000 and $43,000 for the three
months ended March 31, 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 three months
ended March 31, 1997 and 1996 was approximately $54,300. At March 31,
1997, the accumulated amortization was approximately $344,000.
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. 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 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 - 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, except for extraordinary items, because its effect is
anti-dilutive. Dilutive common equivalent shares consist of stock
options and warrants.
-6-
<PAGE> 7
ITEM 1. FINANCIAL STATEMENTS (CONT.)
CIMETRIX INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
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 March 31, 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 Sheet. 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), 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 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 $14,000 during both the three month periods ended March
31, 1997 and 1996.
-7-
<PAGE> 8
ITEM 1. FINANCIAL STATEMENTS (CONT.)
CIMETRIX INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - LONG-TERM DEBT
Long-term debt at March 31, 1997 and December 31, 1996 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Note payable to BYU $272 $272
Capital lease obligations 18 24
---- ----
290 296
Less current maturities 44 44
---- ----
Net long-term debt $246 $252
==== ====
</TABLE>
In connection with the purchase of the technology from BYU discussed in
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 was recorded as a note payable
with a beginning balance of $343,765.
The Company entered into a $5,000,000, variable rate revolving line of
credit with a bank on October 3, 1996. The line provides for interest
at the rate of one half of one percent over the prime rate of the bank.
The line expired on April 30, 1997 and the Company has not sought to
renew the line of credit.
NOTE 5 - SIGNIFICANT CUSTOMERS
Approximately 19% and 15% of the Company's revenues during the three
month period ended March 31, 1997 were attributable to a Japanese OEM
and a domestic United States OEM, respectively. No other single
customer accounted for more than 10% of the Company's revenues during
the three month period ended March 31, 1997. During the three month
period ended March 31, 1996, approximately 18% of the Company's
revenues were to a Japanese distributor, approximately 17% of the
Company's revenues were to a domestic United States OEM, approximately
17% of the Company's revenues were to a domestic United States
end-user and approximately 14% of the Company's revenues were to a
domestic United States end-user. Although the Company values its
relationships with all of its customers, the Company does not believe
the loss of any single customer would have a material adverse impact
on the Company.
-8-
<PAGE> 9
ITEM 1. FINANCIAL STATEMENTS (CONT.)
CIMETRIX INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - STOCK OPTIONS AND WARRANTS
On December 21, 1994 the Board of Directors adopted effective
immediately, subject to shareholder approval at the annual meeting of
shareholders conducted in July, 1995, a stock option plan under which
options may be granted to officers, employees, directors and others.
The plan specifically replaces all prior option agreements between the
Company, its employees, and its consultants. A total of 1,993,816
shares of common stock have been reserved for issuance under the plan.
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, one half
of the options granted will vest on the first anniversary date of the
date of grant, and the remaining one half will vest on the second
anniversary 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.
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 common shares for a cash payment of $1,000,000.
The warrants are irrevocable and exercisable for a period of five
years. On April 15, 1997, these warrants were exercised and the Company
purchased 200,000 shares from Mr. Bilzerian's entities for $1,000,000.
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 common stock of the
Company upon payment of $2.00 per share. The warrants are exercisable
until April 29, 1997. During 1996, warrants for 125,00 shares were
exercised. The remaining warrants of 192,500 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 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 marker for either the Company's common
shares or for warrants on those 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.
-9-
<PAGE> 10
ITEM 1. FINANCIAL STATEMENTS (CONT.)
CIMETRIX INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 - VOTING RIGHTS ASSIGNED TO PRESIDENT
On March 21, 1994, and later amended in June, 1994 and August, 1995,
certain former officers and directors of the Company entered into a
proxy agreement wherein they assigned the voting rights of their common
stock (current voting control of approximately 19.9%) to the current
President of the Company. The proxy agreement has a term expiring on
December 31, 1998 and is irrevocable.
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 March 31, 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 March 31, 1997. Management believes that any
allowance for warranty would be currently immaterial to the financial
condition of the Company.
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.,
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.
Seolas filed a separate action on April 26, 1996 and an amended
complaint on March 17, 1997 in the United States District Court for
Utah, against the Company. In his lawsuit, styled Waldron Keith Seolas
et al. v. Cimetrix Incorporated, Seolas alleges fraud by the Company in
connection with the return of approximately 200,000 shares by Seolas to
the Company in 1994. The Company believes that it has strong defenses
to Seolas' claims and intends to vigorously defend them. 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 best of its knowledge 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.
-10-
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is the developer of the world's first open architecture,
standards-based, personal computer (PC) software for controlling machine tools,
robots and electronics industry 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 Statements of Operations for the three
months ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Net revenues 100.0% 100.0%
------ ------
Operating expenses:
Cost of revenues 40.8 49.8
Selling, marketing and customer support 56.6 112.1
Research and development 70.5 81.5
General and administrative 64.5 80.5
Depreciation and amortization 31.8 56.6
Compensation - stock options -- 246.6
------ ------
Total operating expenses 264.2 627.1
------ ------
Loss from operations (164.2) (527.1)
Interest income, net of expense 3.0 7.5
------ ------
Net Loss (161.2)% (519.6)%
====== ======
</TABLE>
NET REVENUES
Net revenues for the three months ended March 31, 1997 and 1996 were
approximately $512,000 and $281,000, respectively. Net revenues for the three
months ended March 31, 1997 included approximately $350,000 of software
revenues. Revenues for the three months ended March 31, 1996 included
approximately $137,000 from the sale of hardware products.
COST OF REVENUES
The Company's cost of revenues as a percentage of net revenues for the
three months ended March 31, 1997 and 1996 are approximately 41% and 50%,
respectively. The cost of revenues decreased because the revenues from software
products as a percentage of total revenues increased from approximately 27% of
revenues during the three months ended March 31, 1996 to approximately 68% of
revenues during the three months ended March 31, 1997.
-11-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS[CONTINUED]
SELLING AND MARKETING
Selling and marketing expenses were approximately $315,000 during the
three month period ended March 31, 1996 and approximately $290,000 during the
three months ended March 31, 1997. Selling and marketing expenses in 1997 and
1996 reflect the hiring and related travel expenses of full-time marketing and
sales personnel, the development of product brochures and other marketing
material and the costs related to the Company's representation at trade shows.
RESEARCH AND DEVELOPMENT
Research and development expenses have increased from approximately
$229,000 during the three months ended March 31, 1996 to approximately $361,000
during the three months ended March 31, 1997. The Company's extensive effort to
develop its products for WindowsNT and the continued development of GEM
represented the majority of the research and development expenditures.
GENERAL AND ADMINISTRATIVE
General and administrative expenses have increased from approximately
$226,000 during the three months ended March 31, 1996 to approximately $330,000
during the three months ended March 31, 1997. The primary increases in general
and administrative expenses are approximately $75,000 in legal expenses related
primarily to the Seolas litigation and approximately $40,000 of increased
recruiting costs.
COMPENSATION - STOCK OPTIONS
During the three months ended March 31, 1997, the Company recorded, in
accordance with APB 25, the compensation cost related to all options granted
during 1996 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 during 1996. Employee
services are assumed to be rendered over the two year vesting period of the
options. Compensation expense recorded during the three months ended March 31,
1997 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 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 $2,108,000 of working capital at March
31, 1997, compared with approximately $2,876,000 at December 31, 1996. The
decrease in working capital from December 31, 1996 to March 31, 1997 was
primarily attributable to the cash used to fund the Company's net loss during
the three months ended March 31, 1997. The Company's future liquidity will
continue to be dependent on its operating cash flow and management of trade
receivables and inventories. Management believes that the Company's working
capital is sufficient to maintain its current and immediately foreseeable levels
of operations.
-12-
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS[CONTINUED]
LIQUIDITY AND CAPITAL RESOURCES[CONTINUED]
The Company had negative cash flow from operating activities of
approximately $1,300,000 for the three months ended March 31, 1997 compared to
approximately $757,000 for the three months ended March 31, 1996. The Company's
negative cash flow from operations for the three months ended March 31, 1997 was
approximately equal to the net loss for the period less depreciation and
amortization plus a reduction of approximately $600,000 in accounts payables and
accrued liabilities. Negative cash flow from operations for the three months
ended march 31, 1996 was approximately equal to the Company's net loss minus
depreciation and amortization and the compensation expense for stock options.
The Company anticipates that capital expenditures for fiscal year 1997,
primarily for computer equipment, will be approximately $200-300,000. Management
believes that the Company has sufficient funds to meet its capital expenditure
requirements for 1997.
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, as prices charged for hardware by the Company are not set by
long-term contracts.
ITEM 3. 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., 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 the Company's
common stock to Seolas and his family members.
Seolas filed a separate action on April 26, 1996 and an amended
complaint on March 17, 1997 in the United States District Court for Utah,
against the Company. In his lawsuit, styled Waldron Keith Seolas et al. v.
Cimetrix Incorporated, Seolas alleges fraud by the Company in connection with
the return of approximately 200,000 shares by Seolas 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 best of its
knowledge, no such proceedings by or against the Company have been threatened.
To the knowledge of 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 4. CHANGES IN SECURITIES
None.
-13-
<PAGE> 14
ITEM 5. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 6. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 6. OTHER INFORMATION
None.
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
Cimetrix did not file any Current Reports on Form 8-K during the
quarterly period ended March 31, 1997.
Exhibits
No. Description
27. Financial Data Schedule (for SEC use only)
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: May 2, 1997
-14-
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