CIMETRIX INC, 424B3, 1997-11-07

CIMETRIX INC
424B3, 1997-11-07
PREPACKAGED SOFTWARE

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<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration Statement 333-30601

PROSPECTUS

$10,000,000

CIMETRIX INCORPORATED
10% SENIOR NOTES DUE 2002
WARRANTS FOR 2,500,000 SHARES OF COMMON STOCK
---------------------

Cimetrix Incorporated ("Cimetrix" or the "Company") is offering a minimum
of $3,000,000 and a maximum of $10,000,000 aggregate principal amount of its 10%
Senior Notes Due 2002 (the "Senior Notes") at 100% of face value, in
denominations of $5,000 and additional whole multiples of $1,000 or any integral
multiple thereof. The minimum purchase is $5,000. The Senior Notes will be
unsecured obligations of the Company. Interest on the Senior Notes is payable
semiannually on April 1 and October 1 of each year commencing April 1, 1998. The
Senior Notes are redeemable at the Company's option at any time after September
30, 1999, at the redemption prices set forth in this Prospectus, plus accrued
interest. No sinking fund is provided for the Senior Notes. See "Description of
the Senior Notes."

Each purchaser of a Senior Note will also receive for no additional
consideration one common stock purchase warrant (a "Warrant") for each $1,000
principal amount of Senior Notes purchased. Each Warrant will entitle the holder
to purchase 250 shares of the Company's common stock ("Common Stock") for $2.50
per share. The Warrants are exercisable any time after October 31, 1998, and on
or before September 30, 2002, as a whole, in part, or in increments, but only if
the shares of Common Stock issuable upon exercise of the Warrants are registered
with the Securities and Exchange Commission pursuant to a current and effective
registration statement and qualified for sale under the securities laws of the
various states where the Warrantholders reside. The Company will use its best
efforts to register the shares issuable pursuant to the Warrants before November
1, 1998. The exercise price of the Warrants is payable at the holder's option,
either in cash or by the surrender of Senior Notes at their face amount plus
accrued interest. The Warrants will be immediately transferable separately from
the Senior Notes. On August 22, 1997, the trading price for the Common Stock on
the OTC Bulletin Board was $2.25 per share. See "Description of the Warrants."

The Company's offering (the "Offering") of the Senior Notes and
accompanying Warrants (together, the "Securities") is being made directly by the
Company on a best efforts basis, and there is no assurance that all the
Securities will be sold. The Offering is not underwritten, but the Company will
sell a portion of the Securities to or through one or more broker-dealers that
will act as the Company's agent in its selling efforts and receive compensation
equal to seven percent of the price of the securities. Each broker-dealer will
be required to take and pay for only those securities that it sells to the
public. No Securities will be sold in the Offering unless the Company receives
commitments to purchase at least $3,000,000 principal amount of the Senior Notes
at face value before the expiration date of the Offering, unless extended.
Officers, directors, and employees of the Company might purchase Securities in
the Offering, although they will not purchase Securities to ensure satisfaction
of the minimum condition. Pending closing, funds received from investors will be
deposited and held in a separate bank account of the Company that is not an
escrow account. If the minimum sales condition is not satisfied, funds received
from the investors will be promptly refunded, without interest or deduction.
There is no established trading market for the Securities, and the Company does
not intend to apply to list the Senior Notes or the Warrants for trading on any
securities exchange or to list them for quotation on the NASDAQ National or
Small Cap Markets. See "Terms of Offering and Plan of Distribution."

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION DISCUSSED
UNDER THE CAPTION "RISK FACTORS" AT PAGE 4.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Senior Note and Warrant(3)......... $ 1,000 (1) $ 1,000
Total minimum(3)....................... $ 3,000,000 (1) $ 3,000,000
Total maximum(3)....................... $ 10,000,000 (1) $ 10,000,000
==================================================================================================================
</TABLE>

(1) The Offering is not underwritten, but the Company will pay compensation of
up to seven percent of the offering price of the securities to
broker-dealers that act as the Company's agent in selling the Offering. See
"Terms of Offering and Plan of Distribution."
(2) Before deducting estimated expenses of $130,000 payable by the Company and
compensation equal to seven percent of the selling price payable to
broker-dealers that act as the Company's agent in selling the Offering.
(3) Excludes the sale of shares of Common Stock for $2.50 per share on the
exercise of the Warrants, which would yield proceeds to the Company of $625
for each Warrant and $6,250,000 for all the Warrants.

THIS OFFERING WILL EXPIRE AT 5:00 P.M. EASTERN STANDARD TIME
ON NOVEMBER 21, 1997, UNLESS EXTENDED.

The date of this Prospectus is September 2, 1997.
<PAGE> 2

PROSPECTUS SUMMARY

The following summary is qualified entirely by the detailed information and
financial statements appearing elsewhere in this Prospectus or incorporated by
reference in this Prospectus. This Prospectus contains certain forward-looking
statements involving risks and uncertainties. The Company's actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of certain of the factors set forth under "Risk Factors"
and elsewhere in this Prospectus.

THE COMPANY

Cimetrix is the developer of the world's first open architecture,
standards-based, personal computer (PC) software for controlling machine tools,
industrial robots and electronics industry automation equipment that operates on
the factory floor. The Cimetrix Open Development Environment ("CODE") software
products are based on standard computer platforms (Intel Pentium CPU with
ISA/PCI bus and Motorola PowerPC with VME bus) and run on standard operating
systems (UNIX and Microsoft Windows NT). Cimetrix software is currently
operational in production installations on a variety of general industrial
robots, specialized electronics industry assembly and surface mount technology
(SMT) machines, and to a limited extent, CNC machine tools.

Cimetrix also has developed two additional software products, GEM Equipment
Manager and GEM Host Manager. These software products enable compliance with
Generic Equipment Model ("GEM"), which is a standard for communications between
manufacturing equipment and the factory's host computer. The GEM software
products are designed to run on PCs and UNIX workstations.

THE OFFERING

Securities Offered......... $10,000,000 principal amount of Senior Notes Due
2002 and Warrants to purchase 2,500,000 shares of
Common Stock at $2.50 per share.

Maturity Date.............. September 30, 2002

Interest Payment Dates..... April 1 and October 1 of each year, beginning April
1, 1998.

Optional Redemption........ Nonredeemable before October 1, 1999. Redeemable in
whole or in part, at any time after September 30,
1999, at an initial redemption price equal to
105% of the principal amount on October 1, 1999
(declining annually to par on September 30,
2002), plus accrued interest. See "Description of
the Senior Notes -- Optional Redemption."

Change of Control.......... Upon a Change in Control (as defined), the Company
will be required, at the election of any holder
of a Senior Note, to redeem all the holder's
outstanding Senior Notes at a price equal to 100%
of their principal amount plus accrued interest.
See "Description of the Senior Notes -- Change of
Control."

Ranking.................... The Senior Notes will be unsecured senior
obligations of the Company, will rank pari passu
in right of payment with all existing and any
future senior indebtedness of the Company, and
will rank senior in right of payment to any
subordinated indebtedness of the Company. The
Company is restricted in its ability to incur
additional indebtedness. See "Description of the
Senior Notes -- Certain Covenants." As of August
22, 1997, the Company did not have any secured
indebtedness and its outstanding unsecured senior
indebtedness consisted of approximately $270,000
payable to Brigham Young University and
approximately $550,000 of trade payables. See
"Description of the Senior Notes -- Ranking."

1
<PAGE> 3

Restrictive Covenants...... The Indenture under which the Senior Notes will be
issued (the "Indenture") will contain certain
covenants that, among other things, will limit
the ability of the Company to (i) incur
additional indebtedness, (ii) pay dividends or
make certain other restricted payments, (iii)
enter into transactions with affiliates, and (iv)
merge or consolidate with, or transfer
substantially all of its assets to, another
person. These limitations and prohibitions are
subject to a number of important qualifications.
See "Description of the Senior Notes -- Certain
Covenants."

Use of Proceeds............ Working capital and general corporate purposes.

OTC Bulletin Board Symbol
of Common Stock............ "CMXX."

2
<PAGE> 4

SUMMARY FINANCIAL INFORMATION

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -----------------
1996 1995 1994 1993 1992 1997 1996
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 2,396 $ 664 $ 463 $ 1,142 $ 330 $ 1,053 $ 458
Operating expenses:
Cost of revenues........... 1,342 446 297 727 124 549 287
Sales and marketing........ 1,494 947 217 115 59 583 592
Research and development... 1,179 930 198 507 316 922 711
General and
administration........... 1,577 1,231 1,217 857 710 1,065 649
Compensation -- stock
options.................. 685 -- -- -- -- -- 693
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 6,277 3,554 1,929(a) 2,206 1,209 3,119 2,932
------- ------- ------- ------- ------- ------- -------
Net loss................... $(3,455) $(2,544) $(1,145) $(1,074) $ (881) $(2,054) $(2,431)
======= ======= ======= ======= ======= ======= =======
Loss per common share...... $ (.19) $ (.16) $ (.08) $ (.07) $ (.05) $ (.10) $ (.13)
======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding.............. 18,517 16,265 14,208 16,335 16,110 21,143 18,708
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED(B)
------ --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Current assets.............................................. $2,162 $12,032
Current liabilities......................................... 879 879
Working capital (deficit)................................... 1,283 11,153
Total assets................................................ 7,192 17,192
10% Senior Notes............................................ -- 10,000
Total long-term debt (excluding $41,000 of current
maturities)............................................... 261 10,261
Stockholders' equity........................................ $6,052 $ 6,052
</TABLE>

- ---------------

(a) Includes the effect (net of taxes) of extraordinary items of $188,000
resulting from the cancellation of indebtedness.
(b) Gives effect to the sale of the Senior Notes and the application of the net
proceeds therefrom. See "Use of Proceeds" and "Capitalization." Excludes the
effect of exercise of the Warrants offered by this Prospectus.

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<PAGE> 5

RISK FACTORS

In connection with an investment in the Securities offered by this
Prospectus, prospective investors should consider carefully the following
factors that could affect the Company's current position and future prospects,
in addition to the other information set forth in this Prospectus. The following
factors and other information set forth in this Prospectus contain certain
forward-looking statements involving risks and uncertainties. The Company's
actual results could differ materially from the results anticipated in these
forward-looking statements as a result of certain factors set forth in this
section and elsewhere in this Prospectus.

LACK OF PROFITABILITY; INTEREST COVERAGE

The Company has incurred operating losses from inception to June 30, 1997,
of approximately $12,597,000, including net losses of $3,455,000, $2,544,000,
and $1,145,000 during 1996, 1995, and 1994, respectively, and a net loss of
approximately $2,054,000 during the six months ended June 30, 1997. Net cash
used by operations amounted to approximately $2,002,000, $2,944,000, and
$1,817,000 during 1996, 1995, and 1994, respectively, and approximately
$2,134,000 during the six months ended June 30, 1997. The Company has never
operated at a profit. There is no assurance that the Company will operate
profitably in the future.

The Company had available at December 31, 1996, unused tax operating loss
carryforwards of approximately $10,558,000 that may be applied against future
taxable income and expire in various years beginning 2004 through 2011.
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
(FASB 109) requires the Company to provide a net deferred tax asset or liability
equal to the expected future tax benefit or expense of temporary reporting
differences between book and tax accounting and any available operating loss or
tax credit carryforwards. At December 31, 1996, the total of all deferred tax
assets was approximately $4,315,000 and the total of all deferred tax
liabilities was approximately $342,000. Because of the uncertainty about whether
the Company will generate sufficient future taxable income to realize the
deferred tax assets, the Company has established a valuation allowance of
$3,973,000 to offset all its deferred tax assets.

Given its lack of profitability, the Company historically has not generated
positive cash flow sufficient to cover fixed charges. The coverage deficiency
was approximately $3.5 million, $2.6 million, and $1.3 million in 1996, 1995,
and 1994, respectively. There is no assurance that the Company will generate
future positive cash flow sufficient to cover the interest on the Senior Notes.
If the Company does not generate positive cash flow, its ability to repay
interest and principal on the Senior Notes would be adversely affected.

LACK OF SALES, LENGTHY SALES AND IMPLEMENTATION CYCLES FOR OEM CUSTOMERS

The Company had sales of less than $2,500,000 in 1996. Until late 1994, the
Company did not have products for sale that were commercially viable. Prior to
that time, the Company's revenues were generated by sales of prototype products.
There is no assurance that the Company will ever generate significant sales of
its products. If the Company fails to do so, its prospects will be materially
adversely affected.

The Company's sales process for original equipment manufacture ("OEM")
customers is typically between three and twelve months from initial contact to
purchase commitment, and is subject to delays over which the Company has little
or no control. The extended sales process in this market segment is due to the
need to educate the customer regarding the use and benefits of its products and
the testing process with the customer's equipment before implementation. Any
delay in the sale or customer implementation of a large project or a number of
projects in this segment of the Company's market could have a material adverse
effect on the Company.

DEPENDENCE ON A SIGNIFICANT CUSTOMER

Fuji Machine Mfg. Co., Ltd. ("Fuji") accounted for approximately 34% and
37% of the Company's sales in 1996 and the first half of 1997, respectively, and
is expected to account for approximately 20% of its sales in 1997. The loss of
Fuji's business could have a material adverse effect on the Company.
Additionally, the

4
<PAGE> 6

quantity of Fuji's business with the Company depends substantially on market
acceptance of Fuji's Surface Mount Technology ("SMT") equipment that utilizes
the Company's software products. The Company could be materially adversely
affected by a downturn in Fuji's equipment sales or Fuji's failure to meet sales
expectations. The Company will likely from time to time have other customers
that account for a significant portion of its business.

DEPENDENCE ON RELATIVELY NEW PRODUCTS

The Company has only recently begun to install and implement its products
with customers. The Company's CODE software system was introduced commercially
in October 1995, and its GEM software product suite has been developed during
the past two years and was commercially introduced during 1997. As a result, the
Company has only limited history with these products, and there can be little
assurance that they will achieve market acceptance. The Company's future success
will depend on sales of these products, and the failure of these products to
achieve market acceptance would have a materially adverse effect on the Company.
In addition, the Company has limited experience with the installation,
implementation and operation of its products at customer sites. There is no
assurance that the Company's products will not require substantial modifications
to satisfy performance requirements or to fix previously undetected errors. If
customers were to experience significant problems with the Company's products,
or if the Company's customers were dissatisfied with the products'
functionality, performance, or support, the Company would be materially
adversely affected. The Company does not have any current plans to develop any
significant new products.

PRODUCT LIFE CYCLE; NEED TO DEVELOP NEW PRODUCTS AND ENHANCEMENTS

The markets for the Company's products are new and emerging. As such, these
markets are characterized by rapid technological change, evolving requirements,
developing industry standards, and new product introductions. The dynamic nature
of these markets can render existing products obsolete and unmarketable within a
short period of time. Accordingly, the life cycle of the Company's products is
difficult to estimate. The Company's future success will depend in large part on
its ability to enhance its products and develop and introduce, on a timely
basis, new products that keep pace with technological developments and emerging
industry standards. The success of the Company's software development efforts
will depend on various factors, including its ability to integrate these
products with third-party products. If a competitor succeeds in duplicating or
surpassing the Company's technological advances, the Company's prospects might
be materially adversely affected.

COMPETITION

The motion controller market is extremely competitive. Management believes
that most, if not all, of the Company's competitors currently have greater
financial resources and market presence than it does. Accordingly, these
competitors may be able to compete very effectively on pricing and to develop
technology to increase the flexibility of their products. Further, manufacturers
of industrial robots, machine tools, and other automation equipment which use
their own proprietary controllers and software have already established a share
of the market for their products and may find it easier to limit market
penetration by the Company because of the natural tie-in of their controllers
and software to their mechanisms. Management is uninformed as to whether any of
these competitors are presently developing additional technology that will
directly compete with the Company's product offerings. See
"Business -- Competition-CODE" and "-- Competition-GEM".

INTERNATIONAL SALES

International sales accounted for approximately 43% of the Company's
business in 1996. To service the needs of these customers, the Company must
provide worldwide sales and product support services, and the Company is in the
process of establishing a sales office in Japan. There are a number of risks
inherent in international expansion, including currency risks, increased risk of
software piracy, unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs and risks of localizing products for foreign

5
<PAGE> 7

companies, longer account receivable cycles and increased collection risks,
potentially adverse tax consequences, difficulty in repatriating earnings, and
the burdens of complying with a wide variety of foreign laws. Thus far, all the
Company's export sales have been payable in United States dollars.

NEED FOR ADDITIONAL FINANCING

Management expects that the proceeds of the Offering will be adequate to
address the foreseeable capital needs of the Company 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. There is no assurance, however,
that the amount of its capital will be adequate or that additional funds will be
available to the Company on acceptable terms, if needed. The source of any
additional capital could be further public or private equity or debt financings,
collaborative arrangements with corporate partners or funds from other sources.
Further, any additional financing might involve substantial dilution to the
Company's stockholders. The Indenture restricts the ability of the Company to
raise additional funds through the sale of senior debt, which could limit the
Company's ability to secure financing. If adequate funds are not available from
operations or additional sources of financing, the Company's ability to sustain
and expand its business would be adversely affected.

DEPENDENCE ON CERTAIN INDIVIDUALS

The Company is highly dependent on the services of its key managerial and
engineering personnel, including Paul A. Bilzerian, Paul A. Johnson, David L.
Redmond, David P. Faulkner, and Robert H. Reback. Any material change in the
Company's senior management team could adversely affect the Company's
profitability and business prospects. The Company does not maintain key man
insurance for any of its key management and engineering personnel.

The Company's software innovations are proprietary in nature, and the
Company has obtained copyright protection for them. It is possible, however, for
infringement to occur. Although the Company intends to prosecute diligently any
infringement of its proprietary technology, copyright litigation can be
extremely expensive and time-consuming, and the results of litigation are
generally uncertain. Further, the use by a competitor of the Company's
proprietary software to create similar software through "reverse engineering"
may not constitute an infringing use. The Company relies on confidentiality and
nondisclosure agreements with employees and customers for additional protection
against infringements, and the Company's software is encoded to further protect
it from unauthorized use.

CONTROL

Investors in the Common Stock (through exercise of the Warrants) will be
entitled to vote in the election of the Company's directors, but will not be
entitled to separate board representation. Investors purchasing Common Stock
through exercise of the Warrants will own no more than 10% of the Common Stock
if the maximum amount of Securities are sold in the Offering. Therefore,
purchasers of Common Stock through exercise of the Warrants will not be able to
control the business decisions of the Company and will have only a limited voice
in management.

The executive officers and directors of the Company have the power to vote
approximately 28.2% of the outstanding shares of Common Stock for the election
of directors and on other ordinary shareholder matters, after giving effect to
voting proxies and the exercise of options held by those individuals as of June
27, 1996. Paul A. Bilzerian, a director, President and Chief Executive Officer
of the Company, has the sole or shared power to vote approximately 22% of these
shares. The voting power represented by the officers and directors' shares,
though not an absolute majority, is probably sufficient to provide these persons
with effective control over most affairs of the Company. See "Management".

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<PAGE> 8

MARKETABILITY OF SENIOR NOTES AND COMMON STOCK

There is not any public trading market for the Securities, and there is no
assurance that one will develop in the future. Consequently, there can be no
assurance regarding the ability of holders of the Securities to sell them, or
the price at which they will be able to sell them. If a public trading market
were to develop, the Senior Notes could trade at prices that might be higher or
lower than the initial offering price depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. The Company does not intend to apply for listing or
quotation of the Notes on any securities exchange or automated interdealer
quotation system.

The Common Stock is currently traded through 13 market makers, but is not
listed on any securities exchange or quoted on an automated interdealer
quotation system, which would provide automated quotations of the stock's price.
Trading through market makers tends to limit the volume of sales and can cause
wide fluctuations in a stock's price, based on the available supply and demand
for the stock at any particular time.

REGISTRATION OF WARRANT SHARES

The exercise of the Warrants, and the Company's issuance of shares of
Common Stock pursuant thereto, are subject to registration of those shares under
an effective registration statement filed with the Securities and Exchange
Commission (the "SEC" or "Commission") and to registration or qualification of
those shares for sale or exemption under applicable state securities laws of the
jurisdictions where the various Warrantholders reside. Although the Company will
use its best efforts to register the Warrant shares before November 1, 1998,
there is no assurance that it will do so or succeed in qualifying the Warrant
shares in all applicable jurisdictions. The Company in its sole discretion may
determine not to register or qualify the Warrant shares in any jurisdiction
where the time and expense do not justify the registration or qualification. A
Warrantholder may be deprived of any value of the Warrants if the Company does
not, or cannot, register or qualify the Warrant shares for offer and sale in the
jurisdiction where the Warrantholder resides, in which case the Warrantholder's
alternatives would be limited to either selling the Warrants or allowing them to
expire unexercised. See "Description of the Warrants."

PAYMENT OF DIVIDENDS

The Company anticipates that it will not pay cash dividends for the
foreseeable future. In addition, the Indenture prohibits the payment of cash
dividends. See "Dividend Policy."

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Nevada General Corporation Law have anti-takeover
effects and may inhibit a non-negotiated merger or other business combination.
These provisions are intended to encourage any person interested in acquiring
the Company to negotiate with, and to obtain the approval of, the Company's
Board of Directors in connection with such a transaction. However, certain of
these provisions may discourage a future acquisition of the Company, including
an acquisition in which the shareholders might otherwise receive a premium for
their shares. As a result, shareholders who might desire to participate in such
a transaction may not have the opportunity to do so. See "Description of Common
Stock -- Certain Provisions of Nevada Law."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have a total of
24,143,928 shares of Common Stock outstanding. Of these shares, approximately
17,686,103 shares of Common Stock will be freely tradable by persons other than
directors, officers and affiliates of the Company, without restriction or need
for registration under the Securities Act of 1933, as amended (the "Securities
Act"). All of the remaining shares of Common Stock are "restricted securities"
as defined by Rule 144 promulgated under the Securities Act ("Rule 144"). Those
shares are eligible for sale, subject to the manner of sale, volume, notice, and
information requirements of Rule 144. Sales of substantial amounts of Common
Stock in the public market, or the availability of a substantial amount of
Common Stock for future sale, could adversely affect the market price of the
shares of Common Stock issuable on exercise of the Warrants. See "Shares
Eligible for Future Sale."

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<PAGE> 9

USE OF PROCEEDS

The net proceeds of the Company from the sale of the Senior Notes offered
by this Prospectus (after deducting estimated offering expenses) are estimated
to be approximately $9,870,000 if the maximum amount of Senior Notes is sold and
$2,870,000 if the minimum amount of Senior Notes is sold. The Company currently
intends to use the net proceeds for working capital and general corporate
purposes, including operating losses and its anticipated growth in accounts
receivable and inventories.

The following table illustrates the principal intended uses of the
estimated net proceeds of the Offering:

<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
-------------------- --------------------
USE OF PROCEEDS AMOUNT PERCENT AMOUNT PERCENT
--------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Fund increases in inventory.................... $ 200,000 7.0% $ 200,000 2.0%
Fund increases in accounts receivable.......... 300,000 10.4% 300,000 3.0%
Fund research and development and sales and
marketing support............................ 2,370,000 82.6% 9,370,000 95.0%
---------- ---- ---------- ----
Total................................ $2,870,000 100% $9,870,000 100%
========== ==== ========== ====
</TABLE>

See "Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock of the Company is quoted on the National Association of
Securities Dealers, Inc.'s OTC Electronic Bulletin Board (the "OTC Bulletin
Board") under the symbol "CMXX." The table below sets forth the high and low bid
quotations of the Common Stock on the OTC Bulletin Board for each quarter during
1995 and 1996 and for the first two quarters in 1997 and for the period from
July 1 to August 22, 1997. The quotations presented reflect interdealer prices,
without retail markup, markdown or commissions, and do not necessarily represent
actual transactions in the Common Stock.

<TABLE>
<CAPTION>
HIGH BID LOW BID
-------- -------
<S> <C> <C>
FISCAL YEAR 1995
First Quarter............................................. $ 6.37 $4.25
Second Quarter............................................ 6.25 3.50
Third Quarter............................................. 6.12 3.75
Fourth Quarter............................................ 10.25 4.37
FISCAL YEAR 1996
First Quarter............................................. 15.75 9.75
Second Quarter............................................ 11.25 6.50
Third Quarter............................................. 7.63 5.25
Fourth Quarter............................................ 8.38 5.50
FISCAL YEAR 1997
First Quarter............................................. 7.38 5.50
Second Quarter............................................ 5.88 3.25
Third Quarter (through August 22)......................... 4.06 1.50
</TABLE>

On August 22, 1997, the closing bid quotation for the Common Stock on the
OTC Bulletin Board was $2.25 per share. Potential investors should be aware that
the price of the Common Stock in the trading market can change dramatically over
short periods as a result of factors unrelated to the earnings and business
activities of the Company. On August 22, 1997 there were 24,143,928 shares of
Common Stock issued and outstanding, held by approximately 2,500 beneficial
shareholders.

The Company has not paid dividends with respect to the Common Stock.
Management expects that any future earnings will be retained for working capital
and growth and expansion of its business and does not anticipate paying
dividends on the Common Stock in the foreseeable future. Covenants in the
Indenture prohibit the payment of dividends. See "Description of the Senior
Notes -- Certain Covenants."

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<PAGE> 10

CAPITALIZATION

The table below sets forth the actual capitalization of the Company at June
30, 1997, and as adjusted as of that date to give effect to the sale of
$10,000,000 aggregate principal amount of the Senior Notes and the application
of the estimated net proceeds therefrom, which are estimated to be $9,870,000
after deducting estimated Offering expenses. The information set forth in the
table should be read in conjunction with the unaudited financial statements of
the Company as of and for the quarterly period ended June 30, 1997, and the
related notes thereto that are included elsewhere in this Prospectus or
incorporated by reference in it.

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Long-term debt(1):
Long-term debt............................................ $ 261 $ 261
Senior Notes offering..................................... -- 10,000
-------- --------
Total long-term debt.............................. 261 10,261
-------- --------
Shareholders' equity:
Common Stock, $.0001 par value, 100,000,000 shares
authorized; 18,151,428 shares issued and outstanding at
March 31, 1997(2)...................................... 2 2
Additional paid-in capital(2)............................. 18,881 18,881
Accumulated deficit....................................... (12,597) (12,597)
Unearned compensation -- stock options.................... (234) (234)
-------- --------
Net shareholders' equity............................... 6,052 6,052
-------- --------
Total Capitalization.............................. $ 6,313 $ 16,313
======== ========
</TABLE>

- ---------------

(1) See Note 6 of Notes to Financial Statements for the year ended December 31,
1996, and Note 4 of Notes to Financial Statements for the three and six
month periods ended June 30, 1997.
(2) Excludes the effect of exercise of the Warrants offered by this Prospectus,
which would yield $6,250,000 (before expenses of registration), if all the
Senior Notes are sold.

9
<PAGE> 11

SELECTED FINANCIAL DATA

The selected financial data set forth below are derived from the financial
statements of the Company. The selected financial data for the six months ended
June 30, 1997 and 1996, are derived from the unaudited financial statements of
the Company, which in the opinion of management reflect all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of that data. The selected financial data for the six months ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the entire fiscal year. The Selected Financial Data should be read in
conjunction with the Company's financial statements, related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -----------------
1996 1995 1994 1993 1992 1997 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net Revenues.................. $ 2,396 $ 664 $ 463 $ 1,142 $ 330 $ 1,053 $ 458
Operating expenses:
Cost of revenues........... 1,342 446 297 727 124 549 287
Selling, marketing and
customer support......... 1,494 947 217 115 59 583 592
Research and development... 1,179 930 198 507 316 922 711
General and
administrative........... 1,577 1,231 1,217 857 710 1,065 649
Compensation -- stock
options.................. 685 -- -- -- -- -- 693
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 6,277 3,554 1,929 2,206 1,209 3,119 2,932
------- ------- ------- ------- ------- ------- -------
Loss from operations....... (3,881) (2,890) (1,466) (1,064) (879) (2,066) (2,474)
------- ------- ------- ------- ------- ------- -------
Net loss................... $(3,455) $(2,544) $(1,145) $(1,074) $ (881) $(2,054) $(2,431)
======= ======= ======= ======= ======= ======= =======
Loss per common share ..... $ (.19) $ (.16) $ (.08) $ (.07) $ (.05) $ (.10) $ (.13)
======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding.............. 18,517 16,265 14,208 16,335 16,110 21,143 18,708
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
---------------------------------------- ---------------
1996 1995 1994 1993 1992 1997 1996
------ ------ ------ ----- ----- ------ ------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................ $4,220 $3,268 $3,835 $ 230 $ 69 $2,162 $2,618
Current liabilities................... 1,344 338 1,451 857 479 879 371
Working capital (deficit)............. 2,876 2,930 2,384 (627) (410) 1,283 2,247
Total assets.......................... 9,227 9,722 5,632 356 223 7,192 8,889
Total long-term debt.................. 296 338 44 41 41 261 287
Stockholders' equity (deficit)........ 7,631 9,070 3,613 (535) (297) 6,052 8,214
</TABLE>

- ---------------

(1) Omits the ratio of earnings to fixed charges. The Company did not have any
earnings in the relevant years and, therefore, earnings did not cover fixed
charges by approximately the amount of the net losses in each period. See
"Risk Factors -- Lack of Profitability -- Interest Coverage."

10
<PAGE> 12

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION

OVERVIEW

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. 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."

RESULTS OF OPERATIONS FOR THREE AND SIX MONTHS ENDED JUNE 30, 1997, AND 1996

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 and
six months ended June 30, 1997 and 1996:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1997 1996 1997 1996
------- ------- ------ ------
<S> <C> <C> <C> <C>
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)%
====== ====== ====== ======
</TABLE>

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 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, and

11
<PAGE> 13

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 as it adds more customers and other customers account for
more revenue. 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.

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

12
<PAGE> 14

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, approximately $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. The Company expects its quarterly legal
expenses related to the Seolas litigation to be less than this amount in
approaching quarters.

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. The Company did not incur compensation cost related
to options in the six months ended June 30, 1997.

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.

13
<PAGE> 15

RESULTS OF OPERATIONS FOR FISCAL YEARS 1996, 1995 AND 1994

The following table sets forth the percentage of costs and expenses to net
revenues derived from the Company's Statement of Operations for 1996, 1995, and
1994.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net revenues................................................ 100.0% 100.0% 100.0%
------ ------ ------
Operating expenses:
Cost of revenues.......................................... 64.1 67.2 56.0
Selling, marketing and customer support................... 46.9 142.6 62.3
Research and development.................................. 42.8 140.0 49.3
General and administrative................................ 262.8 185.4 65.8
Compensation -- stock options............................. -- -- 28.6
------ ------ ------
Total operating expenses.......................... 416.6 535.2 262.0
------ ------ ------
Loss from operations........................................ (316.6) (435.2) (162.0)
Interest income, net of expense........................... 7.8 22.0 2.3
Other income (expenses)................................... (0.7) 0.1 15.5
------ ------ ------
Loss before minority interest and extraordinary item........ (309.5) (413.1) (144.2)
Minority interest in loss................................. 21.6 30.0 --
------ ------ ------
Loss before extraordinary item.............................. (287.9)% (383.1)% (144.2)%
Extraordinary item........................................ 21.6 -- --
------ ------ ------
Net loss............................................... (247.3)% (383.1)% (144.2)%
====== ====== ======
</TABLE>

NET REVENUES

Net revenues for the three fiscal years ended December 31, 1996, 1995, and
1994 were approximately $2,396,000, $664,000 and $463,000, respectively. The
increase in net revenues for the comparative periods was primarily attributable
to increases in the amount of goods and services sold and not to price
increases. Net revenues for 1996 included approximately $1,400,000 of software
revenues, $680,000 of hardware revenues and the remainder from applications
engineering and support agreements. Revenues for 1995 represented sales of
products to customers for testing and evaluation, and approximately 56% of
revenues during 1995 were from the sale of hardware products. Revenues for 1994
represented periodic purchases of "beta site" prototype by a few selected
customers. The Company expects that the percentage of its revenues derived from
sales of hardware products will decrease as its sales of software products
increase. For the year ended December 31, 1994, the Company was a "development
stage" enterprise as defined by generally accepted accounting principles.

The Company's software products have been commercially available for a
relatively short time, and, consequently, the Company has limited experience
with the commercial use and acceptance of the products. The Company's ability to
generate a level of future revenues sufficient to cover all its operating
expenses will depend on sales of these products. A number of factors will affect
the sales of the Company's products, including the following: the market
acceptance of the Company's products; the extent of modifications (if any) that
are required to satisfy performance requirements or fix previously undetected
errors or deficiencies; the extent to which the users and manufacturers of
machine tools, industrial robots, and industrial automation equipment will
desire to use the Company's technology instead of the proprietary technology of
the manufacturers; the new product cycle of manufacturers of machine tools,
industrial robots, and industrial automation machines that are potential users
of the Company's software products; changes in external competitive market
factors, including the development of competitive products; the Company's
ability to distinguish its products from competitive products; changes in
technology that require adaptation or enhancement of the Company's products or
that enhance or diminish the use of machine tools, industrial robots, and
industrial automation machines that use computerized motion control; and changes
in interna-

14
<PAGE> 16

tional trade policies that adversely affect export sales to Japan and other
foreign countries where prospective customers are based.

COST OF REVENUES

The Company's cost of revenues as a percentage of net revenues for the
years ended December 31, 1996, 1995, and 1994 were approximately 56%, 67% and
65%, respectively. The cost of revenues decreased significantly in 1996 because
the revenues from software products as a percentage of total revenues increased
from approximately 27% of revenues during 1995 to approximately 58% of revenues
during 1996. The percentage of hardware sales to total revenues decreased from
approximately 56% during 1995 to approximately 28% during 1996. The cost of
revenues from software revenue is less than 25%, while the cost of revenues from
hardware sales varies from 50% to 80%. The cost of revenues for 1995 and 1994
also reflect management's decision to keep gross profit margins narrow in order
to encourage potential buyers to become acquainted with the products offered.

SELLING, MARKETING AND CUSTOMER SUPPORT

Selling, marketing and customer support expenses have increased
significantly each year from approximately $217,000 in 1994, to approximately
$947,000 in 1995 and approximately $1,494,000 in 1996. Selling, marketing and
customer support expenses in 1996 and 1995 include approximately $1,300,000 and
$725,000 respectively, for the hiring and related travel expenses of full-time
marketing and sales personnel, approximately $80,000 and $75,000, respectively,
for the development of product brochures and other marketing material and
approximately $80,000 and $150,000, respectively, for the costs related to the
Company's representation at trade shows.

RESEARCH AND DEVELOPMENT

Research and development expenses have continued to increase from
approximately $198,000 in 1994 to approximately $930,000 in 1995 and
approximately $1,179,000 in 1996. The Company's extensive effort to develop its
products for Microsoft Windows NT and the continued development of GEM
represented the majority of the research and development expenditures during
1996. 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, subject to
the availability of funds for that purpose.

GENERAL AND ADMINISTRATIVE

General and administrative expenses have increased from approximately
$1,200,000 per year during 1995 and 1994 to approximately $1,600,000 during
1996. The primary increases in general and administrative expenses in 1996 when
compared to 1995 and 1994 are approximately $263,000 in legal expense related
primarily to the Seolas litigation, approximately $150,000 in investment banking
fees paid to Cowen & Company and amortization of goodwill related to the merger
of Cimetrix (USA) Incorporated into Cimetrix effective August 31, 1995, which
amortization was approximately $217,000 during 1996 compared to approximately
$72,000 during 1995.

COMPENSATION -- STOCK OPTIONS

During 1996, the Company recorded, in accordance with APB 25, the
compensation cost related to all options granted during 1996 and any 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 1996
was approximately $685,000.

15
<PAGE> 17

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.

GAIN ON DISPOSITION OF ASSETS

The Company sold its facility in Provo, Utah, in September 1996 and
recognized a gain of approximately $352,000. The Company had gains from the sale
of various other assets of approximately $8,000 during 1996.

MINORITY INTEREST IN LOSS FROM OPERATIONS OF SUBSIDIARY

The Company's loss in the operations of its subsidiary, Cimetrix (USA)
Incorporated was reduced by $199,000 in 1995 and $100,000 in 1994 to reflect the
share of the loss attributable to the minority interest of Cimetrix (USA)
Incorporated. Cimetrix (USA) Incorporated was merged into Cimetrix effective
August 31, 1995.

EXTRAORDINARY ITEM

The Company recorded an extraordinary item of $188,000 in 1994 relating to
the forgiveness of debt owed by the Company, net of taxes.

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 in the absence of the offering.

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-$600,000.
Management does not believe that the Company currently has sufficient funds to
meet its capital expenditure requirements for 1997.

INFLATION

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.

16
<PAGE> 18

FOREIGN TRADE

Sales to foreign customers accounted for approximately 43% of the Company's
revenues in 1996. 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. Nevertheless, the
Company is subject to the economic and political risks inherent in foreign
trade, including currency controls, expropriation of property, foreign taxation
of sales, air transportation disruptions, changes in currency exchange rates,
changes in tax, tariff and freight rates, and governmental regulations that
establish other trade barriers.

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.

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.

17
<PAGE> 19

BUSINESS

The ensuing description of the Company's business might contain both
statements of historical fact and forward-looking statements. Examples of
forward-looking statements include: (i) projections of revenue, earnings,
capital structure and other financial items, (ii) statements of the plans and
objectives of the Company or its management, (iii) statements of future economic
performance, and (iv) assumptions underlying statements regarding the Company or
its business. See "Risk Factors" for additional information regarding
forward-looking statements, including a list of important factors, risks, and
uncertainties that could cause actual results to differ materially from any
forward-looking statements.

Cimetrix Incorporated ("Cimetrix" or the "Company") was incorporated under
the laws of the State of Utah on December 23, 1985. In September 1990, Cimetrix
merged into a newly incorporated Nevada company to change its domicile to
Nevada.

In October 1989, Cimetrix began developing and marketing software products
that control the motion of automated manufacturing devices by entering into an
exclusive license agreement with Brigham Young University ("BYU"). The license
agreement granted Cimetrix the rights to develop and market robot inaccuracy
compensation techniques developed in conjunction with an off-line programming
system known as ROBLINE and an accuracy enhancing calibration technique known as
ROBCAL. Effective July 5, 1995, the Company purchased the ROBCAL and ROBLINE
technology that was licensed from BYU.

ROBLINE and ROBCAL, together with other technology developed by the
Company, have enabled the Company to develop the Cimetrix Open Development
Environment ("CODE") operating software system, which includes "open
architecture" standards-based, operating systems software and controller
hardware that allow manufacturing engineers to replace cumbersome proprietary
systems with open systems when designing automated workcells. The Company's
products are designed to allow the customer to select "best of class" automation
components and to help reduce costs and time involved in designing, implementing
and maintaining automation systems.

On June 7, 1994, Cimetrix formed a subsidiary, Cimetrix (USA) Incorporated,
which was organized under the laws of the State of Florida. In July 1994,
Cimetrix acquired 20,000,000 shares of the common stock of Cimetrix (USA)
Incorporated in exchange for the transfer of substantially all of the assets of
Cimetrix and the assumption of $635,000 of convertible promissory notes.
Cimetrix (USA) Incorporated subsequently sold shares of its common stock to
private investors resulting in an approximate 12% minority interest. Effective
August 31, 1995, Cimetrix (USA) Incorporated was merged into Cimetrix and each
share of Cimetrix (USA) Incorporated common stock held by the minority
shareholders was converted into one share of Cimetrix.

The Company signed an OEM Agreement with Fuji Machine Mfg. Co., Ltd. on
September 25, 1996. The Agreement provides for Fuji Machine to purchase a
minimum number of copies of the Company's CIM Control CODE software. On June 25,
1997, the Company announced that it had been selected by Fuji to supply its CODE
software products as the control standard for Fuji's Surface Mount Technology
(SMT) equipment.

GENERAL

Cimetrix is the developer of the world's first open architecture,
standards-based, personal computer (PC) software for controlling machine tools,
industrial robots and electronic industry automation equipment that operate on
the factory floor. Its CODE software products are based on standard computer
platforms (Intel Pentium CPU with ISA/PCI bus and Motorola PowerPC and VME bus)
and run on standard operating systems (UNIX and Microsoft Windows NT). Cimetrix
believes that manufacturing companies will increasingly demand open
architecture, PC-based controllers on the equipment that they purchase,
transforming the worldwide controller market from proprietary solutions to open
architecture, PC-based solutions.

Cimetrix CODE software is currently operational in production installations
on a variety of general industrial robots, specialized electronics industry
assembly and surface mount technology (SMT) machines, and to a limited extent,
CNC machine tools.

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THE INDUSTRIAL MOTION CONTROLLER MARKET

The worldwide market for industrial motion control is comprised of four
distinct segments: electronics, machine tools, industrial robots and high-end
programmable logic controllers (PLCs). All four segments utilize some form of
computerized motion controller technology to run automated mechanisms.

Electronics Industry

The electronics industry is one of the largest and fastest growing
industrial sectors using automated manufacturing technology. The electronics
market consists of a variety of vertical niches, including semiconductor wafer
fabrication, semiconductor back end, printed circuit board assembly (Surface
Mount Technology), and electronic component and disk drive assembly. The
products of the companies involved in these processes represent "leading edge"
technology and many manufacturers have had to develop specialized, proprietary
equipment that operates in "clean room" environments. Automation equipment
developed by the electronics industry is very expensive, with individual
mechanisms costing up to $500,000 each, versus $30,000 to $100,000 for general
industrial robots.

Since many electronics assembly end-users have been forced to develop
"in-house" manufacturing technology for specialized applications, they have
typically used internally developed, PC-based or UNIX-based controllers written
in C/C++ code. The Company believes that end-users are in need of a standard,
low-cost, open-architecture set of tools to enable them to efficiently develop
specialized control applications quickly. Responding to this, the United States
segment of the industry has formed an association known as NEMI (National
Electronics Manufacturing Initiative). On May 29, 1997, NEMI issued a press
release announcing the completion of Version 1.1 of its Specification for a Low
Cost Controller Application interface suitable for use in a variety of
electronics manufacturing applications (the "NEMI Specification"). The NEMI
Specification is aimed at defining an industry standard for open architecture
application programming interface ("API"). Cimetrix has been significantly
involved in the development of the NEMI Specification and complies with
substantially all of the NEMI Specification. As worldwide applications for
computer chip technology continue to expand, the variety and volume of
automation equipment in the electronics assembly industry is expected to
continue to grow rapidly.

Machine Tool Industry (CNC Controllers)

Machine tools consist of metal cutting machines, such as lasers, lathes,
milling machines machining centers and grinders, and also include metal forming
equipment, such as press brakes, turret punches and tube benders. These tools
are used by a wide variety of manufacturers. Machine tools utilize a computer
numerical control, or CNC-type, controller. Despite the PC revolution that has
taken place over the past decade, the underlying technology and software for
machine tool controllers has changed very little during the same period. Most
major machine tool manufacturers purchase proprietary controllers from several
CNC controller vendors. The interest level of tool manufacturers in open
architecture CNCs is very high. The proprietary CNC manufacturers are developing
ways to configure the graphical user interface of the CNCs so they appear to be
open. However, none of the CNC manufacturers has developed a true open
architecture controller that runs on a PC.

Robotics Industry

Industrial robots are used for tasks that are tedious, repetitive and
exhausting for humans and typically are employed to reduce the costs and improve
the quality of highly labor-intensive tasks. Industrial robots are multi-axis
manipulators used for welding, painting and material handling applications. The
automotive industry is the primary end-user of robots. Other end-users include
the steel, aerospace, heavy equipment and

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<PAGE> 21

electronics industries. To date, attempts by robot manufacturers to diversify
sales outside the automotive sector have been only moderately successful,
principally because the early products have been costly and difficult to use.

Driven by its high labor costs, Japan is the dominant user of robots in
manufacturing, with the United States second. Few industries outside of Japan
and the automotive sector have adopted robot technology, because it is currently
expensive to implement. Nearly all robot controllers are proprietary devices
manufactured by the major industrial robot vendors, which use their own robot
systems as a complete, proprietary solution. These robot controllers are only
compatible with robots supplied by the same vendor, and in many cases, are only
compatible with specific robot models of that vendor. These systems represent an
enormous technology investment "legacy," and are difficult and time consuming to
program, configure, implement and modify.

Programmable Logic Controllers (PLC)

Discrete control units, such as those that run conveyers or equipment using
sensors and on/off controls, were historically controlled by bulky mechanical
relays that lacked reliability in the dusty environment of the factory floor.
Over time, PLCs replaced banks of relays. The growth of the PLC industry is
driven by increasing product functionality and better price/performance to the
end-user.

THE MOVEMENT TOWARDS AN OPEN ARCHITECTURE CONTROLLER

Over the past 15 years, the primary driver for the revolution and
proliferation regarding office technology was the standardization of the PC
operating system, processors and buses. Expensive hardware components became
commodities, with powerful software applications delivering value to the system.
The Company believes this movement to standards-based systems is beginning in
manufacturing.

Currently, the automation control industry consists of a complex,
heterogeneous environment of vendor-specific machines and proprietary control
systems that are limited in function and expensive to use. Motion controllers
were originally developed without the benefit of the powerful PCs available
today. Robot and controller vendors were forced to develop motion controllers
internally, creating an environment in which each vendor's system remains
incompatible with the programming and interface methods of the others. As a
result, companies today have factory floors with islands of automation,
including robots, machine tools and sensors, each separated by vendor-specific
hardware peripherals, operating systems and programming languages. The
proprietary nature of these systems constrains the design of optimal workcells
and prevents end-users from managing the factory floor as a coordinated and
unified technology platform. The current environment significantly constrains
overall flexibility, responsiveness and productivity. Proprietary control
systems create numerous constraints for end-users including:

- High initial cost for the equipment, high maintenance costs and high
training costs

- Inability to deploy, redeploy and easily integrate components (no "mixing
and matching")

- Duplicative development and implementation programming required by each
vendor

- Inflexible technology development dictated by vendors (legacy technology)

Management believes that Cimetrix is positioned to become a leading
provider of software for both the general manufacturing industries that
currently use machine tool CNC controllers, robot controllers, and certain
"high-end" PLC controllers, as well as the electronic industries that are
currently using in-house developed controllers. Manufacturers are taking a
proactive role in demanding a switch from proprietary controllers to standard,
open architecture solutions.

ENABLING TECHNOLOGIES DRIVE THE SOLUTION

The current environment of multiple, vendor-specific technology platforms
emerged from the machine tool industry at a time when PCs were too slow and
lacked the power and flexibility required for motion control operations. Vendors
developed motion controllers with proprietary hardware platforms, operating

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<PAGE> 22

systems and assembly code programming languages that often locked end-users into
older, slower processors. The software tools on these controllers are
constrained by older, legacy hardware and proprietary operating platforms.
Hardware upgrades for simple items, such as expanded memory, can cost ten times
that of equivalent PC upgrades.

- PC technology has now advanced so significantly that today's low cost PCs
have several times more processing power than many higher cost
proprietary controllers.

- The rapid growth and acceptance of PC technology has facilitated a
similar increase in the development of software applications.

- Modern operating systems such as UNIX and Microsoft Windows NT offer
features, such as multi-tasking, multi-threading, prioritized processing,
symmetrical multi-processors and real-time capabilities, that set the
stage for a common software solution for machine motion control.

- New and advanced motion control servo cards, machine vision processor
cards and input/output (I/O) cards are now available from a variety of
vendors for use on standard hardware platforms in the industrial
environment.

THE CIMETRIX SOLUTION

Cimetrix software currently provides all of the following advantages:

1. Lower Hardware Costs. Because Cimetrix software products are based
on standard computer platforms (Intel Pentium CPU with ISA/PCI bus and
Motorola PowerPC with VME bus) and run on standard operating systems (UNIX
and Microsoft Windows NT), Cimetrix customers benefit from the tremendous
price/performance advantage of the PC platform. In addition, the open
architecture of Cimetrix software enables Cimetrix customers to "mix and
match" components to obtain the optimal motion card, I/O subsystem and
vision system for the application.

2. Reduced Application Development Time. The Cimetrix CIMServer
utilizes an extensive library of APIs to access the underlying Cimetrix
motion control algorithms, which enable application developers to program
at very high levels using the programming languages of their choice.
Cimetrix customers estimate this reduces development efforts for new
applications by approximately 50%.

3. Reduced Time to Market. The Cimetrix CIMServer contains two nearly
identical versions: (i) an off-line simulation version with output to a
video driver (CIMulation), and (ii) an on-line version with output to
motion control equipment (CIMControl). Simulation and control are achieved
with the same application software and API set, enabling concurrent
engineering and reduced time to market. Cimetrix customers estimate the
ability to develop, test and debug an entire application in simulation mode
prior to any hardware becoming available reduces the overall time to market
by approximately 50%.

4. Customers control their own destiny. Cimetrix software provides all
of the software source code hooks for Cimetrix customers to implement their
own custom software or algorithms. This ensures that Cimetrix customers
control their own destiny and are able to develop specialized or
proprietary software to differentiate their products.

STRATEGY AND CUSTOMERS

Cimetrix has targeted three key audiences for the commercialization of its
products:

1. End-user production installations

2. OEM customers through pilot projects

3. Systems integrators to service additional end-users

The first step of the Cimetrix strategy was the installation of Cimetrix
software to continuous (i.e., 24 hours a day, seven days a week) production
environments across a wide variety of applications. Cimetrix targeted strategic
end-users promoting open architecture standards for their own manufacturing and
produc-

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<PAGE> 23

tion systems. Cimetrix obtained contracts to provide open architecture
controller solutions for specific projects for end-user customers. These initial
end-user installations, which typically range from one to 25 controllers,
provide valuable reference accounts that can validate the benefits of Cimetrix's
open architecture technology. These end-user customers also provide strong
recommendations and endorsements to their strategic equipment suppliers to make
arrangements with the Company to utilize Cimetrix software.

The second step of the Cimetrix strategy is to work closely with strategic
OEM customers that build CNC machine tools, industrial robots and electronics
assembly/SMT equipment. Cimetrix has identified the leading machine suppliers in
these markets that produce over one thousand machines per year and represent the
highest volume sales channel for Cimetrix. The control software for these
customers is a critical decision that affects the future of their companies.
Accordingly, Cimetrix has developed an OEM customer sales cycle that involves a
pilot project undertaken in cooperation with the OEM customer to validate that
Cimetrix software can effectively control the OEM customer's machine, as well as
provide the anticipated benefits. Cimetrix is currently in various stages of the
OEM sales cycle with several leading OEM customers in the CNC machine tool,
industrial robots and electronic assembly/SMT markets. The sales cycle is
typically between three and twelve months. See "Risk Factors -- Product Life
Cycle; Need to Develop New Products and Enhancements."

The third step of the Cimetrix strategy is to use systems integrators to
meet the needs of additional end-user customers. Cimetrix is utilizing this
approach to re-direct the Cimetrix systems integration staff to work directly
with leading OEM customers. Cimetrix has now established a small, but growing
network of systems integrators across the United States and Canada with
expertise in machine tools, industrial robotics and electronics assembly.

CODE PRODUCT LINE OVERVIEW

The Company's primary product suite -- the CIMETRIX OPEN DEVELOPMENT
ENVIRONMENT (CODE) -- is an integrated suite of software tools designed to run
on PCs that enables rapid off-line controller programming, applications
development, simulation and debugging of automated workcells, as well as the
seamless implementation of workcell control. CODE runs on the Microsoft Windows
NT platform as well as several variations of the UNIX operating system,
including Lynx, a hard real-time operating system. CODE makes concurrent
engineering possible because simulation and control are accomplished using the
same application program, thereby dramatically reducing application development
and implementation times. CODE's multi-platform capability enables users to
choose from the entire spectrum of computer suppliers, resulting in "best of
class" hardware and software configurations.

The core component of the CODE architecture is the CIMSERVER. There are two
nearly identical versions of the CIMServer, an off-line simulation version with
output to a video drive (CIMULATION) and an online control version with output
to motion control and I/O control card drivers for controlling machines
(CIMCONTROL). In both versions, the CIMServer communicates with and coordinates
application programs, communicates with the actual or simulated physical
devices, performs motion planning, maintains the workcell model and provides I/O
services between the controller and the workcell sensors and actuators. Unlike
existing systems, simulation and control are achieved with the same software,
enabling concurrent engineering and reduced implementation time. This technology
has been packaged into a set of standard products consisting of the core
products and a variety of supporting products.

- CIMULATION. A version of the CIMServer in which workcell operation is
simulated on a graphical workstation. The graphical simulation provides
the programmer with an off-line, virtual workcell, viewed as a
three-dimensional solid or wire frame graphical model with fully
functional kinematics. All application programs can be directly
transported for use with CIM Control. CIMulation includes CODE API which
is a standard C/C++ library of over 400 function calls used for
automation application development. Functions are provided for motion
control, machine vision, I/O control, off-line collision checking and
other common workcell operations. Also included is CIMTools, which is a
collection of general purpose applications which provide the standard
user interface to the CODE

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System. In addition to C/C++, the CODE API is provided for Visual Basic
and Borland's Delphi, two popular rapid application development
environments for Windows NT.

- CIMCONTROL. A version of the CIMServer that allows on-line mechanism and
I/O control through off-the-shelf servo and I/O control cards. It turns
any standards-based computer (PC or VME) into an open architecture
controller. Unlike competing, proprietary workcell controller software,
CIMControl's client/server architecture simultaneously can drive several,
dissimilar types of mechanisms, such as robots and machine tools,
manufactured by different vendors. CIMControl also includes the CODE API
and CIMTooIs.

CIMulation and CIMControl are separate versions of the same CODE server.
Applications developed using the CODE API run the same with either server
seamlessly. No complex translation is required from workcell design and
simulation to workcell control because applications run in the native CODE
environment.

CODE SUPPORT TOOLS

CODE Support Tools is a set of high productivity software tools designed to
increase the speed of deployment of systems based on CODE.

- CIMTOOLS. A point-and-click tool that provides access to the shared CODE
database model used in both CIMulation and CIMControl. CIMTools allows
developers to create and edit new mechanisms and workcell geometries,
teach points and paths, manipulate graphical views and examine the state
of the machine or workcell. CIMTools includes a software teach pendant
and signal monitoring feature.

- CIMBUILDER. A rapid application development (RAD) environment based
around the Tcl/Tk language. It is an alternative to mass-market
development environments, such as Visual Basic, Visual C++ and Borland
Delphi, and has been designed to simplify and accelerate the development
of robotic and machine applications. CIMBuilder encapsulates the CODE
API, a comprehensive set of functions for workcell and machine control
and provides sophisticated graphical user interface (GUI) development
tools.

- CIMTUNE. A software utility that simplifies the process of setting up
CODE based servo systems. CIMTune provides a GUI-based, point-and-click
environment for defining servo card parameters, servo tuning and system
de-bugging. Versions are available for Delta Tau, PMAC and Motion
Engineering, Inc. servo cards. CODE also supports the use of the motion
card vendor's own tuning package.

- CIMVISION. A collection of vision tools that simplify the development of
machine vision guidance applications for CODE-based systems. Based on the
popular Cognex vision hardware, CIMVision provides two ways of
integrating machine vision functionality. For users of CIMBuilder,
command templates encapsulate key features of the vision system and its
functions into convenient fill-in-the-blank panels. Alternatively, an
application programming interface (API) is provided for developers using
C/C++.

- CIMCAL. A collection of software interfaces that provide two significant
enhancements to a CODE-based system. First, CIMCal allows system
developers to determine mechanism tool and sensor (e.g. camera) pose
(position & orientation) relative to each other and to other system
locations. Second, CIMCal provides patented algorithms for improving the
accuracy of mechanisms.

The Company continues to invest heavily in research and development to
continue to build its position in open architecture controllers and open systems
automation products. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Research and Development." Cimetrix's goal
is to build its API set into the most complete and robust open architecture API
available. New product developments are prioritized and scheduled based on
customer input and ongoing evaluations of new software technologies as they
apply to the Cimetrix business model. After end-user or OEM requirements are
documented, manpower estimates are established and new products are scheduled
for release. This process is documented in the Cimetrix Software Quality
Standards. Major new developments for 1997 are to improve

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the motion and I/O interface to allow easier integration of new servo cards and
tuning packages, to upgrade to Microsoft Windows NT 4.0 and to further adapt
Cimetrix APIs to conform to and drive worldwide standards. In addition, Cimetrix
is aggressively developing the GEM product line to enable customers to integrate
even more third party, open architecture components into their controllers.

GEM PRODUCT LINE OVERVIEW

Cimetrix offers two GEM products, GEM Equipment Manager and GEM Host
Manager, for implementing GEM (Generic Model for Communications and Control of
SEMI Equipment) for communications and control of equipment. GEM is a worldwide
communications standard developed by the semiconductor industry (Semiconductor
Equipment and Materials International (SEMI) Standard E30), which is used
extensively throughout semiconductor wafer fabs and is spreading into SMT and
general electronics. Equipment builders have been reluctant to provide
GEM-compliant technology because of the difficulty in obtaining GEM compliance.
Without GEM Equipment Manager, it can take between three and six months to
modify a piece of equipment to be GEM compliant. Recognizing the need to
simplify this process, several of the Company's customers urged Cimetrix to
develop a comprehensive tool set for implementing the GEM standard. The
resulting products, GEM Equipment Manager and GEM Host Manager, have broad
application not only for CODE-based controllers but for many other types of
factory equipment. These products facilitate rapid GEM compliance and equipment
to host interfacing in a matter of weeks.

GEM Equipment Manager makes the process of GEM implementation practical and
easy. Prior to Cimetrix's release of its GEM products, the process for becoming
GEM compliant was long and tedious. Now the developer of the GEM interface can
achieve immediate results because 95% of what is needed for GEM communications
comes ready to use from Cimetrix. The remaining 5% is machine specific
information that can be easily incorporated into Cimetrix's GEM products using
its graphical user interface. This allows the developer to focus its effort
towards building a better application. The GEM products are designed to run on
PCs and UNIX workstations.

GEM Equipment Manager is a development package for equipment manufacturers
seeking to attain GEM compliance quickly and easily. Immediately after
installation, the software is able to communicate with any GEM capable host
system and respond to all GEM SECS-II messages. Easy to use tools and API
functions enable developers to quickly and easily customize the GEM interface
for the intended equipment.

GEM Host Manager is a development package for users of GEM compliant
equipment seeking to create a host interface to the equipment. Immediately after
installation, the software is able to communicate with multiple GEM compliance
pieces of equipment and verify most GEM capabilities. Powerful API functions and
a graphical user interface tool enable developers to quickly and easily develop
a host system that utilizes the extensive line management features made possible
by the GEM standard.

<TABLE>
<CAPTION>
FEATURES BENEFITS
- -------- --------
<S> <C>
Fully functional GEM compliant Enables quicker system startup and slashes
communication to use API enables high system development costs by reducing
level programming programming time
Robust on-line monitoring and diagnostic Minimizes downtime by quickly verifying
tools functionality and identifying problems.
</TABLE>

COMPETITION -- CODE

The manufacture and sale of automation technology is a highly competitive
industry. Cimetrix believes that its competition is divided into four groups:
robot manufacturers, machine tool controller manufacturers, simulation
developers, and electronics assembly equipment manufacturers.

There are several robot manufacturers who design and sell proprietary
controllers and software for their robots. Most of these companies, including
Adept Technologies, Asea Brown Boveri Group (ABB), Fanuc, Kawasaki, Kuka
Welding, Mitsubishi Electric, Nachi, Panasonic, Sankyo, Seiko, Sony, Staubli,
Yamaha, and Yaskawa Electric (Motoman), are much larger than Cimetrix and have
significantly greater resources than

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<PAGE> 26

Cimetrix. Although their hardware is generally considered very good, management
believes that these manufacturers' software and controllers are limited in their
applications because of their closed, proprietary design. While the Company will
not be manufacturing robot devices in direct competition with these companies,
its controllers and software will directly compete with their proprietary
controllers. Management believes the Company's products are generally less
expensive than the competing products.

Some of these manufacturers of robot controllers claim to have an "open
architecture" design. However, management believes that they are not "open
architecture" designs because they use a closed, proprietary computer language
that, in most cases, is not translatable into other proprietary languages, and
are not easily expandable. This can make modification of the controller's
functions difficult. Additionally, management understands that it is difficult
for Adept's controllers to interface across a local area network.

Machine tools consist of metal-forming equipment, such as press brakes,
turret punches and tube benders, and metal cutting machines, such as lasers,
lathes, milling machines and machine center grinders equipment, and are used by
a wide variety of manufacturers. Machine tools utilize a computer numerical
control, or CNC-type, controller. Despite the PC revolution that has taken place
over the past decade, the underlying technology and software for machine tool
controllers has changed very little during the same period. Most major machine
tool manufacturers purchase proprietary controllers from several CNC control
system vendors, including Allen-Bradley, Fanuc, Mitsubishi, Siemens and Toshiba.

Cimetrix has identified at least three major competitors in the field of
robot software simulation development and robot accuracy correction: Deneb
Robotics, Inc., Silma (a subsidiary of Adept Technologies); and Technomatics.
Although these three companies market systems that are competitive on a stand-
alone basis for simulation, management believes they are unable to match the
Company's ability to achieve both simulation and control with the same program,
enabling concurrent engineering and reduced implementation time. Management also
believes that other simulation companies products do not have the same
flexibility of off-line programming or precision robot control as compared to
the Company's products.

The final group of competitors is composed of electronics assembly
equipment manufacturers who supply controllers with their electronics assembly
equipment. This group includes Fuji Machine, Panasonic, Siemens, Universal
Instruments, and numerous others.

In addition, Hewlett-Packard recently announced an open architecture
machine tool controller that will be in direct competition with the Company.
Hewlett-Packard's product will incorporate motion controller software technology
it acquired in its acquisition of Trellis Software & Controls, Inc.
Hewlett-Packard's fundamental business is selling hardware, and it has
established a hardware group for this purpose. Cimetrix believes that major OEM
customers and distribution partners will want to develop their own hardware
solutions.

Management believes that most, if not all, of the competitors for the
Company's CODE software products currently have greater financial resources and
market presence than Cimetrix does. Accordingly, these competitors may be able
to compete very effectively on pricing and to develop technology to increase the
flexibility of their products. Further, each of these competitors has already
established a share of the market for their products, and those manufacturers of
machine tools, industrial robots and electronics assembly equipment which use
their own proprietary controllers and software may find it easier to limit
market penetration by the Company because of the natural tie-in of their
controllers and software to their mechanisms. Management is uninformed as to
whether any of these competitors are presently developing additional technology
that will directly compete with the Company's product offerings.

COMPETITION -- GEM

The GEM market in the SMT segment is relatively new and emerging. The
Company believes it has a significant opportunity to sell its GEM software
products in this new market. There is not presently a market leader in this
segment of the GEM market and the Company hopes to become the leading supplier
of GEM software to the SMT segment.

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<PAGE> 27

The GEM market is relatively mature in the semiconductor segment and
presently dominated by several suppliers. The leading supplier of equipment-side
tools to build GEM applications is GW Associates. GW Associates supplies
callable C program libraries that support SEC-II communications, which is the
communications underpinning of the GEM communications model. This approach
forces the developer to build its own GEM communications program to initiate
equipment communications, error handling routines and even call-back routines.
GW Associates supports many operating systems and has a large installed base of
users. Other competitors include US Data, Real Time Performance, and a number of
small companies.

The main competitor for the host-side tools is FASTech Integration with
their WinSECS and Tool Object Model products. WinSECS is Windows NT based,
object oriented and provides OLE custom control. Tool Object Model is still in
beta testing and will not be commercially available until next year. This
approach is flexible and powerful and Cimetrix may eventually have to upgrade
its products to include an Active X interface to enable its offerings to remain
competitive.

Management believes that most, if not all, of the Company's competitors for
its GEM software products currently have greater financial resources and market
presence than Cimetrix. Accordingly, these competitors may be able to compete
very effectively on pricing and to develop technology to increase the
flexibility of their products. Management is uninformed as to whether any of
these competitors are presently developing additional technology that will
directly compete with the Company's product offerings.

SALES AND MARKETING

The Company's sales and marketing team targets three primary CODE markets:
Electronics Assembly/SMT, Robotics, and CNC Machine Tools. In addition, the
sales and marketing team targets key GEM opportunities. The sales and marketing
team is responsible for identifying key end-user customers and the top-tier OEM
machine suppliers in each primary market. The Company's direct sales force is
coordinated by an Executive Vice President of Sales and two supporting regional
sales managers. Each salesperson is responsible for pursuing potential customer
leads in his or her territory and for qualifying customer relationships. The
Company's sales offices are located in Boston, Los Angeles and Milwaukee.

CUSTOMER PROGRAMS

The Customer Programs team is responsible for the initial integration of
Cimetrix software with an OEM's mechanism. Working closely with sales
professionals, this term verifies the OEM's requirements and design and
integrates Cimetrix software using standard products in a defined period.
Skillsets on this team include servo tuning, inverse kinematics design, vision,
software, interface board design, wiring, systems integration and program
management.

SOFTWARE DEVELOPMENT

The Software Development team is responsible for producing quality software
products on time. All products are managed by releases and follow the Cimetrix
Software Quality Standards. Skillsets on this team include computer science and
mechanical engineering. The functionality included in new releases is jointly
established by the Marketing and Sales teams, the Chief Engineer, and the
Executive Vice President of Software Development.

The Technical Services team supports Cimetrix customers and development
engineers and performs some minor manufacturing activities. Their activities
include:

- Twenty-four hour technical support on the entire Cimetrix product line.

- Customer training, including monthly training sessions in Utah as well as
customer-site training. The Company's comprehensive training modules are
typically two to three-day courses, depending on the product. In 1996, 24
training sessions were held for various Cimetrix products. This schedule
will grow to approximately 50 courses in 1997. Typical attendees include
technical and evaluation personnel from end-users, OEMs and systems
integrators.

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- Full documentation of all applications, which will be available on CD-ROM
in the fourth quarter of 1997.

- Software quality and systems testing so that the Technical Services team
is the "first customer" of any new products or releases. A comprehensive
configuration management system ensures proper release methods.

INTELLECTUAL PROPERTY RIGHTS

The open architecture controller technology on which the Company's software
is based was developed from 1984 to 1989 by a team of BYU engineers led by Dr.
W. Edward Red, Dr. Steven Sorensen and Dr. Xuguang Wang. In 1989, Cimetrix
signed an exclusive license with BYU for the development of these technologies
for commercial purposes. Shortly thereafter, Dr. Sorensen and Dr. Wang joined
Cimetrix. Effective July 5, 1995, Cimetrix purchased from BYU all the rights,
title, interest and benefit to this intellectual property. To date, more than
260 man-years have been invested in the development of Cimetrix's open
architecture software technology.

The technology purchased from BYU, along with other technology developed
internally, is proprietary in nature. The Company has obtained two patents on
certain aspects 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
timely register 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 to protect the proprietary nature of its technology. Although the
Company capitalizes certain software development costs, no cost has been
capitalized with respect to the patents, and they are not considered material to
the Company's business.

MAJOR CUSTOMERS, BACKLOG AND FOREIGN SALES, AND CLASSES OF PRODUCTS

Approximately 34% and 14% of the Company's revenues during 1996 were from
Fuji Machine Mfg. Co., Ltd. and Sandia National Labs, respectively. No other
single customer accounted for more than 10% of the Company's revenues during
1996. The Company had four customers, AT&T (16%), Cybex Technologies (10%),
Hewlett-Packard (26%) and Motorola (29%), which individually were 10% or more of
the Company's revenues during 1995 and which together accounted for
approximately 81% of the Company's total revenue during 1995. Loss of the
Company's relationship with Fuji could materially adversely affect the Company.
See "Risk Factors -- Dependence on a Significant Customer."

At August 22, 1997, the Company's backlog of orders from customers for
products to be shipped or application engineering services to be performed
during the remainder of 1997 and through 2001 was approximately $2,500,000. The
Company fulfilled during the first six months of 1997 substantially all of its
approximately $450,000 backlog of orders at December 31, 1996. In addition, at
August 22, 1997, the Company has signed support service agreements that are
expected to generate approximately $100,000 in revenues during the next six
months. During the year, approximately 43% of the Company's revenues were from
sales to companies based in foreign countries, principally Japan. The Company is
in the process of establishing a sales office in Japan. The Company did not have
any significant foreign sales in 1994 or 1995.

The Company's revenues in 1996 from the sale of hardware, software and
software support services were 28%, 58%, and 14%, respectively. The Company's
hardware, software and software support service segments accounted for 56%, 27%
and 17%, respectively, of the Company's revenues in 1995. The Company's sales in
1994 consisted mostly of prototype software products.

PERSONNEL

The Company currently has 51 employees, 32 of which are involved in the
technical development of products, two in manufacturing, eight in sales and
marketing, and nine in clerical and administrative positions.

27
<PAGE> 29

None of the employees of the Company is represented by a union or subject to a
collective bargaining agreement, and Cimetrix considers its relations with its
employees to be generally satisfactory.

PROPERTIES

The Company sold its 18,500 square foot facility in Provo, Utah in
September 1996 and leased the space back from the purchaser until February 28,
1997. Effective March 1, 1997, Cimetrix moved to a facility at 6979 S. High Tech
Drive in Midvale, Utah (about six miles south of Salt Lake City), which it
leases pursuant to a five-year lease. The new facility consists of 32,000 square
feet, of which approximately 20,000 square feet is office and engineering space
and approximately 12,000 square feet is manufacturing and storage space.

The Company leases 4,754 square feet of office space in Tampa, Florida, for
its principal executive office pursuant to a lease that expires on June 30,
2000. The Company also leases approximately 300 square feet for its sales
offices in Los Angeles pursuant to a short-term lease expiring within the next
six months. The Company also subleases 881 square feet of space in San Francisco
for an application engineering office pursuant to a sublease that expires on
June 30, 1998. Management of the Company considers the existing manufacturing
facilities and non-manufacturing facilities to be sufficient to accommodate the
anticipated growth of the Company for the immediate future.

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, which represents all of the
shares of the Company's Common Stock that they still own, following their return
of approximately 1,000,000 shares to the Company in 1994.

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 of the approximately 1,000,000 shares returned 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.

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<PAGE> 30

MANAGEMENT

OFFICERS AND DIRECTORS

The officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul A. Bilzerian...................... 47 President, Chief Executive Officer, and
Director
Paul A. Johnson........................ 40 Executive Vice President of Software
Development and Director
David L. Redmond....................... 46 Executive Vice President, Chief
Financial Officer and Director
David P. Faulkner...................... 42 Executive Vice President of Marketing
and Customer Programs
Robert H. Reback....................... 37 Executive Vice President of Sales
Andrea J. Berry........................ 41 Vice President of Human Resources
Ronald E. Hair......................... 41 Vice President of Technical Services
Norman J. Ibrahim...................... 43 Vice President of Sales
Dr. Steven Sorensen.................... 38 Vice President and Chief Engineer
Dr. Xuguang Wang....................... 34 Vice President of Strategic Programs
Douglas A. Davidson.................... 58 Director
Dr. Ron Lumia.......................... 46 Director
</TABLE>

Paul A. Bilzerian, President, Chief Executive Officer and a Director, has
been involved in the Company in various capacities since 1994. Mr. Bilzerian has
been the President of Bicoastal Holding Company, a private investment company,
since 1993. Mr. Bilzerian has been involved in more than $10 billion dollars of
corporate finance transactions. He has a B.S. degree in Political Science from
Stanford University and an M.B.A. degree from Harvard University. In 1989, Mr.
Bilzerian was convicted of two counts of federal securities fraud in connection
with his sales and purchases of Cluett Peabody and Hammermill Paper Company
stock, for which he served a prison term of 20 months and paid a $1.5 million
fine. Mr. Bilzerian also is subject to a civil injunction secured by the
Commission as a result of his conviction.

On August 5, 1991, Mr. Bilzerian filed for personal bankruptcy in the
Middle District of Florida, Case Number 91-10466-8P7. The case remains pending.
Sixteen claims were timely filed in Mr. Bilzerian's case. Nine claims remain
outstanding, six of which are disputed by Mr. Bilzerian. The claims against Mr.
Bilzerian total approximately $100 million, most of which is represented by
claims by the Commission and HSSM #7 Limited Partnership ("HSSM").

Five creditors have brought actions to bar Mr. Bilzerian's general
discharge in bankruptcy, including the Department of Justice and the SEC. The
actions by four of the creditors have been dismissed. The remaining action was
initially filed by a creditor which has since withdrawn its claim and which
voluntarily dismissed its action against Mr. Bilzerian. The Department of
Justice was substituted as the party plaintiff in the action. The complaint was
dismissed and the Department of Justice filed an amended complaint which was
also dismissed. The Department of Justice appealed the dismissal of its
complaint but later dismissed its appeal. After the Department of Justice
dismissed its appeal, the SEC was also substituted as the party plaintiff in
that action. The original complaint consisted of nine counts. Seven counts have
been dismissed and two are still pending.

Five creditors also brought actions to seek to except their individual
claims from discharge. The actions by three creditors were dismissed, however
actions by HSSM and the SEC remain pending. HSSM initially filed a thirteen
count complaint. The Bankruptcy Court dismissed eleven counts and granted
summary judgment in Mr. Bilzerian's favor with respect to the other two counts.
HSSM appealed the summary judgment in favor of Mr. Bilzerian with respect to one
count and prevailed on appeal, which rendered HSSM's rescission claim against
Mr. Bilzerian for fraudulent inducement nondischargeable. Mr. Bilzerian's appeal
of

29
<PAGE> 31

the reversal of the Bankruptcy Court's judgment in his favor remains pending.
The SEC brought a one count complaint which was dismissed by the Bankruptcy
Court and reversed on appeal. On remain, the Bankruptcy Court, sua sponte,
granted summary judgment in Mr. Bilzerian's favor. On appeal, the District Court
reversed and granted judgment in favor of the SEC, which rendered the SEC's
disgorgement judgment nondischargeable. Mr. Bilzerian's appeal remains pending.
Unless reversed on appeal, the claims held by HSSM and the SEC, totaling
approximately $100 million, will be nondischargeable in Mr. Bilzerian's
bankruptcy.

Paul A. Johnson, Executive Vice President of Software Development and a
Director, joined Cimetrix in May 1997. He had been a director of the Company
since January 1997. Before joining the Company, he had been the Director of
Consulting for Object Space, Inc. since January 1996. He was a Vice
President-Project Director for Citibank, N.A. during 1995 and a Senior
Consultant with Rothwell International during 1994. From 1992-1994, he was a
Director of Software Development with Thesis, Inc., and from 1985-1992 was a
Staff Engineer with Martin Marietta Astronautics. Mr. Johnson has a B.S. degree
in Physics from the United States Military Academy in West Point, New York and
M.S. degree in Mechanical Engineering from Georgia Institute of Technology.

David L. Redmond, Executive Vice President, Chief Financial Officer and a
Director, joined Cimetrix as Executive Vice President and Chief Financial
Officer in February 1997. He has been a Director of the Company since September
20, 1995. Mr. Redmond was Executive Vice President and Chief Financial Officer
of Pharmacy Corporation of America ("PCA") from 1995-1997. From 1991-1995, he
was Senior Vice President and Chief Financial Officer of Pharmacy Management
Services, Inc., a publicly-held company which was acquired by PCA in June 1995.
Mr. Redmond was formerly a partner with KPMG Peat Marwick, including six years
as Partner in Charge of KPMG's High Technology Practice in Florida. Mr. Redmond
is a certified public accountant and has a B.S. degree in Accounting from the
University of North Dakota.

David P. Faulkner, Executive Vice President of Marketing and Customer
Programs, joined the Company in August 1996. Mr. Faulkner was previously
employed from 1986-1996 as the Manager of PLC Marketing, Manager of Automotive
Operations and District Sales Manager for GE Fanuc Automation, a global supplier
of factory automation computer equipment specializing in programmable logic
controllers, factory software and computer numerical controls. Mr. Faulkner has
a B.S. degree in Electrical Engineering and an M.B.A. degree from Rensselaer
Polytechnic Institute.

Robert H. Reback, Executive Vice President of Sales, jointed the Company as
Vice President of Sales in January 1996 and was promoted to Executive Vice
President of Sales in January 1997. Mr. Reback was the District Manager of Fanuc
Robotics' West Coast business unit from 1994-1995. From 1985-1993 he was
Director of Sales/Account Executives for Thesis, Inc., a privately-owned
supplier of factory automation software and was previously a Senior Automation
Engineer for Texas Instruments. Mr. Reback has a B.S. degree in Mechanical
Engineering and a M.S. degree in Industrial Engineering from Purdue University.

Andrea J. Berry, Vice President of Human Resources, joined the Company in
November 1996. From 1990 to 1993, Ms. Berry was a consultant with Organizational
Dynamics, Inc., an international company which assisted organizations with
continuous quality and self-managed work team implementation. She was previously
employed for several years by TEAC America, Inc., as Corporate Manager, Human
Resources and Organization Development. Ms. Berry has a B.A. degree in History
from the University of California at Irvine and a M.A. degree in Human Resources
and Organization Development from the University of San Francisco.

Ronald E. Hair, Vice President of Technical Services, joined the Company in
March 1996. Mr. Hair served as the Director of Information Systems at Evans and
Sutherland Computer Corporation, where he worked from 1982-1996. Mr. Hair has a
B.S. degree in Computer Graphics from BYU.

Norman J. Ibrahim, Vice President of Sales, joined the Company in June 1996
as Midwest Manager of Sales. He was promoted to Vice President of Sales in
January 1997. Mr. Ibrahim was the Vice President of Sales for Framework
Technologies, an Allan Bradley Technology spin-off, from 1994-1996. From
1993-1994 he was East Coast Sales Manager of Thesis, Inc. His previous
responsibilities include various marketing and

30
<PAGE> 32

sales positions at Honeywell, Measurex Systems and Mentor Graphics. Mr. Ibrahim
has a B.S. degree in Chemical Engineering from the University of Washington.

Dr. Steven Sorensen, Vice President and Chief Engineer, has worked for
Cimetrix the past six years. Prior to joining the Company, Dr. Sorensen was an
Associate Professor at BYU, where he received his Ph.D. degree in Mechanical
Engineering. Dr. Sorensen has been working to develop the Cimetrix technology
for the past ten years and is one of the principal architects of many of the
Company's most important products.

Dr. Xuguang Wang, Vice President of Strategic Programs, has worked for the
Company during the past six years and has been working to develop the Cimetrix
technology for the past ten years. He received his Ph.D. degree in Mechanical
Engineering from BYU and is an expert in computer graphics, robot kinematics,
control tool and sensor calibration and robot accuracy enhancement compensation.

Douglas A. Davidson, a Director, is Chairman of the Board of PubNetics,
Inc., an electronic publishing software company, and since 1991 has been
managing partner of Pensar, a consulting company that provides executive and
consulting services to information and technology companies. During 1993-1994,
he served initially as a consultant and later as Executive Vice President for
XVT Software, Inc. of Boulder, Colorado, a leader in cross-platform GUI building
tools. From 1989-1991, Mr. Davidson served as President and Vice Chairman for
Network Management, Inc., a privately-held systems integration and services
company specializing in network management for local and wide area networks.
Prior to 1989, Mr. Davidson had other similar executive experiences with
Honeywell Information Systems, Mohawk Data Sciences, Display Data Corporation,
and Science Management Corporation for over 20 years. He received a B.A. degree
in Business Administration and Economics from Colby College.

Dr. Ron Lumia, a Director, has been a Professor in the Mechanical
Engineering Department of the University of New Mexico since October 1994. From
1986 through September 1994, Dr. Lumia served as Group Leader at the National
Institute of Standards and Technology (NIST), performing research in the areas
of advanced automation, robotics, machine vision, and systems integration.
Previously, he taught at ESIEE (Paris, France), Virginia Tech, and the National
University of Singapore, where he consulted for a variety of companies. Dr.
Lumia received a B.S. from Cornell University and M.S. and Ph.D. degrees from
the University of Virginia, all in electrical engineering. He is the author of
over 100 technical papers.

TERMS OF OFFERING AND PLAN OF DISTRIBUTION

Subject to the conditions described below, the Company is offering a
minimum of $3,000,000 and a maximum of $10,000,000 of its 10% Senior Notes due
2002 at an offering price of 100% of face value. The Senior Notes will be sold
and issued in minimum denominations of $5,000 and additional whole multiples of
$1,000. Each subscriber will also receive for no additional consideration a
Warrant to purchase 250 shares of the Common Stock at $2.50 per share for each
$1,000 principal amount of Senior Notes purchased.

The Offering is not underwritten and is being made directly by the Company
on a best efforts basis through its officers, directors and regular employees
(other than Paul A. Bilzerian), who will not receive any sales commissions. The
Company will also sell the Securities to or through one or more broker-dealers
that will act as the Company's agent in its selling efforts. The Company will
pay compensation to each broker-dealer equal to seven percent of the offering
price of the Securities. Each broker-dealer will be required to take and pay for
only those Securities that it sells to the public.

All closing and funding procedures will be governed by the Subscription
Agreement executed by the Company and each subscriber. Copies of the
Subscription Agreement have been furnished to each prospective purchaser with
this Prospectus and should be read with care.

The Company may cancel, modify or terminate the Offering at any time
without notice and reserves the right to refuse or reject any subscription,
entirely or in part, for any reason or to waive the $5,000 minimum purchase
requirement. In addition, none of the Senior Notes will be sold in the Offering
unless executed Subscription Agreements for at least $3,000,000 aggregate
principal amount of the Senior Notes, and full payment therefor, have been
received by the Company before the expiration date of the Offering. Until the

31
<PAGE> 33

minimum sales condition of the Offering ($3,000,000) is satisfied, all payments
from subscribers will be deposited and held in a separate bank account of the
Company with Barnett Bank of Tampa, N.A., Tampa, Florida, that is not an escrow
account. If the minimum sales condition of the Offering ($3,000,000) is not
satisfied before the expiration date of the Offering, or if a Subscription
Agreement is rejected, or if the Offering is cancelled or otherwise not
consummated for any reason, the subscription payments received from subscribers
will be refunded promptly, without interest or deduction.

Any person desiring to purchase Senior Notes should execute in duplicate
and deliver to the Company at the address stated below a Subscription Agreement
in the form supplied by the Company and a counterpart signature page to the
Indenture, together with payment for the principal amount of Senior Notes to be
purchased:

Cimetrix Incorporated
Attention: David L. Redmond
100 North Tampa Street, Suite 3550
Tampa, Florida 33602

Payment for the Senior Notes is due in full when the Subscription Agreement
is tendered to the Company and must be paid by check or bank draft made payable
to the Company. A Subscription Agreement for any Senior Notes will be
irrevocable, but a subscriber's obligations under a Subscription Agreement will
terminate if it is rejected or not accepted by the Company on or before the
expiration date of the Offering. A Subscription Agreement will be accepted by
the Company only when it has been signed on behalf of the Company by a duly
authorized executive officer. The Company may reject any subscription. If a
Subscription Agreement is accepted by the Company, one countersigned copy will
be returned to the subscriber.

Each subscriber is responsible for selecting the method of delivering to
the Company her or his Subscription Agreement and payment and bears the risks
associated with the selected delivery method, including the risk of delays in
delivery or in delivery not being made for any reason. The Company suggests that
Express Mail or similar overnight carrier be used to ensure timely delivery. If
delivery of the Subscription Agreement and payment is made by regular mail, the
use of insured, registered or certified mail, return receipt requested, is
recommended.

The Offering will expire on November 21, 1997, subject to the Company's
right to extend the expiration date of the Offering one or more times until no
later than December 31, 1997. At any time before the closing of the sale of the
Senior Notes, the principal amount of Senior Notes that subscribers have agreed
to purchase may be reduced by the Company. Any such reduction will be on a pro
rata basis among all subscribers and the aggregate purchase price will be
reduced accordingly. Any excess purchase price received from a subscriber will
be refunded promptly, without interest.

If the terms of the Offering are amended in any material respect (including
an extension of the expiration date of the Offering), the Company will provide
supplemental disclosure, in the form of a post-effective amendment to the
Prospectus, to all subscribers and will provide subscribers a right to cancel
their subscription within a specified period of time.

The closing of the sale of the Senior Notes will occur promptly after the
expiration date of the Offering or, if sooner, the date when the Offering is
fully subscribed, subject to satisfaction of the minimum sales condition. The
Senior Notes and Warrants purchased by subscribers will be mailed or delivered
to them as soon as practicable following the closing of the Offering.

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<PAGE> 34

DESCRIPTION OF THE SENIOR NOTES

GENERAL

The Senior Notes will be issued under an Indenture among the Company and
each holder of a Senior Note. A copy of the Indenture in substantially the form
that it will be executed is filed as an exhibit to the Registration Statement of
which this Prospectus is a part and is incorporated by reference in this
Prospectus. See "Available Information." The Indenture and the Senior Notes will
be governed by and construed in accordance with the laws of the State of
Florida. The ensuing statements summarize certain provisions of the Senior Notes
and the Indenture, do not purport to be complete and are qualified entirely by
reference to the Indenture. Wherever particular sections or defined terms of the
Indenture are referenced, it is intended that those sections or defined terms
will be incorporated by reference. Capitalized terms not defined below have the
meanings assigned to those terms in the Indenture.

The Senior Notes will be issued only in fully registered form, without
coupons, in minimum denominations of $5,000 and additional whole multiples of
$1,000. The Senior Notes will mature on September 30, 2002, will be unsecured
obligations of the Company and will be limited to $10,000,000 aggregate
principal amount. There will not be a sinking fund for the Senior Notes. The
Senior Notes will bear interest from the date of issuance at the annual rate of
10% payable semi-annually on April 1 and October 1, commencing April 1, 1998, to
the registered holders at the close of business on the preceding March 15 or
September 15, as the case may be. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Unless other arrangements are
made, payments of principal and interest will be made by Company check mailed to
the address of the registered owner of a Senior Note, as shown in the Senior
Note Register maintained by the Registrar. Initially, the Company will act as
Registrar and Paying Agent. The Company may change a Paying Agent, Registrar or
Co-Registrar without notice to the holders of the Senior Notes. The Senior Notes
can be presented for payment exchange, transfer or registration at the principal
office of the Company.

RANKING

The Senior Notes will be unsecured obligations of the Company and will rank
on parity with all outstanding senior indebtedness of the Company. The Senior
Notes will also be effectively subordinated to all senior secured indebtedness
of the Company to the extent of the value of the assets securing that
indebtedness.

OPTIONAL REDEMPTION

The Senior Notes are not redeemable by the Company before October 1, 1999.
Beginning October 1, 1999, the Senior Notes will be redeemable at the Company's
option, as a whole or in part, in increments of $1,000, at any time or from time
to time, at the redemption prices stated below plus accrued interest, upon not
fewer than 30 or more than 60 days' advance notice mailed by first-class mail to
the holder's registered address as shown in the Senior Notes Register. The
redemption prices (expressed in percentages of principal amount) for the
12-month period commencing on October 1 of each year indicated are as follows:

<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ------ ----------------
<S> <C>
1999...................................................... 105%
2000...................................................... 103%
2001...................................................... 101%
</TABLE>

The Company will select the Senior Notes to be redeemed in a manner
complying with the requirements of any securities exchange or automated
interdealer quotation system on which the Senior Notes are traded or quoted and
otherwise pro rata by lot. On and after the redemption date, interest ceases to
accrue on the Senior Notes or the portions of them called for redemption.

33
<PAGE> 35

CHANGE OF CONTROL

Upon the occurrence of any of the following events (each a "Change of
Control") every holder of Senior Notes shall have the right to require the
Company to repurchase all or any portion of the holder's Senior Notes at a cash
price equal to 100% of their principal amount, plus accrued interest (if any) to
the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):

(i) any "person" (as that term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of
1934, except that for purposes of this clause a person will be deemed to be
a "beneficial owner" of all shares that the person has the right to
acquire, whether that right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
voting power of the then outstanding voting stock of the Company;

(ii) the persons who constituted the Board of Directors of the Company
on the original issuance date of the Senior Notes (together with any new
directors whose election by the directors or whose nomination for election
by the shareholders of the Company was approved by a vote of two-thirds of
the directors of the Company then still in office who were either directors
at the beginning of that period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Company's Board of Directors then in office; or

(iii) a merger or consolidation of the Company with or into another
person or the merger of another person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
person, and, in the case of any merger or consolidation, the securities of
the Company that are outstanding immediately before the transaction and
represent at least 100% of the aggregate voting power of the voting stock
of the Company are changed into, or exchanged for, cash, securities or
other property, unless pursuant to the transaction those securities are
changed into or exchanged for, in addition to any other consideration,
securities of the surviving corporation or a parent corporation that owns
all of the capital stock of such corporation that represent, immediately
after the transaction, at least 50% of the aggregate voting power of the
voting stock of the surviving corporation or its parent corporation, as the
case may be.

Within 30 days following any Change of Control, unless notice of redemption
of the Senior Notes has been given pursuant to the provisions of the Indenture,
the Company shall mail a notice to each holder of the Senior Notes stating: (1)
that a Change of Control has occurred and holder of Senior Notes has the right
to require the Company to repurchase the holder's Senior Notes at a price in
cash equal to 100% of the principal amount thereof, plus accrued interest (if
any) to the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding the Change of Control; (3)
the repurchase date (which shall not be sooner than 30 days or later than 60
days after the date the notice is mailed); and (4) the instructions determined
by the Company that a holder must follow for the repurchase of his Senior Notes.

If a Change of Control occurs, there is no assurance that the Company will
have sufficient funds available to pay the repurchase price for all of the
Senior Notes that might be delivered by the holders who elect to redeem their
Senior Notes pursuant to the Change of Control. The failure of the Company to
make or consummate a repurchase offer as a result of a Change of Control or pay
the purchase price when due will constitute an Event of Default. The existence
of mandatory repurchase rights upon a Change of Control may deter a third party
from acquiring the Company in a transaction that constitutes a Change of
Control.

Further indebtedness of the Company may prohibit certain events that would
constitute a Change of Control or require that indebtedness to be repaid or
repurchased upon a Change of Control. Moreover, the exercise by the holders of
Senior Notes of their right to require the Company to repurchase the Senior
Notes could cause a default under that indebtedness, even if the Change of
Control itself does not, due to the financial effect of the repurchase on the
Company. Finally, the Company's ability to pay cash to the holders of the Senior
Notes following a Change of Control might be limited by the Company's then
existing financial

34
<PAGE> 36

resources. There is no assurance that sufficient funds will be available when
necessary to make any requisite repurchase of the Senior Notes. The provisions
under the Indenture relating to the Company's obligation to repurchase the
Senior Notes as a result of a Change of Control may be waived or modified with
the written consent of the holders of a majority in principal amount of the
outstanding Senior Notes.

CERTAIN COVENANTS

The Indenture contains affirmative and negative covenants that require,
restrict or prohibit various actions by the Company.

Limitation on Indebtedness. The Company is prohibited from incurring total
Indebtedness (as defined in the Indenture) in excess of $10,000,000. This
limitation does not apply to indebtedness incurred for capital lease obligations
or for the purpose of financing all or part of the purchase price of assets or
property acquired or constructed in the ordinary course of business after the
original issuance date of the Senior Notes.

Limitation on Liens. The Company is prohibited from creating or permitting
to exist any Lien (as defined in the Indenture) on its original property or
assets to secure any Indebtedness, unless concurrently with the creation of the
Lien provision is made to secure the Senior Notes equally and ratably with the
indebtedness for as long as the other Indebtedness is secured. This limitation
does not apply to (a) Liens existing on the original issuance date of the Senior
Notes; (b) Permitted Liens (as defined in the Indenture); and (c) existing or
future Liens to secure Indebtedness incurred for the capital lease obligations
or for the purpose of financing all or part of the purchase price of assets or
property acquired or constructed in the ordinary course of business.

Limitation on Restricted Payments. The Company is prohibited from paying
any dividends with respect to the Common Stock, repurchasing shares of the
Common Stock, or repurchasing or redeeming subordinated obligations of the
Company before scheduled repayment or scheduled maturity. This limitation does
not apply to such payments made from the proceeds of sales of the Company's
debt, capital stock or capital contributions, repurchases of capital stock from
directors, officers, and employees of the Company pursuant to the terms of an
employee benefit plan or employment agreement, provided that the aggregate
amount of the repurchases does not exceed $1,000,000 in any one year and
$2,000,000 cumulatively, and other repurchases of capital stock that do not
exceed $500,000 in the aggregate.

Limitation on Affiliate Transactions. The Company is prohibited from
entering into any transaction (including the sale, lease, purchase or exchange
of any property or the rendering of any service) with any affiliate of the
Company (an "Affiliate Transaction") unless the terms thereof (1) are no less
favorable to the Company than those that could be obtained at the time in a
comparable arm's-length transaction with a person who is not an affiliate of the
Company and (2) if an Affiliate Transaction involves an amount in excess of
$1,000,000, (i) are set forth in writing and (ii) have been approved by a
majority of the members of the Board of Directors having no material personal
financial stake in the Affiliate Transaction.

Merger or Consolidation. The Company is prohibited from engaging in a
merger, consolidation or a sale of all or substantially all its assets unless:
(a) the resulting or transferee person assumes, the obligations of the Company
under the Senior Notes and the Indenture and, (b) immediately after giving
effect to the transaction, no Event of Default has occurred.

HOLDERS' AGENT

The Indenture does not provide for a trustee. The Company at any time may
designate a person (the "Holders' Agent") to act as agent for the holders in
accordance with the provisions of the Indenture. Any person appointed by the
Company must have corporate trust powers that satisfy the requirements of the
Trust Indenture Act.

If the Company fails to appoint a Holders' Agent within 20 days following
its receipt of a request to do so signed by the holders of at least 25% in
principal amount of the Senior Notes, the holders may proceed to appoint a
Holders' Agent, pursuant to a meeting of the holders described below or by
written consent signed by a majority in principal amount of the Senior Notes. At
any time there is not a Holders' Agent, the

35
<PAGE> 37

Secretary of the Company may, and on the written request of the holders of 25%
in principal amount of the Senior Notes shall, within 20 days, call a meeting of
the holders for the purpose of having the Senior Note holders designate a
Holders' Agent. At any such meeting, the presence in person or by proxy of the
holders of at least 50% in principal amount of the Senior Notes will constitute
a quorum of the holders. The vote of a majority in principal amount of the
Senior Notes present in person or by proxy at the meeting will be sufficient to
designate the Holders' Agent. A Holders' Agent appointed by the holders may be
removed by the affirmative votes of an absolute majority in principal amount of
the Senior Notes, either by written consent or at a meeting of the holders. A
Holders' Agent appointed by the holders need not have corporate trust powers
that satisfy the requirements of the Trust Indenture Act.

EVENTS OF DEFAULT

If an Event of Default (other than the bankruptcy, insolvency or
reorganization of the Company) occurs and is continuing, the Holders' Agent or
the holders of at least 25% in principal amount of the outstanding Senior Notes
may declare the principal of and accrued but unpaid interest on all the Senior
Notes to be due and payable. If an Event of Default relating to the bankruptcy,
insolvency or reorganization of the Company occurs and is continuing, the
principal of and interest on all the Senior Notes will ipso facto become due and
payable without any declaration or other act on the part of the Holders' Agent
or any holders. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Senior Notes may rescind and annul any
declaration of acceleration of the maturity of the Senior Notes and its
consequences.

An "Event of Default" means: (i) a default in the payment of interest on
the Senior Notes when due that continues for 30 days; (ii) a default in the
payment of any Senior Notes when it becomes due, whether at maturity, upon
redemption, or pursuant to acceleration of maturity; (iii) the failure by the
Company to comply with its obligations described under "Certain Covenants" and
"-- Merger and Consolidation" above; (iv) the failure by the Company to comply
for 30 days after it receives written notice with any of its obligations under
the Indenture upon a Change of Control or under "-- Certain Covenants
- -- Limitation on Indebtedness," "-- Limitation on Liens," or "-- Limitation on
Restricted Payments"; (v) the failure by the Company to comply for 60 days after
it receives written notice with any other provision of the Indenture; (vi) the
failure by the Company to pay any indebtedness within any applicable grace
period after final maturity or acceleration by the holders thereof because of a
default, and the total amount of such indebtedness exceeds $500,000 (the
"cross-acceleration provisions"); (vii) certain events of bankruptcy, insolvency
or reorganization of the Company; or (viii) the rendering of any judgment or
decree for the payment of money in excess of $250,000 against the Company if
such judgment remains outstanding for a period of 60 days and is not discharged,
waived or stayed within 30 days after notice (the "judgment default provision").
However, a default under clause (iv) or (v) will not constitute an Event of
Default until the Holders' Agent or the Holders of 25% in principal amount of
the outstanding Senior Notes notify the Company of the default and the Company
does not cure such default within the time specified after receipt of such
notice.

Subject to its duty during an Event of Default to act with the requisite
standard of care, the Holders' Agent may require indemnification or other
security against any loss, liability or expense before proceeding to exercise
any right or powers under the Indenture at the request or direction of the
holders of the Senior Notes. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, if a Holders' Agent has been
appointed, no holder of a Senior Note may pursue any remedy with respect to the
Indenture or the Senior Notes unless (i) the holder has previously given the
Holders' Agent written notice that an Event of Default is continuing, (ii) the
holders of at least 25% in principal amount of the outstanding Senior Notes have
requested in writing that the Holders' Agent pursue the remedy, (iii) those
holders of Senior Notes have offered the Holders' Agent reasonable security or
indemnity against any loss, liability or expense, (iv) the Holders' Agent has
not complied with the request within 60 days after receiving it and the offer of
security or indemnity and (v) the holders of a majority in principal amount of
the outstanding Senior Notes have not given the Holders' Agent a direction
inconsistent with the request within that 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Senior Notes may direct the time, method and place of conducting any proceeding
for any remedy available to the Holders' Agent or exercising any trust or power
conferred on the Holders' Agent. The Holders' Agent, however, may

36
<PAGE> 38

refuse to follow any direction that conflicts with law or the Indenture or that
the Holders' Agent determines is unduly prejudicial to the rights of any other
holder of the Senior Notes or that would subject the Holders' Agent to personal
liability. The holders of a majority in principal amount of the outstanding
Senior Notes, on behalf of all holders of Senior Notes, may waive any existing
default or Event of Default, except a default in payment on any of the Senior
Notes (other than non-payment of principal and accrued interest under the Senior
Notes that becomes due solely because of acceleration). The Holders' Agent is
required, within 90 days after an Event of Default that is continuing and known
to the Holders' Agent, to mail to each holder of Senior Notes notice of the
Event of Default.

MODIFICATION OF INDENTURE

Subject to certain exceptions, the Company, with the consent of the holders
of a majority in principal amount of the outstanding Senior Notes (including
consents obtained in connection with a tender offer or exchange for the Senior
Notes), may amend or modify the Indenture in any respect, except that the
consent of the holder of each affected Senior Note is required to do any of the
following: (i) reduce the foregoing amount of Senior Notes whose holders consent
is required to amend or modify the Indenture; (ii) change the stated maturity,
interest rate or interest payment dates of any Senior Note; (iii) reduce the
principal, premium or interest on any Senior Note; (iv) make any Senior Note
payable in money other than that stated in the Senior Note; (v) eliminate or
change the amount or timing of any mandatory redemption; or (vii) affect the
ranking of the Senior Notes in any material respect.

The Company may without the holders' consent amend the Indenture to cure
any ambiguity, omission or inconsistency, to provide for the assumption by a
successor corporation of the obligations of the Company under the Indenture, to
provide for uncertificated Senior Notes in addition to or in place of
certificated Senior Notes (provided that the uncertificated Senior Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner so that the uncertificated Senior Notes are described in Section
163(f)(2)(13) of the Code), to add guarantees with respect to the Senior Notes,
to secure the Senior Notes, to add to the covenants of the Company for the
benefit of the holders, to surrender any right or power conferred upon the
Company or to make any other change that does not adversely affect the rights of
any holder of the Senior Notes. The consent of the holders of Senior Notes is
not necessary under the Indenture to approve the particular form of any proposed
amendment. It is sufficient if the consent approves the substance of the
proposed amendment.

DESCRIPTION OF THE WARRANTS

The Company is issuing up to an aggregate of 10,000 Warrants, each of which
represents the right to subscribe to purchase 250 shares of the Common Stock at
a price of $2.50 per share, subject to adjustment. A total of 2,500,000 shares
of Common Stock will be subject to the Warrants. The Warrants will be
immediately transferable separately from the Senior Notes. Warrants may be
exercised after October 31, 1998 and on or before October 1, 2002, by paying the
exercise price of $2.50 per share, subject to adjustment, and may be exercised
in whole or in part, provided that no fractional shares of Common Stock will be
issued. The exercise price of Warrants may be paid by the surrender of the
Senior Notes at the face amount of the Senior Notes plus accrued interest. The
number of shares of Common Stock that may be purchased upon exercise of the
Warrants, and the exercise price for those shares, will be adjusted to reflect
the effect of any issuance of Common Stock to the shareholders as a stock
dividend or distribution or as a result of a combination, subdivision or certain
reclassifications of the Common Stock. As a result, the number of shares that
may be purchased upon exercise of a Warrant may be more or less than 250 and the
exercise price may be higher or lower than $2.50. No fractional Warrants will be
issued upon transfer or exercise of Warrants. The Warrants do not convey on
their holders voting or other rights as a shareholder of the Company. The
exercise price of the Warrants is wholly arbitrary, and there is not any
assurance that the price of the Common Stock will ever rise to a level where
exercise of the Warrants would be of economic value.

A Warrant may be exercised on surrender of the Warrant Certificate before
the expiration of the Warrant exercise period, with the form of "Election to
Purchase" on the reverse side of the Warrant Certificate

37
<PAGE> 39

executed as indicated, and accompanied by payment of the full exercise price for
the shares of Common Stock being purchased. The Company will act as transfer
agent and registrar for the Warrants. The Company may appoint a transfer agent
or registrar for the Warrants.

In order for a holder to exercise his Warrants, the shares of Common Stock
issuable on exercise of the Warrants must be registered with the Commission
pursuant to a current and effective registration statement under the Securities
Act and registered or qualified for sale or exemption under the securities laws
of the states where the Warrantholder resides. The Company will use its best
efforts to register with the Commission the shares of Common Stock issuable on
exercise of the Warrants before November 1, 1998, but there is no assurance that
it will succeed in registering the Warrant shares with the Commission. The
Company will make commercially reasonable efforts to qualify the shares of
Common Stock underlying the Warrants for sale in those states where the Senior
Notes are offered for sale. However, the Company could be denied registration or
qualification or may determine in its sole discretion not to register or qualify
the shares of Common Stock issuable pursuant to the Warrants in any jurisdiction
where the time and expense of doing so is not justified. A Warrant holder may be
deprived of any value of the Warrants, if the shares issuable on exercise of the
Warrants are not registered with the Commission or not registered or qualified
for offer and sale in the state in which the Warrantholder resides, in which
case the Warrantholder may not be able to sell the Warrants or the Warrants may
expire unexercised.

It may be expected that a Warrant will be exercised only if it is
advantageous to the holder of the Warrant. It may also be expected that if the
Warrant is exercised, the value of the Common Stock held by the then existing
public investors will be diluted if the value of the stock immediately prior to
the exercise of the Warrant exceeds the exercise price, with the extent of
dilution depending upon the excess. Therefore, for the term of the Warrant, the
holder of a Warrant has the opportunity to profit from a rise in the market
price of the Common Stock. The terms upon which the Company could obtain
additional capital during the period the Warrants are outstanding might be
adversely affected. The holder of a Warrant might be expected to exercise it at
a time when the Company would, in all likelihood, be able to obtain any
additional needed capital on terms more favorable than those provided for in the
Warrant.

DESCRIPTION OF COMMON STOCK

The Company's authorized capital consists of 100,000,000 shares of Common
Stock, par value $.0001 per share, which are entitled to one vote per share on
all matters. There were outstanding as of August 22, 1997, 24,143,928 shares of
Common Stock. As of August 22, 1997, the Company had outstanding unexercised
options to purchase 1,910,888 shares of Common Stock under Company's Stock
Option Plan. The Common Stock is quoted on the OTC Bulletin Board under the
symbol "CMXX." The transfer agent and registrar for the Common Stock is Chase
Mellon Shareholder Services, L.L.C.

The holders of the Common Stock are entitled to share ratably in all
dividends declared by the Company's Board of Directors out of funds legally
available therefor and, upon liquidation, in all the assets of the Company, if
any, remaining after the payment of liabilities of the Company. Under Nevada
law, no dividend or other distribution to shareholders is permitted if, after
giving effect to the distribution, the Company would not be able to pay its
debts as they become due in the usual course of business, or if the Company's
total liabilities would exceed its total assets. See "Dividend Policy." The
Common Stock does not have redemption rights, conversion rights, cumulative
voting rights, or preemptive or other subscription rights.

CERTAIN PROVISIONS OF NEVADA LAW

Nevada's "Combination with Interested Stockholders Statute" and "Control
Share Acquisition Statute" may have the effect of delaying or making it more
difficult to effect a change in control of the Company. See "Risk
Factors -- Anti-Takeover Provisions."

The Combination with Interested Stockholders Statute prevents an
"interested stockholder" and an applicable Nevada corporation from entering into
a "combination," unless certain conditions are met. A combination is defined to
mean, among other things, (i) any merger or consolidation with an "interested

38
<PAGE> 40

stockholder"; (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition, in one transaction or a series of transactions with an
"interested stockholder" having an aggregate market value equal to 5% or more of
the aggregate market value of the assets of a corporation, 5% or more of the
aggregate market value of all outstanding shares of a corporation, or
representing 10% or more of the earning power or net income of the corporation;
(iii) the adoption of a plan or proposal for the liquidation or dissolution of a
corporation proposed by an "interested stockholder"; (iv) any reclassification,
recapitalization, merger, or consolidation proposed by an "interested
stockholder"; or (v) any receipt by an "interested stockholder" of any loan,
advancement, guarantee, pledge, or other financial assistance or any tax credit
or other tax advantage provided by or through a corporation. An "interested
stockholder" is defined to mean the beneficial owner of 10% or more of the
voting shares of a corporation, or an affiliate or associate thereof. A
corporation may not engage in a "combination" with an "interested stockholder"
for a period of three years from the date of the acquisition by the "interested
stockholder" of its shares in the corporation unless the combination or purchase
of shares made by the interested stockholder is approved by the Board of
Directors before the interested stockholder acquired such shares. If such
approval is not obtained, after the expiration of the three-year period, the
business combination may be consummated with the approval of the Board of
Directors or a majority of the voting power held by disinterested stockholders,
or if the consideration to be paid by the interested stockholder is at least
equal to the highest of (i) the highest price per share paid by the interested
stockholder within the three years immediately preceding the date of the
announcement of the combination or in the transaction in which he became an
interested stockholder, whichever is higher; or (i) the market value per common
share on the date of announcement of the combination or the date the interested
stockholder acquired the shares, whichever is higher.

Nevada's Control Share Acquisition Statute prohibits an acquirer, under
certain circumstances, form voting shares of a target corporation's stock after
crossing certain threshold ownership percentages, unless the acquirer first
obtains approval therefor from the target corporation's stockholders. The
Control Share Acquisition Statute specifies the following three thresholds for
which such approval is required (i) one-fifth or more but less than one-third;
(ii) one-third or more but less than a majority; and (iii) a majority or more,
of the voting power of the corporation in the election of directors. Once an
acquirer crosses one of the above thresholds, such shares so acquired, along
with those shares acquired within the preceding 90 days, become "control
shares," which shares are deprived of the right to vote until such time as the
disinterested stockholders of the corporation restore such right. The Control
Share Acquisition Statute also provides that in the event "control shares" are
accorded full voting rights and the acquiring person has acquired a majority or
more of all voting power of the corporation, any stockholder of record who has
not voted in favor of authorizing voting rights for the "control shares" may
demand payment for the fair value of such stockholder's shares. In such case,
the corporation is required to comply with the demand within 30 days of the
delivery thereof to the corporation.

INDEMNIFICATION AND LIMITATION OF LIABILITY

Pursuant to the Articles, Bylaws and indemnification agreements between the
Company and each of its officers and directors, the Company is obligated to
indemnify each of its directors and officers to the fullest extent permitted by
law with respect to all liability and loss suffered, and reasonable expense
incurred, by the person in any action, suit or proceeding in which the person is
or was a director or officer of the Company. The Company could be obligated to
advance the reasonable expenses of indemnified directors or officers in
defending such proceedings if the indemnified party agrees to repay all amounts
advanced if it is ultimately determined that such person is not entitled to
indemnification.

The Nevada General Corporation Law (the "Nevada Act") authorizes Nevada
corporations to indemnify any person who was or is a party to any proceeding
(other than an action by, or in the right of, the corporation), by reason of the
fact that he or she is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation or other entity,
against liability incurred in connection with such proceeding, including any
appeal thereof, if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no

39
<PAGE> 41

reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or on behalf of a corporation, indemnification may not be made if the
person seeking indemnification is adjudged liable, unless the court in which
such action was brought determines such person is fairly and reasonably entitled
to indemnification. The indemnification provisions of the Nevada Act require
indemnification if a director of officer has been successful on the merits or
otherwise in defense of any action, suit, or proceeding to which he or she was a
party by reason of the fact that he or she is or was a director of officer of
the corporation. The indemnification authorized under Nevada law is not
exclusive and is in addition to any other rights granted to officers and
directors under the Articles of Incorporation or Bylaws of the corporation or
any agreement between officers and directors and the corporation. A corporation
may purchase and maintain insurance or furnish similar protection on behalf of
any officer or director against any liability asserted against the officer or
director and incurred by the officer or director in such capacity, or arising
out of the status, as an officer or director, whether or not the corporation
would have the power to indemnify him or her against such liability under the
Nevada Act.

The Company's Bylaws provide for the indemnification of directors and
executive officers of the Company to the maximum extent permitted by Nevada law
and for the advancement of expenses incurred in connection with the defense of
any action, suit, or proceeding that the director of executive officer was a
party to by reason of the fact that he or she is or was a director or executive
officer of the Company upon the receipt of an undertaking to repay such amount,
unless it is ultimately determined that such person is not entitled to
indemnification.

Under provisions of the Company's Articles of Incorporation that are
authorized by the Nevada Act, a director is not personally liable for monetary
damages to the Company or any other person for acts or omissions in his or her
capacity as a director except in certain limited circumstances such as certain
violations of criminal law and transactions in which the director derived an
improper person benefit. As a result, shareholders may be unable to recover
monetary damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although injunctive or other equitable relief may be available.

The Company also has entered into agreements with each of its current
directors and executive officers pursuant to which it is obligated to indemnify
those persons to the fullest extent authorized by law and to advance payments to
cover defense costs against an unsecured obligation to repay such advances if it
is ultimately determined that the recipient of the advance is not entitled to
indemnification. The Company is not required to indemnify a director or officer
if the indemnified loss results from any of the following: (a) a violation of
Section 16(b) of the Securities and Exchange Act of 1934, as amended; (b) a
violation of criminal law; (c) a transaction from which the officer or director
received an improper personal benefit; (d) willful misconduct or a conscious
disregard for the Company's best interests; or (e) a transaction for which the
director is liable pursuant to Section 78.300.2 of the Nevada Act for certain
distributions from the corporation to its shareholders.

The foregoing provisions of the Nevada Act and the Company's Articles of
Incorporation and Bylaws could have the effect of preventing or delaying a
person from acquiring or seeking to acquire a substantial equity interest in, or
control of, the Company.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is therefore unenforceable.

SHARES ELIGIBLE FOR FUTURE SALE

The Company has 24,143,928 shares of Common Stock outstanding, of which
approximately 17,686,103 shares are freely tradable without restriction or
further registration under the Securities Act. All the remaining outstanding
shares of Common Stock are "restricted securities," as that term is defined in
Rule 144 promulgated by the Commission under the Securities Act.

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<PAGE> 42

In general, under Rule 144 as currently in effect, any affiliate of the
Company or any person (or persons whose shares are aggregated in accordance with
the Rule) who has beneficially owned restricted securities for at least one year
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the outstanding shares of Common Stock
(approximately 240,000 shares based upon the number of shares outstanding) or
the reported average weekly trading volume as reported on the OTC Bulletin Board
for the four weeks preceding the sale. Sales under Rule 144 are also subject to
certain manner of sale restrictions and notice requirements and to the
availability of current public information concerning the Company. Persons who
have not been affiliates of the Company for at least three months and who have
held their shares for more than two years are entitled to sell Restricted
Securities without regard to the volume, manner of sale, notice and public
information requirements of Rule 144.

TAXES

The following discussion summarizes certain Federal income tax consequences
to purchasers of the Senior Notes and Warrants under existing Federal income tax
law, which is subject to change, possibly retroactively. This summary does not
discuss all aspects of Federal income taxation that may be relevant to a
particular investor in light of such investor's specific investment
circumstances or to investors subject to special treatment under the Federal
income tax laws and it does not discuss any aspects of state, local or foreign
tax laws. This summary assumes that investors will hold their Senior Notes and
Warrants as "capital assets" (generally property held for investment) under the
Internal Revenue Code of 1986. Prospective investors are advised to consult
their tax advisors as to the specific tax consequences of purchasing, holding,
and disposing of the Senior Notes and Warrants on their own personal tax
situation.

Upon the exercise of a Warrant, a holder will not recognize gain or loss
and will have a tax basis in the Common Stock received equal to the tax basis of
the Warrant (if any) plus the exercise price. The holding period for the Common
Stock will begin on the day after the date of exercise.

A holder will recognize capital gain or loss upon the sale, exchange or
other disposition of a Senior Note, Warrant or share of Common Stock equal to
the difference between the amount realized from such sale and the holder's tax
basis in the security that was sold. This gain or loss will be long-term if the
security disposed of has been held for more than 18 months. In the event that a
Warrant lapses unexercised, a holder will recognize a capital loss in an amount
equal to his basis in the Warrant (if any). That loss will be long-term if the
Warrant has been held for more than 18 months.

LEGAL MATTERS

The validity of the issuance of the Senior Notes and the Warrants will be
passed upon for the Company by Glenn Rasmussen & Fogarty, P.A., Tampa, Florida.

EXPERTS

The financial statements of the Company for the three years ended 1996,
1995, and 1994, respectively, included in this Prospectus and the Registration
Statement have been audited by Pritchett, Siler & Hardy, P.C., independent
certified public accountants, as indicated in their reports thereon appearing
elsewhere in this Prospectus, and have been so included in reliance upon the
authority of that firm as experts in auditing and accounting.

AVAILABLE INFORMATION

Cimetrix is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith, files reports, proxy
statements, and other information with the Commission. Reports, proxy
statements, and other information filed by the Company with the Commission may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: Northeast Regional

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<PAGE> 43

Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and Midwest
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Also, copies of such material can be obtained upon payment of
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy, and information statements
and other information regarding registrants that file electronically with the
Commission.

The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act of 1933 with respect to the Senior Notes and
Warrants offered by this Prospectus. As permitted by the rules and regulations
of the Commission, this Prospectus, which is a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement. For further information with respect to the Company and the
Securities offered by this Prospectus, reference is made to the Registration
Statement, including the exhibits and financial schedules to it, copies of which
can be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at the address set forth above and
obtained at prescribed rates from the Public Reference Section of the Commission
at the same address. Statements contained in this Prospectus concerning the
provisions or contents of any contract, agreement, or any other document
referred to herein are not necessarily complete with respect to each such
contract, agreement, or document filed as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description of
the matters involved, and each statement shall be deemed qualified in its
entirety by such reference to the copy of the applicable document filed with the
Commission.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus:

(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1996;

(b) Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1997; and

Any statement contained in a document incorporated by reference in this
Prospectus will be deemed to be modified or superseded for all purposes to the
extent that a statement contained in this Prospectus, or in any other
subsequently filed document that also is incorporated by reference in this
Prospectus, modifies or replaces the statement.

A copy (excluding exhibits) of any document incorporated by reference in
this Prospectus will be provided by the Company, without charge, to each person
to whom this Prospectus is delivered, upon oral or written request directed to
the Company at its executive office, as follows: David L. Redmond, Executive
Vice President and Chief Financial Officer, Cimetrix Incorporated, 100 North
Tampa Street, Tampa, Florida 33602 (telephone: (813) 277-9199).

GLOSSARY OF TERMS

<TABLE>
<S> <C>
CODE.............................................. the Company's software product suite, Cimetrix
Open Development Environment
GEM............................................... acronym for Generic Model for Communications and
control of semiconductor equipment
SMT............................................... surface mount technology
I/O............................................... input/output
API............................................... application programming interface
OEM............................................... original equipment manufacturers
CNC............................................... computer numerical control
PC................................................ personal computer
ROBLINE........................................... acronym for Company's off-line programming system
used prior to CODE
ROBCAL............................................ acronym for Company's accuracy enhancing
calibration technique used prior to CODE
</TABLE>

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<PAGE> 44

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF CIMETRIX INCORPORATED
Unaudited Condensed Statements of Operations for the three
and six months ended June 30, 1997, and June 30,
1996................................................... F-2
Unaudited Condensed Balance Sheets as of June 30, 1997,
and December 31, 1996 (audited)........................ F-3
Unaudited Condensed Statements of Cash Flows for the six
months ended June 30, 1997, and June 30, 1996.......... F-4
Notes to Condensed Financial Statements (unaudited)....... F-5
Independent Auditors' Report.............................. F-10
Balance Sheets as of December 31, 1996 and 1995........... F-11
Statements of Operations for the years ended December 31,
1996, 1995, and 1994................................... F-12
Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1996, 1995, and 1994................ F-13
Statements of Cash Flows for the years ended December 31,
1996, 1995, and 1994................................... F-14
Notes to Financial Statements............................. F-16
</TABLE>

F-1
<PAGE> 45

CIMETRIX INCORPORATED

CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements
(unaudited).

F-2
<PAGE> 46

CIMETRIX INCORPORATED

CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 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 capital................................ 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
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements
(unaudited).

F-3
<PAGE> 47

CIMETRIX INCORPORATED

CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1996
------- -------
<S> <C> <C>
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
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements
(unaudited).

F-4
<PAGE> 48

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):

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Parts and supplies.......................................... $156 $211
Work in process............................................. 36 128
Finished goods.............................................. 209 194
---- ----
$401 $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.

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.

F-5
<PAGE> 49

CIMETRIX INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

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 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

F-6
<PAGE> 50

CIMETRIX INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

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.

NOTE 4 -- LONG-TERM DEBT

Long-term debt at June 30, 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................................... 30 24
---- ----
302 296
Less current maturities..................................... 41 44
---- ----
Net long-term debt.......................................... $261 $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 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

F-7
<PAGE> 51

CIMETRIX INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

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.

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.

F-8
<PAGE> 52

CIMETRIX INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

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.

F-9
<PAGE> 53

INDEPENDENT AUDITORS' REPORT

Board of Directors
CIMETRIX INCORPORATED

We have audited the accompanying balance sheets of Cimetrix Incorporated at
December 31, 1996 and 1995 and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
1996, 1995, and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements audited by us present fairly, in
all material respects, the financial position of Cimetrix Incorporated as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years ended December 31, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.

PRITCHETT, SILER & HARDY, P.C.

Salt Lake City, Utah
February 26, 1997

F-10
<PAGE> 54

CIMETRIX INCORPORATED

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,785 $ 2,345
Accounts receivable, net.................................. 617 68
Inventories............................................... 533 619
Prepaid expenses and other current assets................. 285 236
-------- -------
Total current assets.............................. 4,220 3,268
PROPERTY AND EQUIPMENT, net................................. 614 1,732
CAPITALIZED SOFTWARE COSTS, NET............................. 707 758
TECHNOLOGY, NET............................................. 715 767
GOODWILL, NET............................................... 2,971 3,188
OTHER ASSETS................................................ -- 9
-------- -------
Total Assets...................................... $ 9,227 $ 9,722
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 44 $ 42
Accounts payable.......................................... 671 174
Accrued expenses.......................................... 459 122
Customer deposits......................................... 170 --
-------- -------
Total current liabilities......................... 1,344 338
DEFERRED TAX LIABILITY, net................................. -- 18
LONG-TERM DEBT, net of current portion...................... 252 296
-------- -------
Total Liabilities................................. 1,596 652
-------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock; 100,000,000 shares authorized, $.0001 par
value; 18,121,428 and 18,456,103 shares issued and
outstanding, respectively.............................. 2 2
Additional paid-in capital................................ 18,406 16,156
Accumulated deficit....................................... (10,543) (7,088)
Unearned compensation -- stock options.................... (234) --
-------- -------
Total Stockholders' Equity........................ 7,631 9,070
-------- -------
$ 9,227 $ 9,722
======== =======
</TABLE>

The accompanying notes are an integral part of these financial statements

F-11
<PAGE> 55

CIMETRIX INCORPORATED

STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUE.......................................... $ 2,396 $ 664 $ 463
------------ ------------ ------------
OPERATING EXPENSES:
Cost of revenues................................... 1,342 446 297
Selling, marketing and customer support............ 1,494 947 217
Research and development........................... 1,179 930 198
General and administrative......................... 1,577 1,231 1,217
Compensation expense............................... 685 -- --
------------ ------------ ------------
Total operation expense.................... 6,277 3,554 1,929
------------ ------------ ------------
LOSS FROM OPERATIONS................................. (3,881) (2,890) (1,466)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income.................................... 108 172 68
Interest expense................................... (52) (26) (32)
Other income (expense)............................. 10 1 (3)
Gain (Loss) on disposition of asset................ 360 -- --
------------ ------------ ------------
Total other income (expense)............... 426 147 33
------------ ------------ ------------
LOSS BEFORE MINORITY INTEREST, INCOME TAXES AND
EXTRAORDINARY ITEMS................................ (3,455) (2,743) (1,433)
LESS MINORITY INTEREST IN LOSS FROM OPERATIONS OF
SUBSIDIARY......................................... -- (199) (100)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM...... (3,455) (2,544) (1,333)
CURRENT INCOME TAX EXPENSE (BENEFIT)................. -- -- --
DEFERRED INCOME TAX EXPENSE (BENEFIT)................ -- -- --
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM....................... (3,455) (2,544) (1,333)
EXTRAORDINARY ITEM:
Gain on debt forgiveness net of income taxes....... -- -- 188
------------ ------------ ------------
NET LOSS............................................. $ (3,455) $ (2,544) $ (1,145)
============ ============ ============
LOSS PER COMMON SHARE:
Loss from operations............................... $ (.19) $ (.16) $ (.09)
Extraordinary item................................. -- -- .01
------------ ------------ ------------
LOSS PER COMMON SHARE:............................... $ (.19) $ (.16) $ (.08)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING.................. 18,516,791 16,264,682 14,207,648
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-12
<PAGE> 56

CIMETRIX INCORPORATED

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED
------------------- PAID-IN ACCUMULATED COMPENSATION
SHARES AMOUNT CAPITAL DEFICIT STOCK OPTIONS TOTAL
---------- ------ ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........ 16,578,876 $ 2 $ 2,861 $ (3,399) -- $ (536)
Net effect of subsidiary's
capitalization, including
contributions by minority
shareholders.................... -- -- 5,041 -- -- 5,041
Cancellation of shares previously
issued during 1991, valued at
$14,812......................... (2,963) -- (15) -- -- (15)
Shares issued to employees per
service agreement, valued at
$.0001 per share................ 116,667 -- -- -- -- --
Shares issued for cash, $5.00 per
share........................... 53,566 -- 268 -- -- 268
Issuance of shares to shareholders
who previously paid $5.00 per
share........................... 558,761 -- -- -- -- --
Cancellation of shares previously
issued to former officers,
directors and other related
parties......................... (2,798,223) -- -- -- -- --
Net loss for the year ended
December 31, 1994............... (1,145) -- (1,145)
---------- ---- ------- -------- ----- -------
BALANCE, December 31, 1994........ 14,506,684 2 8,155 (4,544) -- 3,613
Shares issued for technology,
valued at $3.75 per share....... 120,000 -- 450 -- -- 450
Shares issued to acquire minority
interest in former subsidiary... 2,829,419 -- 4,067 -- -- 4,067
Net effect of merger of minority
interest........................ -- -- (487) -- -- (487)
Stock issued through private
placement memorandum, $4.00 per
share, net of offering costs of
$28,553......................... 1,000,000 -- 3,971 -- -- 3,971
Net loss for the year ended
December 31, 1995............... (2,544) -- (2,544)
---------- ---- ------- -------- ----- -------
BALANCE, December 31, 1995........ 18,456,103 $ 2 $16,156 $ (7,088) -- $ 9,070
Stock options exercised, at $2-$5
per share....................... 340,325 -- 1,081 -- -- 1,081
Warrants exercised at $2.00 per
share........................... 125,000 -- 250 -- -- 250
Cancellation of shares returned by
former directors................ (800,000) -- -- -- -- --
Compensation -- Stock Options..... 919 (234) 685
Net loss for the year ended
December 31, 1996............... -- -- -- (3,455) -- (3,455)
---------- ---- ------- -------- ----- -------
BALANCE, December 31, 1996........ 18,121,428 $ 2 $18,406 $(10,543) $(234) $ 7,631
========== ==== ======= ======== ===== =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-13
<PAGE> 57

CIMETRIX INCORPORATED

STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS TO OPERATING ACTIVITIES:
Net Loss.................................................. $(3,455) $(2,544) $(1,145)
Adjustments to reconcile net loss to net cash used by
operating activities:
Amortization and depreciation.......................... 635 390 72
Loss (gain) on disposition of assets................... (360) 3 3
Compensation related to stock options.................. 685 -- --
Extraordinary items -- debt forgiveness................ -- -- (188)
Minority interest in operation of subsidiary........... -- (199) (100)
Non-cash expense....................................... -- 24
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........... (549) (22) 61
(Increase) decrease in inventory..................... 86 (321) (250)
(Increase) decrease in prepaid expenses.............. (57) (110) (108)
(Increase) decrease in other assets.................. 9 1 --
Increase (decrease) in accounts payable.............. 497 (174) 50
Increase (decrease) in accrued expenses.............. 337 32 (236)
Increase (decrease) in customer deposits............. 170 -- --
------- ------- -------
Total Adjustments................................. 1,453 (400) (672)
------- ------- -------
Net Cash Flow Used by Operating Activities........ (2,002) (2,944) (1,817)
------- ------- -------
CASH FLOWS TO INVESTING ACTIVITIES:
Payments for capitalized software costs................... (122) (341) (520)
Purchase of real estate property.......................... (198) -- --
Proceeds from disposal of real estate property............ 453 -- --
Purchase of property and equipment, net of retirements.... (134) (638) (1,213)
Payments for other assets, net............................ (20) (4) (2)
Proceeds from disposal of property........................ 1,174 -- --
------- ------- -------
Net Cash Flow Used by Investing Activities........ 1,153 (983) (1,735)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capitalization of subsidiary................ -- -- 5,000
Proceeds from issuance of common stock.................... 1,331 4,000 268
Payments of stock offering costs.......................... -- (29) --
Payments for capital lease obligations, net............... (20) (10) (9)
Proceeds from notes payable............................... (22) -- 1,745
Payments for notes payable................................ -- (1,052) (130)
Proceeds from payable -- related party.................... -- -- 42
Decrease in deferred tax liability........................ -- -- --
------- ------- -------
Net Cash Flow Provided by Financing Activities.... 1,289 2,907 6,916
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 440 (1,020) 3,364
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 2,345 3,365 1
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 2,785 $ 2,345 $ 3,365
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................... $ 52 $ 26 $ 10
Income taxes........................................... -- -- --
======= ======= =======
</TABLE>

F-14
<PAGE> 58

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

For the Year Ended December 31, 1996:

Compensation Expense of approximately $685,000 was recognized for all
currently outstanding and unexercised options.

For the Year Ended December 31, 1995:

In July, 1995, the Company purchased the technology it had been licensing
from Brigham Young University by issuing 120,000 shares of common stock valued
at $3.75 per share, and signing an agreement to make 10 annual payments of
$50,000 cash. A note payable of $343,765 was recorded to reflect the discounted
present value of the 10 annual payments.

Effective August 31, 1995, the Company purchased the interest held by
minority shareholders in the Company's subsidiary by issuing 2,829,419
restricted shares of Cimetrix in exchange for an equal number of shares of the
subsidiary, Cimetrix (USA) Incorporated, held by those minority shareholders.
The subsidiary was then merged into the Cimetrix, effective August 31, 1995. The
effect of the purchase of the minority interest was to create "excess cost over
acquired net assets" in the amount of $3,260,646 that was recorded by the
Company. This amount is being amortized on a straight line basis over 15 years.

For the Year Ended December 31, 1994:

In accordance with the terms of a settlement agreement, the Company
canceled 2,963 shares of common stock previously issued for services rendered.

The Company issued 116,667 shares of common stock to employees for services
rendered, valued at $.0001 per share.

The Company issued 558,761 shares valued at $.0001 per share to
shareholders who had previously paid $5.00 per share, in order to give those
shareholders an average $2.00 per share basis.

Related party accounts payable of $242,270 net of related party accounts
receivable of $120,068 were forgiven. Automobiles accounted for as capital
leases with a net book value of $3,651 were assumed by former officers.

Trade payables amounting to $62,334 were forgiven by vendors.

The Company entered into a lease for telephone equipment costing $53,127.

$635,000 of notes payable with their related interest of $23,834 were
converted into common shares of the subsidiary.

Former officers, directors and other related parties returned 2,798,223
common shares valued at $.0001 per share for cancellation.

F-15
<PAGE> 59

CIMETRIX INCORPORATED

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Principles of Consolidation -- Cimetrix Incorporated
("Cimetrix" or the "Company") was organized under the laws of the State of Utah
on December 23, 1985. In September, 1990, Cimetrix merged with a newly
incorporated Nevada company, effectively changing its domicile to that state.
Cimetrix (USA) Incorporated, a former wholly-owned subsidiary of Cimetrix, was
organized under the laws of the State of Florida on June 7, 1994. In July, 1994,
Cimetrix acquired 20,000,000 shares of the common stock of Cimetrix (USA)
Incorporated in exchange for the transfer of substantially all of the assets of
Cimetrix, and the assumption of $635,000 of convertible promissory notes
payable. Cimetrix (USA) Incorporated subsequently sold shares of its common
stock to private investors resulting in an approximate 12% minority interest.
Effective August 31, 1995, Cimetrix purchased the minority interest in Cimetrix
(USA) Incorporated by exchanging one share of Cimetrix common stock for one
share of Cimetrix (USA) Incorporated stock held by the minority shareholders. In
all, 2,829,419 common shares of Cimetrix were issued to the minority
shareholders in exchange for their stock in Cimetrix (USA) Incorporated.
Simultaneously, Cimetrix (USA) Incorporated was merged into Cimetrix, effective
August 31, 1995, leaving Cimetrix as the surviving single entity. From June 7,
1994 to August 31, 1995, the financial statements included the results of
Cimetrix and Cimetrix (USA) Incorporated, adjusted for minority interests.

Revenue Recognition -- Revenue from sales to distributors, OEMs, and
end-users is recognized when related products are shipped. Revenue from software
maintenance, service, and support contracts is recognized ratably over the
contract period. Provisions are recorded for returns. The Company has had no bad
debt experience; therefore, no allowance for doubtful accounts has been
established.

Telephone Support -- Telephone support costs are included in sales and
marketing.

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 December 31, 1996,
the Company had cash equivalents of $1,493,388 invested in commercial paper
maturing in January, 1997, 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 December 31, 1995. At December 31,
1996 and 1995, the Company and cash of $58,459 and $98,855, respectively, in
excess of federally insured amounts in its bank accounts.

Inventories -- Inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out method. Inventories at December 31,
1996 and 1995 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Parts and supplies.......................................... $211 $226
Work in process............................................. 128 108
Finished goods.............................................. 194 285
---- ----
$533 $619
==== ====
</TABLE>

Inventories are pledged as collateral for the Company's revolving line of
credit.

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, 30 years;
leasehold improvements, the lease term; computer equipment and other, three to
seven years.

F-16
<PAGE> 60

CIMETRIX INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 December 31, 1996, the
unamortized portion of capitalized software development costs was $707,264.
Amortization of software development costs was $172,400, $104,000, and $0 for
the fiscal years ended December 31, 1996, 1995, and 1994.

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.

Reclassifications -- Certain reclassifications have been made for
consistent presentation.

F-17
<PAGE> 61

CIMETRIX INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1996 and 1995 consisted of the
following (in thousands):

<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Land........................................................ $ -- $ 155
Buildings and improvements.................................. -- 752
Office equipment............................................ 227 213
Furniture and fixtures...................................... 208 203
Software.................................................... 78 42
Equipment................................................... 495 426
Automobiles................................................. 13 --
Residential Real Estate..................................... -- 203
------ ------
$1,021 $1,994
Accumulated depreciation.................................... 407 262
------ ------
$ 614 $1,732
====== ======
</TABLE>

Depreciation expense for the years ended December 31, 1996, 1995 and 1994
was approximately $189,000, $187,000 and $72,000, respectively.

On various occasions, the Company has entered into various leases for
office equipment. Based on the provisions of Statement No. 13, issued by the
Financial Accounting Standards Board, many of these leases meet the criteria of
a capital lease. At December 31, 1996 and 1995 the cost of the assets amounted
to $63,114, with accumulated depreciation of $27,789 and $15,166, respectively.
Depreciation expense for the year ended December 31, 1996 and 1995 was $12,623
and $12,419, respectively.

Future minimum lease payments under the capital lease obligations as of
December 31, 1996, for each of the next five years and in the aggregate are as
follows:

<TABLE>
<S> <C>
1997........................................................ $ 21,060
1998........................................................ 2,865
1999........................................................ --
2000........................................................ --
2001........................................................ --
Thereafter.................................................. --
--------
Total............................................. 23,925
Less: Amount representing interest.......................... (2,162)
--------
Present value of future minimum lease payments.............. 21,763
Less: Current portion....................................... (19,104)
--------
Long-term portion........................................... $ 2,659
========
</TABLE>

NOTE 3 -- 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 December 31, 1996 and 1995,
the amortized prepayment was $130,235 and $164,829, respectively, and is
included in Prepaid Expenses and Other Current Assets on the Company's Balance
Sheet.

F-18
<PAGE> 62

CIMETRIX INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 4 -- 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 $52,800 and
$26,459 for the years ended December 31, 1996 and 1995, respectively.

NOTE 5 -- PATENTS AND COPYRIGHTS

The technology purchase 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 products
with the Copyright Office of the United States, and will continue to timely
register 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 nondisclosure 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 -- LONG-TERM DEBT

Long-term debt at December 31, 1996 and 1995 consisted of the following (in
thousands):

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Note payable to BYU......................................... $272 $294
Capital lease obligations................................... 24 44
---- ----
296 338
---- ----
Less current maturities..................................... 44 42
---- ----
Total............................................. $252 $296
==== ====
</TABLE>

In connection with the purchase of the technology from BYU discussed in
Note 4, 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 terms of this line of credit are
substantially the same as the line of credit existing at December 31, 1995 and
which expired on October 31, 1996. The line provides for interest at the rate of
one half of one percent over the prime rate of the bank. The line expires on
April 30, 1997. Interest payments are to be paid monthly, and any outstanding
principal balance is to be paid in full on April 30, 1997. At December 31, 1996,
no funds have been borrowed against the line. The amount available under the
revolving line of credit is calculated based upon a formula of eligible current
assets, including cash, receivables and inventories which serve as collateral
for amounts borrowed.

F-19
<PAGE> 63

CIMETRIX INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- INCOME TAXES

The Company adopted Statement of Financial Accounting Standards No. 109
Accounting for Income Taxes [FASB 109] during 1993. FASB 109 requires the
Company to provide a net deferred tax asset or liability equal to the expected
future tax benefit or expense of temporary reporting differences between book
and tax accounting and any available operating loss or tax credit carryforwards.
At December 31, 1996 and 1995, the total of all deferred tax assets was
approximately $4,315,000 and $3,309,000 and the total of the deferred tax
liabilities was approximately $342,000 and $347,000. The amount of and ultimate
realization of the benefits from the deferred tax assets for income tax purposes
is dependent, in part, upon the tax laws in effect, the Company's future
earnings, and other future events, the effects of which cannot be determined.
Because of the uncertainty surrounding the realization of the deferred tax
assets, the Company has established a valuation allowance of $3,973,000 and
$2,962,000 as of December 31, 1996 and 1995, which has been offset against the
deferred tax assets. The net change in the valuation allowance during the year
ended December 31, 1996, was $1,012,000.

The Company has available at December 31, 1996, unused tax operating loss
carryforwards of approximately $10,558,000 which may be applied against future
taxable income and which expire in various years beginning 2004 through 2011.

The components of income tax expense from continuing operations for the
years ended December 31, 1996 and 1994 consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995 1994
------ ------- -----
<S> <C> <C> <C>
Current income tax expense:
Federal................................................... $ -- $ -- $ --
State..................................................... -- -- --
------ ------- -----
Net current tax expense........................... -- -- --
------ ------- -----
Deferred tax expense (benefit) arising from:
Excess of tax over financial accounting depreciation........ $ (6) $ 120 228
Deferred income............................................. (68) --
Accrual of vacation wages payable........................... (6) (18) --
Net operating loss carryforwards............................ (932) (1,159) (722)
Valuation allowance......................................... 1,012 1,057 494
------ ------- -----
Net deferred tax expense.......................... $ -- $ -- $ --
------ ------- -----
</TABLE>

Deferred income tax expense results primarily from the reversal of
temporary timing differences between tax and financial statement income. There
is no portion of current or deferred tax expense that is required to be
allocated to the extraordinary item.

F-20
<PAGE> 64

CIMETRIX INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of income tax expense at the federal statutory rate to
income tax expense at the Company's effective rate is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Computed tax at the expected federal statutory rate...... 34.00% 34.00% 34.00%
Excess of tax over financial accounting depreciation..... (2.42) (1.24) (.87)
State income taxes, net of federal income tax benefits... 6.00 6.00 6.00
Other.................................................... (.60) (.22) 1.93
Compensation............................................. (7.93) -- --
Forgiveness of debt...................................... -- -- 4.04
Net operating loss carry forward......................... .22 (.02) (5.37)
Valuation allowance...................................... (29.27) (38.52) (39.73)
------ ------ ------
Effective income tax rates............................... 00.00% 00.00% 00.00%
====== ====== ======
</TABLE>

The temporary differences gave rise to the following deferred tax asset
(liability) at December 31, 1996 and 1995 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------ ------
<S> <C> <C>
Excess of book over tax accounting depreciation............. $ (342) $ (348)
Deferred income............................................. 68 --
Accrual of vacation wages payable........................... 24 18
NOL carryforwards........................................... 4,223 3,291
</TABLE>

The deferred taxes are reflected in the balance sheet as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1996 1995
------ ------
<S> <C> <C>
Short term asset (liability)................................ $ -- $ 18
Long term asset (liability)................................. $ -- $ (18)
</TABLE>

NOTE 8 -- MINORITY INTEREST

On July 31, 1994, the Company's subsidiary, Cimetrix (USA) Incorporated,
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.

In July, 1995, the shareholders of the Company's subsidiary approved a
merger of the subsidiary into the Cimetrix through the exchange of one share of
the Company's restricted common stock for each of the 2,829,419 shares of the
subsidiary's common stock held by the minority interest shareholders. The merger
was effective August 31, 1995, and left Cimetrix as the sole surviving entity.
The purchase of the minority interest by Cimetrix created "excess of cost over
acquired net assets" of $3,260,646 which is being amortized over 15 years.

NOTE 9 -- BENEFIT PLAN

The Company has a defined contribution 401(k) Retirement Savings Plan
covering substantially all of the Company's employees who are at least 21 years
old and who have completed 3 months of service. Employees may contribute at
least 1%, but not more than 15% of their salary to the plan. The Company will

F-21
<PAGE> 65

CIMETRIX INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

match 50% of the employee's contribution to the plan up to a maximum of 2% of
the employees annual pay. The employees will vest in the employer's contribution
over a five year period. For the years ended December 31, 1996, 1995 and 1994,
the Company contributed $19,006, $16,284 and $5,685, respectively, to the plan.

NOTE 10 -- EXTRAORDINARY ITEM

The Company negotiated a forgiveness of certain related party payables and
receivables during 1994. Related party payables forgiven exceeded related party
receivables forgiven by approximately $126,000. Additionally, new management
succeeded in negotiating forgiveness of approximately $62,000 in lease, royalty,
and other trade payables. The net forgiveness of payables has been treated as an
extraordinary item in these financial statements.

NOTE 11 -- SIGNIFICANT CUSTOMERS

Approximately 34% and 14% of the Company's revenues during the year ended
December 31, 1996 were attributable to a Japanese OEM and Sandia National Labs,
respectively. No other single customer accounted for more than 10% of the
Company's revenues during 1996. During the year ended December 31, 1995, the
Company had four significant customers, AT&T (16%), Cybex Technologies (10%),
Hewlett-Packard (26%) and Motorola (29%), which individually were 10% or more of
the Company's revenues during the year ended December 31, 1995 and which
together accounted for approximately 81% of the Company's total revenue during
1995. During 1994, 90% of the Company's total revenues came from four
significant customers. 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.

NOTE 12 -- CONTINUING OPERATIONS

During its existence, the Company has incurred operating losses from
inception totaling of approximately $10,543,000 including $(3,455,000),
$(2,544,000), and $(1,145,000) during the years ended December 31, 1996, 1995
and 1994, respectively. Net cash used by operations amounted to approximately
$2,021,000, $2,944,000 and $1,817,000 during the same periods.

Historically, the Company has raised the required financing for its
activities through the sale of the Company's common shares and from short-term
borrowing. During 1996, the Company used these same methods in raising what
management believes will be sufficient cash funds to finance the projected cash
requirements through 1997 when accompanied by projected sales revenues. In
March, 1995, the Company sold 1,000,000 of its common shares at a price of $4.00
per share raising a total of approximately $3,971,000 in cash. Additionally, the
Company has arranged with a financial institution a $5,000,000 line of credit.
Borrowings against this line are secured by certain current assets of the
Company including cash. Management of the Company believes that at December 31,
1996, the Company is capable of financially meeting the demands inherent as
normal sales continue to develop during 1996.

Because of the cash position of the Company at December 31, 1996, the
accompanying financial statements do not contain any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary, should the Company be
unable to achieve profitable operations and generate sufficient working capital
to fund operations and pay or refinance its current obligations.

NOTE 13 -- 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

F-22
<PAGE> 66

CIMETRIX INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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. At December 31, 1996,
none of the warrants have been exercised.

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 125,000 shares were exercised. The remaining warrants to purchase
192,500 are outstanding at December 31, 1996.

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.

During the periods presented in the accompanying financial statements the
Company has granted options under the 1994 Employee Stock Option Plan (the
Plan). The Corporation has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized under SFAS
No. 123 for the Plan in the accompanying financial statements. Had compensation
cost for the Company's stock option plan and agreements been determined based on
the fair value at the grant date for awards in 1996 and 1995 consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share data):

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C> <C>
Net Loss............................................... As reported $(3,455) $(2,544)
Proforma $(3,514) $(2,551)
Loss per common share.................................. As reported $ (.19) $ (.16)
Proforma $ (.19) $ (.16)
</TABLE>

The fair value of each option granted is estimated on the date granted
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the period ended December 31, 1996 and 1995:
risk-free interest rates of 6.0% and 6.4%, expected dividend yield of zero,
expected life of 5 and 5 years, and expected volatility 89% and 94%.

F-23
<PAGE> 67

CIMETRIX INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the options granted under the Company's Plan and
other agreements granting stock warrants at December 31, 1996, 1995 and 1994,
and changes during the years then ended is presented below:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------------- ---------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period............. 8,493,166 $1.03 8,121,166 $ .82 -- --
Granted................. 669,500 7.83 543,000 4.89 8,121,166 $.82
Exercised............... (465,325) 2.86 -- -- -- --
Forfeited............... (593,453) 3.36 (171,000) (2.42) -- --
Expired................. -- -- -- -- -- --
--------- ------ --------- ------- --------- ------
Outstanding at end of
period................ 8,103,888 $1.32 8,493,166 $ 1.03 8,121,166 $.82
--------- ------ --------- ------- --------- ------
Weighted average fair
value of options
granted during the
year.................. 669,500 $ .73 543,000 $ .42 N/A N/A
--------- ------ --------- ------- --------- ------
</TABLE>

A summary of the status of the options outstanding under the Company's
stock option plans and other agreements granting stock warrants at December 31,
1996 is presented below:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- -------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.17 6,000,000 2.2 years $0.17 6,000,000 $0.17
2.00 - 3.00 1,196,388 2.5 years 2.84 1,196,388 2.84
4.00 - 5.00 315,000 3.7 years 4.81 85,000 4.94
7.00 - 10.00 592,000 4.5 years 8.05 -- --
--------- --------- ------ --------- ------
8,103,388 7,281,388
</TABLE>

The stock options outstanding under the 1994 Employee Stock Option Plan at
December 31, 1996 are 1,460,888. A total of 340,325 shares have been exercised
under the Plan. Shares available for grant under the Plan are 192,603 at
December 31, 1996.

A summary of the status of the options outstanding under the Company's
stock option plan and other agreements granting stock warrants at December 31,
1996 is presented below:

NOTE 14 -- STOCKHOLDERS' EQUITY

In August, 1996, two former directors returned 800,000 shares of issued and
outstanding common stock to the Company.

F-24
<PAGE> 68

CIMETRIX INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

On August 11, 1995, the Board of Directors of the Company gave final
approval to a merger between Cimetrix Incorporated, and its majority owned
subsidiary, Cimetrix (USA) Incorporated, which was completed effective August
31, 1995. Under the merger, the minority interest shareholders of the subsidiary
received one share of common stock of the Company for each share of subsidiary
common stock that they own. This resulted in the issuance of 2,829,419 shares of
restricted common stock of the Company and the recording of excess of cost over
acquired net assets of $3,260,646. Subsequent to the merger, all business of the
Company is being conducted through Cimetrix Incorporated, a Nevada corporation.

Effective July 5, 1995, the Company issued 120,000 shared of previously
unissued restricted common stock valued at $3.75 per share for the purchase of
technology from BYU.

On March 31, 1995, the Company closed a private placement offering in which
1,000,000 shares of restricted common stock were sold at $4.00 per share for
gross proceeds of $4,000,000. Attorneys' fees and brokerage commissions
associated with the offering totaled approximately $28,553.

In February, 1994, the Company issued to three of its employees a total of
116,667 shares of previously unissued restricted common stock valued at $.0001
per share pursuant to a previous action of the Board of Directors in 1993.

During 1994, the Company sold 53,566 restricted common shares at $5.00 per
share for total cash proceeds of $267,830. Subsequently, the Board of Directors
approved the issuance of 558,761 additional restricted shares to all
shareholders who had previously purchase shares from the Company at $5.00 per
share during the periods from 1990 through 1994. The additional issuance was
intended to reduce the average cost of a share to $2.00 per share for those who
had previously paid $5.00 per share.

Pursuant to agreements with the Company in 1994, certain former officers
and directors agreed to return 2,2798,223 shares held by them for cancellation.

NOTE 15 -- 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 26.0%) to the current President of the Company.
The proxy agreement has a term expiring on December 31, 1998 and is irrevocable.

NOTE 16 -- RELATED PARTY TRANSACTIONS

During the years ended December 31, 1996 and 1995, the Company paid
consulting fees of approximately $50,000 each year and provided the use of a
furnished home to a corporation controlled by the current President of the
Company.

On July 31, 1994, the Company purchased a building contract for a cash
payment of $75,000. The contract provided for the construction of the new
facility now occupied by the Company. The purchase price was paid to a
partnership in which the current President of the Company was a partner.

In connection with the voting rights of the former officers and directors
being assigned by proxy to the President of the Company, the Company entered
into agreements with certain former officers and directors wherein 2,798,223
shares of the Company's common stock were returned and cancelled. The former
officers and directors released the Company from obligations payable to them
totaling $242,270. The Company indemnified the former officers and directors for
their past services rendered, and released them from certain obligations payable
to the Company totaling $120,068. Prior to this simultaneous release of
obligations, a relative of one of the directors made non-interest bearing cash
advances to the Company totaling $32,900. All related party payables and
receivables were forgiven by the action noted above, and as of December 31,
1994, the balance of related party receivables and payables was zero.

F-25
<PAGE> 69

CIMETRIX INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 17 -- 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 December 31, 1996 and 1995, 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 December 31, 1996. 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.

Seola 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

Common Stock Issuances -- Subsequent to year-end, an additional 30,000
shares of common stock were issued pursuant to employee stock options exercised
at $3 per share.

Operating Leases Agreements -- The Company signed a five year lease
effective March 1, 1997 for its office and engineering space in Utah. The lease
requires monthly lease payments of $20,078 during the term of the lease. The
Company also signed a lease for the administrative space in Tampa, Florida
effective April, 1997 and expiring June 30, 2000. This Florida lease requires
monthly payments of $6,933. The minimum monthly payments under these leases for
the next five years are as follows (in thousands):

<TABLE>
<S> <C>
1997........................................................ $ 263
1998........................................................ 324
1999........................................................ 324
2000........................................................ 283
2001........................................................ 241
Thereafter.................................................. 40
------
$1,475
======
</TABLE>

F-26
<PAGE> 70

======================================================

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SENIOR NOTES AND WARRANTS (AND UNDERLYING COMMON STOCK) OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Use of Proceeds....................... 8
Price Range of Common Stock and
Dividend Policy..................... 8
Capitalization........................ 9
Selected Financial Data............... 10
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 11
Business.............................. 18
Management............................ 29
Terms of Offering and Plan of
Distribution........................ 31
Description of the Senior Notes....... 33
Description of the Warrants........... 37
Description of Common Stock........... 38
Shares Eligible for Future Sale....... 40
Taxes................................. 41
Legal Matters......................... 41
Experts............................... 41
Available Information................. 41
Incorporation of Certain Information
by Reference........................ 42
Glossary of Terms..................... 43
Index to Financial Statements......... F-1
</TABLE>

======================================================
======================================================
$10,000,000

CIMETRIX INCORPORATED
10% SENIOR NOTES
COMMON STOCK WARRANTS
-------------------------

PROSPECTUS
-------------------------
Further information
regarding the Offering
may be obtained from:

DAVID L. REDMOND
CIMETRIX INCORPORATED
100 NORTH TAMPA STREET, SUITE 3550
TAMPA, FLORIDA 33602
(813) 277-9199
SEPTEMBER 2, 1997
======================================================