<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
----------------
COMMISSION FILE NUMBER: 0-16454
CIMETRIX INCORPORATED
(Exact name of registrant as specified in its charter)
NEVADA 87-0439107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N. TAMPA ST., TAMPA, FLORIDA 33602
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (813)277-9199
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of each of the issuer's classes of common
stock as of November 7, 1997:
Common stock, par value $.0001 - 24,143,928.
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EXHIBIT INDEX ON PAGE 18
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES $ 543 $ 1,312 $ 1,596 $ 1,770
------------ ------------ ------------ ------------
OPERATING EXPENSES
Cost of revenues, including customer support 253 179 802 420
Sales and marketing 233 349 816 988
Research and development 578 425 1,500 1,135
General and administrative 584 343 1,649 992
Compensation expense - stock options -- -- -- 693
------------ ------------ ------------ ------------
Total operating expenses 1,648 1,296 4,767 4,228
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,105) 16 (3,171) (2,458)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income 1 28 34 74
Interest expense (22) (38) (43) (40)
Gain (loss) on disposition of assets -- 352 -- 352
------------ ------------ ------------ ------------
Total other income (expense) (21) 342 (9) 386
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,126) 358 (3,180) (2,072)
CURRENT INCOME TAX EXPENSE
(BENEFIT) -- -- -- --
DEFERRED INCOME TAX EXPENSE
(BENEFIT) -- -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (1,126) $ 358 $ (3,180) $ (2,072)
============ ============ ============ ============
INCOME (LOSS) PER COMMON SHARE $ (.04) $ .02 $ (.14) $ (.11)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 24,143,928 18,549,761 22,143,095 18,655,836
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
(unaudited).
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS (CONT.)
CIMETRIX INCORPORATED
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
CURRENT ASSETS: 1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents $ 176 $ 2,785
Accounts receivable, net 464 617
Inventories 256 533
Prepaid expenses and other current assets 141 285
-------- --------
Total current assets 1,037 4,220
PROPERTY AND EQUIPMENT, net 979 614
CAPITALIZED SOFTWARE COSTS, net 560 707
TECHNOLOGY, net 675 715
GOODWILL, net 2,808 2,971
OTHER ASSETS 123 --
-------- --------
Total Assets $ 6,182 $ 9,227
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 36 $ 44
Accounts payable 739 671
Accrued expenses 125 459
Customer deposits 96 170
-------- --------
Total current liabilities 996 1,344
LONG TERM DEBT, net of current portion 260 252
-------- --------
Total Liabilities 1,256 1,596
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value: 100,000,000 shares
authorized; 24,143,928 and 18,246,428 shares issued
and outstanding, respectively 2 2
Additional paid-in capital 18,881 18,406
Accumulated deficit (13,723) (10,543)
Unearned compensation - stock options (234) (234)
-------- --------
Net Stockholders' Equity 4,926 7,631
-------- --------
$ 6,182 $ 9,227
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
(unaudited).
3
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS (CONT.)
CIMETRIX INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS TO OPERATING ACTIVITIES:
Net Loss $(3,180) $(2,072)
------- -------
Adjustments to reconcile net loss to net cash used by
operating activities:
Amortization and depreciation 541 481
Compensation related to stock options -- 693
Gain on sale of building -- (352)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 153 (1,121)
(Increase) decrease in inventory 277 (42)
(Increase) decrease in prepaid expenses 144 (151)
Increase (decrease) in accounts payable 68 189
Increase (decrease) in accrued expenses (334) 10
Increase (decrease) in customer deposits (74) --
------- -------
Total adjustments (775) (293)
------- -------
Net Cash Flow Used by Operating Activities (2,405) (2,365)
------- -------
CASH FLOWS TO INVESTING ACTIVITIES:
Payments for capitalized software costs -- (122)
Purchase of property and equipment, net of retirements (556) (96)
Proceeds from sale of building -- 1,175
Increase in other assets (123) --
------- -------
Net Cash Flow Provided by (Used by) Investing Activities (679) 957
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 475 1,581
Payments for notes payable and capital lease obligations, net -- (36)
------- -------
Net Cash Flow Provided by Financing Activities 475 1,545
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,609) 137
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 2,785 2,345
------- -------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 176 $ 2,482
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 10 $ 41
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 warrants, net of repurchase $ 475 $ 1,581
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
(unaudited).
4
<PAGE> 5
ITEM 1. FINANCIAL STATEMENTS (CONT.)
CIMETRIX INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying unaudited condensed financial
statements of Cimetrix Incorporated have been prepared in accordance with
the Securities and Exchange Commission's instructions to Form 10-Q and,
therefore, omit or condense footnotes and certain other information
normally included in financial statements prepared in accordance with
generally accepted accounting principles. The accounting policies followed
for quarterly financial reporting conform with generally accepted
accounting policies disclosed in Note 1 to the Notes to Financial
Statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996. In the opinion of management, all adjustments
of a normal recurring nature that are necessary for a fair presentation of
the financial information for the interim periods reported have been made.
Certain amounts for the three and nine-month periods ended September 30,
1996 have been reclassified to conform to the September 30, 1997
classification. The results of operations for the three and nine-month
periods ended September 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 September 30,
1997, the Company had cash equivalents of $176,354 invested in money market
accounts, which are readily convertible into cash and are not subject to
significant risk from fluctuation in interest rates. There were cash
equivalents of approximately $2,482,811 at September 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 September
30, 1997 and December 31, 1996 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Parts and supplies $130 $211
Work in process 21 128
Finished goods 105 194
---- ----
$256 $533
==== ====
</TABLE>
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost and
depreciated using the straight-line method over the estimated useful lives
of the related assets. The estimated lives are as follows: buildings, 40
years; leasehold improvements, the lease term; computer equipment and
other, three to seven years.
5
<PAGE> 6
ITEM 1. FINANCIAL STATEMENTS (CONT.)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
SOFTWARE DEVELOPMENT COSTS - Certain software development costs are
capitalized when incurred in accordance with Financial Accounting Standards
Board (FASB) Statement No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed." Capitalization of
software development costs begins upon the establishment of technological
feasibility. Costs incurred prior to the establishment of technological
feasibility are expensed as incurred. The Company also expenses hardware
design and prototype expenses as incurred as research and product
development costs. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized software development
costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technologies.
Amortization of capitalized software development costs is provided on a
product-by-product basis at the greater of the amount computed using (a)
the ratio of current gross revenues for a product to the total of current
and anticipated future gross revenues or (b) the straight-line method over
the remaining estimated economic life of the product. As of September 30,
1997, the unamortized portion of capitalized software development costs was
approximately $560,000. Amortization of software development costs was
approximately $49,000 and $43,000 for the three months ended September 30,
1997 and 1996, respectively. Amortization of software development costs was
approximately $147,000 and $129,000 for the nine months ended September 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 three-month and nine-month
periods ended September 30, 1997 and 1996 was approximately $54,300, and
$162,900, respectively. At September 30, 1997, the accumulated amortization
was approximately $453,000. 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 September 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
6
<PAGE> 7
ITEM 1. FINANCIAL STATEMENTS (CONT.)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
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
September 30, 1997 and December 31, 1996, the unamortized prepayment was
$77,333 and $130,235, respectively, and is included in "Prepaid expenses
and other current assets" on the Company's Balance Sheets. The agreement
also provides the Company with the option, expiring on July 25, 1998, to
purchase all existing development operating system source code from the
provider.
NOTE 3 - TECHNOLOGY
Effective July 5, 1995, the Company purchased the technology that was then
being licensed from Brigham Young University (BYU) and referred to as
ROBLINE and ROBCAL. The Company purchased all rights, title, interest and
benefit in and to the intellectual property for cash payments of $50,000
per year for ten years, which were discounted using an incremental
borrowing rate of 9.5% per annum and recorded as a note payable of
$343,765, plus 120,000 shares of previously unissued, restricted common
stock of the Company valued at $3.75 per share, for a total purchase value
of $793,765. The technology is being amortized on a straight-line basis
over 15 years. Amortization expense was approximately $13,500 during both
the three-month periods ended September 30, 1997 and 1996 and was
approximately $40,000 during both the nine-month periods ended September
30, 1997 and 1996.
7
<PAGE> 8
ITEM 1. FINANCIAL STATEMENTS (CONT.)
NOTE 4 - LONG-TERM DEBT
Long-term debt at September 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 24 24
---- ----
296 296
Less current maturities 36 44
---- ----
Net long-term debt $260 $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 29.5% and 34.4% of the Company's net revenues during the
three and nine-month periods ended September 30, 1997, respectively, were
attributable to Fuji Machine Mfg. Co., Ltd. ("Fuji"). Approximately 62.9%
and 46.6% of the Company's net revenues during the three and nine-month
periods ended September 30, 1996, respectively, were attributable to Fuji.
Approximately 29.5% and 10.5% of the Company's net revenues during the
three and nine-month periods ended September 30, 1997, respectively, were
attributable to Okamoto Corporation ("Okamoto"). Okamoto accounted for less
than 1% of the Company's net revenues during both the three and nine-month
periods ended September 30, 1996.
NOTE 6 - STOCK OPTIONS AND WARRANTS
On December 21, 1994, the Company's Board of Directors adopted effective
immediately, subject to shareholder approval at the annual meeting of
shareholders held in July 1995, a stock option plan under which options may
be granted to officers, employees, directors and others. The plan
specifically replaced all prior option agreements between the Company, its
employees and its consultants. A total of 1,993,816 shares of common stock
had been reserved for issuance under the plan. On May 31, 1997, the
shareholders of the Company approved an amendment to the Cimetrix
Incorporated 1994 Stock Option Plan to increase the number of shares of the
Company's common stock reserved for issuance thereunder by 506,184 shares
to an aggregate of 2,500,000 shares. Options granted under the plan are
exercisable at a price not less than the fair market value of the shares at
the date of the grant, and one-half of the granted options vest on the
first anniversary of the date of grant, with the remaining one-half vesting
on the second anniversary of the date of grant. The option period and
exercise price will be specified for each option granted, as determined by
the Board of Directors, but in no case shall the option period exceed five
years from the date of grant, and the exercise price cannot be less than
one-half the market price of the Company's common shares on the date of
grant.
8
<PAGE> 9
ITEM 1. FINANCIAL STATEMENTS (CONT.)
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 125,00
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 September
30, 1997, 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 September 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 September
30, 1997. Management believes that any allowance for warranty would be
currently immaterial to the financial condition of the Company.
9
<PAGE> 10
ITEM 1. FINANCIAL STATEMENTS (CONT.)
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 September 3, 1997, the Company's S-2 registration statement, 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 250 shares of the Company's common
stock for each $1,000 principal amount of Senior Notes purchased, was
declared effective by the Securities and Exchange Commission. The offering
is being made directly by the Company on best efforts basis and is not
being underwritten. The Company announced on October 15, 1997, that it had
accepted subscriptions in excess of the $3.0 million minimum. The offering
has been extended until November 21, 1997. The proceeds of the offering
would be used for working capital and other general corporate purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Company's Condensed
Financial Statements and Notes thereto included elsewhere in this Quarterly
Report. The ensuing discussion and analysis contains both statements of
historical fact and forward-looking statements. Forward-looking statements
generally are identified by the words "expects," "believes" and "anticipates" or
words of similar import. Examples of forward-looking statements include: (a)
projections regarding sales, revenue, liquidity, capital expenditures and other
financial items; (b) statements of the plans, beliefs and objectives of the
Company or its management; (c) statements of future economic performance, and
(d) assumptions underlying statements regarding the Company or its business.
Forward-looking statements are subject to certain factors and uncertainties that
could cause actual results to differ materially from the forward-looking
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
statements, including, but not limited to, those factors and uncertainties
described below under "Liquidity and Capital Resources" and "Factors Affecting
Future Results."
OVERVIEW
The Company is the developer of the world's first open architecture,
standards-based, personal computer (PC) software for controlling machine tools,
industrial robots and industrial automation equipment that operates on the
factory floor. The following table sets forth the percentage of costs and
expenses to net revenues derived from the Company's Condensed Statements of
Operations for the three and nine months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET REVENUES 100% 100% 100% 100%
------- ------- ------- -------
OPERATING EXPENSES
Cost of revenues, including customer support 46.6 13.6 50.3 23.7
Sales and marketing 42.9 26.6 51.1 55.8
Research and development 106.5 32.4 94.0 64.1
General and administrative 107.5 26.2 103.3 56.1
Compensation expense - stock options -- -- -- 39.2
------- ------- ------- -------
Total operating expenses 303.5 98.8 298.7 238.9
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS (203.5) 1.2 (198.7) 138.9
------- ------- ------- -------
Interest income, net of interest expense (3.9) (.7) (0.6) 1.9
Gain (loss) on disposition of assets -- 26.8 -- 19.9
------- ------- ------- -------
NET INCOME (LOSS) (207.4)% 27.3% (199.3)% (117.1)%
======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
NET REVENUES
Net revenues for the third quarters of 1997 and 1996 were approximately
$543,000 and $1,312,000, respectively. Net revenues for the third quarter of
1997 included approximately $202,000, or 37.2%, from custom applications and
programming and system integration projects primarily with original equipment
manufacturers ("OEMs"), approximately $232,000, or 42.7%, from the sale of
software products, approximately $80,000, or 14.8%, from customer support and
approximately $29,000, or 5.3%, from the sale of hardware products. Net revenues
for the third quarter of 1996 included approximately $164,000, or 12.5%, from
the sale of hardware products, approximately $936,000, or
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
71.3%, from the sale of software products and approximately $212,000, or 16.2%,
from training, support services and custom applications and systems integration
projects.
Net revenues for the first nine months of 1997 and 1996 were approximately
$1,596,000 and $1,770,000, respectively. Net revenues for the first nine months
of 1997 included approximately $510,000, or 32.0%, from custom applications and
programming and system integration projects primarily with OEMs, approximately
$859,000, or 53.8%, from the sale of software products, approximately $162,000,
or 10.2%, from customer support, and approximately $65,000, or 4.0%, from the
sale of hardware products. Net revenues for the first nine months of 1996
included approximately $368,000, or 20.8%, from the sale of hardware products,
approximately $1,058,000, or 59.8%, from the sale of software products and
approximately $344,000, or 19.4%, from training, customer support and custom
applications and systems integration projects.
The decrease in net revenues for the third quarter of 1997 compared to the
comparable period in 1996 was primarily attributable to software sales to Fuji
of approximately $750,000 during the third quarter of 1996.
Fuji Machine Mfg. Co., Ltd. ("Fuji") accounted for approximately 29.5% and
34.4% of the Company's net revenues for the third quarter and first nine months
of 1997, respectively. Fuji accounted for approximately 62.9% and 46.6% of the
Company's net revenues during the three and nine-month periods ended September
30, 1996. 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 third quarter and first
nine months of 1997 and 1996. Approximately 29.5% and 10.5% of the Company's net
revenues during the three and nine-month periods ended September 30, 1997, were
attributable to Okamoto Corporation ("Okamoto"). Okamoto accounted for less than
1% of the Company's net revenues during both the three and nine-month periods
ended September 30, 1996.
COST OF REVENUES
Cost of revenues as a percentage of net revenues was 46.6% in the third
quarter of 1997 compared to 13.6% in the second quarter of 1996, and 50.3% in
the first nine months of 1997 versus 23.7% in the first nine months of 1996. The
increase in cost of revenues was primarily attributable to the increased
percentage of revenues from the sale of software products (primarily to Fuji) in
the comparable 1996 periods. The profit margin on software products is
considerably higher than the profit margin on custom applications and
programming, support and hardware products.
SALES AND MARKETING
Sales and marketing expenses were approximately $233,000 in the third
quarter of 1997 compared to approximately $349,000 in the third quarter of 1996
and were approximately $816,000 in the first nine months of 1997 compared to
approximately $988,000 in the first nine months of 1996. The
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
number of sales personnel have decreased by approximately 25% and related sales
and marketing expenses have been reduced proportionately. This reduction
reflects the Company's change in strategic direction to focus on large OEM
customers.
RESEARCH AND DEVELOPMENT
Research and development expenses increased approximately 36% to $578,000
in the third quarter of 1997 from approximately $425,000 in the third quarter of
1996. Research and development expenses during the first nine months of 1997
were approximately $1,500,000 compared to approximately $1,135,000 during the
first nine months of 1996. The Company's extensive effort to develop its
products for WindowsNT and the continued development of the Company's GEM
software products represented most of the increase in research and development
expenditures. The Company plans to continue to make significant investments in
research and development and expects to incur research and development expenses
of approximately $2,000,000 per year during 1997 and 1998.
GENERAL AND ADMINISTRATIVE
General and administrative expenses have increased from approximately
$343,000 in the third quarter of 1996 to approximately $584,000 in the third
quarter of 1997. General and administrative expenses increased 66.2% to
approximately $1,649,000 in the first nine months of 1997 compared to
approximately $992,000 in the first nine months of 1996. The primary increases
in general and administrative expenses are approximately $90,000 in rent and
related costs associated with the new offices in Midvale, Utah and Tampa,
Florida, $25,000 in legal expenses related primarily to the Seolas litigation,
and approximately $100,000 of increased payroll for officers and employees in
this category.
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 nine months ended September
30, 1996 was approximately $693,000.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), which is effective for the Company's fiscal year
ending December 31, 1996. FAS 123 encourages, but does not require, companies to
recognize compensation expense based on the fair value of grants of stock, stock
options and other equity investments to employees. Although expense recognition
for employee stock-based compensation is not mandatory, FAS 123 requires that
companies not adopting must disclose the pro forma effect on net income and
earnings per share. The Company will continue to apply prior accounting rules
and make pro forma disclosures in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $41,000 of working capital at September 30,
1997, compared
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
with approximately $2,876,000 at December 31, 1996. The decrease in working
capital from December 31, 1996 to September 30, 1997 was primarily attributable
to the $2,405,000 of cash used to fund the Company's net loss during the nine
months ended September 30, 1997 and capital expenditures of approximately
$550,000.
The Company had negative cash flow from operating activities of
approximately $2,405,000 for the nine months ended September 30, 1997 compared
to approximately $2,365,000 for the nine months ended September 30, 1996. The
Company's negative cash flow from operations for the nine months ended September
30, 1997 was approximately equal to the net loss less depreciation and
amortization for the period. Negative cash flow from operations for the nine
months ended September 30, 1996 was approximately equal to the Company's net
loss for the period, plus the gain on the sale of the building.
The Company has incurred operating losses since its inception and remains
primarily dependent on external financing for liquidity. Management believes
that the funds raised to date from its Senior Note offering are sufficient to
maintain its foreseeable levels of operations. See Note 9 of Notes to Condensed
Financial Statements (unaudited), included in this quarterly report.
The Company anticipates that capital expenditures for fiscal year 1997,
primarily for computer equipment, will be approximately $600,000 to $700,000.
Management believes that the proceeds from the Senior Note offering will provide
the Company with sufficient funds to meet its capital expenditure requirements
for 1997 and 1998.
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 can be passed on to its customers.
Sales to foreign customers account for a significant percentage of the
Company's revenues. Thus far, all the Company's international sales are payable
in United States dollars, so foreign currency exchange rates have not had any
effect on the Company's liquidity or results of operations.
14
<PAGE> 15
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 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.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company filed a lawsuit on February 8, 1996 and an amended complaint on
March 7, 1997 against W. Keith Seolas ("Seolas"), a former director of the
Company, and members of his family. The lawsuit, styled Cimetrix Incorporated v.
Waldron Keith Seolas et al., is pending in the Fourth Judicial District Court of
Utah County, Utah, and seeks declaratory relief and a determination of the
validity of the issuance of approximately 2,000,000 shares of the Company's
common stock to Seolas and his family members.
Seolas filed a separate lawsuit against the Company on April 26, 1996 and
an amended complaint on March 17, 1997 in the United States District Court for
Utah. In his lawsuit, styled Waldron Keith Seolas et al. v. Cimetrix
Incorporated, Seolas alleges fraud by the Company in connection with his return
of approximately 200,000 shares to the Company in 1994. The Company believes
that it has strong defenses to Seolas' claims and intends to vigorously defend
them. The Company's counsel believes the claims against the Company are without
merit.
Other than as stated in the preceding paragraphs, the Company is not a
party to any material pending legal proceedings and, to the knowledge of its
management, no such proceedings by or against the Company have been threatened.
To the knowledge of the Company's management, there are no material proceedings
pending or threatened against any director or executive officer of the Company,
whose position in any such proceeding would be adverse to that of the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
See Note 9 of the Notes to Condensed Financial Statements (Unaudited)
included elsewhere in this Quarterly Report and Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources in Part I of this Quarterly Report for information regarding
the Company's S-2 registration statement offering of a minimum of $3,000,000 and
a maximum of $10,000,000 aggregate principal amount of its unsecured 10% Senior
Notes due 2002 coupled with warrants to purchase up to 2,500,000 shares of the
Company's common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
The Company did not file a Current Report on Form 8-K during the quarterly
period ended September 30, 1997.
EXHIBITS
The following exhibits are filed as part of this Quarterly Report:
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CIMETRIX INCORPORATED
By: /s/ David L. Redmond
---------------------
DAVID L. REDMOND
Executive Vice President
and Chief Financial Officer
(Its Duly Authorized Officer)
Date: November 10, 1997
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- ----------
<S> <C> <C>
27 Financial Data Schedule *
</TABLE>
- ----------------------------------
* Electronically filed with Form 10-Q
18
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