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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2004
|_| 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.)
6979 South High Tech Drive, Salt Lake City, Utah 84047-3757
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 256-6500
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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's common stock
as of May 13, 2004: Common stock, par value $.0001 - 27,627,246
CIMETRIX INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2004
INDEX
PART I Financial Information
Item 1. Financial Statements
a) Consolidated Condensed Balance Sheets...................................3
b) Consolidated Condensed Statements of Operations........................4
c) Consolidated Condensed Statements of Cash Flows.........................5
d) Notes to Consolidated Condensed Financial Statements....................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........19
Item 4. Controls and Procedures..............................................19
PART II Other Information
Item 1. Legal Proceedings....................................................20
Item 2. Changes in Securities and Use of Proceeds............................20
Item 3. Defaults Upon Senior Securities......................................20
Item 4. Submission of Matters to a Vote of Security Holders..................20
Item 5. Other Information....................................................21
Item 6. Exhibits and Reports on Form 8-K.....................................22
Signatures....................................................................24
-2-
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMETRIX INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
March 31, December 31,
2004 2003
--------- ---------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,328 $ 1,389
Marketable securities 31 234
Accounts receivable, net 1,310 920
Inventories 7 7
Prepaid expenses and other current assets 77 89
--------- ---------
Total Current Assets 2,753 2,639
Property and equipment, net 60 84
Technology, net 264 276
Other assets 29 33
--------- ---------
$ 3,106 $ 3,032
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 326 $ 167
Accrued expenses 271 192
Deferred revenue 609 562
Current portion of long-term debt 511 752
--------- ---------
Total Current Liabilities 1,717 1,673
LONG TERM DEBT, net of current portion 1,849 1,865
--------- ---------
Total Liabilities 3,566 3,538
STOCKHOLDERS' DEFICIT
Common stock, $.0001 par value:
100,000,000 shares authorized,
27,652,246 shares issued 3 3
Additional paid-in capital 28,660 28,634
Treasury stock, at cost (49) (49)
Accumulated deficit (29,074) (29,094)
---------- ----------
Total Stockholders' Deficit (460) (506)
---------- ----------
$ 3,106 $ 3,032
========== ==========
See notes to consolidated condensed financial statements
-3-
CIMETRIX INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share and share amounts)
(Unaudited)
Three Months Ended
March 31,
---------------------------
2004 2003
------ ------
SALES
Software $ 735 $ 559
Services and support 330 350
------ ------
Total net sales 1,065 909
------ ------
OPERATING EXPENSES
Cost of sales 154 69
Selling, marketing and customer support 252 303
Research and development 213 264
General and administrative 351 306
------ ------
Total operating expenses 970 942
------ ------
INCOME (LOSS) FROM OPERATIONS 95 (33)
------ ------
OTHER INCOME (EXPENSES)
Interest and other income 8 2
Interest expense (83) (95)
------ ------
Total other income (expenses) (75) (93)
------ ------
INCOME (LOSS) BEFORE INCOME TAXES 20 (126)
PROVISION FOR INCOME TAXES - -
------ ------
NET INCOME (LOSS) $ 20 $ (126)
====== =======
INCOME (LOSS) PER
COMMON SHARE:
BASIC $ - $ (.01)
====== =======
DILUTED $ - $ (.01)
====== =======
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC 27,627,000 24,065,000
========== ==========
DILUTED 27,798,000 24,065,000
========== ==========
See notes to consolidated condensed financial statements
-4-
CIMETRIX INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands, except share amounts)
(Unaudited)
Three Months Ended
March 31,
2004 2003
---- ----
Cash Flows from Operating Activities:
Net income (loss) $ 20 $ (126)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Amortization and depreciation 41 79
Increase in allowance for doubtful accounts - 15
Common stock issued to retire interest on notes - 17
Bond discount related to warrants 10 7
Changes in assets and liabilities:
(Increase) in accounts receivable (390) (249)
(Increase) decrease in inventory - (2)
(Increase) decrease in prepaid expenses 12 (4)
Increase in accounts payable 159 116
Increase in accrued expenses 79 18
Increase in deferred revenue 47 33
----------- ------------
Net cash used in operating activities (22) (96)
----------- ------------
Cash Flows from Investing Activities:
Sale of marketable securities 203 9
Purchase of property and equipment (1) -
----------- ------------
Net cash provided by investing activities 202 9
----------- ------------
Cash Flows from Financing Activities:
Purchase of treasury stock - (41)
Payments of long-term debt (241) -
----------- ------------
Net cash used in financing activities (241) (41)
----------- ------------
Net Decrease in Cash and Cash Equivalents (61) (128)
Cash and Cash Equivalents at the Beginning of Period 1,389 1,057
----------- ------------
Cash and Cash Equivalents at the End of Period $ 1,328 $ 929
============ ============
See notes to consolidated condensed financial statements
-5-
CIMETRIX INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands, except share amounts)
(Unaudited)
(CONTINUED)
Three Months Ended
March 31,
2004 2003
---- ----
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 31 $ -
Income taxes $ - $ 1
Supplemental Schedule of Non-cash Investing and Financing
Activities:
Interest payable retired with issuance of common stock $ - $ 17
Note payable retired with issuance of common stock $ - $ 500
Discount recorded for warrants attached to senior notes $ 26 $ -
See notes to consolidated condensed financial statements
-6-
CIMETRIX INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited consolidated condensed
financial statements of Cimetrix Incorporated (the "Company") 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 accounting
principles generally accepted in the United States of America. 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, 2003. 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. The
results of operations for the three month period ended March 31, 2004 are not
necessarily indicative of the results that can be expected for the entire year
ending December 31, 2004. The unaudited consolidated 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, 2003.
NOTE 2 - LIQUIDITY
Historically, the Company has incurred net losses and negative cash flows
from operations. As of March 31, 2004, the Company had an accumulated deficit of
$29,074,000. As of March 31, 2004, the Company had working capital of $1,036,000
and during the first quarter of 2004 the Company was able to reduce its losses
and negative cash flows from operations. Management believes that the
combination of existing working capital and continued improvements in operations
will be sufficient to assure continuation of the Company's operations through
December 31, 2004. There can be no assurance that operations will continue to
improve or that the existing working capital will be sufficient to sustain
operations through 2004. In addition, the Company has Senior Notes payable due
in 2005 in the amount of $1,915,000. If the Company is unable to sustain
profitable operations or refinance the Senior Notes due in 2005, it may be
unable to continue development of its products and may be required to
curtail operations during 2005.
-7-
NOTE 3 - STOCK-BASED COMPENSATION
At March 31, 2004, the Company has stock-based employee compensation plans,
which are accounted for under the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been recognized
in the financial statements, as all options granted under those plans had an
exercise price equal to or greater than the market value of the underlying
common stock on the date of grant. Had compensation expense for the Company's
stock options been determined based on the fair value at the grant date
consistent with the provisions of SFAS No. 123, the Company's results of
operations would have been reduced to the pro forma amounts indicated below (in
thousands, except per share amounts):
Three Months Ended
March 31,
--------------------------
2004 2003
--------------------------
Net income (loss) as reported $ 20 $ (126)
Deduct:
Total stock-based employee
compensation expense
determined under fair value
based method for all awards (218) (216)
--------------------------
--------------------------
Net loss pro forma $ (198) $ (342)
--------------------------
--------------------------
Earnings per share:
Basic - as reported $ - $ (.01)
--------------------------
--------------------------
Basic - pro forma $ (.01) $ (.01)
--------------------------
--------------------------
Diluted - as reported $ - $ (.01)
--------------------------
--------------------------
Diluted - pro forma $ (.01) $ (.01)
--------------------------
NOTE 4 - EARNINGS PER SHARE
The computation of basic earnings per common share is based on the weighted
average number of shares outstanding during the period. The computation of
diluted earnings per common share is based on the weighted average number of
shares outstanding during the period plus the weighted average common stock
equivalents which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the period.
A reconciliation of the shares used in the computation of the Company's
basic and diluted earnings per common share is as follows :
Three Months Ended
March 31,
2004 2003
----- ----
Weighted average common shares
Outstanding 27,627,000 24,065,000
Dilutive effect of :
Stock options 106,000 -
Warrants 65,000 -
---------- ----------
Weighted average common shares
outstanding, assuming dilution 27,798,000 24,065,000
========== ==========
-8-
NOTE 5 - SENIOR NOTES PAYABLE
In February 2004, the Company issued 241 warrants in connection with the
rollover of certain senior notes payable. Each warrant entitles the holder to
purchase 500 shares of the Company's common stock on or before September 30,
2005 at $.35 per share. The value of these warrants was estimated by the Company
at $26,000 using the Black-Scholes pricing model, and was recorded as a
reduction of the principal amount of the senior notes payable and an increase to
additional paid-in capital. This additional discount will be accreted and
recognized as interest expense over the remaining life of the related senior
notes payable.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
On April 8, 2004, a judgment was entered by the United States District
Court for the Middle District of Florida against the Company in the amount of
$200,826 plus interest at the rate of 1.23% per annum, costs and attorneys'
fees. The judgment resulted from a lawsuit brought against the Company by Puma
Foundation, Ltd. ("Puma") in January 2003 seeking payment on a $500,000 10%
Senior Note due September 30, 2002. See Part II, Item 1. Legal Proceedings, for
further discussion of this matter.
The Company had previously paid Puma $376,674, $250,000 of which had been
deposited in a trust account. On April 26, 2004, the Company paid Puma $199,098
to be applied against the judgment, thereby paying in full the $500,000
principal balance and all accrued interest on the 10% Senior Note. As of March
31, 2004, the Company had included $54,000 in accrued expenses and general and
administrative expenses for the estimated legal fees incurred through March 31,
2004 related to the judgment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Following is a brief discussion and explanation of significant financial
data, which is presented to help the reader better understand the results of the
Company's financial performance for the first quarter of 2004. The information
includes discussions of sales, expenses, capital resources and other significant
items. Generally the information is presented in a two-year comparison format
using the first quarter data of 2004 and 2003.
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Condensed
Consolidated 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
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, 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."
-9-
Overview of Products
The Company is the developer of the world's first open architecture,
standards-based, personal computer (PC) software for controlling motion-oriented
equipment that operates on the factory floor. The Company introduced its first
motion control products (CODE) in 1989, and has developed considerable expertise
through working with demanding original equipment manufacturer (OEM) customers.
In 2000, the Company introduced two new product families using the latest
in software technologies. Both products complement the Company's CODE motion
control family of products. CIMConnect is a next generation design for enabling
production equipment in the electronics industries to communicate data to the
factory's host computer using the SECS/GEM SEMI (Semiconductor Equipment and
Materials International) standard. CIM300 is a family of seven software products
that reduces the time required to connect new 300mm semiconductor tools to each
other and host computers into a factory by using the new SEMI 300mm standards.
Both products were winners of Semiconductor International's Editor's Choice
Award in 2001.
In 2001, Cimetrix introduced CODE 6 with Core Motion after six months of
field beta testing at customer sites. CODE 6 with Core Motion is the result of
18 months of research and development effort resulting in new technology to move
motion control from proprietary motion boards onto the PC. This can result in up
to a 50% savings in hardware costs for our OEM customers and positions us for
the evolution to network based drives.
In 2002 and early 2003, the Company designed, field tested and announced
the availability of CIM300Expert. This product further reduces the time required
by OEM customers to automate a semiconductor tool to comply with the SEMI 300 mm
standards. By reducing the implementation time from 12-24 weeks to 6-8 weeks,
CIM300Expert dramatically reduces the cost to implement SEMI compliance for
equipment suppliers. Cimetrix also introduced additional calibration technology
to its CODE 6 product, which allows faster time to market for key Surface Mount
Technology ("SMT") customers.
-10-
Critical Accounting Policies
Management's discussion and analysis of the Company's financial condition
and results are based upon financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The following accounting policies significantly affect the way the
financial statements are prepared.
Revenue Recognition
The Company derives revenues from three primary sources: 1) sales of
software, 2) sales of application engineering services and 3) sales of technical
support services. Software sales are derived from the sale of the Company's
off-the-shelf software packages in the machine control and communications
product lines. Machine control products include items such as CODE 6.0(TM),
CIMControl(TM), and CIMulation(TM). Communications products include items such
as CIM300(TM), GEM Host Manager(TM) and CIMConnect(TM). Application engineering
sales are derived from the sale of services to design, develop and implement
custom software applications. Support sales are fixed annual contracts that
provide access to technical support personnel for help in the operation or
de-bugging of our software products.
Before the Company will recognize any revenue, the following criteria must
be met:
1) Evidence of a financial arrangement or agreement must exist between
the Company and its customer. Purchase orders and signed OEM contracts
are two examples of items accepted by the Company to meet this
criterion.
2) Delivery of the products or services must have occurred. The Company
treats either physical or electronic delivery as having met this
criterion.
3) The price of the products or services is fixed and measurable. It is
the policy of the Company to provide its customers a 30-day right to
return. However, because the amount of returns has been insignificant,
the Company recognizes revenue immediately upon the sale. If the
number of returns were to increase, the Company would establish a
reserve based on a percentage of sales to account for any such
returns.
4) Collectibility of the sale is reasonably assured, receipt is probable.
Collectibility of a sale is determined on customer by customer basis.
Typically the Company sells to large corporations which have
demonstrated an ability to pay. If it is determined that a customer
may not have the ability to pay, revenue is deferred until the payment
is collected.
If a sale involves a bundled package of software, support and services at a
discounted price, revenue is allocated to each element based on the respective
list price of each. Assuming all of the above criteria have been met, revenue
from the software portion of the package is recognized immediately. Revenue from
material support contracts is recognized ratably over the term of the support
contract, which is generally 12 months. Revenue from services is recognized as
services are performed. Standard payment terms for sales are net 30 (net 45 - 60
for foreign customers). On occasion, extended payment terms will be offered. If
the Company provides payment terms greater than 90 days and collection is not
assured, then revenues are generally recognized as payments become due.
-11-
Allowance for Doubtful Accounts
The Company maintains a reserve for doubtful accounts, which is for
estimated losses resulting from uncollectible accounts receivable. In addition,
if collectibility becomes doubtful on any receivable, a reserve is set up for
the entire amount.
Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that their net book value
may not by recoverable. When such factors and circumstances exist, the Company
compares the projected undiscounted future cash flows associated with the
related asset or group of assets over their estimated useful lives against their
respective carrying amounts. Impairment, if any, is based on the excess of the
carrying amount over the fair value of those assets and is recorded in the
period in which the determination is made.
Statement of Operations Summary
The following table sets forth the percentage of costs and expenses to net
sales derived from the Company's Consolidated Condensed Statements of Operations
for the three months ended, March 31, 2004 and 2003:
Three Months Ended
March 31,
2004 2003
------ ------
NET SALES 100% 100%
------ ------
OPERATING EXPENSES
Cost of sales 14 8
Selling, marketing and customer support 24 33
Research and development 20 29
General and administrative 33 34
------ ------
Total operating expenses 91 104
------ ------
INCOME (LOSS) FROM OPERATIONS 9 (4)
Interest and other income 1 -
Interest expense (8) (10)
------ ------
NET INCOME (LOSS) 2% (14)%
====== ======
-12-
Results of Operations
Three Months Ended March 31, 2004 Compared to the Three Months Ended March
31, 2003
Net Sales
Net sales increased by $156,000, or 17%, to $1,065,000, for the three
months ended March 31, 2004, from $909,000, for the three months ended March 31,
2003. This increase in net sales was primarily due to an increase in software
license revenue as well as an increase in support and training revenue for the
period, offset by a decrease in application revenue.
During the three months ended March 31, 2004, the Company successfully
added three new major OEM customers, which contributed to the increase in
software license revenue. These new design wins along with the eight major OEM
customers gained during 2003, have enabled the Company to incrementally increase
its base of software support and maintenance contracts, as well as incrementally
increase its engineering services work. In addition, as more of the Company's
major OEM customers release new machines to the marketplace, this provides an
increase in the Company's runtime license revenue as the Company typically
receives runtime license revenue associated with every machine shipment.
Though the Company's software revenues over the past three years have been
negatively impacted by an economic slowdown, management believes that there are
indications of an increase in the general economic conditions of the SMT and
semiconductor markets, the primary markets served by the Company. Management
hopes to see a corresponding increase in the respective capital equipment
markets in the near future, which should result in increased software revenues
for the Company.
While the Company cannot predict market conditions for subsequent quarters,
it continues to market its products aggressively in order to broaden its
customer base.
The following table summarizes the percent change in net sales for the
period covered by this report, compared with the same period of the preceding
fiscal year:
Percent Change
--------------
Three Months Ended March 31, 2004 2003 04 vs. 03
- ---------------------------------------------------------------- --------------
Software revenues $735,000 $559,000 31 %
Application revenues 107,000 160,000 (33)
Support/training revenue 223,000 190,000 17
- ---------------------------------------------------------------- --------------
Total $1,065,000 $909,000 17%
========== ======== ====
-13-
The following table summarizes net sales by categories, as a percent of
total net revenues:
Three Months Ended March 31, 2004 2003
- ---------------------------------------------------------------
Category:
Software revenues 69% 61%
Application revenues 10 18
Support/training revenue 21 21
Major Customers
Sales to two non-affiliated customers accounted for 11% and 12% of the
Company's revenues for the three months ended March 31, 2004. Sales to two
non-affiliated customers accounted for 19% and 14% of the Company's revenues for
the three months ended March 31, 2003. No other single non-affiliated customer
accounted for 10% or more of the Company's revenues for the three months ended
March 31, 2004 and 2003.
During the three months ended March 31, 2004 and 2003, there were no sales
to the Company's former Japanese affiliate in which the Company had a minor
equity interest.
Export sales were approximately 36% and 43% of the Company's revenues for
the three months ended March 31, 2004 and 2003, respectively. All export sales
were made in US dollars.
Export sales to countries that exceeded 10 percent of net sales were as
follows:
Three Months Ended
March 31,
2004 2003
-----------------------
Switzerland 3% 22%
Cost of Sales
The Company's cost of sales as a percentage of net sales for the three
months ended March 31, 2004 and 2003 were approximately 14% and 8%,
respectively. Cost of sales increased by approximately $85,000 or 123%, to
approximately $154,000 for the three months ended March 31, 2004, from $69,000
for the comparable period in 2003. This increase was attributed to an increased
number of application and integration service projects that the Company provided
to its customers for the three months ended March 31, 2004.
While the Company's focus is on the sale of software products, it also
provides application and integration services to its customers that want to
purchase a complete turnkey system. These services are performed primarily by
employees of the Company. The costs related to the sale of these services are
accounted for as cost of sales.
-14-
Selling, Marketing and Customer Support
Selling, marketing and customer support expenses decreased $51,000 or 17%,
to $252,000 for the three months ended March 31, 2004, from $303,000 for the
comparable period in 2003. This decrease was attributable to a reduction in the
number of sales and marketing personnel, including a reduction in personnel and
operating costs associated with the Company's office located in Archamps,
France.
Selling, marketing and customer support expenses for the three months ended
March 31, 2004 and 2003, respectively, reflect the direct payroll and related
travel expenses of the Company's sales, marketing and customer support staff,
the development of product brochures and marketing material, press releases, and
the costs related to the Company's representation at industry trade shows.
Research and Development
Research and development expenses decreased by $51,000, or 19%, to $213,000
for the three months ended March 31, 2004, from $264,000 for the comparable
period in 2003. These expenses decreased due to the reduction in the number of
technical personnel involved in the development of new products and maintenance
of existing products.
As the Company's products have matured, emphasis has moved from development
and software enhancements to providing services and support to customers as they
prepare for and begin to ship the Company's products on their equipment. The
Company's efforts to develop its motion control and communications products
represented the majority of the research and development expenditures for the
three months ended March 31, 2004 and 2003, respectively.
Research and development expenses included only direct costs for wages,
benefits, materials, and education of technical personnel. All indirect costs
such as rents, utilities, depreciation and amortization were reflected in
general and administrative expenses, discussed below.
General and Administrative
General and administrative expenses increased $45,000, or 15%, to $351,000
for the three months ended March 31, 2004, from $306,000 for the comparable
period in 2003. This increase resulted from the Company recording legal expenses
of $54,000 relating to an unfavorable legal judgment, offset by a reduction in
depreciation, amortization, rent and other operating expenses.
General and administrative costs include all direct costs for
administrative and accounting personnel, and all rents and utilities for
maintaining Company offices. These costs also include all indirect costs such as
depreciation of fixed assets and amortization of intangible assets. Depreciation
and amortization expense for the three months ended March 31, 2004 decreased
$38,000, or 48%, to $41,000, from $79,000 during the same period in 2003.
-15-
Other Income (Expenses)
Interest and other income for the three months ended March 31, 2004
increased $6,000 to $8,000 from $2,000 for the three months ended March 31,
2003. This increase resulted primarily from the gain on sale of marketable
securities sold in the first quarter of 2004.
Interest expense decreased $12,000, or 13%, to $83,000, for the three
months ended March 31, 2004, compared to $95,000 for the comparable period in
2003. This decrease was attributable to a reduction in the outstanding principal
balance of the Company's 10% Senior Notes.
Liquidity and Capital Resources
At March 31, 2004, the Company had cash and other current assets of
$2,753,000, and current liabilities of $1,717,000, resulting in working capital
of $1,036,000, compared to working capital of $966,000 at December 31, 2003.
This increase in working capital of $70,000 was attributable primarily to an
increase in receivables resulting from increased sales for the period ended
March 31, 2004.
Future liquidity is also dependent upon the Company's ability to generate
cash flow from operations. Since inception, the Company has generated an
operating deficit, making its liquidity dependent on obtaining external
financing through debt or equity securities, since obtaining working capital
through traditional bank loans or credit lines was difficult. With improving
operating cash flows and a stronger working capital position, however,
management believes bank loans and lines of credit will be available.
At March 31, 2004, the Company had $2,426,000 principal balance of senior
notes payable outstanding, reported net of a $66,000 discount related to
warrants that were issued in connection with the senior notes. Subsequent to the
$500,000 principal payment made pursuant to the judgment further described in
Part II, Item 1. Legal Proceedings, the Company has the following principal
payments due
10% Senior Notes due September 30, 2004 $ 11,000
12% Senior Notes due September 30, 2005 $ 1,915,000
The Company's ability to liquidate the senior notes when due in 2005 will
be dependent on its ability to generate positive cash flow from operations or
obtain alternative sources of debt or equity financing.
Net cash used in operating activities for the period ended March 31, 2004
was $22,000 compared to cash used in operating activities of $96,000 for the
same period in 2003. The improvement in operating cash flows resulted from the
increase in sales in 2004, and an increase in accounts payable and accrued
expenses, offset by the increase in accounts receivable.
Net cash provided by investing activities for the period ended March 31,
2004 was $202,000, compared to net cash provided by investing activities of
$9,000 for the same period in 2003. This increase resulted primarily from the
sale of marketable securities held for investment.
Net cash used in financing activities for the period ended March 31, 2004
was $241,000 compared to cash used by financing activities of $41,000 for the
same period in 2003. The increase in cash used by financing activities for the
period ended March 31, 2004 resulted primarily from the payment of $241,000 of
the Company's senior notes payable.
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The Company has not been adversely affected by inflation. However, there
are continued economic risks inherent in foreign trade, because sales to foreign
customers accounted for 36% and 43% of the Company's net sales for the three
months ended March 31, 2004 and 2003, respectively.
The Company considers its cash resources sufficient to meet the operating
needs of its current level of business for the next twelve months.
Factors Affecting Future Results
First quarter net sales increased 17% compared to the prior year, meeting
the Company's target revenue, which was expected to increase slightly over the
fourth quarter of 2003. Over the past three years, the economic slowdown has led
to significant delays in the placement of orders by the Company's OEM customers.
As the end-user customers have cut back on capital equipment expenditures, the
Company's OEM customers have also cut back on their orders for the Company's
software products. In late 2003, it appeared that the semiconductor and
electronics assembly industries, the primary markets the Company serves, began
an economic recovery with corresponding increases in capital equipment
expenditures. In general, increases in capital equipment expenditures for the
semiconductor and electronics assembly industries should correlate to increases
in software license revenue for the Company. However, the Company continues to
focus on incrementally expanding its customer base and product line in order to
increase revenues. Management believes that its expanded customer base, combined
with increases in capital equipment expenditures in the semiconductor and
electronics assembly industries, will provide the needed revenues on a quarterly
basis to attain a profitable level of operations.
The Company's future operating results and financial condition are
difficult to predict and will be affected by a number of factors. 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-
Certain Risk Factors
Statements regarding the future prospects of the Company must be evaluated
in the context of a number of factors that may materially affect its financial
condition and results of operations. Disclosure of these factors is intended to
permit the Company to take advantage of the safe harbor provisions of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. In addition to the factors discussed
elsewhere in this Form 10-Q, these are important factors which could cause
actual results or events to differ materially from those contained in any
forward-looking statements made by or on behalf of the Company. Most of these
factors have been discussed in prior filings by the Company with the Securities
and Exchange Commission. Although the Company has attempted to list several of
the factors that it is currently aware may have an impact on its operations,
other factors may in the future prove to be important and the following list
should not be considered comprehensive. For a more complete discussion of risk
factors, the reader should refer to the Company's Annual Report filed on Form
10-K, for the period ended December 31, 2003, filed March 29, 2004.
Lack of Liquidity
Since inception, the Company has generated an operating deficit. In
addition, the Company has $1,926,000 of senior notes payable, substantially all
of which mature in September 2005. The Company's future liquidity is dependent
on attaining positive cash flow from operations and obtaining external financing
through debt or equity securities. See "Liquidity and Capital Resources".
Operating Losses, Accumulated Deficit
The consolidated condensed financial statements of the Company for the
three months ended March 31, 2004 report net income of $20,000, and an
accumulated deficit of $29,074,000. As of that date, the Company had working
capital of $1,036,000 and a net stockholders' deficit of $460,000. Losses have
resulted principally from costs incurred in connection with research and
development and the selling and marketing of the Company's software products.
CODE motion control software was introduced commercially in October 1995. The
Company's communications products, GEM, CIMConnect and CIM300 were introduced
during 1997, 2000, and 2000 respectively. The likelihood of success of the
Company must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with the
development of new products and the competitive environments in the industry in
which the Company operates. There can be no assurance that the Company will not
encounter substantial delays and unexpected expenses related to research,
development, production, marketing or other unforeseen difficulties.
Dependence Upon Major Customers
The quantity of each customer's business with the Company depends
substantially on market acceptance of the customer's products that utilize the
Company's software products and the development cycle of the customer's
products. The Company could be materially adversely affected by a downturn in
either customer's sales or their failure to meet sales expectations. The Company
will likely from time to time have customers that account for a significant
portion of its business.
-18-
Risk of Technological Changes
The markets for the Company's products are new and emerging and 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 and gain a competitive advantage.
Dependence Upon Key Personnel
The Company is highly dependent on the services of its key managerial and
engineering personnel, including, Robert H. Reback, President and Chief
Executive Officer, David P. Faulkner, Executive Vice President of Sales and
Marketing., Michael D. Feaster, Vice President of Software Development and
Steven K. Sorensen, Vice President and Chief Engineer. The loss of any member of
the Company's senior management team could adversely affect the Company's
business prospects. The Company does not maintain key-man insurance for any of
its key management personnel.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company has no activities in derivative financial or commodity
instruments. The Company's exposure to market risks, (i.e. interest rate risk,
foreign currency exchange rate risk, equity price risk) through other financial
instruments, including cash equivalents, accounts receivable, and lines of
credit, is not material.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
An evaluation was carried out under the supervision and with the
participation of the Company's management, including its Chief Executive Officer
and Chief Financial Officer of the effectiveness of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act) as of the end of the period covered by this report.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that those disclosure controls and procedures were effective
to ensure that material information required to be disclosed by the Company in
reports that the Company files or submits under the Securities Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the Securities and Exchange Commission.
(b) Changes in internal controls.
During the quarterly period covered by this report, there were no
significant changes in the Company's internal controls over financial reporting
that have materially affected, or are reasonably likely to materially effect,
the Company's internal controls over financial reporting.
-19-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Litigation with Puma Foundation, Ltd. and Loving Spirit Foundation
On April 8, 2004, a judgment was entered by the United States District
Court for the Middle District of Florida in favor of Puma Foundation, Ltd., a
Bermuda limited liability company ("Puma"), and against the Company, in the
amount of $200,826 plus interest at the rate of 1.23% per annum, costs and
attorney's fees. The judgment resulted from a lawsuit that Puma brought against
the Company to obtain payment on a $500,000 10% Senior Note due September 30,
2002. The note was originally issued by the Company to Loving Spirit Foundation,
a Florida foundation ("Loving Spirit"), which subsequently transferred the note
to Puma. The President of Puma and Loving Spirit is Terri Steffen, the wife of
Paul A. Bilzerian, the former President and Chief Executive Officer of the
Company.
Puma had brought a complaint against the Company on January 16, 2003 for
payment of the $500,000 10% Senior Note, plus accrued interest thereon.
Thereafter Loving Spirit was added to the lawsuit and claimed that the Company
also violated Florida Securities laws when the 10% Senior Note was issued to
Loving Spirit. The Company's position was that the note was not a valid 10%
Senior Note and, as a result, the Company was obligated to repay $500,000 with
interest to Puma, but the interest should be at the legal rate rather than 10%
per annum, the rate payable on the 10% Senior Notes. Prior to trial, the Company
tendered payment in the amount of $376,674 to Puma, $250,000 of which had been
previously set-aside in a trust account to be held for payment on the $500,000
10% Senior Note held by Puma. Also prior to trial, Loving Spirit dismissed its
securities violation claim against the Company.
On April 26, 2004, the Company tendered payment to Puma in the amount of
$199,098 to be applied toward the judgment amount, thereby paying in full the
$500,000 principal balance and all accrued interest. The Company has estimated
its obligation for legal fees to be approximately $80,000, which amount is
subject to final approval by the court. Through March 31, 2004, the Company has
accrued $54,000 of these fees . Once the approved legal fees have been paid in
full, the Company will have no further obligation to Puma or Loving Spirit.
The Company is not currently involved with any other litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
-20-
ITEM 5. OTHER INFORMATION
Proxy Statement
On April 27, 2004, the Company filed its Definitive Proxy Statement on
Schedule 14A, which was simultaneously mailed to its shareholders, announcing
the upcoming annual shareholders meeting to be held May 22, 2004, at the
Company's headquarters, beginning at 9:00 a.m. Any shareholder desiring a copy
of the Proxy Statement may request a copy from the Company.
-21-
(a) Exhibit listing
Exhibit No. Description
3.1 Articles of Incorporation (1)
3.2 Articles of Merger of Cimetrix (USA) Incorporated with
Cimetrix Incorporated (2)
3.3 Amended Bylaws
10.1 Lease with Capitol Properties Four, L.C. (3)
10.2 1998 Incentive Stock Option Plan (4)
10.3 Security Agreement with Michael and Barbara Feaster (5)
10.4 Employment Agreement with Robert H. Reback, President and
Chief Executive Officer (6)
10.5 Employment Agreement with David P. Faulkner, Executive
Vice President and Managing Director of Machine
Control Products (6)
10.6 Employment Agreement with Michael D. Feaster, Vice
President of Software
Development (6)
10.7 Employment Agreement with Steven K. Sorensen, Vice
President and Chief Technical Officer (6)
10.8 Amendment 1 to 1998 Incentive Stock Option Plan (7)
10.9 Amendment 2 to 1998 Incentive Stock Option Plan (8)
10.10 Form of Indemnification Agreement with directors and
officers (9)
10.11 Settlement Agreement and Mutual Release with Peter Manley
and Jana Manley (9)
10.12 Convertible Note Purchase Agreement and Convertible Note
with Tsunami Network Partners Corporation (10)
10.13 Amendment to Employment Agreement with Robert H.
Reback, President and Chief Executive Officer (11)
10.14 Amendment to Employment Agreement with David P.
Faulkner, Executive Vice President of Sales and
Marketing (11)
10.15 Amendment to Employment Agreement with Michael D.
Feaster, Vice President of Software Development (11)
31.1 Certification of Principal Executive Officer pursuant
to Rule 13a-15(e) of the Securities Exchange Act of
1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer pursuant
to Rule 13a-15(e) of the Securities Exchange Act of
1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to
18 U.S.C Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant to
18 U.S.C Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
--------------------------------------
(1) Incorporated by reference to Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
(2) Incorporated by reference to
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1995.
(3) Incorporated by reference from the Registration Statement on Form
S-2, File No. 333-60, as filed on July 2, 1997.
(4) Incorporated by reference to Proxy Statement on Schedule 14A dated
April 20, 1998.
(5) Incorporated by reference to Annual Report on Form 10-K for
the fiscal year ended December 31,2000, filed April 2, 2001.
(6) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002, filed May 15, 2002.
(7) Incorporated by reference to Proxy Statement on Schedule 14A dated
April 30, 2001, as filed on May 14, 2001.
(8) Incorporated by reference to Proxy Statement on Schedule 14A dated
April 30, 2002, as filed on April 30, 2002.
(9) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002, as filed on August 14, 2002.
(10) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002, as filed on November 14, 2002.
(11) Incorporated by reference to Annual Report on Form 10-K for the
fiscal year ended December 31, 2003, filed March 29, 2004.
-22-
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed by Cimetrix, Incorporated during
the quarter ended March 31, 2004.
-23-
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
REGISTRANT
CIMETRIX INCORPORATED
Dated: May 14, 2004
By: /S/ Robert H. Reback
--------------------
Robert H. Reback
President and Chief Executive Officer
(Principal Executive Officer)
By: /S/ Dennis P. Gauger
--------------------
Dennis P. Gauger
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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