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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, 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 or 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
November 15, 2004: Common stock, par value $.0001 - 27,819,121 shares
CIMETRIX INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 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............................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........21
Item 4. Controls and Procedures..............................................22
PART II Other Information
Item 1. Legal Proceedings....................................................23
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities.................................................23
Item 3. Defaults Upon Senior Securities......................................24
Item 4. Submission of Matters to a Vote of Security Holders..................24
Item 5. Other Information....................................................24
Item 6. Exhibits and Reports on Form 8-K.....................................24
Signatures....................................................................25
-2-
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMETRIX INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
September 30, December 31,
2004 2003
------- ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,431 $ 1,389
Marketable securities 33 234
Accounts receivable, net 767 920
Inventories 7 7
Prepaid expenses and other current assets 94 89
------------ ------------
Total Current Assets 2,332 2,639
Property and equipment, net 41 84
Technology, net 241 276
Other assets 19 33
------------ ------------
$ 2,633 $ 3,032
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 380 $ 167
Accrued expenses 205 192
Deferred revenue 437 562
Current portion of long-term debt 1,163 752
------------ ------------
Total Current Liabilities 2,185 1,673
LONG TERM DEBT, net of current portion 671 1,865
------------ ------------
Total Liabilities 2,856 3,538
------------ ------------
STOCKHOLDERS' DEFICIT
Common stock, $.0001 par value: 100,000,000
shares authorized, 27,844,121 and 27,652,246
shares issued 3 3
Additional paid-in capital 28,774 28,634
Treasury stock, at cost (49) (49)
Accumulated deficit (28,951) (29,094)
------------ ------------
Total Stockholders' Deficit (223) (506)
------------ ------------
$ 2,633 $ 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 Nine Months Ended
September 30, September 30,
-------------------------- -----------------------
2004 2003 2004 2003
---- ---- ---- ----
SALES
Software $ 776 $ 200 $ 2,062 $ 1,192
Services and support 437 246 1,215 1,144
-------- ---------- ---------- --------
Total net sales 1,213 446 3,277 2,336
-------- ---------- ---------- --------
OPERATING EXPENSES
Cost of sales 307 93 697 349
Selling, marketing and customer support 268 286 790 908
Research and development 197 209 612 692
General and administrative 298 217 851 864
-------- ---------- ---------- --------
Total operating expenses 1,070 805 2,950 2,813
-------- ---------- ---------- --------
INCOME (LOSS) FROM OPERATIONS 143 (359) 327 (477)
-------- ----------- ---------- ---------
OTHER INCOME (EXPENSES)
Interest income 4 1 9 3
Interest expense (68) (63) (220) (239)
Other income (expense) 22 (29) 27 (28)
--------- ----------- ----------- ---------
Total other income (expenses) (42) (91) (184) (264)
--------- ----------- ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 101 (450) 143 (741)
PROVISION FOR INCOME TAXES - - - -
-------- ----------- ---------- ---------
NET INCOME (LOSS) $ 101 $ (450) 143 (741)
======== =========== ========== =========
INCOME (LOSS) PER COMMON SHARE:
BASIC $ - $ (.02) $ .01 $ (.03)
== ===== === =====
DILUTED $ - $ (.02) $ .01 $ (.03)
== ===== === =====
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 27,813,000 25,513,000 27,701,000 25,031,000
========== ========== ========== ==========
DILUTED 29,047,000 25,513,000 28,228,000 25,031,000
========== ========== ========== ==========
See notes to consolidated condensed financial statements
-4-
CIMETRIX INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2004 2003
---- ----
Cash flows from operating activities:
Net income (loss) $ 143 $ (741)
Adjustments to reconcile net income (loss) to net cash
provided by (used in)operating activities:
Amortization and depreciation 130 237
(Decrease) in allowance for doubtful accounts (104) (56)
Gain on extinguishment of debt (22) -
Options issued for services 21 22
Bond discount related to warrants 32 72
Changes in assets and liabilities:
Decrease in accounts receivable 180 283
(Increase) in inventories - (3)
(Increase) in prepaid expenses
and other current assets (5) (33)
Increase in accounts payable 213 147
Increase in accrued expenses 13 2
(Decrease) in deferred revenue (125) (101)
----------- -----------
Net cash provided by (used in) operating activities 476 (171)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of marketable securities 201 163
Purchase of property and equipment (28) (3)
----------- -----------
Net cash provided by investing activities 173 160
----------- -----------
Cash flows from financing activities:
Purchase of treasury stock - (41)
Payments of long-term debt (747) -
Net proceeds from sale of common stock 140 -
----------- -----------
Net cash used in financing activities (607) (41)
----------- -----------
Net increase (decrease) in cash and cash equivalents 42 (52)
Cash and cash equivalents at the beginning of period 1,389 1,057
----------- -----------
Cash and cash equivalents at the end of period $ 1,431 $ 1,005
=========== ============
See notes to consolidated condensed financial statements
-5-
CIMETRIX INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(CONTINUED)
Nine Months Ended
September 30,
2004 2003
---- ----
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 222 $ 93
Income taxes $ - $ -
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 $ 46 $ -
Purchase and retirement of treasury stock acquired by
reduction in accounts receivable $ 77 $ -
Warrants issued for deferred consulting expense $ 19 $ -
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 interim financial information of Cimetrix
Incorporated (the "Company") as of September 30, 2004 and for the three months
and nine months ended September 30, 2004 and September 30, 2003 included herein
is unaudited, and the balance sheet as of December 31, 2003 is derived from
audited financial statements. The accompanying consolidated condensed financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial statements. Accordingly,
they 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. The accounting policies followed for
quarterly financial reporting conform with generally accepted accounting
policies disclosed in Note 1 to the Notes to Consolidated 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 that are necessary for a
fair presentation of the financial information for the interim periods reported
have been made. All such adjustments are of a normal recurring nature. The
results of operations for the three month and nine month periods ended September
30, 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 September 30, 2004, the Company had an accumulated
deficit of $28,951,000 and a stockholders' deficit of $223,000. The Company has
improved the results of its operations during the nine months ended September
30, 2004, reporting net income of $143,000 and net cash provided by operating
activities of $476,000. As discussed in Note 5, the Company recently completed
an exchange offer with the holders of its Senior Notes, resulting in a 10%
reduction in principal amount for early repayment of $508,000 of the Senior
Notes and extending the maturity date of $703,000 of the Senior Notes from
September 30, 2005 to September 30, 2006. Management believes that the
improvement in operations and operating cash flows and a more favorable debt
reduction schedule for the Senior Notes will be sufficient to assure
continuation of the Company's operations through September 30, 2005. However,
there can be no assurance that operations and operating cash flows will remain
at current levels or continue to improve in the near future. If the Company is
unable to sustain profitable operations and positive operating cash flows and
meet scheduled debt obligations, it may be unable to continue development of its
products and may be required to curtail operations.
-7-
NOTE 3 - STOCK-BASED COMPENSATION
At September 30, 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 stock-based employee compensation
expense 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 Nine Months Ended
September 30, September 30,
-----------------------------------------------
2004 2003 2004 2003
-----------------------------------------------
Net income (loss) as reported $ 101 $ (450) $ 143 $ (741)
Deduct:
Total stock-based employee
compensation expense
determined under fair value
based method for all awards (45) (36) (277) (323)
----------------------------------------------
----------------------------------------------
Net income (loss) pro forma $ 56 $ (486) $ (134) $(1,064)
----------------------------------------------
----------------------------------------------
Income (loss) per share:
Basic - as reported $ - $ (.02) $ .01 $ (.03)
----------------------------------------------
----------------------------------------------
Basic - pro forma $ - $ (.02) $ - $ (.05)
----------------------------------------------
----------------------------------------------
Diluted - as reported $ - $ (.02) $ .01 $ (.03)
----------------------------------------------
----------------------------------------------
Diluted - pro forma $ - $ (.02) $ - $ (.05)
----------------------------------------------
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 Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Weighted average common shares
outstanding 27,813,000 25,513,000 27,701,000 25,031,000
Dilutive effect of :
Stock options 920,000 -- 405,000 --
Warrants 314,000 -- 122,000 --
---------- ---------- ---------- -----------
Weighted average common shares
outstanding, assuming dilution 29,047,000 25,513,000 28,228,000 25,031,000
---------- ---------- ---------- ----------
-8-
NOTE 5 - SENIOR NOTES PAYABLE
As of September 30, 2004, the Company had $1,893,000 of Senior Notes
outstanding, $1,834,000 net of discount. In September 2004, the Company
completed an exchange offer with the holders of the Senior Notes, offering three
options: 1) surrender Senior Notes and related warrants for early retirement of
the Senior notes at 90% of the principal amount of the Senior Notes on October
1, 2004; 2) extend the due date of the Senior Notes and expiration date of
related warrants from September 30, 2005 to September 30, 2006, with the
interest rate on the Senior Notes reduced from 12% to 8% during the last year;
and 3) elect to hold the Senior Notes and related warrants with no change in
terms. Holders of $508,000 of Senior Notes elected option 1, holders of $703,000
of Senior Notes elected option 2 and holders of $704,000 of Senior Notes elected
option 3.
Of the holders of Senior Notes electing early retirement under option 1,
holders of $267,000 of Senior Notes were repaid by the Company on October 1,
2004. The decision of one holder of $241,000 of Senior Notes electing early
retirement under option 1 is subject to court approval and will not be completed
until the holder obtains such approval. The Company recorded a gain on early
extinguishment of debt of $22,000 in September 2004, net of unamortized discount
related to warrants of $5,000 with respect to the Senior Notes paid October 1,
2004.
In connection with the extension of the due date of $703,000 of Senior
Notes and the expiration date of related warrants to September 30, 2006, an
additional value attributed to the warrants was estimated by the Company at
$20,000 using the Black-Scholes pricing model, and was recorded as a reduction
of the principal amount of the Senior Notes and an increase to additional paid
in capital in September 2004. This additional discount will be accreted and
recognized as interest expense over the remaining life of the related Senior
Notes.
In February 2004, the Company issued 241 warrants in connection with the
rollover of certain Senior Notes. 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 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. The holder of these
Senior Notes and warrants elected early redemption under option 1 of the
Exchange Offer described above, but must obtain court approval of its decision
before the early redemption is finalized.
NOTE 6 - STOCKHOLDERS' EQUITY
On June 4, 2004 the Company completed a private offering involving the sale
of a total of 400,000 shares of its common stock to three accredited investors
at a price of $.35 per share. The net proceeds from the offering of $140,000 are
to be used for working capital and general corporate purposes.
During May 2004, the Company purchased from a customer and subsequently
retired 219,375 shares of its common stock at a cost of $.35 per share in
exchange for the cancellation of approximately $77,000 in accounts receivable.
During April 2004, the Company issued to a consultant warrants to purchase
for a three-year period a total of 150,000 shares of common stock at prices
ranging from $.35 to $.75 per share. The value of these warrants was estimated
by the Company at $19,000 using the Black-Scholes pricing model, and was
recorded as deferred consulting, a reduction of additional paid in capital that
will be amortized to consulting expense over the one-year period of the
consulting contract.
During July 2004, the Company issued to a consultant warrants to purchase
for a three-year period a total of 50,000 shares of common stock at a price of
$.48 per share. The value of these warrants was estimated by the Company at
$15,000 using the Black-Scholes pricing model, and was recorded as consulting
expense in August 2004, the month the services rendered by the consultant were
completed.
-9-
During August 2004, the Company issued 11,250 shares of common stock in net
settlement of a cashless exercise of stock options by a former officer and
employee. The Company recorded compensation expense and an increase to
additional paid-in capital of $6,000 related to this transaction.
NOTE 7 - 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
September 30, 2004, the Company had included $79,246 in accrued expenses and
general and administrative expenses for the estimated costs and attorneys' fees
related to the judgment. Subsequently, on October 1, 2004, the Company paid to
Puma the $79,246 and the Company has no further obligation to Puma.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a brief discussion and explanation of significant
financial data, which is presented to help the reader understand the results of
the Company's financial performance for the three and nine months ended
September 30, 2004. The information includes discussions of sales, expenses,
capital resources and other significant items.
This discussion should be read in conjunction with the Company's Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
quarterly report and Management's Discussion and Analysis and the audited
Consolidated Financial Statements of the Company as of December 31, 2003 and
2002 and the years ended December 31, 2003, 2002 and 2001, included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003. 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 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."
Company Overview
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.
-10-
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 to host computers in 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, the Company introduced CODE 6.0(TM) with Core Motion after six
months of field beta testing at customer sites. CODE 6.0 with Core Motion was
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 OEM customers and
positions the Company 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. The Company also introduced additional calibration
technology to its CODE 6 product, which allows faster time to market for key
Surface Mount Technology ("SMT") customers.
In 2003 and 2004, the Company began development of a new product named
CIMPortal. CIMPortal is the Company's new equipment data acquisition software
product based on the Interface A equipment communications standards from SEMI.
The Company designed, developed and installed an alpha version of CIMPortal in
an Advanced Micro Devices (AMD) production facility in August of 2003 as part of
a National Institute of Standards and Technology (NIST) program to develop
elements of e-manufacturing for the semiconductor industry. Subsequent to the
alpha release, the Company has been developing a new CIMPortal product family
and initiated a beta program in June of 2004 with participation from
semiconductor OEMs, advanced process control (APC) framework providers, and end
users. The Company has timed the beta program to enable the first commercial
release of CIMPortal to coincide with the standards proposed to be adopted by
SEMI towards the end of 2004.
The Company has also been actively engaged in promoting the new SEMI
standards for Interface A. During September 2004, the Company conducted a number
of workshops on Interface A and Cimetrix's new CIMPortal product family
including a 4 hour tutorial during the SEMATECH sponsored AEC/APC Symposium in
Denver, Colorado.
The Company sells its products to a large base of customers. However, the
Company has a primary focus to sell Software Development Kits (SDK's) to "major
OEM customers", which the Company has defined as OEM customers that purchase
either its CIM300 SDK or its CODE SDK, which have higher price points than other
Cimetrix products. Cimetrix sells other SDK products to OEM customers, but since
the other SDK products have lower price points than the CIM300 or the CODE SDK,
the Company does not classify these customers as "major OEM customers".
All operations of the Company are conducted from its headquarters in Salt
Lake City, Utah, with its satellite offices located in Boston, Massachusetts and
Archamps, France serving as remote sales offices.
-11-
Critical Accounting Policies
Management's discussion and analysis of the Company's financial condition
and results of operations 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,
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 recognizes 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 and receipt is
probable. Collectibility of a sale is determined on a
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.
-12-
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 of such receivable.
Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment
annually or 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 and nine months ended September 30, 2004 and 2003:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2004 2003 2004 2003
---- ---- ---- ----
NET SALES 100% 100% 100% 100%
---- ---- ---- ----
OPERATING EXPENSES
Cost of sales 25 21 21 15
Selling, marketing and customer support 22 64 24 39
Research and development 16 47 19 30
General and administrative 25 49 26 37
---- ---- ---- ----
Total operating expenses 88 180 90 120
---- ---- ---- ----
INCOME (LOSS) FROM OPERATIONS 12 (80) 10 (20)
Interest income - - - -
Interest expense 6 14 7 10
Other Gain/(Loss) 2 (7) 1 (1)
---- ----- ---- ----
NET INCOME (LOSS) 8% (101)% 4% (32)%
===== ====== ==== ======
Results of Operations
Three Months and Nine Months Ended September 30, 2004 Compared to the Three
Months and Nine Months Ended September 30, 2003
Net Sales
Net sales increased by $767,000, or 172%, to $1,213,000, for the three
months ended September 30, 2004, from $446,000, for the three months ended
September 30, 2003. Net sales increased by $941,000, or 40%, to $3,277,000, for
the nine months ended September 30, 2004, from $2,336,000, for the nine months
ended September 30, 2003. The increase in net sales for both the three and nine
months ended September 30, 2004 was primarily due to an increase in software
license revenue which included during the third quarter of 2004 a $300,000
buyout of a future commitment by a discontinuing customer of the Company.
-13-
During the three months ended September 30, 2004, the Company successfully
added one new major OEM customer. This new design win, coupled with the seven
new design wins earlier in 2004 and the base of major OEM customers gained over
the past several years, have enabled the Company to incrementally increase its
base of software support and maintenance contracts. In addition, as more of the
Company's major OEM customers release new machines to the marketplace, the
Company's runtime license revenue increases 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 in the semiconductor industry,
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 seek to broaden its
customer base.
The following two tables summarize 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
---------------
Percentage
Increase
Three Months Ended September 30, 2004 2003 (Decrease)
- --------------------------------------------------------------------------------
Software revenues $ 776,000 $200,000 288 %
Services and support revenues 437,000 246,000 78
- --------------------------------------------------------------------------------
Total $1,213,000 $446,000 172%
========== ======== ===
Percent Change
--------------
Percentage
Increase
Nine Months Ended September 30, 2004 2003 (Decrease)
- --------------------------------------------------------------------------------
Software revenues $ 2,062,000 $1,192,000 73%
Services and support revenues 1,215,000 1,144,000 6
- --------------------------------------------------------------------------------
Total $3,277,000 $2,336,000 40%
========== ========== ===
-14-
The following two tables summarize net sales by categories, as a percent of
total net revenues:
Three Months Ended September 30, 2004 2003
- ---------------------------------------------------------------
Category:
Software revenues 64% 45%
Services and support revenues 36% 55%
Nine Months Ended September 30, 2004 2003
- ---------------------------------------------------------------
Category:
Software revenues 63% 51%
Services and support revenues 37% 49%
Cost of Sales
The Company's cost of sales as a percentage of net sales for the three
months ended September 30, 2004 and 2003 were approximately 25% and 21%,
respectively. The Company's cost of sales as a percentage of net sales for the
nine months ended September 30, 2004 and 2003 were approximately 21% and 15%,
respectively. The Company's cost of sales as a percentage of net sales increased
during the three and nine months ended September 30, 2004 compared to the same
periods last year as the Company invested employee and other resources in the
development of major OEM customer relationships beginning in the fourth quarter
of 2003 and continuing throughout the first three quarters of 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.
Selling, Marketing and Customer Support
Selling, marketing and customer support expenses decreased $18,000 or 6%,
to $268,000 for the three months ended September 30, 2004, from $286,000 for the
comparable period in 2003. Selling, marketing and customer support expenses
decreased $118,000 or 13%, to $790,000 for the nine months ended September 30,
2004, from $908,000 for the comparable period in 2003. These decreases were
attributable to a reduction in the number of sales and marketing personnel which
occurred in early 2003, including a reduction in personnel and operating costs
associated with the Company's satellite office located in Archamps, France.
Selling, marketing and customer support expenses for the three and nine
months ended September 30, 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 $12,000, or 6%, to $197,000
for the three months ended September 30, 2004, from $209,000 for the comparable
period in 2003. Research and development expenses decreased by $80,000, or 12%,
to $612,000 for the nine months ended September 30, 2004, from $692,000 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.
-15-
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 and nine months ended September 30, 2004 and 2003.
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 are reflected in general
and administrative expenses, discussed below.
General and Administrative
General and administrative expenses increased $81,000, or 37%, to $298,000
for the three months ended September 30, 2004, from $217,000 for the comparable
period in 2003. This increase resulted from additional legal expenses recorded
in September 2004 relating to an obligation to pay costs and attorneys' fees
related to the Puma litigation [See Part II, Item 1. Legal Proceedings] as well
as a $15,000 expense recorded for warrants issued to a consultant during the
period ending September 30, 2004. General and administrative expenses decreased
$13,000, or 2%, to $851,000 for the nine months ended September 30, 2004, from
$864,000 for the comparable period in 2003. These decreases resulted primarily
from a reduction in depreciation and amortization, as well as a reduction in bad
debt expense. During the second quarter of 2004, the Company recorded a recovery
of bad debts of $104,000, including $77,000 from the purchase and subsequent
retirement of 219,375 shares of its common stock at a cost of $.35 per share in
exchange for the cancellation of accounts receivable, for which a full reserve
for bad debts had been recorded.
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 September 30, 2004 decreased
$41,000, or 51%, to $39,000, from $80,000 during the same period in 2003.
Depreciation and amortization expense for the nine months ended September 30,
2004 decreased $116,000, or 49%, to $121,000, from $237,000 during the same
period in 2003. This decrease was attributable to the impairment of technology
assets at December 31, 2003, reducing the balance of these assets to be
amortized in the future.
Other Income (Expenses)
Interest income for the three months ended September 30, 2004 increased
slightly by $3,000 to $4,000 from $1,000 for the three months ended September
30, 2003. Interest income for the nine months ended September 30, 2004 increased
by $6,000 to $9,000 from $3,000 for the nine months ended September 30, 2003.
These increases resulted primarily from the Company earning a higher rate of
return on its cash reserves during the nine months ended September 30, 2004.
Interest expense increased $5,000, or 8%, to $68,000, for the three months
ended September 30, 2004, compared to $63,000 for the comparable period in 2003.
Interest expense decreased $19,000, or 8%, to $220,000, for the nine months
ended September 30, 2004, compared to $239,000 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.
During the three months ended September 30, 2004, the Company recognized a
net $22,000 gain relating to the early extinguishment of a portion of the
Company's 12% Senior Notes (See Note 5, Senior Notes Payable, to the
consolidated condensed financial statements ). During the same period in 2003,
the Company recognized other losses of $29,000, a portion of which came from the
sale of the Company's marketable securities. These securities are held in
conservative bond funds and can fluctuate in value from time to time.
Differences between the cost and fair market value of the Company's bond funds
have not been material.
-16-
Liquidity and Capital Resources
As of September 30, 2004, the Company had $1,893,000 of Senior Notes
outstanding, $1,834,000 net of discount . In September 2004, the Company
completed an exchange offer with the holders of the Senior Notes, offering three
options: 1) surrender Senior Notes and related warrants for early retirement of
the Senior notes at 90% of the principal amount of the Senior Notes on October
1, 2004; 2) extend the due date of the Senior Notes and expiration date of
related warrants from September 30, 2005 to September 30, 2006, with the
interest rate on the Senior Notes reduced from 12% to 8% during the last year;
and 3) elect to hold the Senior Notes and related warrants with no change in
terms. Holders of $508,000 of Senior Notes elected option 1, holders of $703,000
of Senior Notes elected option 2 and holders of $704,000 of Senior Notes elected
option 3.
Of the holders of Senior Notes electing early retirement under option 1,
holders of $267,000 of Senior Notes were repaid by the Company on October 1,
2004. The holder of $241,000 of Senior Notes electing early retirement under
option 1 is required to obtain court approval of its decision before this debt
can be retired. The Company recorded a gain on early extinguishment of debt of
$22,000 in September 2004, net of unamortized discount related to warrants of
$5,000 with respect to the Senior Notes paid October 1, 2004.
After the completion of the exchange offer, the Senior Notes of the Company
are comprised of the following:
Current Portion:
10% Senior Notes repaid October 1, 2004 $ 5,000
12% Senior Notes repaid October 1, 2004,
net of 10% early payment discount 240,000
12% Senior Notes to be repaid upon court approval 241,000
12% Senior Notes due September 30, 2005 704,000
Senior Note discount (27,000)
----------------
----------------
1,163,000
----------------
Long-Term Portion:
12% - 8% Senior Notes due September 30, 2006 703,000
Senior Note discount (32,000)
----------------
----------------
671,000
----------------
Total Debt at September 30, 2004 $ 1,834,000
================
As a direct result of the Exchange Offer, the Company will improve its
short-term liquidity by extending the due date of $703,000 of Senior Notes from
September 30, 2005 to September 30, 2006, reducing the principal amount of
Senior Notes to be paid effective as of October 1, 2004 by approximately
$51,000, and eliminating interest expense for the twelve months ended September
30, 2004 on $508,000 of Senior Notes. The early redemption of $241,000 in Senior
notes is subject to the holder obtaining the necessary court approval.
On June 4, 2004, the Company completed a private offering involving the
sale of a total of 400,000 shares of its common stock to three accredited
investors under Section 4(2) of the Securities Act of 1933, as amended, and Rule
506 of Regulation D thereunder at a price of $.35 per share. The Company
received a total of $140,000 in cash from the transaction, and intends to use
the proceeds for working capital and general corporate purposes. The shares were
sold through officers and directors of the Company who did not receive any
commissions or other remuneration for selling the shares.
-17-
At September 30, 2004, the Company had cash and other current assets of
$2,332,000 and current liabilities of $2,185,000, resulting in working capital
of $147,000, compared to working capital of $966,000 at December 31, 2003. This
decrease in working capital of $819,000 was mostly attributable to the
reclassification of Senior Notes to current portion of long-term debt during the
third quarter of 2004 as discussed above.
Historically, the Company has incurred net losses and negative cash flows
from operations. As of September 30, 2004, the Company had an accumulated
deficit of $28,951,000 and a stockholders' deficit of $223,000. The Company has
improved the results of its operations during the nine months ended September
30, 2004, reporting net income of $143,000 as discussed above, and net cash
provided by operating activities of $476,000. Management believes that the
improvement in operations and operating cash flows and a more favorable debt
reduction schedule for the Senior Notes will be sufficient to assure
continuation of the Company's operations through September 30, 2005. However,
there can be no assurance that operations and operating cash flows will remain
at current levels or continue to improve in the near future. If the Company is
unable to sustain profitable operations and positive operating cash flows and
meet scheduled debt obligations, it may be unable to continue development of its
products and may be required to curtail operations.
The Company also believes that continued improved operations and a stronger
working capital position will eventually allow the Company to obtain a line of
credit or other bank financing secured by accounts receivable or assets other
than cash, and will allow for increased borrowing capacity.
The Company's ability to pay the remaining Senior Notes when due in
September 2005 and 2006 will be dependent on its ability to generate positive
cash flow from operations or obtain alternative sources of debt or equity
financing.
Net cash provided by operating activities for the nine months ended
September 30, 2004 was $476,000 compared to net cash used by operating
activities of $171,000 for the same period in 2003. The improvement in operating
cash flows resulted from the improvement of net income in 2004 as detailed
above, an increase in accounts payable and a decrease in accounts receivable,
offset by a decrease in deferred revenue.
Net cash provided by investing activities for the nine months ended
September 30, 2004 was $173,000, compared to net cash provided by investing
activities of $160,000 for the same period in 2003. This increase resulted
primarily from increased sales of marketable securities held for investment.
Net cash used in financing activities for the nine months ended September
30, 2004 was $607,000 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 September 30, 2004 resulted from the payment of $747,000 of
the Company's Senior Notes, offset by the proceeds from the private placement
sale of common stock of $140,000.
The Company has not been adversely affected by inflation. However, there
are potential economic risks inherent in foreign trade. Sales to foreign
customers accounted for 51% and 42% of the Company's net sales for the three
months ended September 30, 2004 and 2003, respectively. To minimize the risk
from changes in foreign currency exchange rates, the Company's export sales are
transacted in United States dollars.
-18-
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
Net sales for the first nine months of 2004 increased 40% compared to the
prior year, meeting the Company's target revenue. 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 and during the first
half of 2004, 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. In addition, 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, which should lead to additional sales of the Company's
products,will provide the needed revenue to maintain 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 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.
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 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.
-19-
Operating Losses, Accumulated Deficit and Lack of Liquidity
The Company has an accumulated operating deficit of $28,951,000 at
September 30, 2004 and $1,893,000 of Senior Notes outstanding. The Company's
future liquidity is dependent on sustaining positive cash flows from operations
and obtaining external financing through debt or equity securities. See
"Liquidity and Capital Resources". If the Company is unable to generate the cash
flow necessary to sustain future operations and retire its outstanding debt, or
acquire external financing to meet its research and development needs, its
future operations would be materially adversely affected.
Highly Competitive Industry
The Company is engaged in a highly competitive industry involving rapidly
changing products. 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 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 and any adverse developments on such customers' business
would adversely affect the Company.
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 to 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., and Michael D. Feaster, Vice President of Software Development. 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.
-20-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A significant portion of the Company's cash equivalents and short-term
investments bear variable interest rates that are adjusted to market conditions.
Changes in market rates will affect interest earned and potentially the market
value of the principal of these instruments. The Company does not utilize
derivative instruments to offset the exposure to interest rates. Significant
changes in interest rates may have a material impact on the Company's investment
income, but not on the Company's consolidated results of operations.
The Company does have significant sales to foreign customers and is
therefore subject to the effects of changes in foreign currency exchange rates.
The Company does not utilize derivative instruments to offset the exposure to
changes in foreign currency exchange rates. To minimize this risk, the Company's
export sales are transacted in United States dollars.
-21-
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Based on their evaluations as of September 30, 2004, the principal
executive officer and principal financial officer of the Company have concluded
that the Company's disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act) are effective to
ensure that 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 SEC.
(b) Changes in internal controls.
There were no significant changes in the Company's internal controls over
financial reporting or in other factors that occurred during the last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect these internal controls subsequent to the date of their most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
-22-
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. As of September 30, 2004,
the Company accrued an obligation for costs and attorneys' fees of $79,246 which
amount was determined by the court on September 13, 2004. The determined legal
fees were paid on October 1, 2004 and the Company has no further obligation to
Puma or Loving Spirit.
The Company is not currently involved with any other litigation.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(c) Recent Sales of Unregistered Securities
During July 2004, the Company issued to a consultant warrants to purchase
for a three-year period a total of 50,000 shares of common stock at a price of
$.48 per share. The value of these warrants was estimated by the Company at
$15,000 using the Black-Scholes pricing model, and was recorded as consulting
expense in August 2004, the month the services rendered by the consultant were
completed.
During August 2004, the Company issued 11,250 shares of common stock in net
settlement of a cashless exercise of stock options by a former officer and
employee. The Company recorded compensation expense and an increase to
additional paid-in capital of $6,000 related to this transaction.
The foregoing transactions were made in reliance upon Section 4(2) of the
Securities Act of 1933, as amended.
(e) Issuer Purchases of Equity Securities
No stock repurchases were made during the quarter ended September 30, 2004.
-23-
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(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 (3)
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-1
4(a) 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-14(a) 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*
99.1 Press Release dated November 15, 2004*
--------------------------------------
* Exhibits filed with this report.
(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 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001.
(b) Reports on Form 8-K
On September 24, 2004 the Company filed a report on Form 8-K, reporting the
completion of an offer to exchange, and an offer to purchase, related to its
$1.9 million of 12% Senior Notes Due 2005.
-24-
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: November 15, 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)
-25-