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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, 2005
|_| 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 May
13, 2005: Common stock, par value $.0001 - 30,319,317 shares
CIMETRIX INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2005
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..............6
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..............................................20
PART II Other Information
Item 1. Legal Proceedings....................................................20
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities.......................................20
Item 3. Defaults Upon Senior Securities......................................20
Item 4. Submission of Matters to a Vote of Security Holders..................21
Item 5. Other Information....................................................21
Item 6. Exhibits and Reports on Form 8-K.....................................21
Signatures....................................................................22
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMETRIX INCORPORATED
Consolidated Condensed Balance Sheets
March 31,
2005 December 31,
(Unaudited) 2004
-------------------- ---------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,720,000 $ 868,000
Accounts receivable, net 1,261,000 1,081,000
Prepaid expenses and other current assets 38,000 84,000
-------------------- --------------------
Total current assets 4,019,000 2,033,000
Technology, net 217,000 229,000
Property and equipment, net 149,000 82,000
Other assets 30,000 14,000
-------------------- --------------------
$ 4,415,000 $ 2,358,000
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 259,000 $ 114,000
Accrued expenses 259,000 298,000
Deferred revenue 572,000 548,000
Current portion of long-term debt 908,000 905,000
-------------------- --------------------
Total current liabilities 1,998,000 1,865,000
Long-term debt, net of current portion 695,000 691,000
-------------------- --------------------
Total liabilities 2,693,000 2,556,000
-------------------- --------------------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock; $.0001 par value, 100,000,000 shares
authorized, 30,344,317 and 27,844,317 shares issued 3,000 3,000
Additional paid-in capital 30,797,000 28,778,000
Treasury stock, at cost (49,000) (49,000)
Accumulated deficit (29,029,000) (28,930,000)
-------------------- --------------------
Total stockholders' equity (deficit) 1,722,000 (198,000)
-------------------- --------------------
$ 4,415,000 $ 2,358,000
==================== ====================
See accompanying notes to consolidated condensed financial statements
-3-
CIMETRIX INCORPORATED
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended March 31,
2005 2004
--------------------- --------------------
Sales:
Software $ 779,000 $ 735,000
Services and support 374,000 330,000
--------------------- --------------------
Total net sales 1,153,000 1,065,000
--------------------- --------------------
Costs and expenses:
Cost of sales 107,000 154,000
General and administrative 372,000 351,000
Selling, marketing and customer support 426,000 252,000
Research and development 310,000 213,000
--------------------- --------------------
Total costs and expenses 1,215,000 970,000
--------------------- --------------------
Income (loss) from operations (62,000) 95,000
--------------------- --------------------
Other income (expense):
Interest income 12,000 2,000
Interest expense (49,000) (83,000)
Other income (expense) - 6,000
--------------------- --------------------
Total other expense (37,000) (75,000)
--------------------- --------------------
Income (loss) before income taxes (99,000) 20,000
Provision for income taxes - -
--------------------- --------------------
Net income (loss) $ (99,000) $ 20,000
===================== ====================
Income (loss) per common share:
Basic $ - $ -
===================== ====================
Diluted $ - $ -
===================== ====================
Weighted average number of shares outstanding:
Basic 29,292,000 27,627,000
Diluted 29,292,000 27,798,000
See accompanying notes to consolidated condensed financial statements
-4-
CIMETRIX INCORPORATED
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
2005 2004
--------------------- ---------------------
Cash flows from operating activities:
Net income (loss) $ (99,000) $ 20,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 34,000 41,000
Interest expense from bond discount 7,000 10,000
(Increase) decrease in:
Accounts receivable (180,000) (390,000)
Prepaid expenses and other current assets 26,000 12,000
Increase (decrease)in:
Accounts payable 145,000 159,000
Accrued expenses (39,000) 79,000
Deferred revenue 39,000 47,000
--------------------- ---------------------
Net cash used in operating activities (67,000) (22,000)
--------------------- ---------------------
Cash flows from investing activities:
Net sales of marketable securities - 203,000
Purchase of property and equipment (81,000) (1,000)
--------------------- ---------------------
Net cash provided by (used in) investing activities (81,000) 202,000
--------------------- ---------------------
Cash flows from financing activities:
Proceeds from the sale of common stock 2,000,000 -
Payments of debt - (241,000)
--------------------- ---------------------
Net cash provided by (used in) financing activities 2,000,000 (241,000)
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents 1,852,000 (61,000)
Cash and cash equivalents, beginning of period 868,000 1,389,000
--------------------- ---------------------
Cash and cash equivalents, end of period $ 2,720,000 $1,328,000
===================== =====================
See accompanying notes to consolidated condensed financial statements
-5-
CIMETRIX INCORPORATED
Notes to Consolidated Condensed Financial Statements
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Cimetrix Incorporated (the "Company") designs, develops,
markets and supports factory automation software products and solutions for the
global semiconductor and electronics industries. The Company's products are
tailored to meet the needs of original equipment manufacturers (OEMs) in the
areas of advanced motion control, general purpose equipment connectivity, and
specialized connectivity for 300mm semiconductor wafer fabrication facilities.
Revenues are derived from the initial sale of software development tools, the
ongoing runtime licenses that OEMs purchase for each machine shipped with
Cimetrix software, annual software support contracts and professional services
that provide solutions typically incorporating Cimetrix software products.
Basis of Presentation - The interim financial information of the Company as
of March 31, 2005 and for the three months then ended is unaudited, and the
balance sheet as of December 31, 2004 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, 2004. 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 months ended March 31, 2005 are not necessarily indicative of the results
that can be expected for the entire year ending December 31, 2005. 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, 2004.
NOTE 2 - STOCK-BASED COMPENSATION
At March 31, 2005, 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):
-6-
CIMETRIX INCORPORATED
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(Continued)
Three Months Ended
March 31,
----------------- ----------------
2005 2004
----------------- ----------------
Net income (loss) as reported $ (99,000) $ 20,000
Deduct:
Total stock-based employee compensation expense
determined under fair value based method for all awards (80,000) (218,000)
----------------- ----------------
Net loss pro forma $ (179,000) $ (198,000)
================= ================
Income (loss) per share:
Basic - as reported $ - $ -
================= ================
Basic - pro forma $ (0.01) $ (0.01)
================= ================
Diluted - as reported $ - $ -
================= ================
Diluted - pro forma $ (0.01) $ (0.01)
================= ================
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 123(R), Share-Based Payment, an
amendment of FASB Statements No. 123 and 95. FAS No. 123(R) replaces FAS No.
123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. This statement requires companies to
recognize the fair value of stock options and other stock-based compensation to
employees prospectively beginning with fiscal periods beginning after June 15,
2005. However, the Securities and Exchange Commission has deferred this date for
public companies. The new rule allows companies to implement FAS No. 123(R) at
the beginning of their next fiscal year. This means that the Company will be
required to implement FAS No. 123(R) no later than the quarter beginning January
1, 2006. The Company currently measures stock-based compensation in accordance
with APB Opinion No. 25 as discussed above. The Company anticipates adopting the
modified prospective method of FAS No. 123(R) on January 1, 2006. The impact on
the Company's financial condition or results of operations will depend on the
number and terms of stock options outstanding on the date of change, as well as
future options that may be granted. However, the Company believes the adoption
of FAS No. 123(R) may have a material effect on the Company's financial position
and results of operations.
NOTE 3 - EARNINGS (LOSS) 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.
-7-
CIMETRIX INCORPORATED
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(Continued)
A reconciliation of the number of shares used in the computation of the
Company's basic and diluted earnings per common share is as follows:
Three Months Ended
March 31,
--------------------------------------
2005 2004
------------------- ------------------
Weighted average number of common shares
outstanding 29,292,000 27,627,000
Dilutive effect of :
Stock options - 106,000
Warrants - 65,000
------------------- ------------------
Weighted average number of common shares
outstanding, assuming dilution 29,292,000 27,798,000
=================== ==================
No stock options and warrants are included in the 2005 computation of
weighted average number of shares because the effect would be antidilutive.
NOTE 4 - SENIOR NOTES PAYABLE
At March 31, 2005, the Company's Senior Notes Payable consist of the
following:
2002 Senior Notes, unsecured, with interest
at 12% payable semiannually on April 1 and
October 1 of each year, maturing
September 30, 2005 $ 945,000
2004 Senior Notes, unsecured, with interest
at 12% payable semiannually on April 1 and
October 1 of 2005 and 8% payable semiannually
on April 1 and September 30, 2006, maturing
September 30, 2006 703,000
-------------
1,648,000
Less discount (45,000)
-------------
Total 1,603,000
Less current portion 908,000
-------------
Long-term portion $ 695,000
=============
At March 31, 2005, warrants to purchase 1,069,000 shares at $0.35 per
share, issued in connection with the Senior Notes Payable, were outstanding, of
which 727,250 expire September 30, 2005 and 341,750 expire September 30, 2006.
-8-
CIMETRIX INCORPORATED
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(Continued)
NOTE 5 - STOCKHOLDERS' EQUITY
In January 2005, the Company sold 2,500,000 shares of its common stock in a
private placement to two business entities at a price of $.80 per share, for
total proceeds of $2,000,000. No commissions or payments were made to
underwriters or agents out of the proceeds.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2005, the Company had net sales
totaling $104,000 to two customers that are also shareholders of the Company.
During the three months ended March 31, 2004, the Company had net sales totaling
$48,000 to one customer that is a shareholder of the Company.
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-month periods ended March 31,
2005 and March 31, 2004, and the Company's financial position at March 31, 2005.
The information includes discussions of sales, expenses, capital resources and
other significant financial items.
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2004. 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 "Factors
Affecting Future Results" and "Certain Risk Factors."
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.
-9-
In 2000, the Company introduced two new product families using the latest
in software technologies. CIMConnect was 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(TM) 6 with Core Motion. CODE 6 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 positioned 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 for 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 continued development of its 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 second beta release coincided with a demonstration to the fab members
of SEMATECH in December of 2004. Cimetrix provided this demonstration working
with a top tier equipment maker. The Company recently released CIMPortal Beta 3,
which is suitable for supplier evaluation and OEM development of production
Interface A solutions.
The Company has also been actively engaged in promoting the new SEMI
standards for Interface A. During 2004, the Company participated in a number of
workshops on Interface A and Cimetrix's new CIMPortal product family including a
four hour tutorial during the SEMATECH sponsored AEC/APC Symposium in Denver,
Colorado, the SEMI workshop in Portland, Oregon, and the SEMI workshop in Tokyo,
Japan.
The Company sells its products to a large base of customers. However, the
Company has a primary focus to sell Software Development Kits (SDKs) to "major
OEM customers", which the Company has defined as OEM customers that purchase
either its CIM300 SDK, CIMPortal SDK, or its CODE SDK. Cimetrix sells other SDK
products to OEM customers, but since the other SDK products have lower price
points than the CIM300, CIMPortal SDK, 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.
-10-
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 professional services and 3) sales of technical support
contracts. 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, and CIMulation. Communications products include items such as
CIM300, CIMConnect and CIMPortal. Professional service 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 are received.
-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 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 be 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.
Operations Review
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-month periods ended March 31, 2005 and 2004:
Three months ended March 31, 2005 2004
--------------------------------------------------------------------------
Net sales 100% 100%
------------------------------
Costs and expenses:
Cost of sales 9 14
General and administrative 32 33
Selling, marketing and customer support 37 24
Research and development 27 20
-------------------------------
Total costs and expenses 105 91
-------------------------------
Income (loss) from operations (5) 9
Interest expense, net of interest income (3) (8)
Other income (expense) - 1
-------------------------------
Net income (loss) (8)% 2%
===============================
In January 2005, the Company made important changes to its organization to
foster continued growth. The Company formed a new Global Services group to focus
on providing complementary professional services to the OEM customer base, while
continuing to provide customer support. Salary and other expenses of the Global
Services group are included in selling, marketing and customer support expenses,
except for expenses directly attributed to customer service projects that are
included in cost of sales. Since September 2004, seven new employees have been
added to what is now the Global Services group.
-12-
The Company also formed a dedicated Research and Development department in
January 2005. Certain of the R&D engineers previously spent portions of their
time on both customer support issues and customer service projects, but are
fully dedicated to R&D projects in 2005, with all salary and related expenses
included in research and development expense in 2005.
As a result of this reorganization and increase in personnel, Cimetrix is
investing more money into customer support and research and development expenses
in 2005 as compared to 2004.
Results of Operations
Three Months Ended March 31, 2005 Compared to the Three Months Ended March
31, 2004
Net Sales
The following table summarizes net sales by categories, as a percent of
total net sales:
Three months ended March 31, 2005 2004
--------------------------------------------------------------
Software 68% 69%
Services and support 32% 31%
Net sales increased by $88,000, or 8%, to $1,153,000, for the three months
ended March 31, 2005, from $1,065,000 for the three months ended March 31, 2004.
The increase in net sales for the three months ended March 31, 2005 was due to
an increase in both software license revenue and support and service revenue for
the period.
For the past several years, the Company's sales strategy has been focused
on the acquisition of new major OEM customers. The increase in software revenues
in 2004, continuing in the first quarter of 2005, reflects the success of the
Company in acquiring new major OEM design wins during 2004 and 2003, combined
with the modest recovery of the capital equipment markets in the semiconductor
and SMT industries. Each new OEM customer results in another equipment
manufacturer integrating Cimetrix software into the tools that it sells to
factories around the world. This yields additional revenues for Cimetrix in
several ways, including software revenues from the initial software license
purchase and recurring "runtime" revenue associated with the shipment of each
piece of equipment by the OEM to its customers, as well as ongoing support and
maintenance contracts.
While the Company's focus has been on the sale of software products, the
Company also provides application and integration services to its customers that
want to purchase a complete turnkey system and other special engineering service
projects. The Company did experience continued growth in services and support
revenues during the first quarter of 2005, primarily through responding to new
customer requests for support and assistance. As discussed above, the Company
has now formed a new Global Services group with the intention of proactively
marketing its capabilities to provide customer service projects. However, it
will take some time to effectively market and win this new business, and
sufficiently increase revenues to cover the increased costs associated with the
new personnel in this area.
-13-
The Company expects continuing moderate sales growth despite industry
analyst predictions of flat to declining revenue in the semiconductor industry
and a 5 to 10 percent decline in semiconductor capital equipment spending during
2005. While the Company cannot predict market or economic conditions for
subsequent years, it believes it has added sufficient new customers to achieve
critical mass in support of worldwide sales growth. In addition, the Company
will continue its strategy of trying to win new OEM customers, making timely new
product introductions, and growing a complementary professional services
business.
Cost of Sales
The Company's cost of sales as a percentage of net sales for the three
months ended March 31, 2005 and 2004 was approximately 9% and 14%, respectively.
Cost of sales decreased $47,000, or 31%, to $107,000 for the three months ended
March 31, 2005 from $154,000 during the same period in 2004. The decrease in
cost of sales is primarily due to a reduced level of customer service projects
during the three months ended March 31, 2005. In addition, cost of sales were
higher than normal for the first quarter of 2004 due to the Company's investment
of employee and other resources in the development of major OEM customer
relationships, resulting in higher expenses charged to cost of sales during this
period.
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 increased $174,000, or
69%, to $426,000 for the three months ended March 31, 2005 from $252,000 for the
comparable period in 2004. The increase in selling, marketing and customer
support expenses in the current year is due primarily to the addition of new
personnel in the newly formed Global Services group, as discussed above. In
addition, in March 2005, the Company committed significant resources to hold a
seminar in Japan to further the sales and marketing efforts in that key market.
Selling, marketing and customer support expenses for the three months ended
March 31, 2005 and 2004, respectively, include 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.
Selling, marketing and customer support expenses for the three months ended
March 31, 2005 also include the salary and other expenses of the Global Services
group related to sales and marketing efforts for those services.
-14-
Research and Development
Research and development expenses increased by $97,000, or 46%, to $310,000
for the three months ended March 31, 2005, from $213,000 for the comparable
period in 2004. The Company has committed to invest significant research and
development resources for its new CIMPortal product family, as well as pursue
other new product opportunities. As discussed above, in January 2005 a committed
research and development department was formed, with all salary and other
expenses of the department fully charged to research and development activities
in the first quarter of 2005.
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 remained relatively consistent,
increasing $21,000, or 6%, to $372,000 for the three months ended March, from
$351,000 for the comparable period in 2004.
General and administrative expenses 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.
Other Income (Expenses)
Interest income for the three months ended March 31, 2005 increased by
$10,000 to $12,000 from $2,000 for the three months ended March 31, 2004. The
increase resulted from higher levels of cash reserves because of the $2,000,000
sale of the Company's common stock in January 2005 and due to the Company
earning a higher rate of return on its cash reserves during the three months
ended March 31, 2005.
Interest expense decreased $34,000, or 41%, to $49,000, for the three
months ended March 31, 2005, compared to $83,000 for the comparable period in
2004. This decrease was attributable to a reduction in the outstanding principal
balance of the Company's Senior Notes.
-15-
Liquidity and Capital Resources
As of March 31, 2005, the Company had $1,648,000 of Senior Notes
outstanding, $1,603,000 net of discount, comprised of the following:
Current Portion:
12% Senior Notes to be repaid upon court approval $ 241,000
12% Senior Notes due September 30, 2005 704,000
Senior Note discount (37,000)
-----------------
908,000
-----------------
Long-Term Portion:
12% - 8% Senior Notes due September 30, 2006 703,000
Senior Note discount (8,000)
-----------------
695,000
-----------------
Total Debt at March 31, 2005 $ 1,603,000
=================
The holder of $241,000 of Senior Notes electing early retirement under an
exchange offer completed October 2004 is required to obtain court approval of
its decision before the Company can retire this debt. Court approval had not
been obtained as of March 31, 2005.
In January 2005, the Company sold 2,500,000 shares of its common stock at a
price of $.80 per share, for total cash proceeds of $2,000,000, in a private
placement with two accredited investors. The shares were sold through officers
and directors of the Company who did not receive any commissions or other
remuneration for selling the shares. The Company intends to use the proceeds for
working capital and general corporate purposes.
At March 31, 2005, the Company had current assets of $4,019,000, including
cash and cash equivalents of $2,720,000, and current liabilities of $1,998,000,
resulting in working capital of $2,021,000, compared to working capital of
$168,000 at December 31, 2004. The increase in working capital at March 31, 2005
is primarily attributed to the $2,000,000 sale of common stock in January 2005,
which is discussed above.
Historically, the Company has incurred net losses and negative cash flows
from operations. As of March 31, 2005, the Company had an accumulated operating
deficit of $29,029,000, but had total stockholders' equity of $1,722,000
primarily as a result of the $2,000,000 sale of common stock in January 2005.
The Company improved the results of its operations during the year ended
December 31, 2004, reporting net income of $164,000 and net cash provided by
operating activities of $162,000. However, during the first quarter of 2005, the
Company reported a net loss of $99,000 and net cash used in operating activities
of $67,000, as investments were made in services and research and development as
discussed above. Management believes that improvements in operations and
operating cash flows will be realized during the year ending December 31, 2005.
These operational improvements, together with the recent sale of the Company's
common stock, and a more favorable debt reduction schedule for the Senior Notes
will be sufficient to assure continuation of the Company's operations through
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.
-16-
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 other assets.
Net cash used in operating activities for the three months ended March 31,
2005 was $67,000 compared to net cash used in operating activities of $22,000
for the same period in 2004. The increase in net cash used in operating
activities resulted from the increase in expenditures for services and research
and development as discussed above.
Net cash used in investing activities for the three months ended March 31,
2005 was $81,000, consisting of purchases of property and equipment. Net cash
provided by investing activities was $202,000 for the three months ended March
31, 2004, comprised of net sales of marketable securities of $203,000 offset by
purchases of property and equipment of $1,000.
Net cash provided by financing activities for the three months ended March
31, 2005 was $2,000,000, consisting of the proceeds from the sale of common
stock. Net cash used in financing activities was $241,000 for the three months
ended March 31, 2004, resulting from the retirement of debt.
The Company has not been adversely affected by inflation. However, there
are potential economic risks inherent in foreign trade. Sales to foreign
customers were $470,000 during the three months ended March 31, 2005,
representing 41% of the Company's net sales, compared to $383,000, or 36%, of
net sales in the three months ended March 31, 2004. To minimize the risk from
changes in foreign currency exchange rates, the Company's export sales are
transacted in United States dollars.
The Company considers its cash resources sufficient to meet the operating
needs of its current level of business for the next twelve months, including
payment of its Senior Notes due September 2005.
Factors Affecting Future Results
Net sales for the first three months of 2005 increased 8% compared to the
same period of the prior year. Over the three years prior to 2003, the economic
slowdown led to significant delays in the placement of orders by the Company's
OEM customers. As the end-user customers cut back on capital equipment
expenditures, the Company's OEM customers also cut back on their orders for the
Company's software products. In late 2003 and continuing through 2004, the
semiconductor and electronics assembly industries, the primary markets the
Company serves, began an economic recovery with corresponding increases in
capital equipment expenditures. Currently, industry analyst predict flat to
declining revenue in the semiconductor industry and a 5 to 10 percent decline in
semiconductor capital equipment spending during 2005. In general, changes in
capital equipment expenditures for the semiconductor and electronics assembly
industries should correlate to corresponding changes 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 will provide the needed
revenue to maintain a profitable level of operations for fiscal 2005, despite
the predicted downturn in capital equipment spending in the industries served by
the Company.
The Company has been investing in its new CIMPortal product line, which
meets the new SEMI standard called Interface A. It is not clear if end user
customers will start requiring Interface A, and if so, when they will start
requiring OEMs to provide Interface A. This will affect the adoption and market
opportunities for the CIMPortal product line.
-17-
The Company has also been investing in pursuing the Japanese market for its
products with its new distributor CIM, Inc. It is not clear if CIM and Cimetrix
will be successful in winning new business in Japan, and if so, when the Company
will see an increase in revenue.
The Company has also been investing in its new Global Services group, which
is available to assist customers in providing professional services and complete
turnkey solutions. It is not clear if customers will accept this new services
offering from Cimetrix, and if so, when the Company will obtain an increase in
revenue from new customer service projects sold by this group.
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 report, these are important factors that 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. 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.
Operating Losses, Accumulated Deficit and Lack of Liquidity
The Company has an accumulated operating deficit of $29,029,000 at March
31, 2005 and $1,603,000 of Senior Notes outstanding, net of discount. The
Company's future liquidity is dependent on obtaining and sustaining positive
cash flows from operations, and, to the extent necessary, obtaining external
financing through the issuance of debt or equity securities. See "Liquidity and
Capital Resources". If the Company is unable to generate the cash flow necessary
to sustain future operations, retire its outstanding debt, or meet its research
and development needs, its future operations would be materially adversely
affected.
-18-
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 Company sells its products principally to OEMs, which have the
relationships with the end users. The quantity of each customer's business with
the Company depends substantially on that customer's relationships with end
users, 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 the expectations of their end-user
customers. 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., Michael D. Feaster, Executive Vice President of Research and
Development, and Kourosh Vahdani, Vice President of Global Services. 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
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.
-19-
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.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Based on their evaluations as of March 31, 2005, 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved with any pending litigation.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES
(c) Recent Sales of Unregistered Securities
In January 2005, the Company sold 2,500,000 shares of its common stock at a
price of $.80 per share, for total proceeds of $2,000,000, in a private
placement with two business entities which meet the definition of "accredited
investor" as that term is defined in Rule 501 of Regulation D. No commissions or
payments were made to underwriters or agents out of the proceeds. In making
these sales, the Company relied on the exemptions from the registration
requirements of Section 5 provided by Section 4(2), Regulation D, and Regulation
S. The Company intends to use the proceeds for working capital and general
corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
-20-
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)
11 Statement re: computation of per share earnings (included in notes
to consolidated condensed financial statements)
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 May 16, 2005*
--------------------------------------
* 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 January 5, 2005, the Company filed a report on Form 8-K reporting that
it expected to be profitable for the 2004 fiscal year as set forth in a press
release attached to the report, and to announce the appointment of Kourosh
Vahdani as Vice President of Global Services and the promotion of Michael
Feaster to Executive Vice President of Research and Development as of December
13, 2004.
On January 31, 2005, the Company filed a report on Form 8-K reporting the
sale of 2,500,000 shares of its common stock at a price of $0.80 per share, for
total proceeds of $2,000,000.
-21-
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 16, 2005
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)
-22-