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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934(FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934(NO FEE REQUIRED)
For the transition period from to
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Commission file number 0-16454
CIMETRIX INCORPORATED
(Exact name of registrant as specified in charter)
NEVADA 87-0439107
(State or other jurisdiction (I.R.S. Employer
of incorporation ) Identification No.)
2222 South 950 East, Provo , Utah 84606
(Address of principal executive offices) Zip code
Registrant's telephone number, including area code 801-344-7000
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $0.0001
(Title of class)
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 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
As of March 25, 1996, the Registrant had 18,771,428 shares of its common stock,
par value $.0001, issued and outstanding. The aggregate market value of the
Registrant's voting stock held by non-affiliates of the Registrant was
approximately $134,405,000 at March 25, 1996, computed at the closing quotation
for the Registrant's common stock of $11.50 as of March 25, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the part
of the Form 10-K (e.g., part I, part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to rule 424(b) or
(C) under the Securities Act of 1933: NONE
Page 1 of 62 consecutively numbered pages.
TABLE OF CONTENTS
Item Number and Caption Page
PART I
1. Business 3
2. Properties 12
3. Legal Proceedings 12
4. Submission of Matters to a Vote of Security Holders 13
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
6. Selected Financial Data 15
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
8. Financial Statements and Supplementary Data 20
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 20
PART III
10. Directors and Executive Officers of the Registrant 21
11. Executive Compensation 25
12. Security Ownership of Certain Beneficial Owners and
Management 26
13. Certain Relationships and Related Transactions 29
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 30
PART I
ITEM 1. BUSINESS
GENERAL
Cimetrix Incorporated ( the "Registrant") is a Nevada corporation primarily
engaged in the development, production, and sale of computer software and
hardware for manufacturing automation. Currently, the Registrant is marketing a
number of products aimed at current users of industrial automated devices
seeking alternative methods to lower the cost of automation and improve
production efficiency.
In October 1989, the Registrant commenced the business of developing and
marketing software products that control the motion of automated manufacturing
devices by entering into an exclusive license agreement with Brigham Young
University. The agreement granted the Registrant the rights to develop and
market robot inaccuracy compensation techniques developed in conjunction with
an off-line programming system (known as ROBLINE) and an inaccuracy calibration
technique (known as ROBCAL). ROBLINE and ROBCAL, together with other technology
developed by the Company, have enabled the Registrant to develop the Cimetrix
Open Development Environment ("CODE") which includes "open architecture,"
standards-based, operating systems software and controller hardware that allow
manufacturing engineers to replace cumbersome proprietary systems with open
systems when designing automated device workcells. The Registrant's products
are designed to allow the customer to select "best of class" automation
components and to help reduce the costs and time involved in designing,
implementing and maintaining automation systems. The "open architecture"
controller is designed to introduce more flexibility into the design process as
it is intended to be compatible with most industrial automated equipment, i.e.
different equipment from different vendors, performing different functions, can
now be controlled by the same operator. Also, the Registrant's software is
developed to use the popular UNIX and Windows NT operating systems.
Open Architecture, Standards-Based Controllers
The traditional configuration for industrial workcells includes automation
equipment controlled by the equipment vendor's own controller, which is, in
turn, operated using the equipment vendor's proprietary software. This "closed"
system configuration accounts for nearly all of the sales of controllers in the
automation industry today, and has been a successful marketing tool for
equipment vendors to maintain a degree of inflexibility in which a customer is
tied to the equipment vendor of its choice. Once a particular vendor's
configuration has been chosen, it may be expensive to switch to another vendor's
closed, proprietary system. Under the traditional configurations, mixing the
automation equipment of different vendors in the same workcell environment has
been very difficult. It should be noted that all of the equipment manufacturers
are large, international corporations with much greater resources than the
Registrant.
The Registrant's open architecture, standards-based controller was designed
based on the theory of "open standards" used by microcomputer hardware and
software vendors. The open architecture controller, by design, operates the
automated equipment of most vendors, and can be configured in a workcell to
operate various different pieces of equipment simultaneously, thereby easing
the proprietary tie-in to any one vendor, and creating a significant flexibility
for automation engineers. The Registrant is not aware of any other open
architecture, standards-based controller that is currently commercially
available. In December 1994, the Registrant was selected by Motorola, Inc. as
the "primary partner in developing the prototype Motorola Open Architecture
Robot Controller," which management has viewed as a validation of the "open
architecture" concept by a significant end user of automation products. There
is one robot manufacturer that offers a stand-alone controller for sale, which
is run by proprietary software that can be adapted to the various automated
equipment of different vendors in a one to one situation; however, it currently
does not offer simultaneous control of more than one device.
In summary, the Registrant believes its open architecture, standards-based
controllers and software represent the only commercially available control
systems which incorporate the concept of "open standards." However, the
implementation of "open standards" in the marketplace is new, and acceptance is
very limited at the current time. Success in selling the open architecture,
standards-based control systems is dependent upon the Registrant's ability to
convince industrial users to abandon the traditional approach of vendor
proprietary systems in exchange for the greater flexibility and adaptability of
the new technology.
Software
The competitive environment for the Registrant's software products is
similar to the environment for its hardware products. The traditional type of
product which currently dominates the market place is proprietary to the
equipment vendor and is basically useful only within the closed system of the
particular vendor. Typically, software that controls one vendor's equipment
cannot be used to control the equipment of another vendor. Hence, the market
place is dominated by large equipment manufacturers.
The CODE system of the Registrant has been designed to operate the hardware
controllers of nearly all automation and machine equipment vendors, thereby
allowing the manufacturing customer to control the equipment of multiple vendors
simultaneously. This open architecture approach allows the manufacturer greater
flexibility in assembling the automated workcell where the manufacturing
functions are performed, and has been developed to use popular operating systems
such as UNIX, and what some engineers believe will grow to be the dominant
operating system of the future, Windows NT. However, as stated before, the open
architecture approach is new, and the success of the Registrant in selling its
CODE software is dependent upon its ability to gain acceptance by manufacturing
users who are currently using the closed proprietary systems of the equipment
vendors.
Part of the CODE software system can be sold and used as simulation
software, or software that is used by automation engineers to design, by
simulation, their manufacturing assembly lines and workcells. There are
companies who sell only simulation software, and who represent established
competitors to the Registrant. Some of those companies sell software that is
more sophisticated than the simulation software sold by the Registrant.
However, the simulation software offered by the Registrant has the feature that
whatever is being created in the simulation environment can be transferred to
the actual control environment without modification or reprogramming,
potentially providing a substantial reduction in the design / implementation
expense and time requirements. Management of the Registrant believes this
feature is not found in any competitor's software offerings. The simulation
products offered by competitors are believed by management to be significantly
more expensive than the simulation software products sold by the Registrant.
SIGNIFICANT EVENTS
During the fiscal year ended December 31, 1995 and in subsequent months, a
number of significant events occurred related to the business of the
Registrant. The following paragraphs give a brief summary of the individual
events.
Investment Banker Engaged
In an agreement signed January 8, 1996, the Registrant engaged Cowen &
Company ("Cowen") to act as the Registrant's investment banker. The Registrant
intends to explore with Cowen the possibility of establishing strategic and
financial relationships with one or more companies, which may include the sale
or merger of the Registrant. The term of this engagement extends through
December 31, 1996.
Board and Management Changes
On March 1, 1995, Douglas A. Davidson was named to fill the vacant seat on
the Board, but no replacement Chief Executive Officer has been named.
As disclosed in the Registrant's Form 8-K, dated September 20, 1995, Mr.
Kitt R. Finlinson, Vice President of Finance for the Registrant, resigned as a
Director of the Registrant, effective September 20, 1995. He continues as the
Chief Financial Officer of the Registrant.
At a meeting of the Board of Directors on September 20, 1995, the Board
elected David L. Redmond, Mark A. Filippell, Dwight L. Barker, Samuel W. Shoen,
and Paul A. Bilzerian to fill current vacancies on the Board until the next
annual meeting of the Registrant or until their successors are duly elected and
qualified. Messrs. Filippell, Barker and Shoen have previously served on an
Advisory Panel to the Registrant. The new members of the Board were invited to
serve on the Board of the Registrant due to their business experience, some of
which is delineated at Part III, Item 10. "DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT."
As compensation for their service as Board members, Messrs. Barker,
Filippell, Redmond, and Shoen have each received non-qualified stock options to
purchase 50,000 shares of the Registrant, exercisable at $5.00 per share, which
will vest 4,000 shares immediately, 2,000 shares per month until December 1996,
and 14,000 on December 31, 1996. All options vest immediately upon a change of
control of the Registrant.
During the year ended December 31, 1995, the Registrant hired 17 new
people, some as replacements, but mostly to new duties. In connection with the
hiring of these new employees, the Registrant granted options to purchase
333,000 shares of common stock at exercise prices of either $4.00 or $5.00 per
share. The options have an exercise term of five years, with full or partial
vesting occurring on the anniversaries of the individual grant dates. As of
December 31, 1995, seven employees had terminated their employment with the
Registrant, thereby forfeiting options representing 171,000 shares of common
stock.
On December 15, 1995, the Board of Directors elected Mr. Ron Lumia (See
Part III, Item 10. "DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT") to
serve on the Board of the Registrant, effective January 1, 1996 until the
election of directors at the next annual shareholders' meeting in July 1996. In
connection with his compensation for service as a Board member, the Registrant
restructured its obligations under a previous option agreement negotiated with
Mr. Lumia pursuant to a consulting agreement dated July 15, 1995. In exchange
for his release of the Registrant from its previous obligations, the Registrant
granted Mr. Lumia non-qualified options to purchase 40,000 shares of restricted
common stock at $5.00 per share, which vested immediately.
Effective January 12, 1996, Mr. Bilzerian resigned from the Board of
Directors where he had served since September 20, 1995.
Merger of Subsidiary
Effective August 31, 1995, Cimetrix (USA), Inc., a Florida corporation and
the majority owned subsidiary of the Registrant, was merged into the Registrant
pursuant to articles of merger in which the Registrant agreed to exchange one
share of restricted common stock of the Registrant for each share of the
2,829,419 common shares of the subsidiary held by the minority interest
shareholders. The financial information presented herein includes the
consolidated entities through August 31, 1995, and the information of the
Registrant as the surviving entity subsequent to that date.
Management originally formed the subsidiary in an effort to isolate the
current operations from the past operating history of the Registrant. At the
time, the Registrant was involved in negotiating the settlement of numerous
debts, including various tax liens resulting from previous failures to remit
payroll withholdings, all of which have been satisfied. Because the concerns
existing at the time the subsidiary was formed have been resolved, management
felt that the need for two corporations had expired and consolidated them into
one.
Annual Shareholders' Meeting
On July 29, 1995, the Registrant held its 1995 Annual Meeting of
Shareholders in Salt Lake City, Utah. All nominees for election as director
were elected, and all proposals included in the Registrant's Proxy Statement
dated June 28, 1995, were approved by the requisite shareholder votes.
At the Annual Meeting, management discussed the Registrant's successful
product debut at the Detroit trade show. (See "Detroit Trade Show.")
Management also discussed some of the opportunities and challenges related to
the size of the open architecture, standards-based motion control market, and
the Registrant's preparations to satisfy the anticipated demand from that
market. Management noted that the Registrant's present size and capacity could
make it difficult for the Registrant to meet anticipated product demand.
Management discussed the probable need to explore strategic alliances and
similar opportunities during 1995 and 1996 in order to optimize the market
position of the Registrant's products and attempt to maximize shareholders'
values.
Purchase of Technology
As disclosed in the Registrant's Form 8-K dated July 5, 1995, the
Registrant purchased certain intellectual property known as the "ROBLINE
Technology" from Brigham Young University (BYU) for cash payments of $50,000 per
year for ten years (totaling $500,000), plus 120,000 shares of previously
unissued, restricted common stock of the Registrant, valued at $3.75 per share.
Prior to the technology purchase, the Registrant had licensed the ROBLINE
Technology from BYU through an exclusive license agreement dated October 16,
1989. Under that license agreement, the Registrant has been paying minimum
royalty payments of $40,000 per year against a royalty obligation of two percent
(2%) of net sales on products created from the licensed technology. Much of the
technology originally licensed by the Registrant was developed by Dr. Edward
Red, a current director of the Registrant, along with three other individuals
who are now employed by the Registrant. Dr. Red continues as a Professor of
Mechanical Engineering at BYU.
Detroit Trade Show
On May 9th through the 12th of 1995, the Registrant participated in the
International Robot and Vision Trade Show held in Detroit, Michigan.
Significant time, effort and resources were expended in an effort to highlight
the Registrant's products in this exhibition aimed at the robotics industry.
Management enlisted professional help in designing the product demonstrations
and presentations used for the show. Management believes the show was a success
in terms of acquainting potential purchasers of the Registrant's products with
Cimetrix as an emerging company, and in generating a significant number of sales
leads for those products.
Private Placement
Pursuant to a private placement offering dated March 3, 1995, the
Registrant sold 1,000,000 shares of common stock at a price of $4.00 per share
for a total gross cash proceeds of $4,000.000. Legal costs and broker's
commissions associated with the offering totaled $28,553. Net proceeds of the
offering have been added to the other general cash funds of the Registrant and
have been used to further the operating goals of the Registrant. (See Part II,
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operation.")
OPEN ARCHITECTURE SOFTWARE AND HARDWARE BUSINESS
The Registrant's open architecture CODE task-planing and simulation
software and CX3000 and CX4000 series open architecture, standards-based
controllers are designed to reduce the effort required to develop automated
applications, while giving automation engineers power and flexibility to enhance
the manufacturing workcell. These products are also designed to release the
customer's technical personnel from the constraints of using previously
proprietary systems.
Software--Cimetrix Open Development Environment (CODE)
The Registrant's CODE software is a complete workcell environment that
offers off-line programming, rapid application development, and simulation for
creating workcells and testing actual equipment in real-time, multi-tasking
environments. It is a complete suite of intuitive automation tools that allows
the applications engineer to conceptualize, design, simulate, test, debug, and
control an automated workcell. It enables systems engineers and programmers to
model "what if" scenarios off line, helping to validate purchasing decisions
before the equipment is actually ordered. CODE helps automation professionals
avoid potential "collisions" and determine optimal equipment placements to
minimize cycle times. In addition, it allows modifications to be made to
existing workcells without taking them "off line" during the software
development and debugging stages.
The CODE automation control software is based on open systems and conforms
to universal standards. It runs using popular operating systems such as UNIX
and Windows NT. As integrated, modular components within CODE, the Registrant
offers the following products:
CIMulation- a graphic-based workcell simulation environment, CIMulation
enables engineers to design, test and debug applications off-line--totally
independent of the physical workcell. It can also perform accurate cycle-time
predictions, validate error handling, detect collisions or near misses, and
model I/O devices. CIMulation provides the tools to rapidly assemble a virtual
workcell using a library of popular mechanisms, or a mechanism can be custom
designed and verified.
CIMControl - Software for controlling the runtime operation of the
workcell. CIMControl operates on a VME, ISA, or PCI platform with a real-time
UNIX (LynxOS) or Windows NT operating system. CIMControl supports accurate and
predictable motion control of coordinated axes kinematics. Workcell
applications developed in CIMulation can be used without modification with
CIMControl.
CODE API - the complete set of standard C/C++ function calls that form the
framework for the CODE family of products, the CODE API's (Application
Programming Interface) extensibility allows for use of third-party APIs (vision,
statistical process control, databases, etc.). The CODE API is included with
CIMulation and CIMControl.
CIMBuilder - a standards-based, object-oriented rapid application
development (RAD) environment for programmers and non-programmers that
significantly reduces the time it takes to develop automation applications.
CIMBuilder features a graphical user interface (GUI) builder and includes three
developers' languages: C/C++; Tcl (tool command language)an interpretive
programming environment; and a point-and-click, non-programmer's interface
(NPI). CIMBuilder provides the option of executing in an interpretive
environment or compiling for speed. Its open software architecture enables
third-party suppliers to create specialized modules for machine vision, motion
control, I/O control and other functions.
CIMTools - a collection of GUI-based tools that provide access to the CODE
shared workcell database for both simulation and control. CIMTools offers the
following: supervisory control of applications (launch, halt, pause, step,
continue); a shared workcell database browser / navigator and inspecting /
editing tools; software teach pendant; a view control panel (zoom, rotate, 3-D
solid / wire frame models); a collision and minimum distance-checking tool; and
a software and I/O signal monitor. CIMTools is included with CIMulation and
CIMControl.
CIMVision - software to link standard vision systems (e.g. Cognex) with
CODE software. CIMVision allows users to conveniently access the underlying
vision system with CODE API-like function calls or through pre-defined
CIMBuilder templates.
CIMTune - a software utility for set-up, testing and tuning of the servo
system. CIMTune is an easy-to-use (GUI) that offers automatic servo system
tuning, graphical display for servo performance, set-up and testing of safety
limits and I/O testing and monitoring.
CIMCal - calibration software for the CODE shared workcell database, CIMCal
compensates for differences between the shared workcell database information and
the physical inaccuracies of the mechanism and parts. It makes specific
compensations in rigid body (part location) corrections, tool and camera
calibrations, and mechanism accuracy enhancement.
CIMCNC - software to allow CODE to be readily applied to machine tools.
CIMCNC provides full support of Computer Numeric Code (CNC) programming methods
(M&G codes).
GEM Manager - a family of software products that provide a framework for
obtaining compliance to the Semiconductor Equipment and Materials International
(SEMI) communication standards (e.g. SECS-I/II, HSMS and GEM) within the CODE
environment
CX3000 and CX4000 Series Open Architecture Controllers
CX3000
By bringing real-time UNIX and C/C++ to the manufacturing cell, the CX3000
controllers facilitate the replacement of proprietary systems and programs with
open standards. The CX3000 series allows the customer to "plug in" a variety of
dissimilar automation equipment and machine tools, regardless of the type of
actuator or feedback mechanism used. The CX3000 controllers can be combined
with the ROBLINE software system for rapid programming and uniform control of
all devices in a workcell. Ethernet and NFS capabilities are built into every
CX3000 controller. Additionally, the CX3000 controllers are built from standard
components that are compatible with most low-cost peripherals, including touch
screens and CD-ROM drives. POSIX-compliant, real-time UNIX and standard
hardware platforms allow automation engineers to take advantage of new software
and hardware components when available. The CX3000 controllers are available
in VME, ISA, and PCI bus configurations, and use specialized DSP-based
coprocessors for servo control.
CX4000
The CX4000 Open Architecture Controller (OAC) is a new family of low-cost,
compact form, standards-based control solutions for motion-based applications.
It has been designed as an embedded solution for OEM automation and machine
equipment manufacturers. Utilizing standard PC hardware technology, the CX4000
uses the PC/104 format to ensure a small footprint and low component cost. All
CX4000 controllers come standard with a hard disk, SVGA video card, and an
Ethernet connection, and are designed to be mounted in 19" racks or on doors or
walls of cabinets.
MANUFACTURING
The Registrant is involved in both the manufacture of its hardware products
and the production of its software products. All software is prepared and
packaged at the current location. However, the Registrant has made a decision
to out source approximately 90 percent of the manufacture of its hardware to
have the flexibility to meet projected equipment demands, and to minimize the
amount of its capital investment in production facilities and personnel. The
Registrant has discussed such work with several parts distributors and contract
assemblers in the electronics industry. The subcontractors provide all
inventory necessary for assembly and deliver mostly complete controllers to the
Registrant who, in turn, finishes the assembly and subsequent quality control
testing. Manufacturing and hardware testing activities occupy approximately
6,000 square feet of the Registrant's facilities.
PRODUCT COMPONENTS
The Registrant utilizes electronic components in the manufacture of its
hardware that are basically "off-the-shelf" components available from a number
of electronics parts vendors. This availability of parts will be helpful to the
Registrant in its limited production of hardware, and allow its subcontract
manufacturers of hardware to more easily meet required delivery schedules.
MARKETING AND DISTRIBUTION
The Registrant currently markets its products through the efforts of in-
house marketing personnel. Management believes the market for the Registrant's
products consists mainly of industrial users of robots, machine tools, and other
automation equipment, and those systems integrators who sell automation systems
to large industrial users. Based on management's appraisal of the target
markets, marketing efforts to date have focused on: 1.) personal contacts by the
Registrant's marketing personnel; 2.) mailers aimed at automation engineers
employed by automation intensive manufacturers; 3.) advertising in automation
trade magazines; and 4.) participation at automation trade shows. Serious
marketing efforts were first launched during the later part of the fiscal year
ended December 31, 1994, as the Registrant's products reached a point of
commercial viability.
Essentially, the Registrant is investing in both image building and direct
product advertising. This exposure takes many forms, including establishing
demonstration test sites with major users of automated work cells, exhibitions
at trade shows, company-sponsored training classes, direct technical
demonstrations, and industry publication ads. The Registrant has budgeted
resources to support its belief that effective and continued exposure is
required to establish product awareness, greater name recognition, and overall
positive market perception.
CURRENT ORDERS
As of March 25, 1996, the Registrant continues to receive orders for 1-5
systems purchased as evaluation systems as customers become more familiar with
the product offerings. Management anticipates continued growth in the demand
for its products in the near future.
RESEARCH AND DEVELOPMENT
During 1994 and 1995, the Registrant incurred significant expenditures in
development activities. Although the Registrant left the "development stage"
during fiscal 1994, continuing work to complete new software tools resulted in
$341,416 of software development costs being capitalized by the Registrant
during fiscal 1995. Even with the capitalization of certain software costs, the
Registrant still expensed $930,119 in research and developments costs for the
year ended December 31, 1995, which highlights the significant effort being made
to perfect the current products, and develop additional complimentary products.
PATENTS, COPYRIGHTS, AND TRADEMARKS
The technology owned by the Registrant is proprietary in nature. Certain
of the older technology is covered by patent, but for the most part the
Registrant relies on copyrights, confidentiality and nondisclosure agreements
with its employees and customers, appropriate security measures, and the
encoding of its software in order to protect the proprietary nature of its
technology rather than patents which are difficult and expensive to obtain and
maintain, require public disclosure, and may be successfully avoided through
"reverse engineering" by sophisticated computer programmers. The Registrant has
registered "CIMETRIX" to use as a trademark in the field of robotics and
automation devices with the United States Office of Patents and Trademarks.
COMPETITION
The manufacture and sale of automation technology is a competitive
industry. The Registrant believes that its competition is divided into four (4)
groups: robot manufacturers, machine tool controller manufacturers, simulation
developers, and electronic manufacturers. The Registrant competes primarily on
product design, selection, and price.
There are several robot manufacturers who design and sell proprietary
controllers and software for their robots. Most of these companies are much
larger than the Registrant and include Adept Technologies, Asea Brown Boveri
Group (ABB), Fanuc, Kawasaki, Kuka Welding, Mitsubishi Electric, Nachi,
Panasonic, Sankyo, Seiko, Sony, Staubli, Yamaha, and Yaskawa Electric (Motoman),
and have significantly greater resources than the Registrant. While their
hardware is generally considered very good, management believes the
competition's software and controllers are limited in their applications because
of the closed, proprietary design. While the Registrant will not be
manufacturing robot devices in direct competition with those companies, its
controllers and software will directly compete with their proprietary
controllers. Management believes the Registrant's products are generally less
expensive than the competing products, and that the Registrant's products
generally permit greater flexibility of function and ease of use.
There are two or three other manufacturers of robot controllers that claim
to have "open architecture" design (i.e., useable with robots made by different
manufacturers). Management believes that they are not "open architecture"
designs. Management believes the most popular of these, made by Adept
Technologies, Inc. (Adept), uses a closed, proprietary computer language that is
translatable into other proprietary languages, but that is not easily
expandable. This can make modification of the controller's functions difficult.
Additionally, management understands that it is difficult for Adept's
controllers to interface across a local area network.
Machine tools consist of metal forming equipment such as press brakes,
turret punches and tube benders and metal cutting machines such as milling
machine equipment, lathes and lasers, and are used by a wide variety of
manufacturers. Machine tools utilize a computer numeric control, or CNC type
controller. Despite the PC revolution that has taken place over the past
decade, the underlying technology and software for machine tool controllers has
changed very little during the same period. Most major machine tool
manufacturers purchase proprietary controllers from several CNC control system
vendors, including Allen-Bradley, Fanuc, Mitsubishi, Siemens, and Toshiba.
The Registrant has identified at least three major competitors in the field
of robot software simulation development and robot accuracy correction,
including Deneb Robotics, Inc., Silma (subsidiary of Adept Technologies), and
Technomatics. While these three companies market systems which are competitive
on a stand alone basis, management believes they are unable to match the
Registrant's ability to achieve simulation and control with the same program,
enabling concurrent engineering and reduced implementation time. Management also
believes that other simulation companies do not have the same flexibility of
off-line programming or precision robot control in their products as compared to
the Registrant's products.
The final group of competitors is composed of electronics assembly
equipment manufacturers who supply controllers with their electronics assembly
equipment. This group includes Fuji, Panasonic, Universal Instruments, and
numerous others.
Management believes that most, if not all, of the Registrant's competitors
currently have greater financial resources and market presence than the
Registrant. Accordingly, these competitors may be able to compete very
effectively on pricing and to develop technology to increase the flexibility of
their products.. Further, each of these competitors has already established a
share of the market for their products, and may find it easier to limit market
penetration by the Registrant because of the natural tie-in of their controllers
and software to their robots. Management is uninformed as to whether any of
these competitors are presently developing additional technology that will
directly compete with the Registrant's product offerings.
MAJOR CUSTOMERS AND FOREIGN SALES
For the year ended December 31, 1995, the Registrant had four significant
customers, AT & T (16%), Cybex Technologies (10%), Hewlett-Packard (26%) and
Motorola (29%), which accounted for approximately 81% of its total revenue.
Although there has been increased sales activity amongst a number of customers
in 1995, because of the special relationship established in December, 1994 (See
Part I, Item 1. "Business: Open Architecture, Standards-Based Controllers")
Motorola is considered an important customer, and the loss of that customer
could have a material adverse effect on the Registrant.
For the year ended December 31, 1995, the Registrant had no sales to
foreign customers. However, the Registrant expects to develop sales in
locations outside the United States during 1996.
PERSONNEL
The Registrant currently has 43 employees, 28 of which are involved in the
technical development of products, 4 in manufacturing, 5 in sales and marketing,
and 6 in administrative and clerical. None of the employees of the Registrant
are represented by a union or subject to a collective bargaining agreement, and
the Registrant considers its relations with its employees to be favorable.
ITEM 2. PROPERTIES
During the year ended December 31, 1994, the Registrant built a new, 18,500
square foot facility in the East Bay Business Center in Provo, Utah. The
facility was built for an approximate cost of $850,000 and was paid for out of
the cash resources of the Registrant. The building includes approximately
13,000 square feet of administrative, engineering, and research and development
space, and approximately 5,500 square feet of manufacturing , testing, inventory
storage, and shipping space. Pursuant to their decision to subcontract most of
the manufacturing of hardware to outside vendors, management considers the
existing manufacturing facilities and non-manufacturing facilities to be
sufficient to accommodate the anticipated growth of the Registrant for the
immediate future.
ITEM 3. LEGAL PROCEEDINGS
On February 8, 1996, the Registrant filed a suit seeking declaratory relief
and a determination of the validity of the issuance of 1,931,662 shares of the
Registrant's common stock to two former members of management and certain
family members of one of the former managers. Because the suit was only
recently filed, Registrant's counsel cannot predict the probability of success.
Other than as stated above, the Registrant is not a party to any material
pending legal proceedings and, to the best of its knowledge, no such proceedings
by or against the Registrant have been threatened. To the knowledge of
management, there are no material proceedings pending or threatened against any
director or executive officer of the Registrant, whose position in any such
proceeding would be adverse to that of the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Registrant's fiscal quarter ended December 31, 1995, the
Registrant did not have any matters that were submitted to a vote of security
holders of the Registrant through the solicitation of proxies or otherwise.
The Registrant anticipates holding an annual shareholders' meeting in Salt
Lake City, Utah, on Saturday, July 27, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The common stock of the Registrant is being quoted on the National
Association of Securities Dealers, Inc.'s OTC Bulletin Board under the symbol
"CMXX." Permission to list the common shares on the OTC Bulletin Board was
granted October 20, 1994. Prior to that time, no active public trading market
was available to the shareholders of the Registrant.
The following table sets forth the approximate range of high and low bids
for the common stock of the Registrant during the periods indicated. Prior to
the quarter ended December 31, 1994 there was no public trading market, and,
hence, no reliable information from which to establish the "high" and "low"
bids. The quotations presented reflect inter-dealer prices, without retail
markup, markdown, or commissions, and may not necessarily represent actual
transactions in the common stock.
Quarter Ended High Bid Low Bid
December 31, 1994 $ 7.25 $1.00
March 31, 1995 $ 6.37 $4.25
June 30, 1995 $ 6.25 $3.50
September 30, 1995 $ 6.12 $3.75
December 31, 1995 $10.25 $4.37
On March 25, 1996, the closing quotation for the common stock on the OTC
Bulletin Board was $11.50 per share. Potential investors should be aware that
the price of the common stock in the trading market can change dramatically over
short periods as a result of factors unrelated to the earnings and business
activities of the Registrant.
On March 25, 1996, there were 18,771,428 shares of common stock issued and
outstanding, held by approximately 1200 beneficial shareholders.
The Registrant has not paid dividends with respect to its common stock.
There are no restrictions on the declaration or payment of dividends set forth
in the articles of incorporation of the Registrant or any other agreement with
its shareholders. Management anticipates retaining any potential earnings for
working capital and investment in growth and expansion of the business of the
Registrant and does not anticipate paying dividends on the common stock in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Registrant is not covered by
an opinion of independent certified public accountants and should be read in
conjunction with the financial statements and related notes of the Registrant
herein.
Statement of Operations Data
Year ended December 31
1995 1994 1993 1992 1991
Sales $ 64,288 $ 462,817 $1,141,561 $330,112 $ 42,600
Loss from
Operations (2,890,029) (1,466,302) (1,064,089) (879,280) (682,786)
Net Loss (2,544,247) (1,145,056) (1,073,985) (881,250) (685,860)
Loss per
Common share (.16) (.08) (.07) (.05) (.05)
Balance Sheet Data
Current assets $ 3,267,764 3,835,117 229,899 68,662 205,004
Current
liabilities 337,643 1,451,151 857,498 479,127 229,144
Total assets 9,722,145 5,631,983 355,598 222,832 282,651
Total long-term
debt 338,137 44,225 33,420 40,635 12,318
Stockholders'
(deficit) equity 9,070,631 3,613,282 (535,320) (296,930) 41,189
Dividends
declared -0- -0- -0- -0- -0-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT FINANCIAL CHANGES--STATEMENTS OF OPERATIONS
Net Sales
Net sales for the three fiscal years ended December 31, 1995, 1994, and
1993, are $664,288, $462,817, and $1,141,561, respectively. Revenues for 1995
represent sales of regular inventory to customers for use in their normal
manufacturing operations and represent an approximate 44% increase over the
previous year. Revenues for the two years ended December 31, 1994 represent
periodic purchases of "beta site," prototype equipment by Motorola, Inc.,
Hewlett-Packard, and Idaho Nuclear Engineering Laboratories. Sales in 1993 were
primarily due to volume purchases of prototype equipment by Hewlett-Packard.
The Registrant was unable to sustain the 1993 sales volume in 1994, primarily
because its products needed additional development, and the Registrant
concentrated on that final product development throughout most of 1994, rather
than on marketing additional prototypes. For the two fiscal years ending
December 31, 1994, the Registrant was a "development stage" enterprise as
defined by generally accepted accounting principles.
Management of the Registrant believes that the emphasis placed on
strengthening existing products by transporting them to new software platforms,
plus the introduction of new products that address most of the markets for
motion control of manufacturing automation, should put the Registrant in a
position to aggressively pursue new customers for its products. In early 1996,
the Registrant hired an East Coast and a West Coast Sales Manager to pursue
those industrial markets. Management also continues to believe the working
arrangement with Motorola, Inc. should result in significantly more sales to
Motorola that would exceed any previous year, further validating the commercial
viability of the Registrant's products.
Cost of Sales
The Registrant's costs of sales as a percentage of net sales for the years
ended December 31, 1995,1994, and 1993, are approximately 67%, 64% , and 64%,
respectively, reflecting the fluctuations inherent in the beginning of a
company's sales cycles. The larger percentage for 1995 reflects management's
decision to keep gross profit margins narrow in order to encourage potential
buyers to become acquainted with the products offered. Also, when software and
hardware products are bundled together, typically the combined margin is smaller
than the sum of what the individual margins would be for hardware and software
products sold separately. As the manufacturing and production routines become
established as part of normal operations, management expects the on-going
trends in costs related to sales to emerge and fluctuations to be greatly
reduced.
Selling, Marketing and Customer Support
Selling, marketing and customer support costs have increased significantly
each year from $114,942 in 1993, to $216,621 in 1994, and $946,753 in 1995. In
1994, the increase was due to renewed emphasis on marketing as the Registrant's
products reached commercial viability and reliability. Marketing actions taken
during the latter part of fiscal year 1994 include 1.) hiring a vice president
for marketing, 2.) creating new product and company brochures with attendant
revised artwork, 3.) hiring a public relations and advertising firm to develop a
corporate image, 4.) placing ads in trade publications for the first time, and
5.) sending mass mailing flyers to potential simulation users. As indicated in
the Registrant's Form 10-K from the prior fiscal year, management planned for a
dramatic rise in expenditures in this area during 1995. Significant resources
were committed to hiring additional marketing and customer support personnel, to
creating a market image for the Registrant's products through trade exhibitions,
and to making personal contact with potential customers. The major components
of the current year's expense are wages and benefits ($420,562), travel and
entertainment ($172,071), trade shows and exhibitions ($154,665), and sales
literature and advertising ($61,953).
Research and Development
Research and development costs have fluctuated over the past three fiscal
years from $506,675 in the year ended December 31, 1993, to $198,534 and
$930,119 for years ended December 31, 1994 and 1995, respectively. The decrease
from 1993 to 1994 was due to management's conclusion that the Registrant's
software products had achieved "technological feasibility" and subsequent
development costs were capitalized during 1994. Including the $519,984
capitalized, the Registrant's overall expenditure for research and development
costs was higher in 1994 than any previous year. During 1995, some $341,416 in
software development costs were capitalized, representing efforts to create new
software tools (GEM for CODE, CIMBuilder, etc.) to compliment the CODE basic
programs. The $930,119 expensed represents a significant commitment to
software programming efforts, to the development of a CNC controller, and to the
development of applications engineering. Wages and benefits ($579,302) and
prototype materials and supplies ($109,446) constitute the major aspects of
research and development expense for 1995. Research and development
expenditures should continue to be significant as the Registrant explores all
motion control automation markets.
General and Administrative
General and administrative expenses increased slightly from $1,216,798 for
the year ended December 31, 1994 to $1,231,093 for the year ended December 31,
1995. The increase from $856,622 in 1993 to $1,216, 798 in 1994 was due
primarily to: 1.) additional costs of outside professional services to bring
SEC filings current, and to negotiate settlement of issues with vendors, taxing
authorities, and other legal matters; 2.) additional payroll costs and
consulting fees associated with the hiring of professional management personnel
in positions never occupied previously, and to obtain the input of successful
business people interested in the Registrant; 3.) additional costs for
employee benefit programs deemed necessary to maintain and elevate the quality
of employees working for the Registrant, and 4.) the additional costs incurred
in constructing and moving to an expanded facility to permit anticipated growth.
The increase also included the expense of sponsoring bi-monthly meetings of an
advisory panel consisting of nine successful professionals from outside the
Registrant. The advisory panel has been used by management of the Registrant as
a sounding board for management's deliberations and planning. However,
subsequent to the Annual Shareholder's Meeting in July of 1995, additional
outside individuals, as well as certain individuals from the advisory panel,
were added to the Board of Directors of the Registrant (See Part I, "Business:
Board and Management Changes").
SIGNIFICANT FINANCIAL CHANGES--BALANCE SHEET
Cash
The balance of cash decreased from $3,365,186 at December 31, 1994 to a
balance of $2,345,483 at December 31, 1995. Although the Registrant received
$3,971,447 net proceeds from the sale of 1,000,000 restricted common shares, it
used $2,944,444 in operating activities, spent $979,862 for property and
equipment and capitalized software costs, and retired the $1,000,000 in short
term debt that was outstanding at December 31, 1994. Management believes the
balance of cash on hand at December 31, 1995, together with anticipated sales
revenues, will be sufficient to fund the Registrant's operations through 1996.
Inventories
The balance of inventories increased from $298,266 at December 31, 1994 to
a balance of $619,192 at December 31, 1995. Inventories have increased as the
Registrant entered the production and shipping phases of planned operations and
increased the work-in-process and finished goods inventory in anticipation of
sales to new customers.
Prepaid Expenses
The increase in prepaid expenses from $108,008 in 1994 to $217,818 at
December 31, 1995 is composed, for the most part, of the unamortized portion of
the additional deposit paid to a software vendor during 1995 ($125,000).
Property and Equipment
The Registrants' investment in plant and equipment increased from a net
balance of $1,271,045 at December 31, 1994 to a net balance of $1,732,247 at
December 31, 1995. The majority of that increase is attributable to the
purchase of a residential home located in the northeast part of Provo, Utah at a
cost of approximately $248,268 (See Part III, Item 13. "Certain Relationships
and Related Transactions") and the cost of providing computer equipment and work
cubicles for new employees.
Capitalized Software Costs
In the opinion of management, the Registrant reached the point of
technological feasibility for its CODE software system in early 1994.
Development costs incurred subsequent to that point have been capitalized
according to generally accepted accounting principles. A total of $519,984 was
capitalized during the fiscal year ended December 31, 1994, and an additional
$341,416 was capitalized in the fiscal year ended December 31, 1995.
Short Term Borrowing
As of December 31, 1994, the Registrant had borrowed $1,000,000 from its
short-term line of credit which is collateralized by certain current assets of
the Registrant. The line of credit was established during the fourth quarter of
the fiscal year ended December 31, 1994, with a maximum borrowing limit of
$5,000,000. There was no similar arrangement in the prior year. The $1,000,000
outstanding at December 31, 1994, was paid off in early 1995, and there has been
no further use of this line of credit by the Registrant.
CAPITAL AND LIQUIDITY
At December 31, 1995, the Registrant had total current assets of $3,267,764
and total current liabilities of $337,643, resulting in a working capital ratio
of 9.68:1. Included in total liabilities as of December 31, 1994 is
approximately $1,000,000 representing funds borrowed against the Registrant's
$5,000,000 line of credit. The borrowing limit on this $5,000,000 line of
credit is adjusted from time to time based on ratios involving certain of the
current assets of the Registrant. This line of credit is reviewed annually.
As of December 31, 1995, the Registrant's liquidity position continues to
be healthy as a result of a sale of 1,000,000 shares of common stock through
private placement at $4.00 per share for net cash proceeds, after offering
costs, of $3,971,447. Currently, all accounts payable are paid on a net / 30
basis, taking advantage of earlier discounts where offered. Additionally, funds
have been available to allow the hiring of critical path personnel, and to fund
the purchase of equipment and software tools needed to continue the
commercialization of the Registrant's products. Management believes that the
Registrant is capable of financially meeting the demands inherent as normal
sales and manufacturing continue to develop for 1996.
The Registrant has previously entered into third-party leasing arrangements
in securing capital equipment; however, the Registrant anticipates that its
capital requirements for the purchase of equipment in the immediate future will
be met by the use of cash resources. Management anticipates that spending for
additional capital equipment necessary to meet anticipated growth may exceed
$200,000 during the 1996 fiscal year.
The cash needs of the Registrant for the year ended December 31, 1995 were
provided by the sale of common stock and the collection of accounts receivable.
During the fiscal year ended December 1995, the Registrant received capital
funds from the equity stock sales in the amount of $3,971,447. In February
1996, option holders, including Mr. Claude O. Goldsmith, former Director and
Chief Executive Officer, exercised their right to purchase 315,000 shares of
common stock at $2.00 per share and 325 shares at $3.00 per share for total
gross proceeds to the Registrant of $630,975. The Registrant believes there may
be sales of additional common stock during the upcoming year through the
exercise of options to purchase its common stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are included beginning at
page 34. See page 30 for the index to the financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Registrant and its auditors have not disagreed on any items of
accounting treatment or financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is the name and age of each executive officer and director
of the Registrant, together with all positions and offices of the Registrant
held by each and the period during which each has served:
Name Age Position and Office Held Position Held Since
Douglas A. Davidson 57 Chairman of the Board March 1, 1995
Director
Dr. W. Edward Red 53 Director December 16, 1994
Mark A. Filippell 42 Director September 20, 1995
Dwight L. Barker 61 Director September 20, 1995
David L. Redmond 44 Director September 20, 1995
Samuel W. Shoen 51 Director September 20, 1995
Dr. Ron Lumia 45 Director January 1, 1996
Paul A. Bilzerian 45 Acting President February 9, 1996
Kitt R. Finlinson 48 Treasurer, Vice President August 8, 1994
Chief Financial Officer
Dr. Steven K. Sorensen 35 Executive Vice President February 9, 1996
Robert H. Reback 36 Vice President January 1, 1996
Dr. Xuguang Wang 32 Vice President November 10, 1994
Dr. Peter H. Manley 34 Vice President March 1, 1995
John Snow 36 Vice President February 6, 1995
W. Chad Sumsion 36 Vice President September 25, 1995
Riley Astill 35 Secretary, Principal July 27, 1994
Accounting Officer
Cara Shillingford 27 Assistant Secretary May 1, 1994
A director's regular term is for a period of one year or until his
successor is duly elected and qualified. On March 1, 1995, Douglas A. Davidson
was named to fill the vacant seat on the Board and was designated as Chairman of
the Board. Paul A. Bilzerian, consultant to the Registrant, has been heavily
involved in the day to day operations of the Registrant, and in early 1996 was
named as Acting President.
There is no family relationship among the current directors and executive
officers. The following sets forth brief biographical information for each
director and executive officer of the Registrant.
Douglas A. Davidson has been managing partner, since 1991, of Pensar, a
consulting company that provides executive and consulting services to
information and technology companies. During 1993 and 1994, he served as a
consultant to and, later, Executive Vice President for XVT Software, Inc. of
Boulder, Colorado, a leader in cross platform Graphical User Interface building
tools. From 1989 to 1991, Mr. Davidson served as President and Vice Chairman
for Network Management, Inc., a privately-held systems integration and services
company specializing in network management for local and wide area networks.
Prior to 1989, Mr. Davidson had other similar executive experiences with
Honeywell Information Systems, Mohawk Data Sciences, Display Data Corporation,
and Science Management Corporation for over 20 years. He received a Bachelor of
Arts in Business Administration and Economics from Colby College in 1960.
Dr. W. Edward Red has been a Professor of Manufacturing and Mechanical
Engineering at Brigham Young University since 1983. From 1979 through 1983,
Dr. Red was an Associate Professor at Texas A & M University where he served as
the Systems Group Leader and Director of the Simulations, Robotics, and
Productivity Laboratories. Dr. Red has also taught at the University of New
Mexico, the University of Southwestern Louisiana, and Arizona State University.
He has recently been elected to the Board of RI/SME and also serves on the
SME/CASA Committee. He is the author of three books and over 60 technical
articles in the areas of applied mechanics, robotics, and automation.
Mark A. Filippell is a Managing Director of McDonald & Company Securities,
Inc., where he is the Practice Leader of the Mergers and Acquisitions Group. He
has served with McDonald & Company Securities, Inc. for the past 11 years. He
was previously Assistant to the General Manager of Comau, SPA, a $300 million
dollar factory automation company in Torino, Italy, then owned by Fiat and
Bendix, and an Associate with McKinsey and Company, where he focused on machine
tools.
Dwight L. Barker, a retired Managing Director of Salomon Brothers Inc, is
currently self-employed as a financial consultant. During 1994 and 1995, he
also served as Acting Chief Operations Officer for Pacific Investment Management
Company of Newport Beach, California. From 1992 through 1993, he served as
Chief Executive Officer of Salomon Brothers Tampa Product Support Division.
During 1991, he served as the Chief Administrative Officer of Salomon Brothers'
Asia Ltd. (SBAL).
David L. Redmond has served as the Executive Vice President and Chief
Financial Officer of Pharmacy Corporation of America, a wholly-owned subsidiary
of Beverly Enterprises Inc., a publicly-held corporation, since July 1995. He
was previously the Chief Financial Officer of Pharmacy Management Services,
Inc., a publicly-held company, from 1991 through July 1995, and previously was
a partner of KPMG Peat Marwick for six years.
Samuel W. Shoen has been President of KATABASIS International, Inc., a
private investment holding company, since January, 1991. Concurrently from
January, 1991 through February, 1993, he served as Special Assistant to the
Administrator, U. S. Agency For International Development. He was formerly
President of U-Haul International and President and CEO of Amerco.
Dr. Ron Lumia is a Professor in the Mechanical Engineering Department of
the University of New Mexico since October, 1994. From 1986 through September,
1994, Dr. Lumia served as Group Leader at the National Institute of Standards
and Technology (NIST), performing research in the areas of advanced automation,
robotics, machine vision, and systems integration. Previously, he taught at
ESIEE (Paris, France), Virginia Tech, and the National University of Singapore,
where he consulted for a variety of companies. Dr. Lumia received a B.S. from
Cornell University and an M.S. and Ph.D. from the University of Virginia, all in
electrical engineering. He is the author of over 100 technical papers.
Paul A. Bilzerian is President of Bicoastal Holding Company, a privately-
held company. He has extensive experience in business management and the field
of mergers and acquisitions. Since March of 1994, he has served as a consultant
to the Registrant. (See also, Part III, Item 10. "Directors and Executive
Officers of the Registrant: Consultant" below.)
Kitt R. Finlinson joined the Registrant on August 8, 1994 as the Vice
President of Finance and Treasurer. From 1991 through July 1994, Mr. Finlinson
served as the Controller and Chief Accounting Officer for Larson Davis, Inc., a
publicly-held manufacturer of sound and vibration monitoring instruments. From
1972 to 1990, he was engaged in the practice of public accounting, having been
employed by three of the Big Six accounting firms for nine years, and serving an
equal period of time as a partner in accounting firms local to Salt Lake City,
Utah. During this period, he concentrated his professional efforts in the arena
of small, public, hi-tech companies. His past services have included tax,
audit, SEC filings, management consulting, business plan creation and review,
and the raising of start-up venture capital. He received a Bachelor of Science
in Accounting from Brigham Young University in 1972.
Dr. Steven K. Sorensen has worked for the Registrant since 1991, and has
served in various capacities during that time. He was appointed Executive Vice
President of Engineering in February 1996, having previously served as the Vice
President of Product Development since May 1, 1994. Prior to joining the
Registrant, Dr. Sorensen was an Associate Professor of Engineering at Brigham
Young University where he received his Ph.D. in Mechanical Engineering in 1989.
Along with two other employees, and a Director, Dr. Edward Red, he was
instrumental in the creation of much of the Registrant's technology at Brigham
Young University.
Robert H. Reback is the Vice President of Sales. He has been involved in
the sales and engineering aspects of state-of-the-art factory automation for the
past 14 years. Just prior to joining the Registrant, he spent two years as a
District Manager for FANUC Robotics, the largest supplier of industrial robots
in North America. Previous to FANUC, Mr. Reback worked for Thesis, Group, Inc.
for eight years as a Director of Sales and Marketing, and three years as a
Senior Engineer for Texas Instruments where he was responsible for implementing
robotics and other technologies into state-of-the-art flexible manufacturing
systems. Mr. Reback received a Bachelor's degree in Mechanical Engineering, and
a Masters degree in Industrial Engineering from Purdue University.
Dr. Xuguang Wang joined the Registrant in 1990. He was appointed as a Vice
President on November 10, 1994. He received his Ph.D. in Mechanical Engineering
from Brigham Young University in 1988. He has worked primarily with computer
graphics, robot kinematics and control, tool and sensor calibration, and robot
inaccuracy compensation.
Dr. Peter Manley is the Vice President of Special Projects. Dr. Manley
joined the Registrant in 1989, but has been working to develop the Registrant's
technology for the past nine years. In 1990, he received his Ph.D. in
Mechanical Engineering from Brigham Young University. He received a Bachelor of
Science in Mechanical Engineering from McGill University in 1984. He is an
expert in collision avoidance and device interface architecture.
John Snow is the Vice President of Hardware Design. Prior to joining the
Registrant, he worked for Evans and Sutherland Computer Corporation, a publicly-
held company, for 14 years. He has a degree in Electrical Engineering from
Brigham Young University and is an expert in high speed digital logic design,
multi-processor computer architecture, embedded microprocessor applications,
real-time computer graphics, programmable logic design and computer peripheral
interface design.
W. Chad Sumsion is Vice President of Customer Service. He has been
involved in the world of electronic automation for the past 10 years. Prior to
joining the Registrant, Mr. Sumsion worked for Evans and Sutherland Computer
Corporation for seven years, where he was a Manager, Design Technology. Prior
to that, Mr. Sumsion worked for FMC Corporation. He has also served for two
years as the Chair of the West Coast Workview Users Group. He has a degree in
Electrical Engineering from Brigham Young University.
Riley Astill joined the Registrant on July 27, 1994 as Secretary,
Controller and Principal Accounting Officer. During the years 1992 through July
1994, Mr. Astill served as the Controller for Artbeats, Inc., based in Salt Lake
City, Utah. Prior to 1992, he was employed by Oryx Energy Company of Dallas for
two years and the Big Six accounting firm of Ernst & Young in the Dallas office
for one year. Mr. Astill earned a Masters of Accountancy degree with an
emphasis in taxation from Utah State University in 1988.
Cara Shillingford graduated from Brigham Young University in 1992 with a
Bachelor of Arts in English. She spent two years working as the Associate
Editor for E. Excel International's magazine, The Excellent Word. She joined
the Registrant in April, 1994. Her duties include inventory control and
accounting assistant.
Consultant
In March, 1994, the Registrant entered into an agreement with Paul A.
Bilzerian to serve as a management consultant. Mr. Bilzerian was engaged to
provide general management advice to the Registrant. He exercises a strong
influence over the day to day operations and in February, 1996 was appointed
Acting President for the Registrant. Mr. Bilzerian has a broad range of
experience in business, having been involved in the financing or acquisition of
several publicly-held companies. He presently serves as the President of
Bicoastal Holding Company.
Certain Legal Proceedings
A. Paul A. Bilzerian filed a voluntary liquidation petition under Chapter
7 of the Federal Bankruptcy Code (11 U.S.C.) in 1991; Case No. 91-10046-8P7,
filed in the United States Bankruptcy Court for the Middle District of Florida,
Tampa Division. The case is still pending as of the date of this filing.
B. On April 9, 1991, Paul A. Bilzerian was permanently enjoined by the
United States District Court for the District of Columbia from violating the
following sections of the Securities Exchange Act of 1934: 7 (C) and (f)
(relating to margin requirements), 10(b) (relating to manipulative practices),
13(d) (relating to reports by five-percent owners), 14(d) and (e) (relating to
tender offers), and 17(a)(1) (relating to reports by brokers). He was
simultaneously enjoined from violating corresponding regulations of the SEC.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Registrant
and its subsidiaries for the fiscal years ended December 31, 1995, 1994, and
1993 to the Chief Executive Officer and Vice President of Sales of the
Registrant. No other officers of the Registrant received compensation in
excess of $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation
Other Annual
Name and Compensation
Principal Position Year Salary($) Bonus($) ($)
David R. Smith(1), 1995 $115,360 -0- -0-
Vice President 1994 -0- -0- -0-
1993 -0- -0- -0-
SUMMARY COMPENSATION TABLE (continued)
Long Term Compensation
Awards Payoffs
Restricted LTIP All Other
Name and Stock Options/ Payouts Compensation
Principal Position Awards SARs(#) ($) ($)
David R. Smith(1), -0- -0- -0- -0-
Vice President -0- -0- -0- -0-
-0- -0- -0- -0-
(1) Mr. Smith resigned as Vice President of Sales on October 16, 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
% of Total
Options/
SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) Date
None
Potential
Realized Value at Alternative
Assumed Annual to (f) and
Rates of Stock Price (g):
Appreciation Grant Date
for Option Term Value
(a) (f) (g) (h)
Name
None
No outstanding options were exercised during the year ended December 31,
1995. However, in February, 1996, Mr. Claude O. Goldsmith, former Director and
Chief Executive Officer, exercised his option to purchase 125,000 shares at an
exercise price of $2.00 per share.
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 25, 1996, the number of shares
of the Registrant's common stock, par value $0.0001, held of record or
beneficially by each person who held of record or was known by the Registrant to
own beneficially, more than 5% of the Registrant's common stock, and the name
and share holdings of each officer and director and of all officers and
directors as a group.
Amount and Nature of Ownership
Sole Voting and Percent of
Name of Person or Group Investment Power(1) Options(2) Class(3)(4)
Principal Shareholders:
Shirlee Dastrup 3,139,100(5) 16.7%
6337 Highland Drive -0- 16.7%
Salt Lake City, Utah 84121
W. Edward Red 1,000,000 5.3%
1416 North 1450 East -0- 5.3%
Provo, Utah 84604
Paul Bilzerian and
Terri Steffen -0- 0.0%
16229 Villarreal De Avila 3,600,000(6) 16.1%
Tampa, FL 33613
Adam J. Bilzerian -0- 0.0%
16229 Villarreal de Avila 1,200,000(6) 6.0%
Tampa, Fl 33613
Dan B. Bilzerian -0- 0.0%
16229 Villarreal de Avila 1,200,000(6) 6.0%
Tampa, FL 33613
Paul A. Bilzerian 6,287,146(5) 33.5%
16229 Villarreal de Avila -0- 0.0%
Tampa, FL 33613
Officers and Directors:
Douglas A. Davidson 5,000 0.0%
100,000 0.5%
W. Edward Red 1,000,000 5.3%
-0- 0.0%
Mark A. Filippell -0- 0.0%
100,000 0.5%
Dwight L. Barker 2,500 0.0%
100,000 0.5%
David L. Redmond 140,500 0.8%
50,000 1.0%
Samuel W. Shoen -0- 0.0%
100,000 0.5%
Ron Lumia 1,000 0.0%
50,000 0.3%
Paul A. Bilzerian 6,287,146(5) 33.5%
3,600,000(6) 16.1%
Steven K. Sorensen 275,390 1.5%
124,610 2.1%
Kitt R. Finlinson 1,000 0.0%
50,000 0.3%
Robert H. Reback -0- 0.0%
50,000 0.3%
Xuguang Wang 180,722 1.0%
219,278 2.1%
Peter H. Manley 190,722 1.0%
219,278 2.2%
John Snow -0- 0.0%
50,000 0.3%
W. Chad Sumsion -0- 0.0%
30,000 0.2%
Riley Astill -0- 0.0%
30,000 0.2%
Cara Shillingford -0- 0.0%
8,000 0.0%
All Officers and Directors
as a Group (17 persons) 8,083,980 43.1%
4,881,166 53.6%
(1) Except as otherwise indicated, to best knowledge of the Registrant, all stock is owned beneficially and of record, and each
shareholder has sole voting and investment power. In the case of Shirlee Dastrup and Dr. W. Edward Red, voting power is shared by
proxy with Mr. Bilzerian.
(2) All options have been awarded under the Registrant's 1994 Stock Option Plan, except: (I) those beneficially owned by Paul A.
Bilzerian and members of his family; (ii) members of the advisory panel; and (iii) those held by former holders of notes payable by
the Registrant which warrants(options) were issued in connection with the retirement of those notes payable. The options issued
under the stock option plan are exercisable at prices ranging between $3.00 per share and $9.00 per share. They are exercisable for
up to five years from the date of grant and are subject to a two-year vesting schedule. The options beneficially owned by Mr.
Bilzerian and members of his family (6,000,000 in toto) are fully vested and are exercisable at any time prior to March, 1999 at a
price of $0.1666 per share. The options held by members of the advisory panel (450,000 in toto) are fully vested and are
exercisable at any time prior to September 15, 1999 at a price of $3.00 per share. The options owned by former note holders
(317,500 in toto) are fully vested and are exercisable at any time prior to April 29, 1997 at a price of $2.00 per share.
(3) The percentages shown are based on 18,771,428 shares of common stock of the Registrant issued and outstanding as of March 25,
1996.
(4) The percentage ownership for the options held by the indicated individuals is based on an adjusted total of issued and
outstanding shares giving effect to the assumed exercise of each individual's options, plus any shares owned by such individuals.
(5) The number of shares indicated for Mr. Paul Bilzerian represents shares for which Ms. Shirlee Dastrup, W. Edward Red, and Mr.
W. Keith Seolas and family members, have granted the voting rights by proxy to Mr. Bilzerian. Mr. Bilzerian may be deemed to be the
beneficial owner of all those shares pursuant to the proxies, although he disclaims any beneficial interest in the shares other than
the right to vote them. Mr. Bilzerian holds the irrevocable proxies to vote these shares for directors and on most ordinary matters
presented to shareholders, but not extraordinary matters, such as mergers, sales, or dissolution. Ownership of shares held by W.
Keith Seolas and certain family members are in dispute with the Registrant (See Part I, Item. 3 "Legal Proceedings")
(6) Overseas Holdings Ltd., a Nevada limited partnership (whose general partner is Bicoastal Holding Company, a Florida
corporation, and whose limited partner is the Paul A. Bilzerian and Terri L. Steffen 1995 Revocable Family Trust), Adam Bilzerian,
and Dan Bilzerian hold warrants to purchase the number of shares shown. The warrants are exercisable at any time before June 1,
1999 at a price of $0.1666 per share or an aggregate exercise price of $1,000,000. Paul A. Bilzerian and Terri L. Steffen are the
beneficial owners of all the stock of Bicoastal Holding Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH FORMER OFFICERS AND DIRECTORS
During the year ended December 31, 1994, the Registrant entered into
agreements with certain former officers and directors wherein 2,798,223 shares
of the Registrant's common stock were returned and canceled. The former
officers and directors also released the Registrant from obligations payable to
them totaling $242,270. In return, the Registrant indemnified the former
officers and directors for their past services rendered and released them from
certain obligations payable to the Registrant totaling $120,068. All related
party payables and receivables were forgiven by the action noted above, and as
of December 31, 1994, the balance of related party receivables and payables was
zero.
Also during 1994, the Registrant extended a cost of living expense
allowance to its president in lieu of requiring the filing of expense reports
monthly. The monthly allowance of $2,000 began on September 1, 1994 and was
paid for up until December 1, 1994. The expense has been accounted for as
compensation paid to the individual.
BUY OUT OF BUILDING CONTRACT
On July 31, 1994, the Registrant purchased a building contract for a cash
payment of $75,000 paid to a partnership in which Paul A. Bilzerian, current
Acting President of the Registrant with proxy voting rights, was a partner. The
contract provided for the construction of the new facility now occupied by the
Registrant.
CONSULTING AGREEMENT
In March, 1994, the Registrant hired Paul A. Bilzerian to perform
consulting services. The Registrant was in financial crisis and turned to Mr.
Bilzerian because of his extensive prior business and management experience. As
a condition of his agreement to provide consulting services to the Registrant,
Mr. Bilzerian received proxies to vote all shares held by the Registrant's
former management. The proxies are irrevocable until December 31, 1998. Mr.
Bilzerian received no cash compensation from the Registrant, other than expense
reimbursements until late 1994, when the Board voted to pay him or Bicoastal
Holding Company $2,000 per month. He received warrants to acquire 6,000,000
shares of the Registrant's common stock. The warrants are exercisable at any
time before June 1, 1999, for an aggregate price of $1,000,000. In a
supplemental consulting agreement dated August 8, 1995, the Registrant
renegotiated its contract with Mr. Bilzerian in order to retain his services for
an extended period of time and request him to temporarily relocate his family to
Provo, Utah. In connection with the renegotiation, Bicoastal Holding Company is
now paid $50,000 annually, and has rent-free use of the Registrant's residential
property. Mr. Bilzerian is currently serving as Acting President of the
Registrant, with no additional compensation.
ADVISORY PANEL
During 1995 and 1994, the Registrant retained the services of an advisory
panel of experienced business persons to consult with officers and employees of
the Registrant on matters relating to management, finance, marketing, and
product development. The advisors receive no cash compensation, other than
expense reimbursement, but during 1994 each of the nine members of the panel
received options, with immediate vesting, to purchase 50,000 shares of the
Registrant's common stock at an exercise price of $3.00 per share.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements and schedules are included immediately
following the signatures to this report.
Page
Report of Pritchett, Siler & Hardy (formerly Peterson,
Siler & Stevenson), independent public accountants 34
Balance Sheets, December 31, 1995 and 1994 35
Statements of Operations for the years ended
December 31, 1995, 1994, and 1993 37
Statement of Stockholders' Equity (Deficit) for the
years ended December 31, 1995, 1994 and 1993 38
Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993 40
Notes to Financial Statements 43
Financial Statement Schedules are omitted because they are not applicable
or because the required information is contained in the Financial Statements or
the Notes thereto.
EXHIBITS
Exhibit SEC
No. Reference No Description Location
1 (3) Articles of Incorporation Exhibit to
report on
form 10-K for
the year ended
December 31,
1993*
2 (3) Bylaws Exhibit to
report on
form 10-K for
the year ended
December 31,
1993*
3 (10) Proxy Agreements between Exhibit to
Dastrup, Seolas and report on
family, and Bilzerian form 10-Q for
transferring voting rights the quarter
to Bilzerian ended March 31,
1994*
4 (10) Consulting and option Exhibit to
agreement between report on
Registrant and Paul A. form 10-Q for
Bilzerian to resolve the quarter
management difficulties ended March 31,
1994*
5 (10) Indemnity agreement between Exhibit to
Registrant and former report on
officers and directors of form 10-Q for
Registrant for return of the quarter
shares and release from ended June 30,
related payables/receivables 1994*
6 (10) Technology Sale and Purchase Exhibit to
Agreement between the report on
Registrant and Brigham form 10-QSB for
Young University the quarter
ended September
30, 1995*
7 (10) Stock Option Plan of Exhibit to
Cimetrix Incorporated report on
form 10-K for
the year ended
December 31,
1994*
8 (4) Copy of Registrant's Exhibit to
Stock Certificate report on
form 10-K for
the year ended
December 31,
1993*
9 (3) Articles of Merger of Exhibit to
Cimetrix (USA) Incorporated report on
with Cimetrix Incorporated form 10-QSB for
the quarter
ended September
30, 1995*
10 (10) Supplementary Consulting This filing,
Agreement between Page 60
Registrant and Bicoastal
Holding Company for services
of Paul A. Bilzerian
* Incorporated by reference
REPORTS ON FORM 8-K
There were no reports filed on form 8-K during the quarter ended December
31, 1995.
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, hereunto duly authorized.
CIMETRIX INCORPORATED
Dated: February 28, 1996 By /s/ Kitt R. Finlinson
Kitt R. Finlinson, Vice President
of Finance (Principal Executive
and Financial Officer)
Dated: February 28, 1996 By /s/ Riley Astill
Riley Astill, Secretary
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Dated: February 28, 1996 By /s/ Douglas A. Davidson
Douglas A. Davidson
Chairman of the Board
Dated: February 28, 1996 By /s/ W. Edward Red
W. Edward Red, Director
Dated: February 28, 1996 By /s/ Dwight L. Barker
Dwight L. Barker, Director
Dated: February 28, 1996 By /s/ Dr. Ron Lumia
Dr. Ron Lumia, Director
Dated: February 28, 1996 By /s/ Mark A. Filippell
Mark A. Filippell, Director
Dated: February 28, 1996 By /s/ David L. Redmond
David L. Redmond
Dated: February 28, 1996 By /s/ Samuel W. Shoen
Samuel W. Shoen
INDEPENDENT AUDITORS' REPORT
Board of Directors
CIMETRIX INCORPORATED
Provo, Utah
We have audited the accompanying balance sheets of Cimetrix Incorporated at
December 31, 1995 and 1994 and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
1995, 1994 and 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of Cimetrix Incorporated as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for the years ended December 31, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
January 26, 1996
CIMETRIX INCORPORATED
BALANCE SHEETS
ASSETS
December 31,
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $2,345,483 $3,365,186
Accounts receivable 67,544 45,312
Inventories 619,192 298,266
Prepaid expenses 217,818 108,008
Current deferred tax asset, net 17,727 18,345
Total Current Assets 3,267,764 3,835,117
PROPERTY AND EQUIPMENT, net 1,732,247 1,271,045
OTHER ASSETS:
Other assets 9,242 5,837
Capitalized software costs, net 757,400 519,984
Technology, net 767,306 -
Goodwill, net 3,188,186 -
Total Other Assets 4,722,134 525,821
$9,722,145 $5,631,983
[Continued]
CIMETRIX INCORPORATED
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1995 1994
CURRENT LIABILITIES:
Short term borrowing $ - $ 1,000,000
Accounts payable 174,126 348,384
Accrued payroll and vacation 121,424 41,735
Accrued expenses 100 47,699
Capital lease obligation - current portion 19,901 13,333
Notes payable - current portion 22,092 -
Total Current Liabilities 337,643 1,451,151
DEFERRED TAX LIABILITY, net 17,727 18,345
NOTES PAYABLE, net of current portion 271,673 -
CAPITAL LEASE OBLIGATION, net of current portion24,471 30,892
Total Liabilities 651,514 1,500,388
MINORITY INTEREST - 518,313
STOCKHOLDERS' EQUITY:
Common stock; 100,000,000 shares
authorized, $.0001 par value; 18,456,103
and 14,506,684 shares issued and
outstanding, respectively 1,846 1,451
Additional paid-in capital 16,156,458 8,155,257
Accumulated deficit (7,087,673) (4,543,426)
Total Stockholders' Equity 9,070,631 3,613,282
$9,722,145 $ 5,631,983
The accompanying notes are an integral part of these financial statements.
CIMETRIX INCORPORATED
STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
1995 1994 1993
NET SALES $ 664,288 $ 462,817 $ 1,141,561
OPERATING EXPENSE:
Cost of goods sold 446,352 297,166 727,411
Selling, marketing and
customer support 946,753 216,621 114,942
Research and development 930,119 198,534 506,675
General and administrative 1,231,093 1,216,798 856,622
Total Operating Expense 3,554,317 1,929,119 2,205,650
LOSS FROM OPERATIONS (2,890,029) (1,466,302) (1,064,089)
OTHER INCOME (EXPENSE)
Interest income 171,326 68,095 -
Interest expense (25,669) (32,216) (6,437)
Other income (expense) 1,315 (2,711) (3,459)
Total Other Income (Expense) 146,972 33,168 (9,896)
LOSS BEFORE MINORITY INTEREST,
INCOME TAXES AND EXTRAORDINARY
ITEMS (2,743,057) (1,433,134) (1,073,985)
LESS MINORITY INTEREST IN LOSS
FROM OPERATIONS OF SUBSIDIARY (198,810) (99,891) -
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (2,544,247) (1,333,243) (1,073,985)
CURRENT INCOME TAX EXPENSE
(BENEFIT) - - -
DEFERRED INCOME TAX EXPENSE
(BENEFIT) - - -
LOSS BEFORE EXTRAORDINARY ITEM (2,544,247) (1,333,243) (1,073,985)
EXTRAORDINARY ITEM :
Gain on debt forgiveness
net of income taxes - 188,187 -
NET LOSS $(2,544,247) $(1,145,056)$(1,073,985)
LOSS PER COMMON SHARE:
Loss from operations $ (.16) $ (.09)$ (.07)
Extraordinary item - .01 -
LOSS PER COMMON SHARE: $ (.16) $ (.08)$ (.07)
The accompanying notes are an integral part of these financial statements.
CIMETRIX INCORPORATED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
Common Stock Additional
Paid-in Accumulated
---------------------
Shares Amount Capital Deficit Total
BALANCE, December 31, 1992 16,216,104 $1,622 $ 2,025,833 $(2,324,385) $ (296,930)
Shares issued to
employees for services
rendered;
$.0001 per share 195,657 20 - - 20
Shares issued for cash;
$5.00 per share 167,115 16 835,559 - 835,575
Net loss for the year
ended December 31, 1993 - - - (1,073,985) 1,073,985)
BALANCE, December 31,
1993 16,578,876 1,658 2,861,392 (3,398,370) (535,320)
Net effect of subsidiary's
capitalization, including
contributions by
minority shareholders
[See Note 19] - - 5,040,629 - 5,040,629
Cancellation of shares
previously issued
during 1991, valued
at $14,812 (2,963) - (14,812) - (14,812)
Shares issued to employees
per service agreement,
valued at $.0001
per share 116,667 12 - - 12
Shares issued for cash,
$5.00 per share 53,566 5 267,824 - 267,829
Issuance of shares to
shareholders who previously
paid $5 per share 558,761 56 (56) - -
Cancellation of shares
previously issued to
former officers,
directors and other
related parties (2,798,223) (280) 280 - -
Net loss for the year
ended December 31,
1994 - - - (1,145,056) (1,145,056)
BALANCE, December 31,
1994 14,506,684 1,451 8,155,257 (4,543,426) 3,613,282
Shares issued for
technology, valued
at $3.75 per share 120,000 12 449,988 - 450,000
Shares issued to acquire
minority interest in
former subsidiary
[See Note 19 ] 2,829,419 283 4,067,006 - 4,067,289
Net effect of merger of
minority interest - - (487,140) - (487,140)
Stock issued through
private placement,
memorandum $4.00 per
share, net of offering
costs of $28,553 1,000,000 100 3,971,347 - 3,971,447
Net loss for the year
ended December 31,1995 - - - (2,544,247) (2,544,247)
BALANCE, December 31,
1995 18,456,103 $1,846 $16,156,458 $7,087,673) $9,070,631
The accompanying notes are an integral part of this financial statement.
CIMETRIX INCORPORATED
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended
December 31,
1995 1994 1993
Cash Flows to Operating Activities:
Net loss $(2,544,247) $ (1,145,056) $ (1,073,985)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Amortization and depreciation 389,646 72,380 35,207
Gain\loss on disposition of
assets 3,485 2,711 3,459
Extraordinary items - debt
forgiveness - (188,187) -
Minority interest in
operation of subsidiary (198,810) (99,891) -
Non-cash expense - 23,834 -
Common stock issued for
non-cash consideration - 12 20
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable (22,232) 61,074 (45,972)
(Increase) decrease in
inventory (320,926) (250,133) (48,133)
(Increase) decrease in
prepaid expenses (109,810) (108,008) -
(Increase) decrease in
other assets 618 - -
Increase (decrease) in
accounts payable (174,258) 50,359 218,262
Increase (decrease) in
accrued expenses 32,090 (236,304) 135,585
Total Adjustments (400,197) (672,153) 298,428
Net Cash Flow Used by
Operating Activities (2,944,444) (1,817,209) (775,557)
Cash Flows to Investing
Activities:
Payments for capitalized
software costs (341,416) (519,984) -
Purchase of property and
equipment, net of retirements (638,446) (1,212,807) (6,097)
Payments for other assets,
net (3,405) (2,450) -
(Increase) in receivable -
related party - - (75,055)
Net Cash Flow Used by Investing
Activities (983,267) (1,735,241) (81,152)
Cash Flows from Financing Activities:
Proceeds from capitalization of
subsidiary - 5,000,000 -
Proceeds from issuance of common
stock 4,000,000 267,829 687,035
Payments of stock offering costs (28,553) - -
Payments for capital lease
obligations, net (9,840) (8,902) (6,449)
Proceeds from notes payable - 1,745,000 10,000
Payments for notes payable (1,052,981) (130,000) (20,000)
Proceeds from payable - related
party - 42,900 206,200
Payments for payable - related
party - - (28,000)
Decrease in deferred tax
liability (618) - -
Net Cash Flow Provided by
Financing Activities 2,908,008 6,916,827 848,786
Net Increase (Decrease) in Cash
and Cash Equivalents (1,019,703) 3,364,377 (7,923)
Cash and Cash Equivalents at
Beginning of Period 3,365,186 809 8,732
Cash and Cash Equivalents at
End of Period $2,345,483 $ 3,365,186 $ 809
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the year for:
Interest $ 25,669 $ 10,463 $ 6,437
Income taxes $ - $ - $ -
Supplemental Schedule of Noncash Investing and Financing Activities:
For the year ended December 31, 1995:
In July, 1995, the Company purchased the technology it had been licensing
from Brigham Young University by issuing 120,000 shares of common stock
valued at $3.75 per share, and signing an agreement to make 10 annual
payments of $50,000 cash. A note payable of $343,765 was recorded to
reflect the discounted present value of the 10 annual payments. [See Note 5]
In July 1995, the Company entered into a 36-month capital lease covering the
new voice mail equipment and software for the Company's phone system. The
cost of the leased equipment was $9,987.00.
Effective August 31, 1995, the Company purchased the interest held by
minority shareholders in the Company's subsidiary by issuing 2,829,419
restricted shares of Cimetrix Incorporated ("Parent") in exchange for an
equal number of shares of the subsidiary, Cimetrix (USA) Incorporated, held
by those minority shareholders. The subsidiary was then merged into the
Parent, effective August 31, 1995. The effect of the purchase of the
minority interest was to create "goodwill" in the amount of $3,260,646 that
was recorded by the Parent. The goodwill is being amortized on a straight
line basis over 15 years. [See Note 11]
For the year ended December 31, 1994:
In accordance with the terms of a settlement agreement, the Company canceled
2,963 shares of common stock previously issued for services rendered.
The Company issued 116,667 shares of common stock to employees for services
rendered, valued at $.0001 per share. [See Note 11].
The Company issued 558,761 shares valued at $.0001 per share to shareholders
who had previously paid $5.00 per share, in order to give those shareholders
an average $2.00 per share basis [See Note 11].
Related party accounts payable of $242,270 net of related party accounts
receivable of $120,068 were forgiven. [See Note 13] Automobiles accounted
for as capital leases with a net book value of $3,651 were assumed by former
officers [See Note 14].
Trade payables amounting to $62,334 were forgiven by vendors [See Note 21].
The Company entered into a lease for telephone equipment costing $53,127
[See Note 9].
$635,000 of notes payable with their related interest of $23,834 were
converted into common shares of the subsidiary [See Note 8].
Former officers, directors and other related parties returned 2,798,223
common shares valued at $.0001 per share for cancellation [See Note 11].
Supplemental Schedule of Noncash Investing and Financing Activities:
For the year ended December 31, 1993:
The Company issued 195,657 shares of common stock valued at $.0001 per share
for services rendered [See Note 11].
The Company issued 29,708 shares of common stock valued at $5.00 per share
in payment of related party notes payable [See Note 13].
The accompanying notes are an integral part of these financial statements.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Cimetrix Incorporated [ the PARENT] was organized under the
laws of the State of Utah on December 23, 1985. In September 1990, the
Parent merged with a newly incorporated Nevada company, effectively changing
its domicile to that state. Cimetrix (USA) Incorporated [the SUBSIDIARY] was
organized under the laws of the State of Florida on June 7, 1994. In July
1994, the Parent acquired 20,000,000 shares of the common stock of the
Subsidiary in exchange for the transfer of substantially all of the assets of
the Parent, and the assumption of $635,000 of convertible promissory notes
payable. The Subsidiary subsequently sold shares of its common stock to
private investors resulting in an approximate 12% minority interest [See Note
19]. Effective August 31, 1995, the Parent purchased the minority interest
in the subsidiary by exchanging one share of the Parent common stock for one
share of subsidiary stock held by the minority shareholders. In all,
2,829,419 shares of the Parent were issued to the minority shareholders in
exchange for their stock in the subsidiary. Simultaneously, the Subsidiary
was merged into the Parent, effective August 31, 1995, leaving the Parent,
Cimetrix Incorporated, as the surviving single entity.
Net Loss Per Common Share - The computation of loss per share of common stock
is based on the weighted average shares outstanding during the periods
presented. Fully diluted loss per share is not presented, except for
extraordinary items, because its effect is anti-dilutive.
Cash and Cash Equivalents - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. At December 31,
1995, the Company had cash equivalents of $2,019,927 invested in commercial
paper maturing in January 1996 which are readily convertible into cash and
are not subject to significant risk from fluctuation in interest rates; there
were no cash equivalents at the previous year end. At December 31, 1995 and
1994, the Company had cash of $98,855 and $3,184,588, respectively, in excess
of federally insured amounts in its bank accounts.
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Depreciation Methods - The cost of property and equipment is depreciated
using the straight-line method over the estimated useful lives of the related
assets. The estimated useful lives range from 3 - 40 years.
Research and Development - The Company expenses software development costs
incurred prior to the establishment of technological feasibility as research
and development costs. The Company also expenses hardware design and
prototype expenses as incurred as research and product development costs.
Capitalized Software Costs - The Company capitalizes software development
costs incurred after technological feasibility of the software product has
been established. Amortization of the capitalized costs is computed on a
product by product basis over the estimated useful lives of the products.
Software costs are carried at the net of unamortized cost or net realizable
value. Net realizable value is reviewed on an annual basis after assessing
potential sales of the product.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Goodwill - Goodwill represents the excess of the cost of purchasing the
minority interest of Subsidiary over the fair value of the net assets at the
date of acquisition, and is being amortized on the straight line method over
15 years. Amortization expense charged to operations for 1995 and 1994 was
$72,460 and $0, respectively.
Allowance for doubtful accounts - Through December 31, 1995, the Company has
had no bad debt experience; therefore no allowance for doubtful accounts has
been established.
Reclassification - On the financial statements shown for the periods prior to
December 31, 1995, certain accounts have been reclassified to conform to the
headings, titles and format used in the presentation of the December 31, 1995
and later financial statements.
NOTE 2 - INVENTORIES
Inventories consist of the following:
December 31,
1995 1994
Parts and supplies $225,823 $240,615
Work in process 107,744 39,825
Finished goods 285,625 17,826
$619,192 $298,266
The Company's inventory is pledged as collateral for a line of credit. [See
Note 8]
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, at cost, less
accumulated depreciation:
December 31,
1995 1994
Land $ 155,000 $ 110,000
Buildings and improvements 752,101 718,353
Office equipment 212,634 127,519
Furniture and fixtures 203,308 56,640
Capital leases 63,114 53,127
Software 41,932 16,069
Equipment 362,640 301,108
Residential Real Estate 203,268 -
1,993,997 1,382,816
Accumulated depreciation (261,750) (111,771)
$1,732,247 $1,271,045
Depreciation expense for the years ended December 31, 1995, 1994 and 1993 was
$186,727, $72,380, and $35,207, respectively.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - LICENSE AGREEMENTS
During the early part of 1994, the Company entered into a license/royalty
agreement with Lynx Real-Time Systems, Inc. ("LYNX"), wherein the Company
will be allowed to incorporate certain binary products of LYNX into the
controller products of the Company. The Company will pay a fee of $235 per
each unit sold which contains a LYNX run-time license product.
Pursuant to an agreement dated July 26, 1995, the Company entered into an
additional agreement with LYNX allowing the Company to resell development
licenses to its customers. The Company will pay a fee of $500 per
development license for each license sold, and has committed to pay an up-
front royalty/license fee for the purchase of 250 licenses, for a total of
$125,000. This additional agreement also provides the Company with the
option, expiring on July 25, 1998, to purchase all existing LYNX development
operating system source code. In addition, the company will receive a
substantial discount from the standard list price for any new LYNX source
code product through July 25, 1998.
The original up-front royalty of $58,750, combined with the additional
$125,000 from the latest agreement (for a total of $183,750), will be
amortized through the purchase of LYNX products and services until the total
payment has been consumed. The unamoritzed portion as of December 31, 1995
included in prepaid expenses is $164,829.
NOTE 5 - TECHNOLOGY
Effective July 5, 1995, the Company purchased the technology that was then
being licensed from Brigham Young University (BYU), referred to as ROBLINE
and ROBCAL. The Company purchased all rights, title, interest and benefit in
and to the intellectual property for cash payments of $50,000 per year for
ten years which were discounted using an incremental borrowing rate of 9.5%
per annum and has been recorded as a note payable of $343,765 [See Note 8],
plus 120,000 shares of previously unissued, restricted common stock of the
Company valued at $3.75 per share [See Note 11], for a total purchase value
of $793,765. The technology is being amortized over a period of 15 years on
a straight-line basis. Amortization expense for the year ended December 31,
1995 is $26,459. This technology consists primarily of robot inaccuracy
compensation technologies, as integrated by an off-line programming system,
and an inaccuracy calibration technique. The proprietary robot inaccuracy
calibration technology can be configured to function with virtually any off-
line programming software and any robot.
Pursuant to the now canceled license agreement with BYU, the Company was
required to make royalty payments of 3/4 of one percent of net sales to the
Company. Minimum royalty payments equaled $40,000 per year. In connection
with the original licensing of the technology, in 1989 the Company issued
180,000 shares of restricted stock common stock to BYU, valued at $.10 per
share. In 1989, the Company also issued a total of 440,000 shares of
restricted common stock, valued at $.01 per share, to a director and other
employees of the Company for their efforts in the development of the licensed
technology. Subsequently, the Company issued 180,000 restricted common
shares in 1990 and another 180,000 restricted common shares in 1991 (both
valued at $.0001 per share) to employees who are currently officers of the
Company for their continued active participation in the commercialization and
distribution of the licensed technology.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - SOFTWARE DEVELOPMENT COSTS
In 1994, it was determined the Company had passed the point of "technological
feasibility" with its Cimetrix Open Development Environment ("CODE", formerly
"ROBLINE") system software, and hence, according to FASB 86 - "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,"
further development costs should be capitalized. During 1995 and 1994, the
Company capitalized $341,416 and $519,984, respectively, of direct and
indirect costs associated with the effort to bring the Company's software
products to a point of general release to customers. Amortization began in
January 1995, and is computed as the greater of the amount computed using (a)
the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product or (b) the
straight-line method over five years. Amortization expense for the years
ended 1995 and 1994 was $104,000 and $0, respectively. As the Company
develops additional ancillary, complementary software tools and applications
products, it is expected there may be capitalization of additional software
development costs.
NOTE 7 - PATENTS AND COPYRIGHTS
The technology purchased from BYU, along with other technology developed
internally, is proprietary in nature. The Company has obtained two patents
on certain of the technology, issued in May 1989, and March 1994,
respectively. In addition, the Company has registered its entire CODE
software system products with the Copyright Office of the United States, and
will continue to register on a timely basis any updates to current products
or any new products. For the most part, other than the two patents and the
copyright registrations, the Company relies on confidentiality and
nondisclosure agreements with its employees and customers, appropriate
security measures, and the encoding of its software in order to protect the
proprietary nature of its technology. No cost has been capitalized in
respect to the patents.
NOTE 8 - NOTES PAYABLE
In connection with the purchase of the technology from BYU [See Note 5] the
Company agreed to make payment of $50,000 each year for ten years. This
stream of payments was discounted using an incremental borrowing rate of 9.5%
per annum, and has been recorded as a note payable with a beginning balance
of $343,765. The first payment was due and paid on September 1, 1995.
The Company entered into a $5,000,000, variable rate revolving line of credit
with a bank on October 20, 1994. The line provides for interest at the rate
of one half of one percent over the prime rate of the bank. The initial rate
was 8.25% per annum. The line expires on October 31, 1996. Interest
payments are to be paid monthly, and any outstanding principal balance is to
be paid in full on October 31, 1996. The prepaid finance charges of $15,000
have been classified as a deferred asset and are being amortized over the
term of the line. At December 31, 1995, no funds have been borrowed against
the line. The amount available under the revolving line of credit is
calculated based upon a formula of eligible current assets, including cash,
receivables and inventories which serve as collateral for amounts borrowed.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - NOTES PAYABLE [Continued]
On April 29, 1994, the Company issued three Convertible Notes Payable with a
maturity date of April 29, 1997. The aggregate amount of the notes issued
was $635,000, and the notes provided for interest at a rate of 10%. The
notes were convertible into shares of common stock of the Company at the rate
of $2.00 per share at anytime during the term of the notes. During July
1994, the notes and the related accrued interest were converted by agreement
into common shares of the subsidiary at $2.00 per share and note holders were
issued warrants to purchase 317,500 common shares of the Parent Company [See
Note 11].
NOTE 9 - CAPITAL LEASES
On various occasions, the Company has entered into different leases for
office equipment. Based on the provisions of Statement No. 13, issued by the
Financial Accounting Standards Board, many of these leases meet the criteria
of a capital lease. At December 31, 1995 and 1994 the cost of the assets
amounted to $63,114 and $53,127, net of accumulated depreciation of $15,961
and $3,542, respectively. Depreciation expense for the year ended December
31, 1995 and 1994 was $12,419 and $3,542, respectively.
Future minimum lease payments under the capital lease obligations as of
December 31, 1995, for each of the next five years and in the aggregate are
as follows:
1996 25,501
1997 22,454
1998 4,258
1999 581
2000 -
Thereafter -
Total 52,794
Less: Amount representing
interest (8,422)
Present value of future
minimum lease payments 44,372
Less: Current portion (19,901)
Long-term portion $24,471
NOTE 10 - OPERATING LEASES
The Company entered into an automobile lease agreement in July, 1995. The
lease provides for monthly payments of $246 through June 1997.
The Company entered into an automobile lease agreement in May, 1994. The
lease provides for monthly payments of $238 through April, 1996.
The Company previously leased office space under operating leases expiring at
various dates through February 1994. The Company then rented the facilities
on a month to month basis until it moved into its current facilities in
November 1994.
Office and equipment rental expense was $6,318, $99,990 and $152,185, for the
years ended December 31, 1995, 1994 and 1993, respectively.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - COMMON STOCK TRANSACTIONS
Stock Issued
On August 11, 1995, the Board of Directors of the Company gave final approval
to a merger between Cimetrix Incorporated, and it's majority owned
subsidiary, Cimetrix (USA) Inc., which was completed effective August 31,
1995. Under the merger, the minority interest shareholders of the subsidiary
received one share of common stock of the Company for each share of
subsidiary common stock that they own. This resulted in the issuance of
2,829,419 shares of restricted common stock of the Company and the recording
of goodwill of $3,260,646 [See Note 1]. Subsequent to the merger, all
business of the Company is being conducted through Cimetrix Incorporated, a
Nevada corporation, the former parent corporation.
Pursuant to the purchase of technology from BYU [See Note 5] the Company
issued 120,000 shares of previously unissued restricted common stock valued
at $3.75 per share.
On March 31, 1995, the Company closed a private placement offering in which
1,000,000 shares of restricted common stock were sold at $4.00 per share for
gross proceeds of $4,000,000. Attorneys' fees and brokerage commissions
associated with the offering totaled approximately $28,553.
In February, 1994, the Company issued to three of its employees a total of
116,667 shares of previously unissued restricted common stock valued at
$.0001 per share pursuant to a previous action of the Board of Directors in
1993.
During 1994, the Company sold 53,566 restricted common shares at $5.00 per
share for total cash proceeds of $267,830. Subsequently, the Board of
Directors approved the issuance of 558,761 additional restricted shares to
all shareholders who had previously purchased shares from the Company at
$5.00 per share during the periods from 1990 through 1994. The additional
issuance was intended to reduce the average cost of a share to $2.00 per
share for those who had previously paid $5.00 per share.
As indicated in Note 13, pursuant to agreements with the Company in 1994,
certain former officers and directors agreed to return 2,798,223 shares held
by them for cancellation.
During the year ended December 31, 1993, the Company issued 195,657 shares of
restricted common stock valued at $.0001 per share to employees for services
rendered [See Historical Basis of Stock Issued for Services]. The Company
also issued 167,115 shares for total cash proceeds of $835,575.
Also during 1993, the Board of Directors approved the annual issuance of
116,667 shares of common stock, beginning in January 1994 and extending
through January 1998, to certain key employees, dependent upon their
continued satisfactory employment with the corporation. The board also
approved the annual issuance of options to the same employees to purchase a
total of 100,000 shares per year for $5 per share. Both of these actions
were voided by the Board's adoption of the new stock option plan during 1994
as noted below.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - COMMON STOCK TRANSACTIONS [Continued]
Historical Basis of Stock Issued for Services Prior to 1994 - The majority of
stock issued for services was issued to individuals who could have been
deemed to be promoters and control individuals. Consequently, the Company
has determined that, due to the control exercised by the beneficiaries, the
stock should be valued based on the historical cost of any services
transferred to the Company. Since management is unable to determine a
reasonable methodology for valuing services rendered for stock, the Company
is valuing the stock at par value ($.0001).
Stock Options and Warrants
During the year ended December 31, 1995, the Company awarded stock options
representing the right to buy 333,000 shares of restricted common stock in
connection with the hiring of new personnel for the Company. The options all
have an exercise term of five years, with full or partial vesting occurring
on the anniversaries of the individual grant dates. The exercise prices are
either $4.00 or $5.00 per share depending on the market price of the
Company's common shares on the date of grant of the options.
Additionally, during 1995, stock options representing 200,000 shares were
granted to new members of the Board of Directors of the Company in connection
with their service on the Board. The options vest over the next 15 months,
and have an exercise price of $5.00, with an exercise term of 5 years.
Also, in September 1995, a consultant to the Company was granted an option
representing 10,000 shares in connection with his help in the development of
the CNC controller. The options vested immediately and are exercisable over
a term of five years at $5.00 per share.
At the close of the year ending December 31, 1995, seven (7) employees had
terminated their employment with the Company, thereby forfeiting options
representing a total of 171,000 shares of common stock. Taking into account
the forfeited option shares, together with warrants granted to outside
consultants, and warrants issued in connection with convertible notes
payable, the options issued to employees, advisory panel members, and members
of the Board of Directors bring the total number of shares represented by
outstanding options and warrants to 8,493,166 shares at December 31, 1995.
On December 21, 1994, the Board of Directors adopted a stock option plan for
employees which became effective immediately, subject to shareholder approval
at the annual meeting of shareholders conducted in July, 1995. The plan
specifically replaces all prior option agreements between the Company and its
employees. The plan provides for the issuance of stock options from time to
time to employees of the Company as approved by the Board of Directors. The
maximum number of shares reserved for issuance under this plan cannot exceed
1,993,816 shares. For any options granted pursuant to this plan, one half
will vest on the first anniversary date of the date of grant, and the
remaining one half will vest on the second anniversary date of the date of
grant. Continued employment with the Company is one of the requirements of
vesting. The option period and exercise price will be specified for each
option granted, as determined by the Board of Directors, but in no case shall
the option period exceed five years from the date of grant, and the exercise
price cannot be less than one half the market price of the Company's common
shares on the date of grant. Pursuant to the plan, on December 21, 1994, the
Board granted options totaling 1,804,166 shares to the employees of the
Company and advisory panel members. A total of 415,000 options were granted
with an exercise price of $2.00 per share and 1,389,166 options with an
exercise price of $3.00 per share.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - COMMON STOCK TRANSACTIONS [Continued]
On September 12, 1994, the Board of Directors approved the issuance of
common stock options to members of its advisory panel. Each panel member was
granted options to purchase 50,000 restricted shares at an exercise price of
$3.00 per share for a period of five years. At the time of the grant, there
was no trading market for either the Company's common shares or for options
on those shares, although the Company had received a price of $2.00 per share
for common stock of the Company's privately-owned, sole subsidiary [See Note
19]. Consequently, no compensation has been recorded in connection with the
granting of these options.
As of December 31, 1995 none of the above options have been exercised [See
Note 22]
On March 21, 1994 in connection with the execution of the proxy agreement
[See note 12], the Company entered into a separate consulting agreement with
this outside consultant granting him warrants to purchase 6,000,000
restricted common shares for a cash payment of $1,000,000. The warrants are
irrevocable and exercisable for a period of five years. At December 31, 1995
none of the warrants have been exercised.
During July 1994, in connection with conversion of three notes payable into
common shares of the subsidiary [See Note 8], the Company issued warrants to
purchase up to an aggregate of 317,500 shares of common stock of the Parent
Company upon payment of $2.00 per share. The warrants are exercisable until
April 29, 1997. At December 31, 1995, none of the warrants have been
exercised.
The following table is a summary of option and warrant transactions for the
years ending:
December 31,
1995 1994
Outstanding, beginning of year 8,121,166 -
Granted during the year 543,000 8,121,166
Canceled or forfeited during
the year (171,000) -
Exercised during the year - -
Outstanding end of year
(at prices ranging from
$.1667 to $9.00 per share) 8,493,166 8,121,166
Eligible, end of year for
exercise currently (at prices
ranging from $.1667
to $5.00 per share) 7,588,583 7,082,500
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - CHANGE IN CONTROL
On March 21, 1994, and later amended in June, 1994 and August 1995, certain
officers, directors and controlling shareholders of the Company entered into
a proxy agreement wherein they assigned the voting rights of their common
stock (voting control of approximately 43.0%) to an individual with
experience and expertise in managing various businesses and who became an
outside consultant, to the Company. The proxy agreement has a term expiring
on December 31, 1998 and is irrevocable [See Note 13].
On July 1, 1994, a meeting of the Board of Directors was held and the
officers and directors submitted their resignations. Their positions have
been filled subsequently by persons newly-hired by the Company.
NOTE 13 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1995, the Company paid consulting fees of
$51,600 and provided the use of a furnished home to a corporation controlled
by an outside consultant who has proxy voting control of the Company [See
Note 12] and is the holder of certain warrants to purchase shares of the
Company's common Stock [See Note11]. Rental income and offsetting consulting
fees expense of $4,800 was recorded.
On July 31, 1994, the Company purchased a building contract for a cash
payment of $75,000. The contract provided for the construction of the new
facility now occupied by the Company. The purchase price was paid to a
partnership in which the outside consultant with proxy voting rights was a
partner.
In connection with the voting rights of the former officers and directors
being assigned by proxy to an outside consultant, the Company entered into
agreements with certain former officers and directors wherein 2,798,223
shares of the Company's common stock were returned and canceled. [See Note
12]. The former officers and directors released the Company from obligations
payable to them totaling $242,270. The Company indemnified the former
officers and directors for their past services rendered, and released them
from certain obligations payable to the Company totaling $120,068. Prior to
this simultaneous release of obligations, a relative of one of the directors
made non-interest bearing cash advances to the Company totaling $32,900. All
related party payables and receivables were forgiven by the action noted
above, and as of December 31, 1994, the balance of related party receivables
and payables was zero.
During the year ended December 31, 1993, the Company received $30,750 from an
officer and director and a related party to such officer. The amounts bore
no interest and were payable upon demand. Amounts payable at December 31,
1993 was $35,462. Amounts receivable from the officer and director at
December 31, 1993 was $3,474. During 1994 the receivables and payables were
forgiven in connection with an indemnity agreement, see above.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - RELATED PARTY TRANSACTIONS [Continued]
During the years ended December 31, 1993, the Company loaned amounts to, and
received loans from, a director and a related party to such director.
Amounts bore no interest and were payable on demand. Amounts payable to the
director and related party to such director at December 31, 1993 was
$147,452. Amounts receivable from the same individuals at December 31, 1993
were $71,581. During 1994 the receivables and payables were forgiven in
connection with indemnity agreement, see above.
Also during 1994, the Company extended a cost of living expense allowance to
its president, Mr. Claude Goldsmith, in lieu of requiring the filing of
expense reports monthly. The monthly allowance of $2,000 began on September
1, 1994 and was paid to Mr. Goldsmith up until his resignation due to illness
in December, 1994. The expense reimbursement arrangement was a non-
accountable plan and was treated as compensation paid to Mr. Goldsmith.
During 1993, a director and related party to such director accepted 29,708
shares of common stock, at $5.00 a share, as payment for $148,540 of
payables.
NOTE 14 - CONTINGENCIES
Payroll Taxes - Certain of the Company's compensation practices prior to the
year ended December 31, 1990 fall under section 3401 of the Internal Revenue
Code. The complexity of this section results in areas of uncertainty and
requires interpretation. The IRS may question the current interpretation.
If the Company's interpretation does not prevail, payroll taxes and the
related penalties could be assessed. The possible assessment and penalty
cannot be determined at this time. Any payments by reason of an adverse
determination in this matter will be charged to earnings in the period of
determination.
In connection with the resignation of previous officers, a former officer
took ownership of a truck which was under lease by the Company and accounted
for as a capital lease. The former officer is personally making the payments
on the lease. However, the lease obligation is in the Company's name and,
thus, the Company is contingently liable should the former officer fail to
make the required payments. At December 31, 1995 the unpaid balance of the
lease was $12,311. The lease also contains a buy-out option of $7,447.
Product Warranties - The Company provides certain product warranties to
customers including repair or replacement for defects in materials and
workmanship of hardware products. The Company also warrants that software
and firmware products will conform to published specifications and not fail
to execute the Company's programming instructions due to defects in materials
and workmanship. In addition, if the Company is unable to repair or replace
any product to a condition warranted, within a reasonable time, the Company
will provide a refund to the customer. As of December 31, 1995 and 1994, no
provision for warranty claims has been established since the Company has not
incurred substantial sales from which to develop reliable estimates. Also,
no refunds have been paid to any customer as of December 31, 1995. However,
management believes the allowance for warranty would be currently immaterial
to the financial condition of the Company.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - CONTINGENCIES [Continued]
Litigation - The Company is involved in various litigation's as part of its
normal business operations. In the opinion of management and counsel, the
ultimate resolution of these cases will not have a material adverse effect on
the Company's financial position.
NOTE 15 - SIGNIFICANT CUSTOMERS
For the year ended December 31, 1995, the Company had four significant
customers, AT & T (16%), Cybex Technologies (10%), Hewlett-Packard (26%) and
Motorola (29%), which accounted for 81% of its total revenue. During 1994,
90% of the Company's total revenues came from four significant customers.
During 1993, 86% of the Company's total revenue came from three significant
customers.
NOTE 16 - CONTINUING OPERATIONS
During its existence, the Company has incurred operating losses from
inception totaling of $(7,087,673) including $(2,544,247), $(1,145,056), and
$(1,073,985) during the years ended December 31, 1995, 1994, and 1993,
respectively. Net cash used by operations amounted to approximately
$2,944,444, $1,817,209, and $775,557 during the same periods.
Historically, the Company has raised the required financing for its
activities through the sale of the Company's common shares and from short-
term borrowings. During 1995, the Company used these same methods in raising
what management believes will be sufficient cash funds to finance the
projected cash requirements through 1996 when accompanied by projected sales
revenues. In March, 1995, the Company sold 1,000,000 of its common shares at
a price of $4.00 per share raising a total of $4,000,000 in cash.
Additionally, the Company has arranged with a financial institution a
$5,000,000 line of credit. Borrowings against this line are secured by
certain current assets of the Company including cash. Management of the
Company believes that at December 31, 1995, the Company is capable of
financially meeting the demands inherent as normal sales and manufacturing
continue to develop during 1996.
Not withstanding the above, as disclosed in a recently filed Form 8-K,
pursuant to the desire of management of the Company to enhance the capability
of the Company to distribute its products to a world wide market in an
accelerated time frame, the Company has engaged Cowen & Company to act as the
Company's investment banker in exploring the possibility of establishing
strategic and financial relationships with one or more companies, which may
include the sale or merger of the Company [See Note 22].
In addition to these considerations, the Company continues to participate
with Motorola, Inc. in the development of an "open architecture" controller
standard for Motorola's manufacturing divisions world wide. Management
believes this represents a significant opportunity for the Company to further
the commercial acceptance of its products, both by Motorola and other
customers.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - CONTINUING OPERATIONS [Continued]
Because of the cash position of the Company at December 31, 1995, the
accompanying financial statements do not contain any adjustments relating to
the recoverability and classification of recorded asset amounts or the amount
and classification of liabilities that might be necessary, should the Company
be unable to achieve profitable operations and generate sufficient working
capital to fund operations and pay or refinance its current obligations.
NOTE 17 - AGREEMENTS
During the year ended December 31, 1992, the Company entered into a business
referral agreement and a capital referral agreement with A-K Associates, Inc.
[A-K]. The purpose of such agreements was to generate customers and/or
capital investments for the Company. The term of each agreement was ten
years from the date that the Company approves the referral. During 1994, the
Company entered into negotiations with A-K to terminate said agreements,
believing the long-term effect was not beneficial to the Company. An
agreement was reached in early 1995 to settle this matter for a cash payment
of $10,000. The Company also canceled 2,963 shares of common stock which had
previously been accounted for as issued.
NOTE 18 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
Accounting for Income Taxes [FASB 109] during Fiscal 1993. FASB 109 requires
the Company to provide a net deferred tax asset or liability equal to the
expected future tax benefit or expense of temporary reporting differences
between book and tax accounting and any available operating loss or tax
credit carryforwards. At December 31, 1995 and 1994, the total of all
deferred tax assets was $3,309,029 and $2,150,780 and the total of the
deferred tax liabilities was $1,622,594 and $245,751. The amount of and
ultimate realization of the benefits from the deferred tax assets for income
tax purposes is dependent, in part, upon the tax laws in effect, the
Company's future earnings, and other future events, the effects of which
cannot be determined. Because of the uncertainty surrounding the realization
of the deferred tax assets, the Company has established a valuation allowance
of $1,686,435 and $1,905,028 as of December 31, 1995 and 1994, which has been
offset against the deferred tax assets. The net change in the valuation
allowance during the year ended December 31, 1995, was $(218,593).
The Company has available at December 31, 1995, unused tax operating loss
carryforwards of approximately $8,228,256, which may be applied against
future taxable income and which expire in various years beginning 2004
through 2010.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 18 - INCOME TAXES [Continued]
The components of income tax expense from continuing operations for the years
ended December 31, 1995 and 1994 consist of the following:
December 31,
1995 1994
Current income tax expense:
Federal $ - $ -
State - -
Net current tax expense - -
Deferred tax expense (benefit)
arising from:
Excess of tax over financial
accounting depreciation $ 26,081 $ 18,589
Capitalized software development
costs 93,832 209,128
Amortization of goodwill 1,275,274 -
Accrual of vacation wages payable (17,727) -
Net operating loss carryforwards (1,158,868) (722,403)
Valuation allowance (218,593) 494,686
Net deferred tax expense $ - $ -
Deferred income tax expense results primarily from the reversal of temporary
timing differences between tax and financial statement income. There is no
portion of current or deferred tax expense that is required to be allocated
to the extraordinary item.
A reconciliation of income tax expense at the federal statutory rate to
income tax expense at the Company's effective rate is as follows:
Year Ended December 31,
1995 1994
Computed tax at the expected
federal statutory rate 34.00% 34.00%
Excess of tax over financial
accounting depreciation (4.77) 1.50
State income taxes, net of
federal income tax benefits 6.00 6.00
Capitalized software development
costs (17.17) 16.91
Amortization of goodwill (233.36) -
Accrual of vacation wages payable 3.24 -
Net operation loss carry forward 212.06 (58.41)
Effective income tax rates 0.00% 00.00%
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 18 - INCOME TAXES [Continued]
The temporary differences gave rise to the following deferred tax asset
(liability) at December 31, 1995 and 1994:
December 31,
1995 1994
Excess of book over tax accounting
depreciation (44,360) (18,279)
Capitalized software development
cost (302,960) (209,128
Amortization of goodwill (1,275,274) 2,132,435
Accrual of vacation wages payable 17,727 -
NOL carryforwards 3,291,302 -
The deferred taxes are reflected in the balance sheet as follows:
Year Ended December 31,
1995 1994
Short term asset (liability) $ 17,727 $ 18,345
Long term asset (liability) $(17,727) $(18,345)
NOTE 19 - MINORITY INTEREST
On July 31, 1994, the Company's subsidiary sold by private placement
memorandum 2,500,000 shares of its common stock at $2.00 per share for total
cash proceeds of $5,000,000. The sale of the common stock, along with the
conversion of $635,000 of convertible notes payable to the subsidiary's
common stock, created a 12.4% minority interest in the subsidiary.
In July 1995, the shareholders of the Company's subsidiary approved a merger
of the subsidiary into the Parent company through the exchange of one share
of the Company's restricted common stock for each of the 2,829,419 shares of
the Subsidiary's common stock held by the minority interest shareholders.
The merger was effective August 31, 1995, and left the Parent as the sole
surviving entity. The purchase of the minority interest by the Parent
created "goodwill" of $3,260,646 which has been recorded and is being
amortized by the Parent. [See Note 1 and 11]
NOTE 20 - 401(K) RETIREMENT SAVINGS PLAN
During 1994, the Company adopted a 401(k) Retirement Savings Plan. All
employees at least 21 years old who have completed 3 months of service are
eligible to enroll in the plan. Employees may contribute up to 15% of their
pay each period to the plan. The Company will match 50% of the employee's
contribution to the plan up to a maximum of 2% of the employees annual pay.
The employees will vest in the employers contribution over a five year
period. For the year ended December 31, 1995 and 1994, the Company
contributed $16,284 and $5,685 to the plan, respectively.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 21 - EXTRAORDINARY ITEM
Pursuant to the change in control described in Note 12, the Company
negotiated a forgiveness of certain related party payables and receivables.
Related party payables forgiven exceeded related party receivables forgiven
by approximately $126,000. Additionally, new management succeeded in
negotiating forgiveness of approximately $62,000 in lease, royalty, and other
trade payables. The net forgiveness of payables has been treated as an
extraordinary item in these financial statements.
NOTE 22 - SUBSEQUENT EVENTS
Stock Options
In connection with matters relating to new and existing personnel and a new
board member in early 1996, the Board of Directors granted additional options
to purchase 125,000 shares of common stock exercisable at either $5.00 or
$9.00 per share. Employees who have left the Company since December 31, 1995
have forfeited options representing a total of 30,000 shares with an exercise
price of $5.00 per share.
In February 1996, four option holders, who are no longer employed or under
contract with the Company, elected to exercise all or part of their options
to purchase restricted shares from the Company. A total of 315,000 shares
were purchased at the option exercise price of $2.00 per share. Also, 325
shares were purchased for an option exercise price of $3.00 per share. Based
on a quoted market price at the time of exercise of approximately $10.00 per
share, the Company for tax purposes will recognize a compensation deduction
of approximately $1,002,300 in 1996.
After giving effect to the transactions occurring during January through
February 15, 1996, the total number of stock options and warrants outstanding
and unexercised represent 8,588,166 shares.
Investment Banker Engaged
In an agreement signed January 8, 1996, the Company engaged Cowen & Company
("Cowen") to act as the Company's investment banker. The Company intends to
explore with Cowen the possibility of establishing strategic and financial
relationships with one or more companies, which may include the sale or
merger of the Company. The term of this engagement extends through December
31, 1996 [See Note 12].
Changes in the Board of Directors
On December 15, 1995, the Board of Directors elected a new director to the
Board of the Company, effective January 1, 1996 and until the election of
directors at the next annual Shareholders' meeting. In connection with his
compensation for service as a Board member, the Company restructured its
obligations under a previous option agreement negotiated with the individual
pursuant to a consulting agreement dated July 15, 1995. In exchange for the
consultant's release of the Company from its previous obligations, the
Company has granted him non-qualified options to purchase 40,000 shares of
restricted common stock at $5.00 per share, which will vest immediately.
CIMETRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 22 - SUBSEQUENT EVENTS [Continued]
Sale of Residential Property
On January 13, 1996, the Company accepted an earnest money offer to purchase
the residential real estate owned by the Company. The offer was tendered by
a shareholder of the Company at a purchase price of $275,000. The closing is
scheduled to take place in May, 1996.
Lawsuit
On February 8, 1996, the Company filed a suit seeking declaratory relief and
a determination of the validity of the issuance of certain shares of the
Company's common stock to former members of management and their families.
The suit was only recently filed and counsel cannot predict the probability
of success.
Date Filed: March 28, 1996 SEC File No. 0-16454
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
EXHIBITS
TO
FORM 10-KSB
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
CIMETRIX INCORPORATED