Attached files
file | filename |
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EX-99.1 - PRESS RELEASE - CIMETRIX INC | ex911111209.htm |
EX-31.1 - EXHIBIT 31.1 - CIMETRIX INC | ex311111209.htm |
EX-32.2 - EXHIBIT 32.2 - CIMETRIX INC | ex322111209.htm |
EX-32.1 - EXHIBIT 32.1 - CIMETRIX INC | ex321111209.htm |
EX-31.2 - EXHIBIT 31.2 - CIMETRIX INC | ex312111209.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended September 30, 2009
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From
________ to ______
Commission
File Number: 0-16454
CIMETRIX
INCORPORATED
(Exact
name of registrant as specified in its charter)
Nevada
(State
or other jurisdiction of
incorporation
or organization)
|
87-0439107
(I.R.S.
Employer
Identification
No.)
|
6979
South High Tech Drive, Salt Lake City, Utah
(Address
of principal executive office)
|
84047-3757
(Zip
Code)
|
Registrant's
telephone number, including area code: (801) 256-6500
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes ý No o
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).
Yes ¨
No o
Indicate
by checkmark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-3 of the Exchange Act. (Check
one):
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
ý
|
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes o No ý
The
number of shares outstanding of the registrant's common stock as of November 9,
2009:
Common
stock, par value $.0001 – 46,643,057 shares
1
CIMETRIX
INCORPORATED
FORM
10-Q
FOR
THE QUARTER ENDED SEPTEMBER 30, 2009
INDEX
PART
I Financial Information
|
|
Item 1. Financial
Statements
|
|
Consolidated Condensed Balance
Sheets
|
3
|
Consolidated Condensed
Statements of Operations
|
4
|
Consolidated Condensed
Statements of Cash Flows
|
5
|
Notes to Consolidated Condensed
Financial Statements
|
6
|
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
Item 3. Quantitative and
Qualitative Disclosures About Market Risk
|
22
|
Item 4T. Controls and
Procedures
|
22
|
PART
II Other Information
|
|
Item 1. Legal
Proceedings
|
22
|
Item 1A. Risk
Factors
|
23
|
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
|
23
|
Item 3. Defaults Upon
Senior Securities
|
23
|
Item 4. Submission of
Matters to a Vote of Security Holders
|
24
|
Item 5. Other
Information
|
24
|
Item
6. Exhibits
|
24
|
Signatures
|
25
|
2
PART
1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
CIMETRIX
INCORPORATED AND SUBSIDIARIES
|
||||||||
Consolidated
Condensed Balance Sheets
|
||||||||
ASSETS
|
September
30, 2009
(Unaudited)
|
December
31,
2008
|
||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 431,000 | $ | 15,000 | ||||
Restricted
cash
|
- | 121,000 | ||||||
Accounts
receivable, net
|
349,000 | 407,000 | ||||||
Inventories
|
- | 2,000 | ||||||
Prepaid
expenses and other current assets
|
16,000 | 25,000 | ||||||
Total
current assets
|
796,000 | 570,000 | ||||||
Property
and equipment, net
|
19,000 | 57,000 | ||||||
Intangible
assets, net
|
15,000 | 56,000 | ||||||
Goodwill
|
64,000 | 64,000 | ||||||
Other
assets
|
20,000 | 29,000 | ||||||
$ | 914,000 | $ | 776,000 | |||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 132,000 | $ | 184,000 | ||||
Accrued
expenses
|
392,000 | 321,000 | ||||||
Deferred
revenue
|
236,000 | 460,000 | ||||||
Current
portion of notes payable and capital lease obligations
|
702,000 | 503,000 | ||||||
Current
portion of notes payable – related party
|
438,000 | - | ||||||
Total
current liabilities
|
1,900,000 | 1,468,000 | ||||||
Long-term
liabilities:
|
||||||||
Notes
payable – related parties, net
|
- | 188,000 | ||||||
Long-term
portion of notes payable and capital lease
obligations
|
10,000 | 335,000 | ||||||
Total
long-term liabilities
|
10,000 | 523,000 | ||||||
Total
liabilities
|
1,910,000 | 1,991,000 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
deficit:
|
||||||||
Common
stock; $.0001 par value, 100,000,000 shares
authorized,
46,668,057 and 33,568,057 shares issued,
respectively
|
5,000 | 3,000 | ||||||
Additional
paid-in capital
|
33,392,000 | 32,669,000 | ||||||
Treasury
stock, 25,000 shares at cost
|
(49,000 | ) | (49,000 | ) | ||||
Accumulated
deficit
|
(34,344,000 | ) | (33,838,000 | ) | ||||
Total
stockholders’ deficit
|
(996,000 | ) | (1,215,000 | ) | ||||
$ | 914,000 | $ | 776,000 | |||||
See
accompanying notes to consolidated condensed financial
statements
|
3
CIMETRIX
INCORPORATED AND SUBSIDIARIES
|
||||||||||||||||
Consolidated
Condensed Statements of Operations
|
||||||||||||||||
(Unaudited)
|
||||||||||||||||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues:
|
||||||||||||||||
New
software licenses
|
$ | 367,000 | $ | 437,000 | $ | 872,000 | $ | 1,583,000 | ||||||||
Software
license updates and product support
|
202,000 | 240,000 | 639,000 | 783,000 | ||||||||||||
Total
software revenues
|
569,000 | 677,000 | 1,511,000 | 2,366,000 | ||||||||||||
Professional
services
|
209,000 | 331,000 | 791,000 | 992,000 | ||||||||||||
Total
revenues
|
778,000 | 1,008,000 | 2,302,000 | 3,358,000 | ||||||||||||
Operating
costs and expenses:
|
||||||||||||||||
Cost
of revenues
|
198,000 | 383,000 | 815,000 | 1,440,000 | ||||||||||||
Sales
and marketing
|
176,000 | 292,000 | 597,000 | 875,000 | ||||||||||||
Research
and development
|
99,000 | 195,000 | 392,000 | 677,000 | ||||||||||||
General
and administrative
|
250,000 | 374,000 | 835,000 | 1,252,000 | ||||||||||||
Depreciation
and amortization
|
22,000 | 50,000 | 71,000 | 158,000 | ||||||||||||
Total
operating costs and expenses
|
745,000 | 1,294,000 | 2,710,000 | 4,402,000 | ||||||||||||
Income
(loss) from operations
|
33,000 | (286,000 | ) | (408,000 | ) | (1,044,000 | ) | |||||||||
Other
income (expense):
|
||||||||||||||||
Interest
and other income
|
- | - | - | 1,000 | ||||||||||||
Interest
expense
|
(31,000 | ) | (26,000 | ) | (99,000 | ) | (88,000 | ) | ||||||||
Gain
on sale of assets
|
- | - | 1,000 | - | ||||||||||||
Total
other expense, net
|
(31,000 | ) | (26,000 | ) | (98,000 | ) | (87,000 | ) | ||||||||
Income
(loss) before income taxes
|
2,000 | (312,000 | ) | (506,000 | ) | (1,131,000 | ) | |||||||||
Provision
for income taxes
|
- | - | - | - | ||||||||||||
Net
income (loss)
|
$ | 2,000 | $ | (312,000 | ) | $ | (506,000 | ) | $ | (1,131,000 | ) | |||||
Income
(loss) per common share:
|
||||||||||||||||
Basic
|
$ | 0.00 | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.04 | ) | |||||
Diluted
|
$ | 0.00 | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.04 | ) | |||||
Weighted
average number of shares
outstanding:
|
||||||||||||||||
Basic
|
36,640,000 | 32,843,000 | 34,747,000 | 32,258,000 | ||||||||||||
Diluted
|
36,640,000 | 32,843,000 | 34,747,000 | 32,258,000 | ||||||||||||
See
accompanying notes to consolidated condensed financial
statements
|
4
CIMETRIX
INCORPORATED AND SUBSIDIARIES
|
Consolidated
Condensed Statements of Cash Flows
|
(Unaudited)
|
Nine
Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (506,000 | ) | $ | (1,131,000 | ) | ||
Adjustments
to reconcile net loss to net
cash
provided by (used in) operating activities:
|
||||||||
Depreciation
and amortization
|
71,000 | 158,000 | ||||||
Provision
for doubtful accounts
|
29,000 | (20,000 | ) | |||||
Stock-based
compensation
|
44,000 | 376,000 | ||||||
Stock
issued for services
|
- | 3,000 | ||||||
Gain
on sale of assets
|
(1,000 | ) | - | |||||
(Increase)
decrease in:
|
||||||||
Restricted
cash
|
121,000 | - | ||||||
Accounts
receivable
|
29,000 | 471,000 | ||||||
Inventories
|
2,000 | 1,000 | ||||||
Prepaid
expenses and other current assets
|
17,000 | 31,000 | ||||||
Other
assets
|
5,000 | - | ||||||
Increase
(decrease) in:
|
||||||||
Accounts
payable
|
(6,000 | ) | (287,000 | ) | ||||
Accrued
expenses
|
126,000 | (191,000 | ) | |||||
Deferred
revenue
|
(224,000 | ) | (33,000 | ) | ||||
Net
cash provided by (used in) operating activities
|
(293,000 | ) | (622,000 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Proceeds
from sale of property and equipment
|
12,000 | - | ||||||
Purchase
of property and equipment
|
(2,000 | ) | (2,000 | ) | ||||
Sale
of common stock
|
650,000 | - | ||||||
Net
cash provided by (used in) investing activities
|
660,000 | (2,000 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from the issuance of debt
|
1,687,000 | 2,388,000 | ||||||
Proceeds
from the issuance of debt to related parties
|
175,000 | - | ||||||
Proceeds
from related party advances
|
125,000 | 185,000 | ||||||
Payments
of debt
|
(1,863,000 | ) | (2,066,000 | ) | ||||
Payments
of related party advances
|
(75,000 | ) | (185,000 | ) | ||||
Net
cash provided by (used in) financing activities
|
49,000 | 322,000 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
416,000 | (302,000 | ) | |||||
Cash
and cash equivalents, beginning of period
|
15,000 | 339,000 | ||||||
Cash
and cash equivalents, end of period
|
$ | 431,000 | $ | 37,000 | ||||
Supplemental
non-cash financing and investing activities
|
||||||||
Discount
on debt through issuance of warrants
|
$ | 1,000 | $ | - | ||||
Reduction
of accounts payable through issuance of debt
|
$ | 50,000 | $ | - | ||||
Reduction
of accrued expenses through issuance of debt
|
$ | 24,000 | $ | - | ||||
Reduction
of restricted stock payable from issuance of stock
|
$ | 30,000 | $ | 270,000 | ||||
See
accompanying notes to consolidated condensed financial
statements
|
5
CIMETRIX
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Notes to Consolidated Condensed Financial Statements
(Unaudited)
NOTE
1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization – Cimetrix
Incorporated, a Nevada corporation, and its subsidiaries (“Cimetrix” or the
“Company”) are primarily engaged in the development and sale of open
architecture, standards-based, computer software for controlling machine tools,
robots and electronic equipment; communication products that allow communication
between equipment on the factory floor and host systems; and semiconductor
connectivity products that connect new semiconductor tools to each other and to
host systems.
Basis of Presentation – The
consolidated condensed financial statements include the accounts of the Company
and its wholly owned subsidiaries, Cimetrix Europe, Inc. and Cimetrix Data
Management Solutions, Inc. All significant inter-company accounts and
transactions have been eliminated in consolidation. The interim financial
information of the Company as of September 30, 2009 and for the three and
nine-month periods ended September 30, 2009 and 2008 is unaudited, and the
balance sheet as of December 31, 2008 is derived from audited financial
statements. The accompanying consolidated condensed financial
statements have been prepared in accordance with U. S. generally accepted
accounting principles for interim financial statements. Accordingly,
they omit or condense footnotes and certain other information normally included
in financial statements prepared in accordance with U.S. generally accepted
accounting principles. The accounting policies followed for quarterly
financial reporting conform with the accounting policies disclosed in Note 1 to
the Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2008. In the
opinion of management, all adjustments that are necessary for a fair
presentation of the financial information for the interim periods reported have
been made. All such adjustments are of a normal recurring
nature. The results of operations for the three and nine months ended
September 30, 2009 are not necessarily indicative of the results that can be
expected for the entire year ending December 31, 2009. The unaudited
consolidated condensed financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31,
2008.
NOTE
2 – SUBSEQUENT EVENTS
In preparing the accompanying unaudited
condensed consolidated financial statements, the Company has reviewed, as
determined necessary by the Company’s management, events that have occurred
after September 30, 2009, up until the financial statements are available for
issuance, which occurred on November 13, 2009.
NOTE
3 – GOING CONCERN
The accompanying financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. The Company has incurred significant losses which have
resulted in an accumulated deficit of $34,344,000 as of September 30,
2009. While Management believes that the incremental increases in software
revenues, combined with the completed sale of its common stock in September 2009
and its cost reduction efforts will be sufficient to fund planned operations at
these lower revenue levels for the next twelve months, there remains doubt about
the Company’s ability to continue as a going concern. The
accompanying financial statements do not include any adjustments to reflect the
possible future effects related to recovery and classification of assets, or the
amounts and classifications of liabilities that might result from the outcome of
this uncertainty.
6
NOTE
4 – STOCK-BASED COMPENSATION
The
Company accounts for stock-based compensation in accordance with Accounting
Standards Codification (“ASC”) Topic 718. Stock-based
compensation cost is measured at the grant date based on the estimated fair
value of the award granted and recognized as expense over the period in which
the award is expected to vest.
The
stock-based compensation expense for the three-month and nine-month periods
ended September 30, 2009 and September 30, 2008 has been allocated to the
various categories of operating costs and expenses in a manner similar to the
allocation of payroll expense as follows:
Three
Months Ended
September
30 ,
|
||||||||
2009
|
2008
|
|||||||
Cost
of revenues
|
$ | 2,000 | $ | 23,000 | ||||
Sales
and marketing
|
2,000 | 39,000 | ||||||
Research
and development
|
1,000 | 9,000 | ||||||
General
and administrative
|
- | 75,000 | ||||||
Total
stock-based compensation expense realized
and
increase in net loss
|
$ | 5,000 | $ | 146,000 |
Nine
Months Ended
September
30 ,
|
||||||||
2009
|
2008
|
|||||||
Cost
of revenues
|
$ | 7,000 | $ | 33,000 | ||||
Sales
and marketing
|
15,000 | 104,000 | ||||||
Research
and development
|
3,000 | 24,000 | ||||||
General
and administrative
|
19,000 | 215,000 | ||||||
Total
stock-based compensation expense realized
and
increase in net loss
|
$ | 44,000 | $ | 376,000 |
During
the nine months ended September 30, 2009, options to purchase 500,000 shares of
the Company’s common stock were issued to the Company’s employees, with an
exercise price of $0.02 per share. The Company estimated the
grant-date fair value of these options using the Black-Scholes option pricing
modeling using the following assumptions:
Expected
dividend yield
|
0.00%
|
Expected
stock price volatility
|
71.85%
|
Risk
free interest rate
|
2.65%
|
Expected
life of option
|
5.84
years
|
As of
September 30, 2009, the total future compensation cost related to non-vested
stock-based awards not yet recognized in the condensed consolidated statements
of operations was $32,000, and the weighted average period over which these
awards are expected to be recognized was 1.55 years.
7
The
following table summarizes the stock option activity during the nine months
ended September 30, 2009:
Options
|
Weighted
Average Exercise
Price
|
Weighted
Average
Remaining
Contract Term |
Aggregate
Intrinsic
Value
|
|
Outstanding
at December 31, 2008
|
4,219,000
|
$ 0.32
|
||
Granted
|
500,000
|
$ 0.02
|
||
Exercised
|
-
|
-
|
||
Expired
|
(505,000)
|
$ 0.34
|
||
Forfeited
|
(236,000)
|
$ 0.20
|
||
Outstanding
at September 30, 2009
|
3,978,000
|
$ 0.29
|
3.87
|
$ 5,000
|
Options
vested and exercisable at
September
30, 2009
|
3,428,000
|
$ 0.32
|
3.58
|
$ 2,000
|
The
aggregate intrinsic value in the preceding table represents the total pretax
intrinsic value, based on the Company’s closing stock price of $0.02 as of
September 30, 2009, which would have been received by the holders of
in-the-money options had the option holders exercised their options as of that
date.
During
the nine months ended September 30, 2009, there were no restricted stock awards
granted. The total fair value of restricted stock shares vesting in
the nine month periods of September 30, 2009 and 2008 was $2,000 and $162,000,
respectively.
Included
in accrued expenses in the accompanying consolidated balance sheets at September
30, 2009 and December 31, 2008 are liabilities of $21,000 and $48,000
respectively, representing vested restricted stock awards for which shares have
not been issued. These amounts represent 173,361 and 169,611 vested
restricted stock awards that have not been issued as of September 30, 2009 and
December 31, 2008, respectively.
NOTE
5 – EARNINGS (LOSS) PER SHARE
The computation of basic earnings per
common share is based on the weighted average number of shares outstanding plus
unissued and vested restricted stock shares deemed as participating securities
during the period. The computation of diluted earnings per common
share is based on the weighted average number of shares outstanding plus
unissued and vested restricted stock shares deemed as participating securities
during the period plus the weighted average common stock equivalents which would
arise from the exercise of dilutive stock options and warrants outstanding using
the treasury stock method and the average market price per share during the
period.
No stock
options, warrants or unvested restricted stock shares are included in the
computation of weighted average number of shares for the periods ending
September 30, 2009 and 2008 because their effect would be
antidilutive. At September 30, 2009, the Company had outstanding
options, warrants and unvested restricted stock awards to purchase a total of
4,604,000 common shares of the Company that could have a future dilutive effect
on the calculation of earnings per share.
8
NOTE
6 – NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
The Company’s notes payable and capital
lease obligations consisted of the following:
Related
Party:
|
September 30,
2009
|
December
31,
2008
|
||||||
Senior
Notes, unsecured, with interest at 10% payable
semiannually
|
||||||||
on
April 1 and October 1, 2009 and 2010, maturing September 30,
2010
|
||||||||
payable
to officers, employees, or their affiliates
|
$ | 388,000 | $ | 189,000 | ||||
Stand-Alone
Revolving Note, with interest at 10%, maturing
|
||||||||
December
31, 2009 payable to officer
|
$ | 50,000 | - | |||||
Less
discount
|
- | (1,000 | ) | |||||
Total
|
438,000 | 188,000 | ||||||
Less
current portion
|
438,000 | - | ||||||
Long-term
portion
|
$ | - | $ | 188,000 |
Other:
|
September
30,
2009
|
December
31,
2008
|
||||||
Senior
Notes, unsecured, with interest at 10% payable semiannually
on
|
||||||||
April
1 and October 1, 2009 and 2010, maturing September 30,
2010
|
$ | 433,000 | $ | 308,000 | ||||
Bank
loan, secured by accounts receivable with interest at 7.75%
per
|
||||||||
annum
plus a collateral handling fee of .30% per month on face
|
||||||||
amount
of financed receivables
|
246,000 | 482,000 | ||||||
Installment
notes payable to financing company, payable in
|
||||||||
monthly
payments totaling $1,901, including interest at 24.49%,
|
||||||||
from
March 2008 through February 2011
|
27,000 | 38,000 | ||||||
Capital
lease payable to financing company, payable in monthly
payments
|
||||||||
of
$426 including interest at 4.0%, from March 2008 through
|
||||||||
February
2011
|
7,000 | 11,000 | ||||||
Less
discount
|
(1,000 | ) | (1,000 | ) | ||||
Total
|
712,000 | 838,000 | ||||||
Less
current portion
|
702,000 | 503,000 | ||||||
Long-term
portion
|
$ | 10,000 | $ | 335,000 |
Senior Notes - At September
30, 2009, there were warrants issued to the Senior Note holders to purchase a
total of 441,000 common shares of the Company at an exercise price of $0.05 per
share. The warrants expire on September 30, 2010.
During
September 2008, the Company and the holders of the Senior Notes formerly due
September 30, 2008 agreed to an extension of the maturity date to September 30,
2010. As part of this extension, the exercise price of the warrants
associated with the Senior Notes was reduced to $0.05 per share and the
expiration date of the warrants extended to September 30,
2010.
9
In
connection with the offer to extend, the interest rate on the Senior Notes was
adjusted from 8% to 10% and the warrant price was adjusted from an exercise
price of $0.35 per share to $0.05 per share. The value of the net
adjustment in warrant price has been recorded as a reduction of the principal
amount of the Senior Notes and an increase to additional paid-in
capital. This discount will be accreted and recognized as interest
expense over the remaining life of the Senior Notes.
In
conjunction with the offer to extend the maturity date, the Company also offered
new Notes and Warrants (the “New Offer”). The Notes included in the
New Offer bear interest at 10% per annum, payable April 1 and October 1 of each
year, and are due and payable September 30, 2010. Purchasers of the
Notes received a Warrant to purchase a share of restricted common stock of the
Company for each $2.00 in principal amount of the Note. As of
September 30, 2009, the Company had secured at total of $350,000 in new Notes
and issued warrants to purchase 175,000 shares of common shares of the Company
at $0.05 per share.
Revolving Bank Line of Credit and
Bank Loan - The Company and Silicon Valley Bank (the “Bank”) entered into
a Loan and Security Agreement, effective as of December 26,
2007. This agreement was amended and restated by a Loan and Security
Agreement dated April 9, 2008 (as amended and restated, the “Facility
Agreement”). On January 20, 2009, the Company and the Bank entered
into a First Amendment to the Facility Agreement (the “Amendment”), effective
December 25, 2008. The Amendment extended the maturity date of
the Facility Agreement to December 24, 2009, reduced the applicable interest
rate and certain other fees associated with the credit facility and required the
Company to obtain an additional $250,000 in equity or subordinated debt
financing.
Subject to the terms of the Facility
Agreement, the Company may request that the Bank finance qualified accounts
receivable (“Eligible Accounts”, and, after an advance is made, “Financed
Receivables”) by extending credit to the Company in an amount equal to 80% or,
in the case of receivables from non-U.S. account debtors, 90% of the
Financed Receivable. The Bank may, in its sole discretion, change the
percentage of the advance rate for a particular Financed Receivable on a case by
case basis.
The
aggregate face amount of Financed Receivables may not exceed One Million Two
Hundred Fifty Dollars ($1,250,000), including a maximum of Nine Hundred Fifty
Thousand Dollars ($950,000) non-U.S. Financed Receivables. Advances
under the Agreement are collateralized by substantially all operating assets of
the Company.
Subject
to the terms of the Amendment, the Company will pay a fixed finance charge equal
to 7.75% per annum, multiplied by the face amount of the Financed
Receivables. There is also a collateral handling fee of .30%
per month of the face amount of the Financed Receivables. In
the event of a default, both of these rates are increased.
The
Company will repay each advance on the earliest of: (a) the date on which
payment is received on the Financed Receivable, (b) the date on which the
Financed Receivable is no longer an Eligible Account, (c) the date on which any
Adjustment is asserted to the Financed Receivable (but only to the extent of the
Adjustment if the Financed Receivable remains otherwise an Eligible Account),
(d) the date on which there is a breach of any warranty or representation set
forth in the Facility Agreement, or (e) the maturity date of the Facility
Agreement of December 24, 2009. Each payment will also include all accrued
finance charges and collateral handling fees with respect to such Advance and
all other amounts then due and payable in accordance with the
Agreement.
The
Company, without the Bank’s consent, may not:
·
|
Convey,
sell, transfer or otherwise dispose of its business or property other than
in the ordinary course;
|
·
|
Engage
in any new line of business, permit a change in control or change its
jurisdiction of formation;
|
·
|
Merge
or consolidate with another entity or acquire all of the capital stock or
property of another entity;
|
·
|
Create,
incur, assume or be liable for any new indebtedness other than permitted
indebtedness as defined in the
Agreement;
|
·
|
Create,
incur, allow or suffer any lien on its property, or assign any right to
receive income;
|
·
|
Maintain
any other collateral account;
|
·
|
Pay
any dividends or make any distributions or payments or redeem, retire or
purchase any capital stock, or make other than certain defined
investments;
|
10
·
|
Directly
or indirectly enter into any material transaction with any affiliate,
except for transactions that are in the ordinary course of
business;
|
·
|
Make
any payment on subordinated debt other than ordinary interest when due, or
amend any provision in any document relating to subordinated
debt;
|
·
|
Become
an “investment company” or a company controlled by an “investment company”
under the Investment Company Act of
1940.
|
Stand-Alone Revolving Note –
The Company and an officer of the Company entered into a Stand-Alone Revolving
Note (“Note”) dated November 8, 2007 and amended by the First Amendment to Stand
Alone Revolving Note on April 13, 2009. The balance of this Note at
September 30, 2009 was $50,000.
Subject to the terms of the agreement, the Company may borrow up to $100,000
with an interest rate equal to 10% per annum on the outstanding
balance. Interest and principal payments are made on a mutually
agreeable schedule, as determined by the Company and the
officer. This Note is unsecured and matures on December 31,
2009.
NOTE
7 – COMMON STOCK
In February 2009, the Company issued
100,000 shares of its restricted common stock to officers and directors in
satisfaction of prior year awards that had fully vested.
In August
2009, the Company entered into a Common Stock Purchase Agreement and sold
13,000,000 shares of restricted Common Stock in exchange for
$650,000.
As of
September 30, 2009 and December 31, 2008, an obligation of $21,000 and $48,000,
respectively, was reflected as an accrued liability on the Company’s balance
sheet related to unissued shares of its restricted common stock to officers and
directors.
NOTE
8 – RELATED PARTY TRANSACTIONS
During the nine-months ended September
30, 2009, the Company did not have any sales to related
customers. For the three and nine months ended September 30, 2008,
the Company had the following revenues from two customers that were also
shareholders of the Company:
Three
Months Ended
September
30,
2008
|
Nine
Months Ended
September
30,
2008 |
|||||||
New
software licenses
|
$ | 60,000 | $ | 86,000 | ||||
Software
license updates and product support
|
39,000 | 82,000 | ||||||
Total
software revenues
|
99,000 | 168,000 | ||||||
Professional
Services
|
28,000 | 28,000 | ||||||
Total
software revenues
|
$ | 127,000 | $ | 196,000 |
The Company did not have any accounts
receivable from related customers at September 30, 2009. The Company had
accounts receivable from the two customers identified above totaling $209,000 at
September 30, 2008.
NOTE
9 – MAJOR CUSTOMERS
During the three months ended September
30, 2009, no customer accounted for 10% or more of the Company’s total
revenues. During the three months ended September 30, 2008, two
customers
11
accounted
for 13% and 10% of the Company’s total revenues. During the nine
months ended September 30, 2009, one customer accounted for 15% or more of the
Company’s total revenues. During the nine months ended September 30,
2008, no customer accounted for 10% or more of the Company’s total revenues.
NOTE
10 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The
Company’s financial instruments consist of cash and cash equivalents,
receivables, payables, and notes payable. The carrying amount of cash
and cash equivalents, receivables and payables approximates fair value because
of the short-term nature of these items. The carrying amount of the
notes payable approximates fair value as the individual borrowings bear interest
at rates that approximate market interest rates for similar debt
instruments.
NOTE
11 – RECENT ACCOUNTING PRONOUNCEMENTS
In June
2009, the FASB issued guidance under Accounting Standards Codification (“ASC”)
Topic 105, “Generally Accepted
Accounting Principles” (SFAS No. 168, The FASB Accounting Standards
CodificationTM and
the Hierarchy of Generally Accepted Accounting Principles). This guidance
establishes the FASB ASC as the single source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. SFAS 168 and the
ASC are effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The ASC supersedes all existing non-SEC
accounting and reporting standards. All other non-grandfathered, non-SEC
accounting literature not included in the ASC have become non-authoritative.
Following SFAS 168, the FASB will no longer issue new standards in the form of
Statements, FSPs, or EITF Abstracts. Instead, the FASB will issue Accounting
Standards Updates, which will serve only to update the ASC, provide background
information about the guidance, and provide the bases for conclusions on the
change(s) in the ASC. The Company adopted this guidance effective for its
financial statements issued as of September 30, 2009. The adoption of this
guidance did not have an impact on the Company’s consolidated financial
statements but will alter the references to accounting literature within the
consolidated financial statements.
In April
2009, the FASB issued guidance under ASC 825-10, Financial Instruments (FSP
SFAS 107-1 and APB Opinion No. 28-1, “Interim Disclosures about Fair Value of
Financial Instruments”). This guidance amends FASB Statement No. 107,
“Disclosures about Fair Values of Financial Instruments,” to require disclosures
about fair value of financial instruments in interim financial statements as
well as in annual financial statements. The guidance is effective for
interim periods ending after June 15, 2009. The Company adopted this
guidance for the second quarter 2009. See Note 10 for
required disclosures.
In April
2009, the FASB issued guidance under ASC 820, Fair Value Measurements and
Disclosures, (FSP SFAS 157-4, “Determining Whether a Market Is Not Active
and a Transaction Is Not Distressed”). This guidance provides guidelines
in determining whether a market for a financial asset is not active and a
transaction is not distressed for fair value measurement purposes as defined in
the previous standard SFAS 157, “Fair Value Measurements.” This
guidance is effective for interim periods ending after June 15, 2009, and the
Company has adopted its provisions for second quarter 2009. This
guidance did not have a significant impact on the Company’s financial
statements.
In April
2009, the FASB issued guidance under ASC 320, Investments – Debt and Equity
Securities (FSP SFAS 115-2 and SFAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments”). This guidance provides clarity
and consistency in determining whether impairments in debt securities are other
than temporary, and modifies the presentation and disclosures surrounding such
instruments. This guidance is effective for interim periods ending
after June 15, 2009, and the Company adopted its provisions for second quarter
2009. This guidance did not have a significant impact on the
Company’s financial statements.
12
In May
2009, the FASB issued guidance under ASC 855, Subsequent Events, (SFAS
No. 165, “Subsequent Events”). This guidance establishes general standards
of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued. In particular, this guidance
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure, the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date
in its financial statements, and the disclosures an entity should make about
events or transactions that occurred after the balance sheet date. This guidance
is effective for fiscal years and interim periods ending after June 15,
2009. The Company adopted this guidance effective June 30, 2009. The
adoption of this guidance did not have a material impact on the Company
financial statements. See Note 2 for required disclosure.
In June
2009, the FASB issued guidance under SFAS No. 166, “Accounting for Transfers of
Financial Assets – an amendment of FASB Statement No. 140” (“SFAS
166”). SFAS 166 amends SFAS 140 by including: the elimination of the
qualifying special-purpose entity (QSPE) concept; a new participating interest
definition that must be met for transfers of portions of financial assets to be
eligible for sale accounting; clarifications and changes to the derecognition
criteria for a transfer to be accounted for as a sale; and a change to the
amount of recognized gain or loss on a transfer of financial assets accounted
for as a sale when beneficial interests are received by the
transferor. Additionally, the standard requires extensive new
disclosures regarding an entity’s involvement in a transfer of financial
assets. Finally, existing QSPEs (prior to the effective date of SFAS
166) must be evaluated for consolidation by reporting entities in accordance
with the applicable consolidation guidance upon the elimination of this
concept. This guidance is effective for the Company beginning on January
1, 2010. The Company does not expect the adoption of this guidance to
have a material impact on its financial statements.
In June
2009, the FASB issued guidance under SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”. Among other items, this guidance responds to
concerns about the application of certain key provisions of FIN 46(R), including
those regarding the transparency of the involvement with variable interest
entities. This guidance is effective for the Company beginning on January
1, 2010. The Company does not expect the adoption of this guidance to
have a material impact on its financial statements.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
Overview
The
following is a brief discussion and explanation of significant financial data,
which is presented to help the reader understand the results of the Company’s
financial performance for the three-month and nine-month periods ended September
30, 2009 and September 30, 2008 and the Company’s financial position at
September 30, 2009. The information includes discussions of sales,
expenses, capital resources and other significant financial
items.
13
This
discussion should be read in conjunction with the Company’s Consolidated
Financial Statements and Notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2008. The ensuing
discussion and analysis contains both statements of historical fact and
forward-looking statements. Forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, generally are identified
by the words “expects,” “believes,” “anticipates” or words of similar
import. Examples of forward-looking statements
include: (a) projections regarding sales, revenue, liquidity, capital
expenditures and other financial items; (b) statements of the plans, beliefs and
objectives of the Company or its management; (c) statements of future economic
performance; and (d) assumptions underlying statements regarding the Company or
its business. Forward-looking statements are subject to factors and
uncertainties that could cause actual results to differ materially from the
forward-looking statements, including, but not limited to, those factors and
uncertainties described below under “Liquidity and Capital Resources,” “Factors
Affecting Future Results” and “Risk Factors,” and those factors set forth under
“Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008.
Cimetrix
is a software company that designs, develops, markets and supports factory
automation solutions worldwide. The Company offers software products
and professional services tailored to meet the needs of equipment suppliers in
the areas of advanced tool control, general purpose equipment connectivity, and
specialized connectivity for 300mm semiconductor wafer fabrication
facilities. Revenues are derived from the sales of software and
services. Software includes the initial sale of software development
kits, the ongoing runtime licenses for each machine shipped with Cimetrix
software and annual contracts for software license updates and product
support. Services include the sales of professional services that
provide customers with software solutions typically incorporating Cimetrix
software products. While Cimetrix products are installed in a wide
range of industries, the Company has focused over the past several years on the
global semiconductor and electronics industries, which includes the growing
solar photovoltaic (PV) market.
Critical Accounting
Policies
The
Company prepares its condensed consolidated financial statements in conformity
with U.S. generally accepted accounting principles. The Company's
condensed consolidated financial statements are based on the application of
certain accounting policies, the most significant of which are described in Note
1—Summary of Significant Accounting Policies included in the Company’s Annual
Report filed on Form 10-K. Certain of these policies require numerous estimates
and strategic or economic assumptions that may prove inaccurate or be subject to
variations and may significantly affect the Company's reported results and
financial position for the period or in future periods. Changes in
underlying factors, assumptions or estimates in any of these areas could have a
material impact on the Company's future financial condition and results of
operations.
14
Operations Review
The
following table sets forth the percentage of costs and expenses to total
revenues derived from the Company's Consolidated Condensed Statements of
Operations.
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
sales
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Operating
costs and expense:
|
||||||||||||||||
Cost
of revenues
|
25 | 38 | 35 | 43 | ||||||||||||
Sales
and marketing
|
23 | 29 | 26 | 26 | ||||||||||||
Research
and development
|
13 | 19 | 17 | 20 | ||||||||||||
General
and administration
|
32 | 37 | 37 | 37 | ||||||||||||
Depreciation
and amortization
|
3 | 5 | 3 | 5 | ||||||||||||
Total
operating costs and expenses
|
96 | 128 | 118 | 131 | ||||||||||||
Income
(loss) from operations
|
4 | (28 | ) | (18 | ) | (31 | ) | |||||||||
Other
expense, net
|
(4 | ) | (3 | ) | (4 | ) | (3 | ) | ||||||||
Net
income (loss)
|
0 | % | (31 | )% | (22 | )% | (34 | )% |
The Company’s operating results for the
three-month period September 30, 2009 reflect the current challenging
semiconductor industry conditions and a continuing recessionary global
economy. As revenues are substantially lower than the prior year
period, the Company managed the cost structure of the Company, seeking to keep
operating costs and expenses in line with the forecasted revenues.
The Company reported net income of
$2,000 for the three months ended September 30, 2009, compared to a net loss of
$312,000 for the three months ended September 30, 2008. For the nine months
ended September 30, 2009, the Company reported a net loss of $506,000, compared
to a net loss of $1,131,000 for the nine months ended September 30,
2008. The net results for all periods include non-cash stock-based
compensation expense and non-cash depreciation and amortization
expense. The net loss for the nine months ended September 30, 2009
includes a non-cash adjustment of $29,000 to bad debt expense. For
the three-month periods ended September 30, 2009 and September 30, 2008,
stock-based compensation expense was $5,000 and $146,000, respectively, and
depreciation and amortization expense was $22,000 and $50,000,
respectively. For the nine-month periods ended September 30, 2009 and
September 30, 2008, stock based compensation expense was $44,000 and $376,000,
respectively, and depreciation and amortization was $71,000 and $158,000,
respectively.
Net cash used in operating activities
was $293,000 for the nine months ended September 30, 2009, compared to net cash
used in operating activities of $622,000 for the nine months ended September 30,
2008.
15
Results of Operations
Revenues
The following table summarizes revenues
by category and as a percent of total revenues:
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
||||||||
2009
|
2008
|
2009
|
2008
|
||||||
New
software licenses
|
$
367,000
|
47%
|
$ 437,000
|
43%
|
$ 872,000
|
38%
|
$
1,583,000
|
47%
|
|
Software
license updates
and
product support
|
202,000
|
26%
|
240,000
|
24%
|
639,000
|
28%
|
783,000
|
23%
|
|
Total
software revenues
|
569,000
|
73%
|
677,000
|
67%
|
1,511,000
|
66%
|
2,366,000
|
70%
|
|
Professional
services
|
209,000
|
27%
|
331,000
|
33%
|
791,000
|
34%
|
992,000
|
30%
|
|
Total
revenues
|
$
778,000
|
100%
|
$1,008,000
|
100%
|
$2,302,000
|
100%
|
$
3,358,000
|
100%
|
Total revenues decreased by $230,000,
or 23%, to $778,000 for the three months ended September 30, 2009, from
$1,008,000 for the three months ended September 30, 2008. For the
nine months ended September 30, 2009, total revenues decreased by $1,056,000 or
31% to $2,302,000 from $3,358,000 for the nine months ended September 30,
2008. As the table above indicates, the decrease in net sales in the
first three quarters of 2009 as compared to the prior year’s quarters was
attributable to decreases in all categories as our customers responded to the
global economic crisis by curtailing expenditures. The market for semiconductor
300mm capital equipment, our largest source of revenue for the past several
years, virtually came to a stop in the first quarter of 2009. Customer shipments
of 300mm equipment increased slightly in the second and third quarters of 2009,
but were still far below prior year levels. The decrease in software license
revenues in the current year compared to last year can be attributed to lower
revenues from the sale of software development kits to new customers, the
decrease in software license revenue associated with machine shipments and the
decrease in revenue associated with software license updates and product support
as some customers went out of business or could no longer afford to purchase
annual support.
Total software revenues decreased to
$569,000 for the three months ended September 30, 2009, as compared to $677,000
for the three months ended September 30, 2008. For the nine months ended
September 30, 2009, software revenues decreased to $1,511,000 for the nine
months ended September 30, 2009 as compared to $2,366,000 for the nine months
ended September 30, 2008. The mix of revenue categories is subject to change on
a quarter-to-quarter basis, and it is difficult to predict the timing and
probability of “design win” opportunities. Due to the industry
slowdown and reluctance to initiate new projects, there were not many
opportunities for design wins for the Company’s products worldwide during the
first nine months of 2009. However, Cimetrix did gain four design wins for its
CIMConnect product line for SECS/GEM connectivity during the third quarter of
2009.
Cost
of Revenues
The Company's cost of revenues as a
percentage of total revenues for the three months ended September 30, 2009 was
25%, compared to 38% for the three months ended September 30, 2008. Cost of
revenues decreased $185,000, or 49%, to $198,000 for the three months ended
September 30, 2009, from $383,000 for the three months ended September 30, 2008.
This decrease was due primarily to lower professional services revenue, which
revenue has higher labor and other costs of revenues than software revenues. The
Company’s cost of revenue as a percentage of total revenues for the nine months
ended September 30, 2009 was 35% compared to 43% for the nine months ended
September 30, 2008. Cost of revenues decreased $625,000 or 43%, to $815,000 for
the nine months ended September 30, 2009, from $1,440,000 for the nine months
ended September 30, 2008. These decreases were a combination of lower revenues,
as discussed above and reduced costs, including furloughs, across the board pay
cuts and head
16
count
reductions. Cost of revenues as a percentage of total revenues will vary from
period to period depending on the mix of software and professional service
revenues, the type of service projects completed, the pricing strategy for the
projects, the extent of utilization of outside resources, and other
factors.
Sales
and Marketing
Sales and marketing expenses decreased
$116,000, or 40%, to $176,000 during the three months ended September 30, 2009,
from $292,000 during the three months ended September 30, 2008. Sales
and marketing expenses decreased to 23% of total revenues for the three months
ended September 30, 2009 as compared to 29% of total revenues in the prior year
period, primarily due to cost reduction efforts, including furloughs and across
the board pay cuts. During the nine months ended September 30, 2009,
sales and marketing expenses decreased $278,000 or 32% to $597,000 from $875,000
during the nine months ended September 30, 2008. Sales and
marketing expenses reflect the direct payroll and related travel expenses of the
Company’s sales and marketing staff, the development of product brochures and
marketing materials, costs associated with press releases, branding, search
engine optimization, website design improvements and costs related to the
Company’s representation at industry trade shows.
Research
and Development
Research and development expenses
decreased $96,000, or 49%, to $99,000 during the three months ended September
30, 2009, from $195,000 during the three months ended September 30,
2008. During the nine months ended September 30, 2009, research and
development expenses decreased $285,000 or 42% to $392,000 from $677,000 during
the nine months ended September 30, 2008, primarily due to cost reduction
efforts, including furloughs, across the board pay cuts and head count
reductions. Research and development expenses include only direct
costs for wages, benefits, materials, and education of technical personnel
involved in product development. All indirect costs such as rents,
utilities, depreciation and amortization are included in general and
administrative expenses, as discussed below.
General
and Administrative
General
and administrative expenses decreased $124,000 or 33%, to $250,000 in the three
months ended September 30, 2009, from $374,000 in the three months ended
September 30, 2008. During the nine months ended September 30, 2009,
general and administrative expenses decreased $417,000 or 33% to $835,000 from
$1,252,000 during the nine months ended September 30, 2008. General
and administrative expenses include all direct costs for administrative and
accounting personnel, and all rents and utilities for maintaining Company
offices. The majority of these decreases were a combination of (a)
lower costs associated with stock-based compensation as prior year awards fully
vested, expired or were forfeited, (b) renegotiated reduced rent for our
principal administrative offices in Salt Lake City and termination and
subsequent closure of our Tempe, Arizona facility closed on December 31, 2008,
(c) reduced costs associated with benefits, professional fees, and consulting
fees and (d) reduced costs related to across the board pay cuts and
furloughs.
Depreciation
and Amortization
Depreciation
and amortization expense decreased $28,000 or 56% to $22,000 in the three months
ended September 30, 2009, from $50,000 in the three months ended September 30,
2008. During the nine months ended September 30, 2009, depreciation
and amortization decreased $87,000 or 55%, to $71,000 from $158,000 in the nine
months ended September 30, 2008. The decrease in depreciation
and amortization resulted from aging equipment becoming fully depreciated and
the impairment write-down of the Customer Relations Intangible Asset during the
period ended December 31, 2008.
17
Other Income (Expense)
Interest
and other income for the three months ended September 30, 2009 and 2008 was
$0. During the nine months ended September 30, 2009 and September 30,
2008, interest and other income was $1,000 and $1,000,
respectively.
Interest expense for the three months
ended September 30, 2009 increased by $5,000, to $31,000, from $26,000 for the
three months ended September 30, 2008. During the nine months ended
September 30, 2009, interest expense for the nine months ended September 30,
2009 increased $11,000 to $99,000 from $88,000 for the nine months ended
September 30, 2008. The increase in interest expense for the
three months and nine months ended September 30, 2009, compared to the same
period in 2008 was due mostly from additional borrowings represented by the new
Senior Notes secured in December 2008 and the first nine months of 2009, and the
increase in interest rates on existing Senior Notes from 8% to 10% in
conjunction with the extension of the maturity date of the Senior Notes from
September 30, 2008 to September 30, 2010.
Liquidity
and Capital Resources
At
September 30, 2009, the Company had current assets of $796,000, including cash
and cash equivalents of $431,000, and current liabilities of $1,900,000,
resulting in a working capital deficiency of $1,104,000. Excluding
deferred revenue of $236,000, which requires the Company to provide services and
support but does not represent a scheduled obligation requiring the outlay of
Company funds, and accrued expenses of $21,000, which will be paid through the
issuance of the Company’s common stock for vested restricted stock awards, the
Company’s current liabilities exceeded current assets by $847,000 at September
30, 2009. While the working capital deficit increased by $128,000
over last quarter, the company plans to renegotiate the Senior Notes Payable of
$821,000 which moved from long-term liabilities to current liabilities in the
three months ended September 30, 2009.
As of
September 30, 2009, the Company had notes payable and long-term debt totaling
$1,204,000 net of discount, comprised of the following:
10%
Senior Notes due September 30, 2010
|
$ 821,000
|
|
Secured
bank loan due December 25, 2009
|
246,000
|
|
Stand-alone
revolving note due December 31, 2009
|
50,000
|
|
Other
|
34,000
|
|
Senior
Note Discount
|
(1,000)
|
|
Total
|
1,150,000
|
|
Less
current portion
|
1,140,000
|
|
Long-term
portion
|
$ 10,000
|
Included
in the Senior Notes Payable at September 30, 2010, are Senior Notes outstanding
of $388,000 held by officers, employees or their affiliates.
Senior Notes - The Senior
Notes are due September 30, 2010 and bear interest at 10% per
annum. Warrants representing the right to acquire 441,000 shares of
common stock at $0.05 per share were issued in connection with this debt and
expire September 30, 2010.
Revolving Bank Line of Credit and
Bank Loan - The Company and Silicon Valley Bank (the “Bank”) entered into
a Loan and Security Agreement, effective as of December 26,
2007. This agreement was amended and restated by a Loan and Security
Agreement dated April 9, 2008 (as amended and restated, the “Facility
Agreement”). On January 20, 2009, the Company and the Bank entered
into a First Amendment to the Facility Agreement (the “Amendment”), effective
December 25, 2008. The Amendment extended the maturity date of
the Facility Agreement to December 24, 2009, reduced the applicable interest
rate and certain other fees associated with the credit facility and required the
Company to obtain an additional $250,000 in equity or subordinated debt
financing. The Company was successful in obtaining this
financing.
18
Subject to the terms of the Facility
Agreement, the Company may request that the Bank finance qualified accounts
receivable (“Eligible Accounts”, and, after an advance is made, “Financed
Receivables”) by extending credit to the Company in an amount equal to 80% or,
in the case of receivables from non-U.S. account debtors, 90% of the
Financed Receivable. The Bank may, in its sole discretion, change the
percentage of the advance rate for a particular Financed Receivable on a case by
case basis.
The
aggregate face amount of Financed Receivables may not exceed One Million Two
Hundred Fifty Dollars ($1,250,000), including a maximum of Nine Hundred Fifty
Thousand Dollars ($950,000) non-U.S. Financed Receivables. Advances
under the Agreement are collateralized by substantially all operating assets of
the Company.
Subject
to the terms of the Amendment, the Company will pay a fixed finance charge equal
to 7.75% per annum, multiplied by the face amount of the Financed
Receivables. There is also a collateral handling fee of .30%
per month of the face amount of the Financed Receivables. In
the event of a default, both of these rates are increased.
The
Company will repay each advance on the earliest of: (a) the date on which
payment is received on the Financed Receivable, (b) the date on which the
Financed Receivable is no longer an Eligible Account, (c) the date on which any
Adjustment is asserted to the Financed Receivable (but only to the extent of the
Adjustment if the Financed Receivable remains otherwise an Eligible Account),
(d) the date on which there is a breach of any warranty or representation set
forth in the Facility Agreement, or (e) the maturity date of the Facility
Agreement of December 24, 2009. Each payment will also include all accrued
finance charges and collateral handling fees with respect to such Advance and
all other amounts then due and payable in accordance with the
Agreement.
The
Company, without the Bank’s consent, may not:
·
|
Convey,
sell, transfer or otherwise dispose of its business or property other than
in the ordinary course;
|
·
|
Engage
in any new line of business, permit a change in control or change its
jurisdiction of formation;
|
·
|
Merge
or consolidate with another entity or acquire all of the capital stock or
property of another entity;
|
·
|
Create,
incur, assume or be liable for any new indebtedness other than permitted
indebtedness as defined in the
Agreement;
|
·
|
Create,
incur, allow or suffer any lien on its property, or assign any right to
receive income;
|
·
|
Maintain
any other collateral account;
|
·
|
Pay
any dividends or make any distributions or payments or redeem, retire or
purchase any capital stock, or make other than certain defined
investments;
|
·
|
Directly
or indirectly enter into any material transaction with any affiliate,
except for transactions that are in the ordinary course of
business;
|
·
|
Make
any payment on subordinated debt other than ordinary interest when due, or
amend any provision in any document relating to subordinated
debt;
|
·
|
Become
an “investment company” or a company controlled by an “investment company”
under the Investment Company Act of
1940.
|
Results of Operations and Cash
Flows - Historically, the Company has incurred net losses and negative
cash flows from operations. As of September 30, 2009, the Company had
an accumulated deficit of $34,344,000 and total stockholders’ deficit of
$996,000. During the three months ended September 30, 2009, the
Company reported net income of $2,000 compared to a net loss of $312,000 for the
same period in 2008. During the first nine months of 2009, the
Company reported a net loss of $506,000 and net cash used in operating
activities of $293,000, compared to a net loss of $1,131,000 and net cash used
by operating activities of $622,000 for the same nine-month period in
2008. The decrease in net cash used in operating activities in the
current year over the same period in 2008 was a combination of the reduction in
cash compensation paid to executive and management employees, reduction in
force, reduced headquarter and satellite office rent, and other reduced
operating costs. Additionally, the Company deferred payment on a
significant number of accounts payable and accrued expenses in the fourth
quarter of 2007 which were subsequently paid in the first three months of
2008.
19
Net cash provided by investing
activities, consisting of the sale of common stock and purchase and sale of
property and equipment during the nine months ended September 30, 2009 was
$660,000. Net cash used in investing activities, consisting of the
purchase of property and equipment during the nine months ended September 30,
2008, was $2,000.
Net cash provided by financing
activities for the nine months ended September 30, 2009 was $49,000, comprised
of borrowings from the bank loan of $1,687,000, proceeds from the sale of Senior
Notes of $175,000 and short-term related party advances of $125,000, partially
offset by bank loan repayments of $1,858,000, repayment of short-term related
party advances of $75,000 and payments of other debt of $5,000. Net
cash provided by financing activities for the nine months ended September 30,
2008 was $322,000, comprised of net increases in borrowings from the bank loan
of $2,388,000 and short-term related party advances of $185,000, partially
offset by bank loan repayments of $2,056,000, payments of other debt of $10,000
and repayment of short-term related party advances of $185,000.
During
the nine months ended September 30, 2009 and in addition to the stock-based
compensation and depreciation and amortization expense, other significant
non-cash transactions were recorded on the Company’s books. In
exchange for New Senior Notes, two vendors cancelled accounts payable amounts
due from the Company to the vendors totaling $50,000. In exchange for
compensation accrued and not paid, the Company reduced accrued expenses related
to accrued salaries for two employees of the Company and issued New Senior Notes
totaling $28,000. In April, 2009, the Company adjusted its bad debt
allowance to record a net $29,000 non-cash bad debt write off due to a customer
filing bankruptcy.
On August 10, 2009, the Company entered
into a Common Stock Purchase Agreement and sold 13,000,000 shares of restricted
Common Stock in exchange for $650,000. Management believes that the
proceeds from the Common Stock Purchase Agreement combined with its cost
reduction efforts, including across the board pay cuts implemented on April 1,
2009 and Company furloughs scheduled for the remainder of 2009, combined with
funds available from the bank loan facility and from short-term related party
advances, will be sufficient to fund planned operations at lower revenue levels
for the next twelve months. However, there can be no assurance that
operations and operating cash flows will continue at the current levels or
improve in the near future. If the Company is unable to obtain profitable
operations and positive operating cash flows and extend the credit facility,
revolving note and Senior Notes Payable, it may need to seek additional funding
or be forced to scale back its development plans or significantly reduce or
terminate operations.
The Company has not been adversely
affected by inflation. Revenues from foreign customers were
$1,267,000 during the nine months ended September 30, 2009, representing 55% of
the Company’s total revenues, compared to $1,613,000, or 48%, of total revenues
during the same period in 2008. There are potential economic risks
inherent in foreign trade. To minimize the risk from changes in
foreign currency exchange rates, the Company’s export sales are transacted in
United States dollars.
Factors
Affecting Future Results
Total revenues for the first nine
months of 2009 decreased 31% compared to the first nine months of 2008,
reflecting declines in software and support revenue and professional services
revenue due to
20
negative
industry conditions and the global economic downturn. Revenues from new software
licenses include sales of software development kits and runtime revenue
associated with OEM customer machine shipments. Runtime revenue
decreased year-over-year as new customer shipments have been reduced due to the
overall decline in capital equipment shipments by the Company’s customers. Sales
of software development kits are difficult for the Company to forecast, as the
Company is highly dependent on the timing of the decision of equipment suppliers
to initiate a new machine development program and to utilize the Company’s
products. While the Company believes it continues to win the majority
of the available software development kit opportunities for its products, it
appears that fewer companies are initiating new programs for semiconductor 300mm
capital equipment, which has presented fewer opportunities for the Company. In
addition, there is increased price pressure as some of the Company’s competitors
have lowered their prices in an effort to more effectively compete with the
Company.
The
Company continues to focus on incrementally expanding its customer base and
product line in order to increase revenues. This includes the
Company’s efforts to promote the use of SEMI Standards in other markets,
particularly the solar-photovoltaic market.
In the
face of continued semiconductor industry difficulties, effective April 1, 2009,
the Company implemented a further cost reduction program, including across the
board pay cuts, furloughs scheduled through the end of 2009, and suspension of
the Company’s matching 401(k) program to bring expenses in-line with the
anticipated slowdown in revenues while it awaits the expected industry
upturn. The executive and management team members continue to receive
only a portion of their compensation under a policy first implemented in April
2008.
The Company has been investing in its
new CIMPortal product line, which meets the new SEMI Standards for EDA
(Interface A). While this new standard has been promulgated by SEMI,
it is not yet a common requirement by end users in the
marketplace. The timing of the widespread adoption of this standard
by the semiconductor industry will directly affect the market opportunities for
the Company’s CIMPortal product line. The Company believes that if
the new SEMI Standards for EDA begin to obtain market acceptance, the number of
software development kit opportunities will increase along with the resulting
runtime license revenue.
The Company has also been investing in
pursuing the Japanese market for its products with its distribution partner.
However, the Japanese semiconductor market has been hit very hard by the global
economic downturn and the Company has very limited visibility into future
revenues from Japan or the financial viability of its distributor.
The Company continues to pursue
customers through its Global Services group, which is available to assist
customers by providing professional services and complete turnkey
solutions. The ability of the Company to provide both products and
services to its customer base is becoming a more important factor as customers
seek to limit the number of suppliers and prefer single source
responsibility. The experience gained delivering professional
services also provides valuable inputs to new product development
pipelines.
The Company’s future operating results
and financial condition are difficult to predict and will be affected by a
number of factors. The markets for the Company’s products are highly
specialized. There can be no assurance about the timing of the
recovery, if any, of the markets for industrial motion control that are served
by the Company, or that the Company’s existing and new products will satisfy the
requirements of those markets and achieve a successful level of customer
acceptance. If the Company is unable to achieve positive cash flow
from operations, it will be unable to survive in the long term.
Because the business of the Company is
dependant to a large degree on industry factors beyond its control, past
financial performance is not necessarily indicative of future performance, and
historical trends should not be used to anticipate future operating
results.
21
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company is not subject to this
requirement since it is not an accelerated filer.
ITEM 4T. CONTROLS
AND PROCEDURES
Disclosure
Controls and Procedures
The
Company’s disclosure controls and procedures are designed to ensure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed,
summarized, and reported within the required time periods and that such
information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow
for timely decisions regarding required disclosure.
As
required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation,
under the supervision and with the participation of our management, including
the chief executive officer and the chief financial officer, of the
effectiveness and the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. Based
on such evaluation, the chief executive officer and the chief financial officer
have concluded that our disclosure controls and procedures were effective as of
the end of the period covered by this report.
Management’s
Report on Internal Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined under Exchange Act Rules
13a-15(f). The Company’s internal control system is designed to
provide reasonable assurance to its management and board of directors regarding
the preparation and fair presentation of published financial
statements. Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under that framework, management
concluded that our internal control over financial reporting was effective as of
September 30, 2009.
Changes
in internal controls
During the most recent fiscal quarter
covered by this report, and since that date there has been no change in the
Company’s internal controls over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
PART II - OTHER
INFORMATION
None
ITEM 1. LEGAL
PROCEEDINGS
The
Company is not currently involved in any pending litigation.
22
ITEM 1A. RISK FACTORS
The
Company has disclosed risk factors in its Annual Report on Form 10-K for the
year ended December 31, 2008 which could materially
affect its business, financial condition or future results of
operations. The risk factors discussed below update these risk
factors and should be read in conjunction with the risk factors and information
disclosed in that Form 10-K.
Difficulties
in the semiconductor industry and worsening global economic conditions have had
a significant negative impact on the Company’s operations and such negative
conditions may continue for the foreseeable future.
The Company’s results of operations
reflect current challenging semiconductor industry demand conditions and a
worsening global economy. The Company’s management is currently
seeking to manage the cost structure of the Company in the face of decreased
revenues, but the Company is unable to predict when industry conditions will
improve. If conditions do not improve or continue to deteriorate, the Company
will be adversely affected.
The
Company experienced increases in its accumulated deficit and used additional
cash in operations during the nine months ended September 30, 2009.
Historically,
the Company has incurred net losses and negative cash flows from
operations. As of September 30, 2009, the Company had an accumulated
deficit of $34,344,000 and total stockholders’ deficit of
$996,000. At September 30, 2009, the Company had current assets of
$796,000, including cash and cash equivalents of $431,000, and current
liabilities of $1,900,000 resulting in a working capital deficit of
$1,104,000. If the Company is unable to obtain profitable operations
and positive operating cash flows and extend the credit facility, revolving note
and Senior Notes Payable, it may need to seek additional funding or be forced to
scale back its development plans or significantly reduce or terminate
operations.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
On August 10, 2009, the Company sold
13,000,000 shares of its restricted common stock, par value $0.0001 per share,
for a price of $0.05 per share, or an aggregate of $650,000. No
commissions were paid by the Company in connection with this
transaction. The purchase price was payable in two installments,
$325,000 paid on August 10, 2009 and the remaining $325,000 paid on September
11, 2009. The Company anticipates using the proceeds to pay current
obligations and to provide working capital for the upcoming 12
months.
The sale was made in reliance on the
exemptions from the registration requirements provided by Regulation D and
Regulation S of the Securities Act of 1933, as amended. The sale was
made to a single accredited purchaser which is organized under laws of
Japan. The terms were privately negotiated and there was no general
solicitation or directed selling efforts in connection with the
transaction. The certificates representing the shares sold will bear
a legend indicating that they have been issued in reliance on an exemption from
the registration requirements of U.S. Securities laws and cannot be sold or
transferred without compliance with such registration requirements or the
availability of an exemption from such registration requirements.
ITEM 3. DEFAULTS
UPON SENIOR SECURITIES
None.
23
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of
security holders during the quarter ended September 30, 2009.
ITEM 5. OTHER
INFORMATION
None.
ITEM
6. EXHIBITS
Exhibit No.
|
Description
|
31.1
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a) of the
Securities
Exchange
Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-
Oxley
Act of 2002*
|
31.2
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) of the
Securities
Exchange
Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-
Oxley
Act of 2002*
|
32.1
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C Section
1350 as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
32.2
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C Section
1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
99.1
|
Press
Release dated November 16, 2009*
|
______________________________________
|
|
*
Exhibits filed with this report
|
24
SIGNATURES
Pursuant
to the requirements of section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REGISTRANT
CIMETRIX
INCORPORATED
Dated:
November 16, 2009
|
By: /S/ Robert H.
Reback
|
|
Robert
H. Reback
|
|
President
and Chief Executive Officer
|
|
(Principal
Executive Officer)
|
By: /S/ Jodi M.
Juretich
Jodi M.
Juretich
|
Chief
Financial Officer
|
|
(Principal
Financial and Accounting
Officer)
|
25