CIMETRIX INC - FORM 10-Q - August 14, 2013

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EX-32.2 - EXHIBIT 32.2 - CIMETRIX INC	ex322.htm
EX-31.2 - EXHIBIT 31.2 - CIMETRIX INC	ex312.htm
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EX-99.1 - EXHIBIT 99.1 - CIMETRIX INC	ex991.htm
EX-32.1 - EXHIBIT 32.1 - CIMETRIX INC	ex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2013

o 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 ý 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 August 1, 2013:

Common stock, par value $.0001 - 45,042,006 shares

CIMETRIX INCORPORATED

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2013

INDEX

PART I Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

Item 4.	Controls and Procedures	16


PART II Other Information

Item 1.	Legal Proceedings	16

Item 1A.	Risk Factors	16

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	17

Item 5.	Other Information	17

Item 6.	Exhibits	17

Signatures		18

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PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CIMETRIX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30, 2013			December 31,
ASSETS	(Unaudited)			2012
Current assets:
Cash	$	924,000		$	1,027,000
Accounts receivable, net		794,000			642,000
Inventories		7,000			16,000
Prepaid expenses and other current assets		116,000			102,000
Deferred tax asset - current portion		78,000			-
Total current assets		1,919,000			1,787,000

Property and equipment, net		67,000			81,000
Goodwill		64,000			64,000
Deferred tax asset - long-term portion		1,288,000			-
Other assets		6,000			20,000

Total assets	$	3,344,000		$	1,952,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	44,000		$	49,000
Accrued expenses		181,000			230,000
Deferred revenue		369,000			338,000
Total current liabilities		594,000			617,000


Total liabilities		594,000			617,000

Commitments and contingencies

Stockholders’ equity:
Common stock; $.0001 par value, 100,000,000 shares
authorized, 45,042,006 and 45,567,006 shares issued,
respectively		4,000			4,000
Additional paid-in capital		33,727,000			33,683,000
Treasury stock, 25,000 shares at cost		(49,000	)		(49,000	)
Accumulated deficit		(30,932,000	)		(32,303,000	)
Total stockholders’ equity		2,750,000			1,335,000

	$	3,344,000		$	1,952,000

See accompanying notes to consolidated financial statements

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CIMETRIX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Revenues:
New software licenses	$	962,000		$	1,106,000		$	2,077,000		$	2,074,000
Software license updates and product support		271,000			216,000			505,000			458,000
Total software revenues		1,233,000			1,322,000			2,582,000			2,532,000
Professional services		85,000			95,000			135,000			473,000

Total revenues		1,318,000			1,417,000			2,717,000			3,005,000

Operating costs and expenses:
Cost of revenues		558,000			569,000			1,141,000			1,313,000
Sales and marketing		232,000			239,000			498,000			510,000
Research and development		206,000			232,000			397,000			450,000
General and administrative		292,000			325,000			607,000			648,000
Depreciation and amortization		17,000			16,000			34,000			31,000

Total operating costs and expenses		1,305,000			1,381,000			2,677,000			2,952,000

Income from operations		13,000			36,000			40,000			53,000

Other income (expenses):
Interest income		1,000			-			1,000			-
Interest expense		-			(3,000	)		-			(3,000	)
Other income		4,000			-			7,000			-
Total other income (expenses), net		5,000			(3,000	)		8,000			(3,000	)

Income before income taxes		18,000			33,000			48,000			50,000

Provision for income taxes (benefit)		(1,371,000	)		4,000			(1,370,000	)		6,000

Net income	$	1,389,000		$	29,000		$	1,418,000		$	44,000


Net income per common share:
Basic	$	0.03		$	0.00		$	0.03		$	0.00
Diluted	$	0.03		$	0.00		$	0.03		$	0.00

Weighted average number of shares
outstanding:
Basic		45,530,000			45,722,000			45,718,000			45,710,000
Diluted		46,144,000			46,353,000			46,338,000			45,710,000

See accompanying notes to consolidated financial statements

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CIMETRIX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Six Months Ended
	June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	1,418,000		$	44,000
Adjustments to reconcile net income to net
cash (used in) from operating activities:
Depreciation and amortization		34,000			31,000
Stock-based compensation		44,000			44,000
Changes in operating assets and liabilities
Accounts receivable		(152,000	)		257,000
Inventories		9,000			-
Prepaid expenses and other current assets		(8,000	)		(25,000	)
Deferred taxes		(1,366,000	)		-
Accounts payable		(11,000	)		(71,000	)
Accrued expenses		(49,000	)		(286,000	)
Deferred revenue		31,000			271,000

Net cash (used in) from operating activities		(50,000	)		265,000

Cash flows from investing activities:
Proceeds received from deposits		14,000			-
Purchase of property and equipment		(20,000	)		(12,000	)

Net cash used in investing activities		(6,000	)		(12,000	)

Cash flows from financing activities:
Payments for repurchase of common stock		(47,000	)		-

Net cash used in financing activities		(47,000	)		-

Net increase (decrease) in cash		(103,000	)		253,000
Cash, beginning of period		1,027,000			871,000

Cash, end of period	$	924,000		$	1,124,000

Supplemental Cash Flow Information
	Six Months Ended
	June 30,
		2013			2012
Cash paid for interest	$	-		$	3,000
Cash paid (refunded) for income taxes	$	(4,000	)	$	2,000

See accompanying notes to consolidated financial statements

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CIMETRIX INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated 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) is a software engineering company that designs, develops, markets and supports factory connectivity and equipment control products for today’s smart, connected factories. The Company’s primary customers are original equipment manufacturers (OEMs) that supply precision electronics manufacturing equipment for semiconductor wafer fabrication, solar/photovoltaic (PV), high-brightness light-emitting diode (HB-LED) and other electronics manufacturing.

Basis of Presentation – The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Cimetrix Japan K.K., 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 June 30, 2013 and for the three and six month periods ended June 30, 2013 and 2012 is unaudited, and the balance sheet as of December 31, 2012 is derived from audited financial statements. The accompanying condensed consolidated 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, 2012. 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 six months ended June 30, 2013 are not necessarily indicative of the results that can be expected for the entire year ending December 31, 2013. The unaudited condensed consolidated 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, 2012.

NOTE 2 – 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 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				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Cost of revenues	$	7,000	$	6,000	$	13,000	$	12,000
Sales and marketing		3,000		2,000		6,000		4,000
Research and development		4,000		3,000		8,000		6,000
General and administrative		8,000		8,000		17,000		22,000
Total stock-based compensation expense	$	22,000	$	19,000	$	44,000	$	44,000

During the six months ended June 30, 2013, options to purchase 150,000 shares of the Company’s common stock were granted to the Company’s employees and directors, with an exercise price of $0.13 per share.

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The total stock-based compensation costs from vesting restricted stock shares in the six month periods of June 30, 2013 and 2012 was $0 and $13,000, respectively.

As of June 30, 2013, the total unrecognized compensation cost related to non-vested stock-based awards was $177,000. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.34 years.

NOTE 3 – EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding, including unissued awards of restricted stock, which are deemed to be participating securities, during the period. Diluted earnings per common share is computed by dividing the net income for the period by the sum of the weighted-average number of common shares outstanding plus the weighted-average common stock equivalents, which would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding options and unvested restricted stock. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury method.

The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Numerator:
Net income	$	1,389,000	$	29,000	$	1,418,000	$	44,000
Denominator:
Basic weighted average shares outstanding		45,530,000		45,722,000		45,718,000		45,710,000
Effect of dilutive securities:
Stock options		614,000		631,000		620,000		-
Diluted weighted average shares outstanding		46,144,000		46,353,000		46,338,000		45,710,000

Net income per share
Basic	$	0.03	$	0.00	$	0.03	$	0.00
Diluted	$	0.03	$	0.00	$	0.03	$	0.00

Potentially dilutive securities representing approximately 2,205,000 and 2,626,000 shares of common stock at June 30, 2013 and 2012, respectively, were excluded from the computation of diluted earnings per common share because their effect would have been anti-dilutive.

NOTE 4 – NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Revolving Bank Line of Credit - The Company and Silicon Valley Bank (the “Bank”) entered into a Loan and Security Agreement, effective as of September 27, 2011. On September 26, 2012, the Company and the Bank entered into a First Amendment to Loan and Security Agreement. The First Amendment extended the maturity date of the Agreement to September 25, 2013. Line of credit advances are available to the Company in accordance with a defined “Availability Amount”, based in part on qualifying accounts receivable, up to a maximum of $1 million. The line of credit bears interest at the prime rate plus 1.75%, payable monthly. The line of credit is collateralized by substantially all operating assets of the Company. Interest payments are payable on the first day of each month with all principal advances payable on the maturity date of the line of credit. As of June 30, 2013, the Company had no borrowings against the line of credit.

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Under the line of credit agreement, the Company is required to comply with the following financial covenants:

Maintain a ratio of quick assets to current liabilities minus deferred revenue of at least: 1.50 to 1.00

Maintain a tangible net worth equal to or greater than the sum of (i) $500,000, plus (ii) for each successive quarter, commencing as of the quarter ending December 31, 2011, 50% of net proceeds received by Company in the preceding quarter from bona-fide issuances of new equity or bridge financing which constitutes “subordinated debt”.

The line of credit agreement also contains numerous negative comments restricting certain actions by the Company without the bank’s consent, such as are typically included in similar loan agreements, including restrictions on the payment of dividends, restrictions on incurring additional debt, prohibitions restricting major corporation transactions, including a sale of the business, and a requirement that the Company retain certain key employees.

At June 30, 2013, the Company was in compliance with all covenants.

NOTE 5 – COMMON STOCK

The Company had 185,000 vested restricted stock awards for which shares of common stock have not been issued as of June 30, 2013 and December 31, 2012.

On June 6, 2013, and March 28, 2013, the Company entered into transactions with two of its shareholders to redeem 425,000 and 100,000 shares of stock, respectively, for a total of $47,000 which is included as a reduction in accumulated deficit, at cost. The 525,000 shares redeemed were retired.

NOTE 6 – RELATED PARTY TRANSACTIONS

During the three and six months ended June 30, 2013 and 2012, the Company had the following revenues from one customer that was also a shareholder of the Company:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
New software licenses	$	77,000	$	19,000	$	90,000	$	93,000
Software license updates and product support		31,000		27,000		50,000		52,000
Total software revenues	$	108,000	$	46,000	$	140,000	$	145,000

The Company had accounts receivable from one customer that was also a shareholder totaling $38,000 and $22,000 at June 30, 2013 and December 31, 2012, respectively.

NOTE 7 – INCOME TAXES

The Company’s income tax calculations are based on application of the respective U.S. federal and state laws. Accordingly, the Company recognizes tax liabilities based upon estimates of whether additional taxes will be due when such estimates are more likely than not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of income.

As part of the process of preparing consolidated financial statements, the Company is required to estimate income taxes in each of the jurisdictions in which it operates. This process involves estimating the Company’s actual current income tax exposure together with assessing temporary differences

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resulting from differing treatment of items for income tax and financial accounting purposes. These temporary differences result in deferred tax assets and liabilities, the net amount of which is included in the Company’s Condensed Consolidated Balance Sheets. When appropriate, the Company records a valuation allowance to reduce its deferred tax assets to the amount that the Company believes is more likely than not to be realized. Key assumptions used in estimating a valuation allowance include potential future taxable income, projected income tax rates, expiration dates of net operating loss and tax credit carry forwards, and ongoing prudent and feasible tax planning strategies. At December 31, 2012, the Company’s deferred tax asset valuation allowance was $7,686,000, which was 100% of the deferred tax asset.

As of December 31, 2012, the Company had a net operating loss carry forward of approximately $16,695,000, that may be offset against future taxable income. Portions of the net operating loss carry forward expire at various times during the period from 2018 through 2034. Use of this net operating loss carry forward could also be limited in the event of substantial changes in the Company’s ownership. Based on the foregoing, at December 31, 2012, the valuation of the Company’s deferred tax asset was $7,686,000 and due to the Company’s historical lack of earnings, the Company did not include any of this deferred tax asset on its December 31, 2012 Condensed Consolidated Balance Sheets.

Subsequently, the Company evaluated its historic and estimated future net income and calculated a valuation allowance for June 30, 2013 of $6,320,000. The change in the valuation allowance of $1,366,000 has been reported as a component of the provision for income taxes (benefit) in the accompanying Condensed Consolidated Statements of Income and as change in value of the deferred tax asset on the Condensed Consolidated Balances Sheets.

NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash, which approximates fair value because of the immediate or short-term maturities of the financial instruments included in this category.

NOTE 9 – SUBSEQUENT EVENTS

Management has evaluated events through the date the condensed consolidated financial statements were filed with the Securities and Exchanges Commission and concluded there were no subsequent events to report in the notes to the 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 six-month periods ended June 30, 2013 and June 30, 2012 and the Company’s financial position at June 30, 2013. The information includes discussions of sales, expenses, capital resources and other significant financial items.

This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. 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

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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, 2012.

Cimetrix is a software engineering company that designs, develops, markets and supports factory connectivity and equipment control products for today’s smart, connected factories. The Company’s primary customers are original equipment manufacturers (OEMs) that supply precision electronics manufacturing equipment for semiconductor wafer fabrication, solar/photovoltaic (PV), high-brightness light-emitting diode (HB-LED) and other electronics manufacturing.

Revenues are derived from the sales of software and services. Software includes the initial sale of software development kits, the ongoing runtime licenses that equipment suppliers purchase for each machine shipped with Cimetrix software and annual contracts for software license updates and product support. Services include the sale of professional services that provide customers with software solutions typically incorporating Cimetrix software products. While Cimetrix products are installed in equipment in a wide range of industries, the Company has focused on the global semiconductor, photovoltaic (PV) and high brightness light emitting diode (HB-LED) industries.

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 to the Company’s audited financial statements included in the Company’s 2012 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.

Operations Review

Revenues

The following table summarizes revenues by category and as a percent of total revenues:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
New software licenses	$ 962,000	73%	$1,106,000	78%	$2,077,000	76%	$2,074,000	69%
Software license updates and product support	271,000	21%	$ 216,000	16%	505,000	19%	$ 458,000	15%
Total software revenues	1,233,000	94%	1,322,000	93%	2,582,000	95%	2,532,000	84%
Professional services	85,000	6%	$ 95,000	7%	135,000	5%	$ 473,000	16%
Total revenues	$1,318,000	100%	$1,417,000	100%	$2,717,000	100%	$3,005,000	100%

Total revenue decreased by $99,000, or 7%, to $1,318,000 for the three months ended June 30, 2013, compared to total revenue of $1,417,000 for the three months ended June 30, 2012. For the six months ended June 30, 2013, total revenue decreased by $288,000 or 10% to $2,717,000 from $3,005,000 for the six months ended June 30, 2012. The decrease in total revenue for the three month period from the prior year period was attributable primarily to the reduction in new software licenses revenue. The decrease in revenue for the six month period from the prior year period was attributable primarily to

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decreased revenues from professional services resulting from implementing a new services strategy in the in the second quarter of 2012 as discussed later in this section.

New software license revenue includes the initial sale of software development kits and the ongoing runtime licenses that equipment suppliers purchase for each machine shipped with Cimetrix software. New software license revenue decreased by $144,000, or 13%, to $962,000 for the three months ended June 30, 2013, compared to new software license revenue of $1,106,000 for the three months ended June 30, 2012. For the six months ended June 30, 2013, new software license revenues were relatively flat, increasing by $3,000 to $2,077,000 from $2,074,000 for the six months ended June 30, 2012. The new software licenses revenue has been in alignment with industry analysts’ predictions that the semiconductor equipment industry will be flat-to-slightly down in 2013.

Revenue associated with software license updates and product support increased to $271,000, or 25% for the three months ended June 30, 2013 as compared to $216,000 for the three months ended June 30, 2013. For the six months ended June 30, 2013, revenue associated with software license updates and product support increased 10% over the six months ended June 30, 2012. The increase in revenue from software license updates and product support was due primarily to a growing customer base of OEM’s that have been designing new systems with Cimetrix products, as well as to adjustments in support pricing and customer renewal decisions.

Total software revenue includes the initial sale of software development kits, the ongoing runtime licenses and software license updates and product support. Total software revenue decreased 7% to $1,233,000 for the three months ended June 30, 2013, as compared to $1,322,000 for the three months ended June 30, 2012. For the six months ended June 30, 2013, total software revenue increased 2% to $2,582,000 as compared to $2,532,000 for the six months ended June 30, 2012. As stated earlier, total software revenue has been in alignment with industry analysts’ predictions that the semiconductor equipment industry will be flat-to-slightly down in 2013.

Professional services revenue was down by 11% to $85,000 for the three months ended June 30, 2013, as compared to $95,000 for the three months ended June 30, 2012. The decrease in services revenue year-over-year resulted from implementing a revised Cimetrix services strategy starting in the second quarter of 2012. The new strategy focuses Cimetrix services on training and coaching our OEM customers in the use of Cimetrix products, instead of implementing turnkey solutions. To support this new services strategy, Cimetrix established a global network of service providers trained in Cimetrix products that are able to provide services to assist customers with software development activities. While this strategy reduces Cimetrix professional services revenue, it enables us to focus on sustaining and enhancing current product lines, as well as R&D for new products that should fuel long term growth.

Results of Operations

The following table sets forth the percentage of costs and expenses to total revenues derived from the Company's Condensed Consolidated Statements of Income:

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	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Total Revenues		100	%		100	%		100	%		100	%

Operating costs and expense:
Cost of revenues		42			40			42			44
Sales and marketing		18			17			18			17
Research and development		16			17			15			15
General and administrative		22			23			22			22
Depreciation and amortization		1			1			1			1

Total operating costs and expenses		99			98			98			99

Income from operations		1			2			2			1
Other income (expenses), net		-			-			-			-
Total other incme (expenses), net		-			-			-			-

Income before income taxes		1			2			2			1
Provision for income taxes (benefit)		(104	)		-			(50	)		-

Net income		105	%		2	%		52	%		1	%

For the three months ended June 30, 2013, the Company reported net income of $23,000 before the initial recording of the Company’s deferred tax benefit totaling $1,366,000, as compared to net income of $29,000 for the three months ended June 30, 2012. The value of the deferred tax asset is based on the expiration dates of the Company’s net operating loss carry forward amounts and historic and estimated future net income and is subject to ongoing review and, potentially, future changes. Accounting guidance requires this amount to also be reflected on the income statement at the same time as the asset is recorded on the balance sheet. The $1,366,000 is also included in the Company’s net income for the six months ended June 30, 2013. The Company anticipates that this is a one-time event and it does not reflect ongoing earnings to be expected from the Company. Net income for the three months ended June 30, 2013, including the deferred tax benefit adjustment, was $1,389,000.

The net results for all periods include non-cash stock-based compensation expense and non-cash depreciation and amortization expense. For the three and six-month periods ended June 30, 2013 and June 30, 2012, the Company did not have any bad debt expense. For the three-month periods ended June 30, 2013 and June 30, 2012, stock-based compensation expense was $22,000 and $19,000, respectively, and depreciation and amortization expense was $17,000 and $16,000, respectively. Net income for the six months ended June 30, 2013 was $52,000 before the initial recording of the Company’s deferred tax benefit totaling $1,366,000 compared to $44,000 for the six months ended June 30, 2012. Net income for the six months ended June 30, 2013, including the deferred tax benefit adjustment, was $1,418,000. For the six-month periods ended June 30, 2013 and June 30, 2012, the stock-based compensation expense was $44,000 and $44,000, respectively and depreciation and amortization expense was $34,000 and $31,000 respectively.

The Company used net cash for operating activities of $50,000 for the six months ended June 30, 2013, compared to net cash generated from operating activities of $265,000 for the six months ended June 30, 2012. The increase in the use of net cash used for operating activities for the six months ended June 30, 2013 compared to the same period in 2012 is attributable primarily due to changes in deferred revenue, accounts receivable and accrued expenses. In the second quarter of 2012, the Company received a payment from a customer representing five years of prepaid product support. In the first quarter of 2013, the Company extended payment terms to a single customer for a six-month time period for which the customer continues to make timely payments on those extended terms. The net change in accrued expenses is primarily due to the reduction of the profit sharing and incentive plan bonus accruals at the end of 2012 as compared to the same accruals at the end of 2011 subsequently paid in the first quarters of 2013 and 2012, respectively.

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Cost of Revenues

The Company's cost of revenue for the three months ended June 30, 2013 decreased by $11,000, or 2% to $558,000 from $569,000 for three months ended June 30, 2012. For the six-month periods ended June 30, 2013 and June 20, 2012, the Company’s cost of revenues decreased by $172,000, or 13% to $1,141,000 from $1,313,000. This decrease primarily resulted from the reduction of the use of service partners to augment our engineering team starting in the second quarter of 2012. 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 $7,000, or 3%, to $232,000 during the three months ended June 30, 2013, from $239,000 during the three months ended June 30, 2012. During the six months ended June 30, 2013, sales and marketing expenses decreased $12,000 or 2% to $498,000 from $510,000. The decrease was primarily a result of reduced commissions on lower revenues. 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 $26,000 or 11%, to $206,000 during the three months ended June 30, 2013, from $232,000 during the three months ended June 30, 2012. During the six months ended June 30, 2013, research and development expenses decreased $53,000 or 12% to $397,000 from $450,000 for the six months ended June 30, 2012. The decrease was primarily due to the reduction of use of service partners to augment our engineering team in 2012 which resulted in lower costs. Research and development expenses include only direct costs for wages, benefits, materials, and education of technical personnel involved in new product development activities. 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 $33,000 or 10%, to $292,000 in the three months ended June 30, 2013, from $325,000 in the three months ended June 30, 2012. During the six months ended June 30, 2013, general and administrative expenses decreased $41,000 or 6% to $607,000 from $648,000 for the six months ended June 30, 2012. The decrease was primarily due to lower net income and related profit sharing costs as well as reduced rent costs as a result of renegotiating lease terms in the fourth quarter of 2012. General and administrative expenses include all direct costs for administrative and accounting personnel, and all rents and utilities for maintaining Company offices.

Depreciation and Amortization

Depreciation and amortization expense increased $1,000 or 6% to $17,000 in the three months ended June 30, 2013, from $16,000 in the three months ended June 30, 2012. During the six months ended June 30, 2013, depreciation and amortization increased $3,000 or 10% to $34,000 from $31,000 in the six months ended June 30, 2012. The increase is a result the Company’s investment in equipment upgrades and new financial software.

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Other Income (Expense)

Interest expense for the three months and six months ended June 30, 2013 was $0 compared to $3,000 for the same periods in 2012. The interest expense in 2012 was attributable to a one-time adjustment of an expired capital lease that has was fully paid in 2012.

Interest income for the three months ended June 30, 2013 was $1,000 compared to $0 for the three months ended June 30, 2012. During the six months ended June 30, 2013, interest income was $1,000 compared to $0 for the same period in 2012.

Other income for the three months ended June 30, 2013 was $4,000 compared to $0 for the three months ended June 30, 2012. During the six months ended June 30, 2013, other income was $7,000 compared to $0 for the same period in 2012. This other income was from our Japan subsidiary, Cimetrix Japan K.K., due to a Japanese tax law, whereby companies are exempt from turning over collected consumption tax to the government if annual revenues to not meet regulatory thresholds.

Liquidity and Capital Resources

At June 30, 2013, the Company had current assets of $1,919,000, including cash of $924,000, and current liabilities of $594,000, resulting in a working capital of $1,325,000. Excluding deferred revenue of $369,000, which requires the Company to provide services and support, but does not represent a scheduled obligation requiring the outlay of Company funds, the Company’s current assets exceeded current liabilities by $1,694,000 at June 30, 2013.

Revolving Bank Line of Credit - The Company and Silicon Valley Bank (the “Bank”) entered into a Loan and Security Agreement which expires in September 2013. Line of credit advances are available to the Company in accordance with a defined “Availability Amount”, based in part on qualifying accounts receivable, up to a maximum of $1 million. The terms of this credit facility are summarized in Note 4 to the Condensed Consolidated Financial Statements included in this report.

At June 30, 2013, the Company had no borrowings against the line of credit.

Results of Operations and Cash Flows – The Company has posted sixteen consecutive quarters of positive net income, beginning in mid-2009. As of June 30, 2013, the Company had total stockholders’ equity of $2,750,000, an increase of $1,415,000 of which $1,366,000 is attributable to the current period change in the Company’s deferred tax asset valuation. During the three months ended June 30, 2013, the Company reported net income of $23,000 before the initial recording of the Company’s change in deferred tax benefit totaling $1,366,000. Net income for the three months ended June 30, 2013, including the deferred tax benefit adjustment, was $1,389,000. During the six months ended June 30, 2013, net income was $52,000 before the booking of the change in the Company’s deferred tax benefit totaling $1,366,000. Net income for the six months ended June 30, 2013, including the deferred tax benefit adjustment, was $1,418,000.

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Net cash used in investing activities during the six months ended June 30, 2013, was $6,000 and consisted of $14,000 in proceeds received from the reduction of a security deposit for the Salt Lake City headquarters facility less $20,000 for the purchase of hardware and software. Net cash used in investing activities during the six months ended June 30, 2012, was $12,000 and consisted of hardware and software upgrades.

Net cash used in financing activities for the six months ended June 30, 2013 was $47,000 compared to $0 for the three months ended June 30, 2012. This payment of $47,000 represented the use of Company funds to repurchase 525,000 shares of the Company’s common stock from two shareholders.

The Company has not been adversely affected by inflation. Revenues from foreign customers were $1,274,000 during the six months ended June 30, 2013, representing 47% of the Company’s total revenues, compared to $1,277,000 or 43%, of total revenues during the same period in 2012. The increase in foreign customer sales year-over-year is primarily attributable to new customer design wins for software development kits (SDKs) combined with strong performances from top-tier foreign OEM customers. 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 primarily transacted in United States dollars.

Factors Affecting Future Results

Total revenue for the first six months of 2013 decreased 10% compared to the first six months of 2012, reflecting the net effect of increased sales of total software revenue and decreased sales of professional services as previously discussed in the Operations Review section. Sales of software development kits are difficult for the Company to forecast, as the Company is highly dependent on the timing of the equipment suppliers’ decision to initiate a new machine development program and utilize the Company’s products.

The Company continues to focus on incrementally expanding its customer base and product line in order to increase revenues. In 2008, the Company introduced its CIMControlFramework product for equipment control, which enables the Company to provide equipment makers with a complete software solution that reduces their time-to-market for new equipment developments. As equipment makers reduce costs and internal resources, Cimetrix believes the market for CIMControlFramework will continue to grow as equipment makers invest in new machine development programs.

Ultimately, the Company’s business is driven by the global demand for electronic devices by consumers and businesses. Any changes in the global economic conditions could adversely affect Cimetrix’s business and results of operations.

The Company continues to pursue customers through its professional services group, which is now focused on training and coaching our OEM customers in the use of Cimetrix products instead of implementing turnkey solutions. This approach prepares the OEM customer to quickly address changing needs from their customers. We have established a set of integration partners for those customers who do require a turnkey solution. This change in strategy allows us to focus on delivering great products.

The Company’s future operating results and financial condition are difficult to predict and will be affected by a number of factors. The markets for the Company’s products are emerging and specialized. There can be no assurance that the markets for industrial motion control, factory connectivity, and equipment control that are served by the Company will continue to grow, or that the Company’s existing and new products will satisfy the requirements of those markets and achieve a successful level of customer acceptance.

Because of these and other factors, past financial performance is not necessarily indicative of future performance, and historical trends should not be used to anticipate future operating results.

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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 4. 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.

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.

ITEM 1A. RISK FACTORS

The Company has disclosed risk factors in its Annual Report on Form 10-K for the year ended December 31, 2012 which could materially affect its business, financial condition or future results of operations to which the reader is referred. There have been no material changes to the risk factors disclosed in that Form 10-K other than set forth below.

Potential Future Adjustment to Deferred Tax Asset

Based on its recent history of continuing earnings, the Company recorded its deferred tax asset at $1,366,000 on its June 30, 2013 Condensed Consolidated Balance Sheets. In accordance with accounting guidelines this also results in an increase of $1,366,000 in net income for the quarter. The value of this asset is based in part on estimates of future earnings, which are subject to change. In the event that these estimates change in the future, the book value of the deferred tax asset may decrease. In such event, the recorded amount on the Condensed Consolidated Balance Sheets would go down and earnings for the associated period would be reduced by the same amount. Any such change would most likely adversely affect the market price for the Company’s stock.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Date	Total number of shares purchased		Average price per share		Total number of shares purchased as part of publically announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs
March 1 to March 31, 2013		100,000	$	0.09		-		-
June 1 to June 30, 2013		425,000	$	0.09		-		-

The table above summarizes stock repurchases for the six months ended June 30, 2013. The 525,000 shares were repurchased directly from two shareholders and not in a market transaction. The repurchased shares were retired.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit No.	Description

10.1	Loan and Security Agreement dated September 27, 2011 between Silicon Valley Bank and Cimetrix Incorporated (1)
10.2	Loan and Security Agreement dated September 26, 2012 between Silicon Valley Bank and Cimetrix Incorporated (2)
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 August 12, 2013*
101	Interactive Data Files*
______________________________________

(1) Included in the Company’s Form 10-Q for the Quarterly Period Ended September 30, 2011 (2) Included in the Company’s Form 10-Q for the Quarterly Period Ended September 30, 2012 * Exhibits filed with this report

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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: August 14, 2013

	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)

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