Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - CIMETRIX INC | Financial_Report.xls |
| EX-32.1 - EXHIBIT 32.1 - CIMETRIX INC | ex321.htm |
| EX-32.2 - EXHIBIT 32.2 - CIMETRIX INC | ex322.htm |
| EX-10 - EXHIBIT 10.4 - CIMETRIX INC | ex104.htm |
| EX-99.1 - EXHIBIT 99.1 - CIMETRIX INC | ex991.htm |
| EX-31.2 - EXHIBIT 31.2 - CIMETRIX INC | ex312.htm |
| EX-31.1 - EXHIBIT 31.1 - CIMETRIX INC | ex311.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 September 30, 2014
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)
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Nevada
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87-0439107
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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6979 South High Tech Drive, Salt Lake City, Utah
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84047-3757
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(Address of principal executive office)
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(Zip Code)
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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):
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
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Smaller reporting company
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ý
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(Do not check if a smaller reporting company)
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||||
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 October 24, 2014:
Common stock, par value $.0001 - 45,042,006 shares
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2014
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS
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CIMETRIX INCORPORATED AND SUBSIDIARIES
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||||||||
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CONDENSED CONSOLIDATED BALANCE SHEETS
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||||||||
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(Unaudited)
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||||||||
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September 30,
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December 31,
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|||||||
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ASSETS
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2014
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2013
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Current assets:
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Cash
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$ | 1,615,000 | $ | 887,000 | ||||
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Accounts receivable, net
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715,000 | 797,000 | ||||||
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Inventories
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36,000 | 56,000 | ||||||
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Prepaid expenses and other current assets
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85,000 | 72,000 | ||||||
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Deferred tax asset - current portion
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250,000 | 144,000 | ||||||
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Total current assets
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2,701,000 | 1,956,000 | ||||||
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Property and equipment, net
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68,000 | 48,000 | ||||||
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Goodwill
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64,000 | 64,000 | ||||||
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Deferred tax asset - long-term portion
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960,000 | 1,194,000 | ||||||
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Other assets
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6,000 | 6,000 | ||||||
| $ | 3,799,000 | $ | 3,268,000 | |||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$ | 132,000 | $ | 56,000 | ||||
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Accrued expenses
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335,000 | 178,000 | ||||||
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Deferred revenue
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305,000 | 273,000 | ||||||
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Total liabilities
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772,000 | 507,000 | ||||||
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Commitments and contingencies
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Stockholders’ equity:
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Common stock: $.0001 par value, 100,000,000 shares
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authorized, 45,042,006 and 45,042,006 shares issued,
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respectively
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4,000 | 4,000 | ||||||
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Additional paid-in capital
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33,867,000 | 33,774,000 | ||||||
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Treasury stock: 25,000 shares at cost
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(49,000 | ) | (49,000 | ) | ||||
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Accumulated deficit
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(30,795,000 | ) | (30,968,000 | ) | ||||
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Total stockholders’ equity
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3,027,000 | 2,761,000 | ||||||
| $ | 3,799,000 | $ | 3,268,000 | |||||
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See accompanying notes to condensed consolidated financial statements
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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|||||||||||||||
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2014
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2013
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2014
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2013
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Revenues:
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New software licenses
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$ | 1,277,000 | $ | 810,000 | $ | 3,586,000 | $ | 2,887,000 | ||||||||
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Software license updates and product support
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279,000 | 224,000 | 858,000 | 729,000 | ||||||||||||
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Total software revenues
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1,556,000 | 1,034,000 | 4,444,000 | 3,616,000 | ||||||||||||
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Professional services
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64,000 | 55,000 | 237,000 | 190,000 | ||||||||||||
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Total revenues
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1,620,000 | 1,089,000 | 4,681,000 | 3,806,000 | ||||||||||||
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Operating costs and expenses:
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Cost of revenues
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578,000 | 495,000 | 1,629,000 | 1,636,000 | ||||||||||||
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Sales and marketing
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315,000 | 211,000 | 840,000 | 709,000 | ||||||||||||
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Research and development
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223,000 | 268,000 | 774,000 | 665,000 | ||||||||||||
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General and administrative
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365,000 | 251,000 | 1,111,000 | 858,000 | ||||||||||||
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Depreciation and amortization
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9,000 | 16,000 | 28,000 | 50,000 | ||||||||||||
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Total operating costs and expenses
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1,490,000 | 1,241,000 | 4,382,000 | 3,918,000 | ||||||||||||
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Income (loss) from operations
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130,000 | (152,000 | ) | 299,000 | (112,000 | ) | ||||||||||
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Other income:
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Interest income
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1,000 | - | 1,000 | 1,000 | ||||||||||||
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Gain on sale of property and equipment
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- | 2,000 | - | 2,000 | ||||||||||||
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Other income
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1,000 | 1,000 | 1,000 | 8,000 | ||||||||||||
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Total other income
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2,000 | 3,000 | 2,000 | 11,000 | ||||||||||||
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Income (loss) before income taxes
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132,000 | (149,000 | ) | 301,000 | (101,000 | ) | ||||||||||
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Provision (benefit) for income taxes
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45,000 | (59,000 | ) | 128,000 | (1,429,000 | ) | ||||||||||
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Net income (loss)
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$ | 87,000 | $ | (90,000 | ) | $ | 173,000 | $ | 1,328,000 | |||||||
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Net income (loss) per common share:
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Basic
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$ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | 0.03 | |||||||
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Diluted
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$ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | 0.03 | |||||||
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Weighted average number of shares
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outstanding:
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Basic
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45,227,000 | 45,227,000 | 45,227,000 | 45,499,000 | ||||||||||||
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Diluted
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45,920,000 | 45,227,000 | 45,899,000 | 46,124,000 | ||||||||||||
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See accompanying notes to condensed consolidated financial statements
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
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Nine Months Ended
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September 30,
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2014
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2013
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Cash flows from operating activities:
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Net income
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$ | 173,000 | $ | 1,328,000 | ||||
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Adjustments to reconcile net income to net
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cash provided by operating activities:
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Depreciation and amortization
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28,000 | 50,000 | ||||||
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Provision for doubtful accounts
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10,000 | - | ||||||
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Stock-based compensation
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93,000 | 64,000 | ||||||
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Gain on sale of property and equipment
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- | (2,000 | ) | |||||
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Deferred income taxes
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128,000 | (1,424,000 | ) | |||||
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Changes in operating assets and liabilities:
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Accounts receivable, net
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73,000 | 139,000 | ||||||
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Inventories
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20,000 | 10,000 | ||||||
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Prepaid expenses and other current assets
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(12,000 | ) | - | |||||
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Accounts payable
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51,000 | 19,000 | ||||||
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Accrued expenses
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157,000 | (150,000 | ) | |||||
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Deferred revenue
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32,000 | 5,000 | ||||||
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Net cash provided by operating activities
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753,000 | 39,000 | ||||||
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Cash flows from investing activities:
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Proceeds received from deposits
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- | 14,000 | ||||||
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Proceeds from sale of property and equipment
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- | 2,000 | ||||||
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Purchase of property and equipment
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(25,000 | ) | (22,000 | ) | ||||
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Net cash used in investing activities
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(25,000 | ) | (6,000 | ) | ||||
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Cash flows from financing activities:
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Payments for repurchase of common stock
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- | (47,000 | ) | |||||
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Net increase (decrease) in cash
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728,000 | (14,000 | ) | |||||
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Cash, beginning of period
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887,000 | 1,027,000 | ||||||
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Cash, end of period
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$ | 1,615,000 | $ | 1,013,000 | ||||
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Supplemental Cash Flow Information:
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Cash paid (refunded) for income taxes
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$ | 1,000 | $ | (7,000 | ) | |||
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Non-cash Investing Activities:
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Property and equipment included in accounts payable
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$ | 23,000 | $ | - | ||||
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See accompanying notes to condensed consolidated financial statements
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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 Cimetrix Incorporated 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 September 30, 2014 and for the three month and nine month periods ended September 30, 2014 and 2013 is unaudited, and the balance sheet as of December 31, 2013 is derived from audited financial statements. The accompanying condensed consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles (U. S. GAAP) 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. GAAP. 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, 2013. 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, 2014 are not necessarily indicative of the results that can be expected for the entire year ending December 31, 2014. 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, 2013.
Recent Accounting Pronouncements – In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the potential impact of this adoption on its consolidated financial statements.
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:
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2014
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2013
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2014
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2013
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Cost of revenues
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$ | 5,000 | $ | 5,000 | $ | 17,000 | $ | 18,000 | ||||||||
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Sales and marketing
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5,000 | 3,000 | 15,000 | 9,000 | ||||||||||||
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Research and development
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5,000 | 4,000 | 15,000 | 12,000 | ||||||||||||
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General and administrative
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15,000 | 8,000 | 46,000 | 25,000 | ||||||||||||
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Total stock-based compensation expense
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$ | 30,000 | $ | 20,000 | $ | 93,000 | $ | 64,000 | ||||||||
During the nine months ended September 30, 2014, options to purchase 282,500 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.
As of September 30, 2014, the total unrecognized compensation cost related to non-vested stock-based awards was $195,000. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.01 years.
NOTE 3 – EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding, including unissued but vested restricted stock shares deemed to be participating securities, during the period. Diluted earnings per common share is computed by dividing the net income for the period by the sum of the weighted-average number of common shares outstanding plus the weighted-average common stock equivalents which would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding options and unvested restricted stock. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury method.
The following table sets forth the computation of basic and diluted earnings per common share:
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2014
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2013
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2014
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2013
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Numerator:
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Net income (loss)
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$ | 87,000 | $ | (90,000 | ) | $ | 173,000 | $ | 1,328,000 | |||||||
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Denominator:
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Basic weighted average shares outstanding
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45,227,000 | 45,227,000 | 45,227,000 | 45,499,000 | ||||||||||||
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Effect of dilutive securities:
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Stock options
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693,000 | - | 672,000 | 625,000 | ||||||||||||
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Diluted weighted average shares outstanding
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45,920,000 | 45,227,000 | 45,899,000 | 46,124,000 | ||||||||||||
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Net income (loss) per share
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||||||||||||||||
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Basic
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$ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | 0.03 | |||||||
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Diluted
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$ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | 0.03 | |||||||
Potentially dilutive securities representing approximately 4,342,000 and 3,422,000 shares of common stock at September 30, 2014 and 2013, respectively, were excluded from the computation of diluted earnings per common share because their effect would have been anti-dilutive.
NOTE 4 – DEBT
Revolving Bank Line of Credit - The Company and Silicon Valley Bank (the “Bank”) entered into a Loan and Security Agreement (“Agreement”), effective as of September 27, 2011. On September 26, 2012, the Company and the Bank entered into a First Amendment to the Loan and Security Agreement. The First Amendment extended the maturity date of the Agreement to September 25, 2013. On October 1, 2013, the Company and the Bank entered into a Second Amendment to the Agreement, effective September 25, 2013. The Second Amendment extended the maturity date of the Agreement to September 24, 2014, reduced the applicable interest rate and certain other fees associated with Agreement and increased the level of tangible net worth required to be maintained. On September 24, 2014, the Company and the Bank entered into a Third Amendment to the Loan and Security Agreement. The Third Amendment extended the maturity date of the Agreement to December 24, 2014 with no other changes to the Agreement.
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 .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.
The line of credit agreement also contains numerous negative and affirmative covenants including, among others, 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 September 30, 2014, the Company had no borrowings against the line of credit and management believes 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 September 30, 2014 and December 31, 2013.
NOTE 6 – RELATED PARTY TRANSACTIONS
During the three and nine month periods ended September 30, 2014 and 2013, the Company had the following revenues from one customer that was also a shareholder of the Company:
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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|||||||||||||||
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2014
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2013
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2014
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2013
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New software licenses
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$ | 144,000 | $ | 51,000 | $ | 337,000 | $ | 141,000 | ||||||||
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Software license updates and product support
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33,000 | 34,000 | 90,000 | 84,000 | ||||||||||||
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Total software revenues
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177,000 | 85,000 | 427,000 | 225,000 | ||||||||||||
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Professional services
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- | - | 13,000 | - | ||||||||||||
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Total revenues
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$ | 177,000 | $ | 85,000 | $ | 440,000 | $ | 225,000 | ||||||||
The Company had accounts receivable from one customer that was also a shareholder totaling $88,000 and $22,000 at September 30, 2014 and December 31, 2013, 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 Condensed Consolidated Statements of Operations.
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 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.
As of December 31, 2013, the Company had a net operating loss carry forward of approximately $17,105,000 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.
As of September 30, 2014, the calculated value of the deferred tax asset was $1,210,000, reflecting a decrease of $128,000 from December 31, 2013, as a result of the use of some of the operating loss carry forward to offset taxes that would have otherwise been due on the net income for the nine months ended September 30, 2014.
NOTE 8 – SUBSEQUENT EVENTS
On October 1, 2014, the Company filed with the Securities and Exchange Commission (the “SEC”) under Section 13(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 13e-3 promulgated thereunder a Schedule 13E-3 Transaction Statement (the “Schedule 13E-3”), in connection with a proposed “going private” transaction. The primary purpose of the going private transaction is to reduce the number of record holders of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), to fewer than 300, thereby allowing the Company to terminate the registration of the Common Stock under Section 12(g) of the Exchange Act defined above and suspend its reporting obligations under Section 15(d) of the Exchange Act. The Reverse Stock Split may not be consummated until 20 days after the date on which the Company first mails the related Disclosure Statement to its stockholders.
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, 2014 and September 30, 2013 and the Company’s financial position at September 30, 2014. 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, 2013. 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, 2013.
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.
Cimetrix recently announced its proposal to reverse split its outstanding common stock on the basis of 1:20,000, so shareholders would hold one share post-split for every 20,000 shares they held pre-split. Any fractional shares resulting from the split will be converted to the right to receive $0.15 per pre-split share. The purpose of the transaction is to reduce the number of shareholders to permit the Company to deregister the common stock and suspend its SEC reporting obligations. The Company anticipates that this will result in ongoing annual savings, including management time, of approximately $250,000.
Critical Accounting Policies
The Company prepares its condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles. The Company's condensed consolidated financial statements are based on the application of certain accounting policies, the most significant of which are described in Note 1—Summary of Significant Accounting Policies to the Company’s audited financial statements included in the Company’s 2013 Annual Report filed on Form 10-K. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or be subject to variations and may significantly affect the Company's reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on the Company's future financial condition and results of operations.
New Accounting Pronouncements
See discussion under Note 1, Organization and Summary of Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, for information on new accounting pronouncements.
Results of Operations
Revenues
The following table summarizes revenues by category and as a percent of total revenues:
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2014
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2013
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2014
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2013
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New software licenses
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$ | 1,277,000 | 79 | % | $ | 810,000 | 74 | % | $ | 3,586,000 | 77 | % | $ | 2,887,000 | 76 | % | ||||||||
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Software license updates and product support
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279,000 | 17 | % | 224,000 | 21 | % | 858,000 | 18 | % | 729,000 | 19 | % | ||||||||||||
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Total software revenues
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1,556,000 | 96 | % | 1,034,000 | 95 | % | 4,444,000 | 95 | % | 3,616,000 | 95 | % | ||||||||||||
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Professional services
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64,000 | 4 | % | 55,000 | 5 | % | 237,000 | 5 | % | 190,000 | 5 | % | ||||||||||||
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Total revenues
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$ | 1,620,000 | 100 | % | $ | 1,089,000 | 100 | % | $ | 4,681,000 | 100 | % | $ | 3,806,000 | 100 | % | ||||||||
Total revenue increased by $531,000, or 49%, to $1,620,000 for the three months ended September 30, 2014, compared to total revenue of $1,089,000 for the three months ended September 30, 2013. For the nine months ended September 30, 2014, total revenue increased by $875,000, or 23%, to $4,681,000 from $3,806,000 for the nine months ended September 30, 2013. The increase in revenue year-over-year was attributable primarily to the increase in new software licenses as described below.
New software license revenues include the sale of software development kits and the ongoing runtime licenses equipment suppliers purchase for each machine shipped with Cimetrix software. New software license revenue for the three months ended September 30, 2014 increased by $467,000, or 58% to $1,277,000, compared to $810,000 for the three months ended September 30, 2013. For the nine months ended September 30, 2014, new software license revenues increased by $699,000, or 24% to $3,586,000 compared to new software license revenue of $2,887,000 for the nine months ended September 30, 2013.
The year-over-year increase was due to several factors. First, the Company reported five design wins and twenty-one design wins for the three and nine month periods ended September 30, 2014, respectively. The Company defines a design win as the sale of a software development kit (SDK) to a customer. The customer uses the SDK to integrate the respective Cimetrix software product into its machines. Design wins are important as they build a long term revenue stream for runtime licenses once the customer begins shipping the equipment. Secondly, increased sales of runtime licenses from our existing customer base contributed to the overall increase in new software license revenue.
Revenue associated with software license updates and product support for the three months ended September 20, 2014 increased by $55,000, or 25%, to $279,000 compared to $224,000 for the three months ended September 30, 2013. For the nine months ended September 30, 2014, software license updates and product support increased to $858,000, or 18%, compared to software license updates and product support of $729,000 for the nine months ended September 30, 2013. The year over year increase was due to a growing customer base as a result of design wins gained over the past year, as well as one customer renewing back support for three years to become current on the most recent versions of Cimetrix software.
Total software revenue increased by $522,000, or 50%, to $1,556,000 for the three months ended September 30, 2014, as compared to $1,034,000 for the three months ended September 30, 2013. For the nine months ended September 30, 2014, total software revenue increased 23% to $4,444,000 as compared to $3,616,000 for the nine months ended September 30, 2013. This increase in total software revenues is primarily attributable to an increase in new software license revenues as discussed earlier.
Professional services revenue was up by 16% to $64,000 for the three months ended September 30, 2014, as compared to $55,000 for the three months ended September 30, 2013. For the nine months ended September 30, 2014, professional services revenue was up by 25% to $237,000 as compared to $190,000 for the nine months ended September 30, 2013. The increase in professional services revenue is attributable to the increase in new customers associated with design wins for the Company’s software development kit products. Professional services revenue involves delivering training and coaching services for software development kits associated with new design wins.
In 2012, the Company revised its professional services strategy. The strategy focuses on training and coaching our OEM customers in the use of Cimetrix products, instead of implementing turnkey solutions. Cimetrix has an established 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 Research and Development for new products that should fuel long term growth.
Costs and Expenses
The following table sets forth the percentage of costs and expenses to total revenues derived from the Company's Condensed Consolidated Statements of Operations:
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2014
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2013
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2014
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2013
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Total Revenues
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100 | % | 100 | % | 100 | % | 100 | % | ||||||||
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Operating costs and expense:
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Cost of revenues
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36 | 45 | 35 | 43 | ||||||||||||
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Sales and marketing
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19 | 19 | 18 | 19 | ||||||||||||
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Research and development
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14 | 25 | 17 | 17 | ||||||||||||
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General and administrative
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22 | 23 | 24 | 23 | ||||||||||||
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Depreciation and amortization
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1 | 1 | 1 | 1 | ||||||||||||
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Total operating costs and expenses
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92 | 113 | 95 | 103 | ||||||||||||
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Income (loss) from operations
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8 | (13 | ) | 5 | (3 | ) | ||||||||||
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Other income
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- | - | - | - | ||||||||||||
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Total other income
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- | - | - | - | ||||||||||||
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Income (loss) before income taxes
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8 | (13 | ) | 5 | (3 | ) | ||||||||||
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Provision (benefit) for income taxes
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3 | (5 | ) | 3 | (38 | ) | ||||||||||
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Net income (loss)
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5 | % | (8 | )% | 2 | % | 35 | % | ||||||||
During the three months ended September 30, 2014, the Company reported income before taxes of $132,000 compared to a net loss of $149,000 for the same period in 2013 and net income of $87,000 compared to a net loss $90,000 for the same period in 2013. The Company reported income before taxes of $301,000 for the nine months ended September 30, 2014 compared to a net loss of $101,000 for the same period in 2013 and net income of $173,000 compared to $1,328,000 for the same period in 2013.
The net results for all periods include non-cash bad debt expense, non-cash stock-based compensation expense and non-cash depreciation and amortization expense. For the three-month periods ended September 30, 2014 and September 30, 2013, stock-based compensation expense was $30,000 and $20,000, respectively, and depreciation and amortization expense was $9,000 and $16,000, respectively. For the nine-month periods ended September 30, 2014 and September 30, 2013, bad debt expense was $10,000 and $0, respectively, stock-based compensation expense was $93,000 and $64,000, respectively, and depreciation and amortization expense was $28,000 and $50,000, respectively.
As of September 30, 2014, the calculated value of the deferred tax asset was $1,210,000, compared to $1,338,000 as of December 31, 2013. This decrease of $128,000 for the nine months ended September 30, 2014 represents the use of a portion of the deferred tax asset to offset current income tax expense on income before income taxes of $301,000 for the same period. 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 taxable income and is subject to ongoing review and, potentially, future changes.
Cost of Revenues
The Company's cost of revenues for the three months ended September 30, 2014 increased by $83,000, or 17% to $578,000 from $495,000 for three months ended September 30, 2013. For the nine-month periods ended September 30, 2014 and September 30, 2013, the Company’s cost of revenues decreased by $7,000, or less than 1% to $1,629,000 from $1,636,000. The increase in cost of revenues for the three month period ended September 30, 2014 was attributed to a short term focus to assist customers that were in the process of shipping new tools to new customers. The decrease in cost of revenues for the nine month period was a reflection of our success in increasing our efficiencies to maintain our current software products. The Company invested significantly over the past several years in the technology, tools and quality assurance of our current products, which allows us to more quickly respond to customers and implement new features at lower costs. The Company continues to provide a very high level of customer support and issue new releases for its current products in a more cost effective manner. As part of our corporate strategy and as a result of those reduced costs, we were able to redeploy our engineering efforts to research and development activities as discussed in the Research and Development section below. 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 level of customer support activities, the pricing strategy for the projects, the extent of utilization of outside resources, and other factors.
Sales and Marketing
Sales and marketing expenses increased $104,000, or 49%, to $315,000 during the three months ended September 30, 2014, from $211,000 during the three months ended September 30, 2013. For the nine-month periods ended September 30, 2014 and September 30, 2013, the Company’s sales and marketing expenses increased by $131,000, or 18% to $840,000 form $709,000. The increase was primarily a result of increased commissions and payroll costs. 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 $45,000 or 17%, to $223,000 during the three months ended September 30, 2014, from $268,000 during the three months ended September 30, 2013. For the nine-month periods ended September 30, 2014 and September 30, 2013, the Company’s research and development expenses increased by $109,000, or 16% to $774,000 from $665,000. As discussed above, research and development expenses decreased during the three month period ended September 30, 2014 while we temporarily assigned resources to assist customers deploying new tools to new customers. For the nine month period, also as discussed above, our efforts to increase efficiencies in maintaining and supporting our current products, combined with our professional services strategy, has allowed us to devote more engineering efforts towards research and development activities for new products to expand our markets. 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 increased $114,000 or 45%, to $365,000 in the three months ended September 30, 2014, from $251,000 in the three months ended September 30, 2013. For the nine-month periods ended September 30, 2014 and September 30, 2013, the Company’s general and administrative expenses increased by $253,000, or 29% to $1,111,000 from $858,000 . The increase was primarily due to higher net income, related profit sharing costs and professional fees incurred in connection with the proposed going private transaction. See Note 8 of the Company’s financial statements included as Item 1 to Part 1 of this report for details. General and administrative expenses include all direct costs for administrative and accounting personnel, and all rents and utilities for maintaining Company offices.
Liquidity and Capital Resources
At September 30, 2014, the Company had current assets of $2,701,000, including $1,615,000 in cash, and current liabilities of $772,000, resulting in working capital of $1,929,000. The Company anticipates that the costs of associated with the pay-out for fractional shares and associated transaction costs will be in excess of $900,000. These costs will be paid from funds currently available to the Company.
Revolving Bank Line of Credit - The Company and Silicon Valley Bank (the “Bank”) entered into a Loan and Security Agreement which expires in December 2014. 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.
As of September 30, 2014, the Company had no borrowings against the line of credit.
Net cash generated by operating activities for the nine months ended September 30, 2014 was $753,000 compared to $39,000 net cash generated by operating activities for the nine months ended September 30, 2013. The increase in cash generated by operating activities is primarily attributable to the increased revenues, year over year.
Net cash used in investing activities during the nine months ended September 30, 2014, was $25,000 and consisted of the purchase of hardware and software upgrades. Net cash used in investing activities during the nine months ended September 30, 2013, was $6,000 and consisted of $22,000 for the purchase of hardware and software, less $14,000 in proceeds received from the refund of a security deposit related to a capital lease and proceeds of $2,000 from the sale of property and equipment.
Net cash used in financing activities for the nine months ended September 30, 2014 was $0 compared to $47,000 for the nine months ended September 30, 2013. The payment of $47,000 during the nine months ended September 30, 2013, 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 $2,982,000 during the nine months ended September 30, 2014, representing 64% of the Company’s total revenues, compared to $1,781,000 or 47%, of total revenues during the same period in 2013. 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 European OEM customers as well as increased sales in our Japan subsidiary. 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 revenues for the first nine months of 2014 increased 23% compared to the nine months of 2013, reflecting the anticipated 2014 up-cycle in the semiconductor equipment industry.
The Company continues to focus on incrementally expanding its customer base and product line in order to increase revenues. In the last two years, the Company invested significant research and development resources into 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.
In mid-October 2013, the Company introduced CIMPortal Plus software for equipment manufacturers and integrated device manufacturers (IDMs). CIMPortal Plus, combined with new SEMI standards, provides the capability to chip makers to determine when and how much data to collect. CIMPortal Plus makes the equipment data collection more efficient leading to increased productivity, quality improvements and reduced costs in the fabs. Cimetrix believes the market for CIMPortal Plus will grow as adoption of the new SEMI standards increases.
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 its customers. We established a set of worldwide integration partners for those customers that 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 Company is pursuing the reverse split and going private transaction primarily to eliminate the costs associated with being a public company, which should reduce operating costs and increase net income. However, the markets for the Company’s products are emerging and specialized. There can be no assurance that the markets for 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.
The Company is not subject to this requirement as a smaller reporting company.
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.
The Company is not currently involved in any pending litigation.
The Company is not subject to this requirement as a smaller reporting company.
None.
None
None
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Exhibit No.
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Description
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10.1
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Loan and Security Agreement dated September 27, 2011 between Silicon Valley Bank and
Cimetrix Incorporated (1)
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10.2
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Loan and Security Agreement dated September 26, 2012 between Silicon Valley Bank and
Cimetrix Incorporated (2)
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10.3
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Loan and Security Agreement dated October 1, 2013 between Silicon Valley Bank and
Cimetrix Incorporated (3)
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10.4
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Loan and Security Agreement dated September 24, 2014 between Silicon Valley Bank and
Cimetrix Incorporated (4)*
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31.1
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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*
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31.2
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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*
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32.1
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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*
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32.2
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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*
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99.1
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Press Release dated October 28, 2014*
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101
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Interactive Data Files*
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______________________________________
(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
(3) Included in the Company’s Form 8-K filed on October 7, 2013
(4) Included herein
* Exhibits filed with this report
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: October 29, 2014
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By: /S/ Robert H. Reback
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Robert H. Reback
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President and Chief Executive Officer
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(Principal Executive Officer)
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By: /S/ Jodi M. Juretich
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Jodi M. Juretich
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Chief Financial Officer
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(Principal Financial and Accounting Officer)
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18