-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U9mUomuOEMrZnuzGEWxd5IcCL2BLFxzMfMIUZg56z1FEVdZXBmmGYBhaSUpLa5RY 0iCcxplBAxu0zVymhobwGw== 0000892569-99-000562.txt : 19990223 0000892569-99-000562.hdr.sgml : 19990223 ACCESSION NUMBER: 0000892569-99-000562 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL AUTOMATION INC CENTRAL INDEX KEY: 0000040443 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 952488811 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09652 FILM NUMBER: 99546816 BUSINESS ADDRESS: STREET 1: 17731 MITCHELL NORTH CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 7147784800 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED DEC 31, 1998 1 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 QUARTERLY PERIOD ENDED DECEMBER 31, 1998 OR |_| 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 0-5260 GENERAL AUTOMATION, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter). DELAWARE 95-2488811 ------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. employer I.D. No.) incorporation or organization) 17731 MITCHELL NORTH, IRVINE, CALIFORNIA 92614 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's telephone number including area code: (949) 250-4800 ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. No Yes X --- --- As of February 1, 1999 there were 9,332,641 shares of common stock of the Registrant outstanding. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENERAL AUTOMATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31 SEPTEMBER 30 1998 1998 ------------ ------------ ASSETS Current Assets: Cash $ 823,000 $ 856,000 Accounts receivable 4,594,000 4,165,000 Inventories 1,883,000 1,986,000 Prepaid expenses and other 824,000 1,073,000 ------------ ------------ Total current assets 8,124,000 8,080,000 Capitalized software 1,509,000 1,639,000 Property and equipment 1,949,000 2,073,000 Goodwill, net of amortization 1,925,000 2,043,000 Other assets 455,000 279,000 ------------ ------------ TOTAL ASSETS $ 13,962,000 $ 14,114,000 ============ ============ LIABILITIES Current liabilities: Bank line of credit 2,200,000 2,200,000 Current portion of long-term debt 691,000 811,000 Note payable and due to TMI 6,401,000 6,401,000 Due to Boundless 2,374,000 2,043,000 Accounts payable 2,351,000 1,805,000 Accrued expenses 3,241,000 3,860,000 Deferred revenue 4,159,000 4,711,000 ------------ ------------ Total current liabilities 21,417,000 21,831,000 Long-term debt, excluding current portion 2,175,000 2,210,000 ------------ ------------ Total Liabilities 23,592,000 24,041,000 ------------ ------------ SHAREHOLDERS' EQUITY (DEFICIT) Common stock 933,000 933,000 Additional paid-in capital 45,442,000 45,442,000 Accumulated deficit (55,914,000) (56,071,000) Cumulative translation adjustment (91,000) (231,000) ------------ ------------ TOTAL SHAREHOLDERS' DEFICIT (9,630,000) (9,927,000) ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 13,962,000 $ 14,114,000 ============ ============
The accompanying notes are an integral part of these financial statements. 2 3 GENERAL AUTOMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31 ------------------------------- 1998 1997 ----------- ----------- Sales - Product $ 3,112,000 $ 2,570,000 Sales - Service revenue 4,654,000 5,673,000 ----------- ----------- TOTAL SALES 7,766,000 8,243,000 ----------- ----------- Cost of sales - Product 2,245,000 2,036,000 Cost of sales - Service 2,259,000 3,600,000 ----------- ----------- TOTAL COST OF SALES 4,504,000 5,636,000 ----------- ----------- GROSS PROFIT 3,262,000 2,607,000 ----------- ----------- COSTS AND EXPENSES: Selling and administrative 2,391,000 2,439,000 Research and development 267,000 555,000 Depreciation 145,000 170,000 Amortization of goodwill 146,000 418,000 Other, net (14,000) (1,000) ----------- ----------- 2,935,000 3,581,000 ----------- ----------- OPERATING INCOME/(LOSS) 327,000 (974,000) Interest income 2,000 Interest expense (169,000) (93,000) ----------- ----------- INCOME/(LOSS) BEFORE INCOME TAXES 158,000 (1,065,000) Provision for income taxes 1,000 0 ----------- ----------- $ 157,000 $(1,065,000) =========== =========== NET INCOME (LOSS) PER SHARE: BASIC $ 0.02 $ (0.12) FULLY DILUTED $ 0.02 $ (0.12) =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC 9,312,035 9,252,156 FULLY DILUTED 9,312,035 9,252,156
The accompanying notes are an integral part of these financial statements. 3 4 GENERAL AUTOMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31 -------------------------------- 1998 1997 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME (LOSS) $ 157,000 $(1,065,000) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 291,000 873,000 Changes in assets and liabilities: (Increase)decrease in: Accounts receivable (429,000) (167,000 Inventories 103,000 379,000 Prepaid expenses 249,000 (417,000) Other assets (74,000) 63,000 Increase (decrease) in: Accounts payable 877,000 1,441,000 Deferred revenue (552,000) (538,000) Accrued expenses (619,000) (178,000) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,000 391,000 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (14,000) (44,000) Proceeds from disposal of assets - (278,000) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (21,000) (322,000) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock - 24,000 Proceeds from issuance of debt - 219,000 Principal payments on notes debt (155,000) (810,000) ----------- ----------- NET CASH USED BY FINANCING ACTIVITIES (155,000) (567,000) ----------- ----------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH 140,000 34,000 Net increase in cash and equivalents (33,000) (464,000) Cash and equivalents, beginning of period 856,000 797,000 ----------- ----------- Cash and equivalents, end of period $ 823,000 $ 333,000 =========== =========== Cash paid during the period for: Interest $ 157,000 $ 93,000 =========== =========== Income taxes $ 1,000 $ 0 =========== ===========
The accompanying notes are an integral part of these statements 4 5 GENERAL AUTOMATION, INC., AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 1 - Interim Financial Information The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K. 5 6 GENERAL AUTOMATION, INC. AND SUBSIDIARIES ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The discussion in this document contains trend analysis and other 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. Actual results could differ materially from those projected in the forward-looking statements throughout this document. (1) MATERIAL CHANGES IN FINANCIAL CONDITION: At the quarter ended December 31, 1998, the Company continues to operate under stressed financial conditions. Total shareholder's deficit improved marginally to a negative $9.6 million versus a negative $9.9 million at the year ended September 31, 1998. Also, the working capital position of the Company remains a negative $13 million for the quarter ended, virtually unchanged from the year end total. Management of the Company has previously reported that negotiations to restructure and complete the 1995 and 1996 acquisitions of Boundless and TMI, respectively, are taking place. At the quarter ended December 31, 1998 those negotiations continue to progress. The management of both Boundless and TMI have signed non-binding letters of intent to accept an offer to settle and complete those transactions. Additionally, the Company has engaged the investment banking services of E-Offering, formerly Cruttenden Partners, to assist and advise Management on this transaction. The management teams of both General Automation, Inc. and E-Offering remain optimistic, though no assurances can be made, that this transaction will be completed during fiscal 1999. (2) MATERIAL CHANGES IN RESULTS OF OPERATIONS: For the three months ended December 31, 1998 the Company is reporting Income from Operations of $327,000 and Net Income After Taxes of $157,000. For the same period ended December 31, 1997 the Company had reported an Operating Loss of $974,000, with a Net Loss of $1,065,000. The improvement in the results of operations is largely due to the reduction of costs and expenses which were initiated late in fiscal 1998 and the results being realized in fiscal 1999. Management expects the benefits of those cost reductions will continue to be realized throughout 1999. The Gross Profit Margin for the quarter ended December 31, 1998 improved to 42% from the 31% reported at December 31, 1997. This improvement is largely attributed to the cancellation of a third party service contract which the Company had inherited with a prior acquisition. This contract had burdened the Company's cost of sales by $750,000 per quarter, which is now eliminated. Additionally, the Company, during fiscal 1998, had substantially reduced the operations and overhead of its Marlborough, MA facility. That reduction, along with other reductions throughout the Company's operations, have taken the personnel head-count from 220 at December 31, 1997 down to 160 at December 31, 1998. Management has estimated that cost and expense reductions initiated during fiscal 1998 will save the Company over $4.5 million during fiscal 1999. 7 7 Other expense categories reported at December 31, 1998 are reflecting the savings discussed above. At the year ended September 30, 1998, an evaluation was made of the goodwill which arose as a result of the TMI/Sequoia acquisition in fiscal 1996. It was determined that due to the significant decline in revenues associated with that acquisition, a reduction in the book-value of goodwill was required. The decline in goodwill amortization at December 31, 1998 vs 1997 is reflecting that year-end write-down of goodwill. Also, while the Company is reporting an increase in "product" sales at December 31, 1998 over the 1997 period, "service" revenue associated with the previously discussed goodwill, declined by approximately 20%. Management expects this trend of declining service revenue will continue throughout 1999. As a positive impact on the daily operations, effective December 31, 1998, the Company entered into a "Forbearance Agreement" with its primary lender, Comerica Bank. Without giving up any of its rights as a banker, Comerica effectively is allowing the Company to work through its efforts in improving operations and financial condition, without the threat of additional problems from the bank. Management of the Company has been pleased and encouraged by the working relationship it has with Comerica. During fiscal 1998, the Company had defaulted on certain financial covenants in its loan agreement with the bank. Comerica subsequently made demand for payment in full, then amended the original terms of the loan agreement, and has now agreed to the forbearance terms. The outstanding indebtedness to the bank at December 31, 1998 was $2.2 million. Subsequent to the quarter ended December 31, 1998 the company also entered into an agreement-in-principle with the Internal Revenue Service related to the closure of an almost two year long IRS federal tax audit. This audit was disclosed in the Company's September 30, 1998 Form 10-K as having the potential of a $250,000 tax liability. The IRS had challenged the amount of Net Operating Loss Carryforward (NOL) which the Company can use to offset taxable earnings. The IRS and the Company have agreed on a NOL amount which is deemed fair by both parties and results in no tax liability for General Automation. It also allows the Company to file for federal and state tax refunds from prior periods. At the present time, Management has not estimated the amounts of those refunds. Final documentation on this matter is expected to be completed during the second fiscal quarter. Management is focusing its efforts in the near future on continued cost/expense reduction, and seeking revenue sources which generate the highest possible gross profit margin. The Company intends to increase the sales efforts in the area of service/maintenance contracts which historically provide a higher profit margin than product sales. Also, the Company's wholly owned Canadian subsidiary, Liberty Integration Software, has been successful in developing and marketing its propriety web-integration and e-commerce software in fiscal 1999. Subsequent to the quarter ended December 31, 1998 Liberty successfully completed a contract sale to a large customer source which Management expects could generate over $5.0 million in revenues over the next two years, though no assurances can be made that sales will reach that level. Those potential revenues will be recognized as cash is received from the sale of software "seats". In, and subsequent to, the quarter ended December 31, 1998, Liberty had collected, and recognized as revenue, the first $700,000 of these sales. Management believes that this form of high-margin proprietary sale could become one of the Company's leading revenue sources over the next several years. Other expense categories reported at December 31, 1998 are reflecting the savings discussed above. At the year ended September 30, 1998, an evaluation was made of the goodwill which arose as a result of the TMI/Sequoia acquisition in fiscal 1996. It was determined that due to the significant decline in revenues associated with that goodwill, a reduction in the book-value of goodwill was appropriate and in line with generally accepted accounting principles. The decline in goodwill amortization at December 31, 1998 vs 1997 is reflecting that year-end write-down of goodwill. Also, while the Company is reporting an increase in "product" sales at December 31, 1998 over the 1997 period, "service" revenue associated with the previously discussed goodwill, continues to decline by approximately 20%. Management expects this trend of declining service revenue will continue throughout 1999. As a positive impact on the daily operations, effective December 31, 1998, the Company entered into a "Forbearance Agreement" with its primary lender, Comerica Bank. Without giving up any of its rights as a banker, Comerica effectively is allowing the Company to work through its efforts in improving operations and financial condition, without the threat of additional problems from the bank. Management of the Company has been pleased and encouraged by the working relationship it has with Comerica. During fiscal 1998, the Company had defaulted on certain financial covenants in its loan agreement with the bank. Comerica subsequently made demand for payment in full, then amended the original terms of the loan agreement, and has now agreed to the forbearance terms. The outstanding indebtedness to the bank at December 31, 1998 was $2.2 million. Subsequent to the quarter ended December 31, 1998 the company also made an agreement-in-principle with the Internal Revenue Service related to the closure of an almost two year long IRS federal tax audit. This audit was disclosed and discussed in the footnotes to the audited financial statements in the Company's September 31, 1998 Form 10-K and indicated the potential of a $250,000 tax liability. The IRS had challenged the amount of Net Operating Loss Carry-forward (NOL) which the Company can use to offset taxable earnings. The IRS and the Company have agreed on a NOL amount which is deemed fair by both parties and results in no tax liability for General Automation. It also allows the Company to file for federal and state tax refunds from prior periods. At the present time, Management has not estimated the amounts of those refunds. Final documentation on this matter is expected to be completed during the second fiscal quarter of the Company. Management is focusing its efforts in the near future on continued cost/expense reduction, and seeking revenue sources which generate the highest possible gross profit margin. The Company intends to increase the sales efforts in the area of service/maintenance contracts which historically provide a higher profit margin than product sales. Also, the Company's wholly owned Canadian subsidiary, Liberty Integration Software, has been successful in developing and marketing its propriety web-integration and e-commerce software in fiscal 1999. Subsequent to the quarter ended December 31, 1998 Liberty successfully completed a contract sale to a large customer source which Management expects could generate over $5.0 million in revenues over the next two years, though no assurances can be made that sales will reach that level. Those potential revenues will be recognized as cash is received from the sale of software "seats". In, and subsequent to, the quarter ended December 31, 1998, Liberty had collected, and recognized as revenue, the first $700,000 of these sales. Management believes that this form of high-margin proprietary sale could become one of the Company's leading revenue sources over the next several years. (3) YEAR 2000 ISSUES AND CONSEQUENCES As the end of the century draws near, there is concern that Year 2000 technology problems may wreak havoc on global economies and materially effect the operating results of companies. General Automation, Inc. is taking the steps necessary to insure that this potential problem does not adversely affect its operating results in the future. In this regard, Management is continuing its assessment of Year 2000 issues. Because the Company's products are primarily written in licensed versions of the Pick Operating System, there is effectively no Year 2000 problem due to the design of the Pick System which took this into account at its inception. However, the "applications" written for the Pick System, and, other Operating Systems which host the Company's Pick Data Base implementation, could potentially have Year 2000 issues. Also, third-parties which the Company has material relationships with, such as vendors, may, or may not, be Year 2000 compliant. In both of these instances, the Company takes steps necessary to verify Year 2000 compliance. Company's State of Readiness The Company is confident that its own internal systems are Year 2000 compliant, or planned up-grades are in place; e.g. accounting, reporting, etc. However, the Company is continuing its efforts to verify third party compliance, primarily through the use of questionnaires. Areas in which the Company will focus its concerns will be: The equipment and software for its wide-area frame-relay network Telephone switches and hand-sets Corporate-headquarter alarm and entry systems E-mail software Other peripheral equipment such as fax machines, scanners, printers, etc Costs Associated with Year 2000 Issues Because the Company's product lines have been Year 2000 compliant at their inceptions, Management does not expect any material costs will be incurred to complete compliance issues which may be outstanding. Risks Associated with Year 2000 Issues Management is unaware of any material risk's associated with Year 2000 issues at the present time which would adversely affect operations of the Company. Contingency Plans The Company's engineers and software developers continually monitor product for Year 2000 compliance. This will be an on-going effort for the balance of the calendar year 1999. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK N/A 8 8 GENERAL AUTOMATION, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS None. ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5 - OTHER INFORMATION None. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K None. Exhibit 27.1 Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. General Automation, Inc. Registrant /s/ Jane M. Christie February 22, 1999 - -------------------------------------- ----------------- Jane M. Christie Date President and Chief Executive Officer /s/ Richard H. Nance February 22, 1999 - -------------------------------------- ----------------- Richard H. Nance Date Vice President and Chief Financial Officer 9 9 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27.1 Financial Data Schedule EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERNALLY PREPARED STATEMENTS FOR THE QUARTER ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1998. 3-MOS SEP-30-1999 OCT-01-1998 DEC-31-1998 823,000 0 5,213,000 619,000 1,883,000 8,124,000 5,541,000 3,592,000 13,962,000 21,417,000 0 0 0 933,000 0 13,962,000 3,112,000 7,766,000 2,245,000 4,504,000 2,896,000 39,000 169,000 158,000 1,000 157,000 0 0 0 0 .02 .02
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