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UNITED STATES
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to _______
Commission File Number 000-27419
COMPUTER AUTOMATION SYSTEMS, INC.
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(Exact name of small business issuer as specified in its charter)
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NEVADA 75-2749166
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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1825 E. PLANO PARKWAY
SUITE 200
PLANO, TEXAS 75074
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(Address of principal executive offices)
(972) 578-3128
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,369,334.
Transitional Small Business Disclosure Format (check one) [ ] Yes [X] No
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COMPUTER AUTOMATION SYSTEMS, INC. AND SUBSIDIARY INDEX
FOR QUARTERLY REPORT ON FORM 10-QSB FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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Page
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PART I FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Consolidated Balance Sheets at September 30, 2000 (unaudited) and December 31, 1999 2
Consolidated Statements of Operations (unaudited)
for the periods ended September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows (unaudited) for the
periods ended September 30, 2000 and 1999 4
Notes to Interim Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
PART II OTHER INFORMATION 9
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
See notes to interim consolidated financial statements (unaudited)
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPUTER AUTOMATION SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
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ASSETS
(Unaudited)
September 30, December 31,
2000 1999
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Current assets
Cash and cash equivalents $ 205,643 $ 178,321
Accounts receivable (net of allowance for uncollectible
accounts of $9,082 at September 30, 2000 and
December 31, 1999) 169,397 908,693
Note receivable - current portion 4,151 --
Employee receivables 50,407 17,493
Other receivables -- 8,109
Deferred tax asset 55,903 8,903
Inventory 183,475 168,168
--------------- ---------------
Total current assets 668,976 1,289,687
Property and equipment and capitalized software costs, net 102,978 36,930
Note receivable, less current portion 5,849 --
Other assets 6,109 --
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TOTAL ASSETS $ 783,912 $ 1,326,617
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion - long term debt $ 2,533 $ --
Accounts payable (includes $41,785 and $318,233
to a related party at September 30, 2000 and
December 31, 1999, respectively) 167,129 437,705
Accrued liabilities -- 11,322
Warranty reserve 15,000 15,000
Income taxes payable -- 232,871
--------------- ---------------
Total current liabilities 184,662 696,898
Long-term debt, less current portion 3,801 --
Convertible debt 50,000 --
Shareholders' equity
Preferred stock -- 5,000,000 shares authorized, $.001
par value; no shares issued or outstanding -- --
Common stock -- 15,000,000 shares authorized, $.001 par
value; 8,369,334 shares issued and outstanding 8,370 8,370
Additional paid-in capital 313,097 313,097
Retained earnings 223,982 308,252
--------------- ---------------
Total shareholders' equity 545,449 629,719
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 783,912 $ 1,326,617
=============== ===============
</TABLE>
See notes to interim consolidated financial statements (unaudited)
2
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COMPUTER AUTOMATION SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended September 30, Nine Months Ended September 30,
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2000 1999 2000 1999
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Revenues $ 726,927 $ 1,284,220 $ 1,759,972 $ 2,457,974
Cost of revenues 408,216 861,917 1,067,091 1,568,803
-------------- -------------- -------------- --------------
Gross profit 318,711 422,303 692,881 889,171
General and administrative expenses 182,499 173,926 547,077 490,158
Research and development expenses 86,876 -- 271,973 --
-------------- -------------- -------------- --------------
Operating income (loss) 49,336 248,377 (126,169) 399,013
Other expenses (13,061) (2,674) (12,390) (2,943)
-------------- -------------- -------------- --------------
Net income (loss) before income taxes 36,275 245,703 (138,559) 396,070
Income tax expense (benefit) 8,703 63,335 (54,289) 137,415
-------------- -------------- -------------- --------------
Net income (loss) $ 27,572 $ 182,368 $ (84,270) $ 258,655
============== ============== ============== ==============
Income (loss) per share - basic $ .003 $ .022 $ (.010) $ .031
============== ============== ============== ==============
Income (loss) per share - diluted $ .003 $ .022 $ (.010) $ .031
============== ============== ============== ==============
Weighted average shares outstanding -
basic 8,369,334 8,333,334 8,369,334 8,333,334
============== ============== ============== ==============
Weighted average shares outstanding -
diluted 8,451,834 8,333,334 8,369,334 8,333,334
============== ============== ============== ==============
</TABLE>
See notes to interim consolidated financial statements (unaudited)
3
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COMPUTER AUTOMATION SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Nine Months Ended September 30,
--------------------------------
2000 1999
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Cash flows from operating activities
Net income (loss) $ (84,270) $ 258,655
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 19,167 16,806
Deferred taxes (47,000) 62,415
Bad debt expense -- 50,102
Loss on sale of equipment 6,740 --
Changes in operating assets and liabilities:
Accounts receivable 739,371 (524,993)
Inventory (15,307) (106,064)
Other receivables (30,914) (24,431)
Other assets -- (500)
Income taxes payable (232,871) 75,000
Accounts payable (270,652) 150,482
Accrued liabilities (11,322) 135,394
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Net cash provided by operating activities 72,942 92,866
Cash flows from investing activities
Capital expenditures (94,353) (3,236)
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Net cash used in investing activities (94,353) (3,236)
Cash flows from financing activities
Payments on capital lease (1,267) --
Payments on loan from shareholder -- (41,130)
Proceeds from issuance of stock -- 214,467
Proceeds from issuance of convertible debt 50,000 --
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Net cash provided by financing activities 48,733 173,337
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Net increase in cash and cash equivalents 27,322 262,967
Cash and cash equivalents, beginning of period 178,321 16,079
------------ ------------
Cash and cash equivalents, end of period $ 205,643 $ 279,046
============ ============
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 225,582 $ --
============ ============
Schedule of non-cash investing and financing transactions
Issued note receivable for sale of equipment $ 10,000 $ --
============ ============
Capital lease obligation incurred for use of equipment $ 7,601 $ --
============ ============
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See notes to interim consolidated financial statements (unaudited).
4
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COMPUTER AUTOMATION SYSTEMS, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Computer Automation
Systems, Inc. and Subsidiary (the "Company") have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in conformity with generally accepted
accounting principles have been omitted or condensed pursuant to such rules and
regulations. These statements should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended December 31, 1999 and the period
February 13, 1998 (date of inception) to December 31, 1998. In management's
opinion, these interim consolidated financial statements reflect all adjustments
(consisting of normal and recurring adjustments) necessary for a fair
presentation of the consolidated financial position and results of operations
for each of the periods presented. The accompanying unaudited interim financial
statements for the nine months ended September 30, 2000 are not necessarily
indicative of the results which can be expected for the entire year.
The consolidated financial statements of the Company include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany
transactions have been eliminated in consolidation.
2. CONCENTRATION OF OPERATIONS
The Company assembles industrial and commercial computers primarily for one
customer. This customer accounted for approximately 98% and 97% of the Company's
total revenues for the three months ended September 30, 2000 and for the nine
months ended September 30, 2000, respectively. Additionally, this customer
accounted for approximately 76% of the Company's accounts receivable at
September 30, 2000.
3. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per share calculations are presented in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". Accordingly, basic earnings (loss) per share are computed by dividing
net income (loss) by the weighted average number of shares outstanding for the
year. Diluted earnings per share are computed by dividing net income (loss) by
the weighted average number of common shares plus dilutive common share
equivalents outstanding during the period using the treasury stock method.
Common stock equivalents were not included in the computation for the nine-month
period ended September 30, 2000 because their inclusion is anti-dilutive. There
were no outstanding common stock equivalents for the three and nine month
periods ended September 30, 1999.
5
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3. EARNINGS (LOSS) PER COMMON SHARE (Continued)
The following table provides a reconciliation between basic and diluted earnings
(loss) per share:
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Three months ended Nine months ended
September 30 September 30,
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2000 1999 2000 1999
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Net income (loss) $ 27,572 $ 182,368 $ (84,270) $ 258,655
Weighted average number of shares outstanding
Basic 8,369,334 8,333,334 8,369,334 8,333,334
Dilutive effect of common stock equivalents 82,500 -- -- --
----------- ----------- ----------- -----------
Diluted 8,451,834 8,333,334 8,369,334 8,333,334
Earnings (loss) per share, basic $ .003 $ .022 $ (.010) $ .031
=========== =========== =========== ===========
Earnings (loss) per share, diluted $ .003 $ .022 $ (.010) $ .031
=========== =========== =========== ===========
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4. CONVERTIBLE DEBT
At September 30, 2000, the Company secured $50,000 of financing as part of a
$150,000 convertible note agreement. Pursuant to the terms of this agreement,
the Company can draw down an additional $100,000 in the fourth quarter of 2000.
The Company plans to use the funding for research and development of its new
products. Interest accrues on the outstanding principal balance of the note at
the rate of 10% per annum and is payable monthly. The unpaid principal together
with unpaid accrued interest is due on September 27, 2003. The holder of the
note has the option of converting all unpaid principal and accrued interest into
shares of CASI common stock at the rate of $1.25 per share.
5. RESEARCH AND DEVELOPMENT COSTS
The Company classifies the costs of planning, designing and establishing the
technological feasibility of a computer software product as research and
development costs and charges those costs to expense when incurred. After
technological feasibility has been established, costs of producing a marketable
product are capitalized and amortized over the estimated life of the product (3
years). Cost of maintenance and customer support is charged to expense as
incurred. During 2000, the Company incurred research and development
expenditures of $271,973 relating to the research, development and testing of
new product lines.
6. STOCK OPTIONS AND WARRANTS
During the third quarter of 2000, the Company extended 750,000 outstanding
warrants to purchase shares of common stock of CASI through December 31, 2000,
which, if exercised could generate $750,000 of capital for the Company.
On June 5, 2000 the Board unanimously approved a stock option plan for
employees, Board members and key contractors. The plan allows the Board to award
up to 500,000 stock options. The Board awarded 275,000 stock options during the
second quarter of 2000. No options have been exercised through September 30,
2000.
6
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ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Computer Automation Systems, Inc. ("CASI" or the "Company") designs and
manufactures custom rack-mount and industrial computer applications for the
telecommunications and other industries. The Company uses in-house engineering
to provide responsive, customized, and innovative responses to customer
specifications and requirements. The Company specializes in the development of
National Equipment Building Standards ("NEBS") certified, Sun and Intel
microprocessor-based, fault-tolerant systems for the telecommunications
industry. NEBS is a telecommunication industry design standard for manufacturing
telephone applications equipment.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDING SEPTEMBER 30, 2000 AND 1999
The Company incurred a net loss after tax of $84,270 (-$0.010 per share) for the
nine months ending September 30, 2000 as compared with net income of $258,655
($0.031 per share) for the same period in 1999. The decrease in net income was
primarily due to a $271,973 investment in research and development expenditures
($271,973 in 2000 versus $0 in 1999) and reduced revenues.
Revenues for the nine months ending September 30, 2000 were $1,759,972 as
compared to $2,457,974 for the same period in 1999 due to the rescheduling of
deliveries into 2001 by Alcatel, CASI's largest customer. Alcatel represented
approximately 97% of CASI's sales for the nine months ending September 30, 2000
and for the same period in 1999. Additionally, Alcatel represented approximately
76% of the Company's accounts receivable at September 30, 2000. CASI is
currently working with Alcatel to develop several new telecommunication systems.
Evaluation systems have been configured and are currently under test at the
customer's facilities. If these new systems contracts are awarded to CASI before
the end of 2001 they could have a significant positive impact on revenues in
2001.
In order to expand its customer base, the Company has invested significantly in
research and development during 2000. CASI did not spend any money on research
and development in 1999, but its $215,000 investment in 1998, helped the Company
achieve over $5 million in combined sales for 1999 and 2000. Management believes
that CASI will spend approximately $350,000 to $400,000 in total research and
development expenditures during 2000 for the development of new products for the
growing telecommunication market, including its NEBS-402TM products, compact PCI
systems, and the ACE product line. Management plans for some of these new
products to be available for delivery to potential customers during the fourth
quarter of 2000.
CASI is also working with new potential customers to develop new markets and the
new product lines (ACE and PCI). For example, CASI's enhancements to the ACE
product line will expand its market into removable embedded industrial computer
applications. Proto-types of these products are scheduled to be delivered during
the fourth quarter of 2000. The Company believes that this research and
development and the increased customer base will have a positive impact on
revenues in the fourth quarter and in 2001.
Despite lower sales in 2000, gross profit margins have improved. Gross profit
was 39% of sales for the nine months ended September 30, 2000 as compared with
36% of sales for the same period in 1999. This increase was primarily due to
improved purchasing controls and improved quality control procedures which
reduces manufacturing time and costs.
General and administrative expenses for the nine months ended September 30, 2000
were $547,077, a $56,919 (11.6%) increase over the same period in 1999 due
primarily to an increase in legal and accounting services (from $31,605 in 1999
to $107,375 in 2000).
7
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2000 AND 1999
The Company generated net income of $27,572 ($0.003 per share) for the three
months ending September 30, 2000 as compared with net income of $182,368 ($0.022
per share) for the same period in 1999. The decrease in net income was primarily
due to higher research and development expenditures ($86,876 in 2000 versus $0
in 1999) and reduced revenues.
Revenues for the third quarter ending September 30, 2000 were $726,927 as
compared to $1,284,220 for the same period in 1999 due to lower sales from
Alcatel in 2000. Over one-third of 1999 sales to Alcatel occurred in the third
quarter of 1999.
Gross profit margins increased to 43% for the third quarter ended September 30,
2000 as compared with a 33% gross profit margin for the third quarter ended
September 30, 1999 due primarily to improved purchasing controls and improved
quality control procedures which reduces manufacturing time and costs.
General and administrative expenses for the three months ended September 30,
2000 were $182,499, a $8,573 (4.9%) increase over the same period in 1999. The
increased expenses were primarily due to legal and auditing expenses and public
relations expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ratio of current assets to current liabilities improved from 1.85
to 1 at September 30, 1999 to 3.6 to 1 at September 30, 2000. Cash and cash
equivalents were $205,643 at September 30, 2000 as compared with $279,046 at
September 30, 1999, and total working capital was $484,314 at September 30, 2000
compared to $592,789 at December 31, 1999. Major changes affecting working
capital were the payment of income taxes during 2000, the net loss for the
period, reduction of trade payables, and collections of trade receivables.
Cash provided from operating activities was $72,942 (a decrease of $19,924),
during the nine months ended September 30, 2000 as compared with $92,866 for the
nine months ended September 30, 1999. The change was primarily due to the same
factors affecting working capital mentioned above.
Cash used in investing activities increased $91,117 for the nine months ended
September 30, 2000 as compared with the same period in 1999 due to capital
acquisitions for production equipment and testing systems of new products being
developed. The Company also spent an additional $10,813 on its information and
management system during the third quarter of 2000. This custom manufacturing
software program is used primarily for prototype development, engineering,
marketing, management, and quality control of its products. The Company has
capitalized costs associated with the development of this product and is
amortizing the cost over a three-year period.
8
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At September 30, 2000, the Company secured $50,000 of financing as part of a
$150,000 convertible note agreement. Pursuant to the terms of this agreement,
the Company can draw down an additional $100,000 in the fourth quarter of 2000.
The Company plans to use the funding for research and development of its new
products as described above. Interest accrues on the outstanding principal
balance of the note at the rate of 10% per annum and is payable monthly. The
unpaid principal together with unpaid accrued interest is due on September 27,
2003. The holder of the note has the option of converting the unpaid amount into
shares of common stock of CASI at the rate of $1.25 per share.
During the third quarter, the Company extended 750,000 outstanding warrants to
purchase shares of common stock of CASI through December 31, 2000, which, if
exercised could generate $750,000 of capital for the Company. The exercise price
of these warrants currently exceeds the last sale prices of the Company's common
stock as reported on the OTC Bulletin Board.
On June 5, 2000 the Board unanimously approved a stock option plan for
employees, Board members and key contractors. The plan allows the Board to award
up to 500,000 stock options. The Board awarded 275,000 stock options during the
second quarter. No options have been exercised through September 30, 2000.
The Company believes its existing working capital, anticipated future cash flows
from new products, available credit borrowings, and the strong ratio of current
assets to current liabilities, will be sufficient to finance the future and
present working capital and operating requirements of the Company.
CAUTIONARY STATEMENT
This Form 10-QSB contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act, as amended and Section
21E of the Securities Exchange Act of 1934. The words expect, anticipate,
believe, goal, plan, intend, estimate and similar expressions and variations
thereof, if used, are intended to specifically identify forward-looking
statements. Those statements appear in a number of places in this Form 10-QSB
and in other places, particularly, Management's Discussion and Analysis or Plan
of Operation, and include statements regarding our intent, belief or current
expectations of our Company, our directors or officers with respect to, among
other things: (i) our liquidity and capital resources; (ii) our financing
opportunities and plans; and (iii) our future performance and operating results.
Investors and prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors. The
factors that might cause such differences include, among others, the following:
(i) any material inability of us to successfully internally develop our
products; (ii) any adverse effect or limitations caused by governmental
regulations; (iii) any adverse effect on our continued positive cash flow and
our abilities to obtain acceptable financing in connection with our growth
plans; (iv) any increased competition in business; (v) any loss by us of our
principal customer; (vi) any inability of us to successfully conduct our
business in new markets; and (vii) other risks including those identified in our
filings with the Securities and Exchange Commission. We undertake no obligation
to publicly update or revise the forward looking statements made in this Form
10-QSB to reflect events or circumstances after the date of this Form 10-QSB or
to reflect the occurrence of unanticipated events.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
9
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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.
(a) Exhibits. Attached is the Financial Data Schedule required by
Item 27 of Item 601 of Regulation S-B.
(b) Reports on Form 8-K. During the quarter ending September 30,
2000, the Company did not file any reports on Form 8-K.
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, and thereunto duly
authorized.
COMPUTER AUTOMATION SYSTEMS, INC.
DATE: November 14, 2000 /s/ Michael E. Cherry
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Michael E. Cherry, President
DATE: November 14, 2000 /s/ Christopher A. Poinsatte
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Christopher A. Poinsatte, Chief Financial and
Accounting Officer
11
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INDEX TO EXHIBITS
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EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
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