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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 JUNE 30, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______ to _______
Commission File Number 000-27419
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COMPUTER AUTOMATION SYSTEMS, INC.
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(Exact name of small business issuer as specified in its charter)
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<S> <C>
NEVADA 75-2749166
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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.
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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 JUNE 30, 2000
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Page
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PART I FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Balance Sheets at June 30, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Operations (unaudited)
for the periods ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited) for the
periods ended June 30, 2000 and 1999 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II OTHER INFORMATION 10
Item 1. Legal Proceedings 10
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 11
Signatures 11
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPUTER AUTOMATION SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
ASSETS
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<CAPTION>
June 30, December 31,
2000 1999
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 94,553 $ 178,321
Accounts receivable (net of allowance for uncollectible
accounts of $9,082 at June 30, 2000 and December 31, 1999) 339,129 908,693
Income tax receivable 38,955 --
Other receivables 40,546 25,602
Inventory 197,667 168,168
Deferred tax asset 8,903 8,903
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Total current assets $ 719,753 $1,289,687
Property and equipment and capitalized software costs, net 113,876 36,930
Other assets 6,109 --
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TOTAL ASSETS $ 839,738 $1,326,617
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion - long term debt $ 2,533 $ --
Accounts payable (includes $108,336 and $318,233
to a related party at June 30, 2000 and
December 31, 1999, respectively) 299,538 437,705
Accrued liabilities 355 11,322
Income tax payable -- 232,871
Warranty reserve 15,000 15,000
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Total current liabilities $ 317,426 $ 696,898
Long Term Debt 4,434
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 196,411 308,252
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Total shareholders' equity 517,878 629,719
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 839,738 $1,326,617
========== ==========
</TABLE>
See notes to interim consolidated financial statements.
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COMPUTER AUTOMATION SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the periods ended June 30, 2000 and 1999
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<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues $ 650,556 $ 816,834 $ 1,033,045 $ 1,173,754
Cost of sales 398,181 490,627 658,875 706,885
----------- ----------- ----------- -----------
Gross profit $ 252,375 $ 326,207 $ 374,170 $ 466,869
General and administrative expenses 222,830 187,233 364,578 315,389
Research and development expenses 127,427 -- 185,097 --
----------- ----------- ----------- -----------
Operating income (loss) $ (97,882) $ 138,974 $ (175,505) $ 151,480
Other income (expenses) (23) (843) 672 (1,112)
----------- ----------- ----------- -----------
Net income (loss) before income taxes (97,905) 138,131 $ (174,833) $ 150,368
Income tax expense (benefit) (36,836) 69,919 $ (62,992) 74,080
----------- ----------- ----------- -----------
Net income (loss) $ (61,069) $ 68,212 $ (111,841) $ 76,288
=========== =========== =========== ===========
Income (loss) per share
- basic and diluted $ (.007) $ .008 $ (.013) $ .009
Weighted average shares outstanding
- basic and diluted 8,369,334 8,333,334 8,369,334 8,333,334
=========== =========== =========== ===========
</TABLE>
See notes to interim consolidated financial statements.
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COMPUTER AUTOMATION SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the periods ended June 30, 2000 and 1999
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<CAPTION>
Six Months Ended June 30,
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2000 1999
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<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(111,841) $ 76,288
Adjustments to reconcile net income (loss) to cash
used in operating activities:
Depreciation and amortization 12,341 9,595
Changes in operating assets and liabilities:
Accounts receivable 569,639 36,187
Inventory (29,499) (106,064)
Other receivables (21,052) (15,011)
Other assets -- (500)
Income taxes (271,826) 74,080
Accounts payable (138,244) (162,197)
Accrued liabilities (10,967) (4,974)
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Net cash used in operating activities (1,449) (92,596)
Cash flows from investing activities
Capital expenditures (81,685) (2,953)
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Net cash used in investing activities (81,685) (2,953)
Cash flows from financing activities
Payments on capital lease (634) --
Payments on loan from shareholder -- (41,130)
Proceeds from issuance of stock -- 214,466
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Net cash provided by financing activities (634) 173,336
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Net increase (decrease) in cash $ (83,768) $ 77,787
Cash and cash equivalents, beginning of period 178,321 16,079
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Cash and cash equivalents, end of period $ 94,553 $ 93,866
========= =========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 208,834 $ --
========= =========
Schedule of non-cash investing and financing transactions
Capital lease obligation incurred for use of equipment $ 7,601 $ --
========= =========
</TABLE>
See notes to interim consolidated financial statements.
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COMPUTER AUTOMATION SYSTEMS, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
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 10KSB for the year ended December 31, 1998 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 three months ended June 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.
2. CONCENTRATIONS OF OPERATIONS
The Company manufactures industrial and commercial computers primarily for one
customer. This customer accounted for approximately 98% of the Company's total
revenues for the three months ended June 30, 2000 and 97% for the six months
ended June 30, 2000.
3. EARNINGS PER COMMON SHARE
Earnings per share calculations are 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 each respective period.
Diluted earnings (loss) per share are computed by dividing net income (loss) by
the weighted average number of common shares plus dilutive common share
equivalents outstanding during each respective period using the treasury stock
method. Common stock equivalents were not included in the computation for the
three and six month periods ended June 30, 2000 because their inclusion is
antidilutive. There were no outstanding common stock equivalents for the three
and six month periods ended June 30, 1999.
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<CAPTION>
Three months ended Six months ended
June 30 June 30
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net income (loss) $ (61,069) $ 68,212 $ (111,841) $ 76,288
Weighed average number of
shares outstanding
Basic 8,369,334 8,333,334 8,369,334 8,333,334
Dilutive effect of common
stock equivalents -- -- -- --
----------- ----------- ----------- ------------
Diluted 8,369,334 8,333,334 8,369,334 8,333,334
Earnings (loss) per share, basic
and diluted $ (.007) $ .008 $ (.013) $ .009
</TABLE>
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4. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. During 2000, the
Company incurred research and development expenditures of $185,097 relating to
the research, development and testing of new product lines.
ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
PLAN OF OPERATION
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.
When a customer provides CASI with requirements for a custom application, the
Company's engineers design specifications including hardware configuration and
software control programming. Once customer approval is received, the design
specifications and bill of materials, together with a purchase order, are
delivered to CASI's business partner, Control Manufacturing Co., Inc. ("CMI").
CMI is a custom assembly and manufacturing facility co-located with the Company
at its Texas facility. CMI sources the materials, assembles the hardware, and
delivers the product to CASI for software installation and testing prior to
delivery to the customer. CMI bears the cost of the materials until the product
is delivered to CASI for testing and final delivery to the customer.
Alcatel, a subsidiary of a diversified French telecommunications manufacturer,
Alcatel, S.A., is CASI's largest account. It represented approximately 97% of
CASI's sales for the first six months of 2000 and 1999. The Company will
continue to concentrate on satisfying the demands of Alcatel over the coming
year; however, it also plans to expand both its product line and customer base
for similar and ancillary applications.
CASI provides Alcatel with a NEBS-compliant, custom-designed, Sun
"UltraSPARC(TM)" computer system that interfaces with telecommunications network
switch controllers. On July 1, 1999, the Company and Alcatel entered into a
Purchase Agreement under which Alcatel agreed to buy UltraSPARC(TM) systems from
CASI through December 31, 2002. Alcatel provides CASI with a forecast of future
expected orders based upon its projected needs in order to satisfy supplier lead
times. Based upon this forecast and purchase orders already received, the
Company projects total Alcatel orders for calendar 2000 to be approximately 10%
lower than in 1999. The Company anticipates that gross profit for Alcatel sales
may decrease marginally during calendar year 2000 due to system enhancements
that are not expected to be passed-on to Alcatel through higher prices.
CASI has also been working with Alcatel by providing technical reviews and
engineering support for new products to be developed to Alcatel's
specifications. CASI has been asked to quote on a new multi-million dollar five
year contract with Alcatel. Should these products be selected for development,
the outcome of these projects could be realized as early as the first quarter of
2001.
During the second quarter, the Company entered into an engineering and
manufacturing rights agreement with Western Digital Corporation for the
development of custom IO boards and system integration that interface with the
Western Digital ACE-10 product line. These products are currently being
developed and should be completed during the third quarter with expected
shipments to begin early in the fourth quarter. The Company is also expanding
its customer base by supplying OEM evaluation units that support Sun
Micro-System products and Intel computer platforms to several potential
customers. These units are
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currently being evaluated by these potential customers and the results of these
evaluations could positively impact the Company's third and fourth quarter
revenues. The Company believes that these new relationships may have a positive
impact on its fourth quarter revenues and may be sufficient to offset the lower
sales to Alcatel.
CASI plans to continue to invest in research and development costs over the
coming year. The Company did not incur research and development costs in 1999
because it was focused on selling products designed the prior year. CASI's
$215,000 investment in 1998 has yielded over $5 million in sales. The Company
projects that it will invest between $200,000 and $300,000 during calendar year
2000 for research and development, mostly for CASI's new NEBS-400(TM) rackmount
chassis line. This amount may be increased if CASI obtains a working capital
line of credit and/or completes a private placement of stock.
The completion of the NEBS-400(TM) has slowed due to a vendor's failure to
design and manufacture a key component used within the system. The company
expects to begin sales of these units in early 2001. This new "off-the-shelf"
product line will be quality tested and certified to meet National Engineering
Building Standards. The Company anticipates marketing this product line to
Alcatel and other telecommunications companies under the NEBS-400(TM) line name.
CASI plans to introduce a series of NEBS-400(TM) products over the next twelve
months including a Sun multi-processing system, two Sun single-processing
systems, and a family of Intel products.
CASI is also designing a commercial line of compact-rackmount "1U" chases which
are 1.75 inches tall for internet service providers ("ISPs"). Based on its
customer inquires, CASI has determined that these units will meet its customers'
demand for more features in a smaller space. These low-profile Sun servers will
provide an inexpensive gateway for ISPs and support Windows NT(TM), Sun
Solaris(TM), and LINUX(TM).
The upgrade of CASI's web site, www.casi1.com (the "1" in "casi1" is the number
one), was completed in February 2000. The web page includes a complete listing
of product offerings for commercial and telecommunications applications, as well
as interactive e-commerce features including automated sales inquiries,
selectable system configurations, and requests for quotations.
Approximately $750,000 of outstanding stock warrants expired without exercise on
July 5, 2000.
The Company believes that cash provided from operations will continue to be
sufficient to fund increased sales volume and new research and development
costs. CASI has an agreement with CMI whereby CMI bears the cost of parts,
supplies, and manufacturing until products are transferred to CASI for testing
and final delivery to the customer. Consequently, increases in sales volume will
not have a significant negative impact on working capital. The Company also
plans to pursue a private placement of common or preferred stock to provide
between $500,000 and $1 million of capital and/or a working capital line of
credit with a bank to assist in meeting the current schedule for new product
development.
Although the Company is reviewing strategic acquisitions and business
partnerships to improve its position in the marketplace, there are no major
acquisitions planned at this time.
The Company has four employees. CASI uses subcontractors for most of its
engineering and manufacturing services. It also contracts-out most of its legal,
marketing, and administrative functions. The Company expects that it will need
to add personnel (through either direct hire or subcontract) in engineering,
sales and sales support, and finance and administration over the next twelve
months once new product development is complete.
The Company has spent $55,000 for the CASI Information & Management System
("CIMS"). This is a custom manufacturing software program used internally for
prototype development, engineering, marketing, management, and quality control.
The Company has capitalized the costs of this system and is amortizing this cost
over a three-year period.
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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 under the plan. The Board awarded 275,000 stock
options during the second quarter. No options have been exercised to date.
MANAGEMENT'S DISCUSSION AND ANALYSIS.
The first part of each year is traditionally a slower period for suppliers in
the telecommunications industry due to a reduction in orders in the fourth
quarter of the calendar by telecommunications companies. In 1999, sales for the
first half of the year were only 32% of total annual sales. Sales orders
typically accelerate in the spring and summer increasing deliveries in the third
and fourth quarters of the year. Due to a temporary delay by Alcatel to complete
software enhancements for its customers, Alcatel orders to CASI were reduced in
the first half of 2000. CASI experienced a 14% decrease in revenues for the
first six months of 2000 compared to the same period in 1999 and a 20% decrease
in its revenues for the quarter ended June 30, 2000 as compared with the same
quarter in 1999. Alcatel has provided CASI with a revised sales forecast showing
total Alcatel requirements for 2000 at approximately 10% less than in 1999.
Sales from other new products may be sufficient to maintain revenues at last
year's level.
The Company had revenues of $650,556 and gross profit margin of 38.8% for the
three months ended June 30, 2000 compared with $816,834 of revenues and 39.9% of
gross profit for the same period in 1999. For the six months ended June 30,
2000, CASI had revenues of $1,033,045 and a gross profit margin of 36.2% as
compared to revenues of $1,173,754 and a gross profit margin of 39.7%. The
reduction in revenues related to the temporary delay in orders by Alcatel. The
reduction in gross margins were due to system enhancements that were not
passed-on to Alcatel through higher prices.
The Company incurred $222,830 of general and administrative expenses for the
three months ended June 30, 2000, a 19% increase over the same period in 1999.
The primary components of general and administrative expenses were salaries and
wages ($57,437), outside services ($65,112), and legal and auditing ($49,023).
For the six months ended June 30, 2000, general and administrative expenses were
$364,578, a 15.5% increase over the same period in 1999. The primary components
were salaries and wages ($116,860), outside services ($56,689), and legal and
auditing ($75,597). The general and administrative expense increases resulted
from higher audit and legal fees and increased product development, management
consultant, and public relations expenditures.
The Company incurred $127,427 and $185,097 of research and development costs for
the three and six months ending June 30, 2000, respectively; compared to $0
spent over the same period in 1999. The increase in research and development
costs is due primarily to the completion of the NEBS-400(TM) product line.
Management projects total research and development expenditures for 2000 to be
between $200,000 and $300,000.
For the three months ended June 30, 2000, the Company had an operating profit
before research and development expenditures of $29,545 compared with an
operating profit before R&D of $138,974 for the same period in 1999. The Company
incurred net loss after taxes of $61,069 (loss of $.007 per share) for the three
months ended June 30, 2000, as compared with a net profit of $68,212 ($.008 per
share) for the same period in 1999. For the six months ended June 30, 2000, CASI
experienced a $9,592 operating profit before research and development
expenditures and a net loss after tax of $111,841 (loss of $0.013 per share).
For the same period in 1999, the Company had a operating income of $151,480 and
net income after tax of $76,288 ($0.009 per share). Net income in 2000 decreased
due to lower revenues, higher general and administrative costs, and higher
research and development costs. CASI expects sales for the year ending December
31, 2000 to be at approximately the same levels as 1999; however, due primarily
to higher research and development expenses previously discussed. CASI
anticipates that net income after tax will be lower than in 1999.
Net cash used in investing activities totaled $81,685 for the six months ended
June 30, 2000 compared with $2,953 in the same period during 1999. This
increased use of cash was primarily due from the
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development of the Company's CIMS software system, installation of a local area
network, and other capital expenditures.
The Company had a net decrease in cash of $83,768 for the six months ended June
30, 2000 as compared with an increase of cash of $77,787 for the same period in
1999. The 2000 decrease in cash was primarily due to the net loss, research and
development expenditures, development of the CIMS system, and payment of income
taxes. The 1999 increase in cash was primarily due to net cash provided by net
financing activities. Management believes that cash from operations will be
sufficient to continue to fund research and development expenditures; however,
the Company plans to pursue a private placement of common or preferred stock
and/or a working capital line of credit.
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.
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.
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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. We filed a report on Form 8-K during the
period covered by this Form 10-QSB as follows: Form 8-K dated
June 5, 2000 regarding adoption of a stock option plan.
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.
/s/ MICHAEL E. CHERRY
DATE: August 14, 2000 ---------------------------------------------
Michael E. Cherry, President
/s/ CHRISTOPHER A. POINSATTE
DATE: August 14, 2000 ---------------------------------------------
Christopher A. Poinsatte, Chief Financial and
Accounting Officer
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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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