<PAGE> 1
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
[ ] 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.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Nevada 75-2749166
- --------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
1825 E. Plano Parkway
Suite 200
Plano, Texas 75074
--------------------------------------
(Address of principal executive offices)
Issuer's telephone number (972) 578-3128
--------------
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 [ ] No [X]
<PAGE> 2
COMPUTER AUTOMATION SYSTEMS, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements........................................1
Item 2. Plan of Operation...........................................6
Item 3. Management's Discussion and Analysis of Results of
Operations and Financial Condition..........................8
Item 4. Cautionary Statement........................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................9
Item 2. Changes in Securities......................................10
Item 3. Defaults Upon Senior Securities............................10
Item 4. Submission of Matters to a Vote of Securities Holders......10
Item 5. Other Information..........................................10
Item 6. Exhibits and Reports on Form 8-K...........................10
SIGNATURES...................................................................10
</TABLE>
<PAGE> 3
COMPUTER AUTOMATION SYSTEMS, INC. AND SUBSIDIARY
INDEX
<TABLE>
<S> <C>
Consolidated Balance Sheets at March 31, 2000 (unaudited) and
December 31, 1999 2
Consolidated Statements of Operations (unaudited) for the three months
ended March 31, 2000 and 1999 3
Consolidated Statements of Cash Flows (unaudited) for the three months
ended March 31, 2000 and 1999 4
Notes to Interim Consolidated Financial Statements 5
</TABLE>
<PAGE> 4
COMPUTER AUTOMATION SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
At March 31, 2000 (unaudited) and December 31, 1999
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
---------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 86,558 $ 178,321
Accounts receivable (net of allowance for uncollectible
accounts of $9,082 at March 31, 2000 and
December 31, 1999) 526,979 908,693
Other receivables 39,525 25,602
Deferred tax asset 8,903 8,903
Inventory 127,142 168,168
---------- ----------
Total current assets $ 789,107 $1,289,687
Property and equipment 43,438 36,930
---------- ----------
TOTAL ASSETS $ 832,545 $1,326,617
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (includes $148,526 and $318,233
to a related party at March 31, 2000 and
December 31, 1999, respectively) $ 216,775 $ 437,705
Accrued liabilities 108 11,322
Warranty reserve 15,000 15,000
Income taxes payable 21,715 232,871
---------- ----------
Total current liabilities $ 253,598 $ 696,898
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 257,480 308,252
---------- ----------
Total shareholders' equity 578,947 629,719
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 832,545 $1,326,617
========== ==========
</TABLE>
See notes to interim consolidated financial statements.
2
<PAGE> 5
COMPUTER AUTOMATION SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended March 31, 2000 and March 31, 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Revenues $ 382,489 $ 356,920
Cost of sales 260,694 216,258
----------- -----------
Gross profit 121,795 140,662
General and administrative expenses 141,748 128,156
Research and development expenses 57,670 --
----------- -----------
Operating income (loss) (77,623) 12,506
Other income (expenses) 695 (269)
----------- -----------
Net income (loss) before income taxes (76,928) 12,237
Income tax expense (benefit) (26,156) 4,161
----------- -----------
Net income (loss) $ (50,772) $ 8,076
=========== ===========
Income (loss) per share - basic and diluted (.006) .001
Weighted average shares outstanding - basic
and diluted 8,369,334 8,000,000
=========== ===========
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE> 6
COMPUTER AUTOMATION SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (50,772) $ 8,076
Adjustments to reconcile net income (loss) to cash
used in operating activities:
Depreciation and amortization 5,400 4,621
Changes in operating assets and liabilities:
Accounts receivable 381,714 75,900
Inventory 41,026 (105,307)
Other receivables (13,923) (10,433)
Income taxes (211,156) 4,161
Accounts payable (220,930) (83,861)
Accrued liabilities (11,214) (13,291)
--------- ---------
Net cash used in operating activities (79,855) (120,134)
Cash flows from investing activities
Capital expenditures (11,908) (2,553)
--------- ---------
Net cash used in investing activities (11,908) (2,553)
Cash flows from financing activities
Payments on loan from shareholder -- (5,709)
Proceeds from issuance of stock -- 130,001
--------- ---------
Net cash provided by financing activities -- 124,292
--------- ---------
Net increase (decrease) in cash $ (91,763) $ 1,605
Cash and cash equivalents, beginning of period 178,321 16,079
--------- ---------
Cash and cash equivalents, end of period $ 86,558 $ 17,684
========= =========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 185,000 $ --
========= =========
</TABLE>
See notes to interim consolidated financial statements.
4
<PAGE> 7
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 three months ended March 31, 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 95% of the Company's total
revenues for the three months ended March 31, 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 per share are computed by dividing net income by the weighted average
number of shares outstanding for the year. Diluted earnings per share are
computed by dividing net income 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 three month period ended March 31, 2000 because their
inclusion is antidilutive. There were no outstanding common stock equivalents
for the three month period ended March 31, 1999.
The following table provides reconciliation between basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three months ended
March 31
--------------------------
2000 1999
---- ----
<S> <C> <C>
Net income (loss) $ (50,772) $ 8,076
Weighted average number of shares outstanding
Basic 8,369,334 8,000,000
Dilutive effect of common stock equivalents -- --
----------- -----------
Diluted 8,369,334 8,000,000
Earnings (loss) per share, basic and diluted $ (.006) $ .001
=========== ===========
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE> 8
PLAN OF OPERATION.
Computer Automated Systems, Inc. ("CASI" or the "Company") designs and
manufactures industrial and customer specific rack-mount computer systems for
the telecommunications and other industries. The Company uses in-house
engineering to provide quick, 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.
The Company is co-located with its business partner, Control Manufacturing Co,
Inc. (CMI), a contract assembly and manufacturing facility, within the telecom
corridor in Plano, TX. 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 bares 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 customer. It represented approximately 98% of
CASI's sales for the year ending December 31, 1999 and 95% of sales in the first
quarter of 2000. 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.
Although the Company expects that sales of existing systems to Alcatel in 2000
will be near the same levels as in 1999, it anticipates that total revenues will
increase from sales of its new NEBS-400(TM) product line and its new commercial
line of LINUX "1U" rackmount chassis for internet service providers. Management
expects that the Company's upgraded web site and advertising in national trade
publications will also have a positive impact on revenues in 2000.
CASI provides Alcatel with a NEBS-certified, custom-designed, Sun
"UltraSPARC(TM)," computer system that interfaces with telecommunications
network switch controllers. All telecommunications traffic is routed through one
or more switch controllers. A "switch" is a telephone or Internet (voice or data
or both) device which is integral to the delivery of the message from point of
origin to destination.
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 production forecast of planned orders
based upon Alcatel's projected sales forecast. Based upon Alcatel's estimates,
Management does not expect any decline in UltraSPARC(TM) shipments to Alcatel
for the calendar 2000. The Company projects that gross profit for this system
will decrease marginally during calendar year 2000 due to system enhancements
that are not expected to be passed-on to Alcatel through higher prices.
6
<PAGE> 9
CASI plans to increase its research and development expenditures for new
product development 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 research and development expenditures of $215,000 in 1998
has yielded over $4 million in sales. The Company projects that it will invest
between $450,000 and $600,000 during calendar year 2000 for research and
development costs. Most of this balance will be spent for research, development,
and testing of CASI's new NEBS-400(TM) product line. CASI recently received
trademark approval of its NEBS-400(TM) product line. This new "off-the-shelf"
product will be quality tested and certified to meet National Equipment Building
Standards. The Company will market this product line to Alcatel and other
telecommunications companies. CASI also plans to introduce a series of
NEBS-400(TM) products over the next twelve months including a Sun
multi-processor system, two Sun single-processor systems, and a family of Intel
products.
CASI is also designing a commercial line of compact-rackmount "1U" chassis which
are 1.75 inches tall for internet service providers (ISPs). These low-profile
Sun and Intel servers will provide an inexpensive gateway for ISPs and support
Windows NT(TM), Sun Solaris(TM), and LINUX operating systems.
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. The Company
expects to obtain leads regarding prospective new customers as well as gain
direct sales from the web page.
Sales volume increases are not anticipated to have a negative impact on CASI's
working capital because CASI has an agreement with CMI who bears the cost of
parts and manufacturing until products are transferred to CASI for testing and
final delivery to the customer. Although the Company believes that cash provided
from operations will be sufficient to fund increased sales volume and new
research and development costs, it plans to pursue a working capital line of
credit with a bank over the summer to ensure that new product development
remains on schedule.
In addition, the Company may receive working capital from the sale of
outstanding stock warrants that have an exercise value of $750,000. These
warrants, which are presently "out of the market," are exercisable through July
5, 2000. The Company expects that CASI's common stock will begin to trade on the
NASDAQ bulletin board during the second quarter of calendar 2000, once the
Company's Form 10-SB is approved by the SEC. Presently, the stock is listed on
the "pink sheets."
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 plans 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.
7
<PAGE> 10
On April 11, 2000, the Board unanimously approved the addition of Ms. Sandra
Cobb to the Board of Directors. Ms. Cobb has been co-owner of Control
Manufacturing, Inc. (CMI) since 1977. CMI is an electronics subcontractor that
assembles and delivers product for the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The first quarter of each year is traditionally a "slow" quarter for sales for
suppliers in this industry due to a slow-down of orders in the fourth quarter of
the calendar year by telecommunications companies. For example in 1999, first
quarter sales were only 9.8% of total annual sales. Sales orders typically
accelerate in the spring and summer increasing deliveries in the third and
fourth quarters of the year.
The Company had revenues of $382,489 and a gross profit margin of $121,795
(31.8%) for the three months ended March 31, 2000 as compared to revenues of
$356,920 and a gross profit margin of $140,662 (39.4%) for the same period in
1999. The decrease in gross margin was related to system enhancements that were
not passed through to Alcatel as price increases. The Company expects that sales
of existing products to Alcatel will continue at similar margins; however, it
expects the sale of the NEBS-400(TM) line to deliver better margins.
The Company incurred $141,748 of general and administrative expenses for the
three months ended March 31, 2000 as compared to $128,156 for the same period in
1999. The primary components of administrative costs in the first three months
of 2000 were salaries and wages ($59,423) and legal and accounting services
($26,574). The primary components of administrative costs for the three-month
period ending March 31, 1999 were salaries and wages ($56,924) and contract
services ($33,587) for web development and miscellaneous engineering services.
CASI expects general and administrative costs to remain at similar levels (as a
percentage of sales) in calendar year 2000 as incurred in 1999.
The Company incurred $57,670 of research and development costs for the three
months ending March 31, 2000 as compared to $0 spent over the same period in
1999. The increase in research and development costs is due primarily to the
introduction of the NEBS-400(TM) series discussed in the Plan of Operations.
Management expects to spend between $450,000 and $600,000 on research and
development costs in calendar year 2000; however, if sales of new systems exceed
expectation, the Company may increase research and development efforts.
The Company had a net loss after taxes of $50,772, ($0.006 per share) for the
three months ended March 31, 2000; as compared to a net profit after taxes of
$8,076 ($0.001 per share) for the three months ended March 31, 1999. The net
loss was primarily due to the increase in research and development costs and the
lower gross margins on sales in 2000. Due to the Company's plans for continued
research and development, it is possible that it may show another loss in the
second quarter of the year. However, the Company believes that sales will
pick-up in the second half of the year and that the Company's net income will
approximate or exceed net income in 1999.
At March 31, 2000, the Company had cash and cash equivalents of $86,558,
compared with $178,321 at December 31, 1999. During the three months ended March
31, 2000, the Company had a net decrease in cash in the amount of $91,763,
principally due to a net operating loss for the quarter, research and
development costs, payments of 1999 taxes due, and a reduction in accounts
payable. The Company desires to use available cash to continue development of
the NEBS-400TM
8
<PAGE> 11
line and its new commercial rackmount-computer line. Although the
Company believes that cash provided from operations will be sufficient to fund
research and development costs, it plans to pursue a working capital line of
credit with a bank to ensure that it keeps new product development on schedule.
Management does not believe that SFAS Nos. 131 and 133 regarding segment
reporting and derivatives, respectively, will have any impact on the Company's
financial condition and operations.
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 of Financial Condition and Results of Operations, 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 inability of us to successfully conduct our business in new markets; and
(vi) 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
LEGAL PROCEEDINGS
None.
9
<PAGE> 12
CHANGES IN SECURITIES
None.
DEFAULTS UPON SENIOR SECURITIES
None.
SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
OTHER INFORMATION
None.
EXHIBITS AND REPORTS ON FORM 8-K
We filed no reports on Form 8-K during the period covered by this Form
10-QSB. Attached are the Financial Data Schedules required by Item 27 of Item
601 of Regulation S-B.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed by the undersigned, hereunto duly authorized.
COMPUTER AUTOMATION SYSTEMS, INC.
DATE:
-------------------------------------
SIGNATURE: /s/ MICHAEL E. CHERRY
---------------------------------
MICHAEL E. CHERRY, PRESIDENT
DATE:
-------------------------------------
SIGNATURE: /s/ CHRISTOPHER A. POINSATTE
---------------------------------
CHRISTOPHER A. POINSATTE, CFO
PRINTED NAME:
------------------------------
TITLE: CHIEF FINANCIAL OR ACCOUNTING OFFICER
10
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPUTER
AUTOMATION SYSTEMS, INC'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 86,558
<SECURITIES> 0
<RECEIVABLES> 536,061
<ALLOWANCES> 9,082
<INVENTORY> 127,142
<CURRENT-ASSETS> 789,107
<PP&E> 77,871
<DEPRECIATION> 34,433
<TOTAL-ASSETS> 832,545
<CURRENT-LIABILITIES> 253,598
<BONDS> 0
0
0
<COMMON> 8,370
<OTHER-SE> 570,577
<TOTAL-LIABILITY-AND-EQUITY> 832,545
<SALES> 382,489
<TOTAL-REVENUES> 382,489
<CGS> 260,694
<TOTAL-COSTS> 460,112
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (76,928)
<INCOME-TAX> (26,156)
<INCOME-CONTINUING> (50,772)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,772)
<EPS-BASIC> (0.006)
<EPS-DILUTED> (0.006)
</TABLE>
