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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September
30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file Number 0-5260
GENERAL AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2488811
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17731 Mitchell North, Irvine, California 92714
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 250-4800
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.10 par value American Stock Exchange
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Title of Class Name of Exchange on which registered
Securities registered pursuant to Section 12(g) of the Act: None
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 the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The approximate aggregate market value of voting stock held by non-affiliates of
the registrant was $17,343.29 as of December 20, 1996.
The number of shares of the registrant's Common Stock, $.10 par value,
outstanding as of December 20, 1996 was 8,951,376.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on January 30, 1997 are incorporated by reference into
Part III hereof, to the extent indicated herein.
The Index to Exhibits appears on page 24
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PART I
ITEM 1. BUSINESS
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.
GENERAL
General Automation, Inc. ("GA" or the "Company"), incorporated in California in
1967 and reincorporated in Delaware in 1986, integrates systems, software and
services for application solutions. GA has positioned itself as a strong service
and support company offering open systems and complimentary software products to
a worldwide network of value-added resellers. GA's product lines include a broad
range of hardware platforms including Intel and Motorola PowerPC based systems,
coupled with efficient and cost effective application environments, providing a
full range of systems, complimentary operating environments and high quality
customer services.
The Company's headquarters, including manufacturing and integration, corporate
and administrative operations, are located in Irvine, California. Engineering
and support personnel are located in Hauppauge, New York. GA also has service
and sales offices in various locations throughout the United States and has
established European sales offices in England. In October 1996, the Company
completed two acquisitions: Liberty Integration Software, Inc. of Vancouver,
B.C., a developer of software products that enable interoperability of
MultiValue compliant databases with Windows and Windows NT environments and the
Sequoia Enterprise Systems business unit from Sequoia Systems, Inc. The Sequoia
Enterprise Systems ("SES") unit is a division of GA, with its main operations
centered in Marlborough, Mass. The addition of SES brings to GA a complement of
hardware and software products serving the high availability fault tolerant
information systems marketplace.
The Company's products are sold in the United States through over 200 value
added resellers. In addition it sells its products in Europe, Canada, Mexico,
Central and South America, Guam, Taiwan, Australia, New Zealand, Singapore, Hong
Kong, Africa and the People's Republic of China through distributors and value
added resellers. The Company provides service and support throughout North
America to over 3,000 customers.
ASSOCIATION WITH SANDERSON ELECTRONICS PLC, SANDERSON TECHNOLOGIES, LTD. & SGA
PACIFIC LIMITED.
In January 1989, Sanderson Electronics PLC ("Sanderson") acquired approximately
49% of the then outstanding shares of the Company. Sanderson is a United
Kingdom-based developer and supplier of applications software using the Pick
Operating System and is a UK distributor for the Company's products.
In September 1989, the Company and Sanderson announced the formation of SGA
Pacific Limited ("SGA") based in Sydney, Australia. The Company held 51% of the
outstanding stock of SGA and Sanderson and the management of SGA held 49%. On
November 10, 1994, the Company sold its 51% interest in SGA to Sanderson
Technologies, Ltd. For details of this transaction, see "Acquisitions and
Divestitures", below and Note 8 to the Financial Statements. This transaction
left Sanderson owning 442,588 shares of the Company's stock or approximately 6%
percent of the Company's outstanding shares. During FY 1996, Sanderson sold most
of these shares and acquired 56,100 shares through the exercise of warrants.
Consequently, Sanderson now holds less than 100,000 shares of GA stock.
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In August 1995, GA and Sanderson Computers Pty Ltd. ("SCPL") entered into an
agreement whereby SCPL acquired GA's Zebra 2000 Library Systems business and
license rights to its Maxial hospitality software. These products have been
successfully sold outside the United States by SCPL. GA had not been able to
profitably sell these products in the US, with nearly 55% of its fiscal 1995
loss coming from these products. SCPL assumed the obligations of completing the
contracts in the backlog and providing on-going software support for all of the
customers. GA will receive certain cash payments and royalties from future SCPL
sales of the products. In addition to the Company's association with Sanderson
and SGA set forth above, both remain major distributors of the Company's
products with GA owning no shares in either firm.
ACQUISITIONS AND DIVESTITURES
General Automation Ltd.
In June 1990, the Company sold 55% of its interest in its United Kingdom
subsidiary, General Automation, Ltd. (General Automation Ltd.) to Sanderson
Electronics, PLC for loan forgiveness of $1,250,000, operating cash of $475,000
and 22.8% of the outstanding shares of SGA giving the Company a 51% interest in
SGA. Subsequently, in January 1992, the Company sold its remaining 45% share of
General Automation Ltd. to Sanderson. See Note 8 to the Financial Statements
included in this Form 10-K.
C.I.E.
In January 1990, the Company acquired the assets, technology and customer base
of C.I.E. Systems, Inc. (C.I.E.) from the parent C.Itoh Electronics, Inc. for
$4,000,000. GA saw this as an opportunity to add additional sales volume to its
hardware and service business segments as both firms served the same markets.
The C.I.E products were fully integrated into the Company's existing product
lines.
Eurosystems.
In October 1992, the Company signed an agreement to form a holding company with
Krypton Group Ltd., Eurosystems GA Ltd. ("Eurosystems"), a UK corporation. Under
the terms of the agreement the Company received 61% of the common shares of
Eurosystems in exchange for its shares in General Automation France SA, General
Automation SA, (Belgium), and General Automation Italia SpA (Italy). Krypton
Group Ltd., ("Krypton"), a UK corporation, received 39% of the common shares in
exchange for its 100% share holding in Eurosystems Belgium SA and Eurosystems SA
(France), its 55% share holding in Eurosystems GmbH (Germany) and its 85% share
holding in Eurosystems Maintenance SA (France). The Company considered that the
formation of a holding company, which held the GA subsidiaries in Belgium,
France and Italy, had an enhanced prospect for growth and stability through
local management. Krypton already was in business in the product areas served by
these firms, and offered local support and direction. On October 29, 1993, with
retroactive effect to September 30, 1993, the Company sold its 61% share holding
in Eurosystems to Krypton for cash and a $990,000 note. Through fiscal 1996,
Krypton has made $180,000 in payments. In 1994 payments were suspended by
Krypton and a $240,000 reserve was set up in fiscal year 1994. In 1995 Krypton
filed for bankruptcy. On March 14,1996, the Company received a new $600,000 note
from Future Services Ltd., a newly formed company in Great Britain and owned by
the former Krypton Management. Future Services Ltd. has been profitable and
management expects to receive full payment of the $570,000 carried on the
balance sheet at September 30, 1996. The note bears interest at 10% and is
payable monthly, with the Company sharing in 50% of the net profits of Future
Services, Ltd. until the debt is repaid.
SGA
On November 10, 1994, the Company completed the sale of its 51% interest in SGA
Pacific, Ltd. to Sanderson Technologies Ltd. for $2,000,000 in cash and notes
receivable, plus 4,100,000 shares of the Company's common stock held by
Sanderson (see Note 8 to the Financial Statements.) The overall reduction in the
number of shares of GA stock held by Sanderson is not felt to be related to or
have any impact on the Company's objectives. SGA (now Sanderson
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Pacific Ltd.) continues as a General Automation dealer in Asia and the South
Pacific for hardware and software products.
General Automation LLC.
Effective May 22, 1995, GA and SunRiver Data Systems ("SunRiver") formed a
limited liability company ("GAL"), with the Company owning 51% and SunRiver 49%.
GAL was formed to allow GA to acquire the former ADDS Pick based business owned
by SunRiver. This business had been acquired by SunRiver from AT&T GIS in
December 1994 along with a terminal business which complimented SunRiver's
existing business and which SunRiver retained.
Under the terms of the Operating Agreement which governs the operation of GAL
(the "Operating Agreement"), GAL operates and manages GAI's Pick business and
SunRiver's Pick business. Under the Operating Agreement, SunRiver is entitled to
receive cash distributions from GAL in an amount equal to a percentage of GAL's
net revenues, which is payable whether or not GAL is profitable or generating
positive cash flow. The percentage of net revenues to which SunRiver is entitled
was 12% for the first year of the Operating Agreement (subject to a minimum of
$2,900,000 in the first year only) and will decline annually thereafter in steps
until it reaches 7% in the fifth year. However, the percentage of net revenues
payable to SunRiver is subject to adjustment (upward or downward) under certain
circumstances. Subsequent to the fifth year of the Operating Agreement, the
percentage of net revenues to be paid to SunRiver is to be determined by
negotiations between GA and SunRiver. GA is entitled to retain all cash
generated by GAL, if any, after the payment to SunRiver of the net revenue
percentage described above.
Under the Operating Agreement, the business and affairs of GAL are managed
exclusively by GA. However, in the event that GAL fails to achieve agreed upon
revenue or profit projections, SunRiver has the right to thereafter jointly
mange GAL with GA. Further, upon the occurrence of certain other events,
including the failure of GAL to pay to SunRiver the percentage of net revenues
to which SunRiver is entitled, SunRiver has the right to thereafter replace GA
as the sole manager of GAL. During the first year of the Operating Agreement, GA
received a management fee of $1,031,000 in connection with its duties as manager
of GAL. However, subsequent to the first year of the Operating Agreement, GA
will not be entitled to any compensation for acting as manager of GAL.
In May 2000 GA will have the right to purchase SunRiver's entire interest in GAL
for a number of shares of GAL common stock equal to 9% of each class of GA's
then outstanding capital stock. If GA exercises this right of purchase, it is
obligated, immediately following the issuance of stock to SunRiver, to register
the shares so issued under the Securities Act of 1933.
Sequoia Enterprise Systems.
On October 11, 1996 (the "Closing Date"), the Company purchased from Sequoia
Systems, Inc. ("SSI") substantially all of the assets and business of SSI's
"Sequoia Enterprise Systems" business division ("SES"). SES manufactures,
services, integrates and distributes fault-tolerant Motorola 68K computer
systems operating under SSI's version of UNIX and Intel based computer systems
running SSI's and Alpha Micro's versions of the "PICK" application environment
and database software products, and engages in various related distribution
arrangements. The Company's purchase of SES was made pursuant to an Asset
Purchase Agreement dated as of October 3, 1996 between the Company and SSI (the
"Purchase Agreement").
In exchange for SES, the Company has (i) agreed to pay an estimated purchase
price of $10,700,000 (subject to possible adjustment based on the net book value
of SES as of the Closing Date) (the "Purchase Price), (ii) assumed certain
liabilities of SSI totaling approximately $3,000,000, and (iii) issued to SSI a
Stock Purchase Warrant entitling SSI to purchase 250,000 shares of the Company's
common stock at an exercise price of $2.50 per share (the "Warrant"). The
Warrant will be exercisable during the three year period commencing on the first
anniversary of the Closing Date.
The Purchase Price will be paid by the Company in a combination of cash and
750,000 shares of the Company's common stock (the "Payment Stock"). The cash
portion of the Purchase Price will be paid in monthly installments, with the
amount of
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each such installment being based on a percentage of the gross revenues received
by the Company during the month to which the installment relates from the
operation of SES and the Company's overall service and support operations;
provided, however, that (i) the Company must pay not less than $490,000 of the
cash portion of the Purchase Price by December 31, 1996; and (ii) the Company
must pay by the first anniversary of the Closing Date an amount (comprised of
stock and cash) equal to not less than the net book value of SES as of the
Closing Date.
For accounting purposes, the cost of SES is determined based on the total amount
of consideration which is determinable beyond a reasonable doubt as of the
acquisition date, which is estimated to be $5.3 million. As additional
consideration is paid, the Company will record the current fair value of the
consideration issued as an additional cost of SES.
All 750,000 shares of the Company's common stock which comprise the Payment
Stock were issued to SSI on November 5, 1996. However, such shares will be
valued, for purposes of applying the same toward the Purchase Price, as follows:
(i) 400,000 shares will be valued at $2.50 per share; (ii) 200,000 shares will
be valued at the average of the closing per share sales prices of the Company's
common stock on the American Stock Exchange during the ten trading days
immediately preceding the first anniversary of the Closing Date; and (iii) the
remaining 150,000 shares will be valued at the average of the closing per share
sales prices of the Company's common stock on the American Stock Exchange during
the ten trading days immediately preceding any date on which a valuation of such
shares is made for purposes of determining the payment of the Purchase Price;
provided, however, that if the Purchase Price has not been paid in full prior to
the second anniversary of the Closing Date, these shares will be valued at the
average of the closing per share sales prices of a share of the Company's common
stock on the American Stock Exchange during the ten trading days immediately
preceding the second anniversary of the Closing Date.
The Company has agreed, at its expense, to register under the Securities Act of
1933 for sale by SSI the Payment Stock and the shares issuable upon exercise of
the Warrant.
SSI has agreed not to sell, make any short sale of, loan, or grant any option
for the purchase of, any of the Payment Stock without the prior written consent
of the Company (i) until the first anniversary of the Closing Date, with respect
to any shares of the Payment Stock in excess of 400,000 shares; and (ii) until
the second anniversary of the Closing Date, with respect to any shares of the
Payment of Stock in excess of 600,000 shares.
The assets which have been purchased by the Company do not include the accounts
receivable of SES. However, under the Purchase Agreement, SSI is obligated to
pay to the Company an amount equal to 40% of SSI's collections of the accounts
receivable of SES in existence on the closing date, as those collections are
made, until the Company has received a total of $1,560,000; provided, however,
that SSI will pay the full $1,560,000 to the Company no later than 120 days
following the Closing Date.
Under the Purchase Agreement, until the earlier of (i) payment of at least 75%
of the Purchase Price; or (ii) the date on which SSI no longer is the holder of
at least 50% of the shares of the Payment Stock (or if the Warrant has been
exercised, the aggregate of the Payment Stock and the shares issued upon
exercise of the Warrant), SSI will be entitled to designate an individual for
election to the Board of Directors of the Company ("SSI's Designee"); provided,
however, that such individual is reasonably acceptable to the Company at the
time of his initial designation. Once appointed to the Company's Board, SSI's
Designee will serve until the first annual meeting of the stockholders of the
Company following the Closing Date and until his successor shall be duly elected
and qualified or until his earlier death, disability, removal or resignation.
So long as SSI possesses the right of designation described in the immediately
preceding paragraph, the Company has agreed that (i) the Company will nominate
(or shall cause to be nominated) for election at each annual meeting of the
stockholders of the Company after the Closing Date, the incumbent SSI's
Designees or such other individual as SSI may designate; provided, however, that
such other individual is reasonably acceptable to the Company at the time of his
initial designation; (ii) if SSI's Designee should die, become disabled, be
removed, retire or resign during the term of his office, SSI shall be entitled
to
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designate a successor SSI's Designee reasonably acceptable to the Company at the
time of his initial designation, in which event the Company shall cause such
successor SSI's Designee to be promptly elected as a member of its Board of
Directors to fill the vacancy created by such death, disability, removal,
retirement or resignation; and (iii) without the prior written consent of SSI
(which consent will not be unreasonably withheld, delayed or conditioned),
neither the Company nor its Board of Directors will: (A) recommended that SSI's
Designee be removed by the stockholders of the Company; or (B) fail to recommend
any incumbent SSI's Designee for reelection.
Liberty
Effective October 1, 1996, GA acquired all of the outstanding shares of Liberty
Integration Software, Inc. ("Liberty"). Liberty was purchased through the
issuance of 25,000 shares of the Company's common stock, and three equal
payments of $20,000 (CDN) or approximately $40,000 in US dollars. Liberty is
operated as a wholly owned subsidiary. Liberty offers a full suite of enterprise
connectivity products and services which are focused on providing connectivity
solutions between MultiValue databases and industry standard developments such
as data warehousing, OLAP engines, client/server development tools and internet
WWW applications. Liberty began operations in July, 1995.
PRODUCTS, CUSTOMERS AND MARKETING
GA is a leader in delivering cost-effective environments for
information-critical Pick applications. GA's core strength is in its exceptional
support and value-added services which are complimented by a line of open
systems and software products designed to encompass the needs of its worldwide
network of value-added resellers. GA has established strong relationships with
its value-added channel and enjoys an excellent reputation for product quality
and responsive services and support. Future growth will be achieved by expanding
GA's distribution channel and enhancing the products and services offered to the
channel.
SERVICE AND SUPPORT
GA maintains a high quality service organization dedicated to meeting the
complex support requirements of several thousand end users. The Company is a
leader in the support industry and has been delivering highly skilled technical
services for over 28 years. GA has earned a reputation for excellent quality and
responsive service through an exceptional staff of service professionals. The
service business generates over half of GA's revenue and is a key reason that
customers with information critical applications choose to buy from GA. With the
acquisition of the service operations of SES, GA will integrate the fault
tolerant and SES Intel based systems into GA's support organization.
GA offers four basic lines of service:
* Technical field service for the equipment sold by GA, GA distributors,
and those maintenance agreements assumed or acquired through
acquisitions of C.I.E. and SES and GA's participation in GAL with
SunRiver .
* Software maintenance services of GA's operating environments.
Additional software support has been sold for complimentary operating
environments such as PICK, VMARK, Unidata, Unix, AIX, Windows 95 and
Windows NT.
* Professional services was introduced in 1995 that include: performance
tuning, system upgrade services, technical product training, system
design and site preparation, network design and configuration support,
and disaster recovery programs. Contract programming and consulting
services are also offered with expertise in PICK, C, C++, Visual Basic,
Microsoft Access, COBOL, FORTRAN, and Pro-IV. The professional services
business has proven to be a very profitable venture for GA. Disaster
recovery has proven to be a strong area of interest, furnishing GA's
end user customers with assistance in developing disaster recovery
plans as well as the assurance that systems will be made available in
the case of an emergency. With GA's move into the open systems market,
GA will be able to leverage those skills and offer services to a larger
more dynamic marketplace.
* Ready Response service provides a central call handling and technical
call screening facility and is particularly attractive for those
dealers who are of such size that they cannot afford to put the support
staff in place to handle
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their after market support effectively and at the same time continue to
develop application products and expand their market. These services
are not only profitable for the Company, but also leverage its
technical staff while making the dealer more successful. This service
also affords GA the opportunity to provide help desk support to
segments of the industry outside the traditional MultiValue
marketplace.
GA has recently been certified as an Acer Authorized Service Provider, thereby
allowing GA to provide hardware support for any Pick applications running on
Acer products. GA may also provide depot services, at any of GA's nationwide
locations, to resellers and end users of Acer products.
SYSTEM AND SOFTWARE PRODUCTS
In 1996, GA continued its penetration into the open systems market with the
PowerPC Superscaler RISC multiprocessor (from Groupe Bull) and Intel Pentium(TM)
multiprocessor systems (from NCR, previously AT&T Global Information Systems).
The distribution agreements for these systems commenced in 1995. Both Groupe
Bull's and NCR's products and services compliment those offered by GA and
feature:
* A broad range of system solutions starting at a low-end single
processor cost-effective entry level system through an eight-way
multiprocessor enterprise server.
* A commitment to offer products at a cost-effective discount, allowing
GA to move product successfully through the channel while allowing GA
to achieve its profitability goals.
* A complimentary service and support network that could be leveraged
worldwide to compliment the effective and growing services offered by
GA.
* A strong investment in distributed processing, local area networks, and
wide area networks to ensure high connectivity solutions.
PowerPC Systems
In 1996, GA continued to expand the line for PowerPC symmetric multiprocessor
systems manufactured by Groupe Bull and Motorola by adding two low-end systems
called the Lite-Tower and Desktop systems, and enhancing the current line with
Motorola's enhanced 604 PowerPC processor. Called the PowerAdvantage(TM) series,
these computers offer excellent price/performance with a state-of-the-art RISC
CPU. The PowerAdvantage product family offers a price competitive solution, with
an entry system priced at $7,000 and high end systems supporting over 1000
users.
Intel Based Systems
Through its acquisition of the SunRiver Data Systems PICK business, in May 1995,
GA began delivery of a line of single and multiprocessor Intel-based servers. In
September of 1995, a distribution agreement was signed with AT&T GIS under which
the Company would purchase systems directly from NCR.
NCR's server family offers a broad range of Microchannel and PCI/EISA computers.
Numerous upgradeable components make expanding these systems fast and simple.
NCR is a leader in providing exceptional price/performance UNIX and NT systems.
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GA introduced the following NCR PCI/EISA entry-level servers in 1996:
* The S10, a single processor system featuring a Pentium processor (90
MHz, 133 MHz, or 166 MHz), ECC memory, and a PCI/EISA I/O bus.
* The S40, a high performance 4-way symmetric multiprocessor server
featuring EISA, dual-PCI I/O buses and SCSI II support.
The new WorldMark server line demonstrates NCR's commitment to enterprise
computing. GA introduced the WorldMark 4100 and 4500 systems in 1996. The 4100
is a one to eight processor MCA system and the 4500 is a two to sixteen
processor system. Both systems offer Pentium PRO support and many expandability
and high availability features.
NCR's roadmap for future Intel servers focuses on the PCI bus architecture:
* The S26 is a dual processor Pentium PRO system with ECC memory and a
PCI/EISA I/O bus.
* The 4300 is a one to eight processor system with ECC memory and a
PCI/EISA I/O bus featuring the OctaSCALE architecture. The OctaSCALE
architecture, developed by NCR, provides a simple cost-effective way to
scale to eight Pentium PRO processors in a single system.
Proprietary Systems
Since their introduction in 1983, GA micro-based multi-user computer systems
have evolved into a line of upgradeable high-performance, business-oriented
computer systems that were adaptable to the needs of individual end-users. The
Company continues to manufacture two product series, the A200 and the A500,
which were introduced in fiscal year 1993 and are based on the Motorola 680XX
CPU chip. The Company believes that the future revenues from these proprietary
products will continue to decline. The A200 and A500 product series generated
15% of the Company's revenues in 1996, 13% in 1995 and 18% in 1994.
Software
The value-added channel serviced by GA is primarily based on re-sellers and
dealers whose information-critical applications are written to be compliant with
a multi-dimensional database environment standard. This standard is supported by
a collection of system software providers including Unidata, VMARK, Pick Data
Systems, and GA. Although implementations are similar, GA has differentiated its
product offering through enhanced system administration, network integration,
database interoperability, and performance.
GA's multi-dimensional database environments can be run native on a system
architecture or in concert with an advanced operating system such as UNIX, AIX
and Windows NT. GA offers native and UNIX/AIX resident versions for the Intel
and PowerPC microprocessors.
The Intel-based native solution is marketed under the name Mentor PRO and is
sold as a software only solution designed to run on a wide selection of generic
PC type platforms. The Intel/Unix based solution is sold under the name Mentor
Operating Environment (MOE) and is delivered on the AT&T system platforms. The
PowerPC/AIX based solution is sold under the name Power95(TM) and is delivered
on the PowerAdvantage system series. Power95 is a derivative of R91(R), GA's
Motorola 680X0 native multi-dimensional database. Power95 was jointly developed
by GA and Groupe Bull. R91 was developed to run a native Motorola 680X0
architecture and features significant enhancements in terms of ease of use,
system administration, distributed processing, and PC network integration.
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In March of 1996, GA started distributing preview copies of a Windows NT and
Windows 95 implementation of its multi-dimensional database. Code-named the
Aspen Project ("Aspen"), this software package is expected to ship in the first
fiscal quarter of 1997. Aspen offers an easy migration path for applications
designed for Pick-compatible databases to move to a client/server environment.
Included with the product are tools which provide interoperability with Windows
applications and files, as well as a programming interface for
application-specific client software. Optional ODBC support allows
ODBC-compliant applications to access Aspen data. Aspen supports serial terminal
users as well as PC clients and continues to provide the high performance, easy
to use database environment for which GA is known.
The Pick operating system, which GA's software products are derived from was
designed as a database management operating system; it supports hierarchical,
flat and relational database files. The Company believes that among the most
distinctive characteristics of its operating environment products are their
relative ease of programming, an English-like information management and
retrieval language, and the speed they offer in the handling of large and
complex databases. They include an advanced, database-oriented version of the
popular BASIC programming language, with automatic compilation and line-editing.
CUSTOMERS AND MARKETING
GA delivers its products and services through a strong international value-added
reseller channel with over 200 active dealers.. GA has increased its marketing
activity by the creation of an end user newsletter (Priority One) and a series
of direct mail pieces focused on enhancing the relationship between GA and the
end customer. Through GA's participation in GAL with SunRiver, GA's distribution
channel has doubled in size and offers cross-selling opportunities
GA is selling into an approximate $750 million segment of a larger $9 billion
market. GA's value-added resellers focus on key vertical markets such as
healthcare, finance, manufacturing, distribution, government, travel, and
insurance. Approximately 18% of GA's product revenue comes from 30 major
resellers and distributors located outside of North America. To expand on that
business, in 1995 the Company formed a wholly owned subsidiary, GA Mentor Ltd.
(GAML) headquartered in the UK, and established a sales office to better service
GA's customer in the United Kingdom, France, Belgium, Italy, and Germany. GA
also has strong associations in Asia and the Pacific Basin with resellers and
distributors in Australia, New Zealand, Singapore, Hong Kong, and Malaysia which
GA services out of the Irvine office.
GA's focus for growth includes the following elements:
* Working closely with GA's value-added resellers and dealers to make
them more successful and thus increase sales through GA.
* Offering complimentary services that enhance the resellers' and
dealers' business and increase revenues for them as well as GA.
* Expanding the value-added channel through an investment in marketing
and direct sales techniques that leverage GA's products and service
strengths.
* Strengthening GA's position in international markets.
* Focusing on GA's end users to provide more services, add-on products,
and growth paths to new systems.
From a marketing and sales standpoint GA has made a renewed commitment to
growth. In 1996 the Company continued to grow the marketing and sales
organization. Marketing added a Director of Product Marketing and a Marketing
Services Manager. GA also expanded the sales organization with the establishment
of two inside sales positions as well as the addition of a Director of
International Sales.
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Through these additions, GA's marketing continued to have a great impact. These
activities were highlighted by the establishment of a high quality Internet
(Web) site and execution of a very successful eight-city reseller roadshow in
January and February which introduced new products to GA's existing, as well as
new, resellers. GA also established a number of customer direct activities such
as the Priority One newsletter and a series of service-oriented direct mail
pieces.
MAXIAL SYSTEMS
The Maxial package has been installed in more than 100 hotels world-wide with a
high degree of acceptance in the Pacific Basin. The same success has not been
achieved in the United States however, where the competition for such systems
has been much stronger. With only 13 systems installed in the US, effective
August 28, 1995 the Company entered into an agreement with Sanderson Computers
Pty Ltd. ("SCPL") under which the product is licensed to SCPL who is responsible
for the sales and support for the product world wide and will pay GA a royalty
for each system sold. The amount of revenues expected from this agreement are
uncertain at this time and are not expected to materially affect the position of
the Company other than to eliminate the losses previously experienced in support
of the product.
SERVICE ADVANTAGE SYSTEM
The Service Advantage product is a full featured, fully integrated service
company management system.
In order for the Company to focus its management and capital resources on its
key business, a decision has been made to discontinue all marketing and sales
efforts on the product but to continue to support existing contractual
commitments.
FOREIGN OPERATIONS AND EXPORT SALES
The Company's export sales were approximately 5% in 1996 compared to 8% in
fiscal 1995, and 62% in fiscal 1994. In 1992, 1993 and 1994 the Company
recognized revenues from its majority owned subsidiary SGA Pacific Ltd., which
was sold effective November 10, 1994. These revenues were generated through
operations in Asia and the South Pacific. In future years, General Automation
expects to see a continuing relationship with SGA Pacific as a distributor of GA
products to the Pacific Basin and a source of royalty income as they market and
install the Maxial hospitality software, owned by the Company. See Note 7 to the
accompanying Financial Statements included in this Form 10-K for additional
information relating to the Company's international operations, including
financial information concerning operations by major geographic areas.
RAW MATERIALS
Raw materials essential to the Company's business are purchased worldwide in the
ordinary course of business from numerous suppliers. The vast majority of these
materials are generally available, and no serious shortages or delays have been
encountered. Certain raw materials used in producing some of the Company's
products can be obtained only from a small number of suppliers. Products are
designed to use pre-tested and readily available components. Most of these
components are purchased from several suppliers and are subject to blanket
purchase orders. In those situations in which the Company purchases components
from a single supplier, it believes that alternative commercial suppliers of
such components are readily available. The Company purchases the Motorola
MC68030 and MC68040 microprocessors from several independent distributors;
however, if Motorola Corporation should discontinue manufacturing such
microprocessors (which it currently manufactures in at least two separate
manufacturing facilities), an event which the Company considers to be unlikely,
the Company's operations would be adversely affected. In recent years the
Company has experienced no significant difficulty in procurement of necessary
components.
10
<PAGE> 11
The Company purchases computer systems from other manufacturers including AT&T
GIS in the US and Groupe Bull in France. Delays are possible in that the GA
orders from its Dealers/VARS may not match production queues at the factories.
The delays are expected to be minimal and not material to the planned Company
results.
COMPETITION
GA markets software, systems and service and therefore faces three types of
competitors. The leading software competitors are Pick Systems, VMARK Software,
and Unidata. These three US-based organizations do not sell system solutions and
focus entirely on software and software support. Pick Systems, a privately held
corporation headquartered in Irvine, California, is GA's primary competitor on
GA's native Intel-based operating environment. VMARK Software, headquartered in
Westboro, Massachusetts, and Unidata, located in Denver, Colorado, offer UNIX
resident database operating environments. GA's primary system competitors are
International Business Machines, Data General, Digital Equipment Corporation,
and Hewlett Packard. GA's key differentiation is servicing an established dealer
base who prefer GA's software and service to that which is available on these
competing platforms.
Since GA currently only offers service on GA delivered systems, GA's competition
for that service business is a handful of third party service providers. These
companies tend to compete on price, offering inferior technical support. With
the new PowerPC and Intel-based solutions GA is competing against system
providers such as Wang, AT&T, and IBM. From a software support vantage point,
support is primarily limited to GA developed operating environments. GA competes
with GA's distributors, such as Monolith Corporation, for dealer direct
telephone support; but is primarily the dominant support provider for GA
developed software solutions.
PRODUCT DEVELOPMENT
Because of rapid technological changes, the market in which the Company competes
requires continuous expenditures to develop and improve its products. For fiscal
1996 the Company spent approximately $1.2 million for product development. For
the years ended September 30, 1995 and 1994, the Company spent approximately $.6
million and $1.8 million respectively. The increase in R & D costs are primarily
due to GA's participation in GAL with SunRiver and the development of the
soon-to-be released MVBase NT product. Certain development costs relating to
computer software are capitalized in accordance with Statement No. 86 of the
Financial Accounting Standards Board; while all other costs associated with
product development are charged to operations as incurred.
PATENTS AND TRADEMARKS
The Company holds trademarks protecting certain of its trademarks. The Company's
major product line utilizes Pick software as its operating system. The Company
is authorized, on a non-exclusive basis, to use and sublicense the use of the
Pick software indefinitely, in accordance with the terms of license agreements.
The Company does not rely upon and does not believe that its success is
dependent upon patent protection; rather, the Company believes that its success
is dependent upon the knowledge and experience of its management and technical
personnel and its ability to market its existing products and to develop new
products. Invalidation or cancellation of the Pick license, however, could
adversely impact the Company's business. The Company does not believe that it is
operating in such a manner as to prompt cancellation of any of the Pick
licenses; furthermore, management believes that there are alternative courses of
action which could be pursued in the event of such a cancellation so as not to
adversely impact operations of the Company.
11
<PAGE> 12
MANUFACTURING AND SYSTEM INTEGRATION
The Company has moved rapidly from a manufacturing environment to a system
integration and configuration model. Basic systems are received from its
platform suppliers (Groupe Bull and AT&T) and are configured to the customers'
requirements. Software is loaded and the finished systems are thoroughly tested
prior to shipment. The Company currently performs these functions at its Irvine,
CA headquarters utilizing highly-skilled system engineers and technicians to
insure product performance and quality.
MANUFACTURING
The Company has manufacturing facilities at its location in Irvine, California.
Manufacturing processes are further enhanced by the purchase from outside
vendors of complete subassemblies for various portions of the products and by
coordinated engineering designs that allow common parts and processes for a
majority of the GA product line. The manufacturing facility was operating at 85%
capacity at September 30, 1996.
Manufacturing functions performed by GA include system assembly and integration,
QA and testing, and final preparation and packaging.
BACKLOG
GA computer orders from dealers and other customers generally specify delivery
dates of 30 days or less; the Company rarely receives an order that has
scheduled delivery dates beyond three months. Because of these ordering/delivery
patterns, the backlog at the end of a period may appear to be low and is not a
significant indicator of future revenues.
The compressed order-delivery cycle mentioned above, can result in
period-to-period fluctuations in the Company's revenues since it is dependent
upon short term orders which can be deferred or delayed by the dealers and
thereby dramatically influence the current period revenues.
At September 30, 1996 the Company had a manufacturing backlog of $500K. At
September 30, 1995 and September 30, 1994, the manufacturing backlog was $1.5
and $2.8 million, respectively. Almost all of the backlog prior to 1996 is
attributed to the Company's divested SGA operations.
EMPLOYEES
The Company had approximately 115 employees at September 30, 1996. The Company
has never had a work stoppage and none of the Company's U.S. employees is
represented by a labor union. As a result of the acquisition of SES and Liberty
in October 1996, the total number of employees now exceeds 200.
GOVERNMENT REGULATIONS
The Company is subject to certain Federal, state and local provisions relating
to protection of the environment. The Company does not operate a type of
business whose activities are likely to require any special measures to ensure
compliance with those provisions. Accordingly, the Company does not believe that
any material capital expenditures will be required for compliance with such
provisions or that such provisions will have any material effect upon its
earnings or competitive position.
12
<PAGE> 13
ITEM 2. PROPERTIES
In February 1995, the Company's executive offices and principal manufacturing
facilities were moved to a 20,000 square foot facility in Irvine, California,
which has been purchased by the Company (see Note 10 to the Financial
Statements).
During 1996, the Company completed its move from the leased facilities in
Anaheim, California. This ended all financial obligation of the Company under
that lease.
The move of the Company to its new Irvine, California location was dictated by
several factors: 1) The Anaheim facility was larger than needed under the
Company's current and anticipated business operations; the facility was built by
GA at a time when high-bay space was required in the manufacturing of computers.
This is no longer the case. 2) The cost of operating the facility was
approximately 50% higher than it would be in the new building; annualized, this
could total to nearly $75,000 in savings. 3) The new facility is in a much more
attractive and prosperous area, which offered greater security to the Company's
property and personnel. The relocation did not cause any material disruption in
the Company's operations.
The Company also leases space in ten (10) states, primarily for sales and
service offices. The acquisition of SES in October 1996, brings with it major
leases in Marlborough, MA, and Irvine, CA. These are currently short-term leases
and they are presently being reviewed in light of future requirements of the
consolidated Company.
For further information regarding lease commitments, see Note 10 to the
Financial Statements included in this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings generally incidental to its
business. The ultimate disposition of these proceedings is not presently
determinable, but in the opinion of the Company, these proceedings will not have
a material effect on the business or financial position of the Company and have
been adequately provided for in the Financial Statements.
The Company has been named as one of three defendants in a lawsuit brought by
the owner of real property once leased and used by a division of the Company as
part of its operations. The plaintiff is seeking relief from alleged
environmental damages which may have occurred on the property before, during, or
after the time the Company leased the property. The extent of the damage, if
any, has not been determined at this time nor has the extent of the Company's
liability, if any, been established in relation to the other defendants. All of
the parties to the action, including the plaintiff, are jointly funding testing
to determine the extent of the contamination, and scope of any required remedial
effort. The Company has two of its insurance carriers contributing to the
Company's legal expenses associated with this matter. However, such contribution
is being made under a reservation of rights. Until the testing results are
available to determine the environmental damages, if any, the Company has not
recorded a liability for any financial exposures to the Company for remedial
efforts.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The table below provides certain information regarding the selling price of the
Company's Common Stock for each quarter during the two fiscal years ended
September 30, 1996 and September 30, 1995. The Company's Common Stock is listed
on the American Stock Exchange and is quoted under the symbol GA. The following
table sets forth the range of high and low prices for the Common Stock of the
Company for the fiscal quarter indicated, as reported by the American Stock
Exchange.
<TABLE>
<CAPTION>
Sale Prices
-----------
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended September 30, 1996
Fourth Quarter $ 3 1/16 $ 1 15/16
Third Quarter $ 3 11/16 $ 2 11/16
Second Quarter $ 2 1/2 $ 1 1/16
First Quarter $ 15/16 $ 9/16
Fiscal Year Ended September 30, 1995
Fourth Quarter $ 15/16 $ 1/2
Third Quarter $ 11/16 $ 7/16
Second Quarter $ 13/16 $ 7/16
First Quarter $ 7/8 $ 7/16
</TABLE>
The approximate number of holders of record of Common Stock of the Company as of
December 20, 1996 was 910.
The Company has never paid a dividend on its Common Stock. The Board of
Directors reviews the financial condition of the Company periodically and
evaluates whether to declare dividends. Given the Company's present financial
condition and net operating losses in recent years, the Company does not expect
to pay any dividends in the foreseeable future. The Company's current line of
credit requires the Company to receive bank approval prior to paying any
dividends.
The Company's Common Stock is listed on the American Stock Exchange (the
"Exchange"). The delisting of the Company's Common Stock on the Exchange could
have a material adverse effect on the market for, and the market price of, the
Company's Common Stock, and a material adverse effect on the ability of the
Company to raise capital. In determining whether a security warrants continued
listing on the Exchange, the Exchange does not rely on any precise mathematical
formulas. Rather, it considers many factors, including the degree of investor
interest in the issuer of the security, the issuer's prospects for growth, and
whether the security has suitable characteristics for auction market trading.
The Rules of the Exchange state, however, that the Exchange will normally
consider delisting a security if any one of a number of events shall occur,
including the following: (i) the issuer has stockholders' equity of less than
$4,000,000 and has sustained losses from continuing operations in three of its
four most recent fiscal years, or (ii) the security has traded for a substantial
period of time at a low price per share. The Company has sustained losses before
extraordinary items in one of its last two and two of its last four fiscal
years, and the Company's stockholders' equity as of September 30, 1996, its most
recent fiscal year-end, was $2,778,000. Moreover, the Company's common stock has
traded at less than $1.00 per share during a substantial portion of the
preceding two years. In 1995, the Company received notice that the Exchange was
reviewing the continued listing of the Company's Common Stock. However,
following discussions between the Company's management and Exchange officials in
November 1995, the Exchange informed the Company that the Exchange would defer
any delisting action pending a review of the Company's performance over the
ensuing two or three
14
<PAGE> 15
fiscal quarters. Since those discussions, the revenues, results of operations
and financial condition of the Company have improved substantially, and the
price of the Company's Common Stock on the Exchange has increased significantly.
Accordingly, the Company does not believe that action will be taken by the
Exchange to delist the Company's Common Stock. The Company's management
continues to be in frequent contact with Exchange officials concerning these
issues.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended
September 30(3)
---------------------------------------
1996 1995(6) 1994(5) 1993(4) 1992(1)(2)
-------- -------- -------- -------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Sales, net $ 25,460 $ 14,269 $ 34,614 $ 42,878 $ 45,205
-------- -------- -------- -------- --------
Income (loss) from
operations 2,247 (1,666) 1,300 (351) 42
-------- -------- -------- -------- --------
Income (loss) before
extraordinary items 1,418 (2,065) 427 (1,477) (964)
Extraordinary items 0 0 0 900 1,108
-------- -------- -------- -------- --------
Net Income (loss) $ 1,418 $ (2,065) $ 427 $ (577) $ 144
======== ======== ======== ========
Earnings per share:
Income (loss) before
extraordinary items .18 (.26) .04 (.13) (.08)
Extraordinary items 0 0 .08 .09
-------- -------- -------- -------- --------
Net income (loss) $ .18 $ (.26) $ .04 $ (.05) $ .01
======== ======== ======== ======== ========
Working capital $ 1,210 $ (638) $ 2,725 $ 1,457 $ 3,450
Total assets 10,271 10,484 18,041 22,456 23,618
Total debt 1,835 2,424 4,247 5,397 5,490
Shareholders' equity(5) $ 2,778 $ 771 $ 3,246 $ 2,264 $ 3,442
</TABLE>
(1) The Company closed its German subsidiary in the fourth quarter of
fiscal 1992. See Note 8 to the Financial Statements included in this
Form 10-K.
(2) The Company sold 55% of its share of General Automation, Ltd. (U.K.)
("GAL") to Sanderson Electronics, PLC, ("Sanderson") on June 30, 1990
and sold its remaining 45% of GAL to Sanderson on January 20, 1992.
During the period July 1, 1990, through January 20, 1992, while the
Company owned 45% of GAL, the Company accounted for its minority
interest in GAL on an equity basis. See Note 8 to the Financial
Statements included in this Form 10-K.
(3) No dividends have been paid on the Company's Common stock during any of
the periods presented. See Item 5 (above) for discussion of dividend
restrictions.
(4) On October 29, 1993, with retroactive effect to September 30, 1993, the
Company divested its European operations. See Note 8 to the Financial
Statements.
(5) On November 10, 1994, with retroactive effect to October 1, 1994, the
Company divested its Pacific Basin operations. See Notes 7 and 8 to the
Financial Statements.
(6) On May 22, 1995, the Company acquired a similar product and services
business segment in the Pick market from SunRiver Data Systems.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported net income for the year ended September 30, 1996 in the
amount of $1,418,000, compared with a net loss of $2,065,000 and a net income of
$427,000 for the years ended September 30, 1995 and 1994, respectively. The
fiscal 1996 profit is attributed to the Company's divestiture of two of its
three vertical software products which accounted for approximately 65% of the
Company's losses in fiscal 1995, and the introduction and market acceptance of
the Company's Power95 product line, which was released at the end of the last
fiscal year.
<TABLE>
<CAPTION>
Sales NET SALES
(In thousands)
Year Ended
September 30
------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Product Revenues:
Domestic $ 9,715 $ 7,020 $ 6,301
SGA 14,983
------- ------- -------
9,715 7,020 21,284
------- ------- -------
Service Revenues:
Domestic 15,745 7,249 7,121
SGA 6,209
------- ------- -------
15,745 7,249 13,330
------- ------- -------
Total Sales $25,460 $14,269 $34,614
======= ======= =======
</TABLE>
The three-year table above shows a dramatic increase in U.S. revenues for both
products and service as compared to the two previous years. These increases are
a direct result of the acquisition of the Pick business from SunRiver and market
acceptance of new products introduced late in fiscal year 1995.
1996 vs. 1995
Total revenues increased $11,191,000 or 78.4% in 1996 over 1995 primarily due to
a full year of combined sales resulting from GA's participation in GAL with
SunRiver (described in "Acquisitions and Divestitures" above) and a full year of
sales of new products introduced late in fiscal year 1995. Product sales
increased 38.4% or $2,695,000, while service revenues increased 117.2% or
$8,496,000.
17
<PAGE> 18
1995 vs. 1994
Excluding revenue contributions by SGA in 1994, total sales increased $847,000
or 6.3% in 1995 over 1994. Product sales in the U.S. increased 11.4% or
$719,000, primarily through GA's participation in GAL with SunRiver (described
in "Acquisitions and Divestitures" above) and the introduction of new products
late in the year. The revenue increases shown above were accomplished without
price increases; the intense nature of the competition prevents aggressive
upward pricing policies. The Company believes that the introduction of new
products will generate new sales but is unlikely to allow for enhanced margins.
Domestic service revenues increased $128,000 due to GA's participation in GAL
with SunRiver, offset by the termination of GA contracts on older systems.
Termination of contracts is a normal part of the business. As computers grow
older, they're no longer covered under contracts. Increased competition has also
caused some sales attrition. The addition of service contracts attributable to
GA's participation in GAL with SunRiver generated revenues of $553,000 during
the last four months of the year.
18
<PAGE> 19
<TABLE>
<CAPTION>
GROSS MARGIN
GROSS MARGIN
(In thousands)
Year Ended
September 30
--------------------------------------------------------------------
1996 1995 1994
------- ------- -------
% of % of % of
Amount Sales Amount Sales Amount Sales
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Products:
Domestic $ 1,828 18.8 $ 518 7.4 $ 1,954 31.0
SGA 7,567 50.5
------- ------- -------
1,828 18.8 518 7.4 9,521 44.7
------- ------- -------
Service and Support:
Domestic 6,199 39.4 2,285 31.5 1,773 24.9
SGA 1,751 28.2
------- ------- -------
6,199 39.4 2,285 31.5 3,524 26.4
------- ------- -------
Total Gross Margin $ 8,027 31.5 $ 2,803 19.6 $13,045 37.7
======= ======= =======
</TABLE>
GROSS MARGIN
1996 vs. 1995
The Company's overall gross profit margin percentage increased 11.9% from 19.6%
in fiscal 1995 to 31.5% in fiscal 1996. Gross margin percentages for products
increased 11.4%, while service and support margins increased from 31.5% to
39.4%. The increase in product margin was due to increased sales volume in
relation to relatively fixed direct labor and overhead costs and the divestiture
of two of the three vertical product lines which had resulted in negative gross
margin in the prior year (see "Acquisitions and Divestitures" above). The
increase in service and support margin is due to increased revenues in excess of
increased overhead and third party maintenance costs.
1995 vs. 1994
Excluding SGA, the Company's overall gross profit margin decreased from 27.8% in
fiscal 1994 to 19.6% in fiscal 1995. Gross margin percentages for domestic
products decreased from 31% to 7.4% , while domestic service and support margins
increased 6.6% from prior year levels. The decrease in product margin was due to
vertical product losses and lower margins on non-GA manufactured computer
systems such as Groupe Bull and AT&T GIS. The increase in service and support
margin was due to GA's participation in GAL with SunRiver.
GA sells its hardware products through a nationwide dealer network, and dealers
sell to the end-users, pricing their products as the competition will allow.
Company pricing strategies in the past have been aimed at stimulating dealer
orders through pricing concessions; general price decreases or increases are not
the normal technique used by the Company. The dealers generally are selling a
system, complete with application software, in a "bundled" proposal, as a
turn-key sale. The direct competitive pressures facing the dealers are closely
tied to the cost/benefit relationship of their proposal versus those of other
firms.
19
<PAGE> 20
NET PROFIT/(LOSS)
NET INCOME/(LOSS)
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Domestic $ 1,418 $(2,065) $ (318)
SGA 745
------- ------- -------
Total Net Income/(LOSS) $ 1,418 $(2,065) $ 427
======= ======= =======
</TABLE>
1996 vs 1995
Net income was $1,418,000 for 1996 compared to a net loss of $2,065,000 for
1995. The improvement in net income of $3,483,000 for 1996 over 1995 is the
result of a full year of operations from the participation in GAL with SunRiver,
the divestiture of two vertical product lines, and increased income from the
introduction of the Company's Power95 line released at the end of fiscal 1995.
1995 vs 1994
Excluding SGA, the net losses are ($2,065,000) and ($318,000) for 1995 and 1994,
respectively. The 1994 loss is net of $900,000 of income resulting from a
decrease in estimated tax liabilities. The fiscal year 1995 loss includes costs
associated with the formation of GAL with SunRiver significant investments in
the vertical products and the later than planned entry of new products in the
marketplace.
20
<PAGE> 21
EXPENSES
<TABLE>
<CAPTION>
EXPENSES
(In thousands)
Year Ended
September 30
-----------------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- ---------------------
% of % of % of
Amount Sales Amount Sales Amount Sales
<S> <C> <C> <C> <C> <C> <C>
Research and
Development:
Domestic $ 1,156 4.5 $ 584 4.1 $ 575 1.7
SGA 1,178 3.4
------- ------- ------- ------- ------- -------
1,156 4.5 584 4.1 1,753 5.1
------- ------- ------- ------- ------- -------
Selling and
Administrative:
Domestic 4,366 17.1 3,704 25.9 3,700 10.7
SGA 5,907 17.1
------- ------- ------- ------- ------- -------
4,366 17.1 3,704 25.9 9,607 27.8
------- ------- ------- ------- ------- -------
Other:
Domestic 258 1.0 181 2.3 300 0.9
SGA 85 0.2
258 1.0 181 1.3 385 1.1
------- ------- ------- ------- ------- -------
Interest:
GA 214 .8 399 2.8 376 1.1
SGA 232 0.7
214 .8 399 2.8 608 1.8
------- ------- ------- ------- ------- -------
Total $ 5,994 23.5 $ 4,868 34.1 $12,353 35.8
======= ======= ======= ======= ======= =======
</TABLE>
Research and development expenses increased $572,000 from 1995 to 1996 as a
result of activities related to GAL . It is the belief of management that
expenditures will increase with the acquisition of SES and Liberty (See Note 12
to the Financial Statements).
Selling and administrative expense increased $662,000 from 1995 to 1996 due to
GA's participation in GAL with SunRiver. Selling and administrative expense
increased $4,000 from 1994 to 1995, excluding SGA. The sale of SGA to Sanderson
Technology, Ltd. eliminated the SGA expense, which was $5,907,000 in 1994. (See
Note 8 to the accompanying Financial Statements).
Other expenses increased $77,000 from 1995 to 1996 due to the foreign taxes owed
resulting from an audit of Eurosystems. Other expense increased $119,000 from
1994 to 1995 due to the elimination of goodwill amortization caused by the sale
of SGA.
21
<PAGE> 22
Interest expense decreased $160,000 from 1995 to 1996 due to lower levels of
borrowing during the year. Interest expense increased $23,000 from 1994 to 1995,
excluding SGA, due to higher levels decreases to the debt balance.
LIQUIDITY AND CAPITAL RESOURCES
The Company is operating on improved cash resources. During the Company's fiscal
1996, the Company's cash receipts exceeded the total expenditures. The Company
has seen improvement in its cash position due to the positive cash flow
generated by GA's participation in GAL with SunRiver and expects the trend to
continue, augmented by sales of non GA manufactured products. These two factors,
together with the bank line of credit described below, are expected to provide
GA with the needed working capital to support future operations. No plans have
been made to seek new equity funds.
Net cash provided during fiscal 1996 by operating activities was $220,000. The
major items generating cash were a $615,000 increase in accrued income tax, a
$1,993,000 decrease in accounts receivable and a $438,000 increase in other
accrued expenses. The major items consuming cash were a $1,253,000 increase in
inventories, a $583,000 increase in prepaid expenses, and a $2,692,000 reduction
in deferred revenue. The remainder was provided by ongoing operations.
Net cash of $201,000 was used for investing activities in fiscal 1996 for
capitalized software development costs and additions to property, plant and
equipment, offset by $55,000 provided by the disposal of assets.
Financing activities consumed $1,000 from debt repayments of $857,000, offset
by new notes payable of $267,000 and $589,000 in proceeds from the issuance of
common stock.
As of September 30, 1996, the Company had an agreement with a U.S. lender for a
revolving line of credit, not to exceed $800,000, which was collateralized by
domestic accounts receivable. The agreement was renewable at six month
intervals. The interest rate was prime plus 6%, payable monthly, with a minimum
of 14%. In addition, there were monthly collateral management fees charged for
maintaining the open line of credit. Because the amount of borrowing was
dependent upon accounts receivable levels, varying levels of domestic activity
could have precluded full utilization of the facility. At September 30, 1996,
the balance of the loan was $528,000. The line of credit contained various
covenants and restrictions; at September 30, 1996 the Company was in compliance
with all covenants. On November 4, 1996, this Agreement was terminated by mutual
consent and all funds owed were paid by borrowing from a new agreement described
below.
Effective October 30, 1996, the Company entered into an agreement with Imperial
Bank for a revolving line of credit, not to exceed $1,500,000, collaterized by
domestic accounts receivable. The agreement is renewable annually and has an
interest rate of prime plus 2%, payable monthly, with a minimum of $250 per
month. Because the amount of borrowing is dependent upon accounts receivable
levels, varying levels of domestic activity could preclude full utilization of
the facility. Management believes that these funds will provide adequate capital
for current needs and future expansion.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules on Page 27 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
22
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the directors and executive officers of the
Company, see the information appearing on pages 4, 5 and 6 of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held January 30,
1997 under the caption "Election of Directors" and on page 18 of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held January 30,
1997 under the caption "Compliance with Section 16(a) of the Securities Exchange
Act of 1934", which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information with respect to the compensation of certain executive
officers of the Company, see the information appearing on pages 13 and 14 of the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held
January 30, 1997 under the caption "Executive Compensation", which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information with respect to the security ownership of certain beneficial
owners and management of the Company, see the information appearing on pages 12
and 13 of the Company's Proxy Statement for the Annual Meeting of Stockholders
to be held January 30, 1997 under the caption "Security Ownership of Certain
Beneficial Owners and Management", which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information with respect to certain relationships and related
transactions, see the information appearing on page 18 of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held January 30, 1997
under the caption "Certain Relationships and Related Transactions", which
information is incorporated herein by reference.
23
<PAGE> 24
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a). Financial Statements
See Index to Consolidated Financial Statements and Schedules on Page 27
of this report.
(b) No reports on Form 8-K were filed by the Registrant during the last
quarter of the fiscal year covered by this report on Form 10-K.
(c). Exhibits
3(a) Amended Certificate of Incorporation of the Company. (1)
3(b) By-Laws of the Company (2)
10(a) Sample Dealer Agreement with Schedule. (3)
10(b) Pick License Agreement dated November 23, 1982, between
the Company and Pick Computer Works, Inc. (3)
10(d) Form of Note Purchase and Warrant Agreement dated as of
June 17, 1987, between the Company and the Purchasers
thereof. (5)
10(e) Amendment dated May 18, 1989 to Note Purchase Agreement
dated June 17, 1987 between the Company and Paul Morigi &
Company. (10)
10(f) The following agreements by and between the Company and
Sanderson Electronics PLC, all dated as of January 6,
1989, except as indicated: Purchase Agreement; 15%
Convertible Senior Note in the principal amount of
$500,000; 15% Convertible Senior Note in the principal
amount of $1,250,000, dated as of January 24, 1989; Pledge
Agreement; Security Agreement; Common Stock Warrant
Agreement (2,837,388 shares of the Company's Common
Stock); Common Stock Warrant Agreement (2,500,000 shares);
Common Stock Warrant Agreement ("Mirror Rights
Agreement"); and Common Stock Registration Rights
Agreement. (6)
10(g) Amendment dated July 28, 1989 to the following agreements
by and between the Company and Sanderson Electronics PLC:
15% Convertible Senior Note in the principal amount of
$500,000, dated as of January 6, 1989; 15% Convertible
Senior Note in the principal amount of $1,250,000, dated
as of January 24, 1989; Common Stock Warrant Agreement
dated as of January 6, 1989 pursuant to which the Notes
may be converted to 2,500,000 shares of the Company's
Common stock. (7)
10(h) Commitment Letter by and between General Automation, Ltd.
and Sanderson Computers (PPS) Limited for a Floating Rate
Unsecured Convertible Loan Stock. (8)
24
<PAGE> 25
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K(Continued)
10(j) The Company's 1991 Stock option Plan and Directors' Stock
Option Plan. (11)
10(k) Agreement for the sale and purchase of 49,951 ordinary
shares in the capital of Eurosystems GA Ltd. to Krypton
Group Ltd., and instrument constituting $990,000
non-interest bearing loan note, all dated October 28,
1993. (12)
10(l) Agreement relating to the Company's sale of its 51%
interest in SGA Pacific, Limited to Sanderson Technology,
Ltd., dated October 20, 1994. (13)
10(m) Agreement by and between General Automation, Inc. and
Future Services, Ltd.
10(n) Operating Agreement by and between General Automation,
Inc. and SunRiver Data Systems dated May 22, 1995.
10(o) Asset Purchase Agreement dated as of October 3, 1996
between the Company and Sequoia Systems, Inc. (14)
10(p) Stock Purchase Warrant dated October 11, 1996 issued by
the Company to Seqouia Systems, Inc. (14)
10(q) Registration Rights Agreement dated October 11, 1996
between the Company and Sequoia Systems, Inc. (14)
10(r) Loan Agreement dated October 30, 1996 between the Company
and Imperial Bank.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
(1) Filed as Exhibit 3(a) to the Company's 10-K dated as of June 30, 1989,
and by this reference incorporated herein.
(2) Filed as Exhibit No. 30 to the Company's Form 10-K dated as of June 30,
1988, and by this reference incorporated herein.
(3) Filed as Exhibit No. 10 to the Company's Form S-1 as filed on June 5,
1986, and by this reference incorporated herein.
25
<PAGE> 26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)
(4) Filed as Exhibit B to the Company's Proxy Statement to Shareholders
dated October 14, 1987, and by this reference incorporated herein.
(5) Filed as Exhibits to the Company's Current Report on Form 8-K dated as
of January 6, 1989, and by this reference incorporated herein.
(6) Filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K
dated as of June 30, 1989, and by this reference incorporated herein.
(7) Filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K
dated as of June 30, 1989, and by this reference incorporated herein.
(8) Filed as Exhibit 10(bb) to the Company's Annual Report on Form 10-K
dated as of June 30, 1989, and by this reference incorporated herein.
(9) Filed as Exhibit 3(b) to the Company's Form 10-K dated as of June 30,
1989, and by this reference incorporated herein.
(10) Filed as Exhibits to the Company's Form S-8 as filed on October 4,
1991, and by this reference incorporated herein.
(11) Filed as Exhibit to the Company's Form 8-K dated as of November 12,
1993, and by this reference incorporated herein.
(12) Filed as Exhibit to the Company's Form 8-K dated as of November 23,
1994, and by this reference incorporated herein.
(13) Filed as an Exhibit to the Company's Report on 8-K filed on October 15,
1996, and by this reference incorporated herein.
26
<PAGE> 27
GENERAL AUTOMATION, INC.
And Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of Independent Accountants 28
Financial Statements:
Consolidated Balance Sheet - September 30, 1996 29 - 30
and 1995
Consolidated Statement of Operations for the Three Years 31
Ended September 30, 1996.
Consolidated Statement of Shareholders' Equity 32
for the Three Years Ended September 30, 1996.
Consolidated Statement of Cash Flows for the Three Years 33 - 34
Ended September 30, 1996.
Notes to Consolidated Financial Statements. 35 - 50
27
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Directors
of General Automation, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity, present fairly, in all material respects, the financial
position of General Automation, Inc. and its subsidiaries at September 30, 1996
and 1995 and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles. These consolidated financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Costa Mesa, California
December 9, 1996
28
<PAGE> 29
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30
------------
1996 1995
------- -------
<S> <C> <C>
Assets
Current Assets:
Cash $ 119 $ 101
Accounts receivable, net (Note 2) 3,686 5,679
Inventories (Note 2) 2,979 1,726
Prepaid expenses 768 185
------- -------
Total current assets 7,552 7,691
------- -------
Long-term receivable 570 570
Property, plant and equipment, net of
accumulated depreciation and
amortization (Note 2) 1,392 1,354
Other assets (Note 2) 757 869
------- -------
$10,271 $10,484
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 30
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30
--------------------------
1996 1995
-------- --------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 2,967 $ 2,959
Advances from customers (Note 1) 709 3,401
Accrued income taxes (Note 6) 615
Other accrued expenses (Note 2) 1,288 850
Notes payable and current
portion of long-term
debt (Note 3) 763 1,119
-------- --------
Total current liabilities 6,342 8,329
Long-term debt, excluding
current portion (Note 3) 1,072 1,305
Deferred credit 79 79
Shareholders' Equity
Common stock par value $.10 per share;
Authorized 30,000,000 shares; issued
and outstanding 8,176,376 at
September 30,1996 and 7,391,776 at
September 30, 1995 818 739
Additional paid in capital 43,043 42,533
Accumulated deficit (41,083) (42,501)
-------- --------
Total shareholders' equity 2,778 771
-------- --------
$ 10,271 $ 10,484
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 31
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Months
Ended
September 30
----------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Product $ 9,715 $ 7,020 $ 21,284
Service 15,745 7,249 13,330
-------- -------- --------
Total 25,460 14,269 34,614
-------- -------- --------
Costs and expenses:
Cost of sales Product 7,887 6,502 11,763
Service 9,546 4,964 9,806
Selling and
administrative 4,366 3,704 9,607
Research and development 1,156 584 1,753
Other, net 258 181 (385)
-------- -------- --------
23,213 15,935 33,314
-------- -------- --------
Income (loss) from
operations 2,247 (1,666) 1,300
Interest income 60 35 41
Interest expense (274) (434) (649)
-------- -------- --------
Income (loss) before
income taxes and minority
interest 2,033 (2,065) 692
Provision for (benefit from)
income taxes 615 (454)
Minority interest in income
of SGA 719
-------- -------- --------
Net income(loss) $ 1,418 $ (2,065) $ 427
======== ======== ========
Net income (loss) per common share $ .18 $ (.26) $ .04
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 32
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated Translation
Shares Amount Capital Deficit Adjustment
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 11,366,776 $ 1,137 $ 42,420 $ (40,884) $ (409)
Net income 427
Translation adjustments 555
---------- ----------- ----------- ----------- -----------
Balance at September 30, 1994 11,366,776 1,137 42,420 (40,457) 146
Net loss (2,065)
Retired from Sale of SGA (4,100,000) (410) 113 21 (146)
Issued for legal settlement 125,000 12
---------- ----------- ----------- ----------- -----------
Balance at September 30, 1995 7,391,776 739 42,533 (42,501) $ 0
===========
Net income 1,418
Stock Options exercised 784,600 79 510
---------- ----------- ----------- -----------
Balance at September 30, 1996 8,176,376 818 $ 43,043 $ (41,083)
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 33
GENERAL AUTOMATION, INC.
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve
Months Ended
September 30
-------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash flows provided by (used for)
operating activities:
Net income (loss) $ 1,418 $(2,065) $ 427
Adjustments to reconcile net
income (loss) to net
cash provided by (used for)
operations:
Gain from disposal of assets (55)
Minority interest in income of SGA 719
Depreciation and amortization 364 355 1,328
Changes in balance sheet items, net of
dispositions
Accounts receivable 1,993 (3,846) (1,461)
Inventories (1,253) 563 233
Prepaid expenses (583) (11) 11
Other assets (33) 79 155
Accounts payable 8 1,662 978
Advances from customers (2,692) 3,160 (371)
Accrued income taxes 615 (512)
Other accrued expenses 438 (240) (534)
------- ------- -------
Net cash provided by (used for)
operating activities 220 (343) 973
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 34
GENERAL AUTOMATION, INC.
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve
Months Ended
September 30
-------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash flows used for
investing activities:
Purchases of property, plant and
equipment (101) (1,328) (431)
Proceeds from disposal of assets 55
Capitalized software costs (168) (178) (410)
Investment in subsidiary 13 21
------- ------- -------
Net cash used for
investing activities (201) (1,527) (841)
------- ------- -------
Cash flows provided by (used for)
financing activities:
Proceeds from issuance of common stock 589
Proceeds from issuance of notes
payable 267 1,357 940
Principal payments on notes
payable (857) (1,407) (2,000)
Principal payments on accrued
taxes (133)
Proceeds from sale of SGA Pacific 1,791
------- ------- -------
Net cash (used for) provided by
financing activities (1) 1,741 (1,193)
------- ------- -------
Effect of exchange rates
on cash 125
------- ------- -------
Increase (decrease) in cash 18 (129) (936)
Cash at beginning of period 101 230 1,166
------- ------- -------
Cash at end of period $ 119 $ 101 230
======= ======= =======
Cash paid during the period for:
Interest $ 274 $ 452 $ 1,042
======= ======= =======
Income taxes $ $ $ 133
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 35
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Description of the Company and Summary of Significant Accounting
Policies:
DESCRIPTION OF THE COMPANY
The Company is engaged in the development, design and sale of computer software
and hardware and related field support services.
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
all of its wholly and majority-owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
Revenue Recognition
Revenues for sales of products are recognized as shipped. Revenue is not
recognized on product sales if significant obligations remain or collectibility
is in doubt. Revenues for maintenance service contracts are recognized on a
monthly basis ratably over the period of the contracts. Cash payments received
and billings in advance of revenue recognition are deferred (Advances from
customers) and recognized as earned. Vertical installations (The Service
Advantage) revenues are recognized on the percentage of completion method.
Warranties
All products, except the lowest-end models, carry a one year warranty, during
which all maintenance labor and parts are covered. The Company carries adequate
reserves to cover any anticipated charges of this nature.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Cost elements include material, labor and factory overhead. Market is considered
to be selling price, less allowance for normal selling expenses.
Depreciation and Amortization
Depreciation and amortization are provided over the estimated useful lives of
the assets using the straight-line method. Estimated useful lives are as
follows:
Building 30 years
Machinery and equipment 3-7 years
Furniture and fixtures 3-7 years
Leasehold improvements Lease term or asset life, whichever is less
Customer service spare parts 7 years
The estimated useful life of customer service spare parts is adjusted to reflect
actual usage.
35
<PAGE> 36
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
1. Description of the Company and Summary of Significant Accounting
Policies, Continued
Expenditures that materially increase the asset life are capitalized and
ordinary maintenance and repairs are charged to operations as incurred.
Capitalized Software
All capitalized software development costs are amortized on a straight-line
basis over the remaining estimated economic life of the product, generally three
to five years. The costs capitalized are those incurred after the Company has
determined the technical feasibility of a software project. The project
amortization does not commence until after the general release of the product
and are included in the cost of sales.
Equity Investments
The Company accounted for its minority interest in SGA using the equity method,
under which the Company recognized its pro-rata share of net income as reported
by SGA, after adjusting for the effects of intercompany transactions.
Foreign Currency Translation
The assets and liabilities for the Company's international subsidiaries which
were sold in 1995 were translated into US Dollars using current exchange rates.
Income statement items are generally translated at average exchange rates
prevailing during the period. The resulting translation adjustments are recorded
in the currency translation adjustments account in shareholders' equity. Foreign
currency transaction gains and losses are included in net income.
Income Taxes
Income taxes are accounted for using an asset and liability approach which
requires the recognition of deferred tax assets for the expected future tax
consequences of temporary differences between the financial statement and tax
bases of assets and liabilities at the applicable enacted tax rates.
Earnings Per Common Share
Earnings or loss per share are based on the weighted average number of shares
outstanding without inclusion of common stock equivalents if such inclusion
would be antidilutive.
Weighted average shares used in the earnings or loss per share calculations for
the years ended September 30, 1996, 1995 and 1994 are 7,677,627, 8,036,572, and
11,366,776, respectively.
36
<PAGE> 37
Fair Value of Financial Instruments
The Company values financial instruments as required by Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Values of Financial
Instruments" (SFAS 107). The carrying amounts of cash accounts receivable,
accounts payable, accrued liabilities and debt approximate fair value. It was
not practicable to estimate the fair value of the long-term receivable since the
timing and amounts of the principal payments are not on fixed terms . Refer to
Note 8 for further discussion regarding this note receivable.
New Accounting Standards
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Use of Estimates in Preparation of Financial Statements
In March 1995, Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" ("SFAS 121") was issued. SFAS No. 121 establishes new guidelines in
accounting for the impairment of long-lived assets, including identifiable
intangibles. When circumstances indicate that the carrying amount of an asset
may not be recoverable as demonstrated by estimated cash inflows, an impairment
loss shall be recorded based on fair value. Management believes SFAS No. 121
will have no material effect on the financial statements of the Company upon
adoption in fiscal 1997.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock-Based
Compensation," which becomes effective for fiscal years beginning after December
15, 1995. SFAS 123 establishes new financial accounting and reporting standards
for stock-based compensation plans. Entities will be allowed to measure
compensation expense for stock-based compensation under SFAS 123 or APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Entities electing to remain
with the accounting in APB Opinion No. 25 will be required to make pro forma
disclosures of net income and earnings per share as if the provisions of SFAS
123 had been applied. The Company intends to continue to follow the accounting
pursuant to APB No. 25 and, as a result, adoption of SFAS 123 in fiscal 1997
will have no effect on the Company's financial statements.
37
<PAGE> 38
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
2. Composition of Certain Balance Sheet Accounts:
Accounts receivable consist of:
<TABLE>
<CAPTION>
September 30
---------------------------
1996 1995
------- -------
<S> <C> <C>
Trade receivables $ 4,161 $ 6,007
Due from related parties 86 116
------- -------
4,247 6,123
Less allowance for
doubtful accounts (561) (444)
------- -------
$ 3,686 $ 5,679
======= =======
</TABLE>
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30
-------------------------
1996 1995
------ ------
<S> <C> <C>
Materials, subassemblies
and spare parts $2,855 $1,498
Work in process 115 157
Finished goods 9 71
------ ------
$2,979 $1,726
====== ======
</TABLE>
38
<PAGE> 39
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
2. Composition of Certain Balance Sheet Accounts:
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
September 30
----------------------------
1996 1995
------- -------
<S> <C> <C>
Land and building $ 1,276 $ 1,256
Machinery and equipment 2,133 $ 2,064
Furniture and fixtures 213 200
Leasehold improvements 50 50
------- -------
3,672 3,570
Less accumulated
depreciation and
amortization (2,280) (2,216)
------- -------
$ 1,392 $ 1,354
======= =======
</TABLE>
Depreciation and amortization expense for the years ended September 30, 1996,
1995 and 1994 amounted to $64, $60 and $528, respectively.
Other assets comprise:
<TABLE>
<CAPTION>
September 30
----------------------------
1996 1995
------- -------
<S> <C> <C>
Computer software costs $ 1,780 $ 1,612
Other 87 67
------- -------
1,827 1,679
Less accumulated
amortization (1,110) (810)
------- -------
$ 757 $ 869
======= =======
</TABLE>
During the years ended September 30, 1996, 1995 and 1994 the Company capitalized
$168, $178 and $410 of software development costs, respectively, and $310, $295
and $678 of such costs were amortized to cost of sales, respectively.
Other accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30
-----------------
1996 1995
------ ----
<S> <C> <C>
Accrued payroll 499 $429
Accrued taxes other than income 69 95
Other 720 326
------ ----
$1,288 $850
====== ====
</TABLE>
39
<PAGE> 40
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
3. Notes Payable and Long-Term Debt:
Notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
September 30
--------------------
1996 1995
------ ------
<S> <C> <C>
Unsecured note payable
bearing interest at 15%,
monthly payments of $31,192 beginning
August, 1995; due January, 1997 $ 121 450
Note payable, bearing interest at 13%;
monthly payments of $6,800;
due on August 15, 1998 137 195
Notes payable to States relating to taxes;
bearing interest between 12% and 15%;
monthly payments of $7,547 through March 1999 59 241
Mortgage payable to National Bank of
Southern California, bearing interest at
prime + 1%, monthly payments of $8,445 990 995
Line of credit:
Continental Business Credit, bearing
interest at prime plus 6%, renewable
every six months 528 543
----- -----
1,835 2,424
Less amounts due in one year 763 1,119
------ ------
$1,072 $1,305
====== ======
</TABLE>
40
<PAGE> 41
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
3. Notes Payable and Long-Term Debt, Continued:
Payment requirements on principal balances at September 30, 1996 are
approximately as follows for the twelve month periods ending September 30, 1997:
$763, 1998 - $92, 1999 - $14, 2000 - $10 2001 - $9 and $947 thereafter.
In March 1991, an agreement was reached with a domestic lender for a line of
credit collateralized by all current domestic trade accounts receivable. The
maximum borrowing limit is $800 with interest at prime plus 6% with a minimum
rate of 14%. At September 30, 1996 the total owed on this line was $528. The
agreement is renewable at six month intervals. The line includes various
covenants and restrictions; at September 30, 1996 the Company was in compliance
with all covenants.
Effective October 1, 1996, the Company entered into an agreement with Imperial
Bank for a revolving line of credit, not to exceed $1,500,000 collateralized by
domestic accounts receivable. The agreement is renewable annually and has an
interest rate of prime plus 2%, payable monthly, with a minimum of $250.
The Company purchased a building in Irvine, California, on November 16, 1994,
which serves as the Company's corporate offices. The purchase price was $1,200,
less a down payment of $200 leaving a financed balance of $1,000. Monthly
payments for the first twenty-four months are guaranteed to remain at $8 each.
Annual interest is based on prime, plus 1%. Monthly payments will be adjusted
annually for changes to the prime rate. At the end of ten years, a balloon
payment of approximately $917 will be due.
4. Employee Benefit Plans:
The Company has a profit sharing 401K plan covering substantially all of its
domestic employees. Eligible employees may contribute 2% to 12% of their
compensation up to the maximum dollar amount allowed by the IRS. The Company
contributes from profits amounts equal to 50% of each employee's contribution
which are limited to 3% of the employee's compensation. The Company may elect
to, although it is not obligated to, make contributions in years when it has no
profits. Contributions for the years ended September 30, 1996, 1995 and 1994
were $85, $78 and $65, respectively.
41
<PAGE> 42
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
5. Stock Options
In February 1991, the shareholders of the Company adopted the 1991 Stock Option
Plan and the 1991 Directors' Stock Option Plan. Employees and directors who held
options under previous plans were given the right to retain those options or
accept the options under the 1991 Plans, in which case their existing options
would be canceled. Options under the 1991 Plans were granted at prices in excess
of the market price of approximately $0.625 on the date of grant. All such
option holders accepted the options offered under the 1991 Plans, and all
options to acquire common stock of the Company were consolidated under the 1991
Plans. In April, 1994, the shareholders of the Company adopted an amendment to
the 1991 Stock Option Plan increasing the shares of Common Stock reserved for
issuance thereunder from 900,000 to 1,300,000. The shareholders, at the same
time, adopted an amendment to the 1991 Directors' Stock Option Plan to increase
the number of shares of Common Stock reserved for issuance thereunder from
100,000 to 200,000, and to modify certain provisions concerning
non-discretionary stock option grants.
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
--------- ----------
<S> <C> <C>
1991 PLANS
- ----------
Outstanding at September 30, 1993 840,000 $ 0.75
Granted 513,000
Exercised -0-
Terminated (210,000)
---------
Outstanding at September 30, 1994 1,143,000 $ 0.75
Granted 300,000
Exercised -0-
Terminated (25,000)
---------
Outstanding at September 30, 1995 1,418,000 $ 0.75
Granted 50,000
Exercised (732,000)
Terminated (71,000)
---------
Outstanding at September 30, 1996 665,000 $ 0.75
=========
</TABLE>
All remaining 665,000 options granted under the 1991 Plan are exercisable at
September 30, 1996. Under the amended 1991 Plan an additional 188,000 shares
have been reserved for future grants. All outstanding options have been granted
at $0.75 per share.
42
<PAGE> 43
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
6. Income Taxes:
The provision (benefit) for income taxes for each of the three fiscal years in
the period ended September 30, 1996 consists of the following:
<TABLE>
<CAPTION>
Year Ended
September 30
-------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Current:
Federal $ 482 $ $(900)
State 133
-----
Foreign -- 446
----- ----- -----
$ 615 -- (454)
===== ===== =====
</TABLE>
Reasons for differences between income tax expense and the amount computed by
applying the federal statutory income tax rate to income (loss) before income
taxes are as follows:
<TABLE>
<CAPTION>
Year Ended
September 30
-------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Tax provision (benefit)
calculated at Federal
statutory rate $ 691 (702) $ 235
Benefit of operating loss
carryforwards (355)
State income taxes 133
Expenses not benefited 123
Tax benefits not provided
on losses of domestic
and foreign operations (405) 414
Foreign operations taxed
at other than federal
statutory rate (205)
Reduction in estimated taxes due
under 1989 IRS settlement (900)
Income from sale of foreign subsidiary 1,054
Other 23 53 2
------- ------- -------
Provision (benefit) at effective tax rate $ 615 $ $ (454)
======= ======= =======
</TABLE>
43
<PAGE> 44
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
6. Income Taxes, Continued:
Federal net operating loss carryforwards in the total amount of $ 5.8 million is
subject to an annual limitation of $545 due to a change in ownership in
November 1994.
On May 19, 1989, the Company and the IRS executed a revised agreement (the "IRS
Agreement") relating to tax deficiencies assessed for years 1974 to 1981. As of
September 30, 1996, the Company has no remaining obligations under the IRS
Agreement as the total obligation was fully satisfied with the filing of the
1994 Federal income tax return.
At September 30, 1994, 1993 and 1992, the revised its estimated tax liability
relating to the $2.8 million fixed portion of the IRS Agreement. Based upon
projected operating results, management determined that approximately $1 million
each year of the estimated tax liability would be satisfied by the end of fiscal
year 1994 by waiver of unused NOL carryovers and not from financial assets.
Accordingly, the September 30, 1994 tax liability accounts of the Company
reflect this change in accounting estimate, which has been reflected as an
extraordinary item in the Consolidated Statement of Operations, $1,000 in 1992
and $900 in 1993. In 1994 the adjustment of $900 is included in the provision
for income taxes.
Deferred tax assets as of September 30, 1996, relate to the following. A
valuation allowance has been established to reduce deferred tax assets to
amounts which are more likely than not to be realized:
<TABLE>
<CAPTION>
Deferred Tax Assets
------------------------
1996 1995
------ ------
<S> <C> <C>
Inventory reserve 102 82
Warranty Reserve 27 16
Vacation accrual 132 117
Allowance for bad debts 191 151
Accrued royalties 70 32
NOL carryforward 1,975 2,379
------ ------
Total 2,497 2,777
Valuation Allowance (2,497) (2,777)
------ ------
Net 0 0
====== ======
</TABLE>
44
<PAGE> 45
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
7. Segment Information:
The Company operates in one business segment. Operations include the design,
manufacture, sales and service of computer systems and computer products. In
1996 and 1995, essentially all of the Company's operations were within the
United States.
Information concerning the Company's operations by geographic area for 1994 is
as follows:
<TABLE>
<CAPTION>
Twelve Months Ended September 30, 1994
--------------------------------------------------------
United Pacific Elimina-
States Basin tions Total
(In thousands)
<S> <C> <C> <C> <C>
Net sales to
customers $ 13,422 $ 21,192 $ 34,614
Inter-area sales 575 $ (575)
-------- -------- -------- --------
Total net sales $ 13,997 $ 21,192 $ (575) $ 34,614
-------- -------- -------- --------
Segment operating
income $ 741 $ 2,148 $ 2,889
-------- -------- -------- --------
Interest expense, net (608)
Corporate expenses (1,589)
--------
Income before income
taxes and minority interests $ 692
========
Identifiable assets $ 6,655 $ 11,982 $ (596) $ 18,041
======== ======== ======== ========
Identifiable
liabilities $ 5,110 $ 7,942 $ 1,743 $ 14,795
======== ======== ======== ========
</TABLE>
45
<PAGE> 46
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
Sales and transfers between geographic areas are made with reference to
prevailing market prices and at prices approximately equal to those charged to
unaffiliated distributors. Operating income is revenue less related costs and
operating expenses, including other income and expense, but excluding interest
and corporate expenses.
Identifiable assets are those assets of the Company that are identified with
operations in each geographic area.
No single customer or group of related customers or total export sales accounted
for as much as 10% of consolidated sales during any of the periods presented.
8. Acquisitions and Dispositions:
Effective October 1, 1989, the Company acquired a 29.3% interest in SGA Pacific
Limited (SGA), a distributor of the Company's products in Australia, New Zealand
and Asia in exchange for the stock of the Company's wholly-owned subsidiaries in
Singapore and Hong Kong, and for cash of $38. The total consideration, which is
the aggregate of the Company's historical basis in the stock exchanged and the
cash, amounted to $243.
On July 1, 1990, the Company purchased an additional 21.8% interest in SGA from
Sanderson Electronics, PLC, for $875. As the Company became a majority (51.1%)
stockholder, SGA's operations were consolidated with the Company from July 1,
1990. On November 10, 1994, with retroactive effect from October 1, 1994, the
Company sold its 51% share of SGA Pacific, Ltd. to Sanderson Technology, Ltd. In
consideration, Sanderson Technology Ltd. paid the Company $1,000 in cash, $1,000
in a 24 month note, plus transferred 4,100,000 shares of the Company's common
shares back to the Company, which were retired. This brought Sanderson's
interest in the Company down to under 10%. A gain was not recognized for
financial statement purposes due to the related party nature of the transaction.
Net operating losses were utilized to offset the entire gain recognized for tax
purposes in the fiscal 1995 tax return.
In October, 1992, the Company signed an agreement to form a holding company,
Eurosystems GA Ltd. (Eurosystems), a UK corporation. Under the terms of the
agreement, the Company received 61% of the common shares of Eurosystems in
exchange for its shares in General Automation France SA, General Automation SA
(Belgium), and General Automation Italia SpA (Italy). Krypton Group Ltd., a UK
corporation received 39% of the common shares in exchange for its 100%
shareholding in Eurosystems Belgium SA and Eurosystems SA (France), its 55%
shareholding in Eurosystems GmbH (Germany) and its 85% shareholding in
Eurosystems Maintenance SA (France).
In March, 1993, Eurosystems GA, Ltd. sold its shares of Eurosystems GmbH
(Germany) to the minority shareholders of the German subsidiary for DM3,000
(approximately $1,863).
On October 29, 1993, with retroactive effect to September 30, 1993, the Company
sold its 61% share of Eurosystems to the minority shareholders of Eurosystems
(Krypton Group Ltd.) for $750 for a loss of $994 which was included in the 1993
consolidated statement of operations. The terms included a note receivable in
the amount of $750 if paid by December 31, 1993, or $795, including $45 interest
if paid before March 31, 1994. If not repaid by March 31, 1994, the note was
repayable in 33 monthly installments of $30. The note was not paid by March 31,
1994 and after receiving six monthly installments, payments were suspended by
Krypton. As of September 30, 1994, the Company set up a $240 reserve against the
$810 balance remaining. In 1995 Krypton filed for bankruptcy.
46
<PAGE> 47
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
As of March 14, 1996, the Company received a new $600,000 note from Future
Services, Ltd., a newly formed Company in Great Britain and owned by the former
Krypton management, to repay the $570,000 note receivable balance currently
recorded in the balance sheet. This note bears interest at 10% payable monthly,
with the Company sharing 50% of the net profits of Future Services, Ltd. until
the debt is repaid
10. Commitments and Contingencies:
The Company leases certain facilities and equipment under operating leases.
Lease rental expense for the periods ended September 30, 1996, 1995 and 1994
were approximately $200, $305 and $1,367, respectively.
As of September 30, 1996, the minimum rental commitments required under existing
noncancellable operating leases, some of which provide for future increases in
minimum rentals, are as follows:
<TABLE>
<S> <C>
1997 $ 62
1998 22
1999 0
2000 0
---------
$ 84
=========
</TABLE>
10. Commitments and Contingencies, Continued:
The Company is a defendant in various lawsuits and claims which have arisen in
the course of its business. While it is not possible to predict with certainty
the outcome of such litigation and claims, it is the opinion of Company
management, based in part on consultations with counsel, that the liability of
the Company, if any, arising from the ultimate disposition of any or all such
lawsuits and claims has been adequately provided for in the consolidated
financial statements of the Company.
The Company has been named as one of three defendants in a lawsuit brought by
the owner of real property once leased and used by a division of the Company as
part of its operations. The plaintiff is seeking relief from alleged
environmental damages which may have occurred on the property before, during, or
after the time the Company leased the property. The extent of the damage, if
any, has not been determined at this time nor has the extent of the Company's
liability, if any, been established in relation to the other defendants. All of
the parties to the litigation are, under the direction of the court, jointly
funding testing to determine the contamination, and scope of any required
remedial effort. The Company has two of its insurance carriers contributing to
the Company's expenses in this matter. The Company has not recorded a liability
for any potential financial exposures attributed to the Company for remedial
efforts.
47
<PAGE> 48
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
11. Other:
General Automation LLC.
Effective May 22, 1995, GA and SunRiver Data Systems ("SunRiver") formed a
limited liability company ("GAL"), with the Company owning 51% and SunRiver 49%.
GAL was formed to allow GA to acquire the former ADDS Pick based business owned
by SunRiver. This business had been acquired by SunRiver from AT&T GIS in
December 1994 along with a terminal business which complimented SunRiver's
existing business and which SunRiver retained.
Under the terms of the Operating Agreement which governs the operation of GAL
(the "Operating Agreement"), GAL operates and manages GAI's Pick business and
SunRiver's Pick business. Under the Operating Agreement, SunRiver is entitled to
receive cash distributions from GAL in an amount equal to a percentage of GAL's
net revenues, which is payable whether or not GAL is profitable or generating
positive cash flow. The percentage of net revenues to which SunRiver is entitled
was 12% for the first year of the Operating Agreement (subject to a minimum of
$2,900,000 in the first year only) and will decline annually thereafter in steps
until it reaches 7% in the fifth year. However, the percentage of net revenues
payable to SunRiver is subject to adjustment (upward or downward) under certain
circumstances. Subsequent to the fifth year of the Operating Agreement, the
percentage of net revenues to be paid to SunRiver is to be determined by
negotiations between GA and SunRiver. GA is entitled to retain all cash
generated by GAL, if any, after the payment to SunRiver of the net revenue
percentage described above.
Under the Operating Agreement, the business and affairs of GAL are managed
exclusively by GA. However, in the event that GAL fails to achieve agreed upon
revenue or profit projections, SunRiver has the right to thereafter jointly
mange GAL with GA. Further, upon the occurrence of certain other events,
including the failure of GAL to pay to SunRiver the percentage of net revenues
to which SunRiver is entitled, SunRiver has the right to thereafter replace GA
as the sole manager of GAL. During the first year of the Operating Agreement, GA
received a management fee of $1,031,000 in connection with its duties as manager
of GAL. However, subsequent to the first year of the Operating Agreement, GA
will not be entitled to any compensation for acting as manager of GAL.
In May 2,000 GA will have the right to purchase SunRiver's entire interest in
GAL for a number of shares of GAL common stock equal to 9% of each class of GA's
then outstanding capital stock. If GA exercises this right of purchase, it is
obligated, immediately following the issuance of stock to SunRiver, to register
the shares so issued under the Securities Act of 1933.
Effective August 28, 1995, the Company entered into an agreement with Sanderson
Computers, Inc. ("SCI") under which SCI is responsible for the world-wide sales
of the Zebra 200 Library Systems, and the Maxial hospitality systems. Further,
SCI will assume the responsibilities for completing the Company's approximate
$400,000 backlog of Zebra 2000 contracts. The Company will receive royalty
payments from the Maxial revenues plus an exclusivity annual fee of $20,000. The
Company will receive no revenues from the Zebra 2000 product line as base
software was owned by SCI's parent to whom the Company had been paying
royalties. SCI has used GA employees, facilities and equipment on an interim
basis until they complete the staffing at its Ohio facility; for this, the
Company receives fair value.
48
<PAGE> 49
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
12. Subsequent Events
Sequoia Enterprise Systems.
On October 11, 1996 (the "Closing Date"), the Company purchased from Sequoia
Systems, Inc. ("SSI") substantially all of the assets and business of SSI's
"Sequoia Enterprise Systems" business division ("SES"). SES manufactures,
services, integrates and distributes fault-tolerant Motorola 68K computer
systems operating under SSI's version of UNIX and Intel based computer systems
running SSI's and Alpha Micro's versions of the "PICK" application environment
and database software products, and engages in various related distribution
arrangements. The Company's purchase of SES was made pursuant to an Asset
Purchase Agreement dated as of October 3, 1996 between the Company and SSI (the
"Purchase Agreement").
In exchange for SES, the Company has (i) agreed to pay an estimated purchase
price of $10,700,000 (subject to possible adjustment based on the net book value
of SES as of the Closing Date) (the "Purchase Price), (ii) assumed certain
liabilities of SSI totaling approximately $3,000,000, and (iii) issued to SSI a
Stock Purchase Warrant entitling SSI to purchase 250,000 shares of the Company's
common stock at an exercise price of $2.50 per share (the "Warrant"). The
Warrant will be exercisable during the three year period commencing on the first
anniversary of the Closing Date.
The Purchase Price will be paid by the Company in a combination of cash and
750,000 shares of the Company's common stock (the "Payment Stock"). The cash
portion of the Purchase Price will be paid in monthly installments, with the
amount of each such installment being based on a percentage of the gross
revenues received by the Company during the month to which the installment
relates from the operation of SES and the Company's overall service and support
operations; provided, however, that (i) the Company must pay not less than
$490,000 of the cash portion of the Purchase Price by December 31, 1996; and
(ii) the Company must pay by the first anniversary of the Closing Date an amount
(comprised of stock and cash) equal to not less than the net book value of SES
as of the Closing Date.
For accounting purposes, the cost of SES is determined based on the total amount
of consideration which is determinable beyond a reasonable doubt as of the
acquisition date, which is estimated to be $5.3 million. As additional
consideration is paid, the Company will record the current fair value of the
consideration issued as an additional cost of SES.
All 750,000 shares of the Company's common stock which comprise the Payment
Stock were issued to SSI on November 5, 1996. However, such shares will be
valued, for purposes of applying the same toward the Purchase Price, as follows:
(i) 400,000 shares will be valued at $2.50 per share; (ii) 200,000 shares will
be valued at the average of the closing per share sales prices of the Company's
common stock on the American Stock Exchange during the ten trading days
immediately preceding the first anniversary of the Closing Date; and (iii) the
remaining 150,000 shares will be valued at the average of the closing per share
sales prices of the Company's common stock on the American Stock Exchange during
the ten trading days immediately preceding any date on which a valuation of such
shares is made for purposes of determining the payment of the Purchase Price;
provided, however, that if the Purchase Price has not been paid in full prior to
the second anniversary of the Closing Date, these shares will be valued at the
average of the closing per share sales prices of a share of the Company's common
stock on the American Stock Exchange during the ten trading days immediately
preceding the second anniversary of the Closing Date.
The Company has agreed, at its expense, to register under the Securities Act of
1933 for sale by SSI the Payment Stock and the shares issuable upon exercise of
the Warrant.
SSI has agreed not to sell, make any short sale of, loan, or grant any option
for the purchase of, any of the Payment Stock without the prior written consent
of the Company (i) until the first anniversary of the Closing Date, with respect
to any shares of the Payment Stock in excess of 400,000 shares; and (ii) until
the second anniversary of the Closing Date, with respect to any shares of the
Payment of Stock in excess of 600,000 shares.
49
<PAGE> 50
The assets which have been purchased by the Company do not include the accounts
receivable of SES. However, under the Purchase Agreement, SSI is obligated to
pay to the Company an amount equal to 40% of SSI's collections of the accounts
receivable of SES in existence on the closing date, as those collections are
made, until the Company has received a total of $1,560,000; provided, however,
that SSI will pay the full $1,560,000 to the Company no later than 120 days
following the Closing Date.
Under the Purchase Agreement, until the earlier of (i) payment of at least 75%
of the Purchase Price; or (ii) the date on which SSI no longer is the holder of
at least 50% of the shares of the Payment Stock (or if the Warrant has been
exercised, the aggregate of the Payment Stock and the shares issued upon
exercise of the Warrant), SSI will be entitled to designate an individual for
election to the Board of Directors of the Company ("SSI's Designee"); provided,
however, that such individual is reasonably acceptable to the Company at the
time of his initial designation. Once appointed to the Company's Board, SSI's
Designee will serve until the first annual meeting of the stockholders of the
Company following the Closing Date and until his successor shall be duly elected
and qualified or until his earlier death, disability, removal or resignation.
So long as SSI possesses the right of designation described in the immediately
preceding paragraph, the Company has agreed that (i) the Company will nominate
(or shall cause to be nominated) for election at each annual meeting of the
stockholders of the Company after the Closing Date, the incumbent SSI's
Designees or such other individual as SSI may designate; provided, however, that
such other individual is reasonably acceptable to the Company at the time of his
initial designation; (ii) if SSI's Designee should die, become disabled, be
removed, retire or resign during the term of his office, SSI shall be entitled
to designate a successor SSI's Designee reasonably acceptable to the Company at
the time of his initial designation, in which event the Company shall cause such
successor SSI's Designee to be promptly elected as a member of its Board of
Directors to fill the vacancy created by such death, disability, removal,
retirement or resignation; and (iii) without the prior written consent of SSI
(which consent will not be unreasonably withheld, delayed or conditioned),
neither the Company nor its Board of Directors will: (A) recommended that SSI's
Designee be removed by the stockholders of the Company; or (B) fail to recommend
any incumbent SSI's Designee for reelection.
Liberty
Effective October 1, 1996, GA acquired all of the outstanding shares of Liberty
Integration Software, Inc. ("Liberty"). Liberty was purchased through the
issuance of 25,000 shares of the Company's common stock, and three equal
payments of $20,000 (CDN) or approximately $40,000 in US dollars. Liberty is
operated as a wholly owned subsidiary. Liberty offers a full suite of enterprise
connectivity products and services which are focused on providing connectivity
solutions between MultiValue databases and industry standard developments such
as data warehousing, OLAP engines, client/server development tools and internet
WWW applications. Liberty began operations in July 1995.
50
<PAGE> 51
SIGNATURES
Pursuant to the requirements of section 13, or 15(d) 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.
Date: December 20, 1996 By: /s/ John R. Donnelly
------------------------
John R. Donnelly
Vice President, and
Chief Financial & Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Lawrence Michels Chairman of the Board December 20, 1996
- ------------------------------------
Lawrence Michels
/s/ Robert D. Bagby Vice Chairman, Director December 20, 1996
- ------------------------------------
/s/ Leonard M. Mackenzie Director December 20, 1996
- ------------------------------------
/s/ Robert M. McClure Director December 20, 1996
- ------------------------------------
/s/ Paul L. Morigi Director December 20, 1996
- ------------------------------------
/s/ Philip T. Noden Director December 20, 1996
- ------------------------------------
</TABLE>
51
<PAGE> 1
EXHIBIT 10(r)
IMPERIAL BANK
Member FDIC
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
This Agreement is entered into between General Automation, Inc., a Corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts
as may be determined by Bank up to, but not exceeding in the aggregate
unpaid principal balance, the following Borrowing Base:
75% of Eligible Accounts
and in no event more than $1,500,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be
debited to the loan ledger account of Borrower maintained by Bank
(herein called "Loan Account") and Bank shall credit the Loan Account
with all loan repayments made by Borrower. Borrower promises to pay
Bank (a) the unpaid balance of Borrower's Loan Account on demand and
(b) on or before the tenth day of each month, interest on the average
daily unpaid balance of the Loan Account during the immediately
preceding month at the rate of Two percent (2.000%) per annum in excess
of the rate of interest which Bank has announced as its prime lending
rate ("Prime Rate") which shall vary concurrently with any change in
such Prime Rate. Interest shall be computed at the above rate on the
basis of the actual number of days during which the principal balance
of the loan account is outstanding divided by 360, which shall for
interest computation purposes be considered one year. Bank at its
option may demand payment of any or all of the amount due under the
Loan Account including accrued but unpaid interest at any time. Such
notice may be given verbally or in writing and should be effective upon
receipt by Borrower. The amount of interest payable each month by
Borrower shall not be less than a minimum monthly charge of $250.00.
Bank is hereby authorized to charge Borrower's deposit account(s) with
Bank for all sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by
Borrower in a form satisfactory to Bank and shall contain a
certification setting forth the matters referred to in Section 1,
which shall disclose that Borrower is entitled to the amount of loan
being requested.
4. As used in this Agreement, the following terms shall have the
following meanings:
A. "Accounts" means any right to payment for goods sold or
leased, or to be sold or to be leased, or for services
rendered or to be rendered no matter how evidenced, including
accounts receivable, contract rights, chattel paper,
instruments, purchase order, notes, drafts, acceptances,
general intangibles and other forms of obligations and
receivables.
B. "Collateral" means any and all personal property of Borrower
which is assigned or hereafter is assigned to Bank as security
or in which Bank now has or hereafter acquires a security
interest.
C. "Eligible Accounts" means all of Borrower's Accounts
excluding, however, (1) all Accounts under which payment is
not received within 90 days from any invoice date, (2) all
Accounts against which the account debtor or any other person
obligated to make payment thereon asserts any defense, offset,
counterclaim or other right to avoid or reduce the liability
represented by the Account and (3) any Accounts if the account
debtor or any other person liable in connection therewith is
insolvent, subject to bankruptcy of receivership proceedings
or has made an assignment for the benefit of creditors or
whose credit standing is unacceptable to Bank and Bank has so
notified Borrower. Eligible Accounts shall only include such
accounts as Bank in its sole discretion shall determine are
eligible from time to time.
5. Borrower hereby assigns to Bank all Borrower's present and future
Accounts, including all proceeds due thereunder, all guaranties and
security therefor, and hereby grants to Bank a continuing security
interest in all moneys in the Collateral Account referred to in
Section 6 hereof, as security for any and all obligations of Borrower
to Bank, whether now owing or hereafter incurred and whether direct,
indirect, absolute or contingent. So long as Borrower is indebted to
Bank or Bank is committed to extend credit to Borrower, Borrower will
execute and deliver to Bank such assignments, including Bank's
standard forms of Specific or General Assignment covering individual
Accounts, notices, financing statements, and other documents and
papers as Bank may require in order to affirm, effectuate or further
assure the assignment to Bank of the Collateral or to give any third
party, including the account debtors obligated on the Accounts, notice
of Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower will collect with diligence all Borrower's
Accounts, provided that no legal action shall be maintained thereon or
in connection therewith without Bank's prior written consent. Any
collection of Accounts by Borrower, whether in the form of cash,
checks, notes, or other instruments for the payment of money (properly
endorsed or assigned where required to enable Bank to collect same),
shall be in trust for Bank; and Borrower shall keep all such
collections separate and apart from all other funds and property so as
to be capable of identification as the property of Bank and deliver
said collections daily to Bank in the identical form received. The
proceeds of such collections when received by Bank may be applied by
Bank directly to the payment of Borrower's Loan Account or any other
obligation secured hereby. Any credit given by Bank upon receipt of
said proceeds shall be conditional credit subject to collection.
Returned items at Bank's option may be charged to Borrower's general
account. All collections of the Accounts shall be set forth on an
itemized schedule, showing the name of the account debtor, the amount
of each payment and such other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue its present policies with respect
to returned merchandise and adjustments. However, Borrower shall
immediately notify Bank of all cases involving returns, repossessions,
and loss or damage of or to merchandise represented by the Accounts
and of any credits, adjustments or disputes arising in connection with
the goods or services represented by the Accounts and, in any of such
events, Borrower will immediately pay to Bank from its own funds (and
not from the proceeds of Accounts or Inventory) for application to
Borrower's Loan Account or any other obligation secured hereby the
amount of any credit for such returned or repossessed merchandise and
adjustments made to any of the Accounts.
8. Borrower represents and warrants to Bank: (i) If Borrower is a
corporation, that Borrower is duly organized and existing in the State
of its incorporation and the execution, delivery and performance
hereof are within Borrower's corporate powers, have been duly
authorized and are not in conflict with law or the terms of any
charter, by-law or other incorporation papers, or of any indenture,
agreement or undertaking to which Borrower is a party or by which
Borrower is found or affected; (ii) Borrower is, or at the time the
collateral becomes subject to Bank's security interest will be, the
true and lawful owner of and has, or at the time the Collateral
becomes subject to Bank's security interest will have, good and clear
title to the Collateral, subject only to Bank's rights therein; (iii)
Each Account is, or at the time the Account comes into existence will
be, a true and correct statement of a bona fide indebtedness incurred
by the debtor named therein in the amount of the Account for either
merchandise sold or delivered (or being held subject to Borrower's
delivery instructions) to, or services rendered, performed and
accepted by, the account debtor; (iv) That there are or will be no
defenses, counterclaims, or setoffs which may be asserted against the
Accounts; and (v) any and all financial information, including
information relating to the Collateral, submitted by Borrower to Bank,
whether previously or in the future, is or will be true and correct.
Page 1 of 2
<PAGE> 2
9. Borrower will: (i) Furnish Bank from time to time such financial
statements and Information as Bank may reasonably request and inform
Bank immediately upon the occurrence of a material adverse change
therein; (ii) Furnish Bank periodically, in such form and detail and at
such times as Bank may require, statements showing aging and
reconciliation of the Accounts and collections thereon; (iii) Permit
representatives of Bank to inspect the Borrower's books and records
relating to the Collateral and make extracts therefrom at any
reasonable time and to arrange for verification of the Accounts, under
reasonable procedures, acceptable to Bank, directly with the account
debtors or otherwise at Borrower's expense; (iv) Promptly notify Bank
of any attachment or other legal process levied against any of the
Collateral and any information received by Borrower relative to the
Collateral, including the Accounts, the account debtors or other
persons obligated in connection therewith, which may in any way affect
the value of the Collateral or the rights and remedies of Bank in
respect thereto; (v) Reimburse Bank upon demand for any and all legal
costs, including reasonable attorneys' fees, and other expense incurred
in collecting any sums payable by Borrower under Borrower's Loan
Account or any other obligation secured hereby, enforcing any term or
provision of this Security Agreement or otherwise or in the checking,
handling and collection of the Collateral and the preparation and
enforcement of any agreement relating thereto; (vi) Notify Bank of each
location and of each office of Borrower at which records of Borrower
relating to the Accounts are kept; (vii) Provide, maintain and deliver
to Bank policies insuring the Collateral against loss or damage by such
risks and in such amounts, forms and companies as Bank may require and
with loss payable solely to Bank, and, in the event Bank takes
possession of the Collateral, the insurance policy or policies and any
unearned or returned premium thereon shall at the option of Bank become
the sole property of Bank, such policies and the proceeds of any other
insurance covering or in any way relating to the Collateral, whether
now in existence or hereafter obtained, being hereby assigned to Bank;
and (viii) in the event the unpaid balance of Borrower's Loan Account
shall exceed the maximum amount of outstanding loans to which Borrower
is entitled under Section 1 hereof, Borrower shall immediately pay to
Bank, from its own funds and not from the proceeds of Collateral, for
credit to Borrower's Loan Account the amount of such excess.
10. Bank may at any time, without prior notice to Borrower, collect the
Accounts and may give notice of assignment to any and all account
debtors, and Borrower does hereby make, constitute and appoint Bank its
irrevocable, true and lawful attorney with power to receive, open and
dispose of all mail addressed to Borrower, to endorse the name of
Borrower upon any checks or other evidences of payment that may come
into the possession of Bank upon the Accounts to endorse the name of
the undersigned upon any document or instrument relating to the
Collateral; in its name or otherwise, to demand, sue for, collect and
give acquittances for any and all moneys due or to become due upon the
Accounts; to compromise, prosecute or defend any action, claim or
proceeding with respect thereto; and to do any and all things necessary
and proper to carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank,
or execute any financing statements covering the Collateral in favor of
any secured party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or breach
be made in any warranty, statement, promise, term or condition,
contained herein or hereby secured; (ii) Any statement or
representation made for the purpose of obtaining credit hereunder prove
false; (iii) Bank deem the Collateral inadequate or unsafe or in danger
of misuse; (iv) Borrower become insolvent or make an assignment for the
benefit of creditors; or (v) Any proceeding be commended by or against
Borrower under any bankruptcy, reorganization, arrangement,
readjustment of debt or moratorium law or statute; then in any such
event, Bank may, at its option and without demand first made and
without notice to Borrower, do any one or more of the following: (a)
Terminate its obligation to make loans to Borrower as provided in
Section 1 thereof; (b) Declare all sums secured hereby immediately due
and payable; (c) immediately take possession of the Collateral wherever
it may be found, using all necessary force so to do, or require
Borrower to assemble the Collateral and make it available to Bank at a
place designated by Bank which is reasonably convenient to Borrower and
Bank, and Borrower waives all claims for damages due to or arising from
or connected with any such taking; (d) Proceed in the foreclosure of
Bank's security interest and sale of the Collateral in any manner
permitted by law, or provided for herein; (e) Sell, lease or otherwise
dispose of the Collateral at public or private sale, with or without
having the Collateral at the place of sale, and upon terms and in such
manner as Bank may determine, and Bank may purchase same at any such
sale; (f) Retain the Collateral in full satisfaction of the obligations
secured thereby; (g) Exercise any remedies of a secured party under the
Uniform Commercial Code. Prior to any such disposition, Bank may, at
its option, cause any of the Collateral to be repaired or reconditioned
in such manner and to such extent as Bank may deem advisable, and any
sums expanded therefor by Bank shall be repaid by Borrower and secured
hereby. Bank shall have the right to enforce one or more remedies
hereunder successively or concurrently, and any such action shall not
estop or prevent Bank from pursuing any further remedy which it may
have hereunder or by law. If a sufficient sum is not realized from any
such disposition of Collateral to pay all obligations secured by this
Security Agreement, Borrower hereby promises and agrees to pay Bank any
deficiency.
13. If any writ of attachment, garnishment, execution or other legal
process be issued against any property of Borrower, or if any
assessment for taxes against Borrower, other than real property, is
made by the Federal or State government or any department thereof, the
obligation of Bank to make loans to Borrower as provided in Section 1
hereof shall immediately terminate and the unpaid balance of the Loan
Account, all other obligations secured hereby and all other sums due
hereunder shall immediately become due and payable without demand,
presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transactions contemplated herein at any time
subsequent to four months from the time such items are delivered to
Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower,
but each and every condition hereof shall be in addition thereto.
*16. Additional Provisions:
See "EXHIBIT A" attached
Executed this 30th day of OCTOBER, 1996
General Automation, Inc.
----------------------------------
(Name of Borrower)
BY: /s/ JANE M. CHRISTIE, PRES. & CEO
----------------------------------
(Authorized Signature and Title)
IMPERIAL BANK
BY: /s/ DIANA FISK BY:
---------------------------------- ----------------------------------
Diana Fisk, Vice President (Authorized Signature and Title)
*If none, insert "None"
Page 2 of 2
<PAGE> 3
[LOGO]
IMPERIAL BANK
Member FDIC
GENERAL SECURITY AGREEMENT
(Tangible and Intangible Personal Property)
This Agreement is executed on October 30, 1996, by GENERAL AUTOMATION, INC.
(hereinafter called "Obligor"). In consideration of financial accommodations
given, to be given or continued, the Obligor grants to IMPERIAL BANK
(hereinafter called "Bank") a security interest in (a) all property (i)
delivered to Bank by Obligor, (ii) which shall be in Bank's possession or
control in any matter or for any purpose, (iii) described below, (iv) now owned
or hereafter acquired by Obligor of the type or class described below and/or in
any supplementary schedule hereto, or in any financing statement filed by Bank
and executed by or on behalf of Obligor; (b) the proceeds, increase and
products of such property, all accessions thereto, and all property which
Obligor may receive on account of such collateral which Obligor will
immediately deliver to Bank (collectively referred to as "Collateral") to
secure payment and performance of all of Obligor's present or future debts or
obligations to Bank, whether absolute or contingent (hereafter referred to as
"Debt"). Unless otherwise defined, words used herein have the meanings given
them in the California Uniform Commercial Code.
Collateral:
A. VEHICLE, VESSEL, AIRCRAFT:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Identification License or
Year Make/Manufacturer Model and Serial No. Registration No. New or Used
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Engine or other equipment:
--------------------------------------------------------------------------------------------------
(For aircraft - original ink signature on copy to FAA)
B. DEPOSIT ACCOUNTS:
Type Account Number Amount $
----------------------------- ------------------- ------------------------------------------------
In name of Depository
---------------------------------------- ---------------------------------------------------------------
AND ALL EXTENSIONS OR RENEWALS THEREOF.
</TABLE>
C. ACCOUNTS, INTANGIBLES AND OTHER: (Describe)
All personal property, whether presently existing or hereafter
created or acquired, including but not limited to: All
accounts, chattel paper, documents, instruments, money,
deposit accounts and general intangibles including returns,
repossessions, books and records relating thereto, and
equipment containing said books and records. All goods
including equipment and inventory. All proceeds including,
without limitation, insurance proceeds. All guarantees and
other security therefor.
The collateral not in Bank's possession will be located at:
17731 Mitchell North, Irvine, CA 92714
100 Marcus Blvd., Hauppauge, NY 11788
400 Nickerson Rd., Marlborough, MA 01752
[ ] If checked, the Obligor is executing this Agreement as an Accommodation
Debtor only and the Obligor's liability is limited to the security interest
granted in the Collateral described herein. The party being accommodated is
("Borrower").
All the terms and provisions on the reverse side hereof are incorporated herein
as though set forth in full, and constitute a part of this Agreement.
<TABLE>
<CAPTION>
Signature
Name (indicate title, if applicable) Address
<S> <C> <C>
GENERAL AUTOMATION, INC. BY /s/ JANE M. CHRISTIE 17731 Mitchell North
- --------------------------- --------------------------- ---------------------------
Pres. & CEO Irvine, CA 92714
- --------------------------- --------------------------- ---------------------------
- --------------------------- --------------------------- ---------------------------
</TABLE>
Page 1 of 2
<PAGE> 4
SECURITY AGREEMENT (CONTINUED)
Obligor represents, warrants and agrees:
1. Obligor will immediately pay (a) any Debt when due, (b) Bank's costs
of collecting the Debt, of protecting, insuring of realizing on Collateral, and
any expenditure of Bank pursuant hereto, including attorneys' fees and
expenses, with interest at the rate of 24% per year, or the rate applicable to
the Debt, whichever is less, from the date of expenditure, and (c) any
deficiency after realization of Collateral.
2. Obligor will use the proceeds of any loan that becomes Debt hereunder
for the purpose indicated on the application therefore, and will promptly
contract to purchase and pay the purchase price of any property which becomes
Collateral hereunder from the proceeds of any loan made for that purpose.
3. As to all Collateral in Obligor's possession (unless specifically
otherwise agreed to by Bank in writing), Obligor will:
(a) Have, or has, possession of the Collateral at the location
disclosed to Bank and will not remove the Collateral from the
location.
(b) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable condition, repair
it if necessary, clean, feed, shelter, water, medicate, fertilize,
cultivate, irrigate, prune and otherwise deal with the Collateral in
all such ways as are considered good practice by owners of like
property, use it lawfully and only as permitted by insurance policies,
and permit Bank to inspect the Collateral at any reasonable time.
(d) Not sell, contract to sell, lease, encumber or transfer the
Collateral (other than inventory Collateral) until the Debt has been
paid, even though Bank has a security interest in proceeds of such
Collateral.
4. As to Collateral which is inventory and accounts, Obligor:
(a) May, until notice from Bank, sell, lease or otherwise dispose
of inventory Collateral in the ordinary course of business only, and
collect the cash proceeds thereof.
(b) Will, upon notice from Bank, deposit all cash proceeds as
received in a demand deposit account with Bank, containing only such
proceeds and deliver statements identifying units of inventory
disposed of, accounts which gave rise to proceeds, and all
acquisitions and returns of inventory as required by Bank.
(c) Will receive in trust, schedule on forms satisfactory to the
Bank and deliver to Bank all non-cash proceeds other than
inventory received in trade.
(d) If not in default, may obtain release of Bank's interest in
individual units of inventory upon request, therefore, payment to
Bank of the release price of such units shown on any Collateral
schedule supplementary hereto, and compliance herewith as to proceeds
thereof.
5. As to Collateral which are accounts, chattel paper, general
intangibles and proceeds described in 4(c) above, Obligor warrants, represents
and agrees:
(a) All such Collateral is genuine, enforceable in accordance with
its terms, free from default, prepayment, defense and conditions
precedent (except as disclosed to and accepted by Bank in writing),
and is supported by consecutively numbered invoices to, or rights
against, the debtors thereon. Obligor will supply Bank with duplicate
invoices or other evidence of Obligor's rights on Bank's request;
(b) All persons appearing to be obligated on such Collateral have
authority and capacity to contract;
(c) All chattel paper is in compliance with law as to form,
content and manner of preparation and execution and has been properly
registered, recorded, and/or filed to protect Obligor's interest
thereunder;
(d) If an account debtor shall also be indebted to Obligor on
another obligation, any payment made by him not specifically
designated to be applied on any particular obligation shall be
considered to be a payment on the account in which Bank has a security
interest. Should any remittance include a payment not on an account,
it shall be delivered to Bank and, if no event of default has
occurred, Bank shall pay Obligor the amount of such payment;
(e) Obligor agrees not to compromise, settle or adjust any account
or renew or extend the time of payment thereof without Bank's prior
written consent.
6. Obligor owns all Collateral absolutely, and no other person has or
claims any interest in any Collateral, except as disclosed to and accepted by
Bank in writing. Obligor will defend any proceeding which may affect title to
or Bank's security interest in any Collateral, and will indemnify and hold Bank
free and harmless from all costs and expenses of Bank's defense.
7. Obligor will pay when due all existing or future charges, liens or
encumbrances on and all taxes and assessments now or hereafter imposed on or
affecting the Collateral and, if the Collateral is in Obligor's possession, the
realty on which the Collateral is located.
8. Obligor will insure the Collateral with Bank as loss payee in form and
amounts with companies, and against risks and liability satisfactory to Bank,
and hereby assigns such policies to Bank, agrees to deliver them to Bank at
Bank's request and authorizes Bank to make any claim thereunder, to cancel the
insurance on Obligor's default, and to receive payment of and endorse any
instrument in payment of any loss or return premium. If Obligor should fail to
deliver the required policy or policies to the Bank, Bank may, at Obligor's
cost and expense, without any duty to do so, get and pay for insurance naming
as the insured, at Bank's option, either both Obligor and Bank, or only Bank,
and the cost thereof shall be secured by this Security Agreement, and shall be
repayable as provided in Paragraph 1 above.
9. Obligor will give Bank any information it requires. All information
at any time supplied to Bank by Obligor (including, but not limited to, the
value and condition of Collateral, financial statements, financing statements,
and statements made in documentary Collateral) is correct and complete, and
Obligor will notify Bank of any adverse change in such information. Obligor
will promptly notify Bank of any change of Obligor's residence, chief executive
office or mailing address.
10. Bank is irrevocably appointed Obligor's attorney-in-fact to do any act
which Obligor is obligated hereby to do, to exercise such rights as Obligor may
exercise, to use such equipment as Obligor might use, to enter Obligor's
premises to give notice of Bank's security interest, and to collect Collateral
and proceeds and to execute and file in Obligor's name any financing statements
and amendments thereto required to perfect Bank's security interest hereunder,
all lo protect and preserve the Collateral and Bank's rights hereunder. Bank
may:
(a) Endorse, collect and receive delivery or payment of
instruments and documents constituting Collateral;
(b) Make extension agreements with respect to or affecting
Collateral, exchange it for other Collateral, release persons liable
thereon or take security for the payment thereof, and compromise
disputes in connection therewith;
(c) Use or operate Collateral for the purpose of preserving
Collateral or its value and for preserving or liquidating Collateral.
11. If more than one Obligor signs this Agreement, their liability is
joint and several. Any Obligor who is married agrees that recourse may be had
against separate property for the Debt. Discharge of any Obligor except for
full payment, or any extension, forbearance, change of rate of interest, or
acceptance, release or substitution of Collateral or any impairment or
suspension of Bank's rights against an Obligor, or any transfer of an Obligor's
interest to another shall not affect the liability of any other Obligor. Until
the Debt shall have been paid of performed in full, Bank's rights shall
continue even it the Debt is outlawed. All Obligors waive: (a) any right to
require Bank to proceed against any Obligor before any other, or to pursue any
other remedy; (b) presentment, protest and notice of protest, demand and notice
of nonpayment, demand or performance, notice of sale, and advertisement of
sale; (c) any right to the benefit of or to direct the application of any
Collateral until the Debt shall have been paid; (d) and any right of
subrogation to Bank until Debt shall have been paid or performed in full.
12. Upon default, at Bank's option, without demand or notice, all or any
part of the Debt shall immediately become due. Bank shall have all rights
given by law, and may sell, in one or more sales, Collateral in any county
where Bank has an office. Bank may purchase at such sale. Sales for cash or
on credit to a wholesaler, retailer or user of the Collateral, or at public or
private auction, are all to be considered commercially reasonable. Bank may
require Obligor to assemble the Collateral and make it available to Bank at the
entrance to the location of the Collateral, or a place designated by Bank.
Defaults shall include:
(a) Obligor's failure to pay or perform this or any agreement with
Bank or breach of any warranty herein, or Borrower's failure to pay or
perform any agreement with Bank.
(b) Any change in Obligor's or Borrower's financial condition which
in Bank's judgment impairs the prospect of Borrower's payment or
performance.
(c) Any actual or reasonably anticipated deterioration of the
Collateral or in the market price thereof which causes it, in Bank's
judgment, to become unsatisfactory as security.
(d) Any levy or seizure against Borrower or any of the Collateral.
(e) Death, termination of business, assignment for creditors,
insolvency, appointment of receiver, or the filing of any petition
under bankruptcy or debtor's relief laws of, by or against Obligor or
Borrower or any guarantor of the Debt.
(f) Any warranty or representation which is false or is believed
in good faith by Bank to be false.
13. Bank's acceptance of partial or delinquent payments or the failure of
Bank to exercise any right or remedy shall not waive any obligation of Obligor
or Borrower or right of Bank to modify this Agreement, or waive any other
similar default.
14. On transfer of all or any part of the Debt, Bank may transfer all or
any part of the Collateral. Bank may deliver all or any part of the Collateral
to any Obligor at any time. Any such transfer or delivery shall discharge Bank
from all liability and responsibility with respect to such Collateral
transferred or delivered. This Agreement benefits Bank's successors and
assigns and binds Obligor's heirs, legatees, personal representatives,
successors and assigns. Obligor agrees not to assert against any assignee of
Bank any claim or defense that may exist against Bank. Time is of the essence.
This Agreement and supplementary schedules hereto contain the entire security
agreement between Bank and Obligor. Obligor will execute any additional
agreements, assignments or documents reasonably required by Bank to carry this
Agreement into effect.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, to the jurisdiction of whose courts the
Obligor hereby agrees to submit. Obligor agrees that service of process may be
accomplished by any means authorized by California law. All words used herein
in the singular shall be considered to have been used in the plural where the
context and construction so require.
Page 2 of 2
<PAGE> 5
EXHIBIT "A"
ADDENDUM TO SECURITY AND LOAN AGREEMENT ("SECURITY AND LOAN AGREEMENT") BETWEEN
GENERAL AUTOMATION, INC. AND IMPERIAL BANK.
Dated: October 30, 1996
This Addendum is made and entered into October 30, 1996 between
GENERAL AUTOMATION, INC. ("Borrower") and IMPERIAL BANK ("Bank"). This
Addendum amends and supplements the Security and Loan Agreement. In the event
of any inconsistency between the terms herein and the terms of the Security and
Loan Agreement, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meaning set forth in the Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on November
4, 1997, subject to Bank's right to renew said commitment at its sole
discretion. Any renewal of the commitment shall not be binding upon the Bank
unless it is in writing and signed by an officer of the Bank.
2. Borrower represents and warrants that:
a. LITIGATION. There is no litigation or other proceeding
pending or threatened against or affecting Borrower, and Borrower is not in
default with respect to any order, writ, injunction, decree or demand of any
court or other governmental or regulatory authority.
b. FINANCIAL CONDITION. The balance sheet of Borrower as of June
30, 1996, and the related profit and loss statement on that date, a copy of
which has heretofore been delivered to Bank by Borrower, and all other
statements and data submitted in writing by Borrower to Bank in connection with
this request for credit are true and correct, and said balance sheet and profit
and loss statement truly present the financial condition of Borrower as of the
date thereof and the results of the operations of Borrower for the period
covered thereby, and have been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since such date,
there have been no materially adverse changes. Borrower has no knowledge of
any liabilities, contingent or otherwise, at such date not reflected in said
balance sheet, and Borrower has not entered into any special commitments or
substantial contracts which are not reflected in said balance sheet, other than
in the ordinary and normal course of its business, which may have a materially
adverse effect upon its financial condition, operations or business as now
conducted.
1
<PAGE> 6
EXHIBIT A
Page 2
c. TRADEMARKS, PATENTS. Borrower, as of the date hereof,
possesses all necessary trademarks, trade names, copyrights, patents, patent
rights, and licenses to conduct its business as now operated, without any known
conflict with valid trademarks, trade names, copyrights patents and license
rights of others.
d. TAX STATUS. Borrower has no liability for any delinquent
state, local or federal taxes, and, if Borrower has contracted with any
government agency, Borrower has no liability for renegotiation of profits.
3. Borrower agrees that so long as it is indebted to Bank, it WILL NOT,
without Bank's WRITTEN CONSENT.
a. TYPE OF BUSINESS; MANAGEMENT Make any substantial change in
the character of its business; or make any change in its executive management.
b. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness for borrowed moneys other than loans from Bank except
obligations now existing as shown in financial statement dated September 30,
1996, and any debt associated with the Asset Purchase Agreement between General
Automation and Sequoia Systems, Inc. dated October 3, 1996, excluding those
being refinanced by Bank; or sell or transfer, either with or without recourse,
any accounts or notes receivable or any moneys due to become due.
c. LIENS AND ENCUMBRANCES. Create, incur, assume any mortgage,
pledge, encumbrance, lien or charge of any kind (including the charge upon
property at any time purchased or acquired under conditional sale or other
title retention agreement) upon any asset now owned or hereafter acquired by
it, other than liens for taxes not delinquent and liens in Bank's favor.
d. LOANS, INVESTMENTS, SECONDARY LIABILITIES, Make any loans or
advances to any person or other entity other than in the normal and ordinary
course of its business as now conducted or make any investment in the
securities of any person or other entity other than the United States
Government; or guarantee or otherwise become liable upon the obligation of any
person or other entity, except by endorsement of negotiable instruments for
deposit or collection in the ordinary and normal course of its business.
e. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION.
Purchase or otherwise acquire the assets or business of any person or other
entity with the exception of the Asset Purchase Agreement between General
Automation and Sequoia Systems, Inc. dated October 3, 1996; or liquidate,
dissolve, merge or consolidate, or commence any proceedings therefore; or sell
any assets except in the ordinary and normal course of
<PAGE> 7
EXHIBIT A
Page 3
its business as now conducted; or sell, lease, assign, or transfer any
substantial part of its business or fixed assets, or any property or other
assets necessary for the continuance of its business as now conducted,
including without limitation the selling of any property or other asset
accompanied by leasing back of same.
f. DIVIDENDS, STOCK PAYMENTS, OTHER WITHDRAWALS FROM RETAINED
EARNINGS. Declare or pay any dividend (other than dividends payable in common
stock of Borrower) or make any other distribution of any of its capital stock
now outstanding or hereafter issued or purchase, redeem or retire any of such
stock or make withdrawals from retained earnings for any reason not mentioned
above.
4. Should there be a default under the Security and Loan Agreement, the
General Security Agreement executed by Borrower or any note executed by
Borrower in favor of Bank, all obligations, loans and liabilities of Borrower
to Bank, due or to become due, whether now existing or hereafter arising, shall
at the option of the Bank, become immediately due and payable without notice or
demand, and Bank shall thereupon have the right to exercise all of its default
rights and remedies.
5. Bank will advance up to 75% of Eligible Accounts Receivables up to
maximum of $1,500,000. Eligible Accounts shall only include such accounts as
Bank in its sole discretion shall determine are eligible from time to time. In
addition to the provisions in the Security and Loan Agreement, "Eligible
Accounts" shall also NOT include any of the following:
a. Accounts balances over sixty (60) days past due.
b. Credit balances greater than sixty (60) days past due.
c. Accounts with respect to which 25% or more of the account
debtor's total accounts or obligations outstanding to Borrower are more than 60
days past due.
d. Accounts representing more than 15% of total accounts
receivable, the balance in excess of the 15%. However, the Bank may deem, at
its sole discretion, the entire amount, or any portion thereof, eligible.
Special concentration limits may be established on a case by case basis.
e. Accounts with respect to international transactions (with
exception of Canada) unless insured by an insurance company acceptable to the
Bank or covered by letters of credit issued or confirmed by a bank acceptable
to the Bank.
<PAGE> 8
EXHIBIT A
Page 4
f. Accounts with respect to which the account debtor is an
officer, director, shareholder, employee, subsidiary or affiliate of Borrower.
g. All accounts for sales to and purchases from a company of
common name/ownership, thereby a potential offset exists.
h. Consignment or guaranteed sales.
i. Accounts with creditors (contra accounts) to the extent of
offsetting accounts payable
j. Bill and hold accounts.
k. Sales representative accounts.
l. Federal Government accounts, unless assigned to the Bank in
form and substance satisfactory to the Bank with acknowledgement under the
Assignment of Claims Act.
m. Pre-billings under service maintenance contracts except for
the 1-30 days past due and 31-60 days past due monthly billings under
Borrower's GA Service Aging.
n. Evaluation units.
7. All financial covenants and financial information referenced herein
shall be interpreted and prepared in accordance with generally accepted
accounting principles applied on basis consistent with previous years.
Compliance with financial covenants shall be calculated and monitored on a
quarterly basis.
8. Borrower affirmatively covenants that so long as any loans,
obligations or liabilities remain outstanding or unpaid to Bank, it will:
a. Maintain a minimum BOOK NET WORTH of $5,000,000 as of 9/30/96,
and thereafter. Book Net Worth is defined as stockholders' equity plus
subordinated debt.
b. Maintain a maximum ratio of TOTAL DEBT TO BOOK NET WORTH of
4.00 to 1.00 as of 9/30/96, and thereafter.
c. Maintain a CURRENT RATIO of at least 1.20 to 1.00 as of
9/30/96, and thereafter.
<PAGE> 9
EXHIBIT A
Page 5
Bank will have the right to change and/or add financial covenants upon
review of both Company's CPA-audited financial statements at FYE 9/30/96 and
CPA-audited financial statements of Sequoia Enterprise Systems ("SES") at
acquisition date.
d. Maintain all significant bank accounts and banking
relationship with Bank.
e. By the 15th of following month, deliver to Bank a month-end
detailed accounts receivable aging reconciled to the general ledger of
Borrower, a month-end detailed accounts payable aging reconciled to the
Borrower's general ledger and setting forth the amount of any book overdraft or
the amount of checks issued but not sent. All the foregoing will be in form
satisfactory to the Bank. Also, deliver to Bank on a quarterly basis, or more
frequently if demanded by Bank, a complete address listing of all active
customers.
f. Within 30 days after the end of each month, deliver to Bank a
profit and loss statement, a balance sheet, and reconciliation of Borrower's
capital accounts as of the close of such period and covering operations for the
portion of Borrower's fiscal year ending on the last day of such period,
prepared in accordance with generally accepted accounting principles on a
consistent basis, all in reasonable detail and comparative form satisfactory to
Bank, certified by an officer of Borrower.
g. Within 45 days after the end of each quarter, deliver to Bank
Borrower's Form 10-Q, including a profit and loss statement and a balance sheet
in form satisfactory to Bank all certified by an officer of Borrower.
h. Within 120 days after end of Borrower's fiscal year, deliver
to Bank the CPA-audited financial statements, as of the close of and for such
fiscal year, in reasonable detail and stating in comparative form the figures
as of the close of and for the previous fiscal year, of an independent public
accounting firm selected by Borrower but acceptable to Bank, together with
federal income tax returns and financial projections for the upcoming fiscal
year.
i. RIGHTS AND FACILITIES. Maintain and preserve all rights,
franchises and other authority adequate for the conduct of its business;
maintain its properties, equipment and facilities in good order and repair;
conduct its business in an orderly manner without voluntary interruption and,
if a corporation or partnership, maintain and preserve its existence.
i. INSURANCE. Maintain public liability, property damage and
workers' compensation insurance and insurance on all its insurable property
against fire and other hazards with responsible insurance carriers to the
extent usually maintained by similar
<PAGE> 10
EXHIBIT A
Page 6
businesses. Borrower shall provide evidence of property insurance in amounts
and types acceptable to the Bank. Bank to be named as loss payee.
j. TAXES AND OTHER LIABILITIES. Pay and discharge, before the
same become delinquent and before penalties accrue thereon, all taxes,
assessments and governmental changes upon or against it or any of its
properties, and any of its liabilities at any time existing, except to the
extent and so long as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially
adverse effect upon its financial condition or the loss of any
right of redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves segregated to
the extent required by generally accepted accounting practice)
deemed adequate with respect thereto.
9. RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at reasonable times, at least
two times a year at a fee to the Borrower of $2,500 per audit.
10. INTEREST RATE. The rate of interest applicable to the Loan Account
shall be 2.00% per year in excess of the rate of interest which Bank has
announced as its prime lending rate ("Prime Rate") which shall vary
concurrently with any change in such Prime Rate. Interest shall be computed at
the above rate on the basis of the actual number of days during which the
principal balance of the loan account is outstanding divided by 360, which
shall, for interest computation purposes, be considered one year. Bank at its
option may demand payment of any or all of the amount due under the Loan
Account including accrued but unpaid interest, at any time. Such notice may be
given verbally or in writing and shall be effective upon receipt by Borrower.
The default rate of interest shall be five percent (5%) per year in excess of
the rate otherwise applicable.
11. COMMITMENT FEE. A commitment fee of $15,000 will be payable upon
signing of the loan documents. This fee will be prorated if the term is more
or less than twelve months.
<PAGE> 11
EXHIBIT A
Page 7
12. LATE CHARGES. If any installment payment, interest payment, principal
payment or principal balance payment due hereunder is delinquent ten or more
days, Borrower agrees to pay Bank a late charge in the amount of 5% of the
payment so due and unpaid, in addition to the payment; but nothing in this
paragraph is to be construed as any obligation on the part of the Bank to
accept payment of any payment past due or less than the total unpaid principal
balance after maturity.
All payments shall be applied first to any late charges owing, then to interest
and the remainder, if any, to principal.
13. MISCELLANEOUS PROVISIONS. Failure or Indulgence Not Waiver. No
failure or delay on the part of your Bank or any holder of Notes Issued
hereunder, in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
or of any other right, power or privilege. All rights and remedies existing
under this agreement or any not issued in connection with a loan that your Bank
may make hereunder, are cumulative to, not exclusive of, any rights or remedies
otherwise available.
This Addendum is executed by and on behalf of the parties as of the date first
above written.
<TABLE>
<S> <C>
GENERAL AUTOMATION, INC. IMPERIAL BANK
"BORROWER" "BANK"
BY: /s/ JANE M. CHRISTIE BY:
--------------------------------- -------------------------------
TITLE: PRES. & CEO TITLE: VICE PRESIDENT
--------------------------------- ----------------------------
BY: BY:
--------------------------------- -------------------------------
TITLE: TITLE: REGIONAL VICE PRESIDENT
--------------------------------- ----------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EXTERNALLY
AUDITED STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30,
1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 119
<SECURITIES> 0
<RECEIVABLES> 4,247
<ALLOWANCES> 561
<INVENTORY> 2,979
<CURRENT-ASSETS> 7,552
<PP&E> 3,672
<DEPRECIATION> 2,280
<TOTAL-ASSETS> 10,271
<CURRENT-LIABILITIES> 6,342
<BONDS> 0
0
0
<COMMON> 818
<OTHER-SE> 1,960
<TOTAL-LIABILITY-AND-EQUITY> 10,271
<SALES> 9,715
<TOTAL-REVENUES> 25,460
<CGS> 7,887
<TOTAL-COSTS> 17,433
<OTHER-EXPENSES> 5,565
<LOSS-PROVISION> 171
<INTEREST-EXPENSE> 258
<INCOME-PRETAX> 2,033
<INCOME-TAX> 615
<INCOME-CONTINUING> 1,418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,418
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
