<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 28, 1997
GENERAL AUTOMATION, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 0-5260 95-248811
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
17731 Mitchell North, Irvine, California 92614
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 250-4800
Not applicable
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired. Filed herewith are the
following Financial Statements of the Sequoia Enterprise Systems Division of
Sequoia Systems, Inc.:
Report of independent Accountants
Consolidated Balance Sheets as of June 30, 1996 and 1995
Consolidated statements of Operations for the Three Years Ended June
30, 1996
Consolidated Statements of Cash flows for the Three Years ended June
30, 1996
Statements of Parent Investment for the Three Years Ended June 30, 1996
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information. Filed herewith is the following
pro forma financial information.
Unaudited Pro Forma Condensed Financial Information - Description of
Transaction
Unaudited Pro Forma Condensed Statement of Operations for the Nine
Months Ended June 30, 1997
Unaudited Pro Forma Condensed Statement of Operations for the Year
Ended September 30, 1996
(c) Exhibits. The following Exhibit is filed herewith and incorporated
herein by this reference:
Exhibit Number Description
-------------- -----------
23.1 Consent of Coopers &
Lybrand L.L.P.
<PAGE> 3
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GENERAL AUTOMATION, INC.
Date: August 28, 1997 By: /s/ John R. Donnelly
--------------------
John R. Donnelly, Vice
President of Finance
<PAGE> 4
EXHIBIT___
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<PAGE> 5
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board, of Directors of
Sequoia Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Sequoia
Enterprise Systems, a division of Sequoia Systems, Inc., as of June 30, 1996 and
1995 and the related consolidated statements of operations, parent company
investment and cash flows for each of the three years in the period ended June
30, 1996. These 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 1, certain costs and expenses presented in the financial
statements represent management's estimates of the costs of services provided to
Sequoia Enterprise Systems by Sequoia Systems Inc. As a result, the
consolidated financial statements presented may not be indicative of the
financial position or results of operations that would have been achieved had
Sequoia Enterprise Systems operated as a nonaffiliated entity. Additionally, as
discussed in Note 10, Sequoia Enterprise Systems was acquired by General
Automation, Inc. on October 11, 1996.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sequoia Enterprise
Systems as of June 30, 1996 and 1995 and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 28, 1997
<PAGE> 6
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Accounts receivable, net $ 3,460,280 $ 3,878,372
Accounts receivable from related parties - -
Inventories 4,021,275 7,049,621
Other current assets 451,904 475,571
------------ ------------
Total current assets 7,933,459 11,403,564
------------ ------------
Property, plant and equipment, at cost:
Computer equipment 9,862,427 10,393,450
Machinery equipment 2,255,569 2,265,612
Equipment under capital lease 2,337,669 2,665,660
Furniture and fixtures 566,793 558,083
Leasehold improvements 730,165 687,170
Less accumulated depreciation and amortization (13,938,291) (14,101,263)
------------ ------------
1,814,332 2,468,712
Other assets 308,255 372,901
------------ ------------
Total assets $ 10,056,046 $ 14,245,177
============ ============
LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Current portion of capital lease obligations 55,833 124,699
Accounts payable 1,422,820 1,539,402
Accrued expenses 2,157,242 4,950,796
Deferred revenue 949,585 663,307
------------ ------------
Total current liabilities 4,585,480 7,278,204
Obligations under capital leases, net of current portion -- 55,833
Commitments and contingencies
Parent investment 5,470,566 6,911,140
------------ ------------
Total liabilities and parent company investment $ 10,056,046 $ 14,245,177
============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
2
<PAGE> 7
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
System $ 17,513,361 $ 28,000,351 $ 29,463,856
Service 14,257,226 14,882,193 13,636,105
Other 24,056 1,011,981 1,665,229
------------ ------------ ------------
Total revenues 31,794,643 43,894,525 44,765,190
Cost of revenues:
System 11,598,147 11,849,017 11,870,643
Service and other 7,617,375 8,094,210 6,664,563
------------ ------------ ------------
Total cost of revenues 19,215,522 19,943,227 18,535,206
Gross profit 12,579,121 23,951,298 26,229,984
Research and development 3,731,058 8,422,193 7,749,970
Selling, general, and administrative expenses 7,246,942 10,545,051 9,141,919
Restructuring charge (credit) 1,771,320 (1,109,327)
------------ ------------ ------------
Income from operations (170,199) 4,984,044 10,447,422
Other Income (expense) 13,800 (158,933) 38,499
------------ ------------ ------------
Income before provision for income taxes (156,399) 4,825,111 10,485,921
Provision for income taxes (62,561) 1,930,045 4,194,369
------------ ------------ ------------
Net income (loss) $ (93,838) $ 2,895,066 $ 6,291,552
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
3
<PAGE> 8
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (93,838) $ 2,895,066 $ 6,291,552
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,242,693 1,812,601 1,836,693
Amortization 53,571 225,379 561,376
Restructuring charge (credit) 1,771,320 -- (1,109,000)
Write-down of equipment 52,331 -- --
Changes in operating assets and liabilities:
Accounts receivables 418,092 728,246 (1,321,720)
Accounts receivable from related parties -- 845,490 (30,770)
Inventories 3,028,346 (3,618,165) 1,443,136
Other current assets (33,963) (98,755) 101,330
Accounts payable (116,582) (350,219) 587,377
Accrued expenses (2,865,725) 708,524 (2,571,437)
Deferred revenue 286,278 (150,068) 128,362
----------- ----------- -----------
Net cash provided by operating activities 3,742,523 2,998,099 5,916,899
Cash flows from investing activities:
Purchase of equipment and improvements (685,605) (1,831,764) (1,434,942)
Decrease (increase) in other assets (220,222) (159,267) 297,584
----------- ----------- -----------
Net cash used in investing activities (905,827) (1,991,031) (1,137,358)
Cash flows from financing activities:
Repayment of obligations under capital leases (124,699) (121,473) (190,762)
Net transactions with parent company (2,711,997) (885,595) (4,588,779)
----------- ----------- -----------
Net cash used in financing activities (2,836,696) (1,007,068) (4,779,541)
----------- ----------- -----------
Net decrease in cash -- -- --
Cash and cash equivalents, beginning of year -- -- --
Cash and cash equivalents, end of year -- -- --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements,
4
<PAGE> 9
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
STATEMENTS OF PARENT INVESTMENT
June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Beginning parent investment $ 6,911,140 $ 4,683,409 $ 2,702,121
Net income (loss) (93,838) 2,895,066 6,291,552
Net transactions with parent (1,346,736) (667,335) (4,310,264)
----------- ----------- -----------
Ending parent investment $ 5,470,566 $ 6,911,140 $ 4,683,409
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
5
<PAGE> 10
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Sequoia Enterprise Systems ("SES" or the "Company") is a wholly-owned
operating unit of Sequoia Systems, Inc. ("Sequoia"). SES designs,
manufactures, markets and services highly modular and easily
expandable, totally available computer systems based on the UNIX
operating system. SES systems are used primarily for on-line
transaction processing ("OLTP") and in other interactive environments
in which system availability, fast response time and data integrity are
critical.
These financial statements present SES' consolidated worldwide results
of income and its financial condition as it operated as a business unit
of Sequoia Systems, Inc., including certain adjustments necessary for a
fair presentation of the business. Expenses associated with Sequoia's
outside directors, legal, treasury and investor relations functions
have been excluded from these financial statements. Interest income and
interest expense has not been allocated and are not material.
Management believes the allocations are reasonable, however, the
financial statements presented may not be indicative of the results
that would have been achieved had the division operated as a
non-affiliated entity.
NET PARENT COMPANY INVESTMENT
All cash receipts and disbursements and intercompany charges related to
SES' operations are charged or credited to the parent company
investment account.
FOREIGN CURRENCY TRANSLATION
For foreign subsidiaries where the functional currency is the local
currency, the financial statements of SES' foreign subsidiaries are
translated using rates of exchange in effect at the end of the fiscal
year for monetary assets and liabilities and historical rates for
non-monetary assets and liabilities. Income and expenses are translated
at an average exchange rate prevailing during the fiscal year and the
resulting gains and losses are included in the net parent company
investment account.
EMPLOYEE SAVINGS AND RETIREMENT PLANS
Sequoia sponsors two defined contribution employee savings and
retirement plans ("the Plans"), which cover only United States
employees. Employees participate in the plans based on the subsidiary
of their employment. Contributions to the plans are made by Sequoia.
These financial statements for SES do not include any amounts related
to these plans as they are considered to be immaterial.
Continued
6
<PAGE> 11
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of SES and
all of its foreign operations. Significant intercompany transactions and
balance have been eliminated.
REVENUE RECOGNITION
Revenues from product sales, which includes revenues from software
licenses, are recognized upon shipment unless significant uncertainties
exist. Service and other revenues include maintenance, installation
fees, professional services, rental revenue and license fees. Service
and other revenues related to maintenance agreements are recognized
ratably over the period in which the service is provided, All other
service and other revenues are recognized as earned. License fees are
recognized as revenue upon receipt of non-refundable payments.
RESEARCH AND DEVELOPMENT
Costs relating to research and development are expensed as incurred.
CASH, CASH EQUIVALENTS, AND INVESTMENTS
Cash, restricted cash, cash equivalents, and investments pertaining to
SES' business are accounted for centrally by the corporate unit. As
such, SES' cash receipts and disbursements were combined with other
Sequoia corporate-wide cash transactions and balances. Accordingly, no
cash balances are presented in SES' historical balance sheets.
INVENTORIES
Inventories are stated at the lower of average cost (first-in,
first-out) or market which requires the periodic assessment of net
realizable value. The difference between cost and market is charged to
income in the period the impairment is determined.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment is recorded at cost. Expenditures for
maintenance and repairs are charged to expense while the costs of
significant improvements are capitalized. SES provides for depreciation
by charges to operations in amounts estimated to allocate the cost of
equipment and leasehold improvements over their useful lives on a
straight-line basis. Computer equipment, machinery and equipment,
equipment under capital lease and furniture and fixtures are depreciated
over three to ten years, and leasehold improvements are amortized over
the term of the associated lease.
The Company periodically evaluates its fixed assets as to determine
whether assets are impaired or continue to be utilized. Upon
determination of an impairment, retirement or other disposition of
property and equipment, the cost and related depreciation are removed
from the accounts, and any resulting gain or loss is reflected in the
results of operations.
Continued
7
<PAGE> 12
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SOFTWARE LICENSE FEES AND ROYALTIES
SES has entered into license and royalty agreements for software to be
incorporated into certain computer systems held for sale. The initial
fees under such software license arrangements are capitalized in other
assets and amortized over the lesser of the term of the license
agreement or on a straight line basis over three to five years. Royalty
payments are expensed upon the sale of computer systems that
incorporate the licensed software.
INCOME TAX PROVISION
The results of the divisions operations are included in Sequoia's
federal, state, and international consolidated income tax returns. The
income tax provision included in SES' statements of operations is
calculated as if it had been required to file separate tax returns. The
provision for income taxes is calculated in accordance with SFAS No.
109 "Accounting for Income Taxes," which requires the recognition of
deferred income taxes using the liability method. The net operating
results of SES through June 30, 1996 have been included in the
consolidated income tax returns of Sequoia. Any tax benefits relating
to prior losses generated by SES will remain with Sequoia and are not
recognized in the accompanying financial statements.
OTHER CHARGES / RESTRUCTURING CREDIT
During 1996, in response to the accelerating decline in demand for the
Motorola based products, the SES decided to curtail investment in its
Motorola products, refocus its research and development activities and
consolidate certain functions. As a result of management's actions, SES
has been allocated $1,771,000 of a restructuring charge relating to
severance costs and other asset write-downs. These other charges
included: $1,162,000 of severance and related costs, $284,000 to
write-off other current and long-term assets which were no longer used
and $325,000 for other contractual obligations related to these
actions. Payments of approximately $1,035,000 were made in connection
with these charges during the year ended June 30, 1996. Remaining
liabilities of $736,000 at June 30, 1996 predominantly consisted of
severance and related costs which are expected to be paid out during
fiscal 1997.
During fiscal 1992, the Company recorded a restructuring charge of
$13,990,000 as a result of lower revenues and a downsizing of the
operations based on anticipated future revenue levels. During fiscal
1994, the Company settled its obligations, and determined that, as of
June 30, 1994, $1,109,000 of restructuring charges was in excess of
business requirements and recorded a restructuring credit.
Additionally, the Company realized a benefit in cost of revenues of
$900,000 in fiscal 1994 as a result of the sale of inventory which had
been previously written down as part of the restructuring. As of June
30, 1995 restructuring activities were completed.
Continued
8
<PAGE> 13
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
EARNINGS PER SHARE
Earnings per share have not been presented since SES operated as a
business unit of Sequoia during the periods presented in the
accompanying financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that effect 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.
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." The Company and the division intend to adopt
this standard in fiscal year 1997. The division does not expect the
adoption of this standard to have a material effect on its financial
position or results of operations.
WARRANTY OBLIGATIONS
The Company generally provides its products with a 90-day to two-year
warranty from the date of installation depending upon the product. The
cost of warranty obligations are estimated and provided for at the time
of sale.
2. INVENTORIES:
Inventories at June 30 consist of the following:
<TABLE>
<CAPTION>
1996 1996
---------- ----------
<S> <C> <C>
Raw materials $1,822,163 $1,378,626
Work in progress 1,103,531 2,866,206
Finished goods 1,095,581 2,804,789
---------- ----------
$4,021,275 $7,049,621
========== ==========
</TABLE>
Continued
9
<PAGE> 14
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. OTHER ASSETS:
Other Assets at June 30 consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Software license fees net of accumulated amortization
of $589,040 and $535,469, in 1996 and 1995,
respectively $213,371 $282,163
Other 94,884 90,738
-------- --------
$308,255 $372,901
======== ========
</TABLE>
4. ACCRUED EXPENSES:
Accrued Expenses at June 30 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Compensation and benefits $ 649,207 $2,638,556
Commissions and royalties 130,138 562,796
Other charges 337,822 --
Warranty expense -- 190,680
Accrued rent 91,972 153,286
Other 948,103 1,405,478
---------- ----------
$2,157,242 $4,950,796
========== ==========
</TABLE>
5. INCOME TAXES:
A reconciliation of the federal statutory rate to the Company's effective
rate is as follows for the year ended June 30,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal Statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 6.0% 6.0% 6.0%
---- ---- ----
40.0% 40.0% 40.0%
==== ==== ====
</TABLE>
Continued
10
<PAGE> 15
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. LEASE COMMITMENTS:
SES leases equipment and office space for its headquarters and sales
offices under various operating arrangements that expire at various dates
through 2000. In addition, SES leases certain equipment, office furniture
and software licenses under capital leases that mature at various dates
through 1997. At June 30, 1996, minimum payments due under all operating
and capital lease arrangements are as follows:
<TABLE>
<CAPTION>
OPERATING LEASE CAPITAL LEASE
FISCAL YEAR COMMITMENTS COMMITMENTS
----------- -----------
<S> <C> <C>
1997 $1,064,021 $68,724
1998 636,323
1999 37,865
2000 5,298
---------- --------
Total minimum lease payments $1,743,507 68,724
Less--Amount representing interest on capital lease 12,891
Present value of minimum lease payments $55,833
=======
</TABLE>
Approximately $1,613,000, $1,404,000, and $1,579,000 were charged to rent
expense in fiscal 1996, 1995, and 1994, respectively, under operating
lease commitments. Accumulated amortization on equipment under capital
lease amounted to $2,338,000 and $2,460,000 at June 30, 1996 and 1995,
respectively.
7. NOTE PAYABLE:
In 1994 the Company had an outstanding note payable for $1,950,000 under
the borrowing arrangements established with State Street Bank. This note
payable is not reflected on SES' balance sheet as the borrowing agreement
is between State Street Bank and Sequoia and is considered to be a
liability of Sequoia.
Continued
11
<PAGE> 16
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. SIGNIFICANT CUSTOMERS AND DOMESTIC AND EXPORT SALES:
The following summarizes significant customers.
<TABLE>
<CAPTION>
NUMBER OF
SIGNIFICANT PERCENTAGE
YEARS ENDED JUNE 30, CUSTOMERS REVENUES OF REVENUES
-------------------- --------- -------- -----------
<S> <C> <C> <C>
1996 1 $4,066,359 13%
1995 1 8,480,473 19%
1994 1 12,019,990 19%
</TABLE>
The following summarizes domestic export sales for SES:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Domestic $25,286,593 $31,156,348 $35,064,600
Export;
Europe 2,226,917 3,555,199 3,851,306
Asia 254,092 2,018,720 3,578,811
Australia 2,797,468 5,795,260 1,331,606
All other 1,229,573 1,368,998 938,867
----------- ----------- -----------
$31,794,643 $43,894,525 $44,765,190
=========== =========== ===========
</TABLE>
9. RELATED PARTY TRANSACTIONS:
In November 1991, the Company entered into a joint venture. Sequoia
Systems Pty. Ltd., with Tricom Pty. Ltd. (Tricom). The joint venture,
through Tricom, had the right to distribute the Company's products in
Australia and New Zealand. The Company purchased 15% of the joint venture
and had the right to purchase the joint venture after five years. During
fiscal 1994, the Company had sales to the joint venture, through Tricom,
of $1,332,000. The Company had accounted for its investment in the joint
venture at cost, but as part of the restructuring charge recorded during
fiscal 1993, has subsequently written down the investment to its net
realizable value.
On July 1, 1994, the Company reached an agreement and purchased selected
assets and the ongoing business operations of Sequoia Systems (Australia)
Pty. Ltd., its joint venture with Tricom Computer. The company transferred
15% of its ownership to Tricom as part of this agreement.
The Company also incorporated certain Australian legal entities to operate
the business in the same geographic market area. Tricom has also agreed to
specific noncompete agreements in selected
Continued
12
<PAGE> 17
SEQUOIA ENTERPRISE-SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
markets with the Company and/or its subsidiary(s) and further, that the
joint venture would be liquidated, as defined in the agreement.
10. SUBSEQUENT EVENT:
On October 3, 1996, the Company announced it had entered into an agreement
for the sale of substantially all of the net assets of SES to General
Automation, Inc. for approximately $11,000,000 in General Automation, Inc.
common stock, warrants, and deferred payments. The transaction closed on
October 11, 1996,
13
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Description of Transaction
On October 11, 1996 (the "Closing Date"), General Automation, Inc. (the
Company or GA) purchased from Sequoia Systems, Inc. ("SSI") substantially all of
the assets and business of SSI's "Sequoia Enterprise Systems" business division.
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").
The assets which have been purchased by the Company do not include the
accounts receivable of SES. However, under the Purchase Agreement, SSI was
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 were made, until the Company had received a total of $1,560,000;
provided, however, that SSI was obligated to pay the full $1,560,000 to the
Company no later than 120 days following the Closing Date. The full $1,560,000
has been paid to the Company by SSI.
In exchange for SES, the Company has (I) agreed to pay an estimated
purchase price of $10,700,000 (subject to adjustment based on the net book value
of SES as of the closing date as discussed below) (the "Purchase Price"); (ii)
assumed certain liabilities of SSI totaling approximately $2,700,000, 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. The Purchase Agreement also
provides for an upward or downward adjustment, on a dollar for dollar basis, of
the Purchase Price if the net book value of SES as of the Closing Date is less
than $3,800,000 or more than $4,200,000. The final determination of the net book
value of SES is currently being reviewed by the Company and SES, in accordance
with the Purchase Agreement.
The Purchase Price will be paid by the Company in a combination of cash
and the Company's common stock. On November 5, 1996, 750,000 shares of the
Company's common stock (the "Payment Stock") were issued to SSI. The deferred
payments under the Purchase Agreement will be paid in monthly installments, with
the amount of each 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 the Company must pay, by the first anniversary of the
Closing Date an amount (comprised of stock, cash, or a combination thereof)
equal to not less than the net book value of SES as of the Closing Date. The
Purchase Agreement provides that the Company will be required to make the
monthly installments until the date at which the total value of the Payment
Stock (to be valued as set forth in the Purchase Agreement and summarized in the
following paragraph) combined with the monthly installments made to date equal
the Purchase Price.
For purposes of applying the Payment Stock toward the Purchase Price, such
shares will be valued as follows: (i) 400,000 shares well 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 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
<PAGE> 19
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 second anniversary of the Closing Date.
The acquisition has been accounted for by the purchase method of
accounting and, accordingly, the total cost to acquire the assets of SES was
allocated to the underlying net assets based on their estimated fair values. The
excess of the net assets acquired over the purchase price was recorded as
goodwill.
The accompanying pro forma statements of operations for the year ended
September 30, 1996 and the nine months ended June 30, 1997 reflect combined
results of operations as if the acquisition of SES had occurred at the beginning
of each period.
The pro forma condensed combined statements of operations may not be
indicative of the results that actually would have been achieved if the
acquisition had been in effect as of the dates and for the periods indicated or
which may be obtained in the future. Therefore, the pro forma financial
information should be read in conjunction with the consolidated financial
statements of GA and the accompanying notes thereto which are included in its
most recent Form 10-K, and the consolidated financial statements of SES and the
accompanying notes thereto included elsewhere herein.
<PAGE> 20
GENERAL AUTOMATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL REPORTING (1) COMBINED
-------------------------------- ---------
GA SES
REVENUES: 6/30/97 10/1 - 10/11/1996
<S> <C> <C> <C>
SYSTEMS $ 8,174 $ 300 $ 8,474
SERVICE 21,006 390 21,396
------- ----- --------
TOTAL 29,180 690 29,870
COST OF REVENUES:
SYSTEMS 5,892 271 6,163
SERVICE & OTHER 10,880 335 11,215
------- ----- --------
TOTAL 16,772 606 17,378
GROSS PROFIT 12,408 84 12,492
RESEARCH AND DEVELOPMENT 2,610 138 2,748
SELLING, GENERAL AND ADMINISTRATIVE 8,129 243 8,372
GOODWILL AMORTIZATION 990 -- 990
------- ----- --------
TOTAL 11,729 381 12,110
INCOME (LOSS) FROM OPERATIONS 679 (297) 382
OTHER INCOME (EXPENSE) (195) 28 (167)
------- ----- --------
INCOME (LOSS) BEFORE TAXES 484 (269) 215
PROVISION (BENEFIT) FOR INCOME TAXES -- 5 (2) 5
------- ----- --------
NET INCOME (LOSS) $ 484 $(274) $ 210
======= ===== ========
NET INCOME PER COMMON SHARE $ 0.05 $ 0.02
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 9,436,955 9,464,428
</TABLE>
FOOTNOTES:
(1) Depreciation: For the period of 10/01/96 through 10/10/96, the
difference in depreciation expense as calculated by SES and what would
have been calculated by GA assuming the acquisition had occurred on
10/01/96 is considered immaterial. Accordingly, no pro forma adjustment
for depreciation has been made.
Amortization of Goodwill: Goodwill is being amortized on a straight
line basis over 60 months. For the period of 10/11/96 through 10/31/96
the Company recorded a full month of amortization. Accordingly, no pro
forma adjustment for goodwill amortization has been made for the period
10/01/96 through 10/11/96.
(2) Income tax provision: During the period from 10/01/96 through 10/11/96
SES recorded a tax liability relating to one of its foreign
subsidiaries.
<PAGE> 21
GENERAL AUTOMATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
GA SES ADJUSTMENTS COMBINED
REVENUES: 9/30/96 6/30/96 INCREASE
(DECREASE)
<S> <C> <C> <C>
SYSTEMS $ 9,715 $17,514 $ 27,229
SERVICE 15,745 14,257 30,002
OTHER -- 24 24
------- ------- --------
TOTAL 25,460 31,795 57,255
COST OF REVENUES:
SYSTEMS 7,887 11,598 19,485
SERVICE & OTHER 9,546 7,618 17,164
------- ------- --------
TOTAL 17,433 19,216 36,649
GROSS PROFIT 8,027 12,579 20,606
RESEARCH AND DEVELOPMENT 1,156 3,731 4,887
SELLING, GENERAL AND ADMINISTRATIVE 4,366 7,247 (936)(1) 10,677
RESTRUCTURING CHARGE (NOTE 4) 258 1,771(4) 2,029
GOODWILL AMORTIZATION -- -- 1,320 (2) 1,320
------- ------ -------- --------
TOTAL 5,780 12,749 384 18,913
INCOME (LOSS) FROM OPERATIONS 2,247 (170) (384) 1,693
OTHER INCOME (EXPENSE) (214) 14 (200)
------- ------- --------
INCOME (LOSS) BEFORE TAXES 2,033 (156) (384) 1,493
PROVISION (BENEFIT) FOR INCOME TAXES 615 (62) (45)(3) 508
------- ------- -------- --------
NET INCOME (LOSS) $ 1,418 $ (94) $ (339) 985
======= ======= ======== ========
NET INCOME PER COMMON SHARE $ 0.18 $ 0.12
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 7,677,627 8,427,627
</TABLE>
FOOTNOTES:
(1) Depreciation: reflects the bookings of fixed assets at their fair
market value (estimated at the net book value at the time of
acquisition) and depreciating the asset over the estimated useful life
as follows:
Building 30 years
Machinery & equipment 3 - 7 years
Furniture & fixtures 3 - 7 years
Leasehold improvements Lease term or asset life,
whichever is less
(2) Amortization of Goodwill: Goodwill is being amortized on a straight
line basis over 60 months.
(3) Income tax provision: The Company has an estimated effective income tax
rate of 34%.
(4) During 1996, SES incurred $1,771,000 in restructuring charges relating
to severance costs and other asset write-downs which are non-recurring
in nature.
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
General Automation, Inc. on Form S-8 (Nos. 33-43158, 33-79038 and 333-09483) of
our report, which includes an explanatory paragraph, dated February 28, 1997 and
our audits of financial statements of the Sequoia Enterprise Systems Division of
Sequoia Systems, Inc. as of June 30, 1996 and 19995, and for the years ended
June 30, 1996, 1995 and 1994, which report if filed as part of this Form 8-K/A.
The explanatory paragraph states that certain costs and expenses presented in
the financial statements represent management's estimates of the costs of
services provided to Sequoia Enterprise Systems, a division of Sequoia Systems,
Inc., by Sequoia Systems, Inc. As a result, the consolidated financial
statements presented may not be indicative of the financial position or results
of operations that would have been achieved had Sequoia Enterprise Systems
operated as a nonaffiliated entity.
Boston, Massachusetts Coopers & Lybrand LLP
August 27, 1997
