<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934.
FOR QUARTERLY PERIOD ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934.
For the transition period from to .
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Commission file number 0-5260
GENERAL AUTOMATION, INC.
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(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 I.D. No.)
incorporation or organization)
17731 MITCHELL NORTH, IRVINE, CALIFORNIA 92714
- ---------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code: (714) 250-4800
---------------
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 registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ]
No [ ]
As of January 31, 1997 there were 8,926,376 shares of common stock of
the Registrant outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
--------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1996 1996
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(UNAUDITED)
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 348 $ 119
Accounts receivable, less allowances of
$507 and $561 respectively 6,698 3,686
Inventories 5,259 2,979
Prepaid expenses 1,517 768
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Total current assets 13,822 7,552
Long-term receivables 570 570
Property, plant and equipment, net of
accumulated depreciation and
amortization 2,522 1,392
Goodwill, net of amortization 1,324 0
Other assets 1,390 757
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TOTAL ASSETS $19,628 $10,271
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
--------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1996 1996
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(UNAUDITED)
LIABILITIES
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,797 $ 2,967
Deferred revenue 894 709
Other accrued liabilities 2,558 1,288
Accrued income taxes 706 615
Notes payable and current
portion of long-term debt 1,885 763
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Total current liabilities 9,840 6,342
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Long-term debt, excluding current portion 1,043 1,072
Deferred purchase payments 3,929 0
Deferred credits 79 79
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Total Liabilities 14,891 7,493
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SHAREHOLDERS' EQUITY
Common stock par value $.10 per share
Authorized 30,000,000 shares;
issued and outstanding 8,926,376
at December 31, 1996 and 8,176,376
at September 30, 1996 910 818
Additional paid-in capital 44,843 43,043
Deficit (40,946) (41,083)
Translation adjustment (70) 0
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TOTAL SHAREHOLDERS' EQUITY 4,737 2,778
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,628 $ 10,271
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
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DECEMBER 31 DECEMBER 31
1996 1995
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<S> <C> <C>
SALES - PRODUCT $ 2,909 $ 2,272
SALES - SERVICE REVENUE 7,135 3,279
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Total 10,044 5,551
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COSTS AND EXPENSES:
Cost of sales - Product 2,376 2,024
Cost of sales - Service 4,017 2,164
Research and development 993 223
Selling and administrative 2,321 872
Other, net 58 (12)
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9,765 5,271
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OPERATING INCOME/(LOSS) 279 280
Interest income 13 1
Interest expense (65) (77)
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INCOME/(LOSS) BEFORE INCOME TAXES 227 204
Provision for income taxes 91 0
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NET INCOME/(LOSS) $ 136 $ 204
======== ========
PER SHARE-PRIMARY:
NET INCOME/(LOSS) $ 0.02 $ 0.03
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OR THE THREE MONTHS ENDED
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DECEMBER 31 DECEMBER 31
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET INCOME/(LOSS) $ 136 $ 204
Adjustments to reconcile net income to net cash
(used for) provided by operations:
(Loss)gain from foreign currency translations (70)
Depreciation and amortization 460 15
Changes in assets, (increase)/decrease
and liabilities, increase/(decrease):
Accounts receivable (3,012) (1,482)
Inventories (2,280) (327)
Prepaid expenses (749) (148)
Other assets (1,957) 99
Accounts payable 831 48
Deferred revenue 185 1,510
Accrued expense 1,361 107
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CASH FLOWS (USED FOR) PROVIDED BY OPERATING ACTIVITIES (5,095) 26
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CASH FLOWS (USED FOR) INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,309) (18)
NET CASH USED FOR INVESTING ACTIVITIES (1,309) (18)
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CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,875
Proceeds from issuance of notes payable 5,719 267
Proceeds from disposal of assets
Principal payments on notes (961) (324)
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NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 6,633 (57)
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Increase in cash 229 (49)
Cash at beginning of period 119 101
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Cash at end of period $ 348 $ 52
======= =======
Cash paid during the period for:
Interest $ 65 $ 77
======= =======
Income taxes $ 0 $ 0
======= =======
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE> 6
GENERAL AUTOMATION, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS:
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments, all of which are of a normal
recurring nature, necessary to present fairly the financial position, results
of operations and cash flows. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. It is
suggested that these financial statements be read in conjunction with the
financial statements, accounting policies, and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended September 30, 1996.
The results of operations for interim periods are not necessarily indicative of
the results of operations to be expected for the year.
2. ACQUISITIONS:
Effective October 11, 1996, the Company purchased substantially all of
the assets and business of Sequoia Enterprise Systems ("SES") from Sequoia
Systems, Inc. ("SSI") for an estimated purchase price of $13,400,000. The
purchase price consisted of approximately $1,875,000 in Company stock, the
assumption of certain liabilities, and deferred payments based on future
revenues. The acquisition was accounted for as a purchase, and the net assets
and results of operations are included in the Company's consolidated financial
statements from the acquisition date. The resultant estimated goodwill is being
amortized over 5 years using the straight line method. SES operates as a
division of the company. (Refer to "Subsequent Events" in the Company's 1996
Annual Report on Form 10-K for additional information concerning this
acquisition).
3. INVENTORIES ARE AS FOLLOWS: (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
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<S> <C> <C>
Materials, subassemblies and service spares $4,431 $2,855
Work in process 819 115
Finished goods 9 9
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Total Inventories $5,259 $2,979
====== ======
</TABLE>
4. EARNINGS PER COMMON SHARE:
Primary earnings or loss per common share for the three month periods
ended December 31, 1996 and 1995 is based on the weighted average of shares
outstanding, without inclusion of common stock equivalents, as such inclusion
would be anti-dilutive or dilution would be less than 3%.
Weighted average shares outstanding are 8,894,854 for the three month
period ended December 31, 1996, and 7,391,776 for the three month period ended
December 31, 1995.
6
<PAGE> 7
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL DATA
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.
SUMMARY
The Company showed significant improvement in revenues and an increase
in pre-tax income during the first quarter of FY 1997 as compared to the same
period in FY 1996. This performance is a result of the acquisition of Liberty
Integration Software, Inc. and the purchase of Sequoia Enterprise Systems,
described below (refer to "Subsequent Events" in the Company's 1996 Annual
Report on Form 10-K for additional information concerning these acquisitions).
Effective October 1, 1996, GA acquired all of the outstanding shares
of Liberty Integration Software, Inc. ("Liberty"), and 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.
Effective October 11, 1996, 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 is operating SES as a separate business division.
SALES
Product sales increased $637,000 for the three month period ended
December 31, 1996, as compared to the same three month period last year,
primarily due to revenues generated by the newly acquired SES division.
Service revenues increased $3,856,000 in the three month period ended
December 31, 1996 compared to last year primarily due to revenues generated by
the newly acquired SES division, which accounted for $3,060,000 of the total
increase. Service revenues on Company manufactured systems continue to
deteriorate, as older contracts are being canceled at a faster rate than they
can be replaced with contracts on new equipment, which generally carry one year
warranties and do not generate service revenues.
7
<PAGE> 8
GROSS MARGIN
The overall gross margin percentage for products and service increased
12 percentage points for the three months ended December 31, 1996, as compared
with the corresponding period of the previous year. Product gross margins
increased 7 percentage points, due to negotiated price concessions from vendors,
decreased direct labor and overhead costs, and decreased royalty costs related
to the SunRiver partnership agreement. Service revenue gross margins increased
10 percentage points, due to increased revenues in excess of increased overhead
costs resulting from the purchase of the SES division.
EXPENSES
Research and development expenses, including engineering, increased
$770,000 in the three month period ended December 31, 1996 compared to the same
period last year. These increased expenditures are a combination of the SES
division engineering costs, and new product development costs.
Selling and Administrative expenses increased $1,449,000 in the three
month period ended December 31, 1996 compared to the same period last year, due
to the acquisition of Liberty, the purchase of SES, and staff increases in the
sales and marketing areas in support of the Company's expected higher sales
volume.
Other expenses increased $70,000 in the three months ended December 31,
1996, compared to the same period last year. This increase results from gains on
the disposal of assets recorded in the prior year.
Domestic interest expense decreased $12,000 for the three month period
ended December 31, 1996 compared with the same period in 1995 resulting from a
lower effective interest rate on increased borrowing from the Company's new line
of credit with Imperial Bank (See Liquidity and Capital Resources below).
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to operate on improved cash resources.
Net cash used for operating activities for the three months ended
December 31, 1996 was $5,095,000. Cash of $7,998,000 was consumed by increases
in receivables, inventory, prepaid expenses, and other assets while increases in
accounts payable, deferred revenue and accrued expenses generated $2,377,000.
Net cash of $1,309,000 was consumed by investing activities
attributable to the purchase of fixed assets relating to the Liberty and SES
acquisitions.
Financing activities provided net cash of $6,633,000, through the
issuance of $1,875,000 in common stock and new notes issued of $5,719,000
including advances
8
<PAGE> 9
from the new line of credit totaling $1,489,000. Proceeds were used to purchase
SES and retire the old line of credit. Payments of debt totaled $961,000.
Currently, the Company has an agreement with a U.S. lender for a
revolving line of credit, not to exceed $1,500,000, which is collateralized by
domestic accounts receivable. The agreement is renewable annually with 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 not provide adequate
capital for expansion and plans to raise an additional $1,000,000 through a
$500,000 increase in the line of credit and the issuance of private placement
notes. At December 31, 1996, the balance of the loan was $1,489,000. The Line of
credit contains various covenants and restrictions. At December 31, 1996, the
Company was in full compliance with all covenants and restrictions.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GENERAL AUTOMATION, INC.
DATE: January 31, 1997 By: /s/ John R. Donnelly
---------------------
John R. Donnelly
Vice President, Finance
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
INTERNALLY PREPARED FOR THREE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-Q FOR PERIOD ENDED DECEMBER, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 348
<SECURITIES> 0
<RECEIVABLES> 7,205
<ALLOWANCES> 507
<INVENTORY> 5,259
<CURRENT-ASSETS> 13,822
<PP&E> 13,524
<DEPRECIATION> 11,002
<TOTAL-ASSETS> 19,628
<CURRENT-LIABILITIES> 9,840
<BONDS> 4,972
0
0
<COMMON> 910
<OTHER-SE> 3,827
<TOTAL-LIABILITY-AND-EQUITY> 19,628
<SALES> 2,909
<TOTAL-REVENUES> 10,044
<CGS> 2,376
<TOTAL-COSTS> 6,393
<OTHER-EXPENSES> 3,348
<LOSS-PROVISION> 24
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 227
<INCOME-TAX> 91
<INCOME-CONTINUING> 136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
