<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934.
For Quarterly Period Ended June 30, 1997
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
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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 | | No |X|
As of July 31, 1997 there were 8,951,876 shares of common stock of the
Registrant outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30
1997 1996
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<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash $ 1,186 $ 119
Accounts receivable, less allowances of
$437 and $561 respectively 5,390 3,686
Inventories 4,007 2,979
Prepaid expenses 928 768
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Total current assets 11,511 7,552
Long-term receivable 570 570
Property, plant and equipment, net of
accumulated depreciation and
amortization 2,401 1,392
Goodwill, net of amortization 5,592 0
Other assets 1,665 757
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TOTAL ASSETS $21,739 $10,271
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</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>
JUNE 30 SEPTEMBER 30
1997 1996
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<S> <C> <C>
LIABILITIES
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Current liabilities:
Accounts payable $ 3,694 $ 2,967
Deferred revenue 705 709
Other accrued liabilities 1,469 1,288
Accrued income taxes 344 615
Notes payable and current
portion of long-term debt 2,260 763
Current portion of other long-term
liabilities (see footnote #2) 2,750
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Total current liabilities 11,222 6,342
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Long-term debt, excluding current portion 1,157 1,072
Other long-term liabilities 4,032
Deferred credits 0 79
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Total Liabilities 16,411 7,493
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SHAREHOLDERS' EQUITY
- --------------------
Common stock par value $.10 per share
Authorized 30,000,000 shares;
issued and outstanding 9,051,876
at June 30, 1997 and 8,176,376
at September 30, 1996 905 818
Additional paid-in capital 44,990 43,043
Deficit (40,598) (41,083)
Translation adjustment 31 0
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TOTAL SHAREHOLDERS' EQUITY 5,328 2,778
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 21,739 $ 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
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -----------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
SALES - PRODUCT $2,401 $2,978 $ 8,174 $ 7,567
SALES - SERVICE REVENUE 6,983 4,313 21,006 11,562
------ ------ ------- -------
Total 9,384 7,291 29,180 19,129
------ ------ ------- -------
COSTS AND EXPENSES:
Cost of sales - Product 1,446 2,574 5,892 6,595
Cost of sales - Service 3,390 2,300 10,880 6,789
Research and development 793 406 2,610 899
Selling and administrative 3,162 1,139 7,935 3,106
Other, net 424 71 1,184 87
------ ------ ------- -------
9,215 6,490 28,501 17,476
------ ------ ------- -------
OPERATING INCOME 169 801 679 1,653
Interest income 14 16 42 24
Interest expense (89) (61) (237) (210)
------ ------ ------- -------
INCOME BEFORE INCOME TAXES 94 756 484 1,467
(Benefit) provision for income taxes (120) 125 0 125
------ ------ ------- -------
NET INCOME $ 214 $ 631 $ 484 $ 1,342
====== ====== ======= =======
PER SHARE-PRIMARY:
NET INCOME $ .02 $ 0.08 $ 0.05 $ 0.18
====== ====== ======= =======
</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)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 484 $ 1,342
Adjustments to reconcile net income to net cash
provided by operations:
Gain from disposal of assets (55)
Depreciation and amortization 1,051 47
Changes in assets, (increase)/decrease
and liabilities, increase/(decrease), net of effects
from acquisitions:
Accounts receivable (731) 1,044
Inventories 557 (205)
Prepaid expenses (68) (346)
Other assets (111) 250
Accounts payable 1,298 (612)
Deferred revenue (709) (1,556)
Accrued expense (593) 277
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CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 1,178 186
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CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment (150) (67)
Acquisition of businesses, net of cash acquired (1,661)
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NET CASH (USED IN) INVESTING ACTIVITIES (1,811) (67)
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CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 87 539
Proceeds from issuance of notes payable 2,162 276
Proceeds from disposal of assets 55
Principal payments on notes (580) (877)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,669 (7)
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Effect of rate changes on cash 31
Increase in cash 1,067 112
Cash at beginning of period 119 101
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Cash at end of period $ 1,186 $ 213
======= =======
Cash paid during the period for:
Interest $ 237 $ 210
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Income taxes $ 271 $ 0
======= =======
Supplemental schedule of noncash investing and financing activities:
In conjunction with the acquisition of SES, noncash activities were as follows:
Issuance of stock and warrants $ 2,375
Liabilities assumed, including $8,856 of amounts due seller $10,756
</TABLE>
The accompanying notes are an integral part of these statements
5
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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, General Automation, Inc. (the Company or
GA) purchased substantially all of the assets and business of Sequoia Enterprise
Systems ("SES") from Sequoia Systems, Inc. ("SSI") for approximately $10,700,000
(subject to possible adjustment based on the net book value of SES as of the
closing date). The purchase agreement provides for an upward or downward
adjustment of the purchase price, on a dollar for dollar basis, if the net book
value of SES 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
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).
Under the terms of the purchase agreement, deferred payments are to be
calculated and paid monthly based on a percentage of SES product sales plus SES
and GA service revenues. On the first anniversary of the closing date, the
aggregate value of the net worth of SES at the acquisition date (approximately
$4,889,000) less the deferred payments paid as of the anniversary date and
400,000 shares of the issued Company stock (valued at $2.50 per share) is due
and payable in either cash, Company stock (valued at the anniversary date) or a
combination of cash and Company stock. Approximately $2,750,000 of deferred
payments expected to be paid over the next twelve months have been included in
current liabilities.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company and SES as if the acquisition had occurred
on October 1, 1996, after giving effect to certain pro forma adjustments,
including the depreciation and amortization of the assets acquired based of
their fair values, the increase in common
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shares outstanding. This pro forma summary does not necessarily reflect the
results of operations as they would have been if the Company and SES had been a
single entity during the nine months ended June 30, 1997, nor is it indicative
of the results of operations which may occur in the future.
For the nine months ended June 30, 1997
(in thousands except per share data)
(unaudited)
Revenues $29,870
Net Income $ 210
Net Income Per Share $ .02
Pro forma summary information for the comparable period of the prior
year is not presented as the required data to compute the summary information is
not available.
3. INVENTORIES ARE AS FOLLOWS: (IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
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<S> <C> <C>
Materials, subassemblies and service spares $3,493 $2,855
Work in process 510 115
Finished goods 4 9
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Total Inventories $4,007 $2,979
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</TABLE>
4. IMPAIRMENTS:
The Company annually evaluates its long-lived assets, including
intangibles, for potential impairment. When circumstances indicate that the
carrying amount of the asset may not be recoverable, as demonstrated by future
cash flows, an impairment loss would be recorded based on fair value.
5. NET INCOME PER COMMON SHARE:
Net income per common share for the three and nine month periods
ended June 30, 1997 and 1996 are based on the weighted average of shares
outstanding including the dilutive effect of common stock equivalents.
Weighted average shares outstanding are 9,507,962 and 9,436,955 for the
three and nine month periods ended June 30, 1997 including common stock
equivalents, and 7,741,860 and 7,508,136 for the three and nine month periods
ended June 30, 1996.
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Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" (SFAS No. 128), issued in February 1997, would require the Company to
report a basic earnings per share and a diluted earnings per share. Basic
earnings per share would be computed by dividing net income available to common
stockholders by the weighted average shares outstanding during the period, with
no assumption of conversion of dilutive common stock equivalents. Diluted
earnings per share would be computed by reflecting the potential dilution that
could occur if additional shares of common stock were issued upon the exercise
of employee stock options or warrants.
SFAS No. 128 also would require a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS No. 128 will be effective for the Company in the
first quarter of fiscal year 1998. Earlier adoption is not permitted and,
accordingly, the Company will be required to restate the earnings per share
calculation for the interim periods of 1997, and for all earnings per share data
of prior years presented in summaries of earnings or selected financial data.
The adoption of SFAS No. 128 is not expected to have a material impact of
reported EPS for the three or nine months ended June 30, 1997.
8
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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
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The Company showed improvement in revenues during the third quarter of
FY 1997 as compared to the same period in FY 1996. This performance is a result
of 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 substantially all of
the assets and business of Sequoia Enterprise Systems ("SES") from Sequoia
Systems, Inc. ("SSI") for 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 agreement provides for an upward or downward adjustment of the
purchase price, on a dollar for dollar basis, if the net book value of SES 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 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).
Under the terms of the purchase agreement, deferred payments are to be
calculated and paid monthly based on a percentage of SES product sales plus SES
and GA service revenues. On the first anniversary of the closing date, the net
worth at the acquisition date (approximately $4,889,000) less the deferred
payments paid and 400,000 shares of the issued Company stock (valued at $2.50
per share) are due and payable
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in either cash, Company stock (valued at the anniversary date) or a combination
of cash and Company stock.
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.
SALES
- -----
Product sales decreased $552,000 and increased $607,000 for the three
and nine month periods ended June 30, 1997, respectively, as compared to the
same three and nine month periods last year. Product revenues generated by the
newly acquired SES division were $1,036,000 and $3,747,000 respectively.
Offsetting the SES division gains were anticipated decreases in sales of GA
products.
Service revenues increased $2,670,000 and $9,444,000 during the three
and nine month periods ended June 30, 1997 compared to last year primarily due
to revenues generated by the newly acquired SES division. Service revenues for
the SES division were $3,427,000 and $9,735,000 for the three and nine month
periods ended June 30, 1997. 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.
GROSS MARGIN
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The overall gross margin percentage for products and service increased
15.1 percentage points and 12.5 percentage points for the three and nine month
periods ended June 30, 1997, respectively, as compared with the corresponding
periods of the previous year. Product gross margins increased 25.8 percentage
points and 15.1 percentage points during the same three and nine month periods,
due to negotiated price concessions from vendors, decreased direct labor and
overhead costs, and decreased royalty costs related to the SunRiver Data Systems
partnership agreement. Service revenue gross margins increased 4.8 percentage
points and 6.9 percentage points, respectively, for the three and nine month
periods ended June 30, 1997, due to increases in revenues and decreased overhead
costs during the third quarter, resulting from the purchase of the SES division.
EXPENSES
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Research and development expenses, including engineering, increased
$387,000 and $1,711,000 during the three and nine month periods ended June 30,
1997, respectively, compared to the same periods last year. These increased
expenditures are a combination of the SES division engineering costs, and new
product development costs.
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Selling and Administrative expenses increased $2,023,000 and $4,829,000
during the three and nine months period ended June 30, 1997, respectively,
compared to the same periods last year, due to the acquisitions of Liberty and
SES, and staff increases in the sales and marketing areas.
Other expenses increased $353,000 and $1,097,000 during the three and
nine month periods ended June 30, 1997, respectively, compared to the same
periods last year due to the amortization of goodwill resulting from the
acquisition of SES.
Domestic interest expense increased $28,000 and $27,000 for the three
and nine month periods ended June 30, 1997, respectively, compared with the same
periods last year. These changes are a result of a lower effective interest rate
applied to increased borrowing levels from the Company's new line of credit with
Imperial Bank, and the issuance of private placement notes (See Liquidity and
Capital Resources below).
INCOME TAX (BENEFIT) PROVISION
- ------------------------------
A tax benefit of $120,000 was recognized in the quarter ended June 30,
1997 versus an income tax expense of $125,000 in the quarter ended June 30,
1996 due to a change in the estimated earnings for the fiscal year ended
September 30, 1997, which decreased the effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
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The Company is currently operating under restricted cash resources. The
acquisition of SES calls for deferred payments based on revenues (see note 2 of
the financial statements). Management believes that this requirement will not
materially affect liquidity because the Company has the option to satisfy the
obligation by issuing company stock, the payment of cash, or a combination of
cash and stock as of the first anniversary of the closing date. The Company has
no plans that will require aggregate capital expenditures in excess of $100,000
over the balance of fiscal 1997.
Net cash provided by operating activities for the nine months ended
June 30, 1997 was $1,178,000. Cash of $1,855,000 was generated by decreases in
inventory and an increase in accounts payable, while increases in accounts
receivable, prepaid expenses, and other assets, along with decreases in deferred
revenue and accrued expenses consumed $2,212,000.
Net cash of $1,811,000 was used in investing activities, attributable
to the acquisitions of Liberty and SES, and for the purchase of fixed assets.
Financing activities provided net cash of $1,669,000, through the
issuance of $87,000 in common stock and new notes issued of $2,162,000 which
includes the net increase in borrowing from the new line of credit totaling
$1,361,000 and $500,000 in new private placement notes, offset by payments of
debt totalling $580,000. The private placement notes were issued through Morgan
Stanley & Co. at an annual interest rate of 15 percent, amortized over 24 months
with payments of $24,243 each. Proceeds from financing activities were used to
purchase SES and retire the old line of credit.
Currently, the Company has an agreement with a U.S. lender for a
revolving line of credit, not to exceed $2,000,000, which is collateralized by
domestic accounts
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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. At June 30,
1997, the balance of the loan was $1,889,000. The line of credit contains
various covenants and restrictions. At June 30, 1997, the Company was not in
full compliance with all covenants and restrictions. Due to the reclassification
of certain balance sheet accounts, the current ratio fell below the minimum
covenant. Management has requested and expects to receive a waiver for this
exception.
In April 1996 the Company entered into a license agreement with
McDonnell Douglas Information Systems Limited ("MDIS"), under which the Company
acquired rights to use and sublicense certain software owned by MDIS. The
Company's agreement with MDIS requires the Company to make six annual payments
to MDIS on April 26 of each year from 1997 through 2002, inclusive, of
$400,000, $650,000, $700,000, $700,000, $700,000 and $700,000, respectively. The
Company did not make the payment due in April 1997, and is attempting to
renegotiate its obligations under this agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 -- Financial Data Schedule
(b) Reports on Form 8-K:
None
SIGNATURES
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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: August 14, 1997 By: /s/ JOHN R. DONNELLY
-----------------------
John R. Donnelly
Vice President, Finance
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERNALLY
PREPARED FOR NINE MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FOR PERIOD ENDED JUNE 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,186
<SECURITIES> 0
<RECEIVABLES> 5,827
<ALLOWANCES> 437
<INVENTORY> 4,007
<CURRENT-ASSETS> 11,511
<PP&E> 13,620
<DEPRECIATION> 11,219
<TOTAL-ASSETS> 21,739
<CURRENT-LIABILITIES> 11,222
<BONDS> 0
0
0
<COMMON> 905
<OTHER-SE> 4,423
<TOTAL-LIABILITY-AND-EQUITY> 21,739
<SALES> 8,174
<TOTAL-REVENUES> 29,180
<CGS> 5,892
<TOTAL-COSTS> 16,772
<OTHER-EXPENSES> 11,657
<LOSS-PROVISION> 72
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> 484
<INCOME-TAX> 0
<INCOME-CONTINUING> 484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 484
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
