<PAGE> 1
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SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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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 MARCH 31, 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 __________.
Commission file number 0-5260
GENERAL AUTOMATION, INC.
(Exact name of registrant as specified in its charter).
DELAWARE 95-2488811
(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 April 30, 1997 there were 8,951,876 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>
MARCH 31 SEPTEMBER 30
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,083 $ 119
Accounts receivable, less allowances of
$472 and $561 respectively 5,710 3,686
Inventories 4,496 2,979
Prepaid expenses 1,580 768
------- -------
Total current assets 12,869 7,552
Long-term receivable 570 570
Property, plant and equipment, net of
accumulated depreciation and
amortization 2,486 1,392
Goodwill, net of amortization 5,922 0
Other assets 1,389 757
------- -------
TOTAL ASSETS $23,236 $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>
MARCH 31 SEPTEMBER 30
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES
Current liabilities:
Accounts payable $ 3,298 $ 2,967
Deferred revenue 1,016 709
Other accrued liabilities 1,364 1,288
Accrued income taxes 735 615
Notes payable and current
portion of long-term debt 2,123 763
Current portion of other long-term
liabilities (see footnote #2) 2,750
-------- --------
Total current liabilities 11,286 6,342
-------- --------
Long-term debt, excluding current portion 1,481 1,072
Other long-term liabilities 5,316
Deferred credits 79 79
-------- --------
Total Liabilities 18,162 7,493
-------- --------
SHAREHOLDERS' EQUITY
Common stock par value $.10 per share
Authorized 30,000,000 shares;
issued and outstanding 8,951,876
at March 31, 1997 and 8,176,376
at September 30, 1996 895 818
Additional paid-in capital 44,925 43,043
Deficit (40,812) (41,083)
Translation adjustment 66 0
-------- --------
TOTAL SHAREHOLDERS' EQUITY 5,074 2,778
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 23,236 $ 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)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ -------------------------
1997 1996 1997 1996
------------------------ -------------------------
<S> <C> <C> <C> <C>
SALES - PRODUCT $ 2,864 $ 2,329 $ 5,773 $ 4,601
SALES - SERVICE REVENUE 6,888 3,958 14,023 7,237
------------------------ -------------------------
Total 9,752 6,287 19,796 11,838
------------------------ -------------------------
COSTS AND EXPENSES:
Cost of sales - Product 2,177 2,143 4,552 4,167
Cost of sales - Service 4,026 2,172 8,044 4,336
Research and development 824 271 1,817 494
Selling and administrative 2,452 1,101 4,773 1,973
Other, net 42 28 100 16
------------------------ -------------------------
9,521 5,715 19,286 10,986
------------------------ -------------------------
OPERATING INCOME 231 572 510 852
Interest income 15 7 28 8
Interest expense (83) (72) (148) (149)
------------------------ -------------------------
INCOME/(LOSS) BEFORE INCOME TAXES 163 507 390 711
Provision for income taxes 29 0 120 0
------------------------ -------------------------
NET INCOME/(LOSS) $ 134 $ 507 $ 270 $ 711
======================== =========================
PER SHARE-PRIMARY:
NET INCOME/(LOSS) $ 0.02 $ 0.07 $ 0.03 $ 0.10
======================== =========================
</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>
FOR THE SIX MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 270 $ 711
Adjustments to reconcile net income to net cash
(used for) provided by operations:
Gain from disposal of assets (55)
Depreciation and amortization 878 29
Changes in assets, (increase)/decrease and liabilities, increase/(decrease):
Accounts receivable, net of effects from acquisitions 450 (1,000)
Inventories 407 (136)
Prepaid expenses (548) (806)
Other assets 191 178
Accounts payable (30) 251
Deferred revenue (709) 1,293
Accrued expense (26) (79)
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CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 883 386
------- -------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment (107) (45)
Investment in subsidiaries (112)
Acquisition of business, net of cash acquired (1,547)
------- -------
NET CASH (USED IN) INVESTING ACTIVITIES (1,766) (45)
------- -------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 77 1
Proceeds from issuance of notes payable 2,162 276
Proceeds from disposal of assets 55
Principal payments on notes (392) (682)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,847 (350)
------- -------
Effect of rate changes on cash 66
Increase (decrease) in cash 964 (9)
Cash at beginning of period 119 101
------- -------
Cash at end of period $ 1,083 $ 92
======= =======
Cash paid during the period for:
Interest $ 148 $ 77
======= =======
Income taxes $ 0 $ 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
<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 $13,900,000. 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).
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 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 shares outstanding, and increased
interest expense on financing related to the acquisition. 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 six months
ended March 31, 1997, nor is it indicative of the results of operations which
may occur in the future.
For the six months ended March 31, 1997
(in thousands except per share data)
(unaudited)
Revenues $20,367
Net Income $ 647
Net Income Per Share $ .07
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.
<PAGE> 7
3. INVENTORIES ARE AS FOLLOWS: (IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
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<S> <C> <C>
Materials, subassemblies and service spares $3,840 $2,855
Work in process 651 115
Finished goods 5 9
------ ------
Total Inventories $4,496 $2,979
====== ======
</TABLE>
4. EARNINGS PER COMMON SHARE:
Primary earnings per common share for the three and six month periods
ended March 31, 1997 and 1996 are 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 8,951,443 and 8,910,167 for the
three and six month periods ended March 31, 1997, and 7,391,990 and 7,391,913
for the three and six month periods ended March 31, 1996.
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 six months ended March 31, 1997.
<PAGE> 8
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 improvement in revenues 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 1997 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 $13,900,000. 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).
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 in either cash, Company stock (valued at
the anniversary date) or a combination of cash and Company stock.
<PAGE> 9
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 increased $535,000 and $1,172,000 for the three and six
month periods ended March 31, 1997, as compared to the same three and six month
periods last year. Product revenues generated by the newly acquired SES division
were $1,295,000 and $2,711,000 respectively. Offsetting the SES division gains
were planned decreases in sales of GA product.
Service revenues increased $2,930,000 and $6,786,000 during the three
and six month periods ended March 31, 1997 compared to last year primarily due
to revenues generated by the newly acquired SES division. Service revenues for
the SES division were $3,248,000 and $6,308,000 for the three and six month
periods ended March 31, 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
The overall gross margin percentage for products and service increased
5 percentage points and 8 percentage points for the three and six month periods
ended March 31, 1997, respectively, as compared with the corresponding periods
of the previous year. Product gross margins increased 16 percentage points and
12 percentage points during the same three and six month periods, 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 decreased 4 percentage points, and
increased 3 percentage points, respectively, for the three and six month periods
ended March 31, 1997, due to increases in revenues and increased overhead
costs during the second quarter, resulting from the purchase of the SES
division.
EXPENSES
Research and development expenses, including engineering, increased
$553,000 and $1,323,000 during the three and six month periods ended March 31,
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.
<PAGE> 10
Selling and Administrative expenses increased $1,351,000 and $2,800,000
during the three and six months period ended March 31, 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 $14,000 and $84,000 during the three and six
month periods ended March 31, 1997, respectively, compared to the same periods
last year. The increase during the six month period results from gains on the
disposal of assets recorded in the prior year.
Domestic interest expense increased $11,000 and decreased $1,000 for
the three and six month periods ended March 31, 1997, respectively, compared
with the same periods last year. These changes are a result of a lower effective
interest rate applied to increased borrowing from the Company's new line of
credit with Imperial Bank, and the issuance of private placement notes.
(See Liquidity and Capital Resources below).
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash resource position remains unchanged. 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 capital expenditure plans that will require aggregate expenditures in excess
of $100,000 over the balance of fiscal 1997.
Net cash provided by operating activities for the six months ended
March 31, 1997 was $883,000. Cash of $309,000 was generated by decreases in
receivables, inventory, and other assets, offset by increases in prepaid
expenses, while decreases in accounts payable, deferred revenue and accrued
expenses consumed $765,000.
Net cash of $1,766,000 was used in investing activities, attributable
to the acquisitions of Liberty and SES.
Financing activities provided net cash of $1,847,000, through the
issuance of $77,000 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. 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. Payments of debt totaled $392,000.
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 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 provide adequate capital
for expansion. At March 31, 1997, the balance of the loan was $1,889,000. The
line of credit contains various covenants and restrictions. At March 31,
<PAGE> 11
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.
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: April 30, 1997 By: /s/ John R. Donnelly
---------------------------
John R. Donnelly
Vice President, Finance
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERNALLY
PREPARED FOR SIX MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FOR PERIOD ENDED MARCH 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,083
<SECURITIES> 0
<RECEIVABLES> 6,182
<ALLOWANCES> 472
<INVENTORY> 4,496
<CURRENT-ASSETS> 12,869
<PP&E> 13,600
<DEPRECIATION> 11,114
<TOTAL-ASSETS> 23,236
<CURRENT-LIABILITIES> 11,286
<BONDS> 0
912
0
<COMMON> 0
<OTHER-SE> 4,162
<TOTAL-LIABILITY-AND-EQUITY> 23,236
<SALES> 5,773
<TOTAL-REVENUES> 19,796
<CGS> 4,552
<TOTAL-COSTS> 12,596
<OTHER-EXPENSES> 6,614
<LOSS-PROVISION> 48
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> 390
<INCOME-TAX> 120
<INCOME-CONTINUING> 270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
