<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
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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 92614
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code: (949) 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: No [ ] Yes [X]
As of August 4, 2000 there were 13,648,807 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 (UNAUDITED)
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JUNE 30, SEPTEMBER 30,
2000 1999
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ASSETS
Current Assets:
Cash $ 161,000 $ 991,000
Accounts receivable 2,109,000 4,133,000
Inventories 1,508,000 1,770,000
Prepaid expenses and other 353,000 408,000
------------ ------------
Total current assets 4,131,000 7,302,000
Capitalized software 2,549,000 1,725,000
Property and equipment 1,678,000 1,669,000
Goodwill, net of amortization 446,000 292,000
Other assets 282,000 178,000
------------ ------------
TOTAL ASSETS $ 9,086,000 $ 11,166,000
============ ============
LIABILITIES
Current liabilities:
Bank line of credit 2,143,000 2,150,000
Current portion of long-term debt 2,427,000 2,663,000
Accounts payable 2,611,000 2,993,000
Accrued expenses 2,212,000 2,670,000
Deferred revenue 3,163,000 3,616,000
------------ ------------
Total current liabilities 12,556,000 14,092,000
Long-term debt, excluding current portion 5,190,000 4,604,000
------------ ------------
Total Liabilities 17,746,000 18,696,000
------------ ------------
SHAREHOLDERS' DEFICIT
Common stock 1,348,000 1,160,000
Additional paid-in capital 48,156,000 46,802,000
Accumulated deficit (57,854,000) (55,280,000)
Accumulated Other Comprehensive Income:
Foreign currency translation adjustment (310,000) (212,000)
------------ ------------
TOTAL SHAREHOLDERS' DEFICIT (8,660,000) (7,530,000)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 9,086,000 $ 11,166,000
============ ============
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GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
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Sales - Product $ 2,462,000 $ 4,120,000 $ 9,192,000 $ 11,128,000
Sales - Service revenue 2,357,000 3,204,000 7,897,000 11,530,000
---------------------------- ----------------------------
TOTAL SALES 4,819,000 7,324,000 17,089,000 22,658,000
---------------------------- ----------------------------
Cost of sales - Product 1,454,000 2,017,000 5,625,000 6,063,000
Cost of sales - Service 1,358,000 2,222,000 4,701,000 6,616,000
---------------------------- ----------------------------
TOTAL COST OF SALES 2,812,000 4,239,000 10,326,000 12,679,000
---------------------------- ----------------------------
GROSS PROFIT 2,007,000 3,085,000 6,763,000 9,979,000
---------------------------- ----------------------------
COSTS AND EXPENSES:
Selling and administrative 2,622,000 2,562,000 7,499,000 7,640,000
Research and development 398,000 (70,000) 950,000 534,000
Depreciation 51,000 131,000 165,000 420,000
Amortization of goodwill 10,000 162,000 31,000 455,000
Other, net (32,000) (26,000) (27,000) (156,000)
---------------------------- ----------------------------
3,049,000 2,759,000 8,618,000 8,893,000
---------------------------- ----------------------------
OPERATING INCOME/(LOSS) (1,042,000) 326,000 (1,855,000) 1,086,000
Interest expense (264,000) (238,000) (694,000) (578,000)
---------------------------- ----------------------------
INCOME/(LOSS) BEFORE INCOME TAXES (1,306,000) 88,000 (2,549,000) 508,000
Provision for income taxes 20,000 -- 24,000 91,000
---------------------------- ----------------------------
NET INCOME/(LOSS) $ (1,326,000) $ 88,000 $ (2,573,000) $ 417,000
============================ ============================
NET INCOME (LOSS) PER SHARE:
BASIC AND DILUTED $ (0.10) $ 0.01 $ (0.21) $ 0.04
============================ ============================
WEIGHTED AVERAGE SHARES
BASIC AND DILUTED 13,483,307 9,332,641 12,482,769 9,332,641
============================ ============================
</TABLE>
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GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
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FOR THE NINE MONTHS ENDED
JUNE 30,
-----------------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $(2,573,000) $ 417,000
Adjustments to reconcile net income to net cash
Cash provided by operating activities:
Depreciation and amortization 893,000 875,000
Gain from disposal of assets -- (56,000)
Embedded interest 22,000 --
Stock issued in legal settlement 75,000 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 2,024,000 (864,000)
Inventories 262,000 415,000
Prepaid expenses 55,000 424,000
Other assets (104,000) 455,000
Increase (decrease) in:
Accounts payable (382,000) 1,601,000
Deferred revenue (453,000) (743,000)
Accrued expenses (158,000) 1,341,000)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES (339,000) 1,183,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (273,000) --
Purchase of property, plant and equipment (152,000) (195,000)
Proceeds from disposal of assets -- 56,000
Capitalized software costs (1,548,000) (496,000
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,973,000) (635,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,445,000 --
Proceeds from issuance of debt 500,000 --
Proceeds from extinguishing of debt 216,000
----------- -----------
Principal payments on notes debt (365,000) (519,000)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,580,000 (303,000)
----------- -----------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (98,000) 109,000
Net increase in cash and equivalents (830,000) 354,000
Cash and equivalents, beginning of period 991,000 856,000
----------- -----------
Cash and equivalents, end of period 161,000 1,210,000
=========== ===========
Cash paid during the period for:
Interest $ 640,000 $ 464,000
=========== ===========
Income taxes 24,000 6,000
=========== ===========
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4
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GENERAL AUTOMATION, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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Note 1 - Inventory
Inventories consists of the following at June 30, 2000:
Material and purchased sub-assemblies $ 468,000
Support systems, spare parts and subassemblies, net 1,274,000
Work in process 24,000
Finished goods 28,000
Less: Reserves (286,000)
----------
Total Inventory $1,508,000
==========
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Note 2 - Deferred Revenue
Revenues for sales and the associated cost of goods sold are recognized when
product is shipped and no significant obligation remains. Revenues for
maintenance service contracts are recognized on a monthly basis ratable over the
period of the contracts. Cash payments received and billings in advance of
revenue recognition are recorded as a liability and recognized as revenue is
earned over the life of the contracts.
Note 3 - Use of Estimates
The preparation of consolidated financial statements in conformity with general
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 4 - Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring items) considered
necessary for a fair presentation have been included. Operating results for the
interim period are not necessarily indicative of the results that may be
expected for the fiscal year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K.
5
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Note 5 - Earnings Per Share
The Financial Accounting Standard Board has issued Statement No. 128, "Earnings
per Share" which supersedes APB Opinion No. 15. Statement No. 128 requires the
presentation of basic and diluted earnings per share amounts. Diluted per share
amounts assume the conversion, exercise or issuance of all potential common
stock instruments unless the effect is to reduce a loss or increase the income
per common share from continuing operations. The Company has adopted Statement
No. 128 for the periods ended June 30, 2000. All prior earnings per share
amounts have been restated to conform to the new Statement.
The weighted average number of common shares and common share equivalents
outstanding during the three-month period used to compute basic and diluted
earnings per share is as follows:
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June 30, June 30,
1999 2000
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Weighted average common shares used
in computation of basic earnings per share 9,332,641 13,483,307
Effect of dilutive securities:
Common stock options
Weighted average common and common-
share equivalents used in computation of
diluted earnings per share 9,332,641 13,483,307
</TABLE>
*Excluded since the effect is anti-dilutive
6
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GENERAL AUTOMATION, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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. Items which could affect
results expected include product acceptance, timely releases of new products,
liquidity and financial condition of the Company.
(1) MATERIAL CHANGES IN FINANCIAL CONDITION:
At the quarter ended June 30, 2000 the financial condition of the Company
remains strained with signs of deterioration. The Company's net working capital
deficit grew from a negative $6.8 million at September 30, 1999 to a negative
$8.4 million at June 30, 2000. Total shareholder deficit also grew from $7.5
million at September 30, 1999 to a negative $8.7 million at June 30, 2000
reflecting the losses reported year to date.
The Company continues to consider fundamental balance sheet management and
improvement in all of the key financial ratios to be a high priority matter for
the immediate future. The Company has for all of fiscal 2000 been shifting the
focus of its core business from database software sales and related hardware
sales, to a new line of internally developed e-commerce, web-enabling computer
software sales. These products are designed to assist the multi-value customers,
or Pick base customers, to migrate to a web-enabled business strategy for their
future growth in the e-commerce arena. As these products are developed, the
Company's legacy business continues to decline as resources are shifted from
marketing the Pick database products, to the new technology discussed above. As
a result, revenues for the quarter ended June 30, 2000 as well as the year to
date revenues, continue to decline, reflected in the almost 50% decline in the
Company's accounts receivable. The decline in accounts receivable is the most
noteworthy of the change in balance sheet accounts.
Subsequent to the quarter ended June 30, 2000 the Company sold its multi-value
database business and technology to Pick Systems, Inc. of Irvine, CA. On August
2, 2000, General Automation, Inc. ("GA") sold its line of Pick-based database
management products and related assets for $2,500,000 in cash, a Promissory Note
in the principal amount of $500,000 and royalties in an amount equal to 20% of
certain sales made by Pick Systems during the twenty-four month period
commencing August 1, 2000. The Note does not bear interest and is due and
payable in full on December 31, 2000.
The assets sold to Pick Systems consisted of (a) the line of products previously
sold by GA under the names R83, R91, Mentor Operating Environment (MOE), Mentor
PC/OS, mv.Base, mv.Enterprise, mv.PRO, Sequoia PICK, Sequoia PRO, PICK O/A, CIE
PICK and PICK64+; (b) all intellectual property unique to those products,
including trademarks; (c) the service contracts related to those products; (d)
all accounts receivable derived from service contracts pertaining to those
products, and (e) certain other related assets. (see SEC Form 8-K dated August
14, 2000) (see SEC Form 8-K dated August 14, 2000. Management stated in that 8-K
filing that the proforma effect on the Company's financial statements will be
filed at a later date in an amended 8-K filing).
The Company's cash position, and cash-flow from operations continue to be a
concern for management. The Company managed to retire the $2.2 million in debt
owed to its primary lender, Comerica Bank, subsequent to the quarter ended June
30, 2000 from proceeds received from the sale of its database business to Pick
Systems (discussed above). However, the Company will need to raise cash from
outside sources, either through debt or equity transactions, in order to
maintain the liquidity necessary for daily operations. Management continues to
work with lenders and hopes to replace the credit line at Comerica Bank with
another lender, though no assurances can be made that those efforts will prove
successful.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS:
As discussed above, the Company has been shifting resources and efforts to
internally developed proprietary software and away from its database software
for fiscal 2000. As a result, the Company is reporting declines in its revenues
for the quarter ended June 30, 2000 to $4.8 million versus $7.3 million, and for
the nine months ended June 30, 2000 of $17.1 million versus $22.7 million. As
the Company continues to transition to its focus of selling proprietary
web-enabling software, Management expects this declining trend to continue until
those products are marketed and shipped. It is the Company's goal to complete
those marketing and sales efforts in the fourth quarter of fiscal 2000 and into
fiscal 2001, through the exact timing of delivery is uncertain.
7
<PAGE> 8
Cost of sales and the related gross profit margins have remained relatively
unchanged between the comparative periods. On a going forward basis, management
expects those costs and gross margins will improve as high-margin software
sales begin to replace lower-margin hardware and service revenues. As
previously discussed, it is the intention of management to focus its future
business primarily towards software sales.
Costs and Expenses, though showing an increase for the quarter ended June 30,
2000 over the same quarter in 1999, are down for the nine months ended June 30,
2000 versus the nine months ended June 30, 1999. The significant increases for
the current periods are primarily centered in marketing costs (included in the
Selling & Administrative Expenses) and research & development. In previously
filed Forms 10-Q's for fiscal 2000 management indicated that the Company expects
to continue investing in technology and the marketing of that technology as it
enters the e-commerce economy. Management expects that trend to continue
throughout the remainder of fiscal 2000 and into 2001.
The Company is reporting a net operating loss of $1.0 million versus a profit of
$326K for the three months ended June 30, 2000. For the nine months ended June
30, 2000 the total operating loss is reported at $1.9 million versus a $1.1
million profit for the same period in 1999. Total net losses for the three and
nine months periods ended June 30, 2000 is reported at $1.3 ($0.10 per share)
and $2.6 million ($0.21 per share) respectively. Profits of $88K ($.01 per
share) and $417K ($0.04) were reported for the three and nine month comparable
periods in 1999. Management attributes the losses for the current periods to the
previously discussed revenue declines and increased marketing and R&D expense.
8
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
N/A
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
On August 14, 2000 the Company filed Form 8-K, Item 2 - Acquisition or
Disposition of Assets. In that filing, the Company indicated that required
proforma financial statements would be filed via an amended Form 8-K on or about
September 29, 2000.
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.
Registrant
/s/ Jane M. Christie August 18, 2000
------------------------------------- -------------------------------------
Jane M. Christie Date
President and Chief Executive Officer
/s/ Richard H. Nance August 18, 2000
------------------------------------- -------------------------------------
Richard H. Nance Date
Vice President and Chief Financial
Officer
9
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EXHIBIT INDEX
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EXHIBIT
NUMBER DESCRIPTION
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27 FINANCIAL DATA SCHEDULE
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