<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 MARCH 31, 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 May 10, 2000 there were 13,598,807 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 (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
------------ --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 538,000 $ 91,000
Accounts receivable 3,753,000 4,133,000
Inventories 1,599,000 1,770,000
Prepaid expenses and other 350,000 408,000
------------ ------------
Total current assets 6,240,000 7,302,000
Capitalized software 2,494,000 1,725,000
Property and equipment 1,608,000 1,669,000
Goodwill, net of amortization 464,000 292,000
Other assets 141,000 178,000
------------ ------------
TOTAL ASSETS $ 10,947,000 $ 11,166,000
============ ============
LIABILITIES
Current liabilities:
Bank line of credit 2,150,000 2,150,000
Current portion of long-term debt 2,425,000 2,663,000
Accounts payable 2,635,000 2,993,000
Accrued expenses 2,168,000 2,670,000
Deferred revenue 3,628,000 3,616,000
------------ ------------
Total current liabilities 13,006,000 14,092,000
Long-term debt, excluding current portion 5,207,000 4,604,000
------------ ------------
Total Liabilities 18,213,000 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 (56,528,000) (55,280,000)
Accumulated Other Comprehensive Loss:
Foreign currency translation (242,000) (212,000)
adjustment
------------ ------------
TOTAL SHAREHOLDERS' DEFICIT (7,266,000) (7,530,000)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 10,947,000 $ 11,166,000
============ ============
</TABLE>
2
<PAGE> 3
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------- ---------------------------------
2000 1999 2000 1999
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Sales - Product $ 3,348,000 $ 3,896,000 $ 6,730,000 $ 7,008,000
Sales - Service revenue 2,276,000 3,672,000 5,539,000 8,326,000
------------ ----------- ------------ ------------
TOTAL SALES 5,624,000 7,568,000 12,269,000 15,334,000
------------ ----------- ------------ ------------
Cost of sales - Product 2,330,000 1,800,000 4,171,000 4,045,000
Cost of sales - Service 1,561,000 2,135,000 3,343,000 4,394,000
------------ ----------- ------------ ------------
TOTAL COST OF SALES 3,891,000 3,935,000 7,514,000 8,439,000
------------ ----------- ------------ ------------
GROSS PROFIT 1,733,000 3,633,000 4,755,000 6,895,000
------------ ----------- ------------ ------------
COSTS AND EXPENSES:
Selling and administrative 2,258,000 2,628,000 4,877,000 5,004,000
Research and development 212,000 338,000 552,000 605,000
Depreciation 57,000 144,000 114,000 289,000
Amortization of goodwill 10,000 146,000 21,000 293,000
Other, net 18,000 (56,000) 4,000 (56,000)
------------ ----------- ------------ ------------
2,555,000 3,200,000 5,568,000 6,135,000
------------ ----------- ------------ ------------
OPERATING INCOME/(LOSS) (822,000) 433,000 (813,000) 760,000
Interest expense (204,000) (171,000) (430,000) (340,000)
------------ ----------- ------------ ------------
INCOME/(LOSS) BEFORE INCOME TAXES (1,026,000) 262,000 (1,243,000) 420,000
Provision for income taxes -- 90,000 4,000 91,000
------------ ----------- ------------ ------------
NET INCOME/(LOSS) $ (1,026,000) $ 172,000 $ (1,247,000) $ 329,000
============ =========== ============ ============
NET INCOME (LOSS) PER SHARE:
BASIC AND DILUTED $ (0.08) $ 0.02 $ (0.10) $ 0.04
============ =========== ============ ============
WEIGHTED AVERAGE SHARES
BASIC AND DILUTED 12,367,682 9,332,641 11,976,951 9,332,641
============ =========== ============ ============
</TABLE>
3
<PAGE> 4
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MARCH 31
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999
----------- -----------
<S> <C> <C>
NET INCOME (LOSS)
$(1,247,000) $ 329,000
Adjustments to reconcile net income to
net cash
cash provided by operating activities:
Depreciation and amortization 515,000 582,000
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 380,000 (503,000)
Inventories 171,000 86,000
Prepaid expenses 58,000 365,000
Other assets 37,000 246,000
Increase (decrease) in:
Accounts payable (358,000) 1,538,000
Deferred revenue 12,000 (652,000)
Accrued expenses (199,000) (899,000)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES (534,000) 1,036,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (273,000) --
Purchase of property, plant and equipment (59,000) (136,000)
Proceeds from disposal of assets -- 56,000
Capitalized software costs (1,147,000) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,479,000) (80,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,445,000 --
Proceeds from issuance of debt 500,000 --
Principal payments on notes debt (355,000) (403,000)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,590,000 (403,000)
----------- -----------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (30,000) 125,000
Net increase in cash and equivalents (453,000) 678,000
Cash and equivalents, beginning of period 991,000 856,000
----------- -----------
Cash and equivalents, end of period 538,000 1,534,000
=========== ===========
Cash paid during the period for:
Interest $ 365,000 $ 316,000
=========== ===========
Income taxes 4,000 6,000
=========== ===========
</TABLE>
4
<PAGE> 5
GENERAL AUTOMATION, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Inventory
Inventories consists of the following at March 31, 2000:
Material and purchased sub-assemblies $ 520,000
Support systems, spare parts and subassemblies, net 1,298,000
Work in process 32,000
Finished goods 35,000
Less: Reserves (286,000)
----------
Total Inventory $1,599,000
==========
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
<PAGE> 6
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 March 31, 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:
March 31, March 31,
--------- --------
2000 1999
Weighted average common shares used
in computation of basic earnings per share 12,367,682 9,332,641
Effect of dilutive securities:
Common stock options * *
Weighted average common and common-
share equivalents used in computation of
diluted earnings per share 12,367,682 9,332,641
*Excluded since the effect is anti-dilutive
6
<PAGE> 7
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 March 31, 2000 the financial condition of the Company
remains strained. The Company publicly announced a shift in its business focus
from hardware and service to an emphasis on software development geared to the
e-commerce industry. As the transition progresses management continues to invest
heavily in technology development and the marketing of that technology. Though
the Company remains undercapitalized management believes the investment in these
areas are paramount to developing a solid "new economy" business for the future.
The Company considers fundamental balance sheet management and improvement in
all of the key financial ratios to be a high priority matter for the immediate
future. Management has been diligent in seeking capital from outside sources and
during the quarter ended March 31, 2000 was successful in completing the sale of
Rule 144 restricted common stock which raised $900,000. The sale was for
1,125,000 shares of common stock for $0.80 per share. Additionally, the Company
was successful in closing a second round of the September 30, 1999 private
placement during the quarter ended March 31, 2000 which raised an additional
$500,000. Funds from both of these transactions are for working capital and debt
reduction, and were reported in Form 10-Q for the period ended December 31,
1999. Management has also been notified from Boundless Corp., and in accordance
with the agreement entered into on September 30, 1999(see Form 10-K for
September 30, 1999), that Boundless intends to convert their $500,000 note due
from General Automation, Inc. into another closing of that same private
offering. Effectively, this means that the $500,000 short-term note due
Boundless will be rolled into subordinated capital debt and out of current
liabilities. (Also, see Subsequent Events below).
The most noteworthy change in financial condition for the quarter ended March
31, 2000 is in the Company's shareholder's equity section, and in long-term
debt. As discussed above, stock was sold directly by the Company during the 2nd
quarter 2000, and $500,000 in long-term debt was created. Additionally, employee
stock options were exercised during the same quarter which approximated another
$500,000 in stock sales. The combination of these transactions, along with the
results of operations for the quarter quantify the nominal improvement in the
shareholder's equity section from the year ended September 30, 1999.
7
<PAGE> 8
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS:
In the Company's SEC Form 10-Q for the period ended December 31, 1999 the
Company reported a shift in its business focus from service/database business to
a more open e-commerce strategy. To that end the Company's sales and marketing
efforts have focused on the development, promotion and release of proprietary
software in the e-commerce/XML field. During the transition to this field
revenues from the service/database business have begun to decline at a rapid
rate as less effort is made towards developing new business in those areas.
(Also see "Subsequent Events" below). Accordingly, declining revenues for the
three and six month periods ended March 31, 2000 are reported at $5.6 million
and $12.3 million respectively, versus $7.6 million and $15.3 million for the
three and six month periods respectively ended March 31, 1999. Additionally, the
Company signed a distribution agreement with Sun Micro Systems in fiscal 2000
and delivered the first hardware sales of that product during the quarter ended
March 31, 2000. Those sales approximate $1.0 million of the product revenues for
that quarter and include no associated software/service revenues which
management hopes to develop for Sun MicroSystems in the future, though no
assurances can be made that will happen. Because hardware-only sales produce a
low gross-margin benefit, the gross margin for the quarter ended March 31, 2000
was adversely affected as compared to the same quarter 1999, contributing
significantly to the net results of operations for the March 2000 quarter.
Cost of sales for the period ended March 31, 2000 reflects an increase in
relation to total revenues from the same quarter in 1999 with a decline in the
related gross profit margin. In addition to effects of the sale of the Sun
Microsystems hardware discussed above, management attributes these effects to a
shift in sales strategy to the e-commerce business. Sales and marketing effort
are geared toward that arena and away from the database software sales, which
the Company is now attempting to sell-off.(See "Subsequent Events" below).
Because the Company is in the process of transitioning to new products,
Management believes that the low gross margin for the quarter ended March 31,
2000 will improve as higher margin software sales are realized in the near
future and become a larger part of the sales mix.
Total cost and expenses for the three months ended March 31, 2000 are reported
at 20% less than costs for the same period in 1999, and improved by over 9% for
the six month period ended March 31, 2000 over the same six months for 1999.
Management attributes this improvement to efficiencies put into place during all
of 1999 which included down-sizing certain operational areas and by holding down
the number of employees within the Company, mostly through attrition. These
savings are evident even though there has been a significant increase in
marketing costs associated with the launching of the GAeXpress business,
previously reported, and the launching of products associated with that
anticipated business opportunity.
Management attributes the reported loss of $1.026 million versus a profit of
$172 thousand for the three months ended March 31, 2000 and 1999 respectively,
to the decline in revenues and the delivery of lower-margin hardware-sales, as
discussed above, included in those reported revenues. Management expects the
decline in revenues will continue through this transition period, until revenues
are recognized from the sale of recently released e-commerce software.
SUBSEQUENT EVENTS:
Subsequent to the quarter ended March 31, 2000 the Company entered into the
following significant transaction:
1. In May 2000 the Company entered into an agreement with Pick Systems, Inc.
to sell the Company's database software business to Pick for $6.5 million.
Under terms of the proposal,
8
<PAGE> 9
Pick would pay to the Company an immediate $3.0 million in cash, and pay
the remaining $3.5 million over time under terms and conditions to be
agreed upon. Management considers the sale of this portion of the Company's
business to be in line with its strategy of moving away from the database
business into the sale of e-commerce UDA and XML software. The transaction
with Pick Systems is anticipated to give rise to a substantial gain from
the sale of these assets, and is subject to further due-diligence on the
part of Pick. Management can make no assurances the sale will ultimately
close as expected or that the anticipated gain will be realized. The
revenues to be lost from the sale of this business, while approximating
$8.0 million, are, in management's opinion, a contributing factor to losses
sustained by the Company over its recent history, including the current
quarter.
2. The Company entered into a letter of intent with an Allen Capital, LLC., an
investment-banking firm, whereby that firm, for a fee and on a best-efforts
basis, would raise a minimum of $3.5 million and maximum of $10 million in
capital through the sale of 8% convertible preferred stock. The Company
intends to pursue the closing of this transaction which is contingent upon
the completion of a number of due-diligence requirements. Management can
make no assurances that this transaction will ultimately close.
Use of the funds generated from the above transactions, will be used for working
capital and the reduction of debt, including bank debt.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
N/A
9
<PAGE> 10
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
Subsequent to the quarter ended March 31, 2000, the Board of Directors elected
Jane Christie Chairman, President and Chief Executive Officer, succeeding Robert
McClure who remains on the Board.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 -- Financial Data Schedule
Reports on Form 8-K -- None
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 May 17, 2000
- ---------------------------------------------- -------------
Jane M. Christie Date
President and Chief Executive Officer
/s/ Richard H. Nance May 17, 2000
- ---------------------------------------------- -------------
Richard H. Nance Date
Vice President and Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERNALLY
PREPARED FOR SIX MONTHS ENDED MARCH 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10Q FOR THE PERIOD ENDED MARCH 31, 2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 538,000
<SECURITIES> 0
<RECEIVABLES> 4,210,000
<ALLOWANCES> (457,000)
<INVENTORY> 1,599,000
<CURRENT-ASSETS> 6,240,000
<PP&E> 5,738,000
<DEPRECIATION> (4,130,000)
<TOTAL-ASSETS> 10,947,000
<CURRENT-LIABILITIES> 13,006,000
<BONDS> 0
0
0
<COMMON> 1,348,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,947,000
<SALES> 6,730,000
<TOTAL-REVENUES> 12,269,000
<CGS> 4,171,000
<TOTAL-COSTS> 7,514,000
<OTHER-EXPENSES> 5,498,000
<LOSS-PROVISION> 70,000
<INTEREST-EXPENSE> 430,000
<INCOME-PRETAX> (1,243,000)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (1,247,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,247,000)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
