<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 DECEMBER 31, 1999
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 February 7, 2000 there were 11,849,307 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>
DECEMBER 31 SEPTEMBER 30
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 339,000 $ 991,000
Accounts receivable 4,078,000 4,133,000
Inventories 1,653,000 1,770,000
Prepaid expenses and other 322,000 408,000
------------ ------------
Total current assets 6,392,000 7,302,000
Capitalized software 2,040,000 1,725,000
Property and equipment 1,673,000 1,669,000
Goodwill, net of amortization 502,000 292,000
Other assets 171,000 178,000
------------ ------------
TOTAL ASSETS $ 10,778,000 $ 11,166,000
============ ============
LIABILITIES
Current liabilities:
Bank line of credit 2,150,000 2,150,000
Current portion of long-term debt 2,679,000 2,663,000
Accounts payable 3,188,000 2,993,000
Accrued expenses 2,476,000 2,670,000
Deferred revenue 3,234,000 3,616,000
------------ ------------
Total current liabilities 13,627,000 14,092,000
Long-term debt, excluding current portion 4,726,000 4,604,000
------------ ------------
Total Liabilities 18,353,000 18,696,000
------------ ------------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock 1,172,000 1,160,000
Additional paid-in capital 46,865,000 46,802,000
Accumulated deficit (55,501,000) (55,280,000)
Accumulated other comprehensive
income (211,000) (212,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (7,675,000) (7,530,000)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 10,778,000 $ 11,166,000
============ ============
</TABLE>
2
<PAGE> 3
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
DECEMBER 31
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Sales - Product $ 3,382,000 $ 3,112,000
Sales - Service revenue 3,264,000 4,654,000
------------ -----------
TOTAL SALES 6,646,000 7,766,000
Cost of sales - Product 1,841,000 2,245,000
Cost of sales - Service 1,782,000 2,259,000
------------ -----------
TOTAL COST OF SALES 3,623,000 4,504,000
------------ -----------
GROSS PROFIT 3,023,000 3,262,000
------------ -----------
COSTS AND EXPENSES:
Selling and administrative 2,620,000 2,391,000
Research and development 340,000 267,000
Depreciation 57,000 145,000
Amortization of goodwill 11,000 146,000
Other, net (14,000) (14,000)
------------ -----------
3,419,000 2,935,000
------------ -----------
OPERATING (LOSS)/INCOME 9,000 327,000
Interest income
Interest expense (226,000) (169,000)
------------ -----------
(LOSS)/INCOME BEFORE INCOME TAXES (217,000) 158,000
Provision for income taxes 4,000 1,000
Net (loss)/income $ (221,000) $ 157,000
============= ===========
NET (LOSS) INCOME PER SHARE:
BASIC $ (0.02) $ 0.02
FULLY DILUTED $ (0.02) $ 0.02
============= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 11,641,310 9,312,035
FULLY DILUTED 11,641,310 9,312,035
</TABLE>
3
<PAGE> 4
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
DECEMBER 31
--------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
---------------- ----------------
<S> <C> <C>
NET INCOME (LOSS)
$(221,000) $ 157,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 212,000 291,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 55,000 (429,000)
Inventories 117,000 103,000
Prepaid expenses 86,000 249,000
Other assets 7,000 (74,000)
Increase (decrease) in:
Accounts payable 195,000 877,000
Deferred revenue (382,000) (552,000)
Accrued expenses 103,000 (619,000)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES (172,000) 3,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (273,000)
Purchase of property, plant and equipment (9,000) (14,000)
Proceeds from disposal of assets
Capitalized software costs (456,000)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (738,000) (14,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -0-
Proceeds from issuance of debt -0-
Principal payments on notes debt (87,000) (155,000)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES (87,000) (155,000)
--------- ---------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (1,000) 140,000
Net decrease in cash and equivalents (652,000) (26,000)
Cash and equivalents, beginning of period 991,000 856,000
--------- ---------
Cash and equivalents, end of period 339,000 830,000
========= =========
Cash paid during the period for:
Interest $ 208,000 $ 157,000
========= =========
Income taxes 4,000 1,000
========= =========
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE> 5
GENERAL AUTOMATION, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - INVENTORY
Inventories at December 31, 1999 consisted of the following:
Material and purchased sub-assemblies $ 626,000
Support systems, spare parts and sub-assemblies, net 1,242,000
Work in process 48,000
Finished goods 21,000
Less: Allowance for obsolescence (284,000)
----------
Total Inventory $1,653,000
==========
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 - RESEARCH AND DEVELOPMENT EXPENSE
During the quarter ended December 31, 1999 the Company capitalized costs
associated with the development of software in accordance with FAS 86. Software
development costs are charged to research and development costs until technical
feasibility is reached. Cost to develop the software after that period is
capitalized until the product is released for general distribution in sales.
NOTE 4 - 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 5 - 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.
Notes - 1
<PAGE> 6
NOTE 6-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 period ended December 31, 1999. 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:
December 31, 1999
-----------------
Weighted average common shares used in computation of basic
earnings per share 11,641,310
Effect of dilutive securities: Common stock options *
Weighted average common and common-share equivalents used in
computation of diluted earnings per share 11,641,310
- -----------------
*Excluded since the effect is anti-dilutive
Notes - 2
<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.
Subsequent to the quarter ended December 31, 1999 the Company announced its
plans to change its corporate name. The company will operate under the dba
GAeXpress (TM) (pronounced G-A-E-express) until shareholders formally approve
the name change, which will be sought and announced during the first calendar
quarter of 2000. GA's wholly owned subsidiary, Liberty Integration Software, is
also changing its name to GAeXpress combining all of General Automation's
MultiValue business solutions with the products from Liberty. This will provide
customers with robust, powerful MultiValue database systems and ePath migration
tools, enabling customers to use their MultiValue investment for e-Commerce.
MultiValue is a hierarchical database management system that runs on a wide
variety of hardware and operating system platforms. Known for reliability and
power, MultiValue databases are used by businesses that require a robust
database solution without the support staff needed for larger database
applications.
A good portion of the world's businesses use MultiValue database products. These
products have long been the workhorses of many markets, but have limitations
when it comes to sharing data with some mainstream software programs. The
Company's new ePath strategy has been devised to help solve a growing crisis for
MultiValue users by enabling them to perform e-Commerce in the new,
Internet-driven economy.
Also subsequent to the quarter ended December 31, 1999, the Company announced
the release of its next-generation solutions software products. These products
are designed to not only enhance the Company's existing database offerings, but
to provide a data migration path that allows MultiValue-based systems to share
critical data with other current platforms, applications and e-Business
environments. Under its Universal Data Access Products umbrella (UDA), the
company plans a calendar Q1 2000 product rollout to include an expanded tool set
supporting ODBC, JDBC and OLE-DB technology.
Further supporting the ePath, the Company plans to unveil a set of new XML
developer tools for building e-Commerce transaction systems that enable secure,
fast interchange of data with trading partners over the Web. Like all GAeXpress
middleware solutions, the Universal Data Access Products suite will be based on
open standards and supports a variety of MultiValue implementations, including
D3, UniVerse and UniData as well as mv.BASE and mv.ENTERPRISE from GAeXpress.
5
<PAGE> 8
(1) MATERIAL CHANGES IN FINANCIAL CONDITION:
Virtually all-key financial ratios on the Company's balance sheet continue to
reflect a strained financial condition. At the quarter ended December 31, 1999
the Company reports a negative working capital position of approximately $7.2
million and a negative shareholder's equity of $7.3 million. This condition is
primarily unchanged from the year ended September 30, 1999. Due to its
ill-liquid state the Company continues to seek outside sources of capital and a
new primary bank (see Subsequent Events below). Management believes that with
the funds obtained subsequent to the quarter ended December 30, 1999 and with
cash generated from on-going operations, there is sufficient cash flow to
sustain daily operations for the foreseeable future.
During the quarter December 31, 1999 the Company's Australian subsidiary
completed the acquisition of a small company in Australia. While this small
acquisition positions the Australian subsidiary well within new market niches,
the Company does not expect the acquisition to have a material affect on
consolidated assets or income from operations. It is this acquisition which is
giving rise to total goodwill during this same quarter.
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. In this regard, Management will seek ways of improving liquidity,
working capital and debt to equity measurements through means that could be
available.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS:
For the three months ended December 31, 1999 the Company reported a marginal
operating profit of $9,000 on total revenues of $6,646,000, versus an operating
profit of $327,000 on total revenues of $7,766,000 for the quarter ended
December 31, 1998. While product revenues reflect an approximate 8% increase
from 1998 to 1999, service revenues for the same period declined by over 29%.
The Company has been experiencing this decline in service contract revenue for
the past several quarters and expects that declining trend to continue in the
future as the focus of the Company's on-going business leans towards more
software sales and e-commerce solutions, versus service sales. It is the focus
on higher-margin software sales, reflected in the increase in product revenues
that has resulted in the improved gross profit margin from 42% in 1998 to 48% in
1999. Software sales totaled $1,600,000 for quarter ended December 31, 1999
versus $260,000 in the 1998 quarter. Hardware sales from the quarters ended
December 31, 1998 to December 31, 1999 were $2,850,000 versus $1,400,000
respectively. This decline in hardware sales is consistent with management's
expectations, and due to lower computer costs. Also contributing to the improved
gross margin is lower royalty expense related to the year-end settlement with
Boundless as reported in SEC Form 10-K for September 30, 1999.
As discussed above, the Company has made a significant commitment towards
entering the e-commerce arena and developing internet strategies for businesses.
The investment required to launch this effort is reflected in the increase in
Selling and Administrative expenses from 1998 to 1999. Marketing costs, in
particular, related to the proposed name-change, strategy and direction, as
well as the marketing and packaging of new XML and web-enabling products totaled
in excess of $500,000 for quarter ended December 31, 1999. None of these costs
were incurred during the quarter ended December 31, 1998. As a percentage of
total sales, selling and administrative costs in 1999 were 45.5% versus 30.8% in
1998; again the result of increase marketing and selling combined with the
decline in total revenues in 1999. Research and development costs increased by
approximately 30% in 1999 over 1998 and the Company capitalized software
development costs totaling $460,000 in accordance with FAS 86. Management
anticipates that further investments throughout fiscal 2000 and beyond will be
required to develop and implement the e-commerce strategy.
Increased interest expense during the first quarter of 1999 over the same
quarter in 1998 contributed to the net loss of $221,000 versus a net profit of
$157,000 in 1998. This increase in interest expense is directly related to the
subordinated debt of $3.150 million at December 31, 1999, which carries an
interest rate of 10% per annum.
6
<PAGE> 9
SUBSEQUENT EVENTS:
- ------------------
Subsequent to the quarter ended December 31, 1999 the company completed an
offering in which an aggregate 1,125,000 shares of restricted common stock was
sold to a group of private investors at a price of $0.80 per share. The
transaction resulted in $900,000 in net proceeds available to the Company for
daily operations. Also subsequent of the quarter ended December 31, 1999, the
Company issued subordinated convertible notes totaling $500,000 the proceeds of
which were used to retire other debt totaling $500,000 related to completed
business acquisitions from 1996 and settled on September 30, 1999. The
subordinated debt has a 10% interest rate attached with a conversion price of
$0.73 per share. The issue also has warrants attached to purchase an additional
63,000 shares of stock at $0.45 per share.
In the Form 10-K for the year ended September 30, 1999 it was reported that the
Company was in default with its primary bank, Comerica Bank. Subsequent to the
quarter ended December 31, 1999 the bank made demand for payment of the line by
March 31, 2000. Management is currently working with another lender to replace
the credit facility with Comerica and expects to have the matter resolved on or
before March 31, 2000. However, should the Company be unable to get approval
from another lender or otherwise payoff Comerica, the daily operations of the
Company could be adversely affected.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
N/A
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
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule
7
<PAGE> 10
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 CHRISTIE February 14, 2000
- ------------------------------------ ---------------------
Jane Christie Date
President and Chief Executive Officer
/s/ RICHARD A. NANCE
- ------------------------------------ February 14, 2000
Richard H. Nance ---------------------
Vice President and Chief Financial Officer Date
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERNALLY
PREPARED FOR THREE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE PERIOD ENDED DECEMBER 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 339,000
<SECURITIES> 0
<RECEIVABLES> 4,505,000
<ALLOWANCES> (427,000)
<INVENTORY> 1,653,000
<CURRENT-ASSETS> 6,392,000
<PP&E> 5,767,000
<DEPRECIATION> (4,094,000)
<TOTAL-ASSETS> 10,778,000
<CURRENT-LIABILITIES> 13,727,000
<BONDS> 0
0
0
<COMMON> 1,172,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,778,000
<SALES> 3,382,000
<TOTAL-REVENUES> 6,646,000
<CGS> 1,841,000
<TOTAL-COSTS> 3,623,000
<OTHER-EXPENSES> 2,975,000
<LOSS-PROVISION> 39,000
<INTEREST-EXPENSE> 226,000
<INCOME-PRETAX> (217,000)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (221,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (221,000)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
