<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
for the fiscal year ended September 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
incorporation or organization) Identification No.)
17731 Mitchell North, Irvine, CA 92614-1595
---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 250-4800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
---------------------------------------
(Title of class)
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 the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of January 8, 2001 was $5,888,506 based on
the average of the bid and asked prices for the Registrant's stock, as traded on
the "Electronic Bulletin Board".
On December 31, 2000 14,721,265 shares of the Registrant's common stock, $.10
par value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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GENERAL AUTOMATION, INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. BUSINESS..................................................... 3
ITEM 2. PROPERTIES................................................... 9
ITEM 3. LEGAL PROCEEDINGS............................................ 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................................... 10
ITEM 6. SELECTED FINANCIAL DATA...................................... 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK... 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................... 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 15
ITEM 11. EXECUTIVE COMPENSATION....................................... 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................... 18
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K..................................................... 19
2
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PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, THAT INVOLVE RISKS AND
UNCERTAINTIES. A NUMBER OF IMPORTANT FACTORS, INCLUDING THOSE CONTAINED BELOW
UNDER THE HEADING "SPECIAL FACTORS", THE TIMELY DEVELOPMENT OF PROPOSED
PRODUCTS, MARKET ACCEPTANCE OF NEW PRODUCTS, ACTIONS BY COMPETITORS AND
CREDITORS, AS WELL AS FACTORS DISCUSSED ELSEWHERE IN THIS REPORT AND IN THE
COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, COULD
AFFECT THE COMPANY'S ACTUAL RESULTS AND CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS.
GENERAL
Historically, General Automation, Inc. ("GA" or the "Company") provided
computer hardware maintenance and software support services to several thousand
end users throughout the United States. The Company also integrates computer
hardware manufactured by other companies with proprietary and non-proprietary
software to meet the requirements of its customers' specific applications, and
installs and supports the integrated systems. The Company also sold a line of
proprietary multivalue database software products, and a line of connectivity
products and middleware products designed to allow easy communication and
transfer of data between multivalue databases and other widely used software
products such as Microsoft products and JAVA products. The Company has also
developed a line of products and software tools that enable e-commerce
standards-based enterprise data access and interchange among trading partners.
Although the Company's operations historically are conducted primarily in the
United States, the Company also conducts operations through subsidiaries in
Canada, Australia and the United Kingdom.
RECENT DEVELOPMENTS
Effective August 2000, the Company sold its proprietary multi-value
database software business to Pick Systems, Inc.(see "Management's Discussion
and Analysis of Financial Condition and Results of Operations"). Additionally,
subsequent to the year ended September 30, 2000, the Company announced its
intention to sell its computer maintenance business to a third party buyer with
an anticipated closure on the transaction to take place on or about January 31,
2001. These combined transactions, historically and on a going-forward basis
account for the largest sources of revenues for the Company. Assuming the sale
of the hardware maintenance business is consummated, the Company will be relying
on sales of software product recently developed and products to be developed. In
accordance with SFAS 16 and APB Opinion 30 both of these transactions are being
treated as "discontinued operations" for purposes of financial reporting.
The Company's principal executive offices are located at 17731 Mitchell
North, Irvine, California, and its telephone number is (949) 250-4800. Unless
the context otherwise requires, the "Company" or "GA" or "GAeXpress" refer to
General Automation, Inc. and its consolidated subsidiaries.
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SPECIAL FACTORS
Readers of this Report should carefully consider, in addition to the
other information contained in this Report, the following:
Going Concern Qualification. The reports of the Company's independent
public accountants on the financial statements of the Company included in this
Report on Form 10-K contain a going concern qualification. (See "Financial
Statements and Supplementary Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations.")
Recent Operating Losses; Deficit Net Worth: The Company has incurred
operating losses in four of its last five fiscal years. There can be no
assurance that the Company will be able to achieve or sustain profitable
operations in the future. As of September 30, 2000, the Company had a deficit
net worth of $7.4 million (See "Financial Statements and Supplementary Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations.")
Working Capital Deficiency; Cash Flow Constraints. As of September 30,
2000, the Company had a material working capital deficiency. Accordingly, the
Company continues to operate under severely restricted cash resources, which
requires that the Company carefully manage and monitor its cash position. (See
"Financial Statements and Supplementary Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations.")
Competition. The Company competes with a number of companies, many of
which have substantially greater financial, technological, marketing and other
resources than the Company. In its service business, the Company's competitors
include Wang, AT&T and IBM. The Company's competitors for the sale of hardware
include Data General Corporation, Digital Equipment Corporation, Hewlett Packard
Company, and IBM. The Company's competitors for software products include Ardent
and Pick Systems. (See "Business - Competition.")
SERVICE AND SUPPORT - DISCONTINUED
GA maintains a high quality service organization dedicated to meeting
the complex hardware and software support requirements of several thousand end
users, and has been delivering highly skilled support services for nearly thirty
years. GA has earned a reputation for excellent quality and responsive service
through an exceptional staff of service professionals, and the Company believes
that this reputation is a key reason that customers with information-critical
applications choose to buy from GA.
GA offers three basic types of service and support, hardware
maintenance services, software support services, and professional services.
Subsequent to the year ended September 30, 2000 the Company announced its
intention to sell the hardware support division. (see "Management's Discussion
and Analysis of Financial Condition and Results of Operations")
Hardware Maintenance
GA provides on-site hardware maintenance services for computer
equipment sold by GA as well as a wide variety of computer systems,
workstations, tape drives, disk subsystems, terminals, communications devices,
printers and other peripherals sold by other companies. These services are
provided primarily by GA employees operating out of one of the Company's field
service offices located throughout the United States. In some areas, however,
the work is performed by subcontractors managed by the Company. Subsequent to
the year ended September 30, 2000 the Company announced its intention to sell
this division. (see "Management's Discussion and Analysis of Financial Condition
and Results of Operations")
Software Support
GA also provides software support services for GA's proprietary
software products as well as the various operating systems on which they run,
such as AIX, UNIX, UnixWare, OS/2, Novell NetWare, Windows 95 - 98, Windows NT
and MS DOS. These services are provided by phone, by remote access to the
customer's system, and on-site, and are provided primarily out of GA's offices
in California, Massachusetts, and New York.
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Professional Services
GA also provides various professional services, including performance
tuning, system upgrade services, technical product training, system design and
site preparation, network design and configuration support, and development of
disaster recovery programs. Contract programming and consulting services are
also offered with expertise in Pick, C, C++, Visual Basic, Microsoft Access, and
Pro-IV.
The Company's hardware maintenance and software support services are
typically provided under agreements, which provide for a fixed fee. These
agreements typically provide that they may not be canceled by either the Company
or the customer during the first year of the agreement, but thereafter may be
canceled by either party on ninety days' notice.
SYSTEM SALES - DISCONTINUED
GA sells complete computer systems which are configured by the Company
(or the value-added resellers through which it sells) to meet the specific
requirements of a particular end user. The hardware components for these systems
are purchased by GA from the standard product offerings of other companies, the
operating system software and proprietary GA software are loaded, the system is
tested, and then delivered to the customer. The Company no longer sells any
proprietary hardware, although some of the hardware sold by the Company is
co-labeled with both the manufacturer's and the Company's name.
The systems offered by the Company include both single processor and
multiprocessor Intel-based systems, as well as PowerPC-based single and
multiprocessor systems. These products feature a broad range of system
solutions, from a low-end, single processor, cost-effective system through an
eight-way multiprocessor enterprise server capable of supporting over 1000
users.
The systems sold by the Company are sold by it directly to the end user
as well as through a group of over 200 value-added resellers. The Company and
its value-added resellers focus their system sales on key vertical markets, such
as healthcare, finance, manufacturing, distribution, government, collection
agencies and insurance. Subsequent to the year ended September 30, 2000 the
Company announced its intention to sell this division. (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations")
PROPRIETARY SOFTWARE - DISCONTINUED
MultiValue Database Software
The Company offered a line of proprietary multivalue database software
products, which are based on the Pick Operating System. The multivalue database
is based on a file structure that is multi dimensional. Some of these products
are designed to run native (without an underlying operating system), while
others are designed to run in concert with various operating systems, including
UNIX, AIX and Windows NT. The Company believes that among the most distinctive
characteristics of its multi-dimensional database products are their relative
ease of use, English-like information management and retrieval language, and the
speed they offer in the handling of large and complex databases. The Company's
proprietary software line is comprised of the following:
mv.BASE - a multivalue database that runs on Windows NT and Windows 95.
mv.ENTERPRISE - a multivalue database that runs on AIX or UNIX.
Power95Plus - a multivalue database that runs on AIX.
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Mentor Pro - a multivalue database and operating system that runs
natively on INTEL compatible PC's.
Each of the foregoing products has been developed by the Company, but
is derived from software developed by Pick Systems. Accordingly, the
Company pays royalties to Pick Systems with respect to these products.
The Company offers its proprietary software products both as a stand
alone product as well as integrated into a system solution.
Effective August 2000 the Company sold all of the above technology,
with the exception of Power95Plus, to Pick Systems, Inc.(see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations"), as well as the related support contracts.
PRODUCTS - CONTINUING OPERATIONS
GA eXpress' product offering is designed for businesses that need the
most flexible and fastest way to implement e-business platforms, and have been
designed with the business programmer in mind.
GA eXpress solutions are easier and faster for business programmers to
learn, develop on and maintain, and while enabling faster implementation and the
flexibility to meet changing e-business requirements. Unlike some very complex
or proprietary tools used today, GA eXpress' solutions are based on
Microsoft-standard Application Programming Interfaces and employ a powerful, yet
easy-to-use and intuitive Graphical User Interface (GUI) to assist in the design
of applications, both in terms of extracting the valuable data from incoming
XML, accessing LOB applications and data, and producing XML to send or reply to
business partners.
Selva Server
Selva (codename) from GA eXpress is a B2B software server that connects
legacy line-of-business applications and databases to e-business exchanges and
trading partners over the Internet. It simplifies and streamlines the process of
configuring and managing inter-business transaction workflow and LOB
connectivity by using XML-based components that are all World Wide Web
Consortium (W3C) standards compliant. It can be customized by everyday business
programmers rapidly, and provides a facility to automatically expose LOB data as
Web Services.
Selva monitors all e-business messages, determines the message type,
executes appropriate translator components so it is in the desire format and
then moves the resulting e-business message throughout the correct process
components to completely satisfy predetermined business rules. Included in the
server products is the Administrator which is a Microsoft Management Console
snap-in that administers the Server and supports "hot updates" allowing the
Administrator to add new e-business functionality without having to shut down
the server. Primary components of Selva include:
Server IDE for Defining
Data Access (DB Doclet)
Senders (SMTP, HTTP(S), FTP)
E-business Integration Server Run Time
Server (Windows NT service)
Transformation XSLT Generator
Business Logic via VB Components
Business Process Flow Administrative Console (MMC snap-in)
With Selva, companies can participate in electronic trading networks
with their business partners, rapidly, and without extensive or complex
programming or customization. Selva is especially beneficial for companies with
a mixed IT systems environment that may include well-established
line-of-business systems that use dissimilar hardware, operating systems, and
databases.
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Companion Tools Bundled with Server
Designer
Designer is a Windows-based tool for defining all aspects of how a
business handles given e-business messages. This is a "point and click" tool
that includes the ability to:
Define Translator components which handle conversions between XML
document standards using XSLT
Define a Pipeline or Process Components for a given e-business message
Build reusable Process Components which encapsulate a portion of the
business logic for processing an e-business message
BizDOM
BizDOM is GA eXpress' Language Extender for XML. It is an ActiveX
control that extends Microsoft compatible programming languages to support a
more productive syntax for expressing business logic involving XML documents
faster and more accurately than previously possible. Supported by languages for
building Process Components in the Designer include Visual Basic, JScript, and
VBScript.
ePath Suite of Products
In addition to the above products that will be used by a wide variety
of businesses in the SME market, GA eXpress also has developed the ePath suite
of products for the MultiValue (PICK) market.
eTools Series
The series of eTools development kits provides the right environment
for maximizing client/server e-commerce, Web transactions, custom
database-to-database applications and other functions of e-business.
eTools XML: eTools XML is a groundbreaking product that migrates
MultiValue data into the XML hierarchical data language, which has received much
attention for its proficiency in dynamic e-business environments.
eTools OLE DB: eTools OLE DB allows businesses that need the highest
database performance to develop MultiValue-access applications that retain the
data's hierarchical nature with Microsoft's OLE DB.
eTools ODBC: eTools OCBC enables quick development of robust
ODBC-compliant applications for Web access or mainstream Windows use that can be
built from PICK/BASIC.
eTools JDBC (Java): With eTools JDBC, business that emphasize Web
browsers, Web servers and UNIX systems can open their MultiValue systems to
Java. Java developers can easily exploit the full capabilities of
object-oriented programming without concern for database syntax.
eDesigner
Available in the ODBC and OLE DB products, eDesigner is an easy-to-use
Windows-based tool for mapping, directing and administering the data and data
paths that are to be utilized by the client system. The output from ODBC
eDesigner can also be used in the Java environment.
Services
GA eXpress' Professional Services group provides a range of custom and
packaged consulting programs in order to help customer build and deploy their
e-business applications. Working with customers to understand their business
goals and issues, the Professional Services group will offer such critical
services as installation and set-up, network infrastructure and application
development, configuration and deployment, hardware and software support,
Internet and web support, analysis and documentation. GA eXpress' team of
consultants are thoroughly trained in the industry's most advanced
standards-based technologies that support e-commerce and have the appropriate
industry certifications. The group provides support for its clients worldwide,
24 hours a day, 7 days a week.
("Windows" is a registered trademark of MicroSoft, Inc.)
FOREIGN OPERATIONS AND EXPORT SALES FROM CONTINUING OPERATIONS
The Company's foreign sales were the majority of total revenues in the
fiscal years reported. These revenues were generated primarily through the sale,
installation and maintenance of computer systems in Australia and the
distribution and support of software in the United Kingdom. (See Notes to the
Company's Financial Statements included in this Report on Form 10-K for
additional information relating to the Company's foreign operations, including
financial information concerning operations by major geographic areas.)
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COMPETITION
The Company faces competition in its three primary areas of business;
software sales, systems sales and service. Companies which General Automation,
Inc. considers its primary competitors in each of the three categories include:
o System sales - IBM, Data General, Digital Equipment Corp. and
Hewlett-Packard.
o Service - Wang, AT&T and IBM.
PRODUCT DEVELOPMENT
Because of rapid technological changes, the market in which the Company
competes requires continuous expenditures to develop and improve its products,
particularly in the area of providing standards-based solutions that enable
e-business and e-partnering. During fiscal 2000, the Company spent approximately
$ 1,000,000 for product research and development, compared to $0 in fiscal 1999
and 1998. Certain development costs relating to computer software are
capitalized in accordance with Statement No. 86 of the Financial Accounting
Standards Board, while all other costs associated with product development are
charged to operations as incurred.
COPYRIGHTS AND TRADEMARKS
The Company holds trademark registrations protecting certain of its
trademarks. The Company's proprietary software products are protected by
copyright. The Company currently has approximately 150 claims against three
patents pending.
BACKLOG
Orders from dealers and other customers for GA's products generally
specify delivery dates of 30 days or less, and the Company rarely receives an
order that has scheduled delivery dates beyond three months. Because of these
order/delivery patterns, the backlog at the end of a period may appear to be low
and is not a significant indicator of future revenues.
The compressed order/delivery cycle mentioned above can result in
period-to-period fluctuations in the Company's revenues since it is dependent
upon short term orders which can be deferred or delayed by the Company's
customers and thereby dramatically influence current period revenues.
EMPLOYEES
As of September 30, 2000, the Company had approximately 130 employees,
95 of whom are employed within the U.S. The Company has never had a work
stoppage and none of the Company's U.S. employees is represented by a labor
union. As discussed earlier, the Company intends to sell its Service Division on
or about January 31, 2001. Management estimates 60-65 employees will go with
that sale, and will have approximately 30-35 employees remaining in the U.S.
operations. Non-U.S. employees will not be affected by the Service Division
sale.
GOVERNMENT REGULATIONS
The Company does not operate a type of business whose activities are
likely to require any special measures to ensure compliance with federal, state
or local provisions relating to protection of the environment. Accordingly, the
Company does not believe that any material capital expenditures will be required
for compliance with such provisions or that such provisions will have any
material effect upon its earnings or competitive position.
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ITEM 2. PROPERTIES
The Company's headquarters and principal operations are located in a
facility of approximately 20,000 square feet in Irvine, California, which the
Company purchased in February 1995. This building was sold subsequent to the
year ended September 30, 2000 and is rented on a month-to-month basis. The
Company also leases an additional 10,000 square feet of space used principally
for shipping/receiving in Irvine, California. The Company's engineering and
support personnel are located in leased facilities in Bohemia Long Island, New
York and Hudson, Massachusetts. The Company also leases space in ten states,
primarily for sales and service offices. The Company's subsidiaries in
Australia, Canada and the United Kingdom also lease their facilities. In
management's opinion, the Company's facilities are adequate for operations in
the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In 1991 a lawsuit was brought against the Company in the Circuit Court
of Cook County, Illinois, County Department, Chancery Division, entitled 520 S.
Michigan Ave. Associates, Ltd. d/b/a Congress Hotel vs. General Automation and
Maxial Systems, Inc., which asserted, among other things, that the Company was
responsible for damages resulting from an allegedly defective computer system
sold by the Company to the Congress Hotel and Convention Center. In December
1999, the Company settled this lawsuit. Under the terms of the settlement, the
Company has paid the plaintiff cash payments totaling $75,000, and has agreed to
pay the plaintiff an additional $225,000, together with interest at the rate of
6.25% per year, in twenty-four equal monthly installments commencing in January
2000. The Company has also issued 125,000 shares of the Company's common stock
to the plaintiff in connection with the settlement. The terms of the settlement
provide that, if the Company defaults in the payment of the monthly installments
referred to above, the plaintiff will be entitled to the entry of judgment
against the Company in the amount of $450,000, less (a) the total of the monthly
payments made by the Company prior to the default giving rise to the entry of
judgment, and (b) if the default occurs after the first anniversary of the
settlement, an amount equal to 60% of the market value, at that time, of the
125,000 shares of the Company's stock issued to the plaintiff in connection with
the settlement. At September 30, 2000 the Company was current and in compliance
with this agreement.
On April 15, 1999, General Automation filed a Complaint in the Orange
County Superior Court against PriceWaterhouseCoopers, LLP, successor to
PriceWaterhouse, which was General Automation's independent auditors from 1991
through 1996. The action asserts that PriceWaterhouse was negligent in its
audits of General Automation's financial statements and procedures, resulting in
substantial reporting errors which were only uncovered after PriceWaterhouse was
replaced as the Company's independent auditors in 1997. General Automation seeks
general and punitive damages, including its audit expenses, and losses resulting
from its reliance upon the inaccurate financial statements. Subsequent to the
year ended September 30, 2000 this suit was resolved.
In the ordinary course of business, the Company is from time to time
involved in various pending or threatened legal actions. The litigation process
is inherently uncertain and it is possible that the resolution of such matters
might have a material adverse effect upon the financial condition and/or results
of operations of the Company. However, in the opinion of the Company's
management, matters currently pending or threatened against the Company are not
expected to have a material adverse effect on the financial position or results
of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR THE COMPANY'S COMMON STOCK
The Company's common stock is quoted on the "Electronic Bulletin
Board."
The following table sets forth the high and low bid prices of the
Company's common stock of the Company's common stock for each of the periods
indicated as reported on the "Electronic Bulleting Board".
Bid Prices
------------------
Fiscal Year Ended September 30, 1999 High Low
---- ---
First Quarter 1.00 .15
Second Quarter .76 .20
Third Quarter .90 .53
Fourth Quarter .87 .47
Bid Prices
-------------------
Fiscal Year Ended September 30, 2000 High Low
---- ---
First Quarter .88 .54
Second Quarter 4.63 .60
Third Quarter 2.72 1.00
Fourth Quarter 1.04 .63
DIVIDEND POLICY
The Company has never paid a dividend on its common stock. Given the
Company's present financial condition, the Company does not expect to pay any
dividends in the foreseeable future.
RECORD HOLDERS
The approximate number of holders of record of GA's outstanding common
stock as of December 15, 2000 was 900.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial data for the Company for each of the years ended September 30, 2000,
1999, 1998, 1997 and 1996, which has been derived from audited financial
statements. The following table should be read in conjunction with (a) the
audited consolidated financial statements of the Company and notes thereto as of
and for the three years ended September 30, 2000; and (b) "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
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YEAR(S) ENDED SEPTEMBER 30 (NOTE 1,2 & 3)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999 1998 1997(2) 1996(3)
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 5,070 $ 4,731 $ 5,148 $ 4,586 $ 0
Income (loss) from
continuing operations (2,463) (18) (616) 306 0
Income (loss) from
discontinued operations 373 (2,732) (11,783) (820) 275
Extraordinary Gain 0 3,505 -0- -0- -0-
Net income (loss) (2,090) 791 (12,399) (514) 275
Basic and diluted
Net income (loss) per share $ (0.16) $ 0.08 $ (1.33) $ (.06) $ .03
BALANCE SHEET DATA:
Working capital (deficiency) (5,288) (5,712) (5,214) (2,385) (865)
Total assets 5,202 6,396 5,339 5,002 2,640
Long-term obligations 5,171 4,604 2,210 3,269 1,072
Shareholders' equity (deficit) (7,392) (7,530) (7,927) 2,688 703
</TABLE>
--------------
(1) No dividends have been paid on the Company's common stock during any of the
periods presented. (See "Market for the Company's Common Equity and Related
Stockholder Matters.")
(2) Effective October 11, 1996, the Company acquired substantially all of the
assets and liabilities of Sequoia Enterprise Systems ("SES"), a division of
Sequoia Systems, Inc. The acquisition of SES has been accounted for under
the purchase method of accounting. Accordingly, the financial information
for the year ended September 30,1997 includes the results of operations
from the date of the acquisition. (See Note 3 of the Company's Financial
Statements.)
(3) Effective May 22, 1995, the Company and Boundless Technologies, formerly
known as SunRiver Data Systems ("Boundless"), formed a limited liability
company ("GAL") for the purpose of combining GA's Pick based business and
Boundless' Pick based business, with the Company owning 51% and Boundless
owning 49% of GAL.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, THAT INVOLVE RISKS AND
UNCERTAINTIES. A NUMBER OF IMPORTANT FACTORS, INCLUDING THOSE CONTAINED ABOVE
UNDER THE HEADING "SPECIAL FACTORS", THE TIMELY DEVELOPMENT OF PROPOSED
PRODUCTS, MARKET ACCEPTANCE OF NEW PRODUCTS, ACTIONS BY COMPETITORS AND
CREDITORS, AS WELL AS FACTORS DISCUSSED ELSEWHERE IN THIS REPORT AND IN THE
COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, COULD
AFFECT THE COMPANY'S ACTUAL RESULTS AND CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS.
DISCONTINUED OPERATIONS
On August 2, 2000 the Company sold its database software business
division to Pick Systems, Inc.
Subsequent to the year ended September 30, 2000 the Company announced
its decision to sell its maintenance contract business and scheduled for
completion on or about January 31 , 2001. In accordance with SFAS 16 and APB
Opinion 30, both of these transactions are being treated as discontinued
operations.
OVERVIEW
The Company has been aggressively pursuing a strategy of shedding what
management considers non-strategic business units. In this regard, with the
exception of results from its foreign subsidiaries has effectively sold off its
historic sources of revenues; database software and maintenance service
contracts. It is the intention of management to replace these lost revenues with
sales generated from its e-path product suite and its "selva" server product.
While the e-path suites have been released for sale, the selva line is expected
to be released into alph/beta stages during the second quarter of fiscal 2001.
Seriously under-capitalized and illiquid, the Company continues seeking
funds from outside sources, and selling assets to finance the development and
marketing of its software lines. Subsequent to the year ended September 30, 2000
the Company sold its corporate headquarters building to generate cash and reduce
debt. Additionally, and as discussed above, the Company intends to sell its
service division which management considers non-strategic to the long term
growth of company operations.
RESULTS OF OPERATIONS
Revenues reported for the periods ended September 30, 2000, 1999 and
1998 from continuing operations are relatively flat, and are being generated
mostly from the Company's foreign subsidiaries in Australia and the UK. The
Company expects no material changes in the revenues from its foreign
subsidiaries, but would expect revenues to grow during fiscal 2001 as its new
product lines are released and marketed in the US operations. If the Company is
unable to complete work on this new technology and market it in a timely
fashion, management expects revenues and the results of operations would remain
relatively unchanged in the near future.
Cost of sales for the periods reported reflect an increase in fiscal
2000 versus 1999 and 1998. The Company expects that as it moves more into
high-margin software sales being generated from US operations, the gross margin
should improve over-all.
12
<PAGE> 13
Total operating expenses, while fairly stable from 1998 to 1999, show a
dramatic increase for the year ended September 30, 2000. This increase is
centered primarily in an increase of $1,000,000 in research and development
costs and, to a smaller degree, impairment of goodwill associated with the
Australian subsidiary. As discussed, the Company has been working on
substantially newer software products which are in various stages of
development. The Company expects R&D expenses will continue to climb in the
foreseeable future as products are being developed.
Losses from discontinued operations contribute significantly to the net
losses reported. The net income reported for fiscal 1999 includes an
extraordinary gains from debt settlements of $3.5 million, and the reported loss
in fiscal 2000 includes a gain on disposal of $4.1 million. On a going-forward
basis, management expects losses will continue to be reported for the
foreseeable future, or at least until its Selva product is completed and
released.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company was and remains critically short on
cash and cash flow. The Company has no plans for any capital expenditures and
continues to focus on raising funds from outside sources to finance daily
operations. While total liabilities have declined between the reporting periods,
the Company's working capital and net equity positions are significantly in the
negative.
Subsequent to the year ended September 30, 2000 the Company paid in
full its outstanding bank line of credit, and sold its corporate office building
allowing the Company to reduce debt further. However, the Company will still
have to raise funds from outside sources, with as debt or equity, in order to
meet its obligations and continue to operate.
FORWARD OUTLOOK
This forward outlook section contains a number of forward-looking
statements, all of which are based on current expectations. Actual results may
differ materially. These statements do not reflect the potential impact of any
future mergers or acquisitions. These forward-looking statements contain a
number of risks and uncertainties. These could include delays and complications
in developing new technology and software, lack of liquidity and other financial
concerns, as well as customer acceptance and market constraints.
The Company continues to believe its future lies with its ability to
undertake and complete an expanded strategic direction, called "ePath," in the
year 2001 and beyond. General Automation, which had been recognized as a leading
provider of enterprise-wide database business solutions and data migration tools
for the multivalue market, believes its expanded strategy will help solve a
growing crisis for its customers by enabling them to perform e-commerce in the
new, Internet-driven economy.
The release of its e-path suite, and the continuing development of its
selva server line will be critical for the future of the Company. Until those
events materialize, the Company will rely on cash generated from the sale of
assets and the operations of its foreign subsidiaries, and continue seeking
sources of funds.
GOING CONCERN COMMENT AND MANAGEMENT'S PLAN OF ACTION
The Company's independent auditors' reports for the years ended
September 30, 1998, 1999 and 2000 contain a "going concern" matter of special
emphasis paragraph. The primary steps which management will focus on in the
immediate future to address this concern include:
o The Company's credit line balance of $275,000 at the year ended
September 30, 2000 with Comerica Bank was paid in full subsequent to
the yearend.
o Subsequent to September 30, 2000, the Company sold its corporate
headquarters building in Irvine, CA for $2,500,000 and paid off all
debt against that property totaling approximately $1,850,000. The
gain on the sale of the building will be recognized in fiscal year
2001.
13
<PAGE> 14
o Management plans to re-negotiate with holders of the existing
subordinated convertible debt totaling approximately $3.9 million
terms and conditions which the Company can better meet in the
future. The Company may be unable to comply with all the covenants
and conditions of the subordinated convertible debt. Management is
in discussions with the debt holders attempting to secure more
favorable terms. There can be no assurance that management will be
successful in these negotiations.
o Subsequent to the year ended September 30, 2000 management entered
into negotiations to secure short-term financing approximately $1.5
- 2 million under terms and conditions to be agreed upon. There can
be no assurances that this funding will ultimately materialize.
o In a proxy filed subsequent to September 30, 2000, the Company
announced its intention to sell its service division. Management
plans to pay most of its outstanding trade debts at the close of
that transaction and hopes to retain enough cash post-closing of the
transaction to fund the continuing operations. Management can make
no assurances the sale will close or that the cash position planned
for will materialize.
o The Company is currently negotiating material contracts for the sale
of its e-path products to customers which management believes will
provide additional liquidity for operations. There can be no
assurances these contracts will ultimately materialized.
o Continue to expand its B2B software development and distribution
plan and "Selva" product line.
EFFECTS OF INFLATION
SFAS 89 - Financial Reporting and Changing Prices, requires disclosures
about changing prices and inflation which Management deems material to an
understanding of the Company. In this regard, and as discussed above, rapid
advances in technology leads to greater opportunities for a customer base to
continually upgrade their systems and software at a lower cost to that customer.
This lower cost to a customer is translated to lower revenue for companies in
the computer industry, including General Automation. Additionally, the related
revenues associated with maintenance contracts for product and service are
clearly subject to declines as a result of these lower costs. General Automation
has taken steps to partially offset these declines by increasing and
strengthening the inside sales force in order to seek and capture more business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not use derivative financial instruments in its
non-trading investment portfolio. Cash reserves, when available are placed in
financial instruments that meet high credit quality, typically money market
accounts. The Company does not expect any material loss with respect to its
investment portfolio.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed as a part of this report
on Form 10-K:
Page
----
REPORTS OF INDEPENDENT ACCOUNTANTS 23
Consolidated Balance Sheets at September 30, 2000, and 1999 24
Consolidated Statements of Operations for the three years in the period
ended September 30, 2000 25
Consolidated Statements of Stockholder's Equity (deficit) for the
three years in the period ended September 30, 2000 26
Consolidated Statements of Cash Flows for the three years in the period
ended September 30, 2000 27-28
Notes to Consolidated Financial Statements 29
14
<PAGE> 15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the directors and executive officers of the Company:
Name Age Position(s) with the Company
---- --- ----------------------------
Jane M. Christie 49 Chairwoman, President, Chief Executive
Officer, Director
Robert D. Bagby 68 Vice Chairman of the Board, Director
Robert M. McClure 67 Director
Nathan Bell(*) 40 Director
Andrew Dumke(*) 41 Director
Richard H. Nance 52 Executive Vice President Finance, Chief
Financial Officer, Secretary & Treasurer
Jane M. Christie, president and chief executive officer, joined the
company in 1979 and was elected to the board in 1997. In this role, she
spearheaded the acquisitions of Liberty Integration Software and Sequoia
Enterprise Systems. She was appointed to her current position in May 1996 and in
May of 2000, she was appointed chairman of the Board. In August 1995, she became
an officer in the company and was named senior vice president of sales,
marketing and service. Eight years prior, she was made responsible for the
company's services division, where she doubled its size every year during her
tenure. Christie also worked for two computer services companies during her
career. She served as director of services administration for Sorbus and
operated as director of services for First Data Resources. Ms. Christie holds a
Bachelor of Science in Business Administration.
Robert D. Bagby has been a director of the Company since September
1989. From 1987 to 1994, Mr. Bagby was the Company's Vice President of
Operations. In February 1994, he was appointed President and Chief Operating
Officer, and in October 1994 he was appointed Chief Executive Officer. In May
1996, he was appointed Vice Chairman of the Board of Directors and resigned his
positions as President, Chief Operating Officer and Chief Executive Officer.
Robert M. McClure has been a director of the Company since April 1994.
Dr. McClure is the President of Unidot, Inc., which he founded in 1979 to
specialize in the design of sophisticated computer software and hardware. Dr.
McClure also serves as a director of The Santa Cruz Operation, Inc. and IPT
Corporation.
Nathan Bell has been a director of the Company since September 1999.
Mr. Bell is a founding general partner of Pacific Mezzanine Fund ("PMF") which
was established in 1994. He currently serves as a director of four private
companies in PMF's portfolio. Mr. Bell has been employed in the private equity
and venture capital industry since his graduation from the Harvard Business
School in 1986. Previous to his employment at PMF, Mr. Bell was the managing
director for BW Capital Corporation, a private equity investment firm. (*)Mr.
Bell resigned as a director effective August 2000.
Andrew Dumke has been a director of the Company since September 1999.
Mr. Dumke is a general partner of PMF, and has been employed by PMF since 1994.
He currently serves on the board of directors of two private companies in PMF's
portfolio. Prior to his employment by PMF, Mr. Dumke was the con-founder of
Sterling Pacific, Inc., a microcomputer application software company and founder
of Wave Software, a microcomputer utility software company. (*)Mr. Dumke
resigned as a director effective August 2000.
15
<PAGE> 16
Richard H. Nance joined the Company in February 1998 as Vice President
Finance, Chief Financial Officer and Secretary/Treasurer, and was promoted to
Executive Vice President in fiscal 2000. He has more than twenty-five years of
diversified experience in financial management, treasury, accounting and SEC
reporting. His background includes working in senior management roles of state
and nationally chartered banks, a bank examiner with the Comptroller of the
Currency and senior executive officer with companies in other industries. Mr.
Nance is a Certified Public Accountant and holds professional memberships in the
American Institute of Certified Public Accountants and the California Society of
Certified Public Accountants. From 1993 through 1996 he was a principal in
Calspectre Management in Mission Viejo, California, where his responsibilities
included managing merger and acquisition analyses, SEC reporting and strategic
planning for the company's clientele. From September 1996 to October 1997 he was
chief financial officer of Wiz Technology, Inc. He holds two degrees, a Bachelor
of Business Administration in Banking and Finance and a Bachelor of Science in
Accounting.
Merssrs. Dumke and Bell had served as directors of the Company pursuant
to the Investors' Rights Agreement dated September 30, 1999 (the "Investors'
Rights Agreement") entered into by the Company and PMF in connection with the
loan of $3,150,000 made to the Company by PMF on that date. Under the Investors'
Rights Agreement, so long as the GA stock held by PMF and/or issuable to PMF
under any warrant or convertible security held by it represents at least 10% of
the Company's total outstanding stock on a fully diluted basis, PMF has the
right to designate two individuals to be included among management's nominees to
the Company's Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who own more than 10% of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Such
persons are also required by the SEC regulations to furnish the Company with
copies of the Section 16(a) forms, which they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons the Company believes
that during its 2000 fiscal year, all such filing requirements applicable to is
Officers, Directors, and greater than ten percent beneficial owners were
complied with.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries to or on behalf
of the Company's President and Chief Executive Officer and each other executive
officer of the Company whose total annual salary and bonus during fiscal 2000
exceeded $100,000 (hereinafter referred to as the "named executive officers")
for the years ended September 30, 2000, 1999 and 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation(1)
Annual Compensation Awards
--------------------------------- ---------------
Securities
Underlying All Other
Options Compensation
Name and Principal Position Year Salary($) Bonus($) (#) ($)(2)
--------------------------- ---- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Jane M. Christie 2000 177,932 0 4,964
President & CEO 1999 171,928 0 0 4,644
1998 176,300 0 100,000
Robert D. Bagby 2000 125,696 3,545
Vice Chairman of the Board 1999 133,644 0 0 4,200
1998 147,500 0 0
Richard H. Nance(3) 2000 139,075 0 125,000 0
1999 121,000 0 25,000 0
Vice President Finance
Chief Financial Officer,
Secretary, Treasurer 1998 77,000 0 100,000 0
</TABLE>
-------------
(1) The Company made no long-term incentive plan payouts to the named executive
officers during the 1998, 1999 and 2000 fiscal years.
(2) Includes contributions to the Company's Employee Savings Plan on behalf of
the named executive officers to match contributions (included under salary)
made by each to that Plan.
16
<PAGE> 17
COMPENSATION OF DIRECTORS
During the fiscal year ended September 30, 2000 directors who were not
employees of the Company were each entitled to receive a monthly retainer of
$1,200 and the Chairman was entitled to receive a monthly retainer of $3,500.
Directors who were also employees of the Company received no additional
remuneration for serving as a Director.
OPTION GRANTS TABLE
During fiscal 2000, only one option was granted by the Company to the
named executive officers of the Company. The following table contains
information concerning that option:
<TABLE>
<CAPTION>
Potential Realizable
Number of Percent of Value at Assumed Annual
Securities Total Options Rates of Stock Price
Underlying Granted to Appreciation for Option Term
Options Employees in Exercise Price Expiration ----------------------------
Name Granted(#) Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ---------- ------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Nance 125,000 13% $1.00 01/04 0 0
</TABLE>
OPTION EXERCISES AND YEAR-END VALUE
The following table provides information, with respect to the named
executive officers, concerning the exercise of options during fiscal 2000 and
unexercised options held as of the end of fiscal 2000.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs Options/SARs at
Shares at FY-End(#) FY-End($)
Acquired on Value ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jane M. Christie 0 0 500,000 0 0
Robert D. Bagby 485,000 ___ 50,000 0 0 0
Richard H. Nance 0 0 250,000 0 0 0
</TABLE>
17
<PAGE> 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 15, 2000 regarding the
ownership of the Company's common stock by (a) each person known to the Company
to be the beneficial owner of more than 5% of the outstanding shares of the
Company's common stock, (b) each of the directors of the Company who own common
stock, (c) each of the named executive officers, and (d) all executive officers
and directors of the Company as a group.
Number of Percentage
Name and Address Shares(1) of Class(2)
---------------- --------- -----------
Pacific Mezzanine Fund LP(3) 5,164,293 35%
2200 Powell Street, Suite 1250
Emeryville, CA 94608
Radisys CPD, Inc. 2,226,822 15.1%
5445 NE Dawson Creek Parkway
Hillsboro, Oregon 97124
Boundless Technologies 1,133,333 7.7%
100 Marcus Boulevard
Hauppauge, NY 11788
Richard H. Pickup 1,342,400 9.1%
2501 Monaco Drive
Laguna Beach, CA 92651
Robert D. Bagby(4) 64,600 *
Jane M. Christie(4) 519,090 3.5%
Robert M. McClure(4) 100,000 *
Richard H. Nance(5) 251,000 1.7%
Andrew Dumke (6) 37,500(6) *
2200 Powell Street, Suite 1250
Emeryville, CA 94608
Nathan Bell (7) 37,500(7) *
2200 Powell Street, Suite 1250
Emeryville, CA 94608
All executive officers
and directors as a group
(6) persons, including those
named above) (8) 1,009,690 6.8%
18
<PAGE> 19
-------------
* Less than 1%
(1) Except as set forth below, each of the persons included in the above table
has sole voting and investment power over the shares respectively owned,
except shares issuable upon exercise of stock options, and except as to
rights of the person's spouse under applicable community property laws.
(2) The number and percentage ownership for each beneficial owner is calculated
as if all options or warrants held by such owner that are currently
exercisable or exercisable within sixty days were exercised and such shares
("beneficially owned" shares) were included in the numerator as shares owned
and in the denominator as shares outstanding for purposes of the calculation
for such beneficial owner only.
(3) Represents 4,520,543 shares issuable upon conversion of a Secured
Convertible Promissory Note held by Pacific Mezzanine Fund LP, 393,750
shares issuable upon exercise of a Warrant held by Pacific Mezzanine Fund
LP, and 250,000 held directly.
(4) Shares listed for Mr. Bagby, Ms. Christie and Mr. McClure include 50,000,
500,000 and 90,000 shares, respectively, that may be acquired through the
exercise of stock options that are currently exercisable.
(5) Represents shares issuable upon the exercise of options held by Mr. Nance.
(6) Excludes the shares referred to in footnote (3) above, with respect to which
Mr. Dumke may be deemed to share beneficial ownership by virtue of Mr. Dumke
being a general partner of PMF.
(7) Excludes the shares referred to in footnote (3) above, with respect to which
Mr. Bell may be deemed to share beneficial ownership by virtue of Mr. Bell
being a founding general partner of PMF.
(8) Includes the shares referred to in footnotes 4 and 5 above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable for fiscal 2000.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report on Form
10-K:
(1) The Financial Statements identified in Item 8.
(2) The following financial Statement Schedule:
Schedule II - Valuation and Qualifying Account
All other financial statement schedules are omitted because
they are not applicable or the required information is shown
in the Company's consolidated financial statements or the
notes thereto.
(3) The exhibits listed in Item 14(c) below are filed as part of
this report on Form 10-K.
(b) Reports on Form 8-K.
During the last quarter of the fiscal year covered by this
report, the Company filed the following Reports on Form 8-K.
(1) Form 8-K filed on 14, 2000 reporting the Company's sale of the
database Pick business to Pick Systems.
(2) Form 8-K/A filed on October 16, 2000 amending original Form 8-K
filed on August 14, 2000.
(c) The following exhibits are filed as part of this report on
Form 10-K:
Number Description
------ -----------
3.1 Amended Certificate of Incorporation of the Company, incorporated
herein by reference to Exhibit 3(a) to the Company's 10-K for the year
ended June 30, 1989.
3.2 Bylaws of the Company, incorporated herein by reference to Exhibit 3.0
to the Company's 10-K for the year ended June 30, 1988.
19
<PAGE> 20
Number Description
------ -----------
10.1 License Agreement dated November 23, 1982 between the Company and Pick
Computer Works, Inc. incorporated herein by reference to Exhibit 10 to
the Company's Registration Statement on the Form S-1 filed June 5,
1986.
10.2 The following agreements between the Company and Sanderson Electronics
PLC, dated as of January 6, 1989: Common Stock Warrant Agreement
("Mirror Rights Agreement"), and Common Stock Registration Rights
Agreement, incorporated herein by reference to Exhibit 10(x) to the
Company's 10-K for the year ended June 30, 1989.
10.3 Agreement between the Company and Future Services Ltd., dated March 16,
1996, incorporated herein by reference to Exhibit 10(m) to the
Company's 10-K for the year ended September 30, 1996.
10.4 Stock Option Agreement dated March 21, 1995 entered into between the
Company and each of Messrs. Lawrence Michels, Robert Bagby and Leonard
Mackenzie, incorporated herein by reference to Exhibit 10.11 to the
Company's 10-K for the year ended September 30, 1997.
10.5 The Company's 1991 Stock Option Plan, as amended, incorporated herein
by reference to Exhibit 10.12 to the Company's 10-K for the year ended
September 30, 1997.
10.6 The Company's 1991 Directors' Stock Option Plan, as amended,
incorporated herein by reference to Exhibit 10.13 to the Company's 10-K
for the year ended September 30, 1997.
10.7 Subordinated Note dated January 21, 1997 in the amount of $500,000
payable to Morgan Stanley and Company, Inc., incorporated herein by
reference to Exhibit 10.14 to the Company's 10-K for the year ended
September 30, 1997.
10.8 License Agreement dated April 26, 1996 between the Company and
McDonnell Information Systems Limited, incorporated herein by reference
to Exhibit 10.15 to the Company's 10-K for the year ended September 30,
1997.
10.9 Letter agreement dated April 15, 1997 between the Company and Leonard
Mackenzie, incorporated herein by reference to Exhibit 10.16 to the
Company's 10-K for the year ended September 30, 1997.
10.10 Agreement by and between General Automation, Inc. and MDIS dated
December 22, 1997, incorporated herein by reference to Exhibit 10.17 to
the Company's 10-K for the year ended September 30, 1997.
10.11 Loan Agreement dated December 18, 1997 between the Company and Comerica
Bank, incorporated herein by reference to Exhibit 10.18 to the
Company's 10-K for the year ended September 30, 1997.
10.12 Letter agreement dated November 5, 1998 between the Company and Leonard
Mackenzie incorporated herein by reference to Exhibit 10.12 to the
Company's 10-K for the year ended September 30, 1999.
10.13 Promissory Note dated May 4, 1998 between the Company and NCR
Corporation incorporated herein by reference to Exhibit 10.13 to the
Company's 10-K for the year ended September 30, 1999.
10.14 Warrant Agreement dated May 4, 1998 entered into by the Company,
Gregory A. Busch and David Keligian, as Trustees of the Lenawee Trust
u/t/d December 30, 1992, Dito Caree Limited Partnership, and Four JM
LLC incorporated herein by reference to Exhibit 10.14 to the Company's
10-K for the year ended September 30, 1999.
10.15 Secured Promissory Note dated May 4, 1998 in the original principal
amount of $900,000 executed by the Company in favor of Gregory A. Busch
and David Keligian, as Trustees of the Lenawee Trust u/t/d December 30,
1992, Dito Caree Limited Partnership, and Four JM LLC incorporated
herein by reference to Exhibit 10.15 to the Company's 10-K for the year
ended September 30, 1999.
10.16 Warrant dated May 4, 1998 executed by the Company in favor of Todd
Martin Pickup and Devon Renee Pickup, Trustees of the Vintage Trust
dated October 28, 1993 incorporated herein by reference to Exhibit
10.16 to the Company's 10-K for the year ended September 30, 1999.
20
<PAGE> 21
Number Description
------ -----------
10.17 Warrant dated May 4, 1998 executed by the Company in favor of Gregory
A. Busch, Trustee of the 92643 Vintage Trust dated December 29, 1995
incorporated herein by reference to Exhibit 10.17 to the Company's 10-K
for the year ended September 30, 1999.
10.18 Warrant dated May 4, 1998 executed by the Company in favor of Four JM
LLC incorporated herein by reference to Exhibit 10.18 to the Company's
10-K for the year ended September 30, 1999.
10.19 Loan Agreement dated September 30, 1999 between the Company and Pacific
Mezzanine Fund LP incorporated herein by reference to Exhibit 10.19 to
the Company's 10-K for the year ended September 30, 1999.
10.20 Security Agreement dated September 30, 1999 between the Company and
Pacific Mezzanine Fund LP incorporated herein by reference to Exhibit
10.20 to the Company's 10-K for the year ended September 30, 1999.
10.21 Secured Convertible Promissory Note dated September 30, 1999 executed
by the company in favor of Pacific Mezzanine Fund LP in the original
principal amount of $3,150,000 incorporated herein by reference to
Exhibit 10.21 to the Company's 10-K for the year ended September 30,
1999.
10.22 Warrant dated September 30, 1999 executed by the Company in favor of
Pacific Mezzanine Fund LP incorporated herein by reference to Exhibit
10.22 to the Company's 10-K for the year ended September 30, 1999.
10.23 Investors' Rights Agreement dated September 30, 1999 between the
Company and Pacific Mezzanine Fund LP incorporated herein by reference
to Exhibit 10.23 to the Company's 10-K for the year ended September 30,
1999.
10.24 Second Amendment to Loan and Security Agreement dated September 30,
1999 between the Company and Comerica Bank- California incorporated
herein by reference to Exhibit 10.24 to the Company's 10-K for the year
ended September 30, 1999.
10.25 First Amendment to Loan and Security Agreement and Forbearance
Agreement dated December 31, 1998, by and between Comerica
Bank-California and General Automation, Inc. incorporated herein by
reference to Exhibit 10.25 to the Company's 10-K for the year ended
September 30, 1999.
10.26 Stock Pledge and Security Agreement dated September 30, 1999 between
the Company and Comerica Bank- California incorporated herein by
reference to Exhibit 10.26 to the Company's 10-K for the year ended
September 30, 1999.
10.27 Intellectual Property Security Agreement dated September 30, 1999
between the Company and Comerica Bank - California incorporated herein
by reference to Exhibit 10.27 to the Company's 10-K for the year ended
September 30, 1999.
10.28 Letter agreement dated September 30, 1999 between the Company and
RadiSys CPD, Inc. incorporated herein by reference to Exhibit 10.28 to
the Company's 10-K for the year ended September 30, 1999.
10.29 Promissory Note dated September 30, 1999 executed by the Company in
favor of RadiSys CPD, Inc. in the original principal amount $250,000
incorporated herein by reference to Exhibit 10.29 to the Company's 10-K
for the year ended September 30, 1999.
10.30 Promissory Note dated September 30, 1999 executed by the Company in
favor RadiSys CPD, Inc. in the original principal amount of $500,000
incorporated herein by reference to Exhibit 10.30 to the Company's 10-K
for the year ended September 30, 1999.
10.31 Registration Rights Agreement dated September 30, 1999 between the
Company and RadiSys CPD, Inc. incorporated herein by reference to
Exhibit 10.31 to the Company's 10-K for the year ended September 30,
1999.
10.32 Letter agreement dated September 30, 1999 between the Company and
Boundless Technologies, Inc. incorporated herein by reference to
Exhibit 10.32 to the Company's 10-K for the year ended September 30,
1999.
10.33 Promissory Note dated September 30, 1999 executed by the Company in
favor of Boundless Technologies, Inc. in the original principal amount
of $250,000 incorporated herein by reference to Exhibit 10.33 to the
Company's 10-K for the year ended September 30, 1999.
10.34 Promissory Note dated September 30, 1999 executed by the Company in
favor of Boundless Technologies, Inc. in the original principal amount
of $500,000 incorporated herein by reference to Exhibit 10.34 to the
Company's 10-K for the year ended September 30, 1999.
10.35 Registration Rights Agreement dated September 30, 1999 between the
Company and Boundless Technologies, Inc. incorporated herein by
reference to Exhibit 10.35 to the Company's 10-K for the year ended
September 30, 1999.
10.36 Asset Purchase Agreement dated August 2, 2000 entered into by GA and
Pick Systems.
10.37 Secured Promissory Note in the original principal amount of $500,000
payable by Pick Systems to GA.
10.38 Security Agreement dated August 2, 2000 entered into by GA and Pick
Systems.
10.39 Agreement of purchase and sale between General Automation, Inc. and
GA Services, LLC.
21 Subsidiaries of the Company.
27 Financial Data Schedule.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
January 16, 2001 By: /s/ Jane M. Christie
-------------------------------
Jane M. Christie, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Robert D. Bagby Vice Chairman, Director January 16, 2001
--------------------------
Robert D. Bagby
/s/ Jane M. Christie President, CEO, Director January 16, 2001
--------------------------
Jane M. Christie
/s/ Robert M. McClure Chairman, Director January 16, 2001
--------------------------
Robert M. McClure
/s/ Richard H. Nance Vice President and January 16, 2001
-------------------------- Chief Financial &
Richard H. Nance Accounting Officer
22
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
Board of Directors
General Automation, Inc.
We have audited the accompanying consolidated balance sheets of General
Automation, Inc. and subsidiaries as of September 30, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended September 30,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of General Automation,
Inc. and subsidiaries as of September 30, 2000 and 1999, and the results of
their consolidated operations and cash flows for each of the three years in the
period ended September 30, 2000, in conformity with accounting principles
generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As disclosed in the financial
statements, the Company has incurred significant losses from operations, its
current liabilities exceed current assets by $5,300,000 and total stockholders'
deficit was $7,400,000 at September 30, 2000. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 17. The consolidated
financial statements do not include any adjustments that may result from the
outcome of this uncertainty.
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
January 12, 2001
23
<PAGE> 24
GENERAL AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 403,000 $ 991,000
Accounts receivable 1,297,000 1,008,000
Prepaid expenses and other 436,000 468,000
Net assets of discontinued operations -- 1,143,000
------------ ------------
Total current assets 2,136,000 3,610,000
Capitalized software 1,559,000 791,000
Property and equipment 1,484,000 1,593,000
Goodwill -- 292,000
Other 23,000 110,000
------------ ------------
$ 5,202,000 $ 6,396,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank line of credit $ 275,000 $ 2,150,000
Current portion of long-term debt 1,917,000 2,663,000
Accounts payable 3,085,000 1,292,000
Accrued expenses 954,000 2,670,000
Deferred revenue 550,000 547,000
Net liabilities of discontinued operations 642,000 --
------------ ------------
Total current liabilities 7,423,000 9,322,000
Long-term debt 5,171,000 4,604,000
------------ ------------
Total liabilities 12,594,000 13,926,000
------------ ------------
Commitments and contingencies -- --
Stockholders' deficit:
Common stock, $.10 par value; 30,000,000 shares
authorized; 14,607,896 and 11,599,307 shares
issued and outstanding 1,461,000 1,160,000
Additional paid-in capital 48,836,000 46,802,000
Accumulated deficit (57,370,000) (55,280,000)
Accumulated other comprehensive loss (319,000) (212,000)
------------ ------------
Total stockholders' deficit (7,392,000) (7,530,000)
------------ ------------
$ 5,202,000 $ 6,396,000
============ ============
</TABLE>
See notes to consolidated financial statements
24
<PAGE> 25
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------
2000 1999 1998
------------ ----------- ------------
<S> <C> <C> <C>
Revenues $ 5,070,000 $ 4,731,000 $ 5,148,000
Cost of revenues 3,001,000 1,907,000 2,768,000
------------ ----------- ------------
Gross profit 2,069,000 2,824,000 2,380,000
------------ ----------- ------------
Operating expenses:
Selling, general and administrative 2,203,000 1,734,000 2,165,000
Research and development 1,004,000 -- --
Depreciation and amortization 295,000 277,000 230,000
Impairment of goodwill 277,000 -- --
------------ ----------- ------------
3,779,000 2,011,000 2,395,000
------------ ----------- ------------
Income (loss) from operations (1,710,000) 813,000 (15,000)
Interest expense, net (734,000) (724,000) (577,000)
------------ ----------- ------------
Income (loss) from continuing operations
before taxes (2,444,000) 89,000 (592,000)
Provision for income taxes 19,000 71,000 24,000
------------ ----------- ------------
Income (loss) from continuing operations (2,463,000) 18,000 (616,000)
------------ ----------- ------------
Discontinued operations:
Operating loss (no tax effect) (3,756,000) (2,732,000) (11,783,000)
Net gain on disposal (no tax effect) 4,129,000 -- --
------------ ----------- ------------
Income (loss) from discontinued operations 373,000 (2,732,000) (11,783,000)
------------ ----------- ------------
Loss before extraordinary gain (2,090,000) (2,714,000) (12,399,000)
Extraordinary item:
Settlement with creditors (no tax effect) -- 3,505,000 --
------------ ----------- ------------
Net income (loss) $ (2,090,000) $ 791,000 $(12,399,000)
============ =========== ============
Basic and diluted income (loss) per share:
Income (loss) from continuing operations $ (0.19) $ -- $ (0.07)
============ =========== ============
Income (loss) from discontinued operations $ 0.03 $ (0.29) $ (1.26)
============ =========== ============
Extraordinary gain $ -- $ 0.37 $ --
============ =========== ============
Net income (loss) $ (0.16) $ 0.08 $ (1.33)
============ =========== ============
Basic and diluted number of common shares 12,731,724 9,338,851 9,312,035
============ =========== ============
</TABLE>
See notes to consolidated financial statements
25
<PAGE> 26
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT INCOME(LOSS) TOTAL
---------- ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 9,232,591 $ 923,000 $ 45,516,000 $(43,672,000) $ (79,000) $ 2,688,000
Comprehensive (loss):
Net (loss) -- -- -- (12,399,000) -- (12,399,000)
Foreign currency translation
adjustment -- -- -- -- (152,000) (152,000)
------------
Total comprehensive (loss) -- -- -- -- -- (12,551,000)
Stock options and warrants
exercised 100,050 10,000 112,000 -- -- 122,000
Adjustment to acquisition
purchase price -- -- (186,000) -- -- (186,000)
---------- ----------- ------------ ------------ ----------- ------------
Balance at September 30, 1998 9,332,641 933,000 45,442,000 (56,071,000) (231,000) (9,927,000)
Comprehensive income:
Net income -- -- -- 791,000 -- 791,000
Foreign currency translation
adjustment -- -- -- -- 19,000 19,000
------------
Total comprehensive income -- -- -- -- -- 810,000
Common stock issued to creditors 2,266,666 227,000 997,000 -- -- 1,224,000
Forgiveness of Board of
Directors' fees -- -- 363,000 -- -- 363,000
---------- ----------- ------------ ------------ ----------- ------------
Balance at September 30, 1999 11,599,307 1,160,000 46,802,000 (55,280,000) (212,000) (7,530,000)
Comprehensive (loss):
Net (loss) -- -- -- (2,090,000) -- (2,090,000)
Foreign currency translation
adjustment -- -- -- -- (107,000) (107,000)
------------
Total comprehensive (loss) -- -- -- -- -- (2,197,000)
Stock issued in legal
settlement 125,000 12,000 63,000 -- -- 75,000
Stock issued for cash 1,125,000 113,000 787,000 -- -- 900,000
Stock options and warrants
exercised 819,464 82,000 577,000 -- -- 659,000
Adjustment to acquisition
purchase price 185,700 19,000 111,000 -- -- 130,000
Conversion of debt to stock 753,425 75,000 475,000 -- -- 550,000
Other -- -- 21,000 -- -- 21,000
---------- ----------- ------------ ------------ ----------- ------------
14,607,896 $ 1,461,000 $ 48,836,000 $(57,370,000) $ (319,000) $ (7,392,000)
========== =========== ============ ============ =========== ============
</TABLE>
See notes to consolidated financial statements
26
<PAGE> 27
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------
2000 1999 1998
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,090,000) $ 791,000 $(12,399,000)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary gain on settlement with creditors -- (3,505,000) --
Gain on disposal of discontinued operations (4,129,000) -- --
Operating loss of discontinued operations 3,756,000 2,732,000 11,783,000
Stock issued in legal settlement 75,000 -- --
Depreciation and amortization 991,000 503,000 230,000
Impairment of goodwill 277,000 -- 178,000
Other 21,000 -- --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (289,000) (46,000) 38,000
Prepaid expenses and other 32,000 665,000 (234,000)
Other assets 86,000 101,000 (79,000)
Increase (decrease) in:
Accounts payable 1,793,000 1,300,000 1,839,000
Accrued expenses (1,715,000) (836,000) 1,091,000
Deferred revenue 3,000 (25,000) (13,000)
----------- ----------- ------------
Net cash provided by (used in) operating activities (1,189,000) 1,680,000 2,434,000
----------- ----------- ------------
Cash flows from investing activities:
Proceeds from sale of discontinued operations 2,500,000 -- --
Acquisitions and related adjustments 130,000 -- (252,000)
Purchase of property and equipment (145,000) (237,000) (130,000)
Capitalized software costs (1,490,000) (612,000) (786,000)
----------- ----------- ------------
Net cash used in investing activities 995,000 (849,000) (1,168,000)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 900,000 -- 122,000
Proceeds from exercise of options and warrants 659,000 -- --
Proceeds from issuance of debt 371,000 -- 4,031,000
Principal payments on debt (1,875,000) (414,000) (4,661,000)
----------- ----------- ------------
Net cash provided by (used in) financing activities 55,000 (414,000) (508,000)
----------- ----------- ------------
Cash used in discontinued operations (342,000) (301,000) (547,000)
----------- ----------- ------------
Effect of exchange rate changes on cash (107,000) 19,000 (152,000)
----------- ----------- ------------
Net increase in cash and equivalents (588,000) 135,000 59,000
Cash and equivalents, beginning of year 991,000 856,000 797,000
----------- ----------- ------------
Cash and equivalents, end of year $ 403,000 $ 991,000 $ 856,000
=========== =========== ============
</TABLE>
See notes to consolidated financial statements
27
<PAGE> 28
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
2000 1999 1998
--------- ----------- ----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 947,000 $ 602,000 $ 597,000
========= =========== ==========
Income taxes $ 23,000 $ 6,000 $ 169,000
========= =========== ==========
Supplemental disclosure of non-cash investing
and financing activities:
Forgiveness of Board of Directors' fees $ -- $ 363,000 $ --
========= =========== ==========
Extraordinary item - settlement with creditors
Forgiveness of notes payable $ -- $ 6,401,000 $ --
Forgiveness of accrued expenses -- 2,947,000 --
New loan proceeds tranferred to creditors -- (3,000,000) --
Notes payable -- (1,500,000) --
Common stock issued to creditors -- (1,224,000) --
Settlement expenses -- (119,000) --
--------- ----------- ----------
Gain on settlement with creditors $ -- $ 3,505,000 $ --
========= =========== ==========
Increase in cash portion of purchase price of acquisition $ -- $ -- $ 186,000
========= =========== ==========
Conversion of accounts payable to notes payable $ -- $ -- $1,549,000
========= =========== ==========
Conversion of debt to common stock $ 550,000 $ -- $ --
========= =========== ==========
</TABLE>
See notes to consolidated financial statements
28
<PAGE> 29
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
General Automation, Inc. (the "Company") is engaged in the development,
design and sale of computer software and related software consulting
services. The Company has subsidiaries in Canada, Australia and England.
The Company's major product line is data connectivity software that enables
businesses to connect legacy applications and databases to e-business
exchanges and trading partners over the Internet. In addition, the Company
provides a range of custom and packaged consulting programs in order to
help customers build and deploy their e-business applications.
As discussed more thoroughly in Note 2, the Company's database management
and hardware service businesses, along with certain other assets and
liabilities, are presented as discontinued operations in the accompanying
consolidated financial statements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries: Sequoia Systems (UK)
Limited, Liberty Integration Software, Inc., General Automation, LLC and
General Automation PTY Ltd. All significant intercompany transactions and
accounts have been eliminated.
Use of estimates
The preparation of consolidated financial statements in conformity with
generally 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.
Cash and equivalents
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit and all highly liquid debt instruments
with original maturities of three months or less.
Accounts receivable
The allowance for doubtful accounts and sales returns includes management's
estimate of the amount expected to be lost on specific accounts and for
losses on other as yet unidentified accounts included in accounts
receivable. In estimating the allowance component for unidentified losses
and returns, management relies on historical experience. The amounts the
Company will ultimately realize could differ materially in the near term
from the amounts assumed in arriving at the allowance for doubtful accounts
and sales returns in the accompanying financial statements.
29
<PAGE> 30
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash investments and trade
receivables. The Company restricts investment of temporary cash investments
to financial institutions with investment grade credit ratings. Credit risk
on trade receivables is minimized as a result of the large and diverse
nature of the Company's customer base.
Capitalized software development costs
All capitalized software development costs are amortized either on a
straight-line basis over the remaining estimated economic life of the
product, generally eighteen months, or the ratio of the products' current
gross revenues to the total of current and expected gross revenues,
whichever amount is greater. The costs capitalized are those incurred after
the Company has determined the technological feasibility of a software
project until the time the product is available for general release to
customers. The project amortization does not commence until after the
general release of the product and is included in the cost of sales.
Management periodically compares the recorded amount of capitalized
software development costs to the net realizable value of the software
product based on expected future revenues. Any amount in excess of net
realizable value is charged to operations.
Long-lived assets
Depreciation and amortization of long-lived assets are provided over the
estimated useful lives of the assets using the straight-line method.
Estimated useful lives are as follows:
Building 30 years
Machinery and equipment 3-7 years
Furniture and fixtures 3-7 years
Leasehold improvements Lease term or asset life,
whichever is less.
Goodwill 5 years
Long-lived assets are reviewed annually for impairment and whenever events
or changes in circumstances indicate that carrying amount of an asset may
not be recoverable. Impairment is necessary when the undiscounted cash
flows estimated to be generated by the asset are less than the carrying
amount of the asset.
Fair value of financial instruments
The carrying amounts of cash equivalents and accounts receivable
approximate fair value because of the short maturity of those instruments.
The fair value of the short term notes payable and the mortgage note
approximates the carrying amount of those borrowings based on the interest
rates currently available for borrowing with similar terms and maturities.
30
<PAGE> 31
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Fair value of financial instruments (continued)
The fair value of the notes payable to Pacific Mezzanine Fund LP, TMI and
Boundless (all significant shareholders) cannot be determined due to the
related party nature of the obligations.
The company is currently negotiating favorable settlement terms with its
vendors. The outcome of these negotiations is not presently determinable.
Stock-based compensation
During 1997, the Company adopted the disclosure-only provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123).
SFAS 123 encourages, but does not require, companies to adopt a fair value
based method for determining expense related to stock-based compensation.
The disclosures are presented in Note 13. The Company continues to account
for stock-based compensation using the intrinsic value method as prescribed
under Account Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations.
Foreign currency translation
The financial statements of the Company's investment in its foreign
operations are translated into U.S. dollars in accordance with FASB
Statement No. 52, "Foreign Currency Translation". The functional currency
of the Company's foreign investments and operating divisions include the
Australian and Canadian dollar and the British pound. The balance sheet
accounts are translated at exchange rates in effect at the end of the year.
Income and expense items are translated at the average exchange rate for
the year. The resulting translation adjustment is recorded directly as a
separate component of stockholders' deficit.
Revenue recognition
Revenues for sales of software products are recognized when delivered.
Revenue is not recognized on software sales if significant obligations
remain or collectibility is in doubt. Revenue from professional services is
recorded as the service is provided. Advance payments are recorded as
deferred revenue.
Research and development
Company-sponsored research and development costs are charged to expense as
incurred.
Advertising costs
Costs of advertising are expensed as incurred. Such costs were not
significant for the years presented.
31
<PAGE> 32
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income taxes
Deferred taxes are accounted for using an asset and liability approach,
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
Earnings per share
Basic EPS is calculated using income available to common stockholders
divided by the weighted average of common shares outstanding during the
year. The calculation of Diluted EPS is similar to Basic EPS except that
the weighted average of common shares outstanding is increased to include
the number of additional common shares that would have been outstanding if
the dilutive potential common shares, such as options, had been issued. The
treasury stock method is used to calculate dilutive shares which reduces
the gross number of dilutive shares by the number of shares purchasable
from the proceeds of the options assumed to be exercised.
Diluted earnings per share is not materially different from basic earnings
per common share. Vested stock options of 1,326,000, 2058,000 and 1,903,000
were not included in the dilutive number of shares at September 30, 2000,
1999 and 1998 since their inclusion would be antidilutive.
Reclassifications
Certain items in the 1998 and 1999 financial statements have been
reclassified to conform with the 2000 presentation.
2. DISCONTINUED OPERATIONS
The company divested its database management business in August 2000 and
formalized its decision to sell its hardware service business in November
2000. The operating results of those businesses have been reflected as
Discontinued Operations in the accompanying consolidated financial
statements. Upon divesting the database management and hardware service
businesses, the Company plans to focus its resources on its data access
middleware and web products.
In July 2000 the Company decided to sell and in August, 2000 sold its
Pick-based database management business and related assets to Pick Systems,
Inc. for $2,500,000 cash, a non-interest bearing promissory note of
$500,000 and royalties in an amount equal to 20% of certain sales made by
Pick Systems, Inc during the twenty-four month period commencing August 1,
2000. Proceeds from the sale were used to pay down bank debt. Net income
for fiscal 2000 includes a one time gain of $4,129,000 (no tax effect) on
the sale of the Company's database business.
32
<PAGE> 33
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. DISCONTINUED OPERATIONS (CONTINUED)
In November 2000, the Company signed a letter of intent with a private
investor group to divest its hardware service business. The sales price is
equal to $840,000 cash plus the value of accounts receivable as defined. In
addition, the purchase agreement provides for a contingent sales price up
to 10%, not to exceed $300,000, of future revenues in excess of $7,100,000
generated by the buyer. The Company expects to complete the sale of these
assets in the second quarter of fiscal 2001.
Revenues and income (loss) from discontinued operations included in the
Consolidated Statements of Operations are as follows:
2000 1999 1998
----------- ----------- ------------
Revenues $18,889,000 $24,137,000 $ 25,518,000
Income (loss) $ 373,000 (2,732,000) (11,783,000)
Assets and liabilities of the discontinued operations are as follows:
2000 1999
----------- -----------
Accounts receivable $ 168,000 $ 3,193,000
Inventories 800,000 1,710,000
Capitalized software -- 934,000
Property and equipment 40,000 76,000
----------- -----------
1,008,000 5,913,000
----------- -----------
Accounts payable -- (1,701,000)
Deferred revenue (1,650,000) (3,069,000)
----------- -----------
(1,650,000) (4,770,000)
----------- -----------
Net assets (liabilities) $ (642,000) $ 1,143,000
=========== ===========
3. EXTRAORDINARY GAIN
Sequoia Enterprise Systems (SES) Acquisition, Formation of General
Automation LLC (GAL) and Settlement
SES
In 1996, the Company entered into an Asset Purchase Agreement with Texas
Micro, Inc. (TMI), pursuant to which the Company acquired substantially all
the assets and businesses of TMI's business division known as Sequoia
Enterprise Systems (SES). SES manufactures, services, integrates and
distributes fault tolerant Motorola 68K computer systems which operate
under TMI's version of UNIX and Intel based computer systems running TMI's
Alpha Micro's versions of the "PICK" application environment and database
software products. The terms of the acquisition, accounted for as a
purchase business combination, were amended on October 1, 1997 and the
Company defaulted on its payments to TMI in fiscal 1998.
33
<PAGE> 34
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. EXTRAORDINARY GAIN (CONTINUED)
GAL
In 1995, the Company and Boundless Technologies (Boundless), formed General
Automation, LLC, with the Company owning 51% interest and Boundless owning
a 49% interest. GAL was formed to allow the Company to acquire Boundless'
version of the PICK system. Under the terms of the Agreement, GAL operated
and managed both the Company's and Boundless' PICK business. Boundless was
entitled to receive royalty payments from GAL and the Company was entitled
to retain all the cash generated by GAL, if any, after the payments of the
net revenue percentage to Boundless.
SES and GAL Settlement
On September 30, 1999, TMI and Boundless agreed to forgive all amounts the
Company owed them and cancel warrants to purchase 250,000 shares of the
Company's common stock in exchange for the following consideration:
Amounts forgiven:
Note payable $ 363,000
Accrued royalties 2,947,000
Other accrued liabilities 6,038,000
----------
9,348,000
----------
Consideration:
Cash 3,000,000
Notes payable 1,500,000
Common stock (2,266,666 shares at fair value) 1,224,000
----------
5,724,000
Settlement expenses 119,000
----------
Extraordinary gain $3,505,000
==========
4. ACCOUNTS RECEIVABLE
2000 1999
----------- -----------
Trade receivables $ 1,345,000 $ 1,049,000
Allowance for doubtful accounts (48,000) (41,000)
----------- -----------
$ 1,297,000 $ 1,008,000
=========== ===========
34
<PAGE> 35
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. CAPITALIZED SOFTWARE
2000 1999
----------- ----------
Capitalized software development costs $ 2,888,000 $1,398,000
Accumulated amortization (1,329,000) (607,000)
----------- ----------
$ 1,559,000 $ 791,000
=========== ==========
During 2000, 1999 and 1998, the Company capitalized $1,490,000, $612,000
and $786,000 of software development costs, respectively, and charged
$722,000, $607,000 and $0 of amortization expense, respectively, to cost of
revenues.
6. PROPERTY AND EQUIPMENT
2000 1999
----------- -----------
Building $ 1,338,000 $ 1,436,000
Machinery and equipment 3,058,000 2,781,000
Furniture and fixtures 215,000 293,000
Leasehold improvements 116,000 72,000
----------- -----------
4,727,000 4,582,000
Accumulated depreciation and
amortization (3,243,000) (2,989,000)
----------- -----------
$ 1,484,000 $ 1,593,000
=========== ===========
On November 1, 2000 the Company sold its administrative building for
$2,500,000. Proceeds from the sale of the property were used to pay off the
related first and second mortgage notes. Concurrent with the sale of the
building, the Company entered into a month to month operating lease
agreement whereby the Company leased back its office facilities from the
purchaser at a monthly rent of $11,000.
7. IMPAIRMENT OF GOODWILL
Goodwill represents the excess of acquisition costs over the fair value of
net assets of businesses purchased.
In conjunction with its annual evaluation in fiscal 2000, the Company
determined that goodwill was impaired. Among the factors considered in this
evaluation were decreasing revenues and continuing losses. The Company
determined that estimated future undiscounted cash flows were below the
carrying value of goodwill. Accordingly, the Company adjusted the carrying
value of goodwill to its estimated fair value, determined by calculating
the present value of expected cash flows, resulting in an impairment charge
of $277,000, reducing the carrying value of the goodwill to zero.
35
<PAGE> 36
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. BANK LINE OF CREDIT
The prime plus 2% $2,150,000 balance at September 30, 1999 was paid off
with proceeds from the Pick sale. The balance of $275,000 at September 30,
2000 was subsequently paid in full.
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
10% convertible note payable to Pacific Mezzanine
Fund, interest only monthly payments, due September 30,
2004. Note is convertible at any time at the election
of the Holder into common shares at $.73 per share, is
secured by substantially all of the Company's assets
and is subordinate to the bank line of credit $ 3,150,000 $ 3,150,000
10% notes payable to TMI, Boundless and The Busch
Group, interest only monthly payments, $500,000 past
due January 2000, $1,000,000 due September 2004, plus
unpaid interest 1,552,000 1,500,000
First mortgage note at prime (9.5% at September 30,
2000) plus 1.5%, due in monthly installments of $9,000
through November 2004 when the remaining principal and
interest will be due 952,000 962,000
Second mortgage note at 12%, interest only monthly
payments, principal due April 2000 900,000 900,000
18% note payable to vendor, due in monthly installments
of $64,424 through April 2000 390,000 751,000
Other 144,000 4,000
----------- -----------
7,088,000 7,267,000
Less current maturities (1,917,000) (2,663,000)
----------- -----------
$ 5,171,000 $ 4,604,000
=========== ===========
</TABLE>
Debt maturities are: $1,917,000, in 2001, $45,000 in 2002, $17,000 in 2003
and $5,109,000 in 2004.
On November 1, 2000 the Company sold its administrative building for
$2,500,000. Proceeds from the sale of the property were used to pay off the
related first and second mortgage notes.
36
<PAGE> 37
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. ACCRUED EXPENSES
2000 1999
-------- ----------
Rent $ -- $ 583,000
Payroll and related taxes 821,000 604,000
Royalties -- 512,000
Warranty -- 150,000
Legal settlement -- 375,000
Sales taxes 109,000 122,000
Other 24,000 324,000
-------- ----------
$954,000 $2,670,000
======== ==========
11. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases certain facilities and equipment under noncancelable
operating leases. Rental expense for 2000, 1999 and 1998 was $243,000,
$201,000 and $215,000, respectively.
As of September 30, 2000, the future minimum rental commitments required
under existing noncancelable operating leases are as follows:
2001 $ 263,000
2002 152,000
2003 154,000
2004 154,000
2005 55,000
---------
$ 778,000
=========
Litigation
Since 1991 the Company has been a party to litigation entitled 520 S.
Michigan Ave. Associates, Ltd. d/b/a Congress Hotel v General Automation
and Maxial Systems, Inc. On December 2, 1999 the Company and Congress Hotel
settled their litigation. The Company agreed to pay Congress Hotel $75,000
in December 1999, $225,000 in 24 monthly installments, plus interest at
6.25% and issue 125,000 shares of its common stock valued at $75,000. The
settlement totaling $375,000 was included in general and administrative
expense in the 1999 statement of operations.
37
<PAGE> 38
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On April 15, 1999 the Company filed a Complaint in the Orange County
Superior Court against PriceWaterhouseCoopers, LLP, successor to
PriceWaterhouse, which was General Automation's independent auditors from
1991 through 1996. The action asserts that PriceWaterhouse was negligent in
its audits of the Company's financial statements and procedures, resulting
in substantial reporting errors which were only uncovered after
PriceWaterhouse was replaced as the Company's independent auditors in 1997.
The Company seeks general and punitive damages, including its audit
expenses, and losses resulting from its reliance upon the inaccurate
financial statements. Subsequent to September 30, 2000 this suit was
resolved.
The Company is a defendant in various other lawsuits and claims which have
arisen in the normal course of its business. While it is not possible to
predict with certainty the outcome of such litigation and claims, it is the
opinion of Company management, based in part on consultations with counsel,
that the liability of the Company, if any, arising from the ultimate
disposition of any or all such lawsuits and claims is not material to the
consolidated financial statements of the Company.
12. RELATED PARTY TRANSACTION
In April 1997, the Company entered into a consulting agreement with a
former officer for a three-year period at $325,000 per year. In connection
with this agreement, the former officer's employment with the Company was
terminated and outstanding stock options with an intrinsic value of
$300,000 were cancelled. In November 1998, the Company negotiated a
termination of the consulting agreement resulting in payments totaling
$209,000 in 1999. Included in selling, general and administrative is
$297,000 in 1998 and $394,000 in 1997 for consulting expenses to this
related party.
13. STOCK OPTIONS AND WARRANTS
The Company has three stock option plans. The 1991 Stock Option Plan, the
1991 Directors Stock Option Plan and the 1999 Stock Option Plan. Options
reserved under the Company's stock option plans are as follows:
1991 Stock Option Plan 2,035,000
1991 Directors Stock Option Plan 200,000
1999 Stock Option Plan 1,000,000
Under the various stock option plans, officers, employees and outside
directors may receive grants of restricted stock options to purchase common
stock. Grants are made at the discretion of the Board of Directors. Options
granted under the stock option plans are non-qualified and are granted at a
price equal to or less than the fair market value of the Company's common
stock at the date of grant. Generally, options granted have a term of five
years and vest between one and three years
38
<PAGE> 39
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of stock options activity follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Number Exercise price Exercisable Exercise Price
--------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, September 30, 1997 2,788,000 $1.23 2,388,000 $ 1.11
=========
Granted 300,000 $1.23
Exercised (100,050) $1.23
Canceled (734,950) $1.05
--------- -----
September 30, 1998 2,253,000 $1.25 1,903,000 $ 1.20
=========
Granted 1,230,000 $1.00
Exercised -- --
Canceled (1,040,000) $1.66
--------- -----
September 30, 1999 2,443,000 $0.92 2,058,000 $ 0.90
=========
Granted 1,048,000 $1.40
Exercised (787,000) $0.93
Canceled (803,000) $0.89
--------- -----
September 30, 2000 1,901,000 $1.17 1,326,000 $ 1.19
========= ===== =========
</TABLE>
Weighted
Average
Number Remaining Number
Exercise price Outstanding Life Exercisable
-------------- ----------- --------- -----------
$1.00 1,253,000 2.1 years 1,253,000
$1.50 398,000 4.5 years 23,000
$1.65 250,000 4.1 years 50,000
--------- ---------
1,901,000 1,326,000
========= =========
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized. Had compensation
cost for the Company's stock option plan been determined based on the fair
value at the grant dates for awards under this plan consistent with the
method of FASB Statement No. 123, the Company's net income (loss) and
income (loss) per common share would have been increased to the pro forma
amounts indicated below:
39
<PAGE> 40
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK OPTIONS AND WARRANTS (CONTINUED)
2000 1999 1998
----------- -------- ------------
Net income (loss)
As reported $(2,090,000) $791,000 $(12,399,000)
Pro forma $(2,619,000) $438,000 $(12,926,000)
Basic and diluted earnings
(loss) per share:
As reported $ (0.16) $ 0.08 $ (1.33)
Pro forma $ (0.21) $ 0.05 $ (1.39)
The pro forma compensation cost was recognized for the fair value of the
stock options granted, which was estimated using the Black-Scholes model
with the following weighted-average assumptions for 2000 and 1999,
respectively: expected volatility of 85% and risk-free interest 5.5%,
expected life of 5 years and no expected dividends for all years. The
estimated weighted-average fair value of stock options granted in 2000,
1999 and 1998 was $ .69, $.52 and $1.23 per share, respectively.
The Company issued warrants to purchase shares of its common stock in
connection with various financing arrangements. At September 30, 2000 the
following warrants are outstanding:
Exercise Expiration
Number Issued Date Issued Price Date
------------- ----------- -------- ----------
200,000 04/04/98 $0.63 04/30/03
667,718 09/30/99 $0.45 09/30/09
62,500 02/10/00 $0.45 09/30/09
100,000 06/13/00 $1.38 06/15/05
100,000 07/19/00 $1.19 04/30/01
---------
1,130,218
=========
The Company has recorded an expense of $21,000 representing the estimated
fair market value at the grant date of the warrants issued on February 10,
2000. All other issuances were at or above fair value.
14. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing 401(k) plan covering substantially all its
domestic employees. Eligible employees may contribute 2% to 17% of their
compensation up to the maximum dollar amount allowed. The Company
contributes from profits amounts equal to 50% of each employee's
contribution which are limited to 6% of the employee's compensation. The
Company may elect to make contributions in years when it has no profits.
Contributions for 2000, 1999 and 1998 were $131,000, $172,000 and $74,000,
respectively.
40
<PAGE> 41
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INCOME TAXES
The provision for income taxes for 2000 and 1998 consists solely of foreign
income taxes.
The provision for income taxes in 1999 consists of federal income taxes of
$91,000 as a result of the Company's settlement with the IRS regarding its
1994 income taxes and an income tax benefit from Sequoia Systems Australia
of $20,000.
Reasons for differences between income tax expense and the amount computed
by applying the federal statutory income tax rate to income (loss) before
income taxes are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------- ----------- -----------
<S> <C> <C> <C>
Tax provision (benefit) calculated at
federal statutory rate $(929,000) $ 1,366,000 $ (225,000)
Discontinued operations 142,000 (1,038,000) (4,478,000)
Change in valuation allowance 568,000 (609,000) 2,901,000
Expenses not currently deductible 238,000 352,000 1,826,000
--------- ----------- -----------
Provision for income taxes $ 19,000 $ 71,000 $ 24,000
========= =========== ===========
</TABLE>
The Company has net operating loss (NOL) carryforwards that can be utilized
to offset future taxable income. The U.S. NOL is subject to an annual
limitation on its use of $454,000 due to a change in the Company's
ownership in November 1994. At September 30, 2000, NOL carryforwards
totaled approximately $17 million, of which $5.2 million is subject to the
annual limitation. The carryforwards expire in various years ending
September 30 as follows:
2004 $ 766,000
2005 1,427,000
2006 1,631,000
2007 55,000
2008 560,000
2009 788,000
2011 890,000
2018 7,137,000
2019 1,660,000
2020 2,176,000
------------
$17,090,000
============
41
<PAGE> 42
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INCOME TAXES (CONTINUED)
Deferred income tax assets at September 30, 2000 and 1999 relate to the
following. A valuation allowance has been established to reduce deferred
tax assets to amounts which management believes are more likely than not to
be realized.
2000 1999
----------- -----------
Inventories $ 284,000 $ 94,000
Other accrued expenses 173,000 293,000
Receivables 17,000 165,000
Goodwill 1,046,000 1,140,000
NOL carryforwards 5,811,000 5,071,000
----------- -----------
Deferred tax assets 7,331,000 6,763,000
Less valuation allowance (7,331,000) (6,763,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
16. SEGMENT INFORMATION
Information concerning the Company's operations by geographic area are as
follows:
<TABLE>
<CAPTION>
North
Year America Australia Europe Total
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues 2000 $ 1,049,000 $ 2,738,000 $ 1,283,000 $ 5,070,000
1999 $ 1,108,000 $ 2,399,000 $ 1,224,000 $ 4,731,000
1998 $ 389,000 $ 2,932,000 $ 1,827,000 $ 5,148,000
Operating income (loss) 2000 $(1,008,000) $ (777,000) $ 75,000 $(1,710,000)
1999 $ 623,000 $ (49,000) $ 239,000 $ 813,000
1998 $ (256,000) $ 40,000 $ 201,000 $ (15,000)
Depreciation and 2000 $ 717,000 $ 213,000 $ 61,000 $ 991,000
amortization 1999 $ 236,000 $ 233,000 $ 34,000 $ 503,000
1998 $ 199,000 $ 183,000 $ 26,000 $ 408,000
Identifiable assets 2000 $ 4,010,000 $ 502,000 $ 690,000 $ 5,202,000
1999 $ 4,153,000 $ 1,202,000 $ 1,041,000 $ 6,396,000
1998 $ 3,718,000 $ 1,131,000 $ 490,000 $ 5,339,000
Capital expenditures 2000 $ 1,546,000 $ -- 89,000 $ 1,635,000
1999 $ 475,000 $ 277,000 97,000 $ 849,000
1998 $ 655,000 $ 180,000 81,000 $ 916,000
</TABLE>
42
<PAGE> 43
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. MANAGEMENT'S PLANS
o The company's credit line balance of $275,000 at September 30, 2000 with
Comerica was paid in full subsequent to year end.
o Subsequent to September 30, 2000, the Company sold its corporate
headquarters building in Irvine, California for $2,500,000 and paid off
all debt against that property totaling approximately $1,850,000. The
gain on the sale of the building will be recognized in fiscal year 2001.
o Management plans to re-negotiate with holders of the existing
subordinated convertible debt totaling approximately $3.9 million terms
and conditions which the Company can better meet in the future. The
Company may be unable to comply with all the covenants and conditions of
the subordinated convertible debt. Management is in discussions with the
debt holders attempting to secure more favorable terms. There can be no
assurance that management will be successful in these negotiations.
o Subsequent to September 30, 2000, management entered into negotiations
to secure short-term financing of $1.5-$2 million under terms and
conditions to be agreed upon. There can be no assurances that this
funding will materialize.
o In a proxy filed subsequent to September 30, 2000, the Company announced
its intention to sell its service division. Management plans to pay most
of its outstanding trade debts at the close of that transaction and
hopes to retain enough cash post-closing of the transaction to fund the
continuing operations. Management can make no assurances the sale will
close or that the cash position planned for will materialize.
o The Company is currently negotiating material contracts for the sale of
its e-path products to customers which management believes will provide
additional liquidity for operations. There can be no assurances these
contracts will ultimately materialize.
o Continue to expand its B2B software development and distribution plan
and "Selva" product line.
43
<PAGE> 44
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 Amended Certificate of Incorporation of the Company, incorporated
herein by reference to Exhibit 3(a) to the Company's 10-K for the year
ended June 30, 1989.
3.2 Bylaws of the Company, incorporated herein by reference to Exhibit 3.0
to the Company's 10-K for the year ended June 30, 1988.
10.1 License Agreement dated November 23, 1982 between the Company and Pick
Computer Works, Inc. incorporated herein by reference to Exhibit 10 to
the Company's Registration Statement on the Form S-1 filed June 5,
1986.
10.2 The following agreements between the Company and Sanderson Electronics
PLC, dated as of January 6, 1989: Common Stock Warrant Agreement
("Mirror Rights Agreement"), and Common Stock Registration Rights
Agreement, incorporated herein by reference to Exhibit 10(x) to the
Company's 10-K for the year ended June 30, 1989.
10.3 Agreement between the Company and Future Services Ltd., dated March 16,
1996, incorporated herein by reference to Exhibit 10(m) to the
Company's 10-K for the year ended September 30, 1996.
10.4 Stock Option Agreement dated March 21, 1995 entered into between the
Company and each of Messrs. Lawrence Michels, Robert Bagby and Leonard
Mackenzie, incorporated herein by reference to Exhibit 10.11 to the
Company's 10-K for the year ended September 30, 1997.
10.5 The Company's 1991 Stock Option Plan, as amended, incorporated herein
by reference to Exhibit 10.12 to the Company's 10-K for the year ended
September 30, 1997.
10.6 The Company's 1991 Directors' Stock Option Plan, as amended,
incorporated herein by reference to Exhibit 10.13 to the Company's 10-K
for the year ended September 30, 1997.
10.7 Subordinated Note dated January 21, 1997 in the amount of $500,000
payable to Morgan Stanley and Company, Inc., incorporated herein by
reference to Exhibit 10.14 to the Company's 10-K for the year ended
September 30, 1997.
10.8 License Agreement dated April 26, 1996 between the Company and
McDonnell Information Systems Limited, incorporated herein by reference
to Exhibit 10.15 to the Company's 10-K for the year ended September 30,
1997.
10.9 Letter agreement dated April 15, 1997 between the Company and Leonard
Mackenzie, incorporated herein by reference to Exhibit 10.16 to the
Company's 10-K for the year ended September 30, 1997.
10.10 Agreement by and between General Automation, Inc. and MDIS dated
December 22, 1997, incorporated herein by reference to Exhibit 10.17 to
the Company's 10-K for the year ended September 30, 1997.
10.11 Loan Agreement dated December 18, 1997 between the Company and Comerica
Bank, incorporated herein by reference to Exhibit 10.18 to the
Company's 10-K for the year ended September 30, 1997.
10.12 Letter agreement dated November 5, 1998 between the Company and Leonard
Mackenzie incorporated herein by reference to Exhibit 10.12 to the
Company's 10-K for the year ended September 30, 1999.
10.13 Promissory Note dated May 4, 1998 between the Company and NCR
Corporation incorporated herein by reference to Exhibit 10.13 to the
Company's 10-K for the year ended September 30, 1999.
10.14 Warrant Agreement dated May 4, 1998 entered into by the Company,
Gregory A. Busch and David Keligian, as Trustees of the Lenawee Trust
u/t/d December 30, 1992, Dito Caree Limited Partnership, and Four JM
LLC incorporated herein by reference to Exhibit 10.14 to the Company's
10-K for the year ended September 30, 1999.
10.15 Secured Promissory Note dated May 4, 1998 in the original principal
amount of $900,000 executed by the Company in favor of Gregory A. Busch
and David Keligian, as Trustees of the Lenawee Trust u/t/d December 30,
1992, Dito Caree Limited Partnership, and Four JM LLC incorporated
herein by reference to Exhibit 10.15 to the Company's 10-K for the year
ended September 30, 1999.
10.16 Warrant dated May 4, 1998 executed by the Company in favor of Todd
Martin Pickup and Devon Renee Pickup, Trustees of the Vintage Trust
dated October 28, 1993 incorporated herein by reference to Exhibit
10.16 to the Company's 10-K for the year ended September 30, 1999.
<PAGE> 45
Exhibit
Number Description
------- -----------
10.17 Warrant dated May 4, 1998 executed by the Company in favor of Gregory
A. Busch, Trustee of the 92643 Vintage Trust dated December 29, 1995
incorporated herein by reference to Exhibit 10.17 to the Company's 10-K
for the year ended September 30, 1999.
10.18 Warrant dated May 4, 1998 executed by the Company in favor of Four JM
LLC incorporated herein by reference to Exhibit 10.18 to the Company's
10-K for the year ended September 30, 1999.
10.19 Loan Agreement dated September 30, 1999 between the Company and Pacific
Mezzanine Fund LP incorporated herein by reference to Exhibit 10.19 to
the Company's 10-K for the year ended September 30, 1999.
10.20 Security Agreement dated September 30, 1999 between the Company and
Pacific Mezzanine Fund LP incorporated herein by reference to Exhibit
10.20 to the Company's 10-K for the year ended September 30, 1999.
10.21 Secured Convertible Promissory Note dated September 30, 1999 executed
by the company in favor of Pacific Mezzanine Fund LP in the original
principal amount of $3,150,000 incorporated herein by reference to
Exhibit 10.21 to the Company's 10-K for the year ended September 30,
1999.
10.22 Warrant dated September 30, 1999 executed by the Company in favor of
Pacific Mezzanine Fund LP incorporated herein by reference to Exhibit
10.22 to the Company's 10-K for the year ended September 30, 1999.
10.23 Investors' Rights Agreement dated September 30, 1999 between the
Company and Pacific Mezzanine Fund LP incorporated herein by reference
to Exhibit 10.23 to the Company's 10-K for the year ended September 30,
1999.
10.24 Second Amendment to Loan and Security Agreement dated September 30,
1999 between the Company and Comerica Bank- California incorporated
herein by reference to Exhibit 10.24 to the Company's 10-K for the year
ended September 30, 1999.
10.25 First Amendment to Loan and Security Agreement and Forbearance
Agreement dated December 31, 1998, by and between Comerica
Bank-California and General Automation, Inc. incorporated herein by
reference to Exhibit 10.25 to the Company's 10-K for the year ended
September 30, 1999.
10.26 Stock Pledge and Security Agreement dated September 30, 1999 between
the Company and Comerica Bank- California incorporated herein by
reference to Exhibit 10.26 to the Company's 10-K for the year ended
September 30, 1999.
10.27 Intellectual Property Security Agreement dated September 30, 1999
between the Company and Comerica Bank - California incorporated herein
by reference to Exhibit 10.27 to the Company's 10-K for the year ended
September 30, 1999.
10.28 Letter agreement dated September 30, 1999 between the Company and
RadiSys CPD, Inc. incorporated herein by reference to Exhibit 10.28 to
the Company's 10-K for the year ended September 30, 1999.
10.29 Promissory Note dated September 30, 1999 executed by the Company in
favor of RadiSys CPD, Inc. in the original principal amount $250,000
incorporated herein by reference to Exhibit 10.29 to the Company's 10-K
for the year ended September 30, 1999.
10.30 Promissory Note dated September 30, 1999 executed by the Company in
favor RadiSys CPD, Inc. in the original principal amount of $500,000
incorporated herein by reference to Exhibit 10.30 to the Company's 10-K
for the year ended September 30, 1999.
10.31 Registration Rights Agreement dated September 30, 1999 between the
Company and RadiSys CPD, Inc. incorporated herein by reference to
Exhibit 10.31 to the Company's 10-K for the year ended September 30,
1999.
10.32 Letter agreement dated September 30, 1999 between the Company and
Boundless Technologies, Inc. incorporated herein by reference to
Exhibit 10.32 to the Company's 10-K for the year ended September 30,
1999.
10.33 Promissory Note dated September 30, 1999 executed by the Company in
favor of Boundless Technologies, Inc. in the original principal amount
of $250,000 incorporated herein by reference to Exhibit 10.33 to the
Company's 10-K for the year ended September 30, 1999.
10.34 Promissory Note dated September 30, 1999 executed by the Company in
favor of Boundless Technologies, Inc. in the original principal amount
of $500,000 incorporated herein by reference to Exhibit 10.34 to the
Company's 10-K for the year ended September 30, 1999.
10.35 Registration Rights Agreement dated September 30, 1999 between the
Company and Boundless Technologies, Inc. incorporated herein by
reference to Exhibit 10.35 to the Company's 10-K for the year ended
September 30, 1999.
10.36 Asset Purchase Agreement dated August 2, 2000 entered into by GA and
Pick Systems.
10.37 Secured Promissory Note in the original principal amount of $500,000
payable by Pick Systems to GA.
10.38 Security Agreement dated August 2, 2000 entered into by GA and Pick
Systems.
10.39 Agreement of purchase and sale between General Automation, Inc. and
GA Services, LLC.
21 Subsidiaries of the Company.
27 Financial Data Schedule.
