<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1997
------------------------------------
[ ] 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 0-19167
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TAVA TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
COLORADO 84-1042227
------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
7887 EAST BELLEVIEW AVENUE ENGLEWOOD, COLORADO 80111
- ---------------------------------------- ----------------------------
(Address of principal executive offices) (city) (state) (zip code)
(303) 771-9794
---------------------------------------------
Issuer's telephone number including area code
TOPRO, INC.
2525 WEST EVANS AVENUE DENVER, COLORADO 80219
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the past 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
----- -----
The number of shares outstanding of the issuer's $0.0001 par value common stock
on February 13, 1998 was 20,250,153.
Transitional Small Business Disclosure format (check one):
YES NO X
----- -----
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TAVA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, 1997 June 30, 1997
- --------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,057,000 $ 907,000
Receivables (Note 3):
Trade, net of allowance for doubtful accounts 8,803,000 6,097,000
Other receivables 25,000 20,000
Costs and estimated earnings in excess of billings
on uncompleted contracts (Note 2) 6,895,000 5,712,000
Inventories 203,000 174,000
Prepaid expenses and other 568,000 222,000
- --------------------------------------------------------------------------------------------------
Total current assets 19,551,000 13,132,000
PROPERTY AND EQUIPMENT, at cost:
Building and land -- 850,000
Furniture and equipment 3,113,000 2,820,000
Leasehold improvements 760,000 786,000
- --------------------------------------------------------------------------------------------------
3,873,000 4,456,000
Accumulated depreciation and amortization (2,043,000) (1,823,000)
- --------------------------------------------------------------------------------------------------
Net property and equipment 1,830,000 2,633,000
CAPITALIZED SOFTWARE COSTS, net of accumulated amortization 3,638,000 2,025,000
OTHER ASSETS:
Excess of cost over fair value of assets acquired,
net of amortization 8,221,000 8,538,000
Debt issuance costs, net of accumulated amortization 325,000 274,000
Other assets 300,000 284,000
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS $33,865,000 $26,886,000
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
2
<PAGE>
TAVA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, 1997 June 30, 1997
- ------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit (Note 4) $ -- $ 75,000
Current portion of long-term debt (Note 4):
Related parties 100,000 142,000
Financial institutions and other 902,000 1,823,000
Capital lease obligations 72,000 111,000
Accounts payable 6,662,000 7,247,000
Billings in excess of costs and estimated earnings
on uncompleted contracts (Note 2) 1,824,000 1,478,000
Accrued expenses 1,490,000 1,718,000
Reserve for contract losses 370,000 370,000
- ------------------------------------------------------------------------------------------
Total current liabilities 11,420,000 12,964,000
LONG-TERM DEBT, NET OF CURRENT PORTION (Notes 4 and 5):
Financial institutions and other 2,337,000 5,332,000
Capital lease obligations 180,000 90,000
- ------------------------------------------------------------------------------------------
Total long-term debt 2,517,000 5,422,000
DEFERRED GAIN 14,000 24,000
STOCKHOLDERS' EQUITY (Notes 5 and 8):
Preferred stock, par value $.0001 per share; authorized
10,000,000 shares, 133,334 shares issued and -- --
outstanding, December 31 and June 30, 1997
Common stock, par value $.0001 per share; authorized
200,000,000 shares; 17,709,478 and 11,709,605
shares issued and outstanding December 31 and
June 30, 1997, respectively 2,000 1,000
Additional paid-in capital 28,649,000 15,998,000
Accumulated deficit (8,737,000) (7,523,000)
- ------------------------------------------------------------------------------------------
Total stockholders' equity 19,914,000 8,476,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $33,865,000 $26,886,000
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
3
<PAGE>
TAVA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $10,484,000 $8,137,000 $21,803,000 $16,104,000
COST OF SALES 6,807,000 5,598,000 14,595,000 10,680,000
- ------------------------------------------------------------------------------------------------------------
GROSS PROFIT 3,677,000 2,539,000 7,208,000 5,424,000
EXPENSES:
Sales expenses 1,177,000 475,000 2,004,000 1,073,000
General and administrative expenses 2,746,000 1,871,000 5,592,000 3,738,000
Amortization of capitalized software and goodwill 258,000 87,000 546,000 255,000
- ------------------------------------------------------------------------------------------------------------
4,181,000 2,433,000 8,142,000 5,066,000
OTHER INCOME (EXPENSE):
Gain on sale of assets 14,000 7,000 15,000 4,000
Interest expense (150,000) (206,000) (315,000) (378,000)
Other 59,000 9,000 78,000 12,000
- ------------------------------------------------------------------------------------------------------------
(77,000) (190,000) (222,000) (362,000)
NET LOSS $ (581,000) $ (84,000) $(1,156,000) $ (4,000)
- ------------------------------------------------------------------------------------------------------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS (Note 7) (611,000) (84,000) $(1,214,000) $ (4,000)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE, BASIC (Note 7) $ (0.036) $ (0.011) $ (0.076) $ 0.001
- ------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 17,110,148 7,796,321 16,070,391 7,221,023
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
4
<PAGE>
TAVA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Six months ended December 31,
1997 1996
- ------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(1,156,000) $ (4,000)
Adjustments to reconcile net cash used in operating activities:
Depreciation 331,000 294,000
Amortization of goodwill and capitalized software costs 546,000 263,000
Amortization of debt offering costs 26,000 52,000
Allowance for doubtful accounts 246,000 23,000
(Gain) on sale of fixed assets (15,000) (4,000)
Changes in operating assets and liabilities:
(Increase)decrease in:
Accounts receivable (2,957,000) 2,346,000
Costs and estimated earnings in excess of billings on uncompleted contracts (1,183,000) (5,000)
Inventories (29,000) (83,000)
Prepaid expenses and other assets (362,000) 31,000
Increase(decrease) in:
Accounts payable (585,000) (2,227,000)
Accrued expenses and other liabilities (238,000) (1,108,000)
Billings in excess of costs and estimated earnings on uncompleted contracts 346,000 (95,000)
Change in assets from discontinued operations -- 288,000
- ------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,030,000) (229,000)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Cash acquired in acquisition of All Control Systems -- 3,000
Acquisition costs of All Control Systems -- (168,000)
Purchase of equipment (277,000) (42,000)
Capitalized software costs (1,842,000) (627,000)
Investment in notes receivable -- 28,000
Proceeds from the sale of property and equipment 873,000 --
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,246,000) (806,000)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from the issue of notes and other borrowings -- 1,350,000
Principal payments on notes and other borrowings (1,406,000) (1,289,000)
Proceeds from the exercise of warrants and options, net of costs 5,141,000 --
Proceeds from the sale of common stock, net of offering costs 4,826,000 1,364,000
Preferred stock dividend (58,000) --
Deferred financing costs (77,000) (80,000)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 8,426,000 1,345,000
- ------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH 2,150,000 310,000
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CASH, BEGINNING OF PERIOD 907,000 236,000
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CASH, END OF PERIOD $ 3,057,000 $ 546,000
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Supplemental disclosure of non-cash investing and financing activities:
- ------------------------------------------------------------------------------------------------------------------
Conversion of long-term debentures to common stock $ 2,685,000 $ --
Equipment purchased under long-term capital leases 109,000 --
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
5
<PAGE>
TAVA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL INFORMATION.
Subsequent to December 31, 1997, the Company changed its name to TAVA
Technologies, Inc. The accompanying financial statements should be read in
conjunction with the Company's audited consolidated financial statements for
the year ended June 30, 1997. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments necessary
to present fairly the financial position as of December 31, 1997 and the
results of operations and cash flows for the periods presented. Management
believes all such adjustments are of a normal and recurring nature. The
consolidated financial statements include the accounts of TAVA Technologies,
Inc. (TAVA), Topro Systems Integration, Inc. (Topro), Management Design &
Consulting Services, Inc. (Management Design) Advanced Control Technology,
Inc. (Advanced Control), Vision Engineering Corporation (Vision) and All
Control Systems, Inc. (All Control), which was acquired as of December 1,
1996. The acquisition of All Control was recorded under the purchase method
of accounting. Accordingly, no results of its operations are presented for
periods prior to its acquisition. The results of operations for interim
periods are not necessarily indicative of results to be expected for a full
year.
The following unaudited pro forma summary combines the consolidated results
of operations of the Company and All Control as if its acquisition had
occurred at July 1, 1996 with pro forma adjustments to give effect to
amortization of goodwill, depreciation, and interest expense on debt incurred
in connection with the acquisitions. The pro forma summary is not
necessarily indicative of future operations or the results that would have
occurred had the transactions been consummated at the beginning of the
periods indicated.
<TABLE>
Six months ended December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
Net revenues $ 21,803,000 $ 23,417,000
Net income (loss) $ (1,156,000) $ 514,000
Income (loss) per share $ (0.07) $ 0.07
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE 2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS.
The following information is applicable to uncompleted contracts:
<TABLE>
December 31, 1997 June 30,1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 59,953,000 $ 54,400,000
Estimated earnings 10,214,000 10,136,000
- ---------------------------------------------------------------------------------------------------
70,167,000 64,536,000
Less billings to date (65,096,000) (60,302,000)
- ---------------------------------------------------------------------------------------------------
$ 5,071,000 $ 4,234,000
- ---------------------------------------------------------------------------------------------------
These amounts are included in the accompanying consolidated
balance sheets under the following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 6,895,000 $ 5,712,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (1,824,000) (1,478,000)
- ---------------------------------------------------------------------------------------------------
$ 5,071,000 $ 4,234,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
TAVA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. TRADE ACCOUNTS RECEIVABLE.
The following is a summary of trade accounts receivable:
<TABLE>
December 31, 1997 June 30, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Completed contracts $ 2,313,000 $ 2,174,000
Uncompleted contracts 7,241,000 4,941,000
Retainage 968,000 1,057,000
- -------------------------------------------------------------------------------------------------------------------------
10,522,000 8,172,000
Allowance for doubtful accounts (1,719,000) (2,075,000)
- -------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable, net $ 8,803,000 $ 6,097,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4. LINE-OF-CREDIT, SHORT AND LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS.
The following is a summary of the Company's indebtedness at:
<TABLE>
December 31, 1997 June 30, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LINE OF CREDIT:
- -------------------------------------------------------------------------------------------------------------------------
$500,000 line-of-credit pursuant to a loan agreement with a financial
institution, collateralized by substantially all assets of Advanced Control
interest at the prime rate(2) plus 2.0% per annum. The line expires in March
1998. $ -- $ 75,000
- -------------------------------------------------------------------------------------------------------------------------
Total line-of-credit $ -- $ 75,000
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
RELATED PARTY:
Notes payable to an officer and a former director of the Company, interest at
10.0% per annum payable semiannually, due on demand, unsecured. $ 80,000 $ 80,000
Notes payable to a director and former majority stockholders of Vision,
interest at 8.0% per annum, monthly payments of $10,000, unsecured. -- 42,000
Note payable to a relative of a director and former majority stockholders of
Vision, interest at 10.0% per annum payable quarterly, unsecured. 20,000 20,000
- -------------------------------------------------------------------------------------------------------------------------
Total related party $ 100,000 $ 142,000
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM DEBT:
Term loan pursuant to a loan agreement with a financial institution,
collateralized by substantially all assets of Vision, interest at the prime
rate(2) plus 2.0% per annum. The loan matures in March 1998 and requires
monthly principal payments in the amount of $17,000 plus interest. $ 37,000 $ 243,000
$1,000,000 term loan pursuant to a loan agreement with a financial institution
collateralized by substantially all assets of All Control and guaranteed by an
officer, interest at the prime rate(2) plus 5.0% per annum, monthly principal
payments of $30,000 through March 1998 and $40,000 through June 1998. Any
remaining balance is due on June 30, 1998. Prior to February 10, 1997, this
obligation was a $1,600,000 line-of-credit. In conjunction with the acquisition
of All Control, the line-of-credit was converted to a term loan of $1,000,000. 684,000 900,000
Term loan pursuant to a loan agreement with a financial institution
collateralized by substantially all assets and a deed of trust on the real
property of Advanced Control. Monthly principal and interest payments of
$11,000, interest at the prime rate(2) plus 2.5% per annum. -- 404,000
7
<PAGE>
TAVA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Line-of-credit, short and long-term debt and capital lease obligations
continued.
Term loan payable to a bank, interest at the prime rate(2) plus 2.0% per
annum, collateralized by equipment and leasehold improvements of Vision, due
on demand or if no demand, payable in monthly installments of $7,000 plus
interest through April 1998. -- 69,000
- -------------------------------------------------------------------------------------------------------------------------
Total short-term $ 721,000 $ 1,616,000
- -------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT:
9% convertible debentures with a small business investment fund. Outstanding
borrowings bear interest at 9.0% per annum, interest payable monthly. If the
debentures are not sooner redeemed or converted, a mandatory principal
redemption is due beginning March 1, 1999 in the amount of 1% of the then
remaining principal amount outstanding. The debentures are convertible into
the Company's common stock at the rate of one share for each $1.50 of
principal. The loan is collateralized by all the assets of Topro, Advanced
Control, Management Design and All Control. During July and August, 1997,
the debenture holders converted $2,685,000 of principal into 1,790,032 shares
of common stock.(1) $ 2,015,000 $ 4,700,000
Mortgage note payable to a bank, due in monthly installments of $2,941
including interest at 11.0% per annum, balloon payment of remaining balance is
due November 2001, collateralized by a first deed of trust on Advanced
Control's land and building. The mortgage note was repaid upon the sale of
Advanced Control's land and building during December 1997. -- 255,000
Four year promissory note bearing interest at 8.0% per annum payable to a
creditor. Monthly payments of $6,103 are due beginning May 1, 1996. 160,000 185,000
Term loan payable to a bank, interest adjusted quarterly based upon the prime
rate(2) plus 2.75% per annum, collateralized by a second security interest on
substantially all assets of Vision, guaranteed by the Small Business
Administration and personally guaranteed by an officer, which personal
guarantee is collateralized by a third deed on the officer's residence,
payable in monthly principal payments of $7,000 adjusted quarterly, through
September 2002. 245,000 274,000
Non-interest bearing note payable to Advanced Control's legal counsel payable
over 30 months at $5,000 monthly beginning April 1, 1996. The note has been
discounted using an effective interest rate of 10.25%. 76,000 88,000
Note payable, due in monthly installments through November 1999,
collateralized by a vehicle. 22,000 37,000
Capital lease obligations secured by equipment. 252,000 201,000
- -------------------------------------------------------------------------------------------------------------------------
Total long-term $ 2,770,000 $ 5,740,000
- -------------------------------------------------------------------------------------------------------------------------
Total indebtedness $ 3,591,000 $ 7,573,000
Less current portion (1,074,000) (2,151,000)
- -------------------------------------------------------------------------------------------------------------------------
Long-term portion $ 2,517,000 $ 5,422,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
TAVA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Line-of-credit, short and long-term debt and capital lease obligations
continued.
(1) The debentures include covenants which require the Company to maintain
certain working capital and net worth ratios. At December 31, 1997, the
Company was not in compliance with a certain financial covenant, however, the
lender has agreed to waive its rights to declare a default for such violation.
(2) At December 31, 1997, the prime rate of interest was 8.50% per annum.
NOTE 5. LONG-TERM DEBT AND STOCKHOLDERS' EQUITY.
During the six months ended December 31, 1997, holders of the Company's 9%
convertible debentures exercised their rights thereunder and converted
$2,685,000 of debenture principal into 1,790,032 shares of common stock.
During the six months ended December 31, 1997, holders of 3,254,841 stock
options and stock purchase warrants exercised their rights thereunder and
received an equal number of shares of the Company's common stock. The
Company received proceeds in the amount of $5,141,000.
In November 1997, the Company completed the sale of 955,000 shares of its
common stock in a private placement and received proceeds in the amount of
$5,252,500. Expenses incurred in connection with this offering were $426,500.
NOTE 6. DISCONTINUED OPERATIONS.
The operations of Sharp Electric Construction Co. Inc., a wholly owned
subsidiary, were discontinued during fiscal 1995. All remaining backlog has
been executed. The cash impact, if any, of any remaining Sharp operations
will not be material.
The operations of Tech Sales, Inc., a wholly owned subsidiary, were
discontinued during fiscal 1996.
NOTE 7. EARNINGS PER SHARE.
Basic earnings (loss) per share is calculated by dividing the net income
(loss) after deducting (adding) preferred stock dividends by the weighted
average common shares outstanding during the period. For purposes of
computing diluted earnings per share, common stock equivalents are not
included when the effect is antidilutive.
NOTE 8. SUBSEQUENT EVENT.
During January 1998, the holder of the Company's 133,334 convertible
preferred shares outstanding exercised its rights thereunder and converted
them into 1,333,340 shares of common stock.
9
<PAGE>
TAVA TECHNOLOGIES, INC.
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-QSB that are not historical or current facts
are "forward-looking statements" made pursuant to the safe harbor provisions
of Section 27A of the Act and Section 21E of the 1934 Act. These statements
often can be identified by the use of terms such as "may," "will," "expect,"
"anticipate," "estimate," or "continue," or the negative thereof. The
Company intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only
as of the date made. Any forward-looking statements represent management's
best judgment as to what may occur in the future. However, forward-looking
statements are subject to risks, uncertainties and important factors beyond
the control of the Company that could cause actual results and events to
differ materially from historical results of operations and events and those
presently anticipated or projected. These factors include adverse economic
conditions, entry of new and stronger competitors, inadequate capital,
unexpected costs and failure to capitalize upon access to new clientele.
Additional risks and uncertainties which may affect forward-looking
statements about the Company's Plant Y2K One-TM- business and prospects include
the possibility that a competitor will develop a more comprehensive or less
expensive Y2K solution, delays in market awareness of TAVA and its product
and service solutions which could have an immediate and material adverse
effect by placing TAVA behind its competitors for a time sensitive product
and inability to engage qualified staff as needed. The Company disclaims any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
10
<PAGE>
TAVA TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PLANTY2K-TM- PRODUCT DEVELOPMENT.
During the fourth quarter of fiscal 1997, the Company announced a major
business initiative based on its PlantY2KOne-TM- suite of products and
services designed to address year 2000 compliance problems in process control
and factory automation systems.
The PlantY2KOne-TM- product suite includes a methodology designed
specifically to address the manufacturing and process floor environment, an
inventory and compliance database that includes vendor information for
commonly used factory automation hardware and software components and search
engines that locate date related code in application programs.
The methodology includes assessment, analysis, planning and remediation
phases. The process begins with an assessment in which the overall project is
defined and organized. An inventory of all process control hardware and
software is then completed. In the analysis phase, that inventory is
examined, component by component, with the Company's database of vendor year
2000 compliance statements and custom code is analyzed with its search
engines to reveal date usage. The conversion planning stage addresses the
results of the analysis to develop a plan for bringing the client's system
into year 2000 compliance. The final stage is to execute the remediation
plan.
The Company supplies either "end to end" consulting services built upon the
methodology and use of the database and tools, or it will sell the
methodology, tools and database access, packaged on CD ROM and supported by
internet access to the client for self execution. The CD ROM version of the
product was released during the second quarter of the current fiscal year.
The Company has received orders from more than 30 clients for its year 2000
products and services and requests for proposals for multi-plant engagements
on a national and international basis. Though only in its early stages of
these engagements, which makes forecasting difficult, the Company believes
its Y2KOne-TM- product and services hold significant near-term commercial
opportunity. To properly support that opportunity, the Company has added,
and continues to add, significant technical staff. Management believes it
may need to add as many as 150 engineers over the next six to nine months.
During the second quarter of the current fiscal year, the Company made a
significant investment in the development of its Y2KOne-TM- products and
services and anticipates that it will have to make additional investment to
expand product development.
During the six months ended December 31, 1997, the Company recorded
$1,733,000 of year 2000 revenue. Management believes that its pursuit of year
2000 compliance business opportunities will have both short and long-term
effects on its operations. Cash flow from operations is anticipated to improve
and increased revenue with a smaller material component is expected to improve
profit margins. In addition to these near-term effects, the Company expects
that these efforts will expand its client base for its core business of system
integration.
LIQUIDITY AND CAPITAL RESOURCES.
During the first two quarters of the current fiscal year, holders of stock
options and stock purchase warrants representing 3,254,841 shares of common
stock exercised their rights thereunder and converted them into 3,254,841
shares of common stock. The Company received proceeds in the amount of
$5,141,000. The proceeds were used to reduce debt, other current liabilities
and for general working capital purposes. Current liabilities were reduced
by $1,544,000 during this period.
During the first quarter of the current fiscal year, holders of the Company's
9% convertible debentures in the principal amount of $2,685,000 exercised
their conversion rights and converted the debentures into 1,790,032 shares of
common stock. The Company did not receive cash proceeds in this transaction.
During November 1997, the Company completed the private placement of 955,000
shares of its common stock, receiving net proceeds in the amount of
$4,826,000.
11
<PAGE>
TAVA TECHNOLOGIES, INC.
During December 1997, the Company sold the land and building it owned at its
Albany, Oregon facility and entered into a leaseback arrangement.
As a consequence of executing its acquisition strategy, the Company has
assumed the debt obligations of the acquired companies to three banks.
During the first two quarters of fiscal 1998, the Company used the proceeds
from the aforementioned transactions to reduce current bank debt obligations
by $1,038,000.
Subsequent to December 31, 1997, the Company entered into an equipment lease
facility with a financial institution. The facility permits the Company to
enter into lease arrangements up to an aggregate amount of $600,000. The
Company anticipates to partially use this facility to upgrade its computer
equipment and administrative network. The Company granted the lessor stock
purchase warrants to purchase 5,000 shares of its common stock for $5.50 per
share. The warrants expire in February 2003.
Subsequent to December 31, 1997, the Company secured a $4,000,000 term loan
with a financial institution. The loan is secured by substantially all
assets of the Company. The loan bears interest at the rate of 11.5% per
annum. The loan is due in February 2003. No principal payments are required
until maturity. The Company granted the lender stock purchase warrants to
purchase 250,000 shares of its common stock for $5.50 per share. The
warrants expire in February 2003. Under the terms of this facility,
additional warrants may be granted if the outstanding principal is not repaid
prior to July 1999. The loan arrangement provides for an additional
borrowing in the amount of up to $2,000,000 under certain terms and
conditions. Proceeds will be used to extinguish senior bank debt, for
working capital purposes associated with Y2KOne-TM- start-up costs and for
potential acquisitions. At February 16, 1998, no principal has been drawn
under this facility.
As a result of these transactions and arrangements, the Company's working
capital position improved from $168,000 at June 30, 1997 to $8,131,000 at
December 31, 1997.
CAPITAL EXPENDITURES AND PRODUCT DEVELOPMENT COSTS.
The Company has no commitments for major capital expenditures. However, the
Company anticipates capital spending to upgrade its computer network and for
the development of hardware and software during fiscal 1998. During the six
months ended December 31, 1997, the Company capitalized $1,842,000 of
software and product development costs, primarily for its Plant Y2KOne-TM-
suite of products. The CD ROM version of the Plant Y2Kone-TM- product has
been developed and is actively being marketed.
CASH FLOW.
During the six months ended December 31, 1997, cash increased by $2,150,000.
Funds used in operating activities were $5,030,000. Cash in the amount of
$823,000 was used to reduce accounts payable and other accrued expenses.
Operating funds were also used to finance the $1,183,000 increase in costs
and estimated earnings in excess of billings and the $2,957,000 increases in
accounts receivable. Investments were made in capital equipment ($277,000)
and capitalized software development costs ($1,842,000) for a total use of
funds for these activities of $2,119,000. Financing activities provided
$8,426,000 of cash proceeds. Cash in the amount of $5,141,000 was received
during the period from the exercise of stock options and stock purchase
warrants and net proceeds in the amount of $4,826,000 were received from the
private placement of 955,000 shares of common stock. Principal payments on
the Company's indebtedness reduced debt and capital lease obligations by
$1,406,000
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED
TO THE THREE MONTHS ENDED DECEMBER 31, 1996.
The Company completed its last of four acquisitions (All Control Systems,
Inc.) on December 1, 1996. Because it was accounted for under the purchase
method of accounting, the results of its operations are included in the
Company's financial statements for only one month of the three month period
ended December 31, 1996. Results of operations for the Company and those of
its other subsidiaries are included for both periods.
12
<PAGE>
TAVA TECHNOLOGIES, INC.
During the quarter ended December 31, 1997, the Company incurred a net loss
in the amount of $581,000, compared to a net loss of $84,000 for the
corresponding quarter of fiscal 1997. Revenues increased by $2,347,000 or
29% to $10,484,000 for the quarter ended December 31, 1997 compared to the
same quarter of the preceding year. The gross margin during the quarter
ended December 31, 1997 improved to 35% compared to 31% for the comparable
period of the preceding year. The increase in both revenues and gross margin is
attributed to the inclusion of All Control Systems for the full quarter ended
December 31, 1997.
The net loss is primarily attributed to the start-up costs associated with
the Company's Y2KOne-TM- product and services. Product development costs and
sales support for Y2KOne-TM- products and services required that a
considerable number of the Company's engineers be taken off core business
projects. In addition, the Company hired and continues to hire engineers in
anticipation of increased revenues from Y2KOne-TM- products and services.
Further, an engineering office was opened in Birmingham, Alabama and a sales
office was opened in Greenville, South Carolina during the quarter ended
December 31, 1997. A national corporate sales department was also
established during this quarter.
Operating expenses increased by $1,748,000 to $4,181,000 for the quarter
ended December 31, 1997 compared to the corresponding quarter of the
preceding year. The increase is primarily attributed to higher corporate
expenses, primarily sales expenses, incurred to support growing operations.
The Company has recently hired additional executive staff and centrally
located them in its corporate headquarters in Englewood, Colorado. Non-cash
expenditures for the amortization of capitalized software, goodwill and
depreciation amounted to $499,000 during the current quarter. Interest
expense for the current quarter decreased by $56,000 compared to the quarter
ended December 31, 1997. The decrease is due to the reduction of debt
through conversion to common stock and the repayment of principal.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO
THE SIX MONTHS ENDED DECEMBER 31, 1996.
The Company completed its last of four acquisitions (All Control Systems,
Inc.) on December 1, 1996. Because it was accounted for under the purchase
method of accounting, the results of its operations are included in the
Company's financial statements for only one month of the six month period
ended December 31, 1996. Results of operations for the Company and those of
its other subsidiaries are included for both periods.
During the six month period ended December 31, 1997, the Company incurred a
net loss in the amount of $1,156,000, compared to a net loss of $4,000 for
the corresponding period of fiscal 1997. Revenues increased by $5,699,000 or
35% to $21,803,000 for the six months ended December 31, 1997 compared to the
same period of the preceding year. The gross margin during the two six month
periods remained constant at 33%. The increase in revenue is attributed to
the inclusion of All Control Systems for the full six month period ended
December 31, 1997.
The net loss is primarily attributed to the start-up costs associated with
the Company's Y2KOne-TM- product and services. Product development costs and
sales support for Y2KOne-TM- products and services required that a
considerable number of the Company's engineers be taken off core business
projects. In addition, the Company hired and continues to hire engineers in
anticipation of increased revenues from Y2KOne-TM- products and services.
Further, an engineering office was opened in Birmingham, Alabama and a sales
office was opened in Greenville, South Carolina during the quarter ended
December 31, 1997. A national corporate sales department was also
established during this quarter.
As a result of these activities, operating expenses increased by $3,076,000
to $8,142,000 for the six months ended December 31, 1997 compared to the
corresponding period of the preceding year. Sales expenses increased by 87%
to $2,004,000 and general and administrative expenses increased by 50% to
$5,592,000 when the two six month periods are compared. Non-cash
expenditures for the amortization of capitalized software, goodwill and
depreciation amounted to $877,000 during the current six month period. This
compares to $557,000 for the corresponding six month period of the previous
year. Interest expense for the current period decreased by $63,000 compared
to the six months ended December 31, 1997. The decrease is due to the
reduction of debt through conversion to common stock and the repayment of
principal.
13
<PAGE>
TAVA TECHNOLOGIES, INC.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS.
Statement of Financial Accounting Standards 129 "Disclosure of Information
About an Entity's Capital Structure" establishes standards for disclosing
information about an entity's capital structure. The statement is effective
for financial statements issued for annual periods ending after December 15,
1997. Its implementation is not expected to have a material effect on the
consolidated financial statements.
Statement of Financial Accounting Standards 130, "Reporting Comprehensive
Income" and Statement of Financial Accounting Standards 131 "Disclosures About
Segments of an Enterprise and Related Information." Statement 130 establishes
standards for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and distributions
to owners. Among other disclosures, Statement 130 requires that all items that
are required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that displays with
the same prominence as other financial statements.
Statement 131 supersedes Statement of Financial Accounting Standards 14
"Financial Reporting for Segments of a Business Enterprise." Statement 131
establishes standards on the way that public companies report financial
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. Statement 131 defines operating segments as components of a company
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
Statements 130 and 131 are effective for annual financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any, the
standards may have on the future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of these standards.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During the quarter ended December 31, 1997, the Company settled two
claims/disputes it had involving contract performance with customers and
general contractors for which it was a subcontractor. The disputes involved
claims by the Company to third parties and counter-claims to the Company by
third parties. Both claims were fully reserved for in the Company's accounts.
The settlements, which have been agreed to by the parties, resulted in the
Company realizing approximately 73% of its claims and the dismissal of all
pending counter-claims against it.
On December 5, 1997, a contractor for whom one of the Company's subsidiaries
acted as a subcontractor, filed suit in the U.S. District Court for the
Southern District of Maryland against the subsidiary. The complaint requests
relief in an unspecified amount in excess of $500,000 for damages alleged under
a contract relating to a semiconductor fabrication facility expansion project.
On the same date, in the same court, the subsidiary filed a complaint against
the contractor requesting damages in excess of $3,900,000 related to the same
project. As described in the Company's Form 10-QSB for the fiscal year ended
June 30, 1997, the dispute relates to contractual disagreements primarily
resulting from change orders made at the request of the customer and other
contractual matters. As of the date of this report, the case is in its
preliminary stages and it is impossible to predict the outcome.
14
<PAGE>
TAVA TECHNOLOGIES, INC.
On November 26, 1997, the contractor filed a substantially identical claim
against the subsidiary in Virginia. That proceeding was discontinued due to a
venue clause in the contract between the parties requiring that any claims be
litigated in Maryland.
In this same connection, two of the subsidiary's subcontractors filed suit
against it for payment under the contract. The subsidiary is working with
the contractor and subcontractors resolve the matters. At this time, no
agreement has been reached.
ITEM 2. CHANGES IN SECURITIES.
On November 21, 1997, the Company completed a private offering through a
placement agent of 955,000 shares of its common stock for gross proceeds of
$5,252,500. The shares were offered to a limited number of institutions in a
private transaction in accordance with the exemption from registration provided
by Section 4(2) of the Securities Act of 1933. All purchasers represented to
the Company that they were institutional accredited investors with the level of
sophistication in business and investments contemplated in Section 4(2). Each
investor was able to fend for itself in the transaction; each investor was
furnished with information concerning the Company; and each had the opportunity
to verify the information supplied. Each investor had access to complete
information concerning the Company, and was afforded the opportunity to receive
additional information and to meet and speak with management of the Company
upon request. The purchasers were granted rights pursuant to which the shares
were registered for public sale by the holders in a Form S-3 Registration
Statement declared effective on December 29, 1997. The Company's placement
agent was paid a cash commission equal to 8% of the gross proceeds of the
offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits.
27 Financial Data Schedule.
b) Reports on Form 8-K.
During the quarter covered by this report, the Company filed the
Current Reports on Form 8-K listed below, all of which reported
information pursuant to Item 5, "Other Events." No financial
statements were filed or required to be filed with these reports.
.
Form 8-K dated and filed October 16, 1997.
.
Form 8-K dated November 3, 1997 and filed November 4, 1997.
Form 8-K dated and filed November 14, 1997.
Form 8-K dated November 21, 1997 and filed December 2, 1997 and
amended by Form 8-K/A No. 1 filed December 11, 1997.
Form 8-K dated and filed December 19, 1997.
15
<PAGE>
TAVA TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TAVA Technologies, Inc.
(Registrant)
Date: February 13, 1998 /s/ John Jenkins
-------------------------------------
John Jenkins
Chairman of the Board,
President and Chief Executive Officer
Date: February 13, 1998 /s/ Douglas H. Kelsall
-------------------------------------
Douglas H. Kelsall
Chief Financial Officer and Secretary
Date: February 13, 1998 /s/ Robert C. Ogden
-------------------------------------
Robert C. Ogden
Principal Accounting Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF TAVA TECHNOLOGIES, INC. AND SUBSIDIARIES AT
DECEMBER 31, 1997 AND FOR THE SIX MONTHS PERIOD ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,057,000
<SECURITIES> 0
<RECEIVABLES> 10,522,000
<ALLOWANCES> 1,719,000
<INVENTORY> 203,000
<CURRENT-ASSETS> 19,551,000
<PP&E> 3,873,000
<DEPRECIATION> 23,043,000
<TOTAL-ASSETS> 33,865,000
<CURRENT-LIABILITIES> 11,423,000
<BONDS> 3,339,000
0
0
<COMMON> 2,000
<OTHER-SE> 19,912,000
<TOTAL-LIABILITY-AND-EQUITY> 33,865,000
<SALES> 21,803,000
<TOTAL-REVENUES> 21,803,000
<CGS> 14,595,000
<TOTAL-COSTS> 14,595,000
<OTHER-EXPENSES> 7,746,000
<LOSS-PROVISION> 246,000
<INTEREST-EXPENSE> 150,000
<INCOME-PRETAX> (581,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (581,000)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
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