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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A No. 1
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the fiscal year ended June 30, 1998
or
__ Transition report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number: 0 - 19167
TAVA TECHNOLOGIES, INC.
-----------------------
(Exact name of Small Business issuer in its charter)
Colorado 84-1042227
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7887 East Belleview Avenue, Englewood, Colorado 80111
- ------------------------------------------------- --------
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (303) 771-9794
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common stock,
$.0001 par value
-----------------
Check 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 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
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-KSB or any
amendment to this Form 10-KSB.[ ]
State issuer's revenues for its most recent fiscal year: $48,363,000.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and ask prices of such stock, as of a specified date within the past 60
days. On September 22, 1998, the aggregate market value of voting stock held by
non-affiliates, based on the closing price as quoted by the NASDAQ Stock Market,
was $126,128,000.
Transitional Small Business Disclosure Format (check one): Yes No X
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TAVA TECHNOLOGIES, INC.
FORM 10-KSB
Table of contents
Part I Page
Item 1 Description of Business. 3
Item 2 Description of Property. 10
Item 3 Legal Proceedings. 11
Item 4 Submission of Matters to a Vote of Security Holders. 12
Part II
Item 5 Market For Common Equity and Related Stockholder Matters. 12
Item 6 Discussion and Analysis or Plan of Operation. 13
Item 7 Financial Statements. 21
Item 8 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. 22
Part III
Item 9 Directors, executive officers, promoters and control
persons; Compliance with Section 16(a) of the Exchange
Act. 22
Item 10 Executive compensation. 24
Item 11 Security ownership of certain beneficial owners and
management. 27
Item 12 Certain relationships and related transactions. 29
Item 13 Exhibits and Reports on Form 8-K. 29
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TAVA TECHNOLOGIES, INC.
Form 10-KSB
Forward-looking statements
Statements made in this Form 10-KSB that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions federal
securities laws. These statements often can be identified by the use of terms
such as "may," "will," "expect," "anticipate," "estimate," or "continue," or the
negative thereof. Such forward-looking statements 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, but are not limited to those discussed under the caption
"Factors that May Affect Future Events" in Item 6 of this Form 10-KSB. 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.
Item 1. Description of business.
Recent Developments - Fiscal 1996-1998.
TAVA Technologies, Inc., a Colorado corporation formed in 1974, is an industrial
information technology company providing consulting and system integration
services to industrial markets. The Company designs, configures and installs
software based information and control systems that provide automatic control
and optimization of discrete and continuous manufacturing processes while
acquiring, storing and converting real time process data for use by operators
and enterprise management information systems. The Company's products and
services provide its clients greater operating efficiencies and the ability to
optimize the performance of information based businesses.
As an independent system integrator, the Company's client specific solutions may
include hardware and software components from a wide variety of suppliers as
well as Company proprietary products and custom software. The Company's
professional staff includes system engineers, software developers, system
analysts and technicians.
In fiscal 1996, TAVA began a program of select acquisitions of other system
integration companies in geographical and industry vertical markets not then
served effectively by the Company. The strategy included four primary elements:
- applying the infrastructure of the acquired companies to bring TAVA's
existing products and services to new geographical markets;
- taking the newly acquired vertical market expertise, technologies and
products to TAVA's existing markets;
- providing a nationwide operating platform from which TAVA could
more effectively deliver standard product and service solutions to
clients with multiple site locations; and
- developing a larger resource base to position TAVA to address larger
projects and clients than its immediate competition.
In fiscal 1996 TAVA acquired three independent system integration companies:
Management Design and Consulting Services, Inc., headquartered in Atlanta,
Georgia ("Management Design"); Advanced Control Technology, Inc., headquartered
in Albany, Oregon, ("Advanced Control") and Vision Engineering Corporation,
based in Cypress, California with sales and engineering offices in Sacramento,
Los Angeles, Phoenix and Chicago and a sales office in Boston ("Vision"). In
fiscal 1997, TAVA acquired All Control Systems, Inc. in West Chester,
Pennsylvania ("All Control"). To further expand its market presence, in fiscal
1998 TAVA opened new offices in Greenville, South Carolina, Houston, Texas, and
Minneapolis, Minnesota and formed a wholly-owned subsidiary, TAVA Alabama, Inc.
("TAVA Alabama"), which opened an engineering office in Birmingham, Alabama.
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TAVA is now one of the nation's largest independent systems integration
companies providing information and control system technologies to industrial
users. The Company believes that its growth through acquisition has been
successful and plans to continue to acquire systems integration companies
selectively to further its original objectives, as well as obtain additional
complementary product and consulting practice expertise.
TAVA manages its business through a structure that combines a centrally managed
national sales and marketing function with local solution delivery through its
various operating offices. Large and/or geographically diverse projects and
programs are often executed with combined resources from more than one office.
Through the course of its development, TAVA has retained certain key management
personnel from each of the acquired organizations, has promoted other employees
to senior management positions in the combined organization, and has recruited
new personnel to fill a variety of management positions in the new company
structure. During the year ended June 30, 1998, TAVA added 12 new senior
management personnel in finance, sales and marketing and operations.
Through 1995, TAVA invested in a company, Direct Measurement Corporation
("DMC"), which developed and marketed products utilizing a unique gas flow
measuring method. During fiscal 1996, TAVA sold its remaining investment in DMC
but, as a condition of that sale, retained a future royalty interest in sales of
DMC products. DMC was purchased by an unrelated third party which is obligated
under the royalty agreement. No royalty income has been generated to date.
Description of Business.
TAVA is a project based industrial information technology company that provides
consulting and system integration services to industrial clients in a broad base
of industries including: aerospace, airport facility operations, automotive,
chemical, petro-chemical and refining, food and beverage, forest products, pulp
and paper, mining and mineral processing, power generation, transmission and
distribution, pharmaceutical and bio-technology, semi-conductor and electronic
component, and environmental control. As a supplier of software based
information and control systems, the Company provides information based,
enterprise performance optimization for its clients.
Contracts for the systems are negotiated for a fixed price for a defined scope
of work or executed on a time and materials basis. Before commencing a project,
TAVA consults with the customer to develop: a functional description document
defining what the project will accomplish; a design document to define how the
project will be undertaken to satisfy the stated objectives; and acceptance test
procedures, which define in advance how the project will be determined
successful.
Control systems:
The control systems that TAVA provides are typically based on Programmable Logic
Controllers, Computer Numerical Controllers, DDC Controllers networked with
measurement and control devices, and operator interfaces, typically Personal
Computers, that use both text and graphics to display the plant or system
operation and performance characteristics, usually in real-time. Systems
typically include third party hardware components, packaged software
applications, custom software developed by TAVA staff and sometimes TAVA
proprietary products.
Third party component and packaged software application suppliers include:
Wonderware, Rockwell Automation, Intellution, General Electric, Square D,
Modicon, Microsoft, Digital Equipment Corporation, IBM, Hewlett Packard and many
others. The purchased products are readily available on a national basis and
TAVA is not dependent upon any particular supplier or group of suppliers.
Systems are generally assembled, configured and programmed at TAVA's operating
facilities and are accepted and approved by the customer prior to shipment for
installation. TAVA staff generally executes the final system installation and
start-up at the client's site.
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Information systems:
TAVA provides information systems that generally are either personal computer or
mini-computer based, typically in a client server architecture. The systems are
networked both to a control system in order to gather plant or process operating
data, and to enterprise management information systems such as Enterprise
Resource Planning systems to improve and optimize functionality.
The information systems may include: third party package software applications
such as advanced planning and scheduling modules as supplied by companies such
as I2; third party packaged manufacturing execution system applications such as
those supplied by RWT, Wonderware Corporation, Intellution, Inc., and others;
custom applications developed by TAVA staff and sometimes TAVA proprietary
products.
Consulting:
In its consulting capacity, TAVA's staff provides clients with operations
improvement analyses, business process engineering and information technology
planning. TAVA brings particular emphasis and expertise to enterprise wide
integration of management information and process control and automation
systems.
TAVA proprietary products:
TAVA develops, on a limited basis, packaged, re-usable software applications for
specific automation, control and information system requirements. These products
are generally sold as part of an overall system. Some current TAVA products
include applications for use in process line data acquisition, airport runway
lighting control systems, automatic positioning of overhead cranes, batch
processing for color mixing, power consumption monitoring, and Year 2000
assessment. These products provide the Company with competitive advantages and
increased margins in its system sales. The Company plans to continue to develop
similar products on a select basis.
Sales and marketing:
The Company sells all of its products and services through its national sales
and marketing organization, spread geographically across the United States but
reporting to its Executive Vice President of Sales and Marketing. This
organization combines geographical territory responsibility with specific,
industry market focus. In fiscal 1998, the Company added an international sales
manager, resident in the U.S., who manages international business development
activities. To date, the Company's direct international sales have been minimal
and have primarily been associated with supporting the international affiliates
of its U.S. based companies.
Project execution:
The Company executes its projects from its various operating offices spread
geographically across the United States. The Company's staff includes system
engineers, software developers, system analysts and technicians. Large and/or
geographically diverse projects and programs are executed with combined
resources from more than one office.
Projects are executed based on a TAVA standard methodology that continues to be
expanded in scope and detail. This TAVA methodology is critical to consistent
solution delivery across all offices and is the foundation for inter-office
project teaming. The Company has invested significantly in and will continue to
invest in intra-net and other information technology infrastructure to improve
internal communications and overall project execution performance.
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During fiscal 1998, TAVA provided information and control systems and other
technical services to national firms including the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Coca-Cola Merck Hershey
IVAX Kimberly Clark Kraft
Boeing Hewlett Packard Georgia Pacific
Cyprus Minerals Lipton
</TABLE>
In addition, during fiscal 1998, TAVA provided Year 2000 products and services
to national firms including the following:
<TABLE>
<CAPTION>
<S> <C> <C>
General Motors Weyerhaeuser Koch Industries
Chevron Amgen Bayer Corp.
Boeing Bristol-Myers-Squibb Polaroid Corp.
Kraft Johnson & Johnson Kennecott Minerals/Utah Copper
</TABLE>
Sales to any one customer during fiscal 1998 did not exceed 10% of the Company's
contract revenue. During 1997, sales to one customer accounted for approximately
18% of contract revenue.
In Denver, Colorado, Chicago, Illinois and Phoenix, Arizona, TAVA operates
service divisions that provide instrumentation calibration and small scope
system configuration services to local customers on a "demand" service basis.
This work is generally done at the customer's facility. As of June 30, 1998, the
group employed approximately 15 technicians on a full time basis. These
technicians also occasionally support larger system integration engineering
projects. The Company plans to continue to invest in and grow this business
across its organization.
Year 2000 initiative:
In late June 1997, TAVA engineers confirmed the existence of Year 2000
compliance issues in process control and factory automation systems. Management
believes that TAVA was one of the first organizations to determine that Year
2000 issues were a very real and serious concern in these systems. Although Year
2000 issues had been earlier recognized in classical management information or
financial systems, TAVA found that the issue had not been understood as a
potentially severe problem in process control, factory automation and facility
management systems.
Most such systems are complex combinations of hardware and software from a
variety of vendors. Therefore, a compliance issue with a single component and
the corresponding solution must be considered in the context of the impact on
the total system. Only a few components in any given system could have Year 2000
compliance issues. Finding these components and determining the resulting impact
in an ordered and accurate fashion is the critical and significant challenge.
Given these circumstances, TAVA believed that a system integrator with process
control and factory automation practice experience would be the logical choice
to effect the required solutions.
To address this market, commencing in June 1997, TAVA launched a major business
initiative to address Year 2000 compliance problems in process control, factory
automation and facility management systems. The Company determined that
addressing the Year 2000 issue in these systems was a logical extension of its
current business and it developed a proprietary package of products and
services, Plant Y2kOneTM, as the foundation of its approach. Plant Y2kOneTM
includes a methodology, system inventory support tool, access to a Company
developed database of Year 2000 compliance information, specific code search
engines and a remediation project management tool, all packaged on CD ROM. The
product is provided under license for use by clients directly or in combination
with consulting and technical services supplied by TAVA.
The Company's Year 2000 methodology includes assessment, analysis, planning and
remediation phases. In the assessment phase, the overall project is defined and
organized. An inventory of all process control hardware and software is then
completed using the Company's inventory builder tool. In the analysis phase,
that inventory is examined, component by component, using TAVA's database of
vendor Year 2000 compliance statements. Custom code is analyzed with TAVA's
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search engines to reveal date usage. The conversion planning stage applies 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 and
conduct system and enterprise wide training.
TAVA supplies complete Year 2000 project consulting services built upon the
methodology and use of the database and tools; or licenses the methodology,
tools and database access which are packaged on CD ROM and supported by internet
access, to the client for self execution, or provides a combination of both
approaches. The project staffing and management requirements for Year 2000
consulting and service engagements entered into by TAVA are undertaken by
engineering and technical staff of TAVA's subsidiaries. As Year 2000 compliance
projects are a straightforward extension of the Company's core technologies,
with the exception of specific training on the Plant Y2kOneTM product, the
Company has not had to invest in significant training of its personnel in order
to support this initiative. Newly hired employees have generally been able to
contribute within the first few weeks of employment.
The Company has made significant financial and resource investment in developing
the Plant Y2kOneTM product, in particular, the vendor compliance database. The
Company established a technology and resource center at its West Chester,
Pennsylvania office to support this effort. In January 1998, TAVA formed a
wholly-owned subsidiary, TAVA Y2k One, Inc. ("TAVA Y2k"), which owns the Plant
Y2kOneTM products and administers the operations and business affairs for this
business.
As of June 30, 1998, the Plant Y2kOneTM vendor compliance database included more
than 40,000 items and continues to grow as the Company addresses new
engagements. In the fourth quarter of its fiscal 1998, the Company began to see
rapidly accelerating market acceptance of its Plant Y2kOneTM products and
services. TAVA Y2k received in excess of $20,000,000 in new orders for the
product and related services in that quarter. Many of these orders exceed
$1,000,000 for the assessment and analysis phase of the project alone. Orders
generally include licenses of the Plant Y2kOneTM product and some quantity of
TAVA services that are provided on a time and expense basis. When TAVA continues
with clients from the assessment and analysis stage to conversion planning and
remediation, that activity will generally include purchase of TAVA services and
third party hardware and software components as required by the remediation
programs.
The scope and magnitude of these programs has placed significant demands on TAVA
management and staff resources. As many client organizations are late in
addressing Year 2000 issues in their factory automation systems, schedules are
now very compressed. The Company has increased staff significantly in order to
meet this demand, adding 174 employees during the 1998 fiscal year. To date,
hiring qualified staff has not been a major difficulty as the Company is hiring
from all of its 14 offices. It is not competing for the same type of employees
required for Year 2000 remediation in traditional management information
systems.
Strategic alliances and other ventures:
Since many TAVA clients for Year 2000 support services are multi-national
corporations with off-shore operations, during fiscal 1998, the Company
developed a Solution Provider Partner Program to provide local international
support of client's off-shore manufacturing operations. Solution Provider
Partners are system integration firms with experience in factory automation that
are located near TAVA's clients sites and which can supply staff to support
TAVA's international project manpower requirements. The Solution Provider
Partner undertakes to train its personnel on use of TAVA's Plant Y2kOneTM
product. In addition to the staff augmentation role in support of TAVA projects,
these organizations serve as value added resellers of the Plant Y2kOneTM product
in their own regional markets. As of June 30, 1998, this program had not yet
contributed any material direct revenue.
The Company expects that its Solution Provider Partner Program will continue to
have value beyond the Year 2000. Staff augmentation support will be required for
non-Year 2000 engagements and select partners will serve as a value added resale
distribution channel for other TAVA products and service.
At June 30, 1998, TAVA had agreements with 23 Solution Provider Partners in
locations ranging from Asia to Europe and Africa, providing the Company with an
additional resource pool of more than 1000 personnel.
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In its undertaking to address Year 2000 compliance issues in factory automation
systems, TAVA has developed formal Strategic Alliance and teaming agreements
with a number of information technology service companies. Agreements have been
signed with: Unisys Corporation, Computer Science Corporation; CTA Incorporated;
Software Control International and Data Dimensions, Inc. The Company also is
working on a similar but informal cooperation basis with others such as Keane
Inc.
The immediate purpose of these alliances is to form complementary teaming
arrangements that provide clients complete Year 2000 project services, covering
both conventional management information systems, the domain of the TAVA
alliance partners, as well as TAVA's domain of factory automation systems. TAVA
and its alliance partners believe that this teaming structure is viable in
non-Year 2000, information technology business development as well. In the
non-Year 2000 context, TAVA and an alliance partner team together to provide
integrated enterprise IT solutions that link process control to conventional
management information systems. As in Year 2000 teaming arrangements, the TAVA
alliance partner provides the management information systems expertise and TAVA
provides the automation, information technology domain experience. A number of
projects have already been identified for pursuit with an alliance partner.
In early fiscal 1998, TAVA developed Year 2000 product marketing alliances with
two automation product suppliers, Wonderware and Square D Corporation. The
general effect of these alliances has been to assist in creating awareness of
the Year 2000 issue in factory automation systems. The alliances did not produce
any significant direct commercial effect. The Company has determined that the
cooperative marketing programs were not reaching the right decision making level
in target clients. These specific alliances are no longer being actively
supported. TAVA has active working relationships with these organizations on
non-Year 2000 business activity.
TAVA expects that the demand for Year 2000 compliance products and services will
remain very strong through calendar year 1999 and into calendar Year 2000. As
many organizations will not complete total remediation prior to January 1, 2000,
some projects will include a temporary solution that will need to be addressed
through installation of a permanent solution in the months after January 1,
2000.
The Company has already seen that many client organizations involved in Year
2000 compliance programs have put other industrial information technology
projects on hold. There are two immediate reasons for this. One is that most
companies had not budgeted for this activity and are using other capital project
funds as the source of funding Year 2000 programs; the second is that clients,
for fear of duplicate or contrary spending, want to avoid executing new
information technology projects until they have a completed Year 2000 conversion
plan that addresses their entire information technology structure. As a result,
TAVA expects that during fiscal 1999 and 2000, much of its revenue base will
come from projects that involve a Year 2000 compliance element.
The Company believes that the Year 2000 event is an unparalleled opportunity to
secure new clients for whom it will continue to provide system integration and
consulting services beyond Year 2000. Through the end of fiscal 1998, the
Company had secured Year 2000 business with more than 100 clients. The Company's
ability to expand business with these clients after Year 2000 of course depends
on the quality of execution of its Year 2000 compliance support projects.
In March 1998, TAVA and R.W. Beck Plant Management Ltd., a leading engineering
and consulting firm to the utility industry, teamed together to address Year
2000 compliance issues in control and automation systems in the electrical
utility industry. In May 1998, TAVA and Beck, as co-owners, formed TAVA/R.W.
Beck, LLC ("TAVA/Beck"). TAVA Y2k granted the LLC a license to apply the Plant
Y2kOneTM technology exclusively to the utility industry. TAVA/Beck has its own
management and professional staff. Staffing plans provide for growth to a
resource base of more than 200 personnel.
Through June 30, 1998, TAVA/Beck has executed agreements with 16 clients. These
include both independent power producers and public utilities. Subsequent to
June 30, 1998, the Los Angeles Department of Water and Power authorized an
agreement with TAVA/Beck, subject to City Council review, to address embedded
system issues with funding limited to $9 million for a period of 24 months. Also
subsequent to June 30, 1998, TAVA/Beck signed an agreement with Y2K Africa, an
affiliate of the state utility of South Africa. Y2K Africa will apply the
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TAVA/Beck Utility Y2k(TM) products and services to electric, gas, water, and
wastewater utilities in South Africa and throughout the continent. TAVA/ Beck
did not have any direct financial impact on TAVA during fiscal 1998. The Company
expects a financial contribution from this entity to begin during the first
quarter of fiscal 1999.
In fiscal 1998, TAVA entered into an agreement to license its Plant Y2kOneTM
technology to Colorado MEDtech, Inc. ("CMED"). Pursuant to this agreement, CMED
will undertake to modify the Plant Y2kOneTM software tool and database structure
to tailor it specifically to the needs of the healthcare market. The modified
system, to be known as BioMed Y2kOne, is intended to assess compliance of
biomedical devices used in hospitals, clinics, and extended care facilities.
CMED will work directly with clients, and in cooperation with information
technology service companies that are providing Year 2000 compliance services in
the health care industry. CMED will offer a combination of tools and services to
support health care institutions' efforts to establish Year 2000 compliance for
their biomedical devices. TAVA will receive, as a royalty, a percentage of gross
profits generated by this activity. TAVA did not receive any license income from
CMED during fiscal 1998. License revenues from this activity are expected
beginning in the second quarter of fiscal 1999.
In late fiscal 1997, TAVA signed a strategic alliance agreement with PacifiCorp
Energy Services, Inc. ("PacifiCorp"), a division of PacifiCorp Holdings, Inc., a
leading electrical utility with international operations headquartered in
Portland, Oregon. The alliance agreement addressed the joint development of
business in automating utility and industrial power distribution substations and
was intended to combine TAVA's automation technology and know-how with the
utility specific experience and know-how of the PacifiCorp engineering
resources. The alliance activity resulted in one significant project award in
early fiscal 1998. During fiscal 1998 there has been little to no activity from
this alliance.
Competition.
Many firms throughout the United States provide control systems integration
services comparable to those offered by TAVA. TAVA believes that the dominant
practice among firms in the control systems integration business is to focus
their competitive efforts on a single geographic region or a particular
marketplace. Examples include vertical market prominence (water and waste-water
treatment, power-generation, petroleum, mining, and chemical industries) or
functional prominence (programmable logic control, distribution control systems,
and data acquisition). By focusing upon a particular market, many firms
typically acquire expertise, specialized resources and business relationships
that result in a competitive advantage only within that market.
TAVA believes that through its acquisition strategy, it has assembled a broad
range of market expertise which, when combined with its large resource base and
diverse geographical presence, gives it competitive advantages over many other
firms. Because of its resource base, TAVA can address projects of a size and
scope many other integrators cannot. TAVA's geographic reach gives it a
competitive advantage in serving customers that have multiple manufacturing
facilities spread across the country.
While most independent control system integrators are much smaller than TAVA,
there are some general engineering firms which are larger and better financed.
TAVA competes in certain markets with these firms but generally not across all
markets. One example of such a competitor is the automated System Division of
Raytheon Engineers and Constructors International, Inc.
Specifically in the market for Year 2000 compliance in factory automation and
process control, TAVA has encountered little competition for its comprehensive
product offering. Raytheon is clearly the Company's largest competitor in this
area.
Research and development.
TAVA conducts limited research and development through both customer funded
projects or internal research projects. Costs are incurred in specific system
projects that employ existing technologies for which feasibility previously has
been established to develop applications within specific industries. These
applications are produced to have broad application in specific industries. Once
technological feasibility is established, the Company capitalizes software
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development costs up to the time the product is available for sale to customers.
This investment is designed to create both improved margins through repeat sales
of applications in specific vertical markets and to improve TAVA's competitive
position in these markets. Costs that are incurred prior to determining
technological feasibility are charged to expense. During the year ended June 30,
1998, TAVA capitalized $3,188,000 of costs it incurred to develop its Plant
Y2kOneTM product and service offering and $736,000 to develop other software
products.
The Company does not anticipate that further major development effort will be
incurred on its Plant Y2kOneTM products other than the continued expansion of
the vendor management database. TAVA's product development resources have been
re-directed to programs put on hold during the Year 2000 ramp up. Some of these
programs have grown out of the Year 2000 engagement experience.
Backlog.
At June 30, 1998 and 1997, the sales order backlogs for the Company's system
integration and services business were approximately $34,059,000 and
$12,153,000, respectively. This included a backlog of approximately $20,984,000
from its Year 2000 products and services business at June 30, 1998. There was no
corresponding backlog at June 30, 1997. Certain of the Company's contracts
require the provision of its systems integration services as a smaller portion
of a large contract. Consequently, the Company can not always control the timing
of the execution of its work on a specific project. This restriction may prevent
contracted backlog from being completed within an ensuing twelve month period.
This backlog measurement includes time and expense contracts which, generally
may be cancelled upon 30 days' notice.
Employees.
At June 30, 1998, TAVA had 491 full-time employees, including 41 contract or
temporary employees. During the year ended June 30, 1998, the Company added 174
employees, an increase of 55% over the previous year. No employee is represented
by a labor union and the Company believes its employee relations are good.
Item 2. Description of property.
The Company maintains major leased facilities at the following locations:
<TABLE>
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Square Term of Current
Function Location feet Lease annual rent
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<S> <C> <C> <C> <C>
TAVA Technologies, Inc., 7887 East Belleview Ave. 3,100 December 2002 $ 61,000
Corporate headquarters. Englewood, CO
Topro Systems, engineering 2525 West Evans Avenue 32,000 April 1999 $204,000
and manufacturing facilities. Denver, CO
Topro Systems, engineering and 1900 West Broadway 13,000 February 2002 $145,000
sales facility. Phoenix, AZ
TAVA Y2k and All Control, 905 Airport Road 35,000 February 2004 $390,000
manufacturing, engineering and West Chester, PA
sales facility.
Advanced Control, engineering, 2830 Ferry Street 13,000 November 2004 $ 82,000
sales and manufacturing Albany, OR
facilities.
Advanced Control, additional 2514 Ferry Street 12,000 July 2001 $ 72,000
manufacturing facilities. Albany, OR
</TABLE>
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<TABLE>
<CAPTION>
Square Term of Current
Function Location feet Lease annual rent
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advanced Control, engineering 8130 304th Avenue S.E. 12,000 February 2000 $ 82,000
office. Preston, WA
Management Design, engineering 3900 Kennesaw 75 Pkwy. 16,000 May 2003 $ 87,000
and manufacturing facilities. Kennesaw, GA
Vision, engineering and sales 10855 Business Center Dr. 31,000 September 2001 $158,000
facilities. Cypress, CA
Vision, engineering and sales 760 Pasquinelli Dr. 4,000 April 2001 $ 65,000
facilities. Westmont, IL
Vision, engineering and sales 11315 Sunrise Gold Circle 7,000 September 2002 $ 53,000
facilities. Rancho Cordova, CA
TAVA Alabama, engineering 2027 1st Avenue North 2,200 Month to month $ 51,000
facility. Birmingham, AL
</TABLE>
Subsequent to June 30, 1998, TAVA leased space for its new offices in Houston,
Texas and Minneapolis, Minnesota. TAVA has capacity for growth in certain of its
facilities. However, management intends to expand facilities at its Topro
Systems engineering and manufacturing facility in Denver to support growth.
Additionally, management intends to expand its corporate headquarters facility
to accommodate additional personnel and centralize certain administrative
functions. Management continuously evaluates adding facilities in new geographic
areas or expanding existing facilities as business conditions warrant.
Item 3. Legal proceedings.
At June 30, 1998, TAVA and certain of its officers and directors were parties to
certain legal proceedings. On June 17, 1998 and thereafter, TAVA, John Jenkins,
its President and a director, Kevin Fallon, its Chief Operating Officer, and H.
Robert Gill, a former director, were served with a complaint in a civil case
brought by Jon Walker, Sr. and Imogene Walker. The case was filed in the U.S.
District Court for the District of Oregon on or about May 28, 1998. Also named
as defendants were TAVA's prior financial consulting firm and one of its
principals, a broker-dealer firm with offices in Denver, Colorado and one of its
representatives, and numerous John Does and John Doe entities. The complaint
relates to the following circumstances: on May 28, 1997, the approximate time
that Mr. Walker resigned as a director of TAVA, he and his wife sold a sizable
block of TAVA shares in the open market to a third party not affiliated with
TAVA. The Walkers allege that as of that date, TAVA substantially had completed
its Plant Y2kOneTM products, and intentionally withheld this information from
Mr. Walker, while disclosing it to the unaffiliated purchaser. The Walkers also
allege that the defendants aggressively induced them to sell the shares, which
they otherwise would have held until May 1998. The Walkers have asked for relief
consisting of 929,428 TAVA shares, for which they will tender the proceeds of
their sale, or, in the alternative, money damages equal to the difference
between the $1.50 price at which they sold the shares in May 1997 and the $13.00
price in May 1998, when they claim they would have sold. The defendants believe
that the Walker's claims are wholly untrue and deny all of the allegations. TAVA
and the related defendants have filed motions to dismiss the federal securities
claim for failure to state a claim; to dismiss the claims asserted against
Messrs. Gill and Fallon for lack of jurisdiction; and to transfer the action to
the U.S. District Court for the District of Colorado. TAVA understands that the
other named defendants have filed similar motions. All of these motions are
scheduled for oral argument in November, 1998. Discovery has been stayed pending
outcome of these motions On September 11, 1998, the Walkers filed a stipulation
and order dismissing all claims against TAVA's prior financial consulting firm
and its principal. TAVA intends to defend the case aggressively and has been
advised that the other defendants will do the same. Although the case is in a
very early stage, as of this date, management believes that the claims clearly
are groundless and that its defense of the case will be successful.
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TAVA's subsidiary, All Control, is a party to a civil action filed in U.S.
District Court for the District of Maryland by Marshall/Hyman, a joint venture,
which acted as the general contractor on a computer chip processing facility
project located in Manasas, Virginia. Marshall/Hyman filed the suit on December
5, 1997, claiming damages in excess of $100,000. On the same date in the same
court, All Control filed a counterclaim requesting damages in excess of
$3,900,000 arising under its subcontract. Discovery is proceeding in the matter
and trial is expected to be held in January of 1999. TAVA intends to pursue this
claim vigorously. In connection with this same project, other lesser claims are
pending among All Control and other parties.
TAVA is also a party to various disputes involving matters of contract
compliance and payment of its billings. Management does not believe that the
outcome of any of these disputes will have a material adverse effect on TAVA's
results of operations, its financial position or cash flows. At June 30, 1998,
TAVA has provided an allowance for doubtful accounts receivable in the amount of
$1,305,000.
Item 4. Submission of matters to a vote of security holders.
None.
Part II.
Item 5. Market for common equity and related stockholder matters.
TAVA's common stock is traded under the symbol TAVA on the automated quotation
system of the National Association of Securities Dealers National Market System
("Nasdaq"). Prior to February 18, 1998, the common stock was quoted on the
Nasdaq Small-Cap Market.
The range of the high and low closing sales price quotations for TAVA's common
stock as quoted by Nasdaq for the past two fiscal years is provided below:
Year ended June 30, 1998 High closing sales price Low closing sales price
- --------------------------------------------------------------------------------
Fourth quarter $14.88 $8.75
Third quarter $14.63 $5.00
Second quarter $ 7.00 $4.75
First quarter $ 7.18 $1.75
Year ended June 30, 1997 High closing sales price Low closing sales price
- --------------------------------------------------------------------------------
Fourth quarter $2.13 $1.22
Third quarter $2.81 $1.22
Second quarter $3.38 $2.13
First quarter $2.88 $1.63
- --------------------------------------------------------------------------------
On September 9, 1998, there were 475 record holders of TAVA's common stock and
approximately 13,500 beneficial holders, including holders of shares in nominee
or street name.
TAVA has never declared a dividend on its common stock and it is anticipated
that any earnings will be retained for use in its business for the foreseeable
future. TAVA is required to obtain the prior written consent of the holder of
its $4,000,000 term note due January 2001 in order to: (a) declare or pay any
dividends, either in cash or property, on any shares of its capital stock of any
class, except dividends or other distributions payable solely in shares of
capital stock of TAVA; (b) directly or indirectly purchase, redeem or retire any
shares of its capital stock of any class or any warrants, rights or options to
purchase or acquire any shares of its capital stock; or (c) make any other
payment or distribution, either directly or indirectly, in respect of its
capital stock. TAVA's ability to pay dividends is not restricted under any other
arrangements or agreements to which it is a party.
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The transfer agent for TAVA's common stock is American Securities Transfer &
Trust Co., Incorporated, 938 Quail Street, Suite 101, Lakewood, CO 80215.
During December 1997, the holder of TAVA's 133,334 shares of Series A
Convertible Preferred Stock outstanding, which shares constituted the entire
issue of the Series A Preferred Stock, exercised its conversion rights and
converted all of its preferred stock holding into 1,333,340 shares of common
stock.
Item 6. Management's Discussion and Analysis and Plan of Operation.
Fiscal year ended June 30, 1998 compared to fiscal year ended June 30, 1997:
During December 1996, the Company completed the acquisition of All Control, a
company engaged in business similar to its own. The acquisition was accounted
for under the purchase method of accounting, which requires that the operating
results of All Control be included in the Company's financial statements from
the time of acquisition forward. During late June 1997, the Company announced
its plans to develop its Plant Y2kOneTM suite of products and services. During
the period from July 1997 through January 1998, the Company expended
considerable time and resources to plan and develop these products. They became
widely available for sale during the third quarter of the fiscal year ended June
30, 1998. Further, to develop, market and service these new products, the
Company added 174 new employees and opened four new offices during the current
fiscal year. This represented a 55% increase in employees.
The 1997 statement of operations and related footnote disclosures contain
information on operations that were discontinued during 1995. At June 30, 1998,
the remaining obligations of those entities have been completed. Losses from
discontinued operations were $106,000 for the year ended June 30, 1997.
Management believes that there are no remaining material obligations that will
impact the Company's operations in the future. The following analysis discusses
only the continuing operations of the Company.
As a consequence of the matters mentioned above, meaningful comparisons of the
changes in the Company's operating results from its fiscal years ended June 30,
1998 and 1997 are difficult to make. During the year ended June 30, 1998, the
Company incurred a net loss in the amount of $250,000, compared to a net loss in
the amount of $2,735,000 for the year ended June 30, 1997. The net loss incurred
during fiscal 1997 included a $944,000 charge to bad debt expense and a charge
in the amount of $250,000 related to expenses that were anticipated to be
incurred, and subsequently were, in connection with the acquisition of Vision.
The net loss in fiscal 1998 was net of a $100,000 reduction in the bad debt
reserve and a $270,000 recovery of a litigation reserve which was accrued as of
June 30, 1997 and reversed in 1998. In addition, in fiscal 1998 as a result of
new information on the litigation matter, the potential loss has been determined
by management and its legal counsel to be less than $10,000. The Company's
improved performance during the current fiscal year is primarily attributable to
the sales of its Plant Y2kOneTM products and services. These sales began to have
a significant impact on the Company's operating results during the fourth
quarter of the fiscal year ended June 30, 1998. Through the first three quarters
of the current fiscal year, the Company incurred a net loss in the amount of
$855,000.
Revenue increased by $11,520,000 or 31% to $48,363,000 during the year ended
June 30, 1998 as compared to revenue of $36,843,000 in 1997. Revenue from the
Company's Plant Y2kOneTM products and services was $14,390,000 during the
current year, $9,000,000 of which was realized during the fourth quarter. This
revenue included revenue from license agreements and product reports of
$5,765,000 and $8,625,000 from services primarily associated with the inventory
and analysis phases of its Plant Y2k OneTM offering. Management believes that
revenues from sales of the Company's Plant Y2kOneTM products and services will
continue to increase through fiscal 1999 and into fiscal 2000.
Revenue generated from the Company's systems integration business includes
resale of hardware, software and subcontracting services to customers. These
activities generally are passed through to customers at lower gross margins than
labor services or proprietary product sales. The Company's Plant Y2kOneTM
services are labor intensive and, to a great extent, do not include resale
items; accordingly, these services afford significantly higher gross margins.
The Company's Year 2000 product revenue is generated from repetitive sales of
Year 2000 product software and compliance status reports. The direct costs after
development associated with these repetitive sales is much smaller than the
direct costs associated with the Company's systems integration business and Year
2000
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services. Management expects Year 2000 product sales to result in improved gross
margins. The Company's revenue mix between the resale of hardware, software,
subcontracting services and Plant Y2kOneTM products to value added labor and
proprietary products can have significant impact on both revenue and gross
margins between accounting periods.
Gross profit increased by $6,432,000 or 51% to $18,953,000 during the year ended
June 30, 1998, as compared to gross profit of $12,521,000 in 1997. The
consolidated results of operations resulted in an increase in gross profit
percentage from 34% in 1997 to 39% during 1998. The improvement in gross profit
percentage is largely attributable to higher margins obtained on the sale of
Plant Y2kOneTM products and services. There are three factors associated with
the Company's Plant Y2kOneTM products and services that have a favorable impact
on gross margins: (1) the Company has higher billing rates for its Plant
Y2kOneTM services than it has historically obtained on its system integration
projects; (2) the Company's direct costs associated with the revenue from
PlantY2kOneTM product sales are much lower as a percent of sales than the direct
costs associated with its system integration and service businesses, resulting
in higher gross margins from its product revenue; and (3) the Company obtains a
higher gross margin on the labor component of its business than on the material
resale component. Since Plant Y2kOneTM projects are labor intensive, gross
margins on them have been better than historical margins obtained on systems
integration projects. Management expects future gross margins as a percentage of
revenue from this business segment will fluctuate between accounting periods
depending on this business mix as well as project execution. In the fourth
quarter, the Company reclassified $1,100,000 for the overhead allocation charges
on contracts from general and administrative expense to cost of revenue.
Selling, general and administrative expenses increased by $3,939,000 or 30% to
$17,051,000 for the year ended June 30, 1998. Selling and marketing expenses
accounted for $2,597,000 of the increase and general and administrative expense
accounted for the remaining $1,342,000. The increases are primarily attributable
to additional personnel and the general increase in the Company's business
activity levels due to the introduction of its Plant Y2kOneTM products. In
addition, the Company opened its corporate office, three new sales offices and
an engineering office during the current year. The Company now operates from
thirteen branch locations across the United States, each of which has its own
operating expenses such as salaries, rent and local administration. The sales
and marketing staff increased by seven, many at the senior and executive level,
to a total of 37 at June 30, 1998. With the opening of its corporate office in
Englewood, Colorado, the Company's executive management is now centrally
located. During the year, the Company continued to make considerable investments
in developing a national sales and marketing program. These efforts and
expenditures were made primarily in connection with the introduction of the
Company's Plant Y2kOneTM program. Since its growth will depend to a certain
extent on expanding relationships with existing clients, developing new
accounts, penetrating new industry markets, and developing a consulting practice
servicing the system integration sector of industry, management anticipates that
the level of selling, general and administrative expenses will continue to grow
in order to support the expanded operations, but will decrease as a percentage
of sales.
Amortization of goodwill resulting from acquisitions totaled $623,000 for the
year ended June 30, 1998 compared to $479,000 for the preceding year. The
increase is a result of a full year's amortization in fiscal 1998 on the
goodwill related to the acquisition of All Control, which occurred in December
1996. In fiscal 1998, goodwill amortization expense in the amounts of $209,000,
$162,000 and $252,000 were attributed to the acquisitions of Vision, Advanced
Control and All Control, respectively.
The Company capitalizes the cost of developing software products which have
achieved technological feasibility, but are not yet ready for sale to customers,
when it believes there is a market for future use of the technology. During the
years ended June 30, 1998 and 1997, the Company capitalized $3,924,000 and
$1,174,000, respectively, of software development costs. Development costs of
the Company's Plant Y2kOneTM program accounted for $3,188,000 of the total
capital expenditure during the current year. The Company is amortizing the cost
associated with the development of Plant Y2kOneTM through December 1999.
Amortization expense of the capitalized costs was $1,068,000 and $336,000 for
1998 and 1997, respectively. In the fourth quarter, the Company capitalized
approximately $159,000 of development cost and interest expense of $73,000 that
had been expensed in prior quarters.
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During the year ended June 30, 1998, the Company consolidated the debt it
assumed with its acquisitions of Vision, Advanced Control and All Control into
one corporate facility. Total debt, including obligations under long-term
capital leases, decreased by $1,701,000 during the current year. Interest
expense decreased by $331,000 to $656,000 for the year ended June 30, 1998 when
compared to the previous year. The decrease is the result of principal
repayments, debt conversions to common stock, and capitalization of interest as
part of the Plant Y2kOne development efforts, offset by additional borrowings
under long-term capital leases, primarily for computer equipment.
Although the Company incurred a consolidated net loss during fiscal 1997, a
provision for state income and franchise taxes was necessary because there was
taxable income in a state which does not permit the filing of a consolidated
income tax return. For 1997, the Company had an income tax provision of $110,000
as compared to no federal or state income tax provision for 1998. For both
years, the Company has recorded a 100% valuation allowance on its net deferred
tax asset since management could not determine if it was more likely than not
that this asset would be realized.
At June 30, 1998, the Company had net operating loss carry forwards (NOLs) of
approximately $18,000,000 for Federal income tax purposes. The NOLs expire in
the years 2008 through 2013. A portion of the NOLs is limited on an annual basis
as a result of Internal Revenue Code Section 382.
Management believes that higher levels of operating earnings and cash flows from
the sale of its Plant Y2kOneTM products and services will continue through
fiscal 1999 and into fiscal 2000. It is anticipated that these earnings and cash
flows will decrease as the calendar Year 2000 approaches. The Company's national
marketing program and the introduction of both new national and international
clients through the provision of Year 2000 compliance services has afforded the
Company new opportunities to expand its systems integration business.
Additionally, the Company has introduced consulting services in the areas of
operations improvement analyses, business process engineering and information
technology planning. See "Factors That May Affect Future Event," below.
The Company expects that its growth and acquisition strategy will continue to
provide opportunities to improve earnings through volume increases and greater
operating efficiencies at both the direct and overhead expense levels. The
Company continues to consolidate administrative and accounting functions at the
corporate level and anticipates these activities to continue in the near-term.
Liquidity and capital resources for the year ending June 30, 1998.
During the year ended June 30, 1998, the Company raised cash proceeds of
$16,275,000 through equity financing and the exercise of stock options and stock
purchase warrants. Additionally, the Company netted cash proceeds of $1,396,000
from debt borrowing. Non-cash equity in the amount of $3,032,000 was provided
through the conversion of the Company's 9% debentures into common stock.
As a result of these transactions, the Company has significantly improved its
financial position and liquidity. At June 30, 1998, the Company's working
capital position was $17,322,000. This compares to working capital in the amount
of $168,000 one year earlier. The Company's cash position has similarly improved
from $907,000 to $4,993,000 during the same time period.
Accounts receivable and accounts payable.
The improved liquidity has permitted the Company to reduce its accounts payable
balance by approximately $1,507,000 during the current year. The Company's trade
accounts receivable have increased by $8,704,000 from balances at June 30, 1997.
This is primarily the consequence of significant billings during the fourth
quarter to customers for the Company's Plant Y2kOneTM products and services.
Management continues to review its accounts receivable for collectability and
believes that the level of its allowance for doubtful accounts is adequate to
provide for any potential losses that may occur.
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The Company's Year 2000 contracts can result in significant individual accounts
receivable. Failure to collect on any of these accounts could have an adverse
effect on the financial position of the Company. This credit risk is mitigated
by TAVA's commercial and contract terms and the general financial strength of
its client base.
The Company anticipates that its accounts receivable will grow significantly
during its next fiscal year due to anticipated growth in the Company's business.
Management believes that accounts receivable growth can be financed by cash on
hand, establishing new short term credit facilities, and anticipated positive
cash flow from operations. In the event that the Company is not successful in
arranging new credit facilities or generating cash flow from operations, the
Company may need to curtail its anticipated growth.
Debt repayments.
Certain of the Company's convertible debt facilities require principal
amortization beginning in March of 1999. Monthly payments will be equal to 1% of
the outstanding principal amount, which, based on the outstanding balance at
June 30, 1998, would be approximately $15,000 per month. Management believes the
Company will have sufficient cash flow from operations to meet these principal
repayments or alternative sources of capital will be available to meet these
repayments. The Company's $4,000,000 term note has been discounted by $796,000
to reflect the value assigned to stock purchase warrants which were granted to
the lender. The unamortized discount as of June 30, 1998 was $730,000. The
principal is due in January 2001. In the event that the Company elects to prepay
this debt, the unamortized balance of the discount remaining at the date of
principal repayment would be reflected as interest expense. The discount is
being amortized over the term of the loan. Total principal repayment obligations
for debt and capitalized leases are $568,000 for its fiscal 1999. Management
believes it will have sufficient cash flow from operations to meet these
repayments or alternative sources of capital will be available to meet these
obligations.
Capital expenditures.
At June 30, 1998, the Company was in the early stages of customizing new
software that it will use throughout the organization to process its internal
accounting and operational information and data. Through June 30, 1998, the
Company incurred approximately $250,000 of external costs associated with this
new software and has open commitments to incur approximately $250,000 during
fiscal 1999. The Company has no other material commitments for capital
expenditures. During the year ended June 30, 1998, the Company entered into
capital and operating leases for the acquisition of computer equipment. The
leases were for equipment with a cost of $790,000. The leases require monthly
payments through July 2001.
Cash flow.
During the year ended June 30, 1998, the Company used cash from operations in
the amount of $9,209,000, compared to $1,422,000 during the prior year. This is
a result of working capital which was utilized to fund the large increases in
accounts receivable, costs in excess of billings and the increase in other
current assets. Similarly, considerable resources were used to reduce accounts
payable and other current liabilities.
Cash used in investing activities increased by $2,193,000 to $4,090,000 during
the year ended June 30, 1998 when compared to the preceding year. The increase
is primarily attributed to costs incurred in the development of the Company's
Plant Y2kOneTM products in the amount of $3,188,000.
Cash provided by financing activities was $17,385,000 for the year ended June
30, 1998 compared to $3,990,000 for the preceding year. The Company received net
proceeds in the amounts of $4,711,000, $11,052,000 and $4,000,000 from the sale
of equity securities, the exercise of stock options and stock purchase warrants
and the issuance of notes and other borrowings, respectively, during the year.
Principal repayments on debt obligations during the year ended June 30, 1998
were $2,604,000.
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The Company's negative cash flow from operations has primarily resulted from an
increase in accounts receivable resulting from increased business activity, and
a significant investment in its Plant Y2kOneTM software and product compliance
data base. Management believes this negative cash flow will improve over its
next fiscal year due to a lower investment in its Year 2000 software and
improved operating results.
Capital resources.
The Company's working capital has improved significantly over the last 12
months, primarily from external financing activities. The Company has an excess
of $17,322,000 of current assets over current liabilities as of the 1998 fiscal
year end. Further, the Company had cash on hand of $4,993,000 at June 30, 1998.
Management anticipates the Company will continue to invest in its Year 2000
software and product compliance database. The majority of this investment will
be associated with immediate sales where the Company retains ownership to the
technology and information developed. This investment in software and data base
expansion is discretionary and can be increased or decreased by management based
on available capital.
The Company anticipates continuing to aggressively hire to meet customer
demands. As staff is expanded, the Company will need to invest in new equipment,
as well as additional office facilities. Management believes equipment financing
can be arranged to meet demands and office space will be leased.
The Company anticipates it will continue to pursue acquisitions as part of its
growth strategy. If acquisitions are consummated, additional capital may be
required.
Management believes that its improved financial condition and favorable
operations trends will continue. Further, management believes that it has access
to capital in the form of (1) additional short and/or long term credit
facilities, (2) access to equipment financing and office lease facilities, and
(3) additional equity financing. Management anticipates it will continue to have
access to additional capital through these sources in amounts necessary to
support its growth plans. See "Factors that May Affect Future Events," below.
Year 2000 assessment.
The following disclosure is made pursuant to the Year 2000 Information and
Readiness Disclosure Act. The following disclosure originated from the Company
and concerns (1) assessments, projections, or estimates of Year 2000 processing
capabilities; (2) plans, objectives, or timetables for implementing or verifying
Year 2000 processing capabilities; (3) test plans, dates, or results; and/or (4)
reviews and comments concerning Year 2000 processing capabilities as defined by
the Act.
The Company has assessed Year 2000 compliance matters and has determined that it
has potential for exposure regarding Year 2000 compliance in three areas of its
internal and external business activities. These areas include (1) its own
internal hardware and software systems which are utilized to process and provide
the Company's accounting and operational information, (2) the hardware and
software systems it has historically designed and installed in its clients'
control systems, and (3) Year 2000 inventory, assessment and remediation
services it is providing to assist its customers in identifying their own
potential exposure in their manufacturing and control systems under the
Company's Plant Y2kOneTM product and service offering. The following discusses
management's assessment of those risks and the steps it is taking to minimize
them.
Internal hardware and software. During the past 18 months, the Company has
replaced or added new equipment to its inventory of network and systems
computers. The Company has committed approximately $1,200,000 for this hardware
replacement, which has been financed with its cash resources and with lease
financing. This hardware includes the Company's organization-wide network system
and servers, telephone systems and personal computer equipment. The Company has
tested Year 2000 compliance on new hardware as it has been accepted. In
addition, the Company has contracted for the replacement of its
organization-wide accounting and management information computer software. This
new software will operate the Company's accounting and operational information
systems and will be functional at each of its facility locations. The vendor has
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warranted that the software is Year 2000 compliant. Customization of the
software has been completed and staff training has begun. It is estimated that
the system will be installed and functional by January 1999. The cost of this
system is expected to be approximately $550,000 including software, hardware and
implementation expense. The primary purpose of acquiring this system is to
provide improved functionality in the area of consolidated financial reporting,
financial project control and management reporting. In addition, the Company is
reviewing its telecommunication systems and analyzing various options to
purchase and install a central telecommunication system that would provide
increased functionality associated with multiple office communication
requirements. This evaluation is expected to be complete by December 1998 with a
resulting installation expected by April 1999. Until this evaluation is
complete, it is not possible to estimate costs associated with a new
telecommunication system. However, it is not anticipated that this program will
be a material capital expenditure. Management intends to develop a contingency
plan by March 31, 1999 if the planned implementation program is delayed.
In addition to the above activities, the Company is in the final process of
completing a full inventory and assessment of its computer hardware, software
systems and embedded devices using its proprietary Plant Y2kOneTM product. It is
anticipated that this process will be completed by December 1998. Management
intends to identify any remaining remediation effort that may be required to
ensure its internal hardware and software systems are Year 2000 compliant.
Prior customer installations. The Company and its subsidiaries have provided
systems integration hardware and software for use by clients in their process
control systems. Generally, the hardware is purchased from a vendor and used
without further customization. Hardware vendor warranties pass to the Company's
clients. Software may be purchased from a third party vendor and further
customized, or be completely designed by the Company. During 1997, the Company
undertook a program of notifying many of its customers that it is aware that
hardware and software it provided may not be Year 2000 compliant and should be
assessed for Year 2000 compliance. To date, the Company has received various
inquires from its clients to provide information regarding Year 2000 compliance
on systems it has developed and has responded to these requests. Management is
not aware of any claims by any customers to provide remediation services under
any warranty agreement (stated or implied) for systems it has developed and
delivered, nor is it aware of any systems it has developed that may be in
violation of any Year 2000 compliance contractual agreements. To the extent any
such claims may be made, the Company intends to address these issues on a case
by case basis.
Year 2000 compliance services and products and remediation services. In June
1997, TAVA launched a major business initiative to address Year 2000 compliance
problems in process control, factory automation and facility management systems.
The Company determined that addressing the Year 2000 issue in these systems was
a logical extension of its current business. The Company developed a proprietary
package of products and services, Plant Y2kOneTM, as the foundation of its
approach. PlantY2kOneTM includes a methodology, system inventory support tool,
access to a Company developed database of Year 2000 compliance information,
specific code search engines and a remediation project management tool, all
packaged on CD ROM.
The methodology includes assessment, analysis, planning and remediation phases.
In the assessment phase, the overall project is defined and organized. An
inventory of all process control hardware and software is then completed using
the Company's inventory builder tool. In the analysis phase, that inventory is
examined, component by component, using the Company's database of vendor Year
2000 compliance statements. Custom code is analyzed with the Company's search
engines to reveal date usage. The conversion planning stage applies 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 and conduct
system and enterprise wide training.
The Company supplies complete Year 2000 project consulting services. They are
built upon the methodology and use of the database and tools; the licensing of
the methodology, tools and database access which are packaged on CD ROM and
supported by internet access, to the client for self execution, or provides a
combination of both approaches.
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The Company has employed three general strategies to monitor and limit risk in
performing Year 2000 engagements. These include: proper assignment of skilled
employees; delineation and limitation of liability through contractual terms;
and purchasing professional liability insurance in amounts and on terms
considered appropriate by Company management. The Company believes that this
business is a logical extension of its historical business and as such, it has
the appropriate employee skill sets to execute its Year 2000 engagements.
Service projects are managed by experienced project managers who assume the role
of managing the overall customer engagement. Service engagements are generally
conducted under a standard professional services agreement that delineates
deliverables and liability. The Company has worked diligently in its contractual
agreements to attempt to limit liability, in most cases to no more than the
total amount of fees paid by the client. Further, the Company has secured
professional liability insurance to address professional liability that may
arise from Year 2000 customer engagements. The Company's standard contracts
specifically disclaim any Year 2000 compliance warranty or guarantees, or the
success of its Year 2000 activities in addressing client compliance, except when
it has been contracted to develop and implement new systems. The Company has
relied on external legal counsel to assist in developing specific contractual
terms to disclaim any legal liability associated with insuring, or guaranteeing
Year 2000 compliance as a result of its activities. To the knowledge of
management, the Company has not been associated with any liability for work it
conducted in providing Year 2000 products and services.
Recently issued accounting standards.
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 them
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 financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Application of these standards will impact the
future financial disclosures in the Company's consolidated financial statements.
Results of operations and financial position, however, will be unaffected by
implementation of these standards.
Statement of Financial Accounting Standards 132 "Employers' Disclosure About
Pensions and Other Post retirement Benefits." Statement 132 standardizes the
disclosure requirements for pensions and other post retirement benefits and
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis. Statement 132 is
effective for fiscal years beginning after December 15, 1997 and requires
comparative information for earlier years to be restated, unless such
information is not readily available. Management believes that the adoption of
Statement 132 will have no material impact on the Company's financial
disclosures.
Statement of Financial Accounting Standards 133 "Accounting for Derivative
Instruments and Hedging Activities." Statement 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
market value. Gains or losses resulting from changes in the values of those
derivatives are accounted for depending on the use of the derivative and whether
it qualifies for hedge accounting. The key criterion for hedge accounting is
that the hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. Statement 133 is effective for fiscal years
beginning after June 15, 1999. Management believes that the adoption of
Statement 133 will have no material effect on its financial statements.
19
<PAGE>
Statement of Position 97-2 "Software Revenue Recognition." Statement of Position
97-2 provides guidelines concerning the recognition of revenue of software
products. This statement requires, among other things, the individual elements
of a contract for the sale of software products to be identified and accounted
for separately. The accounting for the sale of the Company's Plant Y2kOneTM
software products may change when it adopts the provisions of this Statement for
its fiscal year beginning July 1, 1998. Management does not expect the adoption
of this provision to have any impact on its results of operations; however, this
evaluation is not fully complete.
Factors that May Affect Future Events.
The following factors, among others, could cause actual events and financial
results to differ materially from those anticipated by forward-looking
statements made in this Annual Report on Form 10-KSB and presented elsewhere by
management from time to time.
TAVA has grown significantly through acquisitions, and its future growth
may be based in part on selected acquisitions. TAVA's ability to expand
successfully by acquisitions depends on many factors, including the
successful identification and acquisition of businesses and management's
ability to integrate and operate the new businesses effectively. TAVA
competes for acquisition candidates with other entities, many of whom have
greater financial resources. Increased competition for acquisition
candidates may result in fewer acquisition opportunities becoming available
for TAVA as well as less advantageous acquisition terms, including
increased purchase prices. The anticipated benefits from any acquisition
may not be achieved unless the operations of the acquired business are
successfully and timely combined with those of the Company, a process which
requires substantial attention from management. The diversion of the
attention of management, and any difficulties encountered in the transition
process, could have an adverse impact on the Company's revenues and
operating results. In addition, the process of integrating the various
businesses could cause the interruption of, or a loss of momentum in, the
activities of some or all of these businesses, which could have an adverse
effect on the Company's business, operations and financial results.
TAVA has devoted significant resources to and expects to derive
significant revenue from its Plant Y2kOne product suite, and expects that
Year 2000 engagements will comprise a significant portion of its business
over the next 18 months. Although TAVA attempts through contractual
provisions, insurance, and other means, to limit its exposure to claims for
damages, due to the anticipated far-reaching impact of Year 2000 related
litigation against businesses, it is likely that claims will be asserted
against TAVA regardless of its culpability. Even if TAVA successfully
defends all such claims, the adverse effects of such litigation can be
substantial, in terms of management time and attention as well as in costs
of defense, and could have an adverse effect on TAVA's business, operations
and financial results.
TAVA's future success will depend in large part on its ability to continue
to attract and retain highly-skilled technical and management personnel.
The competition for such personnel is intense. There can be no assurance
that the Company will continue to attract and retain personnel necessary
for the development of its business.
The Company has an investment in capitalized software of $4,881,000 net of
accumulated amortization as of June 30,1998. Software development costs
generally are amortized on a product-by-product basis each year based upon
the greater of: (1) the amount computed using the ratio of current year
gross revenue to the sum of current and anticipated future gross revenue
for that product; or (2) five year straight-line amortization for non Y2k
software. Many factors, including competitive product offerings,
technological changes and general changes in the economy may impact the
demand and anticipated gross revenues for the Company's products. Changes
in future estimated product sales by product may result in increased
amortization and may have an impact on the Company's results from
operations.
The Company's Y2k products are amortized on a straight-line basis through
1999. Future additional investment in this product will be amortized over
this same time period and therefore, amortization expense will increase.
Further, the Company will continue to evaluate the future resale of product
features it will be adding to the products between now and the year-end
1999. Many factors, including competitive product offerings, may result in
changes in the estimated useful life of these product features and/or the
anticipated future revenue from product compliance reports that may be
added to the compliance database. These changes, if any, may have a
significant impact on the Company's results from operations.
20
<PAGE>
The stock market in general, and the market for technology stocks and
"small cap" stocks such as TAVA, in particular, have experienced extreme
price fluctuations. TAVA's stock price is extremely volatile, and subject
to factors entirely beyond its control. This volatility could adversely
impact the Company by, among other things, reducing the availability of
additional equity capital, limiting its ability to attract and retain
qualified personnel and curtailing its ability to effect business
combinations.
TAVA has experienced and expects to continue to experience fluctuations in
its quarterly results. Gross margins during any period and from one period
to another vary based on a variety of factors including employee
utilization rates, the number, type and mix of products and services sold
during a particular period, the number and requirements of client
engagements and other factors, many of which are beyond the
Company's control. Since a significant portion of the expenses of the
Company do not vary relative to the Company's level of revenues, if
revenues in a particular quarter do not meet expectations, operating
results will be adversely affected, which may have an adverse impact on the
market price of the Company's Common Stock. In addition, many of the
Company's engagements, particularly in the Year 2000 area, are terminable
on relatively short notice without client penalty. An unanticipated
termination of a major project could result in an increase in underutilized
employees and a decrease in revenues and profits.
The Company performs work for its clients under various types of contracts.
Accounts receivable may be concentrated with individual clients. Failure to
collect these receivables may result in a significant negative financial
impact to the Company.
The Company is growing rapidly and may require access to additional
capital to support accounts receivable, equipment purchases and general
operating expenses. The inability to access additional capital could result
in insufficient capital to support the Company's growth plans.
As a result of these and other factors, the Company's past financial performance
should not be relied on as an indication of future performance. Management
believes that period-to-period comparisons of its financial results are not
necessarily meaningful and it expects that results of operations may fluctuate
from period to period in the future.
Item 7. Financial statements.
Report of independent certified public accountants. F-1
Consolidated balance sheet at June 30, 1998. F-2
Consolidated statements of operations for the years
ended June 30, 1998 and 1997. F-3
Consolidated statements of stockholders' equity for the
years ended June 30, 1997 and 1998. F-4
Consolidated statements of cash flows for the years ended
June 30, 1998 and 1997. F-5
Notes to consolidated financial statements. F-7
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
TAVA Technologies, Inc.
Englewood, Colorado
We have audited the accompanying consolidated balance sheet of TAVA
Technologies, Inc. and subsidiaries as of June 30, 1998 and the accompanying
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended June 30, 1998 and 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 TAVA Technologies,
Inc. and subsidiaries at June 30, 1998 and the results of their operations and
their cash flows for the years ended June 30, 1998 and 1997, in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Denver, Colorado
September 21, 1998
F-1
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1998
<TABLE>
<CAPTION>
ASSETS (Note 8)
- ------------------------------------------------------------------------------------------------------
<S> <C>
Current assets:
Cash (Note 14) $ 4,993,000
Accounts receivable, net of allowance for doubtful accounts of $1,305,000 (Note 5) 14,901,000
Costs and estimated earnings in excess of billings on uncompleted contracts (Note 6) 7,214,000
Inventories 188,000
Prepaid expenses and other current assets 569,000
- ------------------------------------------------------------------------------------------------------
Total current assets 27,865,000
Property and equipment, net (Note 7) 2,919,000
Capitalized software costs, net of accumulated amortization of $1,335,000 4,881,000
Other assets:
Excess of cost over fair value of assets acquired, net of
accumulated amortization of $1,257,000 (Note 3) 7,915,000
Debt issuance costs, net of accumulated amortization of $286,000 364,000
Other assets 237,000
- ------------------------------------------------------------------------------------------------------
Total assets $44,181,000
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt (Note 8):
Financial institutions and other $ 315,000
Capital lease obligations 253,000
Accounts payable 5,740,000
Billings in excess of costs and estimated earnings on uncompleted contracts (Note 6) 1,819,000
Accrued payroll 1,035,000
Other accrued expenses 1,381,000
- ------------------------------------------------------------------------------------------------------
Total current liabilities 10,543,000
Long-term debt, net of current portion (Note 8):
Financial institutions and other 4,845,000
Capital lease obligations 459,000
- ------------------------------------------------------------------------------------------------------
Total long-term debt 5,304,000
- ------------------------------------------------------------------------------------------------------
Total liabilities 15,847,000
- ------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 6 and 14)
Stockholders' equity (Notes 10 and 12):
Preferred stock, par value $.0001 per share; authorized 10,000,000 shares,
shares issued and outstanding - none --
Common stock, par value $.0001 per share; authorized 200,000,000
shares, 21,991,213 shares issued and outstanding 2,000
Additional paid-in capital 36,165,000
Accumulated deficit (7,833,000)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 28,334,000
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $44,181,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-2
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended
June 30,
- -----------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Revenue (Note 5):
Systems integration and services $42,598,000 $36,843,000
License agreements and software product sales 5,765,000 --
- -----------------------------------------------------------------------------------------
Total revenue 48,363,000 36,843,000
- -----------------------------------------------------------------------------------------
Cost of revenue 29,410,000 24,322,000
- -----------------------------------------------------------------------------------------
Gross profit 18,953,000 12,521,000
- -----------------------------------------------------------------------------------------
Operating expenses:
Sales expenses 4,894,000 2,297,000
General and administrative expenses 12,157,000 10,815,000
Amortization of capitalized software costs and goodwill 1,691,000 815,000
Subsidiary acquisition purchase adjustment (Note 3) -- 250,000
- -----------------------------------------------------------------------------------------
18,742,000 14,177,000
Other income (expense):
Interest expense (656,000) (987,000)
Other, net 195,000 124,000
- -----------------------------------------------------------------------------------------
(461,000) (863,000)
Loss from continuing operations before
income tax expense (250,000) (2,519,000)
Income tax expense (Note 9) -- (110,000)
- -----------------------------------------------------------------------------------------
Loss from continuing operations (250,000) (2,629,000)
Discontinued operations (Note 4):
Loss on disposal -- (106,000)
- -----------------------------------------------------------------------------------------
Net loss $ (250,000) $(2,735,000)
- -----------------------------------------------------------------------------------------
Net loss applicable to common stockholders (Note 11) $ (310,000) $(2,750,000)
- -----------------------------------------------------------------------------------------
Net loss per share, basic and diluted (Note 11):
Continuing operations $ (0.02) $ (0.30)
Discontinued operations -- (0.01)
- -----------------------------------------------------------------------------------------
Net loss per share, basic and diluted $ (0.02) $ (0.31)
- -----------------------------------------------------------------------------------------
Weighted average shares outstanding, basic and diluted 18,356,000 8,882,000
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Additional
Preferred stock Common stock paid-in Accumulated
Shares Amount Shares Amount capital Deficit
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 -- $ -- 6,639,403 $1,000 $ 7,774,000 $(4,773,000)
Preferred shares issued for cash in private 133,334 -- -- -- 1,872,000 --
placement (Note 10)
Shares issued for cash in private placements, net -- -- 880,000 -- 1,112,000 --
(Note 10)
Shares issued for conversion of 8% notes (Note 10) -- -- 214,285 -- 375,000 --
Shares issued for conversion of 12% notes and -- -- 35,000 -- 53,000 --
accrued interest
Shares issued for conversion of 10% senior notes
and accrued interest (Note 10) -- -- 548,436 -- 314,000 --
Shares issued for financing fees and extensions -- -- 40,000 -- 99,000 --
Shares issued for acquisition of All Control -- -- 1,883,333 -- 2,825,000 --
(Note 3)
Shares issued for acquisition of Vision (Note 3) -- -- 201,130 -- 289,000 --
Shares issued upon exercise of warrants (Note 10) -- -- 1,178,018 -- 1,167,000 --
Shares issued upon exercise of stock options -- -- 90,000 -- 66,000 --
(Note 10)
Options and warrants issued for outside services -- -- -- -- 52,000 --
Preferred stock dividends (Note 10) -- -- -- -- -- ( 15,000)
Net loss -- -- -- -- -- (2,735,000)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 133,334 -- 11,709,605 1,000 15,998,000 (7,523,000)
Shares issued for cash in private placement, net -- -- 955,000 -- 4,711,000 --
(Note 10)
Shares issued upon conversion of 9% debentures -- -- 2,123,697 -- 3,032,000 --
(Notes 8, 10)
Shares issued upon exercise of warrants (Note 10) -- -- 3,679,986 1,000 6,808,000 --
Shares issued upon exercise of stock options -- -- 1,875,545 -- 4,243,000 --
(Note 10)
Shares issued upon conversion of preferred stock (133,334) -- 1,333,340 -- -- --
(Note 10)
Shares issued upon conversion of collateral loan -- -- 227,090 -- 397,000 --
(Note 10)
Shares issued under Employee Stock Purchase Plan -- -- 46,311 -- 81,000 --
(Note 10)
Value assigned to warrants issued with debt -- -- -- -- 814,000 --
(Note 8)
Other -- -- 40,639 -- 81,000 --
Preferred stock dividends (Note 10) -- -- -- -- -- ( 60,000)
Net loss -- -- -- -- -- ( 250,000)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 -- $ -- 21,991,213 $2,000 $36,165,000 $(7,833,000)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
June 30,
1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $ (250,000) $(2,629,000)
Adjustments to reconcile net loss from continuing
operations to cash from continuing operating activities:
Depreciation 691,000 767,000
Amortization 1,691,000 815,000
Non-cash interest expense 66,000 --
Provision for doubtful accounts (100,000) 813,000
Loss (gain) on sale of fixed assets 8,000 (8,000)
Issuance of compensatory options and warrants -- 52,000
Common stock issued for interest and other fees -- 99,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (8,704,000) 3,740,000
Costs and estimated earnings in excess of billings (1,502,000) (1,886,000)
Inventories (14,000) (26,000)
Prepaid expenses and other assets (280,000) 9,000
Increase (decrease) in:
Accounts payable (1,507,000) (32,000)
Billings in excess of costs and estimated earnings 341,000 (1,528,000)
Accrued expenses and other 351,000 (1,054,000)
----------- -----------
Net cash from continuing operating activities (9,209,000) (868,000)
Discontinued operations:
Loss from discontinued operations -- (106,000)
Change in assets -- 526,000
Decrease in accounts payable -- (974,000)
----------- -----------
Net cash from discontinued operations -- (554,000)
----------- -----------
Net cash from operating activities (9,209,000) (1,422,000)
----------- -----------
Cash flows from investing activities:
Cash acquired in acquisitions of subsidiaries -- 3,000
Proceeds from sale of property and equipment 892,000 13,000
Purchase of property and equipment (1,058,000) (217,000)
Acquisition costs of subsidiaries -- (522,000)
Capitalized software costs, net (3,924,000) (1,174,000)
----------- -----------
Net cash from investing activities (4,090,000) (1,897,000)
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
For the years ended June 30,
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of notes and other borrowings 4,000,000 1,411,000
Principal payments on notes and other borrowings (2,604,000) (1,503,000)
Deferred note and other financing costs, net (226,000) (120,000)
Proceeds from the sale of stock and exercise of warrants
and options, net of offering costs 16,275,000 4,217,000
Preferred stock dividends (60,000) (15,000)
------------ -----------
Net cash from financing activities 17,385,000 3,990,000
------------ -----------
Increase in cash 4,086,000 671,000
Cash, beginning of year 907,000 236,000
------------ -----------
Cash, end of year $ 4,993,000 $ 907,000
------------ -----------
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 5,000 $ --
Cash paid for interest 762,000 1,049,000
------------ -----------
Supplemental disclosure of non-cash investing and financing activities:
Conversion of debentures to common stock, net of debt issue costs $ 3,032,000 $ --
Common stock issued upon conversion of preferred stock 1,872,000 --
Purchase of equipment under capital leases and other financing 819,000 32,000
Imputed warrant discount on debt borrowings 814,000 --
Conversion of notes, accrued interest and debt issue
costs to common stock 47,000 742,000
Common stock issued in the acquisition of All Control -- 2,825,000
Common stock issued in the acquisition of Vision -- 289,000
------------ -----------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statements
Note 1. Organization and nature of business.
TAVA Technologies, Inc., formerly Topro, Inc., ("TAVA" or the "Company")
designs, develops, assembles, markets and services control system integration
products. Integrated control systems are sophisticated computer hardware and
software control packages of measurement instruments and control devices that
provide automatic control of manufacturing or other processes. The Company also
operates service divisions that provide instrument calibration and system
configuration services. In addition, the Company has designed and markets its
Plant Y2kOneTM suite of products which have been designed to address Year 2000
compliance issues in process control and factory automation systems.
Note 2. Summary of significant accounting policies.
Principles of consolidation. The consolidated financial statements include
the accounts of TAVA Technologies, Inc. ("TAVA"), and its wholly-owned
subsidiaries Management Design & Consulting Services, Inc. ("Management
Design"), Advanced Control Technology, Inc. ("Advanced Control"), Vision
Engineering Holding Corporation ("Vision"), All Control Systems, Inc. ("All
Control"), TAVA Alabama, Inc. ("TAVA Alabama") and TAVA Y2k One, Inc. ("TAVA
Y2k"). TAVA Alabama and TAVA Y2k were formed during the fiscal year ended June
30, 1998. Additionally, during 1998, TAVA Y2k and another company formed a
Limited Liability Company to provide Year 2000 products and services to the
utility industry. TAVA Y2k owns a 50% interest in the LLC, but does not have
voting control. Accordingly, the Company accounts for its interest using the
equity method of accounting. There were no results of operations from the LLC
during the year ended June 30, 1998. Collectively, these entities are referred
to as the Company. All significant intercompany transactions and accounts have
been eliminated in consolidation.
Cash and cash equivalents. The Company considers all highly liquid monetary
instruments with an original maturity of three months or less to be cash
equivalents. The Company maintains cash in bank deposit accounts, which at times
may exceed federally insured limits. The Company has not experienced any losses
in such accounts. The Company believes it is not exposed to any significant
credit risk with regard to cash and cash equivalents.
Inventories. Inventories, which consist primarily of finished goods and
supplies, are stated at the lower of cost or market using the first-in,
first-out method of accounting.
Property and equipment. Property and equipment are stated at cost. Depreciation
is provided utilizing the straight-line method over estimated useful lives,
which range from five to eight years. Major renewals and betterments are
capitalized while expenditures for maintenance and repairs are charged to
expense as incurred.
Leasehold improvements. Leasehold improvements are stated at cost. Amortization
is provided utilizing the straight-line method over the terms of the leases.
Software development costs. The Company expenses all costs incurred to establish
technological feasibility of computer software products to be sold or leased or
otherwise marketed. Upon establishing technological feasibility of a software
product, the Company capitalizes direct and indirect costs related to the
product up to the time the product is available for sale to customers.
Capitalized software development costs generally are amortized on a
product-by-product basis each year based upon the greater of: (1) the amount
computed using the ratio of current year gross revenue to the sum of current and
anticipated future gross revenue for that product, or (2) five year
straight-line amortization. Costs incurred to develop the Company's Plant
Y2kOneTM software are being amortized on a straight-line basis through December
1999.
On a product-by-product basis, the Company assesses the carrying amount of
capitalized costs for impairment. During the year ended June 30, 1998, the
Company charged to expense software development cost which it considered no
longer economically feasible. For the years ended June 30, 1998 and 1997, the
Company capitalized software development costs in the amounts of $3,924,000
F-7
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statements
and $1,174,000, respectively. Amortization expense was $1,068,000 and $336,000
for the years ended June 30, 1998 and 1997, respectively.
Debt issuance costs. The costs related to the issuance of debt are capitalized
and amortized as interest expense over the term of the related debt.
Excess of cost over fair value of net assets acquired (Goodwill). The Company
amortizes costs in excess of the fair value of net assets of businesses acquired
using the straight-line method over 15 years. Goodwill is reviewed annually or
sooner if events or circumstances indicate that the carrying amount may exceed
fair value. The Company assesses impairment of the carrying amount of goodwill
to the undiscounted net cash flows of the assets to which goodwill applies.
Based upon current circumstances, management has determined that no indication
of impairment exists.
Income recognition. The Company utilizes the percentage of completion method of
accounting for significant long-term contracts. The percentage of completion
method of reporting income takes into account the cost incurred to date,
anticipated total cost, estimated earnings and revenue to date on uncompleted
contracts.
The amount of revenue recognized is the contract price multiplied by the
percentage of the costs incurred to date to the anticipated total cost, based
upon current estimates of the cost to complete the contract. Contract cost
includes all labor and benefits, materials unique to or installed in the
project, subcontract costs and allocations of indirect costs. Selling, general
and administrative costs are charged to expense.
As long-term contracts extend over one or more years, revisions in estimates of
costs and earnings during the course of the work are reflected in the accounting
period in which the facts that require the revision become known. At the time a
loss on a contract becomes known, the entire amount of the estimated loss is
recognized in the financial statements. Contracts that are substantially
complete are considered closed for financial statement purposes. Costs and
estimated earnings incurred on contracts in progress in excess of billings are
classified as an asset. Amounts billed in excess of cost and estimated earnings
are classified as a liability.
On certain contracts and the majority of Year 2000 service contracts, the
Company recognizes revenue when services are performed on a time and expense
basis.
The Company recognizes revenue on the sale of its software products upon
delivery to its customers and it recognizes revenue on direct sales of equipment
and parts, upon shipment.
Income taxes. The Company accounts for income taxes utilizing the asset and
liability method prescribed by Statement of Financial Accounting Standards 109,
"Accounting for Income Taxes." Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. A valuation allowance is required to the extent it
is more likely than not that a deferred tax asset will not be realized. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date.
Earnings per share. The Company calculates earnings per share in accordance with
Statement of Financial Accounting Standards 128, "Earnings per Share." Statement
128 provides for the calculation of basic and diluted earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the dilution of
securities that are common stock equivalents that were outstanding during the
period. Common stock equivalents are not included when the effect is
anti-dilutive.
F-8
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statements
Use of estimates. The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
its management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates. Significant estimates include the estimates
of costs to complete long-term contracts and net realizable values of intangible
assets. Due to uncertainties inherent in the estimation process, it is at least
reasonably possible that these estimates could change in the near-term and that
the revisions could be material.
Concentrations of credit risk. Credit risk represents the accounting loss that
would be recognized at the reporting date if counterparties failed to completely
perform as contracted. Concentrations of credit risk, whether on or off the
balance sheet, that arise from financial instruments exist for groups of
customers or groups of counterparties when they have similar economic
characteristics that would cause their ability to meet contractual obligations
to be similarly effected by changes in economic or other conditions.
Fair value of financial instruments. The estimated fair values of financial
instruments under Statement of Financial Accounting Standards 107, "Disclosures
About Fair Values of Financial Instruments" are determined at discrete points in
time based on relevant market information. These estimates involve uncertainties
and cannot be determined with precision. The estimated fair values of the
Company's financial instruments, which include cash, accounts receivable,
accounts payable and long-term debt, approximate their respective carrying
values in the consolidated financial statements at June 30, 1998.
Stock options and stock purchase warrants. Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees" is applied in accounting for all
employee stock option and stock purchase warrant arrangements. Compensation cost
is recognized for all stock options and stock purchase warrants granted to
employees when the exercise price is less than the market price of the
underlying common stock on the date of grant.
Statement of Financial Accounting Standards 123, "Accounting for Stock-Based
Compensation" requires pro forma disclosures regarding net income as if
compensation cost for stock options and stock purchase warrants had been
determined in accordance with the fair value based method prescribed in
Statement 123. Estimates of the fair value are made for each stock option and
stock purchase warrant at the date of grant by the use of the Black-Scholes
option pricing model.
Impact of recently issued accounting standards. 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 them 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 financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Application of these standards will impact the
future financial disclosures in the Company's consolidated financial statements.
Results of operations and financial position, however, will be unaffected by
implementation of these standards.
F-9
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statements
Statement of Financial Accounting Standards 132 "Employers' Disclosure About
Pensions and Other Post Retirement Benefits." Statement 132 standardizes the
disclosure requirements for pensions and other post retirement benefits and
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis. Statement 132 is
effective for fiscal years beginning after December 15, 1997 and requires
comparative information for earlier years to be restated, unless such
information is not readily available. Management believes that the adoption of
Statement 132 will have no material impact on the Company's financial
disclosures.
Statement of Financial Accounting Standards 133 "Accounting for Derivative
Instruments and Hedging Activities." Statement 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
market value. Gains or losses resulting from changes in the values of those
derivatives are accounted for depending on the use of the derivative and whether
it qualifies for hedge accounting. The key criterion for hedge accounting is
that the hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. Statement 133 is effective for fiscal years
beginning after June 15, 1999. Management believes that the adoption of
Statement 133 will have no material effect on its financial statements.
Statement of Position 97-2 "Software Revenue Recognition." Statement of Position
97-2 provides guidelines concerning the recognition of revenue of software
products. This statement requires, among other things, the individual elements
of a contract for the sale of software products to be identified and accounted
for separately. The accounting for the sale of the Company's Plant Y2kOneTM
software products may change when it adopts the provisions of this Statement for
its fiscal year beginning July 1, 1998. Management does not expect the adoption
of this provision to have any impact on its results of operations; however, this
evaluation is not fully complete.
Reclassifications. Certain reclassifications have been made to the accompanying
1997 financial statements to conform to the current year presentation.
Note 3. Acquisitions.
Effective May 1, 1996, the Company acquired all of the outstanding shares of
Vision in exchange for 200,000 shares of the Company's common stock. During the
year ended June 30, 1997, the Company issued an additional 201,130 shares,
amounting to $289,000, which has been added to the consideration paid for Vision
and recorded as additional goodwill. During the year ended June 30, 1997, an
acquisition adjustment relating to an anticipated contractual dispute
settlement, which was determined subsequent to the acquisition and amounting to
$250,000, was charged to operations.
Effective December 1, 1996, the Company acquired all of the outstanding common
stock of All Control in exchange for 1,883,333 shares of its common stock. Of
the shares issued in connection with the acquisition, 61,733 are being held in
escrow to satisfy any potential future income tax liabilities that may arise
from the tax treatment of capitalized software costs incurred prior to All
Control's acquisition. All Control is a control systems integration company
located in West Chester, Pennsylvania. The acquisition was accounted for under
the purchase method of accounting and accordingly, the operating results of All
Control have been included in the consolidated statement of operations from the
date of acquisition. The value of the consideration given amounted to $2,825,000
plus liabilities assumed of $749,000 and was determined based upon the estimated
fair value of the common stock issued and other costs incurred in connection
with the acquisition. The purchase price has been allocated to the assets
purchased and liabilities assumed based upon their fair values at the date of
acquisition. The excess of the purchase price over the estimated fair value of
the net assets acquired was $3,574,000 and is being amortized over 15 years.
An officer of the Company is the majority owner of a company that has an option
to purchase certain of All Control's software products relating to the color
printing industry. The option may not be exercised before November 1998 and
extends through February 2000. The agreement provides that the option price is
to be equal to
F-10
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statements
the then net book value of the software products to be purchased. The net book
value at June 30, 1998 was $209,000.
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
the beginning of the period presented with pro forma adjustments to give effect
to amortization of goodwill and depreciation. 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 period
indicated.
Year ended June 30, 1997
- --------------------------------------------------------------------------------
Revenue $ 40,210,000
Net loss $ (3,175,000)
Basic and diluted net loss per share $ (0.40)
- --------------------------------------------------------------------------------
Note 4. Discontinued operations.
During May 1995, the Company discontinued the operations of and completed the
sale of substantially all of the assets of Sharp Electric Construction Co. The
loss incurred during the year ended June 30, 1997 resulted from the settlement
of obligations of Sharp's projects. All contracts in progress at the time of the
sale have been completed at June 30, 1998.
The following is a summary of the Company's results from discontinued operations
for the year ended June 30, 1997:
- --------------------------------------------------------------------------------
Revenue $ 423,000
Loss on disposal $ (106,000)
- --------------------------------------------------------------------------------
Note 5. Trade receivables.
The following is a summary of the Company's trade accounts receivable at June
30, 1998:
- --------------------------------------------------------------------------------
Contract receivables:
Completed contracts $ 4,504,000
Uncompleted contracts 11,410,000
Retention 292,000
- --------------------------------------------------------------------------------
16,206,000
Less: allowance for doubtful accounts (1,305,000)
- --------------------------------------------------------------------------------
Contract receivables, net $14,901,000
- --------------------------------------------------------------------------------
The Company's contracts may contain retention provisions that require certain
milestones to be achieved before amounts under contracts may be billed or
collected. Retention is generally collected within one year after the completion
of a contract.
The Company has concentrations of credit risk along industry lines with some of
its customers. The Company undertakes ongoing credit evaluation of its
customers, however, collateral is generally not required. The Company
F-11
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statements
typically deals with subcontractors under performance bonds and it generally has
the right to file mechanics' liens to secure contractual obligations. Management
believes that the allowance for doubtful accounts is sufficient to cover the
Company's credit risk.
No sales to one customer accounted for more than 10% of total contract revenue
for the year ended June 30, 1998. During the year ended June 30, 1997, one
customer accounted for approximately 18% of total contract revenue.
Note 6. Costs and estimated earnings on uncompleted contracts.
The following information is applicable to uncompleted contracts at June 30,
1998:
- --------------------------------------------------------------------------------
Costs incurred on uncompleted contracts $ 56,806,000
Estimated earnings 19,345,000
- --------------------------------------------------------------------------------
76,151,000
Less: billings to date (70,756,000)
- --------------------------------------------------------------------------------
$ 5,395,000
- --------------------------------------------------------------------------------
These amounts are included in the accompanying balance sheet under the following
captions at June 30, 1998:
- --------------------------------------------------------------------------------
Costs and estimated earnings
in excess of billings on uncompleted contracts $7,214,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,819,000
- --------------------------------------------------------------------------------
$5,395,000
- --------------------------------------------------------------------------------
Costs and estimated earnings in excess of billings on uncompleted contracts at
June 30, 1998 includes an amount which is the subject of a dispute and
litigation between the Company and a customer. The dispute arises from certain
change orders and other contractual matters. The change orders were made at the
request of the customer. In the opinion of management and legal counsel, the
Company has a legal right to file the claim and it is reasonable to assert that
the Company will succeed in its efforts to prevail in this matter, although it
is impossible to predict the final outcome of this dispute and litigation.
Revenue from the disputed contract is only recognized to the extent that
contract costs relating to the claim have been incurred. Accordingly, in fiscal
1998 and 1997 the Company has recognized revenue equal to costs of approximately
$712,000 and $2,200,000, respectively, of a $3,900,000 claim, as prepared by
management and an independent contract analyst.
Note 7. Property and equipment.
The following is a summary of the Company's property and equipment at June 30,
1998:
Owned Leased Total
- -------------------------------------------------------------------------------
Furniture and equipment $ 3,570,000 $ 902,000 $ 4,472,000
Leasehold improvements 828,000 -- 828,000
- --------------------------------------------------------------------------------
4,398,000 902,000 5,300,000
Accumulated depreciation and
amortization (2,189,000) (192,000) (2,381,000)
- --------------------------------------------------------------------------------
Net property and equipment $ 2,209,000 $ 710,000 $ 2,919,000
- --------------------------------------------------------------------------------
Depreciation expense totaled $691,000 and $767,000, respectively, during the
years ended June 30, 1998 and 1997, respectively, was related to equipment under
capital lease obligations.
F-12
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statements
Note 8. Long-term debt and capital lease obligations.
The following is a summary of the Company's indebtedness at June 30, 1998:
<TABLE>
<CAPTION>
Long-term debt:
- ---------------------------------------------------------------------------------------------------
<S> <C>
Term note payable to a small business investment company. Interest is at 11.5%
per annum, payable quarterly. Principal due January 2001. The note, in the
principal amount of $4,000,000, has been discounted by $796,000. The discount,
which is being amortized through January 2001, represents the value assigned to
155,000 stock purchase warrants which were granted to the lender. The value of
the discount has been calculated using the Black-Scholes option pricing model.
The stock purchase warrants are exercisable through March 2003 to purchase an
equal number of common shares at a per share price equal to the lower of $6.25
or the fair market value of the Company's common stock on the six month
anniversary of the note. The unamortized discount at June 30, 1998 was $730,000.
The note is collateralized by substantially all assets of the Company and its
subsidiaries. The note provides for the granting of up to 270,000 additional
stock purchase warrants to purchase an equal number of common shares at the then
current market price based upon the amount of indebtedness outstanding on
certain anniversary dates of the note. Additional warrants, if granted, are
exercisable as follows: 20,000 at the lower of $6.25 or the fair market value of
the Company's common stock on the six month anniversary of the note; and 250,000
at the then fair market value at the time of grant. All warrants expire five
years after the date of grant. $3,270,000
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 repaid or converted, monthly principal payments are
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 a second security position on all the assets of the Company
and its subsidiaries. The debenture holders converted $3,186,000 of principal
into 2,123,697 shares of common stock during the year ended June 30, 1998. (See
Note 10). 1,514,000
Term note payable to a finance institution. Interest at 7.5% per annum,
principal and interest payable monthly through December 1999. Secured by
financed software. 185,000
Four year promissory note bearing interest at 8.0% per annum payable to a
creditor. Monthly payments, including interest, of $6,103 through April 2000. 125,000
Non-interest bearing note payable to Advanced Control's legal counsel. Monthly
principal payments are due through September 1998. The note has been discounted
using an effective interest rate of 10.25%. 66,000
Capital lease obligations secured by computer and telephone equipment. Interest
rates range from 8.6% to 12.6%. Monthly payments are due through July 2001. 712,000
- ---------------------------------------------------------------------------------------------------
Total indebtedness 5,872,000
Less current portion 568,000
- ---------------------------------------------------------------------------------------------------
Long-term portion $5,304,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statements
Scheduled debt principal and capital lease payments for years ending June 30 are
as follows:
- --------------------------------------------------------------------------------
Debt principal Capital lease Total
- --------------------------------------------------------------------------------
1999 $ 315,000 $302,000 $ 617,000
2000 286,000 281,000 567,000
2001 4,146,000 225,000 4,371,000
2002 130,000 15,000 145,000
2003 115,000 -- 115,000
Thereafter 898,000 -- 898,000
- --------------------------------------------------------------------------------
5,890,000 823,000 6,713,000
- --------------------------------------------------------------------------------
Less amount representing
interest and note discount 730,000 111,000 841,000
- --------------------------------------------------------------------------------
5,160,000 712,000 5,872,000
Less current portion 315,000 253,000 568,000
- --------------------------------------------------------------------------------
$4,845,000 $459,000 $5,304,000
- --------------------------------------------------------------------------------
During the year ended June 30, 1998 interest capitalized in connection with the
development of software totaled $142,000. No interest was capitalized in fiscal
1997.
Note 9. Income taxes.
Current income tax expense for the year ended June 30, 1997 was $110,000 and
related to current amounts payable for state income and franchise taxes.
A reconciliation of the Federal statutory tax rate of 34% and the Company's
effective tax rates of 0% and 4% for the years ended June 30, 1998 and 1997,
respectively, is as follows:
Years ended
June 30,
1998 1997
- -------------------------------------------------------------------------------
Income tax benefit (expense) computed at the
Federal statutory rate $ 85,000 $ 930,000
Compensation deduction related to exercise
of non-qualified stock options 1,474,000 --
Non-deductible goodwill amortization (228,000) (163,000)
State income and franchise taxes -- (73,000)
Net change in deferred items 453,000 274,000
Change in effective income tax rate 322,000 --
Change in valuation allowance (2,067,000) (926,000)
Other, individually immaterial (39,000) (152,000)
- --------------------------------------------------------------------------------
$ -- $(110,000)
- --------------------------------------------------------------------------------
F-14
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statements
Temporary differences between the consolidated financial statements carrying
amounts and the tax basis of assets and liabilities that give rise to
significant portions of deferred income taxes at June 30, 1998 relate to the
following:
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities):
Net operating loss carry forwards $6,790,000
Accounts receivable 505,000
Accrued items, deductible when paid for tax purposes 136,000
Other, individually immaterial 11,000
Capitalized software costs (1,779,000)
Property and equipment (94,000)
Capitalized interest (53,000)
- --------------------------------------------------------------------------------
Total 5,516,000
Less valuation allowance (5,516,000)
- --------------------------------------------------------------------------------
Net deferred tax asset (liability) $ --
- --------------------------------------------------------------------------------
In assessing the reliability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
income tax assets will be realized. The realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Accordingly, the Company
has provided a valuation allowance on its net deferred tax asset because
management was unable to determine if it is more likely than not that the
deferred tax asset will be realized.
At June 30, 1998, the Company had net operating loss carry forwards (NOLs) in
the amount of approximately $18,000,000 for Federal income tax purposes. The
NOLs expire in the years 2008 through 2013. A portion of the NOLs is limited on
an annual basis as a result of Internal Revenue Code Section 382 which relates
to the change in control that occurred as a result of the Company's business
acquisitions.
Note 10. Stockholders' equity.
Exercise of stock purchase warrants:
On March 13, 1997, the Company called 1,043,449 redeemable stock purchase
warrants, representing an equal number of underlying common shares, for
redemption. The stock purchase warrants were exercisable by the holders to
purchase one share of common stock at rates of $1.00 and $1.75 per share.
Holders of warrants representing 906,327 shares of common stock exercised their
rights thereunder. The Company received proceeds in the amount of $906,000. Upon
the expiration of the exercise period, 122,836 warrants to purchase common stock
for $1.00 per share and 14,286 warrants to purchase common stock for $1.75 per
share were canceled due to non-exercise by the holders.
During April 1997, the holder of stock purchase warrants to purchase 32,870 and
24,537 shares of common stock for $.67 and $1.00, respectively, exercised its
rights thereunder. The Company received proceeds in the amount of $47,000.
During April 1997, the Company lowered the exercise price from $4.25 to $1.00
per share to holders of stock purchase warrants to purchase 214,284 shares of
common stock. The warrants were originally issued in connection with the sale of
common stock by the Company. The holders exercised their rights thereunder and
the Company received proceeds in the amount of $214,000.
F-15
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statements
During April 1997, the Company lowered the exercise price and extended the
exercise period of its 662,000 publicly traded stock purchase warrants. The
warrants' exercise price was reduced to $3.50 from $4.25 and the exercise period
was extended from June 17, 1997 until June 24, 1999.
During March 1998, the Company called its publicly traded warrants for
redemption. Holders of 643,762 warrants exercised their rights and purchased an
equal number of common shares. The Company received proceeds in the amount of
$2,254,000. Holders of 428 warrants redeemed them for their redemption value of
$0.05 per warrant. Warrants for the purchase of 17,810 common shares were
cancelled due to either non-exercise or non-redemption by the holders.
During the year ended June 30, 1998, holders of 3,036,224 stock purchase
warrants exercised their rights and purchased an equal number of common shares.
The Company received proceeds in the amount of $4,555,000.
Exercise of stock options:
During the year ended June 30, 1997, holders of 90,000 stock options exercised
their rights and purchased an equal number of common shares. The Company
received proceeds in the amount of $66,000.
During the year ended June 30, 1998, holders of 1,875,545 stock options
exercised their rights and purchased an equal number of common shares. The
Company received proceeds in the amount of $4,243,000.
Private placements:
On November 27, 1996, the Company sold 700,000 shares of its $.0001 par value
common stock and granted 70,000 stock purchase warrants in a private placement
receiving proceeds, net of associated placement costs, in the amount of
$842,000. The stock purchase warrants are exercisable at any time before January
31, 1999 to purchase one share of common stock for $2.46.
During March 1997, the Company sold 180,000 shares of its $.0001 par value
common stock in a private placement, and received proceeds in the amount of
$270,000.
During November 1997, the Company sold 955,000 shares of its common stock in a
private placement for $5.50 per share and received proceeds, net of associated
costs, in the amount of $4,711,000.
Preferred stock:
On April 29 and June 30, 1997, the Company sold 100,000 and 33,334 shares,
respectively, of its Series A Convertible Preferred Stock and granted 300,000
and 100,000 common stock purchase warrants, respectively, in a private
placement. The Company received proceeds in the amounts of $1,500,000 and
$500,000, respectively, net of $128,000 in offering costs. Each share of
preferred stock had a stated value of $15.00 per share and is convertible at any
time at the holder's option into 10 shares of the Company's $.0001 par value
common stock at a rate of $1.50 per share of common stock.
On December 31, 1997, the preferred shareholder exercised its right and
converted 133,334 preferred shares into 1,333,340 shares of the Company's common
stock. A 6% cumulative dividend was paid to the holder through the time of
conversion. Each warrant, which was exercisable at any time until June 30, 1999
to purchase one share of the Company's common stock for $2.00 per share, was
exercised by the holder during the year ended June 30, 1998.
F-16
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statement
Conversion of debt:
During November 1996, the Company received requests from the holders of its 8%
270-day convertible notes to convert them to the Company's common stock. The
entire principal in the amount of $375,000 was converted into 214,285 shares of
common stock at the rate of one share for each $1.75 of principal.
During March 1997, the Company received requests from the holders of $350,000 of
its 10% senior convertible notes to convert them into units of the securities.
Notes were converted at the rate of $.67 per unit for each $1.00 of principal
plus accrued interest of $17,000 into 548,436 shares of the Company's common
stock. In addition, the Company charged $53,000 of related costs to additional
paid-in capital. Each unit consisted of one share of common stock and one stock
purchase warrant to purchase one share of common stock. The stock purchase
warrants are exercisable to purchase one share of common stock for $1.00 through
March 31, 2000.
During the year ended June 30, 1998, holders of the Company's 9% convertible
debentures in the principal amount of $3,186,000 exercised their conversion
rights and converted that principal amount into 2,123,697 shares of common
stock. In addition, the Company charged related deferred debt costs in the
amount of $154,000 to additional paid-in capital.
Employee stock purchase plan:
During the year ended June 30, 1998, the Company sold 46,311 shares of its
common stock to employees under the terms of its 1992 Employee Stock Purchase
Plan and received proceeds in the amount of $81,000.
Conversion of collateral loan:
During the year ended June 30, 1998, the Company issued 227,090 shares of its
common stock upon conversion of a security bond under the terms of a $350,000
collateral loan, plus $47,000 in accrued interest. The arrangement was entered
into in fiscal 1997 and permitted conversion of the collateral loan plus accrued
interest into common stock at the rate of $1.75 per share.
Note 11. Loss per share.
The following is a reconciliation of the net loss and the number of common
shares used in the calculation of loss per share for the years ended June 30,
1998 and 1997.
Year ended
June 30,
1998 1997
- --------------------------------------------------------------------------------
Basic and diluted loss per share:
Net loss:
Loss from continuing operations $(250,000) $(2,629,000)
Preferred stock dividend (60,000) (15,000)
- --------------------------------------------------------------------------------
Loss from continuing operations available to
common stockholders (310,000) (2,644,000)
Discontinued operations -- (106,000)
- --------------------------------------------------------------------------------
Loss available to common stockholders $(310,000) $(2,750,000)
- --------------------------------------------------------------------------------
Number of shares:
- --------------------------------------------------------------------------------
Weighted average common shares outstanding 18,356,000 8,882,000
- --------------------------------------------------------------------------------
Per share amounts:
Basic and diluted loss from continuing operations $ (0.02) $ (0.30)
Discontinued operations -- (0.01)
- --------------------------------------------------------------------------------
Basic and diluted loss $ (0.02) $ (0.31)
- --------------------------------------------------------------------------------
F-17
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statement
The following were not included in the computation of diluted loss per share as
the effect would be anti-dilutive.
Year ended
June 30,
1998 1997
- --------------------------------------------------------------------------------
Number of equivalent common shares:
Stock options 2,168,825 3,182,250
Stock purchase warrants 290,994 3,738,663
Convertible debentures 1,414,098 2,868,128
Convertible preferred shares -- 173,576
- --------------------------------------------------------------------------------
Note 12. Stock options and stock purchase warrants.
The following is a summary of the changes in stock options and stock purchase
warrants during the years ended June 30, 1997 and 1998. Each stock option and
stock purchase warrant outstanding is exercisable to purchase one share of the
Company's $.0001 par value common stock.
Weighted average
Number of shares exercise price
- --------------------------------------------------------------------------------
Stock options:
Balance, July 1, 1996 1,662,250 $ 2.37
Granted 1,610,000 2.06
Exercised (90,000) .74
Expired / cancelled -- --
- --------------------------------------------------------------------------------
Balance, June 30, 1997 3,182,250 2.26
Granted 873,000 5.74
Exercised (1,875,545) 2.30
Expired / cancelled (10,880) 1.62
- --------------------------------------------------------------------------------
Balance, June 30, 1998 2,168,825 $ 3.63
- --------------------------------------------------------------------------------
Stock purchase warrants:
Balance, July 1, 1996 3,910,364 1.79
Granted 1,143,436 1.59
Exercised (1,178,018) .99
Expired / cancelled (137,119) 1.08
- --------------------------------------------------------------------------------
Balance, June 30, 1997 3,738,663 $ 2.00
Granted 295,632 4.05
Exercised (3,679,986) 1.97
Expired / cancelled (63,315) 2.66
- --------------------------------------------------------------------------------
Balance, June 30, 1998 290,994 $ 4.34
- --------------------------------------------------------------------------------
F-18
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statement
The following information summarizes stock options outstanding at June 30, 1998.
<TABLE>
<CAPTION>
Outstanding Exercisable
- --------------------------------------------------------------------------------------------------
Year of Number Weighted average Range of Number Weighted average
expiration Outstanding exercise price exercise price exercisable exercise price
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2001 30,000 $13.04 $12.94 - $13.23 10,001 $13.04
2002 223,475 $ 1.54 $ 1.41 - $ 1.55 223,475 $ 1.54
2002 41,000 $ 3.45 $ 2.75 - $ 4.25 41,000 $ 3.45
2003 52,000 $ 7.15 $ 6.41 - $ 8.33 32,000 $ 6.41
2003 21,000 $11.74 $10.40 - $12.16 16,000 $12.16
2005 63,850 $ 1.23 $ 1.20 - $ 1.63 63,850 $ 1.23
2006 352,000 $ 2.22 $ 1.75 - $ 2.75 285,334 $ 2.21
2007 169,000 $ 2.04 $ 1.42 - $ 2.25 69,000 $ 1.92
2007 491,500 $ 2.77 $ 2.49 - $ 3.66 241,500 $ 2.50
2007 145,000 $ 5.46 $ 4.94 - $ 6.50 21,250 $ 5.42
2008 200,000 $ 2.50 $ 2.50 -- $ --
2008 355,000 $ 6.20 $ 5.50 - $ 6.87 75,000 $ 6.25
2008 25,000 $12.48 $10.11 - $13.17 -- $ --
- ----------------------------------------------------------------------------------------------------
2,168,825 $ 3.63 $ 1.20 - $13.23 1,078,410 $ 2.85
- ----------------------------------------------------------------------------------------------------
</TABLE>
The weighted average grant date fair value of stock options granted is
summarized as follows.
Years ended June 30,
1998 1997
- -------------------------------------------------------------------------------
Market value equal to exercise price $3.68 $0.37
Market value greater than exercise price $ -- $0.86
Market value less than exercise price $1.03 $0.74
- -------------------------------------------------------------------------------
The following information summarizes stock purchase warrants outstanding at June
30, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
- --------------------------------------------------------------------------------------------------
Year of Number Weighted average Range of Number Weighted average
expiration Outstanding exercise price exercise price exercisable exercise price
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 25,000 $1.25 $1.25 25,000 $1.25
1999 70,000 $2.54 $2.46 - $3.00 70,000 $2.54
2000 11,194 $0.67 $0.67 11,194 $0.67
2003 159,800 $6.32 $6.25 - $8.58 159,800 $6.32
2007 25,000 $1.50 $1.50 25,000 $1.50
- --------------------------------------------------------------------------------------------------
290,994 $4.34 $0.67 - $8.58 290,994 $4.34
- --------------------------------------------------------------------------------------------------
</TABLE>
The weighted average grant date fair value of stock purchase warrants granted is
summarized as follows.
Years
ended June 30,
1998 1997
- --------------------------------------------------------------------------------
Market value equal to exercise price $8.01 $ --
Market value greater than exercise price $4.34 $0.53
Market value less than exercise price $0.78 $0.39
- --------------------------------------------------------------------------------
F-19
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statement
The Company applies Accounting Principles Board Opinion 25 in accounting for
stock options and stock purchase warrants granted to employees. Had compensation
expense been determined based upon the fair value of the awards at the grant
date and consistent with the method under Statement of Financial Accounting
Standards 123, the Company's net loss and basic and diluted loss per share would
have been increased to the pro forma amounts indicated in the following table.
Years ended June 30,
1998 1997
- --------------------------------------------------------------------------------
Net loss as reported $ (250,000) $(2,735,000)
Net loss pro forma $(1,668,000) $(3,377,000)
Basic and diluted loss per share as reported $ (0.02) $ (0.31)
Basic and diluted loss per share pro forma $ (0.09) $ (0.38)
- --------------------------------------------------------------------------------
The fair value of each employee stock option and stock purchase warrant granted
during the years ended June 30, 1998 and 1997 was estimated on the date of grant
using the Black-Scholes option pricing model. The assumptions used in the
pricing calculations were as follows:
Years ended June 30,
1998 1997
- --------------------------------------------------------------------------------
Expected volatility 89% - 104% 63%
Risk free interest rate 6.5% 7.5%
Expected annual dividends None None
Estimated lives of options and warrants 1 - 5 years 1 - 2 years
- -------------------------------------------------------------- -----------------
Note 13. Benefit plans.
The Company maintains the 1997 Stock Option and Bonus Plan covering all
employees, officers, directors and consultants. Under this plan, participants
may be awarded qualified or non-qualified stock options and stock bonuses. The
exercise price of an award of a qualified stock option may not be less than 100%
of the market value on the date of the grant. The exercise price of an award of
a non-qualified stock option may not be less than 85% of the market value on the
date of the grant. The Company has reserved up to 2,700,000 shares of its common
stock for awards under this plan. The Company made awards of 873,000 and
1,500,000 options under the plan during the years ended June 30, 1998 and 1997,
respectively.
The Company maintains the 1992 Employee Stock Purchase Plan covering all
employees with a minimum of 3 months of service except those employees owning,
directly or indirectly, more than 5% of its common stock. The Company executes
purchase transactions or issues shares on behalf of the participating employees
through semi-annual purchases in the open market or issuances. The exercise
price for participating employees shall be the lower of 85% of the fair market
value of the Company's common stock at the beginning or end of each six-month
period. During the years ended June 30, 1998 and 1997, respectively,
participating employees elected to purchase 63,127 and 10,350 shares of the
Company's common stock.
The Company maintains the 1992 Incentive Stock Option Plan. There are 250,000
shares of common stock reserved for issuance under the terms of the plan.
Through June 30, 1997, 37,250 options had been granted under the plan. No awards
were made under this plan during the year ended June 30, 1998. The exercise
price of the options granted must be equal to or exceed the fair market value of
the Company's common stock on the date of the grant.
F-20
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statement
The Company maintains 401(k) plans covering its employees and those of its
subsidiaries. Matching contributions are made at the discretion of the Board of
Directors. During the years ended June 30, 1998 and 1997, the Company made
matching contributions in the amounts of $60,000 and $46,000, respectively.
The Company maintains a profit sharing plan that covers all full-time employees
with a minimum of 12 months of service who elect to enter the plan. At the
option of the Board of Directors, an amount not to exceed that allowed under the
Internal Revenue Code, as amended, may be contributed to the plan. The Company
did not make contributions to the plan during the years ended June 30, 1998 and
1997.
Note 14. Commitments and contingencies.
The Company leases office space, production facilities and equipment under
operating leases. Rent expense under operating leases was $1,090,000 and
$1,086,000 for the years ended June 30, 1998 and 1997, respectively.
The following is a summary of minimum future lease payments under operating
leases:
Years ending June 30,
- --------------------------------------------------------------------------------
1999 $1,463,000
2000 1,341,000
2001 1,225,000
2002 803,000
2003 604,000
Thereafter 410,000
- --------------------------------------------------------------------------------
$5,846,000
- --------------------------------------------------------------------------------
Sale and lease-back arrangements. During December 1997, the Company sold the
land and building at a production facility for $850,000 under a sale and
lease-back arrangement. The gain on the sale was immaterial. The Company used
the proceeds to satisfy its obligations under two notes secured by the land and
building and for other working capital purposes.
Self insurance. The Company is partially self-insured for employee medical
liabilities which cover risk up to $50,000 per individual covered under its
medical insurance plan. The Company has purchased excess medical liability
coverage for individual claims in excess of $50,000 and aggregate annual claims
in excess of an estimated $900,000 at June 30, 1998.
Employment agreements. The Company has entered into the following employment
agreements with officers and other key employees.
With an officer who is also a director, an agreement which expires in January
1999, but will be automatically renewed on each anniversary for one year periods
unless written notice is provided by either party, providing for a minimum
annual salary in the amount of $195,000 during the current contract period. The
employment agreement provides for the granting of 450,000 stock options
exercisable at $2.50 per share which vest as follows: January 1997, 100,000,
December 1997, 150,000 and December 1998, 200,000. The stock options expire in
January 2007.
With an officer, a two year employment agreement, which expires in June 1999 but
will be automatically renewed on each anniversary for one year periods unless
written notice is provided by either party, providing for minimum annual salary
in the amounts of $135,000 and $145,000 during the first and second year,
respectively, and a bonus of not less than $15,000 per year. The employment
agreement provides for the granting of 300,000 stock options which vest as
follows: July 1997, 100,000 at an exercise price of $1.42 per share; July 1998,
100,000 at an exercise price of $2.13 per share and July 2000, 100,000 at an
exercise price of $2.49 per share. The stock options expire in May 2007.
F-21
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statement
With an officer, a two year employment agreement, which expires in July 1999 but
will be automatically renewed on each anniversary for one year periods unless
written notice is provided by either party, providing a minimum annual salary in
the amount of $160,000. The employment agreement provides for the granting of
225,000 stock options which vest as follows: July 1997, 75,000 at an exercise
price of $2.09 per share; July 1998, 75,000 at an exercise price of $3.14 per
share and July 2000, 75,000 at an exercise price of $3.66 per share. The stock
options expire in July 2007.
With an officer, a two year employment agreement, which expires in December 1998
but will be automatically renewed on each anniversary for one year periods
unless written notice is provided by either party, providing a minimum annual
salary in the amount of $150,000 and a bonus of not less than $18,000 during the
first year and $15,000 during the second year. The employment agreement provides
for the granting of 200,000 stock options with an exercise price of $2.25 which
vest as follows: February 1997, 66,667; February 1998, 66,667 and February 1999,
66,666. The stock options expire in February 2007.
With an employee, a two year employment agreement which expires in August 1999
but will be automatically renewed for two year periods, providing for a minimum
annual salary in the amount of $75,000. The employment agreement provides for
the granting of 10,000 stock options exercisable at the then market price. The
options are exercisable for ten year periods.
With an employee, a two year employment agreement which expires in March 2000
but will be automatically renewed on each anniversary for one year periods
unless written notice is provided by either party, providing for a minimum
annual salary of not less than $145,000 and $155,000 during the first and second
years, respectively. The employment agreement provides for the granting of
75,000 stock options exercisable on each of the agreement commencement date and
its first anniversary date at the then market price. The stock options are
exercisable for a period of ten years from the date of grant.
Legal proceedings. At June 30, 1998, the Company's subsidiary, All Control, is
party to a civil action filed by a general contractor claiming damages in excess
of $100,000. All Control has filed a counter claim requesting damages in excess
of $3,900,000 arising under its subcontract. The claim arises from a dispute
with a customer regarding contractual disagreements primarily resulting from
change orders. The Company is also party to various disputes involving
contractual matters of contract compliance and payment of its billings related
to this project (see Note 6).
At June 30, 1998, the Company and certain of its officers are named in a civil
complaint brought by a former director, alleging that the defendants withheld
material information regarding the Company's Year 2000 product at a time when he
was a director and sold a considerable block of the Company's stock. Management
believes that the allegations are groundless and intends to vigorously defend
its position. Although the proceeding is at a very early stage, as of this date,
management believes that its defense of the case will be successful.
Management does not believe that the outcome of these disputes will have a
material adverse effect on the Company's results of operations, its financial
position or cash flows. The Company, in the routine course of business, utilizes
legal services to protect lien rights on projects to secure payment of its
outstanding accounts. At June 30, 1998, the Company has reserves for potential
losses on contracts and an allowance for doubtful accounts in the amount of
$1,372,000 resulting primarily from management's and counsel's assessment of
legal proceedings.
Restricted cash. The cash balance at June 30, 1998 includes certificates of
deposit in the amount of $125,000 which are restricted and being held by a
bonding company to secure the Company's obligations under a performance bond.
Letters of credit. During June 1998, the Company issued two 60-day standby
letters of credit aggregating $165,000 to secure its obligations to suppliers.
F-22
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to consolidated financial statement
Note 15. Fourth quarter adjustments.
During the fourth quarter of fiscal 1998, the Company reclassified $1,100,000
for overhead allocation charges on contracts from general and administrative
expense to cost of revenue. Also in the fourth quarter, the Company capitalized
approximately $159,000 of development cost and interest expense of $73,000 that
had been expensed in prior quarters.
Note 16. Related party transactions.
An officer of the Company is a Board member of a financial consulting company
and a partner in its affiliate. The consulting company has made investments in
private placements of the Company's securities. Since joining the Company, the
officer has abstained in all matters relating to the financial consulting
company's investment in the Company.
An officer of the Company is also an owner of an entity for which the Company
performs subcontract work. Billings to the related entity for the years ended
June 30, 1998 and 1997 were approximately $1,448,000 and $1,154,000,
respectively. Accounts receivable from this entity as of June 30, 1998 and 1997
were $155,000 and $233,000, respectively.
F-23
<PAGE>
Item 8. Changes in and disagreements with accountants on accounting and
financial disclosures.
None.
Part III
Item 9. Directors, executive officers, promoters and control persons; Compliance
with Section 16(a) of the Exchange Act.
The directors and executive officers of the Company are listed below. Directors
are elected to hold office until the next annual meeting of shareholders and
until their respective successors have been elected and qualified. Executive
officers are elected by the Board of Directors and hold office until their
successors are elected and qualified.
The following table sets forth the names and ages of all directors and executive
officers and the positions and offices that each such person holds with the
Company.
Name Age Position
- --------------------------------------------------------------------------------
John Jenkins(1) 48 Chairman of the Board, President
and Chief Executive Officer
Kevin Fallon 45 Chief Operating Officer
Douglas H. Kelsall 44 Chief Financial Officer
and Secretary
Larry B. Hagewood 49 Executive Vice President,
Sales and Marketing
Robert C. Pearson(1) 63 Director
Robert L. Costello(1) 46 Director
Rick L. Schleufer 45 Director
- --------------------------------------------------------------------------------
(1) Member of Audit Committee and Compensation Committee.
H. Robert Gill and Judith A. Draper resigned their positions as board members
during January and March 1998, respectively.
Biographical information.
John Jenkins. Mr. Jenkins has served as President, Chief Executive Officer, and
a Director of the Company since January 1995 and as Chairman of the Board of
Directors since August 1997. Before joining the Company, Mr. Jenkins served as
president of Morgan Technical Ceramics, Inc., a wholly-owned subsidiary of
Morgan Crucible plc, a diversified industrial products company based in England
and publicly-traded on the London stock exchange. Prior to his tenure at Morgan
Technical, he was Vice President and General Manager of the Structural Ceramic
Division Coors Ceramics Company, a subsidiary of the Adolph Coors Company. Mr.
Jenkins holds a Bachelor of Science degree in Mechanical Engineering from the
University of Washington, and a Juris Doctor degree from the University of
Denver.
22
<PAGE>
Kevin Fallon. Mr. Fallon has served as Chief Operating Officer since joining the
Company in December 1996. During 1982, Mr. Fallon founded and became employed as
President and Chief Executive Officer of All Control Systems, Inc., which the
Company acquired in December 1996. Prior to that time, he held management
positions in quality and process control, design engineering and testing and
sales engineering. Mr. Fallon holds a Bachelor of Science degree from Drexel
University and a Master of Business Administration from the Wharton School of
Business, University of Pennsylvania.
Douglas H. Kelsall. Mr. Kelsall has served as Chief Financial Officer of the
Company since July 1997. Mr. Kelsall served as Chief Financial Officer of
Evolving Systems, Inc., a company engaged in software development, from December
1995 to June 1997, as President of Caribou Capital Corporation from June 1993 to
December 1995 and in various management and Vice President positions at Colorado
National Bank from October 1978 to June 1993. Mr. Kelsall holds a Bachelor of
Arts degree from the University of Colorado and a Master of Business
Administration degree from the University of Denver.
Larry B. Hagewood. Mr. Hagewood has served as Executive Vice President of the
Company since September 1997. Prior to joining the Company, he served for six
years as Group Vice President of the Systems Business for Elsag Bailey, a global
leader for automation solutions to the industrial manufacturing market. Mr.
Hagewood holds a Bachelor of Science degree in Nuclear Physics from Auburn
University.
Robert C. Pearson. Mr. Pearson has been a director of the Company since May
1997. Mr. Pearson has been associated with Renaissance Capital Group, Inc. since
April 1994, presently serving as Senior Vice President, Director of Corporate
Finance. He served as Executive Vice President of the Thomas Group from May 1990
to March 1994. For 25 years prior to that time, Mr. Pearson held various senior
management positions at Texas Instruments, including Vice President of Finance
from October 1983 to June 1985. Mr. Pearson holds a Bachelor of Science Degree
from the University of Maryland and a Master of Business Administration from the
University of Michigan. Mr. Pearson hold directorships in the following public
companies: Poore Brothers, Inc. and Interscience Computer.
Robert L. Costello. Mr. Costello has been a director of the Company since May
1997. Mr. Costello has been employed as Executive Vice President of URS Greiner,
Inc. and Vice President and Director of URS Corporation since April 1996. He
served as a Director and Chief Executive Officer of Greiner Engineering, Inc.
from August 1995 to March 1996, President and Chief Operating Officer of Greiner
Engineering, Inc. from February 1994 to August 1995 and Vice President and Chief
Financial Officer of Greiner Engineering, Inc. from 1987 to February 1994. Mr.
Costello holds a Bachelor of Arts degree from Western State College of Colorado
and a Master of Business Administration from the University of Oregon.
Rick L. Schleufer. Mr. Schleufer has served as a director of the Company since
January 1998. Since 1986, he has been employed by Enterprise/IndeNet presently
serving as director of IndeNet, Inc. and Chief Executive Officer of Enterprise
Systems Group, Inc. From 1979 to 1986, Mr. Schleufer founded and was Chief
Executive of several small business enterprises. Prior to the management of
these ventures, Mr. Schleufer was employed by the national accounting firm of
Grant Thornton. Mr. Schleufer holds a Bachelor of Science Degree in Business and
Accounting from the University of Colorado, and is a Certified Public
Accountant.
Compliance with Section 16 (a) of the Exchange Act.
Section 16 (a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers and persons who own more than ten percent of its equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Directors, officers and greater
than ten-percent shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16 (a) reports filed.
23
<PAGE>
Based solely on its review of the copies of the reports it received from persons
required to file, and written representations it received from these persons,
the Company believes that during the fiscal year ended June 30, 1998 all filing
requirements applicable to its officers, directors and greater than ten percent
shareholders were complied with except as follows: the Form 3 due ten days
following the election of Larry B. Hagewood as an executive officer was not
timely filed; Kevin Fallon did not timely file two reports on Form 4 relating to
two sales during July 1997 and nine purchases during October 1997; and Robert C.
Pearson did not timely file three reports on Form 4 relating to two conversions
and two sales during April 1998, two sales during May 1998, and one conversion
and five sales during June 1998, all relating to securities held of record by
Renaissance Capital Growth & Income Fund III, Inc. and Renaissance U.S. Growth &
Income Trust PLC. Mr. Fallon's transactions were reported on a Form 5 for the
fiscal year ended June 30, 1998 which was not timely filed. Mr. Pearson's
transactions were reported on an amended Form 5 for the fiscal year ended June
30, 1998 which was not timely filed.
Involvement in certain legal proceedings.
During the past five years, no director or executive officer of the Company has
been involved in legal proceedings of the nature required to be disclosed by
this item.
Item 10. Executive compensation.
(a) (b) Summary compensation table.
The following table sets forth information regarding compensation paid during
the past three fiscal years to the Company's Chief Executive Officer and to any
of its four most highly compensated executive officers who earned total salary
and bonus in excess of $100,000 per annum during the fiscal year ended June 30,
1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Long-term compensation
--------------------------------------
Annual compensation Awards Payouts
-----------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------ --------------------------------------------------
Other Restricted Security All
Name and annual stock underlying LTIP other
Principal Position Year Salary Bonus comp awards options/SARs payouts comp(1)
- ------------------------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Jenkins 1998 $182,700 $20,000 -- -- -- -- $7,937
Chairman, President 1997 $165,000 $30,000 -- -- 450,000(2) -- $7,726
and Chief Executive 1996 $146,400 -- -- -- -- -- --
Kevin Fallon 1998 $158,300 $18,000 -- -- -- -- $6,000
Chief Operating 1997(3) $ 87,500 $18,000 -- -- 200,000(4) -- $7,007
Officer 1996 -- -- -- -- -- -- --
Douglas H. Kelsall 1998(5) $138,000 -- -- -- -- -- $3,600
Chief Financial 1997 -- -- -- -- 300,000(6) -- --
Officer and Secretary 1996 -- -- -- -- -- -- --
Larry B. Hagewood 1998(7) $143,700 -- -- -- 225,000(8) -- $5,300
Vice President 1997 -- -- -- -- -- -- --
Sales & Marketing -- -- -- -- -- -- --
1996
- ---------------------------------------------------------------------------------------------------------------------
24
<PAGE>
<FN>
(1) Represents the value of term life insurance, the premiums for which were
paid by the Company, and/or the value of an automobile or automobile allowance
provided for the executive's personal use.
(2) Mr. Jenkins was granted non-qualified options to purchase 450,000 shares of
common stock in connection with the January 28, 1997 extension of his employment
agreement. At October 1, 1998, 241,500 of those options were exercisable.
(3) Represents compensation commencing December 1, 1996.
(4) Mr. Fallon was granted non-qualified options to purchase 200,000 shares of
common stock in connection with his employment agreement. At October 1, 1998,
133,334 of those options were exercisable.
(5) Represents compensation commencing July 15, 1997.
(6) Mr. Kelsall was granted non-qualified options to purchase 300,000 shares of
common stock in connection with his employment agreement. At October 1, 1998,
115,000 of those options were exercisable.
(7) Represents compensation commencing August 15, 1997.
(8) Mr. Hagewood was granted non-qualified options to purchase 225,000 shares of
common stock in connection with his employment agreement. At October 1, 1998,
115,000 of those options were exercisable.
</FN>
</TABLE>
(c) Option and stock appreciation right grants table.
The following table sets forth information regarding the grant of options and
stock appreciation rights during the fiscal year ended June 30, 1998, to any of
the executive officers required to be named in the Summary Compensation Table.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
- ------------------------ ---------------------- ----------------------- --------------------- ----------------------
Number of Percent of total
securities options or SARs
underlying options granted to employees Exercise or base
Name or SARs granted in fiscal year price ($ per share) Expiration date
- ------------------------ ---------------------- ----------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
Larry B. Hagewood 75,000 8.6% $2.09 July 2007
75,000 8.6% $3.14 July 2007
75,000 8.6% $3.66 July 2007
- ------------------------ ---------------------- ----------------------- --------------------- ----------------------
</TABLE>
(d) Aggregated option and stock appreciation right exercises in last fiscal year
and fiscal year end option and stock appreciation right values.
The following table sets forth information regarding option and stock
appreciation right exercises during the fiscal year ended June 30, 1998, by any
of the executive officers required to be named in the Summary Compensation
Table.
25
<PAGE>
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
- ------------------------- ----------------- ----------------- ---------------------------- -------------------------------
Number of securities Value of
underlying unexercised in-the-
Number of unexercised options or money options or
shares acquired SARs at fiscal year end SARs at fiscal year end
Name on exercise Value realized (exercisable/unexercisable) (exercisable/unexercisable)(1)
- ------------------------- ----------------- ----------------- ---------------------------- -------------------------------
<S> <C> <C> <C> <C>
John Jenkins: 8,500 $ 55,500
Exercisable 100,000 $553,000 376,500 $2,912,800
Unexercisable 200,000 $1,476,000
Kevin Fallon:
Exercisable -- $-- 133,334 $1,017,300
Unexercisable 66,666 $ 508,700
Douglas H. Kelsall: 80,000 $413,600
Exercisable 20,000 $ 169,200
Unexercisable 200,000 $1,514,000
Larry B. Hagewood: 35,000 $325,100
Exercisable 40,000 $ 311,600
Unexercisable 150,000 $ 972,000
- -------------------------
<FN>
(1) The year-end value represents the difference between the option exercise
prices (ranging from $1.20 to $3.66 per share) and the $9.88 market value of the
Company's common stock on June 30, 1998, multiplied by the number of shares
under option. Market value represents the closing price reported by NASDAQ on
June 30, 1998.
</FN>
</TABLE>
(e) Long-term incentive plan awards.
During the fiscal year ended June 30, 1998, the Company did not make any
long-term incentive plan awards not disclosed above.
(f) Compensation of directors.
The Company pays no cash compensation to directors for their services as such.
The Company maintains its 1998 Non-Employee Director Stock Option Plan. Under
this plan, automatic grants of 4,000 stock options are made to each non-employee
director each calendar quarter. The exercise price of the stock options is equal
to fair market value of the common stock on the date of grant. The options
expire five years from date of grant.
(g) Employment contracts and termination of employment and change-in-control
arrangements.
The Company has entered into the following employment agreements with the
executive officers required to be named in the Summary Compensation Table.
The Company has a two year employment agreement with John Jenkins which expires
in January 1999, but will be automatically renewed on each anniversary for one
year periods unless written notice of non-renewal in given by either party,
providing for a minimum annual salary in the amount of $195,000 during the
current contract year. The employment agreement provided for the grant of
450,000 stock options exercisable at $2.50 per share which vest as follows:
January 1997, 100,000; December 1997, 150,000; and December 1998, 200,000. The
stock options expire in January 2007. The Company is obligated to pay the
premium on a term life insurance policy with a death benefit of $500,000 for
which Mr. Jenkins names the beneficiary. In the event of a change in control,
the Company is obligated to pay Mr. Jenkins his base salary then in effect for a
period of 24 months following a notice of termination.
26
<PAGE>
The Company has a two year employment agreement with Kevin Fallon which expires
in December 1998 but will be automatically renewed on each anniversary for one
year periods unless written notice of non-renewal is given by either party,
providing a minimum annual salary in the amount of $175,000 and a bonus of not
less than $15,000 during the current contract year. The employment agreement
provided for the grant of 200,000 stock options with an exercise price of $2.25
which vest as follows: February 1997, 66,667; February 1998, 66,667; and
February 1999, 66,666. The stock options expire in February 2007. The Company is
obligated to pay the premium on a term life insurance policy with a death
benefit of at least $250,000 for which Mr. Fallon names the beneficiary. In the
event of a change in control, the Company is obligated to pay Mr. Fallon his
base salary then in effect for a period of 12 months following a notice of
termination.
The Company has a two year employment agreement with Douglas H. Kelsall which
expires in June 1999 but will be automatically renewed on each anniversary for
one year periods unless written notice of non-renewal is given by either party,
providing for a minimum annual salary of $145,000 during the current contract
year, and a bonus of not less than $15,000 per year. The employment agreement
provides for the granting of 300,000 stock options which vest as follows: July
1997, 100,000 at an exercise price of $1.42 per share; July 1998, 100,000 at an
exercise price of $2.13 per share; and July 2000, 100,000 at an exercise price
of $2.49 per share. The stock options expire in May 2007. In the event of a
change in control, the Company is obligated to pay Mr. Kelsall his base salary
then in effect for a period of 24 months following a notice of termination.
The Company has a two year employment agreement with Larry B. Hagewood which
expires in July 1999 but will be automatically renewed on each anniversary for
one year periods unless written notice of non-renewal is given by either party,
providing for a minimum annual salary in the amount of $160,000. The employment
agreement provided for the grant of 225,000 stock options which vest as follows:
July 1997, 75,000 at an exercise price of $2.09 per share; July 1998, 75,000 at
an exercise price of $3.14 per share; and July 2000, 75,000 at an exercise price
of $3.66 per share. The stock options expire in July 2007. In the event of a
change in control, the Company is obligated to pay Mr. Hagewood his base salary
then in effect for a period of 12 months following a notice of termination.
(h) Report on repricing of options and stock appreciation rights.
During the fiscal year ended June 30, 1998, the Company did not amend or adjust
the terms of any stock option or stock appreciation right previously awarded to
any of the named executive officers.
Item 11. Security ownership of certain beneficial owners and management.
The following table sets forth, as of October 1, 1998, the number of shares of
the Company's voting securities beneficially owned by (a) any person (including
any "group") who is known by the Company to be the beneficial owner of more than
five percent of any class of its voting securities and (b) the percentage of
ownership of the outstanding shares of each class represented by such shares.
<TABLE>
<CAPTION>
- ----------------------- ---------------------------------------- ---------------------------- -----------------------
(1) (2) (3) (4)
Name and address Amount and nature
Title of class of beneficial owner of beneficial ownership Percentage of class
- ----------------------- ---------------------------------------- ---------------------------- -----------------------
<S> <C> <C> <C>
Common stock Kevin Fallon
7887 E. Belleview Avenue, Suite 820
Englewood, Colorado 80111 1,529,574(1) 6.9%
- ----------------------- ---------------------------------------- ---------------------------- -----------------------
<FN>
(1) Includes shares underlying 133,334 options exercisable within 60 days of
October 1, 1998.
</FN>
</TABLE>
27
<PAGE>
The following table sets forth, as of October 1, 1998, the number of shares of
the Company's equity securities beneficially owned by its directors and named
executive officers, individually, and by its executive officers and directors as
a group, and the percentage of ownership of the outstanding shares of each class
represented by such shares. The persons listed below are deemed to be the
beneficial owners of shares of underlying options and warrants which are
exercisable within 60 days of October 1, 1998.
<TABLE>
<CAPTION>
- ----------------------- ---------------------------------------- ---------------------------- -----------------------
(1) (2) (3) (4)
Name and address Amount and nature
Title of class of beneficial owner of beneficial ownership Percentage of class
- ----------------------- ---------------------------------------- ---------------------------- -----------------------
<S> <C> <C> <C>
Common stock John Jenkins
7887 E. Belleview Avenue, Suite 820
Englewood, Colorado 80111 791,600(1) 3.6%
Common stock Kevin Fallon
7887 E. Belleview Avenue, Suite 820
Englewood, Colorado 80111 1,529,574(2) 6.9%
Common stock Douglas H. Kelsall
7887 E. Belleview Avenue, Suite 820
Englewood, Colorado 80111 157,600(3) --(9)
Common stock Larry B. Hagewood
7887 E. Belleview Avenue, Suite 820
Englewood, Colorado 80111 115,000(4) --(9)
Common stock Robert C. Pearson
8080 No. Central Expressway
Suite 210-LB 59
Dallas, Texas 75206 1,058,635(5) 4.8%
Common stock Robert L. Costello
7887 E. Belleview Avenue, Suite 820
Englewood, Colorado 80111 24,000(6) --(9)
Common stock Rick L. Schleufer
7887 E. Belleview Avenue, Suite 820
Englewood, Colorado 80111 11,000(7) --(9)
Common stock All executive officers and
directors as a group 3,687,409(8) 16.7%
- ----------------------- ---------------------------------------- ---------------------------- -----------------------
<FN>
(1) Includes 576,500 shares that are issuable upon exercise of stock options.
(2) Includes 133,334 shares that are issuable upon exercise of stock options.
(3) Includes 105,000 shares that are issuable upon exercise of stock options.
(4) Represents 115,000 shares issuable upon exercise of stock options.
(5) Represents 1,009,635 shares that are subject to the conversion of the
Company's 9% convertible debentures held by two investment funds that are
advised by Renaissance Capital Group, and a 25,000 share warrant held by one of
those funds. Mr. Pearson has disclaimed beneficial ownership of all of those
shares. Includes 24,000 shares issuable upon exercise of stock options held by
Mr. Pearson.
(6) Represents shares issuable upon exercise of stock options.
28
<PAGE>
(7) Includes 8,000 shares issuable upon exercise of stock options.
(8) Includes 2,020,469 shares issuable upon exercise of options and warrants and
upon conversion of debentures, as described in notes (1) - (8).
(9) Less than one percent.
</FN>
</TABLE>
Item 12. Certain relationships and related transactions.
An officer of the Company is a Board member of a financial consulting company
and a partner in its affiliate. The consulting company has made investments in
private placements of the Company's securities. Since joining the Company, the
officer has abstained in all matters relating to the financial consulting
company's investment in the Company.
An executive officer who is also a principal stockholder of the Company is an
owner of an entity for which the Company performs subcontract work. Billings to
the related entity were approximately $1,448,000 and $1,154,000 during the years
ended June 30, 1998 and 1997, respectively.
Item 13. Exhibits, financial statement schedules and reports on Form 8-K.
(a) Exhibits.
The following exhibits are filed herewith or have been previously filed with the
Securities and Exchange Commission and are incorporated by reference herein:
2.1 Agreement and Plan of Merger dated July 26, 1995 regarding the acquisition
of Management Design and Consulting Services, Inc. (A)
2.2 Agreement and Plan of Merger dated February 21, 1996 - regarding the
acquisition of Advanced Control Technology, Inc. (B)
2.3 Agreement of Merger dated May 17, 1996 - regarding the acquisition of
Visioneering Holding Corporation. (C)
2.4 Agreement of Merger dated December 31, 1996 - regarding the acquisition of
All Control Systems, Inc. (E)
2.5 Amendment Number 1 to the All Control Systems, Inc. Agreement of Merger.
(E)
3.3 Restated Articles of Incorporation. (F)
3.4 Amendment to Articles of Incorporation - Designation of Series A Preferred
Stock. (L)
3.5 Amendment to Articles of Incorporation - Name Change. (M)
3.5 By Laws. (G)
10.1 1992 Employee Stock Purchase Plan. (H)
10.2 1992 Incentive Stock Option Plan. (H)
10.3 Non-Qualified Stock Option Agreement dated December 27, 1994 between the
Registrant and John Jenkins. (D)
29
<PAGE>
10.4 Loan Agreement dated February 21, 1996 - Renaissance Capital Growth &
Income Fund III, Inc. (B)
10.5 Loan Agreement and Convertible Debenture dated October 30, 1996 -
Renaissance Capital Growth & Income Trust, PLC. (I)
10.6 Employment agreement dated as of December 31, 1996 with Kevin Fallon,
C.O.O. (J)
10.7 Employment agreement dated as of January 28, 1997 with John Jenkins,
Chairman of the Board of Directors, C.E.O. and President. (K)
10.8 Employment agreement dated as of May 5,1997 with Douglas H. Kelsall, CFO
(R)
10.9 1997 Stock option and bonus plan. (R)
10.10 Employment agreement dated July 15, 1997 with Larry B. Hagewood,
Vice President. (N)
10.11 Non-Employee Director Stock Option Plan. (O)
10.12 Loan and Security Agreement dated March 27, 1998 with Sirrom
Capital Corporation d/b/a Tandem Capital Inc. (O)
21.1 List of Subsidiaries (P).
23.1 Consent of BDO Seidman, LLP to the incorporation by reference of the
audited financial statements and their report thereon dated September 21,
1998. (P)
23.2 Consent of BDO Seidman, LLP to the incorporation by reference of the
audited financial statements and their report thereon dated September 21,
1998. (Q)
- --------------------------------------------------------------------------------
(A) Incorporated by reference from the Registrant's Form 8-K Current
Report dated August 10, 1995.
(B) Incorporated by reference from the Registrant's Form 8-K Current
Report dated February 21, 1996.
(C) Incorporated by reference from the Registrant's Form 8-K Current
Report dated May 30, 1996.
(D) Incorporated by reference from the Registrant's Form 10-KSB for
the fiscal year ended June 30, 1995.
(E) Incorporated by reference from the Registrant's Form 8-K dated
December 31, 1996, as amended.
(F) Incorporated by reference from the Registrant's Form 10-K for the
fiscal year ended June 30, 1996.
(G) Incorporated by reference from Exhibit 3.3 to Registration
Statement on Form S-1, File No. 33-47159, effective June 17,
1992.
(H) Incorporated by reference from the Registrant's Form 10-K for the
fiscal year ended June 30, 1993.
(I) Incorporated by reference from the Registrant's Form 10-QSB for
the quarter ended September 30, 1996.
30
<PAGE>
(J) Incorporated by reference from the Registrant's Form 10-QSB for
the quarter ended December 31, 1996.
(K) Incorporated by reference from the Registrant's Registration
Statement on Form S-3, SEC file number 333-170891, effective
March 6, 1997.
(L) Incorporated by reference from the Registrant's Form 10-QSB for
the quarter ended March 31, 1997.
(M) Incorporated by reference from the Registrant's Form S-8
Registration Statement effective October 17, 1997, File No.
333-46339.
(N) Incorporated by reference from the Registrant's Form 10-QSB for
the quarter ended September 30, 1997.
(O) Incorporated by reference from the Registrant's Form 10-QSB for
the quarter ended March 31, 1998.
(P) Previously filed.
(Q) Filed herewith.
- --------------------------------------------------------------------------------
(b) Reports on Form 8-K.
During the last quarter of the period covered by this report, the Company
filed reports on Form 8-K as listed below. No financial statements were filed
with these reports.
The following reports on Form 8-K reported information pursuant to "Item 5 -
Other Events".
i. Form 8-K dated April 17, 1998, filed April 20, 1998.
ii. Form 8-K dated April 23, 1998, filed April 23, 1998.
iii. Form 8-K dated April 24, 1998, filed April 29, 1998.
iv. Form 8-K dated May 12, 1998, filed May 12, 1998.
v. Form 8-K dated May 21, 1998, filed May 21, 1998.
vi. Form 8-K dated June 3, 1998, filed June 3, 1998.
31
<PAGE>
TAVA Technologies, Inc.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this Amendment No. 1 to Form
10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized.
TAVA Technologies, Inc.
Date: October 28, 1998 By: /s/ John Jenkins
----------------------- ----------------------------
John P. Jenkins, President
and Chief Executive Officer
32
<PAGE>
TAVA TECHNOLOGIES, INC.
Exhibit 21.1
LIST OF ALL SUBSIDIARIES OF THE REGISTRANT
Name (and d/b/a name, if any,) of subsidiary Jurisdiction of incorporation
- --------------------------------------------------------------------------------
Advanced Control Technology, Inc. Oregon
Visioneering Holding Corp. California
Management Design and Consulting Services, Inc. Georgia
All Control Systems, Inc. Pennsylvania
TAVA Alabama, Inc. Colorado
TAVA Y2k One, Inc. Colorado
Tech Sales, Inc. Colorado
Topro Systems Integration, Inc. Colorado
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TAVA Technologies, Inc.
Englewood, Colorado
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Form S-8 Registration Statement (SEC File No.
333-38165) of our report dated September 21, 1998, relating to the consolidated
financial statements of TAVA Technologies, Inc. and subsidiaries appearing in
the Company's Annual Report on Form 10-KSB for its fiscal year ended June 30,
1998.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Denver, Colorado
October 1, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TAVA Technologies, Inc.
Englewood, Colorado
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Form S-3 Registration Statement (SEC File No.
333-38201) of our report dated September 21, 1998, relating to the consolidated
financial statements of TAVA Technologies, Inc. and subsidiaries appearing in
the Company's Annual Report on Form 10-KSB for its fiscal year ended June 30,
1998.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Denver, Colorado
October 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLDIATED FINANCIAL STATEMENTS OF TAVA TECHNOLOGIES, INC. AND SUBSIDIARIES
FOR YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 4,993,000
<SECURITIES> 0
<RECEIVABLES> 16,200,000
<ALLOWANCES> 1,305,000
<INVENTORY> 188,000
<CURRENT-ASSETS> 27,865,000
<PP&E> 5,300,000
<DEPRECIATION> 3,381,000
<TOTAL-ASSETS> 44,181,000
<CURRENT-LIABILITIES> 10,543,000
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> 28,332
<TOTAL-LIABILITY-AND-EQUITY> 44,181,000
<SALES> 48,363,000
<TOTAL-REVENUES> 48,363,000
<CGS> 29,410,000
<TOTAL-COSTS> 29,410,000
<OTHER-EXPENSES> 18,547,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 656,000
<INCOME-PRETAX> (250,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (250,000)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
