<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1999
-------------------------------------------------
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number 0-19167
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TAVA Technologies, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1042227
------------------------ ---------------------
(State of incorporation) (IRS Employer
Identification No.)
7887 East Belleview Avenue, Suite 820 Englewood, Colorado 80111
- ----------------------------------------- ---------------------------------
(Address of principal executive offices) (city) (state) (zip code)
(303) 771-9794
--------------
Issuer's telephone number including area code
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
The number of shares outstanding of the issuer's $0.0001 par value common stock
on May 1, 1999 was 23,293,355.
Transitional Small Business Disclosure format (check one):
YES NO X
--- ---
<PAGE>
TAVA TECHNOLOGIES, INC.
FORM 10-Q
Table of contents
Part I Financial Information Page
Item 1 Financial Statements 3
The financial information as to March 31, 1999 and
1998 is unaudited. The financial information as to
June 1998 is extracted from the Company's Form 10-KSB
for the year ended June 30, 1998.
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures about Market
Risk 18
Part II Other Information
Item 1 Legal Proceedings 18
Item 2 Changes in Securities and Use of Proceeds 19
Item 3 Defaults Upon Senior Securities 19
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 5 Other Information 19
Item 6 Exhibits and Reports on Form 8-K 20
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Note 5) (Unaudited)
Current assets:
Cash $11,832,000 $ 4,993,000
Trade accounts receivable, net of allowance for
doubtful accounts (Note 2) 22,933,000 14,901,000
Costs and estimated earnings in excess of billings
on uncompleted contracts (Note 3) 14,146,000 7,214,000
Inventories 115,000 188,000
Prepaid expenses and other current assets 792,000 569,000
Deferred income taxes (Note 6) 580,000 --
- -----------------------------------------------------------------------------------------------------
Total current assets 50,398,000 27,865,000
Property and equipment, at cost, net of accumulated depreciation 3,418,000 2,919,000
Capitalized software costs, net of accumulated amortization 3,577,000 4,881,000
Other assets:
Excess of cost over fair value of assets acquired,
net of accumulated amortization 7,451,000 7,915,000
Investment in unconsolidated affiliate (Note 4) 1,703,000 --
Debt issuance costs, net of accumulated amortization 189,000 364,000
Other assets 263,000 237,000
- -----------------------------------------------------------------------------------------------------
Total assets $66,999,000 $44,181,000
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (Note 5) $ 2,650,000 $ --
Current portion of long-term debt (Note 5) 3,909,000 568,000
Accounts payable 5,537,000 5,740,000
Billings in excess of costs and estimated earnings
on uncompleted contracts (Note 3) 4,706,000 1,819,000
Accrued expenses 3,854,000 2,416,000
Income taxes payable (Note 6) 967,000 --
- -----------------------------------------------------------------------------------------------------
Total current liabilities 21,623,000 10,543,000
Long-term debt, net of current portion (Note 5) 418,000 5,304,000
- -----------------------------------------------------------------------------------------------------
Total Liabilities 22,041,000 15,847,000
Stockholders' equity (Notes 5 and 8):
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; 23,270,021 and 21,991,213 shares issued and outstanding
March 31, 1999 and June 30, 1998, respectively 2,000 2,000
Additional paid-in capital 40,123,000 36,165,000
Retained earnings (deficit) 4,833,000 (7,833,000)
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 44,958,000 28,334,000
Total liabilities and stockholders' equity $66,999,000 $44,181,000
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Systems integration and services $22,349,000 $10,668,000 $63,882,000 $32,471,000
License agreements and software sales 4,400,000 999,000 12,556,000 999,000
- ------------------------------------------------------------------------------------------------------------------
Total revenue 26,749,000 11,667,000 76,438,000 33,470,000
Cost of revenue 13,073,000 6,497,000 38,518,000 21,092,000
- ------------------------------------------------------------------------------------------------------------------
Gross profit 13,676,000 5,170,000 37,920,000 12,378,000
Expenses:
Sales expenses 2,789,000 936,000 6,882,000 2,940,000
General and administrative expenses 4,273,000 3,429,000 13,738,000 9,008,000
Amortization of capitalized software and goodwill 1,564,000 383,000 3,505,000 943,000
- ------------------------------------------------------------------------------------------------------------------
8,626,000 4,748,000 24,125,000 12,891,000
Income (loss) from operations 5,050,000 422,000 13,795,000 (513,000)
Other income (expense):
Equity in earnings of unconsolidated affiliate (Note 4) 632,000 -- 1,703,000 --
Interest expense (257,000) (154,000) (774,000) (469,000)
Other 34,000 33,000 82,000 127,000
- ------------------------------------------------------------------------------------------------------------------
409,000 (121,000) 1,011,000 (342,000)
Income (loss) before income taxes 5,459,000 301,000 14,806,000 (855,000)
Income tax expense (Note 6) 2,140,000 -- 2,140,000 --
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,319,000 $ 301,000 $12,666,000 $ (855,000)
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common
shareholders (Note 7) $ 3,319,000 $ 301,000 $12,666,000 $ (915,000)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) per share (Note 7):
Basic $ .15 $ .02 $ .57 $ (.05)
Diluted $ .14 $ .01 $ .53 $ (.05)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding - basic 22,563,719 19,876,981 22,242,060 17,320,731
- ------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding - diluted 24,042,687 23,298,454 23,882,611 17,320,731
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
TAVA TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended March 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 12,666,000 $ (855,000)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation 729,000 499,000
Amortization of goodwill and capitalized software costs 3,505,000 943,000
Non-cash interest expense 220,000 --
Non-cash stock compensation 70,000 --
Allowance for doubtful accounts 1,393,000 (731,000)
Undistributed earnings of unconsolidated affiliate (1,703,000) --
Gain on sale of fixed assets (19,000) (16,000)
Deferred income taxes 1,110,000 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Sale of accounts receivable 2,058,000 --
Accounts receivable (11,483,000) (4,367,000)
Costs and estimated earnings in excess of billings on uncompleted contracts (6,932,000) (1,401,000)
Other assets (176,000) (604,000)
Increase (decrease) in:
Accounts payable (203,000) (1,629,000)
Billings in excess of costs and estimated earnings on uncompleted contracts 2,887,000 438,000
Accrued expenses and other liabilities 1,438,000 (226,000)
Income taxes payable 967,000 --
- --------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 6,527,000 (7,949,000)
- --------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities:
Capitalized software costs (1,562,000) (2,148,000)
Purchase of equipment (1,059,000) (467,000)
Proceeds from the sale of property and equipment 40,000 883,000
- --------------------------------------------------------------------------------------------------------------------
Net cash from investing activities (2,581,000) (1,732,000)
- --------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Borrowings under line of credit 2,650,000 --
Proceeds from issuance of notes and other borrowings -- 4,000,000
Principal payments on notes and other borrowings (373,000) (2,530,000)
Proceeds from the exercise of warrants and options, net of costs 426,000 8,731,000
Proceeds from the sale of common stock, net of offering costs 190,000 4,907,000
Preferred stock dividend -- (60,000)
Other -- (143,000)
- -------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 2,893,000 14,905,000
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Increase in cash 6,839,000 5,224,000
Cash, beginning of period 4,993,000 907,000
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Cash, end of period $ 11,832,000 $6,131,000
- --------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
- --------------------------------------------------------------------------------------------------------------------
Cash paid for income taxes $ 118,000 $ --
Cash paid for interest 562,000 308,000
- --------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of non-cash investing and financing activities:
- --------------------------------------------------------------------------------------------------------------------
Conversion of long-term debentures to common stock $ 1,514,000 $ 2,685,000
Equipment purchased under long-term capital leases 190,000 109,000
Deferred tax asset realized on exercise of stock options 1,690,000 --
Imputed discount on debt borrowing 68,000 315,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
TAVA TECHNOLOGIES, INC.
Notes to consolidated financial statements
Note 1. Interim financial information.
The accompanying financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended June 30,
1998. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position as of March 31, 1999 and the results of operations and cash
flows for the periods presented. Management believes all such adjustments are of
a normal and recurring nature. The results of operations for interim periods are
not necessarily indicative of results to be expected for a full year.
The consolidated financial statements include the accounts of TAVA Technologies,
Inc. ("TAVA"), Topro Systems Integration, Inc. ("Topro"), Management Design &
Consulting Services, Inc. ("Management Design"), Advanced Control Technology,
Inc. ("Advanced Control"), Vision Engineering Corporation ("Vision"), All
Control Systems, Inc. ("All Control"), TAVA Alabama, Inc. ("TAVA Alabama"), TAVA
Y2kOne, Inc. ("TAVA Y2k") and TAVA OneSource, Inc. ("TAVA OneSource"). TAVA
OneSource was formed in March 1999, TAVA Alabama was formed in January 1998, and
TAVA Y2k was formed in October 1997. In addition, the Company owns a 50%
interest in TAVA/Beck LLC ("TAVA/Beck") which was formed in May 1998. The
Company does not have voting control of TAVA/Beck, and, accordingly, accounts
for its investment using the equity method of accounting.
Reclassifications have been made to the accompanying 1998 consolidated
statements of operations and cash flows to conform to the current year
presentation.
Note 2. Trade accounts receivable.
The following is a summary of trade accounts receivable:
March 31, 1999 June 30, 1998
- --------------------------------------------------------------------------------
Completed contracts $ 2,081,000 $ 4,796,000
Uncompleted contracts 22,466,000 11,410,000
- --------------------------------------------------------------------------------
24,547,000 16,206,000
Allowance for doubtful accounts (1,614,000) (1,305,000)
- --------------------------------------------------------------------------------
Trade accounts receivable, net $22,933,000 $14,901,000
- --------------------------------------------------------------------------------
Note 3. Costs and estimated earnings on uncompleted contracts.
The following information is applicable to uncompleted contracts:
March 31, 1999 June 30, 1998
- --------------------------------------------------------------------------------
Costs incurred on uncompleted contracts $ 80,497,000 $56,806,000
Estimated earnings 31,239,000 19,345,000
- --------------------------------------------------------------------------------
111,736,000 76,151,000
Billings to date (102,296,000) (70,756,000)
- --------------------------------------------------------------------------------
$ 9,440,000 $ 5,395,000
- --------------------------------------------------------------------------------
6
<PAGE>
TAVA TECHNOLOGIES, INC.
Notes to consolidated financial statements
These amounts are included in the accompanying consolidated balance sheets under
the following captions:
- --------------------------------------------------------------------------------
Costs and estimated earnings in excess of billings
on uncompleted contracts $14,146,000 $7,214,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (4,706,000) (1,819,000)
- --------------------------------------------------------------------------------
$ 9,440,000 $5,395,000
- --------------------------------------------------------------------------------
Costs and estimated earnings in excess of billings on uncompleted contracts at
March 31, 1999 includes an amount which is the subject of a dispute and
litigation between the Company and one of its subsidiaries, All Control, 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.
The Company has posted performance bonds for certain of its contracts. As of
March 31, 1999, the aggregate amount of contracts that are bonded is
approximately $8,000,000.
Note 4. Equity investment in TAVA/Beck.
The following is a summary of selected financial information for the Company's
equity affiliate, TAVA/Beck, as of and for the nine months ended March 31, 1999:
- --------------------------------------------------------------------------------
Current assets $ 7,223,000
Non-current assets 194,000
Current liabilities (4,011,000)
Non-current liabilities --
- --------------------------------------------------------------------------------
Members' equity $ 3,406,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Revenue $17,012,000
Gross profit 7,978,000
Income from continuing operations 3,208,000
Net income 3,208,000
Net income - TAVA 1,703,000
Net income - R.W. Beck 1,505,000
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7
<PAGE>
TAVA TECHNOLOGIES, INC.
Notes to consolidated financial statements
Note 5. Line of credit, debt and capital lease obligations.
The following is a summary of the Company's indebtedness at:
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Line of credit:
- ------------------------------------------------------------------------------------------------------------------
$3,000,000 revolving line of credit pursuant to a loan agreement with a
commercial bank, collateralized by substantially all assets of TAVA Y2k,
interest payable monthly at the prime rate(1) plus 1/2% per annum. Any
outstanding balance is due in December 1999. $ 2,650,000 $ --
- ------------------------------------------------------------------------------------------------------------------
Debt and capital lease obligations:
- -------------------------------------------------------------------------------
Term note payable to a small business investment company. Interest is at 11.5%
per annum through June 1999, 12.5% per annum thereafter, payable quarterly.
Principal payments of $250,000 due June and December 1999, balance due March
2000. The note, in the principal amount of $4,000,000, has been discounted by
$864,000. The discount, which is being amortized through March 2000, represents
the value assigned to 175,000 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 as follows:
155,000 warrants exercisable through March 2003 to purchase an equal number of
common shares for $4.91 per share; and 20,000 warrants exercisable through
December 2003 to purchase an equal number of common shares for $6.25 per share.
The unamortized discount at March 31, 1999 was $578,000. The note is
collateralized by substantially all assets of the Company and its subsidiaries.
The note provides for the granting of up to 250,000 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 future dates.
If any of the debt remains outstanding in June 1999 or March 2000, a
proportionate number of 125,000 stock purchase warrants will be granted at each
of those dates to purchase an equal number of common shares at the then fair
market value of the common stock. All warrants expire five years after the date
of grant. 3,422,000 3,270,000
9% convertible debentures with a small business investment fund, collateralized
by a second security position on all the assets of the Company and its
subsidiaries. Outstanding borrowings bear interest at 9.0% per annum, interest
payable monthly. The debentures are convertible into the Company's common stock
at the rate of one share for each $1.50 of principal. On March 2, 1999, all of
the outstanding debentures were converted into 1,009,635 shares of common stock. -- 1,514,000
Other promissory note indebtedness 206,000 376,000
Capital lease obligations secured by computer and telephone equipment 699,000 712,000
- ------------------------------------------------------------------------------------------------------------------
Total indebtedness 4,327,000 5,872,000
Less current portion 3,909,000 568,000
- ------------------------------------------------------------------------------------------------------------------
Long-term portion $ 418,000 $5,304,000
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</TABLE>
(1) At March 31, 1999, the prime rate of interest was 7.75% per annum.
8
<PAGE>
TAVA TECHNOLOGIES, INC.
Notes to consolidated financial statements
Other financing
R.W. Beck and TAVA each owns a 50% equity interest in TAVA/Beck LLC, with R.W.
Beck having voting control. The Company guarantees, in proportion to its
interest, TAVA/Beck's debt payable to R.W. Beck. As of March 31, 1999, TAVA's
portion of this debt was $775,000.
In December 1998, the Company entered into an accounts receivable factoring
program with a commercial bank. Through March 31, 1999, the Company had factored
$2,058,000 of its receivables. As of March 31, 1999, $257,000 of receivables
remained outstanding. The Company accounted for the receivable factoring as a
sale, and accordingly, reduced its accounts receivable by the amount of the
borrowing. Under the factoring agreement, the receivables are discounted at an
interest rate of 9.75% per annum over the period from sale to collection of the
receivables.
Note 6. Income taxes.
For the nine months ended March 31, 1999, income tax expense was comprised of
the following:
Current $ 1,030,000
Deferred 1,110,000
- --------------------------------------------------------------------------------
$ 2,140,000
- --------------------------------------------------------------------------------
A reconciliation of the Federal statutory tax rate of 34% and the Company's
effective tax rate of 15% for the nine months ended March 31, 1999 is as
follows:
Income tax expense computed at the Federal statutory rate $ 5,034,000
Compensation deduction related to exercise of non-qualified
stock options (280,000)
Non-deductible goodwill amortization 165,000
State income and franchise taxes, net of Federal tax benefit 163,000
Net change in deferred items 175,000
Change in effective income tax rate 58,000
Change in valuation allowance (3,216,000)
Other, net 41,000
- --------------------------------------------------------------------------------
$ 2,140,000
- --------------------------------------------------------------------------------
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of assets and liabilities.
Cumulative temporary differences and tax loss carryforwards at March 31, 1999
are as follows:
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities):
Net operating loss carry forwards $ 1,855,000
Accounts receivable 590,000
Accrued items, deductible when paid for tax purposes 285,000
Other, net 4,000
Capitalized software costs (1,275,000)
Property and equipment (25,000)
Income of unconsolidated affiliate (244,000)
- --------------------------------------------------------------------------------
Total 1,190,000
Less valuation allowance (610,000)
- --------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 580,000
- --------------------------------------------------------------------------------
9
<PAGE>
TAVA TECHNOLOGIES, INC.
Notes to consolidated financial statements
In recognizing a deferred tax asset, management believes that it is more likely
than not that the deferred tax asset will be realized. Among the factors that
management has considered are: (i) the generation of $14,806,000 of pre-tax
accounting income for the nine months ended March 31, 1999, (ii) projected
future taxable income, and (iii) tax planning strategies. The Company has
recorded a valuation allowance in the amount of $610,000, equal to the tax
effect of net operating loss carryforwards ("NOLs") totaling approximately
$1,700,000, which are utilizable in the years ending June 30, 2002 and
thereafter. In recording the valuation allowance, management is not able to
determine that it is more likely than not that such NOLs will be realized.
At March 31, 1999, the Company had NOLs of approximately $5,200,000 available
for Federal income tax purposes that expire through the year 2019 and are
subject to annual limitations as a result of Internal Revenue Code Section 382.
Note 7. Earnings per share.
The Company calculates earnings per share on a basic and diluted basis. Basic
earnings per share includes no dilution and is computed by dividing the net
income available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share reflect the
dilutive effect of securities that are common stock equivalents that were
outstanding during the period. Common stock equivalents are not included in the
calculation of earnings per share when the effect is anti-dilutive.
The following is a reconciliation of the net income (loss) and the number of
common shares used in the calculation of earnings (loss) per share for the three
and nine month periods ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings (loss) per share:
Net income (loss):
Net income (loss) $ 3,319,000 $ 301,000 $12,666,000 $ (855,000)
Preferred stock dividend -- -- -- (60,000)
-----------------------------------------------------------------------------------------------------------------
Net income (loss) available to common
stockholders, as adjusted $ 3,319,000 $ 301,000 $12,666,000 $ (915,000)
- ------------------------------------------------------------------------------------------------------------------
Number of shares:
Weighted average common shares outstanding 22,563,719 19,876,981 22,242,060 17,320,731
- -------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ .15 $ .02 $ .57 $ (.05)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share:
Net income (loss):
Net income (loss) $ 3,319,000 $ 301,000 $12,666,000 $ (855,000)
Interest expense on convertible debt 23,000 -- 92,000 --
Preferred stock dividend -- -- -- (60,000)
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common
stockholders, as adjusted $ 3,342,000 $ 301,000 $12,758,000 $ (915,000)
- -------------------------------------------------------------------------------------------------------------------
Number of shares:
Weighted average common shares outstanding 22,563,719 19,876,981 22,242,060 17,320,731
Incremental shares upon exercise of stock
options 715,780 2,435,748 662,201 --
Incremental shares upon exercise of stock
purchase warrants 90,098 985,725 79,259 --
Incremental shares upon conversion of
debentures 673,090 -- 899,091 --
- -------------------------------------------------------------------------------------------------------------------
Weighted average common shares and
assumed conversions outstanding 24,042,687 23,298,454 23,882,611 17,320,731
- -------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ .14 $ .01 $ .53 $ (.05)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
TAVA TECHNOLOGIES, INC.
Notes to consolidated financial statements
The following were not included in the computation of diluted earnings (loss)
per share as the effect would be anti-dilutive.
Three months ended Nine months ended
March 31, March 31,
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Number of equivalent common shares:
Shares upon exercise of stock options 237,000 -- 366,000 --
Shares upon exercise of stock
purchase warrants 4,800 -- 24,800 --
Shares upon conversion of debentures -- 1,343,301 -- 1,343,301
- --------------------------------------------------------------------------------
Note 8. Subsequent event.
On April 20, 1999, the Company signed an Agreement and Plan of Reorganization
(the "Plan") pursuant to which it will be acquired by a wholly-owned subsidiary
of Real Software NV ("Real"), a Belgium corporation, in a cash merger
transaction for $8.00 per common share. Upon completion of the merger, TAVA will
no longer be traded on NASDAQ. Consummation of the merger is subject to certain
conditions including without limitation: (i) TAVA shareholder approval (ii) the
receipt of all requisite approvals by applicable public and regulatory
authorities and (iii) certain other conditions, including absence of any
material adverse change in TAVA's business, prospects or financial condition,
and a requirement by Real that four of TAVA's executive officers, including its
President and Chief Executive Officer, enter into employment agreements with the
continuing private company. The merger is not contingent upon financing. A copy
of the merger agreement has been filed with the Securities and Exchange
Commission in an 8-K filing.
11
<PAGE>
TAVA TECHNOLOGIES, INC.
Forward-looking statements
Statements made in this Form 10-Q that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Act and Section 21E of the 1934 Act. These statements often
can be identified by the use of terms such as "may," "will," "expect,"
"anticipate," "estimate," or "continue," or the negative thereof. The Company
intends that such forward-looking statements be subject to the safe harbors for
such statements. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. Any forward-looking statements represent management's best judgment as to
what may occur in the future. However, forward-looking statements are subject to
risks, uncertainties and important factors beyond the control of the Company
that could cause actual results and events to differ materially from historical
results of operations and events and those presently anticipated or projected.
These factors include those discussed in the Company's Form 10-KSB/A No. 1 for
the year ended June 30, 1998, to which reference should be made. Risks and
uncertainties which could affect the consummation of the proposed merger
described in this report include the conditions to merger described in this
report and in subsequent reports filed by the Company with the SEC, to which
reference should be made. The Company disclaims any obligation to subsequently
revise any forward-looking statement to reflect events or circumstances after
the date of such statement or to reflect the occurrence of anticipated or
unanticipated events.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of operations for the three months ended March 31, 1999 compared to the
three months ended March 31, 1998.
During late June 1997, the Company announced its plans to develop its Plant
Y2kOneTM suite of products and services. During the ensuing two quarters, the
Company expended considerable time and resources to plan and develop these
products. They became widely available for sale during the quarter ended March
31, 1998. Sales of these products and services have increased appreciably since
that time. As a result of the above factors, meaningful comparisons of the
changes in the Company's operating results from its fiscal quarters ended March
31, 1999 and 1998 are difficult to make.
During the quarter ended March 31, 1999, the Company had net income in the
amount of $3,319,000 compared to net income in the amount of $301,000 for the
corresponding quarter of fiscal 1998. Revenue increased by $15,082,000 or 129%
to $26,749,000 for the quarter ended March 31, 1999 compared to the same quarter
of the preceding year. The growth in revenue is primarily attributed to sales of
the Company's Plant Y2kOneTM products and services. Sales of these products and
services were approximately $20,634,000 during the current quarter as compared
to $5,155,000 in the corresponding quarter of the preceding year. The gross
margin during the quarter ended March 31, 1999 improved to 51% compared to 44%
for the comparable period of the preceding year. Plant Y2kOneTM revenue is very
labor intensive, with a considerably smaller portion of revenue derived from the
resale of material and other lower margin non-labor elements, as compared to
core systems integration revenue. Software product and license fee sales were
$4,400,000 during the current quarter. These sales also contribute greater
margins than revenue from core systems integration services. Management
anticipates that gross margins will remain at these levels during the next
several quarters. However, as the Company's total revenue mix shifts from labor
intensive Plant Y2kOneTM products and services to core systems integration
revenue, which contains material resale and other lower margin non-labor
elements, gross margins will decrease as a percentage of revenue.
Operating expenses increased by $3,878,000 to $8,626,000 for the quarter ended
March 31, 1999 compared to the corresponding quarter of the preceding year. The
increase is primarily attributable to higher sales and other administrative
expenses incurred to support growing operations. As a percentage of revenue,
sales, marketing, general and administrative expenses (excluding amortization
expenses) decreased from 37% in the 1998 quarter to 26% in the current quarter.
In addition, during the current quarter, the Company's headcount remained
relatively flat as compared to headcount at December 31, 1998. Amortization
expense increased by $1,181,000 or 308%. The increase is attributable to the
amortization of software development costs associated with the Company's Plant
Y2kOneTM products. Although management believes that the Company's Plant
Y2kOneTM products may continue to be a valuable asset beyond December 1999,
costs associated with their development are being amortized through that date.
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TAVA TECHNOLOGIES, INC.
Management anticipates amortization expenses associated with its Plant Y2kOneTM
products and database will remain approximately constant in calendar year 1999.
Total operating expenses, including amortization of goodwill and capitalized
software costs, decreased as a percentage of sales from 41% to 32%. Bad debt
expense, which is included in general and administrative expenses, increased by
$574,000 from the 1998 to 1999 quarter.
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 or when
enhancements are made to existing software products. During the quarter ended
March 31, 1999, the Company did not capitalize any software development costs,
and this compares to $2,148,000 capitalized during the March 1998 quarter.
During the March 1999 quarter, the Company did incur an additional $591,000 of
costs related to adding new items to its Plant Y2kOneTM database. Since the life
of the Plant Y2kOneTM product is less than 12 months and these costs are
directly associated with customer sold database items, the Company has expensed
these costs to cost of sales.
The Company continues to expand its consulting practice in the area of
Integrated Enterprise Solutions. During the March 1999 quarter, the consulting
practice did not generate significant revenue or incur significant expenses.
Earnings from the Company's investment in TAVA/Beck LLC were $632,000 during the
current quarter. There were no operating results in the corresponding quarter of
the preceding year. Interest expense increased by $103,000 during the current
quarter. The increase is primarily due to interest and debt discount
amortization associated with a term note borrowing incurred during March 1998.
During the current quarter, the Company recorded a provision for Federal and
state income taxes and state franchise taxes in the amount of $2,140,000, which
also represents the total income tax provision recorded for the nine months
ended March 31, 1999. This amount is comprised of $1,030,000 for taxes currently
payable and $1,110,000 for deferred taxes. For the quarters ended September 30,
1998 and December 31, 1998, the Company was able to utilize net operating loss
carryforwards (NOLs), resulting in no income tax expense for those quarters. For
the current quarter, NOLs were not available, and the Company's effective tax
rate was 39%.
Results of operations for the nine months ended March 31, 1999 compared to the
nine months ended March 31, 1998.
During the nine month period ended March 31, 1999, the Company had net income in
the amount of $12,666,000, compared to a net loss of $855,000 for the
corresponding period of fiscal 1998. Revenue increased by $42,968,000 or 128% to
$76,438,000 for the nine months ended March 31, 1999 compared to the same period
of the preceding year. Gross margin increased from 37% to 50% from 1998 to 1999.
Sales of the Company's Plant Y2kOneTM products and services were approximately
$56,850,000 during the current nine month period. The net loss incurred during
the first nine months of fiscal 1998 is primarily attributed to the start-up
costs associated with the Company's Plant Y2kOneTM products and services. These
products and services became generally available for sale during the third
quarter of fiscal year 1998.
As a result of the Company's rapid growth, operating expenses increased by
$11,235,000, or 86%, to $24,125,000 for the nine months ended March 31, 1999.
Sales expenses increased by 134% to $6,882,000 and general and administrative
expenses increased by 52% to $13,738,000 from 1998 to 1999. During the nine
month period ended March 31, 1999, the Company hired 126 additional employees at
all levels and in all disciplines, plus additional contract employees. Non-cash
expenditures for the amortization of capitalized software, goodwill and other
intangibles amounted to $3,505,000 during the current nine month period. This
compares to $943,000 for the corresponding nine month period of the previous
year. For the current period, bad debt expense was $1,393,000 as compared to
$82,000 for the 1998 period. Bad debt expense is included in general and
administrative expenses. Interest expense for the current period increased to
$774,000 from $469,000 compared to the nine months ended March 31, 1998. The
increase is primarily due to interest and debt discount amortization associated
with a term note borrowing incurred during March 1998.
During the nine months ended March 31, 1999, the Company capitalized $1,562,000
of software development costs, all of which are related to its Plant Y2kOneTM
products and database. This compares to $2,148,000 capitalized for the nine
months ended March 31, 1998.
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TAVA TECHNOLOGIES, INC.
During the nine months ended March 31, 1999, the Company recorded a provision
for Federal and state income taxes and state franchise taxes in the amount of
$2,140,000. This amount is comprised of $1,030,000 for taxes currently payable
and $1,110,000 for deferred taxes. For the quarters ended September 30, 1998 and
December 31, 1998, the Company was able to utilize NOLs, resulting in no income
tax expense for those quarters. For the current quarter, NOLs were not
available. As a result of utilization of NOLs to offset a significant portion of
pre-tax income, the Company's effective tax rate was 15% for the nine months
ended March 31, 1999.
Additionally, the Company recognized a deferred tax asset of $580,000 based on
the realization of NOLs to offset future taxable income. In recognizing a
deferred tax asset, management believes that it is more likely than not that the
deferred tax asset will be realized. Among the factors that management has
considered are: (i) the generation of $14,806,000 of pre-tax accounting income
for the nine months ended March 31, 1999, (ii) projected future taxable income,
and (iii) tax planning strategies. The Company has recorded a valuation
allowance, equal to the tax effect of NOLs totaling approximately $1,700,000,
which are utilizable in the years ending June 30, 2002 and thereafter. In
recording the valuation allowance, management is not able to determine that it
is more likely than not that such NOLs will be realized. At March 31, 1999, the
Company had NOLs of approximately $5,200,000 available for Federal income tax
purposes that expire through the year 2019 and are subject to annual limitations
as a result of Internal Revenue Code Section 382.
Liquidity and capital resources.
During December 1998, the Company entered into a $3,000,000 revolving line of
credit with a commercial bank. The credit facility was entered into to provide
short-term financing of the Company's accounts receivable and costs and
estimated earnings in excess of billings, which have grown significantly during
the last six months. The facility is secured by the assets of TAVA Y2kOne, Inc.
At March 31, 1999, $2,650,000 is outstanding under the line of credit.
As a result of the increase in accounts receivable and costs incurred to date in
excess of billings to customers from the higher levels of revenue and
anticipated revenue, the Company increased its allowance for doubtful accounts
by $309,000 to $1,614,000 during the nine months ended March 31, 1999. The net
increase in the allowance was comprised of $1,393,000 of provision expense
offset by $1,084,000 in write-offs. Management continually reviews the allowance
for adequacy and believes that its current level will be sufficient to provide
for any potential losses that may be incurred in the collection of the Company's
accounts receivable and the ultimate recognition of costs incurred in excess of
billings to customers. Management anticipates that the Company's accounts
receivable and costs in excess of billings will continue to increase in the
future in proportion to expected revenue growth.
Costs and estimated earnings in excess of billings on uncompleted contracts at
March 31, 1999 includes an amount which is the subject of a dispute and
litigation between the Company and one of its subsidiaries, All Control, 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.
The Company has posted performance bonds for certain of its contracts. As of
March 31, 1999, the aggregate amount of contracts that are bonded is
approximately $8,000,000.
During December 1998, the Company sold $2,058,000 of its accounts receivable
under a factoring agreement with a commercial bank. As of March 31, 1999,
$257,000 of receivables remained outstanding. Under the factoring agreement, the
receivables are discounted at an interest rate of 9.75% per annum over the
period from sale to collection of the receivables.
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TAVA TECHNOLOGIES, INC.
The Company's working capital position improved to $28,775,000 at March 31, 1999
from $17,322,000 at June 30, 1998. The Company's cash position at March 31, 1999
was $11,832,000, an increase of $6,839,000 from June 30, 1998.
Under revised terms between TAVA and its lender, the Company's term note payable
of $4,000,000 is now current and due in March 2000. The Company believes that it
will have the ability to repay or refinance this obligation on favorable market
terms.
In March 1999, the Company's convertible debentures in the amount of $1,514,000
were converted into 1,009,635 shares of common stock.
In January 1999, the Company obtained an equipment lease facility with a
financial institution. The facility permits the Company to enter into lease
arrangements up to an aggregate amount of $500,000. The Company has drawn
$336,000 on this facility in acquiring additional computer equipment for
anticipated additional employees.
In order to support the anticipated higher levels of future operations,
management believes that the Company may require additional credit or financing
facilities. Management believes that, if required, additional credit facilities
will be available to the Company on commercial terms.
Capital expenditures and product development costs.
The Company has invested significantly in developing a unified infrastructure
model across all of its operations. Accordingly, the Company is continuing with
the implementation and installation of a project accounting and financial and
operational reporting system. Management believes that this investment is
critical to the long-term success of the Company and that the eventual benefits
will be substantial. As of March 31, 1999, the Company has capitalized total
costs of $776,000, and has commitments of approximately $50,000 during the
remainder of fiscal 1999 to complete the installation of this project. During
the quarter ended March 31, 1999, the Company expensed approximately $45,000
incurred from outside consultants related to continued training and
implementation. In addition and as a result of continued operational growth, the
Company may incur additional training costs above its current budgeted amount.
During the conversion of its accounting systems, management believes it has
taken appropriate steps to ensure adequate training and continuity of financial
controls. However, it is possible that the conversion may have negative
short-term financial impact to the Company in the form of delays in customer
billings and delays in internal financial reporting.
During the nine months ended March 31, 1999, the Company capitalized $1,562,000
of costs related to its Plant Y2kOneTM products and database, and since
inception, has capitalized $4,750,000 for software development of these
products. At March 31, 1999, the net book value of capitalized software costs of
Plant Y2kOneTM was $2,357,000. All costs associated with the development of the
Plant Y2kOneTM database will be fully amortized by December 1999. Management
anticipates amortization expenses associated with its Plant Y2kOneTM products
and database will remain approximately constant in calendar year 1999.
The Company has no other material commitments for capital expenditures. However,
the Company continues to lease additional office space and has recently added
new engineering and sales office space in Alabama and Minnesota. Together with
anticipated staff additions, management believes that the Company will be
acquiring telephone systems, computer equipment and furniture to accommodate
future growth.
Cash flow.
During the nine months ended March 31, 1999, cash increased by $6,839,000. The
increase is attributable to the higher levels of operating activity and
additional financing activities. Funds provided by operations were $6,527,000,
an increase of $14,476,000 over the corresponding period of the preceding year.
Operating funds were used to finance accounts receivable, which increased by
$9,425,000, net of a sale of accounts receivable totaling $2,058,000; and costs
in excess of billings, which increased by $6,932,000 during the nine month
period. During the first three quarters of fiscal 1999, investments were made in
capital equipment, $1,059,000, and in capitalized software development costs,
$1,562,000. Financing activities provided $2,893,000 of cash proceeds, primarily
from borrowings in the amount of $2,650,000. In addition, the Company made debt
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TAVA TECHNOLOGIES, INC.
principal repayments in the amount of $373,000, and received cash in the amount
of $426,000 from the exercise of stock options and stock purchase warrants and
$190,000 from the sale of common stock.
Potential acquisitions.
TAVA continues to pursue acquisitions, specifically, the acquisitions of Mangan,
Inc. in Los Angeles and a small systems integration firm in Boston. The Company
may be required to obtain debt and/or equity financing to complete these
acquisitions.
Impact of recently issued accounting standards.
Effective July 1, 1998, the Company adopted Statement of Position 97-2,
"Software Revenue Recognition" which modifies the revenue recognition criteria
for software products and supersedes Statement of Position 97-1, "Software
Revenue Recognition." This statement requires, among other things, that the
individual elements of a contract for the sale of software products be
identified and accounted for separately. The effect of the adoption of this
pronouncement was not material to the Company's financial position, results of
operations or its cash flows.
Statement of Financial Accounting Standards 131 "Disclosures About Segments of
an Enterprise and Related Information." 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.
The additional disclosures required by Statement 131 are effective for annual
financial statements for periods beginning after December 15, 1997 and require
comparative information for earlier years to be restated. Statement 131 will not
affect the Company's financial position, results of operations or its cash
flows.
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 recently appointed a senior level executive to assess and
monitor its internal and external exposure to Year 2000 compliance. 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 mitigate
them.
Internal hardware and software. During the past two years, the Company has
replaced or added new equipment to its inventory of network and systems
computers. The Company has committed approximately $1,550,000 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 is presently implementing the installation of a new
organization-wide accounting and management information computer software. This
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TAVA TECHNOLOGIES, INC.
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
warranted that the software is Year 2000 compliant. Customization of the
software has been completed and staff training has begun. The Company is using
this new system in four of its operating entities and expects to have all
entities on the new system by July 1999. The cost of this system is expected to
be approximately $950,000, 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 has
commenced and is expected to be completed by June 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 significant capital expenditure. The Company has replaced or added
telecommunication systems in several of its locations, primarily to improve
system functionality. Management intends to continue the evaluation and
implementation of telecommunication systems through the balance of calendar year
1999.
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.
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 late
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 develop and 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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TAVA TECHNOLOGIES, INC.
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.
Item 3. Quantitative and qualitative disclosures about market risk.
Market risk represents the risk of loss that may impact the financial position,
results of operations, or cash flows of the Company due to adverse changes in
financial market prices, including interest rate risk. The Company is subject to
interest rate risk through a short-term line of credit, which bears interest at
prime plus 1/2% and other fixed rate term debt. The Company does not consider
this potential interest rate risk to be significant to the financial statements
as a whole. The Company manages its interest rate risk generally through
short-term financing arrangements and long-term fixed rate borrowings.
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
During the quarter ended March 31, 1999, the following events transpired with
regard to pending litigation previously reported in the Company's Form 10-KSB/A
No. 1 for the fiscal year ended June 30, 1998 and/or in subsequent Quarterly
Reports on Form 10-Q:
(a) With regard to the civil suit filed by Jon Walker, Sr. and Imogene
Walker in the U.S. District Court for the District of Oregon on or
about May 28, 1998, discovery remains stayed due to motions filed by
the defendants. The Company's motion to transfer the action to the
U.S. District Court for the District of Colorado was granted, and
TAVA's Renewed Motions to Dismiss for Failure to State a Claim and For
a Stay of Discovery were filed on March 24, 1999. The case will be
aggressively defended by the TAVA related defendants.
(b) With regard to the Marshall/Hyman litigation, as previously reported,
during the quarter ended December 31, 1998 Marshall/Hyman amended its
complaint to add TAVA as a party to the litigation, claiming that TAVA
served as the alter ego of All Control Systems. Discovery is
proceeding in the matter and trial is expected to be held in June
1999.
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TAVA TECHNOLOGIES, INC.
Item 2. Changes in securities and use of proceeds.
(a) During the quarter ended March 31, 1999, the Company issued an
aggregate of 350,000 stock options to employees in accordance with its
1997 Stock Option and Bonus Plan and to non-employee directors in
accordance with its 1998 Non-Employee Director Stock Option Plan. The
Company relied upon the exemption from registration available for
private transactions set forth in Section 4(2) of that Act. All of the
options were issued at exercise prices, which were equal to 100% of
the fair market value of the Common Stock at the date of grant. The
Company intends to use any proceeds from future exercise of these
securities for general working capital.
Item 3. Defaults upon senior securities.
Not applicable.
Item 4. Submission of matters to a vote of security holders.
At the Annual Meeting of Shareholders held on February 16, 1999, TAVA
Shareholders elected five directors to serve as the Board of Directors and
approved an amendment to the 1997 Stock Option and Stock Bonus Plan to increase
from 2.2 to 3.2 million the number of shares of Common Stock reserved for
issuance thereunder. On these matters, votes were cast as follows:
Election of Board of Directors:
% of Shares % of Shares
For Represented Against Represented Abstain
Robert L. Costello 19,293,417 99 55,798 .29 236,306
John Jenkins 19,265,765 98 87,157 .44 235,599
Kenneth O'Brien 19,326,275 99 22,942 .12 236,304
Robert C. Pearson 19,238,185 98 80,532 .42 266,804
Rick L. Schleufer 19,312,696 99 35,517 .19 236,308
Amendment of 1997 Stock Option and Bonus Plan
% of % of % of
shares shares shares
FOR represented AGAINST represented ABSTAIN represented
17,669,266 90 1,760,451 9 155,804 1
Item 5. Other information.
On April 20, 1999, TAVA Technologies, Inc. signed an Agreement and Plan of
Reorganization (the "Plan") pursuant to which it will be acquired by a
wholly-owned subsidiary of Real Software NV ("Real"), a Belgium corporation, in
a cash merger transaction for $8.00 per common share. Upon completion of the
merger, TAVA will no longer be traded on NASDAQ. Consummation of the merger is
subject to certain conditions including without limitation: (i) TAVA shareholder
approval (ii) the receipt of all requisite approvals by applicable public and
regulatory authorities and (iii) certain other conditions, including absence of
any material adverse change in TAVA's business, prospects or financial
condition, and a requirement by Real Software that four of TAVA's executive
officers, including its President and Chief Executive Officer enter into
employment agreements with the continuing private company. The merger is not
contingent upon financing. A copy of the merger agreement has been filed with
the Securities and Exchange Commission in an 8-K filing. Management currently
expects preliminary proxy material will be filed in May 1999, and has
tentatively set June 29, 1999 for the Special Meeting of Shareholders, subject
to regulatory process.
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TAVA TECHNOLOGIES, INC.
On April 22, 1999, a purported class action lawsuit was filed in state District
Court, Arapahoe County, Colorado by plaintiff Thaddeus Szymczak, against TAVA,
each director of TAVA, and Real. The suit alleges that the TAVA directors
breached fiduciary duties owed to TAVA and its shareholders in the process of
entering into an Agreement and Plan of Reorganization pursuant to which TAVA,
upon shareholder approval, will be acquired by a wholly-owned subsidiary of Real
in a cash merger transaction for $8.00 per share. The suit further alleges that
Real aided and abetted the claimed breaches. The Plaintiff is requesting both
injunctive relief and unspecified damages.
No response to the complaint is due until on or subsequent to June 1, 1999. TAVA
and its directors intend to vigorously defend the suit. Real has advised TAVA
that it also intends to vigorously defend the suit.
Item 6. Exhibits and reports on Form 8-K
a) Exhibits.
2.1 Agreement and Plan of Reorganization dated April 20, 1999.(A)
2.1.1 Management Voting & Exchange Agreement dated April 20, 1999.(A)
3.1 Restated Articles of Incorporation. (B)
3.2 Amendment to Articles of Incorporation. (C)
3.3 Amendment to Articles of Incorporation re: Name change. (D)
3.4 Bylaws. (E)
---------------
(A) Incorporated by reference from the Company's Form 8-K dated April 20,
1999.
(B) Incorporated by reference from the Company's Form 10-KSB for fiscal
year ended June 30, 1996.
(C) Incorporated by reference from Exhibit 3.1 to the Company's Form
10-QSB for the quarter ended March 31, 1997.
(D) Incorporated by reference from Exhibit 4.3 to the Company's Form S-8
Registration Statement, File No. 333-46339.
(E) Incorporated by reference from Exhibit 3.3 to Registration Statement
on Form S-1, File No. 33-47159, effective June 17, 1992.
b) Reports on Form 8-K.
Not applicable.
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TAVA TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TAVA Technologies, Inc.
(Registrant)
Date: May 14, 1999 /s/ John Jenkins
--------------------------------------
John Jenkins
Chairman of the Board,
President and Chief Executive Officer
Date: May 14, 1999 /s/ Douglas H. Kelsall
--------------------------------------
Douglas H. Kelsall
Chief Financial Officer and Secretary
Date: May 14, 1999 /s/ Robert C. Ogden
--------------------------------------
Robert C. Ogden
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLDIATED FINANCIAL STATEMENTS OF TAVA TECHNOLOGIES, INC. AND SUBSIDIARIES AT
MARCH 31, 1999 AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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0
0
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