-------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q -------------------------------------------------------------------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ___________________ to ____________________. Commission file number 0-5260 GENERAL AUTOMATION, INC. ------------------------ (Exact name of registrant as specified in its charter). DELAWARE 95-2488811 ------------------- (State or other jurisdiction of (I.R.S. employer I.D. No.) incorporation or organization) 17731 MITCHELL NORTH, IRVINE, CALIFORNIA 92614 ---------------------------------------- ----- (Address of principal executive offices) (Zip code) Registrant's telephone number including area code: (949) 250-4800 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: No [X] Yes [ ] As of March 1, 2001 there were 14,607,896 shares of common stock of the Registrant outstanding. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENERAL AUTOMATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) DECEMBER 31, SEPTEMBER 30, 2000 2000 ------------- ------------- ASSETS Current assets: Cash and equivalents $ 170,000 $ 403,000 Accounts receivable 883,000 1,297,000 Prepaid expenses and other 359,000 436,000 ------------- ------------- Total current assets 1,412,000 2,136,000 Capitalized software 832,000 1,559,000 Property and equipment 245,000 1,484,000 Other 57,000 23,000 ------------ ------------ $ 2,546,000 $ 5,202,000 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Bank line of credit $ - $ 275,000 Current portion of long-term debt 1,006,000 1,917,000 Accounts payable 3,387,000 3,085,000 Accrued expenses 1,077,000 954,000 Deferred revenue 427,000 550,000 Net liabilities of discontinued operations 548,000 642,000 ------------ ------------ Total current liabilities 6,445,000 7,423,000 Long-term debt 4,515,000 5,171,000 ------------ ------------ Total liabilities 10,960,000 12,594,000 ------------ ------------ Commitments and contingencies - - Stockholders' deficit: Common stock, $.10 par value; 30,000,000 shares authorized; 14,607,896 shares issued and outstanding 1,461,000 1,461,000 Additional paid-in capital 48,836,000 48,836,000 Accumulated deficit (58,384,000) (57,370,000) Accumulated other comprehensive loss (327,000) (319,000) ------------ ------------ Total stockholders' deficit (8,414,000) (7,392,000) ------------ ------------ $ 2,546,000 $ 5,202,000 ============ ============ The accompanying notes are an integral part of these financial statements. 1 GENERAL AUTOMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED DECEMBER 31 ------------------------------ 2000 1999 ------------- ------------- Revenues $ 1,320,000 $ 1,080,000 Cost of revenues 902,000 516,000 ------------- ------------- Gross profit 418,000 564,000 ------------- ------------- Operating expenses: Selling, general and administrative 832,000 655,000 Research and development 665,000 - Writedown of capitalized software to net realizable value 503,000 - Depreciation and amortization 53,000 68,000 ------------- ------------- 2,053,000 723,000 ------------- ------------- Loss from operations (1,635,000) (159,000) ------------- ------------- Other income (expense) Royalties 265,000 - Gain on sale of building 1,179,000 - Litigation settlement 500,000 - Interest, net (167,000) (226,000) ------------- ------------- 1,777,000 (226,000) ------------- ------------- Income (loss) from continuing operations before taxes 142,000 (385,000) Provision for (benefit from) income taxes 47,000 (28,000) ------------- ------------- Income (loss) from continuing operations 95,000 (357,000) ------------- ------------- Income (loss) from discontinued operations (net of tax benefit of $47,000 in 2000 and tax provision of $32,000 in 1999) (1,109,000) 136,000 ------------- ------------- Net loss $ (1,014,000) $ (221,000) ============= ============= Basic and diluted income (loss) per share: Income (loss) from continuing operations $ 0.01 $ (0.03) ============= ============= Income (loss) from discontinued operations $ (0.08) $ 0.01 ============= ============= Net loss $ (0.07) $ (0.02) ============= ============= Basic and diluted number of common shares 14,608,000 11,641,500 ============= ============= The accompanying notes are an integral part of these financial statements. 2 GENERAL AUTOMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)

~~JUNE~~THREE ~~30,~~MONTHS ~~SEPTEMBER~~ENDED ~~30,~~DECEMBER 31 ------------------------------ 2000 1999 ------------ ------------- ~~ASSETS~~Cash ~~Current~~flows ~~Assets~~from operating activities: ~~Cash~~Net $loss ~~161~~$(1,014,000) $ ~~991~~(221,000) ~~Accounts~~Adjustments ~~receivable~~to 2reconcile net loss to net cash provided by (used in )operating activities: Gain on sale of building (1,~~109~~179,000) 4- Writedown of capitalized software to net realizable value 503,~~133,~~000 ~~Inventories~~Depreciation 1and amortization 469,~~508,~~000 1396,~~770,~~000 ~~Prepaid~~Changes ~~expenses~~in assets and ~~other~~liabilities: ~~353~~(Increase) decrease in: Accounts receivable 414,000 ~~408~~221,000 ~~------------~~Prepaid ~~------------~~expenses ~~Total~~and ~~current~~other ~~assets 4~~43,~~131,~~000 7(50,~~302,~~000) ~~Capitalized~~Other ~~software~~assets - (2,~~549,~~000) ~~1,725,000~~Increase ~~Property~~(decrease) ~~and~~in: ~~equipment~~Accounts 1payable 302,~~678,~~000 12,~~669~~045,000 ~~Goodwill,~~Accrued ~~net~~expenses ~~of amortization 446~~123,000 ~~292~~(1,153,000) ~~Other~~Deferred ~~assets~~revenue ~~282~~(123,000) ~~178~~(61,000) ------------ ------------ ~~TOTAL~~Net ~~ASSETS~~cash $provided 9by (used in) operating activities (462,~~086,~~000) ~~$ 11~~1,~~166~~175,000 ~~============~~------------ ~~============~~------------ ~~LIABILITIES~~Cash ~~Current~~flows ~~liabilities~~from investing activities: ~~Bank~~Proceeds ~~line~~from sale of ~~credit~~building 2,~~143~~373,000 ~~2,150,000~~- ~~Current~~Acquisitions ~~portion~~and ofrelated ~~long~~adjustments -~~term~~ ~~debt 2~~(221,~~427,~~000) ~~2,663,000~~Purchase ~~Accounts~~of ~~payable~~property ~~2,611,000~~and ~~2,993,000~~equipment ~~Accrued expenses 2~~(8,~~212,~~000) 2(9,~~670,~~000) ~~Deferred~~Capitalized ~~revenue~~software 3costs (192,~~163,~~000) 3(278,~~616,~~000) ------------ ------------ ~~Total~~Net ~~current~~cash ~~liabilities~~provided ~~12,556,000~~by ~~14,092,000~~(used ~~Long-term~~in ~~debt,~~) ~~excluding~~investing ~~current~~activities ~~portion 5~~2,~~190~~173,000 4(508,~~604,~~000) ------------ ------------ ~~Total~~Cash ~~Liabilities~~flows 17from financing activities: Proceeds from issuance of common stock - 74,~~746~~000 Proceeds from issuance of debt 285,000 18225,~~696~~000 Principal payments on debt (2,127,000) (87,000) ------------ ------------ ~~SHAREHOLDERS'~~Net ~~DEFICIT~~cash ~~Common~~provided ~~stock~~by (used in) financing activities (1,~~348~~842,000) 1212,~~160,~~000 ~~Additional~~------------ ~~paid~~-in----------- ~~capital~~Cash ~~48,156,000~~used ~~46,802,000~~in ~~Accumulated~~discontinued ~~deficit~~operations (5794,~~854,~~000) (551,~~280~~383,000) ~~Accumulated~~------------ ~~Other~~------------ ~~Comprehensive~~Effect ~~Income:~~of ~~Foreign~~exchange ~~currency~~rate ~~translation~~changes ~~adjustment~~on cash (~~310~~8,000) ~~(212~~1,000) ------------ ------------ ~~TOTAL~~Net ~~SHAREHOLDERS'~~decrease ~~DEFICIT~~in cash and equivalents (8233,~~660,~~000) (7503,~~530,~~000) Cash and equivalents, beginning of year 403,000 991,000 ------------ ------------ ~~TOTAL~~Cash ~~LIABILITIES~~and ~~AND~~equivalents, ~~SHAREHOLDERS'~~end ~~DEFICIT~~of year $ 9170,~~086~~000 $ 488,000 ============ ============ Cash paid during the year for : Interest $ 112,~~166~~000 $ 208,000 ============ ============ Income taxes $ - $ 4,000 ============ ============ The accompanying notes are an integral part of these financial statements. 3

GENERAL AUTOMATION, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - INTERIM FINANCIAL INFORMATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Sequoia Systems (UK) Limited, Liberty Integration Software, Inc., General Automation, LLC and General Automation PTY Ltd. All significant intercompany transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - CONTINUING OPERATIONS The Company's US and Canadian operations are primarily devoted to the development of web products (E-Path and Selva Server). The Australian and United Kingdom operations continue to focus their efforts on supporting operating systems (UNIX, Novell, OS/2) and contact programming utilizing C++ and Visual Basic. NOTE 3 - WRITEDOWN OF CAPITALIZED SOFTWARE TO NET REALIZABLE VALUE In March 2001, management determined that the market for one of its software products under development had become saturated and decided not to pursue further development efforts. Accordingly, the Company wrote off unamortized capitalized software costs of $503,000. NOTE 4 - OTHER INCOME Royalties --------- Royalties relate to the sale of the Company's Pick-based database management business in August 2000. The Company is entitled to twenty percent of certain sales by Pick Systems, Inc. for a period of twenty-four months after the sale. 4 NOTE 4 - OTHER INCOME (CONTINUED) Sale of building ---------------- On November 1, 2000 the Company sold its administrative building for $2,373,000. Proceeds from the sale were used to pay off the related first and second mortgage notes. Concurrent with the sale of the building, the Company entered into a month-to-month operating lease agreement whereby the Company leased back its office facilities from the purchaser at a monthly rent of $11,000. Litigation settlement --------------------- On April 15, 1999 the Company filed a Complaint in the Orange County Superior Court against PriceWaterhouseCoopers, LLP, successor to PriceWaterhouse, which was the Company's independent auditors from 1991 through 1996. The action asserted that PriceWaterhouse was negligent in its audits of the Company's financial statements and procedures, resulting in substantial reporting errors which were only uncovered after PriceWaterhouse was replaced as the Company's independent auditors in 1997. The Company sought general and punitive damages, including its audit expenses, and losses resulting from its reliance upon the inaccurate financial statements. In December 2000, this suit was settled for $500,000. NOTE 5 - SALE OF HARDWARE SERVICE BUSINESS The Company signed a letter of intent in November 2000 to sell its hardware service business to a private investor group. The sale, which resulted in a gain, became effective on January 31, 2001. The sales price was equal to $840,000 cash plus the value of accounts receivable, as defined. In addition, the purchase agreement provides for a contingent sales price up to 10%, not to exceed $300,000, of future revenues in excess of $7,100,000 generated by the buyer. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The discussion in this document contains trend analysis and other forward looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those projected in the forward-looking statements throughout this document. Items which could affect results expected include product acceptance, timely releases of new products, liquidity and financial condition of the Company. (1) MATERIAL CHANGES IN FINANCIAL CONDITION: During the first quarter of fiscal 2001, the Company completed the sale of its administrative building and paid off the related mortgage debt. Management is continuing efforts to improve the Company's financial condition and is currently discussing with lenders the possible conversion of debt into equity. In addition, management is discussing with the Company's vendors a plan that would settle all outstanding obligations for cash at a fraction of the outstanding balances. There is no assurance management will be successful in its efforts. 5 (2) MATERIAL CHANGES IN RESULTS OF OPERATIONS: Although revenues increased by $240,000 or 22%, gross margins decreased from 52% to 32%. E-path products were introduced in the fourth quarter of fiscal 2000, but have not reached a breakeven point and, currently, amortization of capitalized costs and other direct costs of sales exceed total sales of these products. Operating expenses increased $1,330,000, principally due to research and development efforts of $665,000 and the writedown of capitalized software costs of $503,000. The three items representing other income, royalties, gain on sale of business and litigation settlement, are described in Note 4 to the financial statements. The decrease in net interest expense results from the decrease in debt outstanding. In the first three months of fiscal 2000, the Company's two discontinued operations, the Pick-based database business, sold in August 2000, and the hardware service business, sold in January 2001, contributed $136,000 to profit. In the first three months of fiscal 2001, the hardware service business produced a loss of $1,109,000. Following the sale of the hardware service business on January 31 2001, the Company laid off substantially all its remaining U.S. based employees and retained only those key individuals necessary to the execution of its business plan. Restructuring costs related to the layoff cannot be quantified until the employees involved finalize their choice of severance packages, but are not expected to exceed $300,000. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK N/A 6 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS None ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5 - OTHER INFORMATION None. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K None. 7 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. General Automation, Inc. ------------------------ Registrant /s/ Jane M. Christie March 23, 2001 --------------------------- -------------- Jane M. Christie Date President, Chief Executive Officer and Principal Accounting Officer 8

THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ---------------------------- ---------------------------- Sales - Product $ 2,462,000 $ 4,120,000 $ 9,192,000 $ 11,128,000 Sales - Service revenue 2,357,000 3,204,000 7,897,000 11,530,000 ---------------------------- ---------------------------- TOTAL SALES 4,819,000 7,324,000 17,089,000 22,658,000 ---------------------------- ---------------------------- Cost of sales - Product 1,454,000 2,017,000 5,625,000 6,063,000 Cost of sales - Service 1,358,000 2,222,000 4,701,000 6,616,000 ---------------------------- ---------------------------- TOTAL COST OF SALES 2,812,000 4,239,000 10,326,000 12,679,000 ---------------------------- ---------------------------- GROSS PROFIT 2,007,000 3,085,000 6,763,000 9,979,000 ---------------------------- ---------------------------- COSTS AND EXPENSES: Selling and administrative 2,622,000 2,562,000 7,499,000 7,640,000 Research and development 398,000 (70,000) 950,000 534,000 Depreciation 51,000 131,000 165,000 420,000 Amortization of goodwill 10,000 162,000 31,000 455,000 Other, net (32,000) (26,000) (27,000) (156,000) ---------------------------- ---------------------------- 3,049,000 2,759,000 8,618,000 8,893,000 ---------------------------- ---------------------------- OPERATING INCOME/(LOSS) (1,042,000) 326,000 (1,855,000) 1,086,000 Interest expense (264,000) (238,000) (694,000) (578,000) ---------------------------- ---------------------------- INCOME/(LOSS) BEFORE INCOME TAXES (1,306,000) 88,000 (2,549,000) 508,000 Provision for income taxes 20,000 -- 24,000 91,000 ---------------------------- ---------------------------- NET INCOME/(LOSS) $ (1,326,000) $ 88,000 $ (2,573,000) $ 417,000 ============================ ============================ NET INCOME (LOSS) PER SHARE: BASIC AND DILUTED $ (0.10) $ 0.01 $ (0.21) $ 0.04 ============================ ============================ WEIGHTED AVERAGE SHARES BASIC AND DILUTED 13,483,307 9,332,641 12,482,769 9,332,641 ============================ ============================

FOR THE NINE MONTHS ENDED JUNE 30, ----------------------------- 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME (LOSS) $(2,573,000) $ 417,000 Adjustments to reconcile net income to net cash Cash provided by operating activities: Depreciation and amortization 893,000 875,000 Gain from disposal of assets -- (56,000) Embedded interest 22,000 -- Stock issued in legal settlement 75,000 -- Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 2,024,000 (864,000) Inventories 262,000 415,000 Prepaid expenses 55,000 424,000 Other assets (104,000) 455,000 Increase (decrease) in: Accounts payable (382,000) 1,601,000 Deferred revenue (453,000) (743,000) Accrued expenses (158,000) 1,341,000) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES (339,000) 1,183,000 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions (273,000) -- Purchase of property, plant and equipment (152,000) (195,000) Proceeds from disposal of assets -- 56,000 Capitalized software costs (1,548,000) (496,000 ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (1,973,000) (635,000) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 1,445,000 -- Proceeds from issuance of debt 500,000 -- Proceeds from extinguishing of debt 216,000 ----------- ----------- Principal payments on notes debt (365,000) (519,000) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,580,000 (303,000) ----------- ----------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH (98,000) 109,000 Net increase in cash and equivalents (830,000) 354,000 Cash and equivalents, beginning of period 991,000 856,000 ----------- ----------- Cash and equivalents, end of period 161,000 1,210,000 =========== =========== Cash paid during the period for: Interest $ 640,000 $ 464,000 =========== =========== Income taxes 24,000 6,000 =========== ===========

Note 1 - Inventory Inventories consists of the following at June 30, 2000: Material and purchased sub-assemblies $ 468,000 Support systems, spare parts and subassemblies, net 1,274,000 Work in process 24,000 Finished goods 28,000 Less: Reserves (286,000) ---------- Total Inventory $1,508,000 ==========

June 30, June 30, 1999 2000 ---------- ---------- Weighted average common shares used in computation of basic earnings per share 9,332,641 13,483,307 Effect of dilutive securities: Common stock options Weighted average common and common- share equivalents used in computation of diluted earnings per share 9,332,641 13,483,307

EXHIBIT NUMBER DESCRIPTION ------- ----------- 27 FINANCIAL DATA SCHEDULE

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