To all: A fellow TAVANITE who is an SI lurker asked me to post the following TAVA M.D.@A. letter for the quarter ended 12/31/97 and see if anyone would like to comment on it. I found no "surprises" in it except that I was unaware that TAVA has issued warrants priced at $5.50 in connection with their NEW debt financing. Details included in this attachment. JDN
I am long on TAVA and a SI daily lurker. I don't know know if you have
seen this report which was sent by a friend of mine at Charles Schwab.
Feel free to discuss it on the SI forum, your insight is aprreciated.
teri
> February 17, 1998
>
> TAVA TECHNOLOGIES INC (TPRO)
> Quarterly Report (SEC form 10QSB)
>
> MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
> AND
> RESULTS OF OPERATIONS
>
> PLANTY2K-TM- PRODUCT DEVELOPMENT.
>
> During the fourth quarter of fiscal 1997, the Company announced a major
> business initiative based on its PlantY2KOne-TM-
> suite of products and services designed to address year 2000 compliance
> problems in process control and factory automation
> systems.
>
> The PlantY2KOne-TM- product suite includes a methodology designed
> specifically to address the manufacturing and process
> floor environment, an inventory and compliance database that includes
> vendor information for commonly used factory
> automation hardware and software components and search engines that
> locate date related code in application programs.
>
> The methodology includes assessment, analysis, planning and remediation
> phases. The process begins with an assessment in
> which the overall project is defined and organized. An inventory of all
> process control hardware and software is then
> completed. In the analysis phase, that inventory is examined, component
> by component, with the Company's database of
> vendor year 2000 compliance statements and custom code is analyzed with
> its search engines to reveal date usage. The
> conversion planning stage addresses the results of the analysis to
> develop a plan for bringing the client's system into year 2000
> compliance. The final stage is to execute the remediation plan.
>
> The Company supplies either "end to end" consulting services built upon
> the methodology and use of the database and tools,
> or it will sell the methodology, tools and database access, packaged on
> CD ROM and supported by internet access to the
> client for self execution. The CD ROM version of the product was
> released during the second quarter of the current fiscal
> year.
>
> The Company has received orders from more than 30 clients for its year
> 2000 products and services and requests for
> proposals for multi-plant engagements on a national and international
> basis. Though only in its early stages of these
> engagements, which makes forecasting difficult, the Company believes its
> Y2KOne-TM- product and services hold significant
> near-term commercial opportunity. To properly support that opportunity,
> the Company has added, and continues to add,
> significant technical staff. Management believes it may need to add as
> many as 150 engineers over the next six to nine months.
> During the second quarter of the current fiscal year, the Company made a
> significant investment in the development of its
> Y2KOne-TM- products and services and anticipates that it will have to
> make additional investment to expand product
> development.
>
> During the six months ended December 31, 1997, the Company recorded
> $1,733,000 of year 2000 revenue. Management
> believes that its pursuit of year 2000 compliance business opportunities
> will have both short and long-term effects on its
> operations. Cash flow from operations is anticipated to improve and
> increased revenue with a smaller material component is
> expected to improve profit margins. In addition to these near-term
> effects, the Company expects that these efforts will expand
> its client base for its core business of system integration.
>
> LIQUIDITY AND CAPITAL RESOURCES.
>
> During the first two quarters of the current fiscal year, holders of
> stock options and stock purchase warrants representing
> 3,254,841 shares of common stock exercised their rights thereunder and
> converted them into 3,254,841 shares of common
> stock. The Company received proceeds in the amount of $5,141,000. The
> proceeds were used to reduce debt, other current
> liabilities and for general working capital purposes. Current
> liabilities were reduced by $1,544,000 during this period.
>
> During the first quarter of the current fiscal year, holders of the
> Company's 9% convertible debentures in the principal amount
> of $2,685,000 exercised their conversion rights and converted the
> debentures into 1,790,032 shares of common stock. The
> Company did not receive cash proceeds in this transaction.
>
> During November 1997, the Company completed the private placement of
> 955,000 shares of its common stock, receiving net
> proceeds in the amount of $4,826,000.
>
> TAVA TECHNOLOGIES, INC.
>
> During December 1997, the Company sold the land and building it owned at
> its Albany, Oregon facility and entered into a
> leaseback arrangement.
>
> As a consequence of executing its acquisition strategy, the Company has
> assumed the debt obligations of the acquired
> companies to three banks. During the first two quarters of fiscal 1998,
> the Company used the proceeds from the
> aforementioned transactions to reduce current bank debt obligations by
> $1,038,000.
>
> Subsequent to December 31, 1997, the Company entered into an equipment
> lease facility with a financial institution. The
> facility permits the Company to enter into lease arrangements up to an
> aggregate amount of $600,000. The Company
> anticipates to partially use this facility to upgrade its computer
> equipment and administrative network. The Company granted
> the lessor stock purchase warrants to purchase 5,000 shares of its
> common stock for $5.50 per share. The warrants expire in
> February 2003.
>
> Subsequent to December 31, 1997, the Company secured a $4,000,000 term
> loan with a financial institution. The loan is
> secured by substantially all assets of the Company. The loan bears
> interest at the rate of 11.5% per annum. The loan is due in
> February 2003. No principal payments are required until maturity. The
> Company granted the lender stock purchase warrants
> to purchase 250,000 shares of its common stock for $5.50 per share. The
> warrants expire in February 2003. Under the terms
> of this facility, additional warrants may be granted if the outstanding
> principal is not repaid prior to July 1999. The loan
> arrangement provides for an additional borrowing in the amount of up to
> $2,000,000 under certain terms and conditions.
> Proceeds will be used to extinguish senior bank debt, for working
> capital purposes associated with Y2KOne-TM- start-up
> costs and for potential acquisitions. At February 16, 1998, no principal
> has been drawn under this facility.
>
> As a result of these transactions and arrangements, the Company's
> working capital position improved from $168,000 at June
> 30, 1997 to $8,131,000 at December 31, 1997.
>
> CAPITAL EXPENDITURES AND PRODUCT DEVELOPMENT COSTS.
>
> The Company has no commitments for major capital expenditures. However,
> the Company anticipates capital spending to
> upgrade its computer network and for the development of hardware and
> software during fiscal 1998. During the six months
> ended December 31, 1997, the Company capitalized $1,842,000 of software
> and product development costs, primarily for its
> Plant Y2KOne-TM- suite of products. The CD ROM version of the Plant
> Y2Kone-TM- product has been developed and is
> actively being marketed.
>
> CASH FLOW.
>
> During the six months ended December 31, 1997, cash increased by
> $2,150,000. Funds used in operating activities were
> $5,030,000. Cash in the amount of $823,000 was used to reduce accounts
> payable and other accrued expenses. Operating
> funds were also used to finance the $1,183,000 increase in costs and
> estimated earnings in excess of billings and the
> $2,957,000 increases in accounts receivable. Investments were made in
> capital equipment ($277,000) and capitalized
> software development costs ($1,842,000) for a total use of funds for
> these activities of $2,119,000. Financing activities
> provided $8,426,000 of cash proceeds. Cash in the amount of $5,141,000
> was received during the period from the exercise
> of stock options and stock purchase warrants and net proceeds in the
> amount of $4,826,000 were received from the private
> placement of 955,000 shares of common stock. Principal payments on the
> Company's indebtedness reduced debt and capital
> lease obligations by $1,406,000
>
> RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
> COMPARED
>
> TO THE THREE MONTHS ENDED DECEMBER 31, 1996.
>
> The Company completed its last of four acquisitions (All Control
> Systems, Inc.) on December 1, 1996. Because it was
> accounted for under the purchase method of accounting, the results of
> its operations are included in the Company's financial
> statements for only one month of the three month period ended December
> 31, 1996. Results of operations for the Company
> and those of its other subsidiaries are included for both periods.
>
> TAVA TECHNOLOGIES, INC.
>
> During the quarter ended December 31, 1997, the Company incurred a net
> loss in the amount of $581,000, compared to a
> net loss of $84,000 for the corresponding quarter of fiscal 1997.
> Revenues increased by $2,347,000 or 29% to $10,484,000
> for the quarter ended December 31, 1997 compared to the same quarter of
> the preceding year. The gross margin during the
> quarter ended December 31, 1997 improved to 35% compared to 31% for the
> comparable period of the preceding year. The
> increase in both revenues and gross margin is attributed to the
> inclusion of All Control Systems for the full quarter ended
> December 31, 1997.
>
> The net loss is primarily attributed to the start-up costs associated
> with the Company's Y2KOne-TM- product and services.
> Product development costs and sales support for Y2KOne-TM- products and
> services required that a considerable number
> of the Company's engineers be taken off core business projects. In
> addition, the Company hired and continues to hire
> engineers in anticipation of increased revenues from Y2KOne-TM- products
> and services. Further, an engineering office was
> opened in Birmingham, Alabama and a sales office was opened in
> Greenville, South Carolina during the quarter ended
> December 31, 1997. A national corporate sales department was also
> established during this quarter.
>
> Operating expenses increased by $1,748,000 to $4,181,000 for the quarter
> ended December 31, 1997 compared to the
> corresponding quarter of the preceding year. The increase is primarily
> attributed to higher corporate expenses, primarily sales
> expenses, incurred to support growing operations. The Company has
> recently hired additional executive staff and centrally
> located them in its corporate headquarters in Englewood, Colorado.
> Non-cash expenditures for the amortization of capitalized
> software, goodwill and depreciation amounted to $499,000 during the
> current quarter. Interest expense for the current quarter
> decreased by $56,000 compared to the quarter ended December 31, 1997.
> The decrease is due to the reduction of debt
> through conversion to common stock and the repayment of principal.
>
> RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
> COMPARED TO
>
> THE SIX MONTHS ENDED DECEMBER 31, 1996.
>
> The Company completed its last of four acquisitions (All Control
> Systems, Inc.) on December 1, 1996. Because it was
> accounted for under the purchase method of accounting, the results of
> its operations are included in the Company's financial
> statements for only one month of the six month period ended December 31,
> 1996. Results of operations for the Company and
> those of its other subsidiaries are included for both periods.
>
> During the six month period ended December 31, 1997, the Company
> incurred a net loss in the amount of $1,156,000,
> compared to a net loss of $4,000 for the corresponding period of fiscal
> 1997. Revenues increased by $5,699,000 or 35% to
> $21,803,000 for the six months ended December 31, 1997 compared to the
> same period of the preceding year. The gross
> margin during the two six month periods remained constant at 33%. The
> increase in revenue is attributed to the inclusion of All
> Control Systems for the full six month period ended December 31, 1997.
>
> The net loss is primarily attributed to the start-up costs associated
> with the Company's Y2KOne-TM- product and services.
> Product development costs and sales support for Y2KOne-TM- products and
> services required that a considerable number
> of the Company's engineers be taken off core business projects. In
> addition, the Company hired and continues to hire
> engineers in anticipation of increased revenues from Y2KOne-TM- products
> and services. Further, an engineering office was
> opened in Birmingham, Alabama and a sales office was opened in
> Greenville, South Carolina during the quarter ended
> December 31, 1997. A national corporate sales department was also
> established during this quarter.
>
> As a result of these activities, operating expenses increased by
> $3,076,000 to $8,142,000 for the six months ended December
> 31, 1997 compared to the corresponding period of the preceding year.
> Sales expenses increased by 87% to $2,004,000 and
> general and administrative expenses increased by 50% to $5,592,000 when
> the two six month periods are compared.
> Non-cash expenditures for the amortization of capitalized software,
> goodwill and depreciation amounted to $877,000 during
> the current six month period. This compares to $557,000 for the
> corresponding six month period of the previous year. Interest
> expense for the current period decreased by $63,000 compared to the six
> months ended December 31, 1997. The decrease
> is due to the reduction of debt through conversion to common stock and
> the repayment of principal.
>
> TAVA TECHNOLOGIES, INC.
>
> IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS.
>
> Statement of Financial Accounting Standards 129 "Disclosure of
> Information About an Entity's Capital Structure" establishes
> standards for disclosing information about an entity's capital
> structure. The statement is effective for financial statements issued
> for annual periods ending after December 15, 1997. Its implementation is
> not expected to have a material effect on the
> consolidated financial statements.
>
> Statement of Financial Accounting Standards 130, "Reporting
> Comprehensive Income" and Statement of Financial Accounting
> Standards 131 "Disclosures About Segments of an Enterprise and Related
> Information." Statement 130 establishes standards
> for reporting and display of comprehensive income, its components and
> accumulated balances. Comprehensive income is
> defined to include all changes in equity except those resulting from
> investments by owners and distributions to owners. Among
> other disclosures, Statement 130 requires that all items that are
> required to be recognized under current accounting standards
> as components of comprehensive income be reported in a financial
> statement that displays with the same prominence as other
> financial statements.
>
> Statement 131 supersedes Statement of Financial Accounting Standards 14
> "Financial Reporting for Segments of a Business
> Enterprise." Statement 131 establishes standards on the way that public
> companies report financial information about operating
> segments in annual financial statements and requires reporting of
> selected information about operating segments in interim
> financial statements issued to the public. It also establishes standards
> for disclosures regarding products and services,
> geographic areas and major customers. Statement 131 defines operating
> segments as components of a company about which
> separate financial information is available that is evaluated regularly
> by the chief operating decision maker in deciding how to
> allocate resources and in assessing performance.
>
> Statements 130 and 131 are effective for annual financial statements for
> periods beginning after December 15, 1997 and
> require comparative information for earlier years to be restated.
> Because of the recent issuance of these standards,
> management has been unable to fully evaluate the impact, if any, the
> standards may have on the future financial statement
> disclosures. Results of operations and financial position, however, will
> be unaffected by implementation of these standards.
> > |
