General Automation Seeks Partner to Boost Finances

General Automation, struggling for the last five years to reverse its sliding fortunes, said Tuesday that it posted a modest $31,000 profit in its second fiscal quarter--but acknowledged that it still lost money on operations and that it is looking for a merger partner to shore up its finances.

And, unlike two years ago when news of a profit was greeted with applause and cheers by shareholders, Chairman Leonard Mackenzie’s announcement at Tuesday’s annual meeting was met with silence. Without extraordinary income of $279,000--income from lease rebates from the company’s shrinking office space requirements in Anaheim--the computer maker would have posted an operating loss of $248,000 in the period ended Feb. 1.

“It was a profit coming in the back door, not the front,” said Paul Morisi, a New York stockbroker who controls an estimated 500,000 shares of the company’s stock. “There was no reason to cheer.”

Nevertheless, Mackenzie repeatedly claimed that the profit, along with surging orders for General Automation’s line of small business computers, shows that the ailing company has passed a critical mark in its turn-around effort and that the revival strategy adopted in 1981 is finally paying off. In the comparable period last year, the company lost $974,000.

Revenues Down 33%

Revenues for the second quarter were $9.1 million, down about 33% from the $13.5 million recorded before the company shed two operating divisions last year.

In an interview after the shareholders’ meeting, Mackenzie said he expects the company to post an operating profit in the third quarter ending in late April. But he declined to speculate whether the 1986 fiscal year would be the company’s first profitable one since 1981.

“Our orders are climbing and we have a growing product in a growing market,” Mackenzie said. “We are not panicking.”

The turn-around strategy Mackenzie imposed after taking over the company’s top spot in 1980 called for General Automation to shed its money-losing computer parts manufacturing operations and to focus exclusively on a new line of small business computers.

Because the strategy took longer to execute than planned, and because the company’s accumulated losses have topped $40 million, Mackenzie said General Automation retained the investment banking services of PaineWebber Inc. in December to help it in “examine all alternatives” for its future.

Included among those choices, he said, are merging with another company, buying other computer businesses or allowing itself to be acquired by a compatible business partner.

Sees Credits as Attractive

He said the nearly $40 million in income tax credits the company has earned during the last six years should be attractive to profitable companies looking to shelter their profits.

Trading tax credits for operating cash has become an increasingly popular strategy among high-tech companies who were badly damaged by the computer industry’s sales slump last year. At least two other ailing Orange County computer companies--Eagle Computer Inc. and Computer Automation Inc.--are pursuing similar moves.

Mackenzie declined to elaborate on PaineWebber’s recommendations, saying only that the company is looking at several potential moves over the upcoming months.

Without a partner, Mackenzie acknowledged, the company faces many problems.

Chief among them is that General Automation has $17.4 million in debts, nearly all of which either have been renegotiated or are the subject of continuing talks about payment rescheduling.

In addition, employees have been trimmed to about 400 worldwide, down from a peak of 2,600 in 1980.

And the company’s stock is no longer listed by the National Assn. of Securities Dealers because General Automation has a net worth of minus $6 million, rather than the $375,000 required by the association.

“No doubt about it,” Mackenzie said. “General Automation is still a questionable operation. But we do have a reliable product now and we seem to be moving in the right direction.”