Tech Firm’s Auditors Withdraw Reports


General Automation Inc. said Tuesday its auditors have withdrawn the Irvine software support service company’s financial reports for the 1995, 1996 and 1997 fiscal years because of internal accounting errors.

Price Waterhouse LLP, the company’s former auditor, withdrew its 1995 and 1996 reports. McGladrey & Pullen LLP, General Automation’s current accountant, has pulled its 1997 report.

Both firms say their actions were prompted by discrepancies in General Automation’s in-house auditing practices, which could have caused an overstatement of the company’s income and results of operations.

Staff at the accounting firms could not be reached for comment Tuesday. General Automation expects its accountants to issue new financial reports “as soon as possible,” Chief Financial Officer Richard H. Nance said.


The financial error was discovered this spring, as the high-tech company was upgrading its internal accounting software program, Nance said.

“We were bringing our accounts over to the new software, and we realized that some of the credits had been coded inappropriately,” Nance said. “It was something that was difficult to spot under normal auditing procedures.”

The flaw was tied to General Automation’s service business, which develops and monitors software and hardware computer systems for the corporate market. This segment of the company, which began to grow in 1995, now accounts for 70% of the company’s overall revenue, Nance said.

In mid-May, the company asked the Securities and Exchange Commission for an extension to file its second-quarter fiscal report. General Automation expects to report a “material” loss, Nance said.


According to the company’s latest regulatory filing, its anticipated second-quarter loss could exceed $2 million on revenue of about $16 million. General Automation reported net income of $134,000, or 2 cents a share, for the same period last year on revenue of $9.8 million.

Soon after General Automation asked for the delay, the American Stock Exchange halted the trading of its stock. The exchange told the company that its shares would not be allowed to resume trading until it has filed its updated second-quarter financial report.

General Automation’s stock price generally hovered around $1 for the last six months in light trading. On May 20--the last official day of trading before the halt--the stock price plummeted to a 52-week low of 81 cents a share.