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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______ to _______
Commission File Number 000-08193
SENSYTECH, INC.
(FORMERLY KNOWN AS SENSYS TECHNOLOGIES INC.)
--------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-1873250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8419 TERMINAL ROAD, NEWINGTON, VIRGINIA 22122-1430
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 550-7000
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Class Which Registered
-------------- ----------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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 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 __
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended September 30, 1999 were
$26,424,000. As of November 22, 1999, there were 4,002,667 shares of the
Registrant's Common Stock, par value $.01 per share, outstanding. The aggregate
market value of the voting and non-voting shares of the Common Stock held by
non-affiliates and outstanding as of November 22, 1999, was $11,015,400. This
amount was computed using the average bid and ask price as of November 22, 1999,
as reported on the National Association of Securities Dealers, Inc. OTC Bulletin
Board.
DOCUMENTS INCORPORATED BY REFERENCE
Part III information will appear in the Registrant's Proxy Statement in
connection with its 2000 Annual Meeting of Stockholders. Such information will
be incorporated by reference as of the date of the filing of such Proxy
Statement.
Transitional Small Business Disclosure Format (check one):
Yes X No __
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SENSYTECH, INC. AND SUBSIDIARY
FORM 10-KSB ANNUAL REPORT
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NO. PAGE NO.
- -------- --------
<S> <C>
PART I
1. Business 4
2. Properties 8
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for the Registrant's Common Stock and Related 10
Security Holder Matters
6. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
7. Financial Statements and Supplementary Data 15
8. Changes in and Disagreements with Accountants on 15
Accounting and Financial Disclosures
PART III
Part III, Items 9 through 12, information will appear in the Registrant's Proxy 16
Statement in connection with its 2000 Annual Meeting of Stockholders. Such
Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A and such information will be incorporated herein by
reference as of the date of such filing.
13. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL OVERVIEW
Sensytech, Inc. (also referred to as the "Company" and formerly known
as Sensys Technologies Inc.), a Delaware corporation, is the successor company
to Daedalus Enterprises, Inc. ("DEI") which was organized in 1968, and S.T.
Research Corporation ("STR") which was organized in 1972. On June 9, 1998, STR
acquired DEI (the "Acquisition"), and as a result of this overall transaction,
Sensytech, Inc. was organized. The transaction was accounted for as a reverse
acquisition. As a result of the Acquisition, the outstanding STR shares were
converted into approximately 86.5% of the issued and outstanding shares of DEI.
In connection with the Acquisition, the DEI shareholders voted to amend the DEI
Certificate of Incorporation to change the name of DEI to Sensys Technologies
Inc. and to increase the Company's authorized shares from 2,000,000 to
5,000,000. On September 16, 1999, the Company adopted its present name.
The Company defines, designs, develops and manufactures systems and
equipment for integrated passive surveillance systems for military and
commercial customers. Signals of interest within the electromagnetic spectrum
are intercepted by the Company's or its partners' products. Pertinent
information is then evaluated and the relevant situation is assessed. Those
signals of interest may include radio waves, microwaves, infrared and light; the
signals may be intentional, under the control of the emitting system as in radar
or communication, or unintentional.
BASIC PRODUCTS AND SERVICES
The Company operates in one segment, the passive surveillance system
segment. The Company believes that its passive surveillance products and
services are among the best in the world. The Company's goal is to provide its
customers with total system surveillance solutions across the electromagnetic
spectrum, using products manufactured by it and by others. Within this segment,
the Company's principal products and services include:
o System engineering services which provide concept studies, system
definition and services to aid in specification of customer requirements.
These activities are performed for either present or prospective customers
and are principally undertaken to assist the customer in the procurement of
major integrated passive surveillance systems.
o Electronic support products which intercept, analyze, classify, identify,
localize and track microwave signals from radars and weapons. The Company's
electronic support measure systems are used on military platforms, such as
ships, submarines, patrol aircraft, and at ground installations, to
intercept, analyze and identify radar/weapon signals.
o Communication products which intercept signals, analyze the on-line
communication, and identify and localize the involved parties. These
systems are generally employed in aircraft, ships and ground installations
to intercept transmissions occurring over established communications
networks.
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o Multispectral infrared and light imaging systems which are employed on land
and on aircraft for the remote sensing of damage assessment, environmental
pollution, facility inspection, utility monitoring, and situation
awareness.
COMPETITION
Historically, the Company's products have been sold largely in the
United States, although its foreign business is increasing. The Company's
products face substantial competition from both domestic and foreign companies,
which range in size from highly resourceful small concerns, which engineer and
produce specialized items, to large diversified firms, with vastly greater
resources than the Company. In the domestic market, major competitors include
companies such as Raytheon Company, Lockheed-Martin Corporation, Litton
Industries, Inc., Condor Systems, Inc., TRW Inc., and the American subsidiary of
Marconi Electric Systems. In the foreign market, a number of overseas companies
are competitors, in addition to those named above, such as Racal Communications
(United Kingdom), Electronica (Italy), Thompson-CFS and Dassault Electronique
(France), and Daimler (Germany). The size and reputation of these companies give
them a significant advantage in competing for contracts. The Company competes
on the basis of product offerings, price, product and systems quality,
technology and customer service, both before and after the sale. The Company
has competed successfully as a prime contractor where it believes it has a
customer solution advantage; otherwise, the Company has teamed with our
traditional partners.
MATERIALS
The Company's operations primarily require electronic, optical, and
mechanical components and supplies, which are generally available from several
commercial sources. Although certain items are only available from limited
sources of supply, the Company believes that the loss of any single supplier
would not have a material adverse effect on the Company.
PATENTS
The Company holds several patents and has applied for others. The
Company has registered no trademarks. However, the Company believes that the
ownership of patents is not a significant factor in its business and that its
success depends primarily on innovative skills, technical competence, and the
ability to rapidly adapt commercially available new technology to emerging
requirements from its customers. The Company believes that the loss of patent
protection for any of its products would not materially adversely affect the
Company.
MARKETING
In the domestic market, business development of the Company's products
and services is conducted by its staff who concentrate on developing an
understanding of the customers particular requirements and maintaining close
response.
In the international market, the domestic model is complemented with
marketing assistance for specific products from selected partners. All export
systems must be approved by the U.S. Department of State, which limits the
markets for such products and may result in delay
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or possible cancellation of an order.
PRODUCT DEVELOPMENT
The Company believes that its continued success depends, in a large
part, on its ability to develop and apply new technology to provide total system
solutions for its customers. Funding for products and systems development comes
from internally sponsored research and development as well as from customer
funded development contracts. Total research and development expenditures over
the past two years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1999 1998
---- ----
<S> <C> <C>
Internal research and development $ 540,000 $ 994,000
Customer funded development 7,694,000 5,368,000
--------- ---------
Total $8,234,000 $6,362,000
========== ==========
</TABLE>
Current funded programs include development of systems analysis,
jamming resistance, emitter's identification, communications intercept
capabilities, precision direction finding, and source localization.
BACKLOG
Total backlog of $17,106,000 at September 30, 1999, included both
unfilled firm orders for the Company's products for which funding has been
authorized and appropriated by the customer including the remaining portion of
contracts in progress, and firm orders for which funding has not been
appropriated.
The Company has options of $41,475,000 primarily resulting from a
subcontract for engineering and production of components of the AIEWS systems
for U.S. Navy surface ships. Following development, the prime contractor holds
options for subsequent production. The Company anticipates the options will be
exercised during the period 2000 through 2005.
GOVERNMENT CONTRACTS
During the most recent fiscal year, approximately 91% of the Company's
revenues were attributable to contracts with various departments and agencies of
the U.S. Government or subcontracts with its prime contractors. The funding of
Government programs is subject to Congressional appropriations. Although
multi-year contracts may be authorized in connection with major procurements,
Congress generally appropriates funds on a fiscal year basis, even though a
program may continue for many years. Consequently, programs are often only
partially funded initially, and additional funds are committed only as Congress
makes further appropriations.
Generally, Government contracts are subject to oversight audits by
Government representatives and provisions permitting termination, in whole or in
part, without prior notice at the Government's convenience upon the payment of
compensation only for work done and
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commitments made at the time of termination. In the event of termination, the
contractor will receive some allowance for profit on the work performed.
The Company's federal government contracts include fixed price, cost
plus fixed fee, cost plus incentive fee, cost plus award fee, and time and
material contracts. The fixed price contracts are not subject to adjustment by
reason of costs incurred in the performance of the contract. With this type of
contract the Company assumes the risk that it will be able to perform at a cost
below the fixed price except for costs incurred because of contract changes
ordered by the customer.
The Company is subject to various statutes and regulations governing
Government contracts generally and defense contracts specifically, which carry
substantial penalty provisions including suspension or debarment from Government
contracting or subcontracting for a period of time, in the event the Company is
found to have violated any of these regulations. Among the causes for debarment
are violations of various statutes, including those related to procurement
integrity, export control, government security regulations, employment
practices, the protection of the environment, the accuracy of records, and the
recording of costs. The Company carefully monitors all of its contracts and
contractual efforts to minimize the possibility of any abuses associated with
its government contracts. The Company has experienced minimal audit adjustments
over the past ten years. The Defense Contract Audit Agency ("DCAA") has
completed its audit of the Company's contracts through the fiscal year ended
September 30, 1996.
Companies which are engaged in supply defense-related equipment to the
Government are subject to certain business risks, some of which are peculiar to
that industry. Among these are: the cost of obtaining trained and skilled
employees; the uncertainty and instability of prices for raw materials and
supplies; the problems associated with advanced designs, which may result in
unforeseen technological difficulties and cost overruns; and the intense
competition and the constant necessity for improvement in facilities and
personnel training. Sales to the Government may be affected by changes in
procurement policies, budget considerations, changing concepts of national
defense, political developments abroad and other factors.
As a result of changing domestic and international conditions, the
Department of Defense budgets have been subject to increasing pressure. However,
the Company believes the passive surveillance markets in which it participates
will continue to be important in future years, as the military branches and
intelligence agencies continue to rely upon technological advances for defense
and intelligence purposes. There can be no assurances; however, that federal
appropriations will continue to exist at their current levels or that the
Company's products will be utilized in the future.
FORWARD LOOKING STATEMENTS
Statements in this filing which are not historical facts are forward
looking statements under the provisions of the Private Securities Litigation
Reform Act of 1995. All forward looking statements involve risks and
uncertainties. These statements are based upon numerous assumptions about future
conditions that could prove not to be accurate. Actual events, transactions or
results may materially differ from the anticipated events, transactions or
results
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described in such statements. The Company's ability to consummate such
transactions and achieve such events or results is subject to certain risks and
uncertainties. In addition to those specifically mentioned above, such risks and
uncertainties include, but are not limited to, the existence of demand for and
acceptance of the Company's products and services, regulatory approvals and
developments, economic conditions, the impact of competition and pricing,
results of financing efforts and other factors affecting the Company's business
that are beyond the Company's control. The Company undertakes no obligation and
does not intend to update or revise these forward-looking statements to reflect
future events or circumstances.
ENVIRONMENTAL
The Company's operations do not include any activities which result in
environmental issues. As a result, the Company has incurred no costs in the past
two years related to environmental compliance.
EMPLOYEES
At September 30, 1999, the Company employed 134 persons. Many of the
Company's employees are highly skilled, with advanced degrees. The Company's
continued success depends upon its ability to continue to attract and retain
highly skilled employees. The Company has experienced low turnover of its
employees. The Company has never had a work stoppage, and none of its employees
are represented by a labor organization. The Company considers its employee
relations to be good.
ITEM 2. PROPERTIES
The Company believes that its leased facilities are suitable for their
respective operations. Each facility is well maintained and capable of
supporting higher levels of revenue. The table below sets forth certain
information about the Company's principal facilities:
<TABLE>
<CAPTION>
OWNED PRINCIPAL
ADDRESS SQUARE FEET OR LEASED DESCRIPTION ACTIVITY
- --------------------------- ------------ --------- ------------------------ -----------
<S> <C> <C> <C> <C>
8419 Terminal Road 67,000 Leased Two 1-story and one Engineering/
Newington, VA 22122 partial 2-story Manufacturing/
adjacent block Administration
buildings. Buildings are
in an industrial
park
300 Parkland Plaza 12,500 Leased 1-story facility in a Engineering/
Ann Arbor, MI 48103 research park Manufacturing/
Administration
</TABLE>
The Company's facilities in Newington and Ann Arbor are equipped with
equipment used for the design, development and manufacture of its products.
Facilities in Newington include a Sensitive Compartmented Information Facility
("SCIF"), anechoic chamber, secure test areas, environmental equipment,
antennas, as well as general-purpose equipment required to
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manufacture and test its products.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the subject
of, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the Company's fiscal year ended September 30, 1999, other
than obtaining the consent of sufficient stockholders to change its name.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ under the symbol
"STST". Prior to the Acquisition, the Company's stock representing the
outstanding shares of DEI was traded on the over the counter market through the
OTC Bulletin Board service under the symbol "DEDI".
The following table sets forth the range of high and low actual sales
prices of the Common Stock for the periods indicated. Sale prices include prices
between dealers, may not reflect mark-ups, mark-downs or commissions and may not
represent final actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
December 31, 1997 3 2 3/4
March 31, 1998 6 1/4 3
June 30, 1998 6 1/4 4 3/4
September 30, 1998 4 3/4 3 1/8
December 31, 1998 4 1/2 3
March 31, 1999 5 5/8 4
June 30, 1999 5 1/4 4
September 30, 1999 7 1/2 5 1/16
</TABLE>
No dividends have been paid on the Company's Common Stock during the
last two fiscal years. Furthermore, the line of credit covenants contain
restrictions on payment of dividends. The Company currently intends to retain
earnings to finance the growth and development of its business and does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
As of November 16, 1999, there were approximately 590 beneficial owners
of the Company's Common Stock, including 208 holders of record.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides information which management believes
is relevant to an assessment and understanding of the Company's operations and
financial condition. This discussion should be read in conjunction with the
consolidated financial statements and accompanying notes.
On June 9, 1998, S. T. Research Corporation ("STR") acquired Daedalus
Enterprises, Inc. ("DEI"). See Item 1 "Business: General Overview." The
Acquisition was accounted for as a reverse acquisition whereby STR was deemed to
have acquired DEI for financial reporting purposes. Consistent with the reverse
acquisition accounting treatment, the historical financial statements presented
for periods prior to the Acquisition date are the financial statements of STR,
except for stockholders' equity which has been retroactively restated for the
equivalent number of shares of the legal acquirer and therefore, differ from the
consolidated financial statements of DEI as previously separately reported. The
operations of the former DEI business have been included in the financial
statements from the date of the Acquisition. In connection with the
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Acquisition, the Company changed its fiscal year-end from July 31 to September
30, which was the fiscal year end of STR.
OPERATING CYCLE
In accordance with industry practice, the Company classifies as current
assets amounts relating to long-term contracts which may have terms extending
beyond one year but are expected to be realized during the normal operating
cycle of the Company. The liabilities in the accompanying balance sheets which
have been classified as current liabilities are those expected to be satisfied
by the use of assets classified as current assets. At September 30, 1999,
substantially all contracts to which the Company is a party will be completed
within the next twelve months. Therefore, substantially all current assets and
current liabilities are expected to be liquidated in the next twelve months.
RESULTS OF OPERATIONS
Revenue for the year ended September 30, 1999 was $26,424,000 compared
to $21,927,000 for the year ended September 30, 1998, a $4,497,000 or a 20.5%
increase. The increase primarily resulted from additional revenues from three
significant contracts, the U.S. Navy Integrated Electronic Warfare System
(AIEWS) subcontract from Lockheed-Martin Corporation, the U.S. Navy ESM Receiver
Systems and Bobcat Systems. The AIEWS subcontract originated in late fiscal
1998, generating approximately 2% of the 1998 revenue compared to 13% of the
1999 revenue. The Bobcat contract also originated in late fiscal 1998, but
generated no revenue in that year compared to 25% of the 1999 revenue. The ESM
Receiver System generated 25% of the 1999 revenue compared to 20% of the 1998
revenue.
Customer funded development which is included in revenues was
$7,694,000 and $5,368,000 in fiscal years 1999 and 1998, respectively. The
increase in customer funded development of $2,326,000 or 43.3% resulted from the
U.S. Navy Integrated Electronic Warfare System (AIEWS) subcontract from
Lockheed-Martin Corporation.
The total amount of negotiated backlog, including both unfilled firm
orders for the Company's products for which funding has been authorized and
appropriated by the customer, and firm orders for which funding has not been
appropriated as of September 30, 1999 and 1998 was $17,106,000 and $22,600,000,
respectively. The majority of the authorized and appropriated unfilled orders at
September 30, 1999 of $12,000,000 is expected to be completed within a year.
Options on existing contracts approximated $41,475,000 at September 30, 1999.
The principal amount of options is primarily the result of the subcontract for
engineering and production of components of the Integrated Electronic Warfare
Systems (AIEWS) for the U.S. Navy surface ships. The options are planned for
exercise between the year 2000 and the year 2005 with potential deliveries
extending for an additional two years.
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Cost of revenues, as a percentage of revenue, decreased from 84.5% for
the year ended September 30, 1998 to 72.8% for the year ended September 30,
1999. The Company attributes this improvement to business refocusing and
organizational restructuring resulting in operating efficiencies and
productivity improvements in operations.
During fiscal year 1999, general and administrative expenses increased
from $3,424,000 to $4,251,000, a $827,000 or a 24.2% increase from fiscal 1998.
The increase was due principally to an increase in traditional general and
administrative expenses of approximately $700,000 and Bid & Proposal/Independent
Research & Development (B&P/IR&D) expenses of approximately $164,000. The
general and administrative increase was the result of an increase in public
company expenses of approximately $200,000 and severance pay and salary
compensation expenses of approximately $488,000. These increases were offset to
some extent by a reduction in bad debt expense of $155,000.
During fiscal year 1998, the Company recorded nonrecurring charges of
$1,096,000 in connection with the ongoing restructuring of the Company's
operations primarily emanating from the Acquisition. The restructuring combined,
integrated, and reengineered the Company's processes, policies and procedures.
There were no such restructuring charges during fiscal year 1999.
Net interest expense of $197,000 for the year ended September 30, 1998,
decreased 79.7% to $40,000 for the year ended September 30, 1999. During the
fiscal year ended September 30, 1999, the Company used its profits from
operations and the net proceeds from the sale of real estate on December 1,
1998, to pay down its outstanding balance on its line of credit.
Income tax expense for the year ended September 30, 1999, and the
income tax benefit for the year ended September 30, 1998, consist of federal
and state income taxes. The Company's effective income tax rate was 41.7% for
the year ended September 30, 1999, and was 37.3% for the year ended September
30, 1998. The rate varied from the statutory rate primarily due to certain
non-deductible expenses and the impact of the Company's marginal tax bracket
related to the losses in fiscal year 1998.
Net income for the year ended September 30, 1999, was $1,689,000,
compared to a net loss of $822,000 for the year ended September 30, 1998. The
change of $2,511,000 was the result of a pretax restructuring charge of
$1,096,000 in fiscal year 1998 in addition to the items discussed above.
LIQUIDITY AND SOURCES OF CAPITAL
At September 30, 1999, the Company's cash and cash equivalents totaled
$3,076,000 as compared to $112,000 at September 30, 1998. During the year ended
September 30, 1999, the net cash provided to the Company by its operating
activities was $4,193,000, as compared to the net cash used of $564,000 for the
fiscal year 1998, an increase of $4,757,000. The improved cash flow was the
result of the improved profitability and improved accounts receivable
collections. Inventories decreased from September 30, 1998 to September 30, 1999
primarily due to the write down of aged parts and materials that may no longer
be useful in future operations.
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The net cash provided to the Company by its investing activities during
the year ended September 30, 1999 was $1,012,000, as compared to cash used for
investing activities of $480,000 during the year ended September 30, 1998. This
increase is attributable to the receipt of net proceeds from the sale of the
real estate on December 1, 1998 of $1,446,000. Capital expenditures for the year
ended September 30, 1999 were $434,000. The Company has currently budgeted
$525,000 for capital expenditures during fiscal 2000 including $25,000
principally for machinery and equipment, $250,000 for computer hardware and
software and $250,000 for facility improvements. The Company expects to be able
to finance these expenditures with available working capital and credit
facilities.
The net cash used by the Company in financing activities during the
year ended September 30, 1999 was $2,241,000, compared to net cash provided by
financing activities of $1,016,000 during the year ended September 30, 1998. For
fiscal year 1999, the net cash used was primarily devoted to reducing to zero
the Company's line of credit borrowings and satisfying the mortgage on the real
estate which was sold. The generation of cash during fiscal year 1998 is
attributable to the Company's private placement of common stock that occurred in
January 1998, the proceeds of which were $3,777,000. The net proceeds of the
sale of stock were primarily used to satisfy outstanding line of credit
obligations of the Company.
The Company entered into a $3,000,000 line of credit and related note
payable with its bank on February 28, 1999, which expires on February 28, 2001.
At September 30, 1999, the Company was in compliance with the covenants
contained in the line of credit agreement. There were no amounts outstanding
under the line of credit at September 30, 1999. The Company believes that its
existing funds, amounts generated by operations, and amounts available for
borrowing under its line of credit will be sufficient to meet its working
capital needs through fiscal 2000.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," for fiscal years beginning after December 15, 1997. The
provisions of SFAS No. 130 establish standards for reporting and display of
comprehensive income and its components in the financial statements. This
statement requires all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in the financial
statements and displayed with the same prominence as other financial statements.
The provisions of SFAS No. 131 establish standards for the way that enterprises
report information about operating segments in annual financial statements and
required that selected information about operating segments in interim financial
statements be reported. It also establishes standards for related disclosure
about
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products and services, geographic areas, and major customers. The adoption of
SFAS No. 130 did not have a material effect on the Company's financial
statements as the Company did not have any comprehensive income other than net
income in fiscal years 1999 or 1998. The adoption of SFAS No. 131 did not have a
material effect on the Company's financial statements as the Company operates as
one business segment.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". This statement significantly
changes current financial statement disclosure requirements from earlier
statements. Some of the more significant effects of SFAS No. 132 which will
affect the Company's disclosures are that it:
1. Standardizes the disclosure requirements for pensions and other post
retirement benefits and presents them in one footnote;
2. Requires that additional information be disclosed regarding changes in
the benefit obligation and fair values of plan assets;
3. Eliminates certain disclosures that are no longer considered useful,
including general descriptions of the plans and; revises disclosures
about defined-contribution plans.
The adoption of SFAS No. 132 did not have a material effect on the
Company's financial statements.
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes a new
model for accounting for derivatives and hedging. The new standard requires
enhanced disclosure of accounting policies for derivative financial instruments
and derivative commodity instruments in the footnotes to the financial
statements. In addition, the standard expands disclosure requirements to include
quantitative and qualitative information about market risk inherent in market
risk sensitive instruments. Subsequently, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities," which delays
implementation of FASB No. 133 to fiscal year 2001. Since the Company does not
have any derivative transactions, SFAS No. 133 will not have an effect on the
Company's financial statements.
IMPACT OF INFLATION
The Company's operations were not significantly affected by inflation.
IMPLICATIONS OF YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's internal business systems, facilities and products that have software,
whether installed or embedded, may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. In addition, disruptions in the economy
generally resulting from Year 2000 issues could have a material adverse affect
on the Company.
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The Company began its assessment of the implications of the Year 2000
issue during March 1998, by developing plans and a program to address the
potential impact of the Year 2000 on its internal business systems, facilities
and products which might include embedded software. The Company has
substantially completed its review of each of these areas for potential Year
2000 impact. Based on current information, the Company believes there are no
material operational problems or anticipated expenses related to the Year 2000
problem and no material Year 2000 expenditures have been required or made.
Certain versions of the Company's products require modifications, and it appears
there may be opportunities to sell upgrades to its customer base. The Company
does not believe that it has any contingent liabilities associated with any
products it has previously manufactured which may not be Year 2000 fully
compliant. Detailed implementation plans are in place for the required
modifications or replacements. Products currently in production have been
determined to be Year 2000 compliant and require no remediation. While initial
assessments of Year 2000 implications are substantially complete, the Company
plans to continually re-assess its software-embedded products and operational
software applications to insure Year 2000 compliance. In addition, the Company
has gathered information about the Year 2000 compliance status of its
significant suppliers, vendors and subcontractors and continues to monitor their
compliance. There have been no significant compliance issues identified. The
Year 2000 review process and progress are monitored on a regular basis by a
special task group of management. There appears to be no material financial risk
to the Company as a result of the Year 2000 problem.
The Company has contingency plans for certain critical applications.
Such plans include, among other actions, manual workarounds, increasing
inventories and adjusting staffing strategies.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in this report on
pages F-1 through F-21.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Company's change in accountants was previously disclosed in its
report on Form 8-K filed June 15, 1998, which report is incorporated herein by
reference. There were no disagreements with the current or prior auditors.
15
<PAGE> 16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information relating to the Directors and Executive Officers of the
Company and compliance with section 16(a) of the Exchange Act will appear
beneath the captions "Election of Directors," "Certain Information Regarding
Nominees," "Meetings and Committees of the Board," "Business Experience of
Executive Officers," "Compensation of Directors," and "Section 16(a), Beneficial
Ownership Reporting Compliance" in the Company's definitive Proxy Statement
which will be distributed in connection with its 2000 Annual Meeting of
Stockholders. Such Proxy Statement will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A and such information will be
incorporated herein by reference as of the date of such filing.
ITEM 10. EXECUTIVE COMPENSATION
Information relating to management remuneration and transactions will
appear beneath the caption "Executive Compensation" and "Employment Agreements"
in the Company's definitive Proxy Statement which will be distributed in
connection with its 2000 Annual Meeting of Stockholders. Such Proxy Statement
will be filed with the Securities and Exchange Commission pursuant to Regulation
14A and such information will be incorporated herein by reference as of the date
of such filing.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to the ownership of equity securities by
management and by beneficial owners of 5% or more of the Common Stock of the
Company will be set forth under the caption "Stock Ownership of Certain
Beneficial Owners" in the Company's definitive Proxy Statement which will be
distributed in connection with its 2000 Annual Meeting of Stockholders. Such
Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A and such information will be incorporated herein by
reference as of the date of such filing.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and transactions between
the Company and its Officers and Directors will appear beneath the caption
"Certain Relationships and Related Transactions" in the Company's definitive
Proxy Statement which will be distributed in connection with its 2000 Annual
Meeting of Stockholders. Such Proxy Statement will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A and such information will be
incorporated herein by reference as of the date of such filing.
In the event that the Company's definitive Proxy Statement to be
distributed in connection with its 2000 Annual Meeting of Stockholders is not
filed, or mailed for filing, with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days of the end of the Company's most
recent fiscal year, the Company will amend this Report within such time
16
<PAGE> 17
period to provide the information required by Part III hereof.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
(27) Financial Data Schedule (filed herewith)
(b) REPORTS ON FORM 8-K
No Reports on Form 8-K were filed during the quarter ended September 30,
1999.
17
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Sensytech, Inc. and subsidiary:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Sensytech, Inc. and its subsidiary at September 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the two years in
the period ended September 30, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Pittsburgh, PA
December 3, 1999
F-1
<PAGE> 19
SENSYTECH, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
----------------------------------------
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 3) $ 3,076,000 $ 112,000
Accounts receivable, net of allowance for
doubtful accounts of $311,000 in 1999 3,215,000 5,082,000
Unbilled contract costs (Note 4) 4,924,000 4,238,000
Inventories (Note 5) 25,000 536,000
Deferred income taxes (Note 17) 717,000 288,000
Other current assets 151,000 89,000
Refundable and prepaid income taxes (Note 17) -- 311,000
----------- -----------
TOTAL CURRENT ASSETS 12,108,000 10,656,000
PROPERTY AND EQUIPMENT (Note 6) 1,403,000 1,647,000
OTHER ASSETS
Deferred income taxes (Note 17) 54,000 236,000
Goodwill, net of accumulated amortization of
$25,000 in 1999 and $20,000 in 1998 (Note 2) 141,000 782,000
Property held for sale (Note 7) -- 1,446,000
Other assets 81,000 69,000
----------- -----------
TOTAL ASSETS $13,787,000 $14,836,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 20
SENSYTECH, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30,
-------------------------------------------
1999 1998
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Note payable - line of credit (Note 8) $ -- $ 2,049,000
Accounts payable 1,486,000 2,554,000
Accrued salaries, benefits, and related expenses 1,267,000 1,199,000
Deferred compensation (Note 9) 356,000 319,000
Other accrued expenses (Note 16) 634,000 619,000
Income taxes payable (Note 17) 355,000 --
Mortgage payable (Note 11) -- 220,000
Billings in excess of costs (Note 4) 466,000 412,000
Capital leases (Note 12) 42,000 53,000
------------ ------------
TOTAL CURRENT LIABILITIES 4,606,000 7,425,000
LONG-TERM LIABILITIES
Capital leases (Note 12) 69,000 104,000
------------ ------------
STOCKHOLDERS' EQUITY (Notes 2 and 13)
Common Stock, at September 30, 1999, $.01 par value,
authorized 5,000,000 shares; issued and outstanding 3,987,940
shares; at September 30, 1998, $.01 par value, authorized
5,000,000 shares; issued and outstanding 3,961,271 shares 40,000 40,000
Additional paid-in capital 7,099,000 6,858,000
Unearned stock-based compensation (Note 15) (125,000) --
Retained earnings 2,098,000 409,000
------------ ------------
9,112,000 7,307,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,787,000 $ 14,836,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 21
SENSYTECH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
REVENUE
Contract revenue $ 26,424,000 $ 21,927,000
------------ ------------
COSTS AND EXPENSES
Cost of revenues 19,237,000 18,522,000
General and administrative expenses 4,251,000 3,424,000
Restructuring costs (Note 16) -- 1,096,000
------------ ------------
Total costs and expenses 23,488,000 23,042,000
------------ ------------
INCOME (LOSS) FROM OPERATIONS 2,936,000 (1,115,000)
OTHER EXPENSES
Interest expense, net (40,000) (197,000)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 2,896,000 (1,312,000)
INCOME TAX (PROVISION) BENEFIT (Note 17) (1,207,000) 490,000
------------ ------------
NET INCOME (LOSS) $ 1,689,000 $ (822,000)
============ ============
PER SHARE AMOUNT (Note 1)
Basic earnings (loss) per share $ 0.42 $ (0.27)
Diluted earnings (loss) per share $ 0.40 $ (0.27)
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 22
SENSYTECH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Unearned Total
Common Paid-in Stock-based Retained Stockholders'
Stock Capital Compensation Earnings Equity
----- ------- ------------ -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 $ 19,000 $ 1,286,000 -- $ 1,231,000 $2,536,000
Net loss -- -- -- (822,000) (822,000)
Issuance of stock, net of
related expenses of $6,000
(Note 13) 15,000 3,762,000 -- -- 3,777,000
Acquisition, including par
value adjustment (Note 2) 5,000 1,752,000 -- -- 1,757,000
Exercise of stock options 1,000 58,000 -- -- 59,000
-------- ----------- ----------- ----------- ----------
BALANCE AT SEPTEMBER 30, 1998 $ 40,000 $ 6,858,000 -- $ 409,000 $7,307,000
-------- ----------- ----------- ----------- ----------
Net income -- -- -- 1,689,000 1,689,000
Exercise of stock options -- 74,000 -- -- 74,000
Unearned stock-based compensation
(Note 15) -- 167,000 $ (167,000) -- --
Amortization of stock-based compensation -- -- 42,000 -- 42,000
-------- ----------- ----------- ----------- ----------
BALANCE AT SEPTEMBER 30, 1999 $ 40,000 $ 7,099,000 $ (125,000) $ 2,098,000 $9,112,000
======== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 23
SENSYTECH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
September 30,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,689,000 $ (822,000)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 689,000 426,000
Bad debt expense 311,000 155,000
Stock compensation 42,000 --
Deferred tax expense (247,000) (287,000)
Inventory writedown 391,000 --
Cash provided (used) by assets and liabilities:
Accounts receivable 1,556,000 (1,826,000)
Unbilled contract costs (686,000) 2,417,000
Inventories 120,000 83,000
Other current assets (62,000) 87,000
Refundable and prepaid income taxes 311,000 (236,000)
Income taxes payable 661,000 --
Accounts payable (1,068,000) (387,000)
Other accrued expenses 450,000 (127,000)
Other 36,000 (47,000)
----------- -----------
Net cash provided by (used in) operating activities 4,193,000 (564,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition expenses, net of cash acquired -- (115,000)
Net acquisitions of property and equipment (434,000) (365,000)
Proceeds from disposal of property held for sale 1,446,000 --
----------- -----------
Net cash provided by (used in) investing activities 1,012,000 (480,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under line of credit (2,049,000) (2,740,000)
Principal payments on mortgage debt (220,000) (5,000)
Principal payments on capital lease obligations (46,000) (75,000)
Net proceeds of private placement of common stock -- 3,777,000
Proceeds of stock option exercises 74,000 59,000
----------- -----------
Net cash (used in) provided by financing activities (2,241,000) 1,016,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,964,000 (28,000)
Cash and cash equivalents, beginning of period 112,000 140,000
----------- -----------
Cash and cash equivalents, end of period $ 3,076,000 $ 112,000
=========== ===========
Supplemental schedule of non-cash investing and financing activities:
Equipment acquired with capital lease obligations -- 141,000
Supplemental disclosure of cash flow information:
Cash paid for interest $ 71,000 $ 177,000
=========== ===========
Cash paid for income taxes $ 480,000 $ 22,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 24
SENSYTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES:
Sensytech, Inc. and subsidiary (the "Company") primarily defines,
designs, develops and manufactures systems and equipment for integrated passive
surveillance systems for military and commercial customers.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
Sensytech, Inc. and its wholly owned subsidiary, Daedalus Enterprises Export
Corporation. All intercompany transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, the Company considers all
unrestricted highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
INVENTORIES:
Inventories are stated at the lower of cost or market, determined on
the first-in, first-out basis.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost and are depreciated over
estimated useful lives ranging from three to eight years using straight-line and
double declining balance methods. Leasehold improvements are amortized over the
life of the improvement or length of lease term, whichever is shorter, using the
straight-line method. Amortization of leasehold improvements and capital lease
obligations are included in depreciation expense. The cost and accumulated
depreciation or amortization of assets sold or retired are removed from the
respective accounts and any gain or loss is reflected in other income
(expenses).
REVENUE RECOGNITION:
The estimated revenue for performance under Government fixed-price and
cost-type contracts, including customer funded research and development, is
recognized under the percentage of completion method of accounting whereunder
the estimated revenue is determined
F-7
<PAGE> 25
on the basis of completion to date (the total contract amount multiplied by
percent of performance to date less revenue value recognized in previous
periods). Revenues under cost-reimbursement contracts are recorded as costs are
incurred and include estimated earned fees in the proportion that costs incurred
to date bear to total estimated costs. The fees under certain Government
contracts may be increased or decreased in accordance with cost or performance
incentive provisions which measure actual performance against established
targets or other criteria. Such incentive fee awards or penalties, which
historically are not material, are included in revenue at the time the amounts
can be determined reasonably. Anticipated losses are recognized at the time they
become known. It is reasonably possible that future operating results may be
effected if actual contract costs incurred differ from total contract costs
currently estimated by management.
RESEARCH AND DEVELOPMENT:
Internally funded research and development costs are included in
general and administrative expenses in the consolidated statements of
operations. The amount of internally funded research and development costs
expensed during 1999 and 1998 was $540,000 and $994,000, respectively.
INCOME TAXES:
Deferred tax assets and liabilities have been established for the
temporary differences between financial statement and tax bases of assets and
liabilities existing at the balance sheet date using expected tax rates. A
valuation allowance is recorded to reduce deferred income taxes to that portion
that is expected to more likely than not be realized.
USE OF ESTIMATES:
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Accordingly, actual results could differ from those
estimates.
OPERATING CYCLE:
In accordance with industry practice, the Company classifies as current
assets amounts relating to long-term contracts which may have terms extending
beyond one year but are expected to be realized during the normal operating
cycle of the Company. The liabilities in the accompanying balance sheets which
have been classified as current liabilities are those expected to be satisfied
by the use of assets classified as current assets. At September 30, 1999,
substantially all contracts in progress are expected to be completed within the
next twelve months. Therefore, substantially all current assets and current
liabilities are expected to be liquidated in the next twelve months.
F-8
<PAGE> 26
ACQUISITIONS:
The Company's acquisition has been accounted for using the purchase
method of accounting. The results of operations for the periods since the date
of acquisition are included in the consolidated financial statements. Costs in
excess of net assets acquired (goodwill) are amortized on the straight-line
method principally over ten years. The Company regularly reviews the individual
components of the balances of all of its long-term assets by analyzing the
future recoverability of the assets and recognizes, on a current basis, any
diminution in value.
EARNINGS PER SHARE:
Basic earnings per share is computed using the weighted average number
of common shares outstanding during each period. Diluted earnings per share is
computed using the weighted average number of common and common equivalent
shares outstanding during each period. For the year ended September 30, 1998,
the effect of shares issuable upon exercise of stock options was excluded from
the diluted (loss) earnings per share calculation, as their effect would have
been antidilutive. The weighted average shares outstanding were adjusted to
reflect the conversion of S.T. Research Corporation stock in connection with the
Acquisition discussed in Note 2. The following summary is presented for the
years ended:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1999 1998
---- ----
<S> <C> <C>
Net income (loss) $1,689,000 $ (822,000)
Weighted average shares outstanding - basic 3,976,000 3,072,000
Basic earnings (loss) per share $ .42 $ (.27)
Effect of dilutive securities:
Shares issuable upon exercise of stock options 233,000 --
---------- ----------
Weighted average shares outstanding - diluted 4,209,000 3,072,000
Diluted earnings (loss) per share $ .40 $ (.27)
</TABLE>
RECLASSIFICATIONS:
Certain amounts in the 1998 financial statements have been reclassified
to conform to the 1999 presentation.
NOTE 2 - ACQUISITIONS
On June 9, 1998, S.T. Research Corporation ("STR") acquired Daedalus
Enterprises, Inc. ("DEI") in an acquisition whereby the outstanding STR shares
were converted into approximately 86.5% of the issued and outstanding shares of
DEI (the "Acquisition"). As part of this overall transaction, DEI changed its
name to Sensytech, Inc. While DEI was the legal acquirer, the Acquisition was
accounted for as a reverse acquisition whereby STR was deemed to have acquired
DEI for financial reporting purposes. Consistent with the reverse acquisition
accounting treatment, the historical financial statements presented for periods
prior to the
F-9
<PAGE> 27
Acquisition date are the financial statements of STR except for stockholders'
equity which has been retroactively restated for the equivalent number of shares
of the legal acquirer. An adjustment has also been made to adjust the par value
with an offset to additional paid-in capital. The operations of the former DEI
business have been included in the financial statements from the date of the
Acquisition. In connection with the Acquisition, the Company changed its fiscal
year-end from July 31 to September 30, which was the fiscal year end of STR.
The average market value of the DEI Common Stock for a reasonable
period of time before and after the announcement of the Acquisition determined
the purchase price for accounting purposes. The average market value of DEI
stock used to record the purchase was $3.25 per share and there were 540,751
shares issued and outstanding at the Acquisition date. As a result, the
aggregate value of the stock used to record the purchase was approximately
$1,757,000. In addition, direct expenses of the purchase of $131,000 consisting
of legal, accounting and other fees, were included in the recorded purchase
price.
The Company recorded goodwill of $802,000, which is being amortized
over a ten-year period on a straight-line basis. In addition, the Company repaid
DEI's existing note payable to its bank in the amount of $879,000. During fiscal
year 1999, goodwill was reduced by 629,000 for the utilization of acquired net
operating loss carry forwards (NOLs), the gain on the sale of the property and
the reversal of certain estimated liabilities recorded in connection with the
Acquisition.
The following unaudited pro forma information reflects the pro forma
results of operations of the Company and DEI for the year ended September 30,
1998, assuming the companies had combined as of October 1, 1997.
<TABLE>
<CAPTION>
1998
----
<S> <C>
Revenue $ 22,884,000
Net (loss) income $ (1,640,000)
Basic and diluted (loss) earnings per share $ (.45)
</TABLE>
This pro forma information does not purport to be indicative of the
results that actually would have been obtained if the companies had been
combined during the periods presented and is not intended to be a projection of
future results.
The purchase price of $1,888,000, including direct expenses, was
allocated as follows:
<TABLE>
<S> <C>
Current assets $ 1,065,000
Property and equipment 562,000
Property held for sale 1,500,000
Goodwill 802,000
-----------
Total assets 3,929,000
Current liabilities, including debt (2,041,000)
-----------
$ 1,888,000
===========
</TABLE>
At the Acquisition date, DEI had net operating loss carry forwards
(NOLs) of approximately $2,575,000 and tax credits of approximately $40,000. The
acquired NOLs and tax credits are limited as to use under the Internal Revenue
Code. Therefore, the
F-10
<PAGE> 28
amounts of acquired NOLs and tax credits have been fully reserved through the
recording of a valuation allowance, except for approximately $90,000 in NOLs
which management expects to realize in fiscal year 2000. To the extent that the
remaining reserved NOLs become realized, the corresponding tax benefit will
first be used to reduce goodwill to zero and thereafter will serve to reduce
any provision for income taxes.
NOTE 3 - CASH HELD IN TRUST - RESTRICTED:
On January 1, 1990, the Company established a health and disability
benefit plan pursuant to the Employee Retirement Income Security Act of 1974 for
employees and their dependents. The Company funds the plan by making monthly
contributions to a trust established and administered by an independent third
party. The monthly contribution is based on a predetermined rate for each
enrolled employee. The excess contributions over claims are maintained in trust
to cover future claims of the enrolled employees. The Company may terminate the
trust at any time. Distribution of trust assets shall be determined by the
Company. The Company maintains individual claim and aggregate stop loss
coverage. The Company records a liability in the financial statements for known
claims outstanding and an estimate, based on prior experience, of incurred but
not reported claims in excess of amounts remaining in the trust fund. The trust
cash account had a balance of $37,000 as of September 30, 1999 and such amount
is included in cash and cash equivalents in the accompanying balance sheet.
There were no amounts in the trust cash account at September 30, 1998. The
Company accrued liabilities of $76,000 and $151,000 at September 30, 1999 and
1998, respectively, under its health and disability plan.
NOTE 4 - UNBILLED CONTRACT COSTS, NET:
The status of accumulated costs incurred and progress billings on
uncompleted contracts at September 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1999 1998
---- ----
<S> <C> <C>
Accumulated costs incurred and
estimated earnings on uncompleted $ 7,298,000 $ 6,359,000
contracts
Progress billings and advances on
uncompleted contracts (2,840,000) (2,533,000)
----------- -----------
Total $ 4,458,000 $ 3,826,000
=========== ===========
</TABLE>
The above amounts are included in the balance sheet at September 30,
1999 and 1998 as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1999 1998
---- ----
<S> <C> <C>
Costs and estimated earnings in excess
of billings (unbilled contract costs)
on uncompleted contracts $4,924,000 $4,238,000
Billings in excess of costs and estimated
earnings on uncompleted contracts (466,000) (412,000)
---------- ----------
Total $4,458,000 $3,826,000
========== ==========
</TABLE>
F-11
<PAGE> 29
Unbilled costs and accrued profit on contracts in progress comprise
principally amounts of revenue recognized on contracts for which billings had
not been presented to the customer because the amounts were not billable at the
balance sheet date. It is anticipated such unbilled amounts receivable at
September 30, 1999 will be billed over the next 270 days as products and/or
services are delivered. Retainages, which approximate $121,000 at September 30,
1999, will be billed and collected as contracts are finalized with the customer.
At September 30, 1999 and 1998, there are no significant unrecovered costs or
estimated profits subject to future negotiation.
Receivables under certain Government contracts are based on provisional
rates that permit recovery of overhead not exceeding certain limits. These
overhead rates are subject to audit on an annual basis by the Defense Contract
Audit Agency (DCAA). When final determination and approval of the allowable
rates have been made, receivables may be adjusted accordingly. In management's
opinion, any adjustments will not be material. The DCAA has completed their
audit of the rates through September 30, 1996.
NOTE 5 - INVENTORIES:
Inventories consist of the following at September 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Materials -- $ 94,000
Work in process 25,000 442,000
-------- --------
$ 25,000 $536,000
======== ========
</TABLE>
NOTE 6 - PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows at September 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Furniture and fixtures $ 123,000 $ 123,000
Machinery and equipment 3,195,000 3,054,000
Leasehold improvements 504,000 400,000
Equipment capitalized under capital leases 101,000 156,000
----------- -----------
Subtotal 3,923,000 3,733,000
Less accumulated depreciation (2,520,000) (2,086,000)
----------- -----------
Total $ 1,403,000 $ 1,647,000
=========== ===========
</TABLE>
Depreciation expense was approximately $677,000 and $406,000 for the
years ended September 30, 1999 and 1998, respectively.
NOTE 7 - PROPERTY HELD FOR SALE:
On September 30, 1998, property held for sale consisted of land and a
building acquired in connection with the merger with DEI. On December 1, 1998,
the Company sold the property for cash of approximately $1,575,000, with net
proceeds of approximately $1,446,000 of which
F-12
<PAGE> 30
approximately $220,000 was used to pay off the existing mortgage balance. The
small gain of approximately $11,000 resulting from the sale was offset against
previously recorded goodwill. Under terms of the sales agreement, the Company is
leasing approximately fifty percent of the facility for five years with a
five-year renewal option. The annual rental approximates $112,000 for each of
the next four years for an aggregate amount of $448,000.
NOTE 8 - NOTE PAYABLE - LINE OF CREDIT:
Effective February 28, 1999, the Company entered into a new line of
credit and related note payable with its bank. The agreement expires February
28, 2001, and provides a maximum available line of credit of $3,000,000.
However, the total borrowing base generally cannot exceed the sum of 90 percent
of qualified Government accounts receivable and 80 percent of qualified
non-Government accounts receivable.
The bank agreement establishes the interest rate at the LIBOR rate
(5.4 percent at September 30, 1999) plus 225 to 300 basis points, determined by
the Company's ratio of funded debt to earnings before interest, taxes,
depreciation and amortization. All borrowings under the line of credit and the
performance of the Company's obligations under the line of credit agreement are
collateralized by the Company's accounts receivable, equipment, contracts, and
general intangibles. The agreement also contains various covenants as to
dividend restrictions, working capital, tangible net worth, earnings and
debt-to-equity ratios. At September 30, 1999, no amounts were outstanding.
Unused commitment fees of one quarter of one percent per annum are required.
NOTE 9 - DEFERRED COMPENSATION:
The Company has a Non-Qualified Deferred Compensation Plan whereby
employees may defer compensation with such deferrals taking the status of a
general obligation of the Company. The balance bears interest at prime plus one
half percent. The principal amount of the balance is due to an employee
director.
NOTE 10 - EMPLOYEE BENEFIT PLANS:
At September 30, 1999, the Company's sole qualified deferred
compensation plan ("the Plan") consisted of two components. The Plan is
comprised of a 401(k) plan and a profit sharing plan. Included in the Plan are
the former DEI Defined Contribution Pension Plan assets and the former S.T.
Research Corporation employee stock ownership plan ("ESOP") assets. In June
1998, the Plan was amended to merge with the employee stock ownership plan
segment. Upon the amendment, the right afforded Plan participants to liquidate
their ESOP shares at market prices and self-direct the proceeds. Also, in June
of 1998, the Plan was amended to allow for self-direction investments of profit
sharing contributions.
To participate in the Plan, eligible employees must have attained 21
years of age. Eligible employees may elect to participate in the Company's
401(k) plan on January 1 and July 1. In 1999 and 1998, the Company matched 50
percent of the first six percent of employee contributions, which match amounted
to $183,000 in 1999 and $174,000 in 1998.
The total number of Company shares allocated to participants under the
profit sharing
F-13
<PAGE> 31
plan at September 30, 1999 and 1998, including shares formerly in the ESOP and
401(k) Plans, was 514,888 and 615,918, respectively.
NOTE 11 - MORTGAGE PAYABLE:
The Company had a mortgage bearing interest at prime (8.25% at
September 30, 1998) plus 1.5%, with a balance of $220,000 as of September 30,
1998. The mortgage was associated with the property held for sale and was paid
in full on December 1, 1998, in connection with the sale of the property.
NOTE 12 - LEASE COMMITMENTS:
OPERATING LEASES:
The Company, effective June 30, 1999, signed a non-cancellable 15-year
lease for the real estate at its principal location in Virginia. Prior to June
30, 1999, the facilities had been leased from partnerships (the "partnerships")
in which an officer, employees and stockholders of the Company are partners. The
risk and rewards associated with the facilities and the obligations imposed by
the partnerships' debt and other general obligations resided with the
partnerships. In 1993, the Company entered into a letter agreement to extend the
lease commitment for 80% of its principal location through December 31, 1998. In
1995, the Company entered into a separate agreement to extend the lease on the
remaining 20% of its principal location to December 14, 1998. On December 15,
1998, the Company entered into rolling six-month leases for these facilities
effective upon the expiration of the respective leases. On June 30, 1999, the
partnerships sold the facilities to an unrelated third party. These six-month
leases were terminated by the parties due to the Company signing a
non-cancellable 15-year lease agreement with the buyer of these facilities.
On September 2, 1998, the Company entered into a sales agreement for
the property held for sale in Michigan. The Company sold their Michigan facility
on December 1, 1998. The Company entered into a five-year lease for a portion of
the facility with the new owner.
The Company leases various equipment under noncancellable operating
leases.
Rent expense for the years ended September 30, 1999 and 1998 was
$835,000 and $852,000, respectively, which included $314,000 and $419,000,
respectively, associated with leases from related parties. At September 30,
1999, minimum rental payments under operating leases for facilities and
equipment are as follows:
<TABLE>
<S> <C>
2000 $ 848,000
2001 876,000
2002 854,000
2003 822,000
2004 634,000
Remainder 5,479,000
----------
Total $9,513,000
===========
</TABLE>
F-14
<PAGE> 32
The Company subleases to a third party a portion of its facility at its
principal location in Virginia. At September 30, 1999, minimum rentals to be
received under the sublease through the expiration of the lease in fiscal year
2000 are $33,000.
CAPITAL LEASES:
At September 30, 1999 and 1998, the Company was obligated under capital
leases for equipment having aggregate book values of $101,000 and $156,000,
respectively. The following schedule summarizes the future minimum lease
payments:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30, 1999
- -------------------------- ----
<S> <C>
2000 $ 51,000
2001 51,000
2002 22,000
2003 --
2004 --
---------
Subtotal 124,000
Less amount representing interest (13,000)
---------
Present value of minimum lease obligations 111,000
Less current portion (42,000)
---------
Capital leases payable - long-term portion $ 69,000
=========
</TABLE>
NOTE 13 - STOCK ISSUANCE
On January 30, 1998, prior to the Acquisition, the Company completed a
private placement, whereby it issued 582,000 shares of common stock. The common
stock was issued for cash of $6.50 per share for aggregate proceeds of
$3,783,000. When restated for the exchange ratio used in the Acquisition of 2.58
shares, the equivalent number of shares issued was 1,501,560 and the issuance
price was $2.52. The proceeds were used to repay outstanding bank borrowings
under the Company's line of credit.
NOTE 14 - STOCK OPTIONS:
The Company has an Incentive Stock Option Plan established in 1983
("1983 Plan"), and a Long-Term Incentive Plan and a Non-Employee Director Stock
Option Plan established in 1995 (collectively the "1995 Plans"). The Long-Term
Incentive Plan provides for the granting of options, restricted stock and/or
performance awards to key employees and the Non-Employee Director Stock Option
Plan provides for the granting of options to outside members of the Board of
Directors to purchase common stock of the Company at the fair market value at
the date of the grant. There are 26,200 exercisable options outstanding at
September 30, 1999 in the Long-Term Incentive Plan. There are no exercisable
options or stock appreciation rights outstanding under the 1983 Plan at
September 30, 1999. No additional options can be granted under the 1983 Plan.
The Non-Employee Director Stock Option Plan was amended effective with the
Acquisition to prohibit future granting of options.
F-15
<PAGE> 33
The Company also has a 1991 Stock Option Plan, the ("1991 Plan") and a
1996 Stock Option Plan, the ("1996 Plan"). The 1991 Plan and the 1996 Plan have
25,800 and 41,280 exercisable options that are outstanding at September 30,
1999, respectively.
Options under all of the aforementioned Plans generally vest over a
three to five year period and expire after ten years.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
1983 PLAN EXERCISE PRICE 1995 PLANS EXERCISE PRICE
--------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Balance at Sept. 30, 1997 28,000 $ 3.87 39,350 $ 2.81
Exercised (25,000) 4.00 -- --
Granted -- -- -- --
Expired (3,000) 2.75 (375) 2.25
Forfeited -- -- -- --
------- -------- -------- --------
Balance at Sept. 30, 1998 -- 38,975 2.82
Exercised -- -- (12,400) 2.47
Granted -- -- 428,500 3.07
Expired -- -- (375) 2.25
Forfeited -- -- (103,000) 3.04
------- -------- -------- --------
Balance at Sept. 30, 1999 -- -- 351,700 $ 3.02
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
1991 PLAN EXERCISE PRICE 1996 PLANS EXERCISE PRICE
--------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Balance at Sept. 30, 1997 77,400 $ 1.01 61,920 $ 3.35
Exercised (51,600) 1.14 -- --
Granted -- -- -- --
Expired -- -- -- --
Forfeited -- -- (20,640) 3.31
------- -------- ------- --------
Balance at Sept. 30, 1998 25,800 0.75 41,280 3.37
Exercised -- -- -- --
Granted -- -- -- --
Expired -- -- -- --
Forfeited -- -- -- --
------- -------- ------- --------
Balance at Sept. 30, 1999 25,800 $ 0.75 41,280 $ 3.37
</TABLE>
Total shares of common stock reserved pursuant to the aforementioned
Plans and the non-qualified options are 461,780.
The weighted average grant date fair value of options granted during
1999 was $2.47 for the 1995 Plans. There were no options granted in 1998.
The Black-Scholes model was used to estimate the fair value of the
options. Significant
F-16
<PAGE> 34
assumptions include a risk-free interest rate of 6.0 percent and an expected
life equal to the term of the options.
The following summarizes information about stock options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
1999
NUMBER RANGE OF WEIGHTED AVERAGE
OUTSTANDING EXERCISES PRICES REMAINING LIFE
<S> <C> <C> <C>
1983 Option Plan -- -- --
1995 Option Plans 351,700 $ 2.25 to $6.00 8.7 years
1991 Option Plan 25,800 $ 0.75 1.3 years
1996 Option Plan 41,280 $ 3.37 7.1 years
---------- --------------- ---------
418,780 $ 0.75 to $6.00 --
========== =============== =========
</TABLE>
The Company continues to account for stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees," under which no compensation cost for
stock options is recognized for stock option awards granted at or above fair
market value. Had compensation expense for the Company's five stock-based
compensation plans been determined based upon fair values at the grant dates for
awards under those plans in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below for the years
ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
DILUTED
BASIC EARNINGS EARNINGS
NET INCOME (LOSS) (LOSS)
(LOSS) PER SHARE PER SHARE
---------- --------- ---------
<S> <C> <C> <C>
1999:
As reported $1,689,000 $ .42 $ .40
Pro forma $1,488,000 $ .37 $ .35
1998:
As reported $(822,000) $(.27) $(.27)
Pro forma $(822,000) $(.27) $(.27)
</TABLE>
NOTE 15 - STOCK PURCHASE PLAN AND UNEARNED COMPENSATION:
The Company reserved 100,000 shares of common stock for sale to
eligible employees through payroll deductions over six month periods pursuant to
the 1983 Employee Stock Purchase Plan (the "Purchase Plan"). The purchase price
is the lower of 90% of the fair market value of the stock on the first or last
day of the purchase period. Under the Purchase Plan, 14,269
F-17
<PAGE> 35
shares were issued in 1999, at an average price of $3.04. At September 30, 1999
and 1998, there were 50,199 and 64,468 shares, respectively, available for
future purchase.
The Company adopted an incentive bonus plan that provides for a portion
of the annual award to be paid in the form of stock of the Company subject to
vesting requirements. Unearned stock-based compensation consists of the
remaining unamortized portion of such stock award.
NOTE 16 - RESTRUCTURING COSTS
During fiscal 1998, the Company recorded nonrecurring charges of
$1,096,000 in connection with the ongoing restructuring of the Company's
operations. The restructuring combined, integrated, and reengineered the
Company's processes, policies and procedures. Costs incurred consisted primarily
of severance costs and other employee benefits, professional fees and relocation
expenses. Total restructuring costs included in other accrued expenses at
September 30, 1998 was $485,000. There were no restructuring costs included in
other accrued expenses at September 30, 1999 as all amounts accrued were
expended.
NOTE 17 - INCOME TAXES:
The income tax provision (benefit) for the years ended September 30,
1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current:
Federal $ 1,261,000 $(163,000)
State 193,000 (40,000)
Deferred:
Federal (223,000) (242,000)
State (24,000) (45,000)
----------- ---------
$ 1,207,000 $(490,000)
=========== =========
</TABLE>
The Company's deferred tax assets by tax jurisdiction are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
Federal $655,000 $442,000
State 116,000 82,000
-------- --------
Total $771,000 $524,000
======== ========
</TABLE>
F-18
<PAGE> 36
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
Deferred compensation $ 136,000 $ 121,000
Accrued vacation 110,000 127,000
Inventory reserve 149,000 --
Property held for sale -- (287,000)
Deferred expenses 55,000 --
Accrued severance 98,000 --
Net operating losses and tax credits 698,000 1,294,000
Uncollectible accounts 118,000 --
Other, net 71,000 1,000
----------- -----------
Sub-total $ 1,435,000 $ 1,256,000
Less: Valuation allowance (664,000) (732,000)
----------- -----------
$ 771,000 $ 524,000
=========== ===========
</TABLE>
The provision (benefit) for income taxes from income (loss) from
continuing operations in 1999 and 1998 varied from the U.S. statutory rate for
the following reasons:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal statutory rate 34.0% 34.0%
State income taxes, net of federal tax 4.0 4.0
benefit
Other, net 3.7 (.7)
----- ------
41.7% 37.3%
===== =====
</TABLE>
As a result of limitations under the Internal Revenue Code and
uncertainties as to the Company's ability to generate sufficient taxable income
in future periods, a portion of the NOLs acquired in the Acquisition have been
reserved through a valuation allowance. To the extent that the remaining NOLs
become realized, the corresponding tax benefits will first be used to reduce
goodwill to zero and thereafter will serve to reduce any provision for income
taxes.
The Company's available net operating loss carryforwards and tax
credits will expire from 2009 through 2018.
NOTE 18 - CONCENTRATIONS OF CREDIT RISK:
As of September 30, 1999 and 1998, the Company had funds on deposit in
excess of the federally insured amount with a bank. Approximately 91 percent of
the Company's revenues are generated from contracts with U.S. Government
agencies or U.S. Government contractors. During the years ended December 31,
1999 and 1998, the Company recorded revenues from three significant contracts.
Those contracts include the U.S. Navy Integrated Electronic Warfare System
(AIEWS) subcontract from Lockheed-Martin Corporation, the U.S. Navy ESM Receiver
Systems contract, and the U.S. Navy Bobcat Systems contract. Revenues from these
three contracts amounted to 13%, 25% and 25% of fiscal year 1999 total revenue
and 2%, 0%, and 20% of fiscal year 1998 total revenue, respectively.
Companies which are engaged in supply defense-related equipment to the
Government are subject to certain business risks, some of which are peculiar to
that industry. Among these are: the cost of obtaining trained and skilled
employees; the uncertainty and instability of prices
F-19
<PAGE> 37
for raw materials and supplies; the problems associated with advanced designs,
which may result in unforeseen technological difficulties and cost overruns; and
the intense competition and the constant necessity for improvement in facilities
and personnel training. Sales to the Government may be affected by changes in
procurement policies, budget considerations, changing concepts of national
defense, political developments abroad and other factors.
NOTE 19 - RELATED PARTY TRANSACTIONS:
Related party transactions related to facility leases are disclosed in
Note 12. In addition, the Company entered into agreements with a corporation in
which certain of the principals were related to an officer of the Company's
predecessor, S.T. Research Corporation. The customer was placed into
receivership and did not possess the financial capacity to pay the Company,
thereby resulting in bad debt losses of $155,000 in 1998. The total revenue
recognized from these agreements during fiscal year 1998 was approximately
$110,000. There were no transactions with this customer in 1999. The balance of
the bad debt losses related to equipment which was purchased for the agreements
and sold to the customer.
NOTE 20 - FAIR VALUES OF FINANCIAL INSTRUMENTS:
Based on existing rates, economic conditions and the short maturities,
the carrying amounts of all the financial instruments at September 30, 1999 and
1998 are reasonable estimates of their fair values. The Company's financial
instruments include cash and cash equivalents, accounts receivable, the note
payable - line of credit, accounts payable and the capital lease obligations.
NOTE 21 - NEW ACCOUNTING PRONOUNCEMENTS:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," for fiscal years beginning after December 15, 1997. The
provisions of SFAS No. 130 establish standards for reporting and display of
comprehensive income and its components in the financial statements. This
statement requires all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in the financial
statements and displayed with the same prominence as other financial statements.
The provisions of SFAS No. 131 establish standards for the way that enterprises
report information about operating segments in annual financial statements and
required that selected information about operating segments in interim financial
statements be reported. It also establishes standards for related disclosure
about products and services, geographic areas, and major customers. The adoption
of SFAS No. 130 did not have a material effect on the Company's financial
statements as the Company did not have any comprehensive income other than net
income in fiscal years 1999 or 1998. The adoption of SFAS No. 131 did not have a
material effect on the Company's financial statements as the Company operates as
one business segment.
F-20
<PAGE> 38
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". This statement significantly
changes current financial statement disclosure requirements from earlier
statements. Some of the more significant effects of SFAS No. 132 which will
affect the Company's disclosures are that it:
1. Standardizes the disclosure requirements for pensions and other post
retirement benefits and presents them in one footnote;
2. Requires that additional information be disclosed regarding changes in
the benefit obligation and fair values of plan assets;
3. Eliminates certain disclosures that are no longer considered useful,
including general descriptions of the plans and; revises disclosures
about defined-contribution plans.
The adoption of SFAS No. 132, effective October 1, 1997, did not have
a material effect on the Company's financial statements.
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes a new
model for accounting for derivatives and hedging. The new standard requires
enhanced disclosure of accounting policies for derivative financial instruments
and derivative commodity instruments in the footnotes to the financial
statements. In addition, the standard expands disclosure requirements to include
quantitative and qualitative information about market risk inherent in market
risk sensitive instruments. Subsequently, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities," which delays
implementation of FASB No. 133 to fiscal year 2001. Since the Company does not
have any derivative transactions, SFAS No. 133 will not have an effect on the
Company's financial statements.
NOTE 22 - SEGMENTS AND EXPORT SALES/FOREIGN OPERATIONS:
The Company operates in one segment, the passive surveillance system
segment. The Company had export sales to various foreign countries which
amounted to $1,474,000 and $335,000 in 1999 and 1998, respectively. The Company
has no foreign operations.
F-21
<PAGE> 39
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
SENSYTECH, INC.
(Registrant)
By: /s/ S. Kent Rockwell
------------------------------------
S. Kent Rockwell
Chief Executive Officer, Chief Financial
Officer and Vice Chairman of the Board of
Directors (principal executive officer and
principal financial and accounting officer)
Date: December 27, 1999
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title
- --------- -----
/s/ S. R. Perrino Chairman of the Board of Directors
- -----------------------------
S. R. Perrino
Date: December 27, 1999
/s/ Admiral James B. Busey Director
- -----------------------------
Admiral James B. Busey
Date: December 27, 1999
/s/ Charles W. Bernard Director
- -----------------------------
Charles W. Bernard
Date: December 27, 1999
/s/ Thomas R. Ory Director
- -----------------------------
Thomas R. Ory
Date: December 27, 1999
/s/ Philip H. Power Director
- -----------------------------
Philip H. Power
Date: December 27, 1999
/s/ John D. Sanders Director
- -----------------------------
John D. Sanders
Date: December 27, 1999
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 3,076
<SECURITIES> 0
<RECEIVABLES> 3,526
<ALLOWANCES> 311
<INVENTORY> 25
<CURRENT-ASSETS> 12,108
<PP&E> 3,923
<DEPRECIATION> 2,520
<TOTAL-ASSETS> 13,787
<CURRENT-LIABILITIES> 4,606
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 9,072
<TOTAL-LIABILITY-AND-EQUITY> 13,787
<SALES> 0
<TOTAL-REVENUES> 26,424
<CGS> 19,237
<TOTAL-COSTS> 23,488
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 2,896
<INCOME-TAX> 1,207
<INCOME-CONTINUING> 1,689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,689
<EPS-BASIC> (.42)
<EPS-DILUTED> (.40)
</TABLE>
