UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934[FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission file number 2-30257
DBA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-0996417
(State or other jurisdiction of (I.R.S. Employer )
incorporation or organization) Identification No.)
1200 South Woody Burke Road, Melbourne, Florida 32901
(Address of principal executive offices) (Zip Code)
(407) 727-0660
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) or the Act:
Title of each class Name of each exchange on which registered
DBA Systems, Inc., Common Stock, $.10 par value NASDAQ
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____ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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-K or any
amendment to this Form 10-K [ ]
As of August 30, 1996, 4,483,038 shares of the Registrant's Common Stock,
excluding stock held in Treasury, were issued and outstanding, and the
aggregate market value of such shares held by nonaffiliates of the
Registrant on such date was approximately $20,535,000 (based on the last
price on that date of $4.75 per share).
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K into which the document is incorporated: Proxy
Statement, filed within 120 days - Part III, Form S-2 Registration Statement,
filed September 25, 1985 (including Amendment Nos. 1 and 2).
Total number of sequentially numbered pages: 39
The Exhibit index appears on sequential page 37
<PAGE>1
PART 1
ITEM 1
General Description of Business
The Company was founded in 1963 to provide near earth tracking analysis of
spacecraft for NASA. Over the ensuing years, DBA has been predominantly
involved in providing hardware and software systems for applications in the
military defense industry. In April 1984, the Company temporarily broadened
its base of business into the commercial graphic arts, remote sensing and
medical imaging markets. With the sale of these commercial businesses
during fiscal year 1988, DBA re-focused on its traditional capabilities and
markets. DBA is now principally engaged in the defense mapping, charting &
geodesy and electronics business and has re-entered the medical imaging and
commercial imaging markets. DBA provides specialized products and services
in two major areas of concentration: Imaging Systems and Electro-Optical
Systems.
Imaging Systems' scope of activity includes the acquisition of image data,
the processing, manipulation and exploitation of that data, its dissemination
in either electronic or hard copy form, and the development of derivative
products from imagery. Applications of DBA's imaging technologies include
development and support of precise mapping and targeting systems, development
and support of imagery intelligence systems, development of geographic
information systems and their data bases, and development of products to
convert images from the hard copy to digital form and output digital images
in hard copy form.
Electro-Optical Systems encompasses DBA's design, development and manufacture
of electronic products and systems. This equipment is primarily used in the
test and evaluation of weapons systems and are employed in both test and
training environments. Specific products include automatic video trackers
for use in precision test range applications and tactical fire control
systems and infrared sources used in the calibration of infrared images and
heat seeking missiles. Systems include range systems for crew and system
training against high fidelity replications of air defense threats in
simulations as well as test range command and control systems for evaluation
of crew and system effectiveness.
Products designed and developed for production are manufactured at the
Melbourne manufacturing facility and include video trackers, IR test sets,
high resolution image scanners, telemetry systems and missile simulators.
The following table reflects the revenues recorded by the above areas of
concentration during the prior three fiscal years:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUES
Fiscal Year Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Imaging Systems 62% 68% 55%
Electro-Optical Systems 38% 32% 45%
Total 100% 100% 100%
</TABLE>
<PAGE> 2
Imaging Systems
The Company continues to face the challenge of increased competition for
declining defense dollars in its traditional business areas. Consequently,
the Company remain vigilant for opportunities to expand our product and
service lines and markets. Our continuing goal of participating in larger
programs has caused us to intensify our efforts to develop strategic
alliances with major firms that can utilize DBA's leading-edge imaging
technology to complement their resources and strengthen their overall
competitive position. Additionally, the Company has continued its research
and development efforts directed toward new digital-imaging technologies,
including the development of low-cost, high resolution digitizers; data
compression techniques, and other technologies targeted to government and
commercial markets.
Product Enhancements
Considerable interest has been demonstrated by foreign governments for an
enhanced capability to exploit multisource softcopy imagery. In response
to that interest, we are exploring the possibility of providing a commercial
imagery exploitation system which will provide imagery enhancement and
manipulation. This concept also lends itself to the incorporation of the
unique Russian imagery data, which we have access to, as imagery source
materials. These source materials offer DBA an accessible, unclassified,
high resolution, multisensor data set from which valuable information can
be acquired and exploited. This combination of enhanced imagery
exploitation capabilities and source material provides an attractive
capability to foreign governments to enable them to acquire information in
numerous and varied areas of interest.
A future threat simulation and training product currently being researched
for possible future development is the Universal Man-Portable Air Defense
System (MANPADS). This system would greatly increase the flexibility of
the current PADS by permitting the operations of multiple systems with the
same scoring package while at the same time allowing the incorporation of
new systems.
Several potential product enhancements are being explored in conjunction
with the continuing development of the Prompting Mammography (PROMAM)
system. In addition to expanding its applications within the field of
mammography itself, opportunities appear to exist in other medical
diagnostic applications, e.g. x-ray, and possibly spinning off PROMAM
techniques to other business areas such as non-destructive testing (NDT).
Finally, we are exploring several enhancements in our video trackers and
electronic systems product lines which will increase their flexibility in
terms of data processing while at the same time making them more competitive
in terms of state-of-the-art technology and cost.
Proprietary Imaging
This business area originated in the late 1960's and early 1970's from
research and development efforts of the Company which were associated with
the exploitation of large area photographic imagery. These activities led
to several multimillion dollar contract awards. DBA's expertise resides in
the development of the mathematical techniques, systems design and software
used to analyze imagery in support of creating large area, geometrically-
precise data bases. These programs typically involve one-of-a-kind systems
comprised of DBA-developed scientific applications software and mainframe
or super-mini computer hardware configurations. Development extends over
several years with DBA proceeding through various formal customer design
reviews and factory and final acceptance reviews. Subsequent to delivery,
DBA often provides operations and maintenance support throughout the system
life cycle. In December 1995 DBA received a two-year O&M (Operations and
Maintenance) contract extension in this area for $12.8 million. Included
in the negotiations was an option for a third year at $7.3 million.
Additionally, a study concerning softcopy applications was initiated with
completion scheduled for September 1996. The results of this study are
expected to lead to a major hardware and software upgrade over and above
the current contract value.
<PAGE>3
Tactical Imagery Exploitation
During fiscal year 1996, DBA successfully completed the production and
delivery of the third Modernized Imagery Exploitation System (MIES) for
the U.S. Army. Additionally, the Company successfully delivered several
enhancements to the MIES to include the Requirements Management System
(RMS), large format printer vans and vans for field service representatives.
In recognition of its expertise and past success on the MIES program, DBA
was awarded an $8.8 million contract to perform modifications to the MIES
to bring the systems into conformance with the recently adopted acquisition
standards for the Common Imagery Ground/Surface System (CIGSS). These
important and significant modifications are designed to facilitate migration
of existing imagery systems to a common interoperable baseline. Moreover,
the program will provide for a family of scaleable, extensible and
interoperable image processing and exploitation systems which will provide
the warfighter rapid remote access to airborne and national imagery and
imagery products.
System Engineering and Development
System Engineering and Development (SED) Division has a thirty year record
of technological leadership in the development of electro-optical systems
designed to provide real-time tracking and evaluation of complex military
systems. The business area has evolved and expanded to encompass advanced
test, threat simulation and training instrumentation for air, space, naval
and ground test range environments. These systems provide evaluation of
both crew and weapons systems effectiveness.
The Company's threat simulation activities focus on the development of
replicas of foreign weapon systems that threaten all branches of the U.S.
military forces. DBA's air defense weapon simulators give U.S. pilots the
opportunity to engage realistic threats during training and operational
exercises. This type of training results in increased survivability and
fewer casualties. DBA was awarded a three year $9.4 million Time and
Material (T&M) Contract in support of the Threat Simulator Management
Office (TSMO) and continues to receive Tasking Orders from the TSMO program
office. In fiscal year 1996, over $2 million in Tasking Orders were received.
SED Division continues to perform very successfully, both as the prime
contractor and as a subcontractor, in the provision of Infrared Target
Simulators (IRTS) to both the U.S. Air Force and U.S. Navy. The IRTS
provides simulated infrared targets for operational testing of the
Maverick, GBU-15 and AGM-130 missiles. In addition, DBA technology from
the IRTS program has been used in support of the SLAM and Harpoon programs
and to develop TV, laser and other simulators for other U.S. and foreign
consumers. The progression of target simulators and missiles over the past
15 years has resulted in contracts with value in excess of $21 million to
customers world wide. Moreover, current prospects for sales in the coming
fiscal year are encouraging, with a number of Foreign Military Sales (FMS)
identified.
DBA's international business in the SED area has partially offset the
impact of the continuing decline in U.S. defense spending. Anticipating
this change of market emphasis over two years ago, the Company has placed
increased focus on the development of export business opportunities and the
creation of products for the commercial market in the SED area.
Electro-Optical Tracking Systems
SED produces Electro-Optical Tracking Systems for use by U.S. and foreign
test ranges. These systems are mobile, turn-key range units designed to
support both developmental and operational weapon system testing
requirements. Capable of infrared and visual tracking, annotation and
recording, these Electro-Optical Tracking systems provide manual and
automatic tracking of selected targets, including aircraft, rockets,
missiles, and land vehicles. Test data is recorded locally at the system
control console and also transmitted in real-time to remote test control
facilities for display and recording.
DBA continues to deliver to the Kollmorgen Corporation automatic video
trackers for the U.S. Navy's Optical Director Program. These sophisticated
autotracker systems, which employ state-of-the-art correlation and
<PAGE>4
target tracking algorithms, are being installed on guided missile destroyers.
They provide passive target positioning to fire control computers to allow
precision pointing of the ship's guns systems without alerting the enemy.
Air Defense Autotrackers
SED Division has enjoyed enviable success in developing and producing the
Automatic Video Tracker to Boeing for the U.S. Army's Pedestal Mounted
Stinger Air Defense System, also known as the Avenger program. SED efforts
on this program caused DBA to be nominated for and selected to receive the
prestigious award as the Small Business Administration Subcontractor of
the Year Award for Region IV.
The Boeing built Avenger is the U.S. Army's line-of-sight rear area defense
system. It carries eight Stinger missiles ready for rapid firing from a
gyroscope stabilized turret. The Army's "HUMMER" is the primary Avenger
Platform; however, it is also designed to operate in a stand-alone
configuration. The Avenger was developed using principally off-the-shelf
components existing in the Army's inventory, such as the DBA Autotracker.
The U.S. Congress has pointed to the Avenger as an example of a cost
effective system procurement by the virtue of its off-the-shelf,
non-developmental nature, thus saving the government millions of development
dollars. DBA continues to produce video trackers for Avenger systems for
employment by U.S. military forces. Moreover, prospects for foreign military
sales (FMS) over the next two fiscal years appear to be positive. DBA's
performance on the Avenger program has resulted in a number of follow-on
awards. Most notable was DBA's selection to develop, in conjunction with
the Army, a Depot Level Repair facility allowing Army personnel to maintain
the fielded Avenger systems. In addition, 16 contracts for spare trackers
and boards totaling over $1.1 million were awarded.
Medical Autotracker
DBA has migrated autotracker technology, developed for tactical and range
applications, into the personal computer (PC) environment. This transition
has opened a number of potential markets for both clinical and research
applications. During fiscal year 1996, DBA was awarded and completed a
Phase I, Small Business Innovative Research (SBIR) grant to investigate the
feasibility of developing a Video Photorefractometer to determine near and
far sightedness in infants and non-cooperative subjects. A Phase II SBIR
application is being prepared which, if awarded, will allow development of
a prototype instrument for clinical testing.
Another Phase I SBIR, for an Infant Binocular Test system allowing non-
intrusive detection of eye disorders in infants, is to be awarded in fiscal
year 1997.
Both systems utilize DBA's PC tracker to acquire the real-time parametric
data required to implement the two requirements.
Another application is in the area of human factors research. DBA
successfully delivered to the Department of Transportation an automatic
Video Data Reduction system, as part of a Phase II SBIR award. The system
is structured around DBA's PC tracker and provides precise vehicle position
relative to the road lane markers. The system is used to evaluate a
driver's response to external stimulus, in designing safer roads and cars.
Customers and Suppliers
During the fiscal years which ended June 30, 1996, 1995 and 1994,
approximately 95%, 88% and 92% respectively, of the Company's revenues
were derived from contracts with agencies of the U.S. Government and from
subcontracts with Government prime contractors. The Company performs work
under fixed-price, time and material and cost-plus-fee contracts. Contracts
performed for the Government are generally terminable at the will of the
Government or subject to re-negotiation at the election of the Government.
Future revenues and income of the Company could be materially affected by
changes in Government procurement policies or a reduction in Government
expenditures for services of the type provided by the Company. The Company
is not dependent on any one supplier in connection with the development or
manufacture of its
<PAGE>5
products and services. For the fiscal year which ended June 30, 1996, less
than 17% of the Company's revenues were dependent upon sole source
suppliers.
Research and Development
DBA's business generally involves the application of existing technology to
solve specific customer problems. As a result, most of DBA's research and
development efforts emphasize applied research rather than pure research
into new technological frontiers. Accordingly, research and development
activities selected by DBA's management are a major factor in securing a
continuous flow of business. It is critical that DBA stays abreast of
technology relating to its products and services. Additionally, a
substantial amount of DBA's research and development activity occurs in
connection with specific orders placed by its Government customers.
The following table reflects the independent research and development funds
not specifically related to particular contracts expended by the Company
over the last three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Total Research & Development $424,000 $331,000 $206,000
</TABLE>
Backlog
The Company's backlog of unfilled orders at June 30, 1996 was approximately
$28.4 million as compared to $16.9 million at June 30, 1995. Approximately
$22.9 million of the June 30, 1996 backlog is expected to be converted into
revenues during the fiscal year ending June 30, 1997. An order is entered
into backlog only when the Company receives a definite commitment from a
customer.
The Company's backlog is typically subject to a number of contingencies due
to various factors. Such factors include funding constraints, cancellation
or modification of Government programs and changes in allocation of work
between prime and subcontractors. Therefore, the amount of backlog should
not be viewed as the sole determinant of future contract revenues.
Consequently, the dollar amount of the backlog is not necessarily indicative
of the future revenue of the Company.
Competition
DBA experiences substantial competition in its markets and believes its
principal competitive advantages to be its reputation and experience in its
selected technical areas, creativity in applying existing technology to new
applications, technical assistance to customers, price and adherence to
delivery schedules. DBA's systems address a market of high-end applications
in which there are a limited number of competitors. Much of the Company's
business requires highly skilled and experienced technical personnel with
high level U.S. Government security clearances. The Company believes that
the technical expertise and stability of its staff have been a significant
factor in the development of DBA's business and its ability to compete to
date. As the Department of Defense experiences overall budget restraints,
DBA expects the competition for its products and services to significantly
intensify. As a result, there is no assurance the Company can maintain its
current revenue volume. If sufficient new business cannot be procured, the
Company may be forced to downsize to maintain a work force commensurate with
its business size.
Divisions of certain large industrial concerns with financial resources and
facilities substantially greater than those of DBA, such as E-Systems,
General Dynamics, Intergraph, Lockheed-Martin, TRW, Westinghouse
<PAGE>6
and Contraves, are active in fields similar to those of the Company. DBA
also experiences competition from other specialized firms, such as Morpho,
Autometrics, SAIC, Synectics and Metric.
DBA's future success will depend upon, among other things, its ability to
withstand competition from larger companies, to obtain and retain competent
personnel to successfully accomplish its obligations under its various
contracts and to productively extend its technological expertise to new
applications. All of these factors are subject to uncertainty.
Patents
The Company holds, and is also licensed, under a number of U.S. and foreign
product and process patents which extend through 2006 and has filed
applications for other such patents that are pending. The Company follows
the practice of obtaining patents on new developments whenever advisable.
While the Company considers that in the aggregate its patents and licenses
are valuable, it does not believe that its business is materially dependent
on its patents or licenses or any group of them. In DBA's opinion,
engineering and production skills and experience are more important to its
market position than are patents or licenses.
Employees
As of June 30, 1996, the Company had 207 full-time employees. The Company
is not subject to any collective bargaining agreements with its employees.
ITEM 2 PROPERTIES
DBA Systems, Inc. is headquartered in Melbourne, Florida. The Corporate
offices occupy approximately 3,300 square feet in a 64,000 square foot
building located at 1200 South Woody Burke Road in Melbourne.
The leased facilities are occupied under leases for terms ranging from
1 to 40 years, a majority of which can be terminated or renewed at no longer
than five-year intervals at DBA's option. DBA considers its facilities to be
suitable and adequate for the purposes of which they are used. Following
are details of the properties occupied by DBA.
<TABLE>
<CAPTION>
Location Title Size Use
<S> <C> <C> <C>
1200 S. Woody Burke Rd. Land Lease 64,000 sq. ft. Engineering, office
Melbourne, FL Improvements space & assembly
Owned area
Redwood Plaza 1 Leased 20,060 sq. ft. Office space
10560 Arrowhead Dr.
Fairfax, VA
2931 Poinciana Blvd. Owned 141,500 sq. ft. Manufacturing &
Kissimmee, F warehouse space
held for sale
1101-1103 W Hibiscus Blvd. Owned 27,500 sq. ft. Office space &
Melbourne, FL retail space
</TABLE>
<PAGE> 7
ITEM 3. LEGAL PROCEEDINGS
From time to time, as is normal with respect to the nature and kind of
business in which DBA is engaged, various claims, charges and litigation
are asserted or commenced against DBA arising from or related to product
liability, patent, breach or warranty, contractual relations or employee
relations. The amounts claimed in such litigation may be substantial but
may not bear any reasonable relationship to the merits of the claim or the
extent of any real risk of court awards. In the opinion of management,
final judgments, if any, which might be rendered against DBA in potential
or pending litigation, would not have a material adverse effect on its
assets or business.
The Company maintains officers' and directors' liability insurance which
insures individual officers and directors of the Company against certain
claims as well as attorney's fees and related expenses incurred in connection
with the defense of such claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year through solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY
A. DBA common stock, par value $.10, is currently traded on NASDAQ/NMS.
The high and low closing price for each quarterly period during the last
two fiscal years is as follows:
<TABLE>
<CAPTION>
Lowest Highest
<S> <C> <C>
1st Quarter FY96 5 1/2 7 1/4
2nd Quarter FY96 4 3/8 7 1/8
3rd Quarter FY96 4 1/8 5 3/8
4th Quarter FY96 4 7/8 5 7/8
1st Quarter FY95 3 7/8 4 3/16
2nd Quarter FY95 3 7/8 8
3rd Quarter FY95 6 3/8 9 3/8
4th Quarter FY95 6 3/4 8
</TABLE>
B. The number of record holders of DBA Systems, Inc. common stock as of
June 30, 1996 and 1995 was 614 and 695, respectively.
C. As of June 30, 1996, DBA Systems, Inc. has not declared nor paid
dividends. Although the Company intends to continue to invest any future
earnings in its business, it may determine at some future date the payment
of cash dividends would be desirable. The payment of such dividends would
depend, among other things, upon the earnings and financial condition of
the Company.
D. Convertible Subordinated Debentures
During November, 1985, DBA sold $34,000,000 of Convertible Subordinated
Debentures, due November 1, 2010 (the "Old Debentures"), which generated
proceeds of approximately $33,000,000 net
<PAGE>8
of closing costs. The debentures pay interest semi-annually at an interest
rate of 8.25% and are convertible into DBA common stock at $19.50 per share,
subject to adjustments in certain events. As of June 30, 1996, $1,926,000
of the Old Debentures were outstanding.
On April 30, 1991, the Company completed an exchange offer for its
Convertible Subordinated Debentures. The exchange offer, announced on
March 12, 1991 and amended on April 16, 1991, permitted holders of the Old
Debentures to exchange each $1,000 principal amount of Old Debentures for
9.50% Convertible Subordinated Debentures due November 1, 2003 with a
principal amount of $500 (the "New Debentures"). The New Debentures are
initially convertible into 125 shares of the Company's common stock for
each $500 principal amount, which represents a conversion price of $4.00
per share.
On July 17, 1992, the Company completed an offering (the "Offer") to issue
and deliver to each holder of its 9.50% Convertible Subordinated Debentures
due 2003 an additional five (5) shares of the Company's common stock for
each $1,000 principal amount of its New Debentures tendered. Approximately
$3,956,000 or 75% of the New Debentures were tendered and accepted by the
Company for conversion. The Company issued approximately 1,010,000 shares
of its common stock as a result of the conversions.
On December 2, 1993, the Company called all of its outstanding 9.50%
Convertible Subordinated Debentures in the amount of $1,311,000 for
redemption. The Debentures were convertible into common stock of the
Company at a conversion price of $4.00 per share. Debentures not converted
into common stock were redeemed for $21,000 cash. Approximately $1,290,000
Debentures were submitted for conversion into 322,500 shares of the
Company's common stock.
Detailed information concerning the Old Debentures is contained in the
Company's Form S-2 Registration Statement filed with the Securities &
Exchange Commission (the "SEC") on September 25, 1985, as amended by
Amendment No. 1 filed October 18, 1985, as amended by Amendment No. 2 filed
November 14, 1985. Detailed information concerning the New Debentures is
contained in the Company's Form 13E-4 filed with the SEC on March 12, 1991,
as amended by Amendment No. 1 filed April 9, 1991, as amended by Amendment
No. 2 filed April 16, 1991, as amended by Amendment No. 3 filed April 23,
1991, as amended by Amendment No. 4 filed May 8, 1991. Detailed information
concerning the Offer is contained in the Company's Form 13E-4 filed with the
SEC on June 22, 1992 as amended by Amendment No. 1 filed on July 24, 1992.
All of the above documents are incorporated herein by reference.
ITEMS 6, 7 AND 8
The information called for by Items 6, 7 and 8, inclusive of Part II of this
form, is contained in the following sections of this Report at the pages
indicated below:
<TABLE>
<CAPTION>
Captions and Pages(s) of this Report
<S> <C> <C>
ITEM 6 Selected Financial Data "Selected Financial Data" 15
ITEM 7 Management's Discussion and "Management's Discussion and
Analysis of Financial Analysis" 15-19
Condition and Results of
Operations
ITEM 8 Financial Statements and DBA Systems, Inc. and Subsidiaries
Supplementary Data "Consolidated Financial
Statements" 20-34
</TABLE>
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable
<PAGE>9
PART III
The information required to be set forth herein, Item 10, "Directors and
Executive Officers of the Registrant"; Item 11, "Executive Compensation";
Item 12, "Security Ownership of Certain Beneficial Owners and Management";
and Item 13, "Certain Relationships and Related Transactions", is included
in a definitive Proxy Statement pursuant to Regulation 14A, which is
incorporated herein by reference, filed with the Securities & Exchange
Commission not later than 120 days after close of the fiscal year ended
June 30, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
A-1 Financial Statements
A list of the financial statements included herein is set forth in the
Index to Financial Statements, Schedules and Exhibits submitted as a
separate section of this Report.
A-2 Financial Statement Schedules
A list of financial statement schedules included herein is contained in
the accompanying Index to Financial Statements, Schedules and Exhibits
submitted as a separate section of this Report.
A-3 Exhibits required to be filed by Item 601(a) of Regulation S-K are
included as exhibits to this Report as follows:
3(i) Articles of Incorporation of the Registrant, as amended, are
included as an exhibit to this Report. (Incorporated by reference
to Registrant's 1985 Form 10-K.)
3(ii) By-Laws of the Registrant, as amended, are included as an exhibit
to this Report. (Incorporated by reference to Registrant's 1985 Form
10-K.)
4(a) Form S-2 Registration Statement (Convertible Subordinated Debenture
Offering) filed with the SEC on September 25, 1985, as amended by
Amendment No. 1, filed October 18, 1985, as amended by Amendment No. 2,
filed November 14, 1985, all of which are incorporated herein by
reference.
4(b) Form S-8 Registration Statement (Employee Incentive Stock Option
Plan-1982, Directors' Stock Option Plan-1982, and Directors' Stock Option
Plan-1987) filed with the SEC on June 17, 1988 are incorporated herein by
reference.
4(c) Form 13E-4 filed with the SEC on March 12, 1991, as amended by
Amendment No. 1 filed April 9, 1991, as amended by Amendment No. 2 filed
April 16, 1991, as amended by Amendment No. 3 filed April 23, 1991, as
amended by Amendment No. 4 filed May 8, 1991 is incorporated herein by
reference.
4(d) Form 13E-4 filed with the SEC on June 22, 1992, as amended by
Amendment No. 1 filed on July 24, 1992, is incorporated herein by
reference.
<PAGE>10
4(e) Form S-8 Registration Statement (Employee Incentive Stock Option
Plan-1992, and Directors' Stock Option Plan-1993), filed with the SEC on
February 18, 1994 are incorporated herein by reference.
10(a) Lease dated July 9, 1981, between the Registrant and City of
Melbourne Airport Authority. (Incorporated by reference to Registrant's
1982 Form 10-K.)
10(b) Employee Retirement Plan and Trust. (Incorporated by reference to
the 1979 Definitive Proxy Statement of the Company.)
10(e) Bonus agreement dated August 10, 1989 between DBA Systems, Inc.
and John L. Slack. (Incorporated by reference to the Registrant's 1990
Form 10-K.)
10(f) Lease agreement executed on June 24, 1993 between the registrant
and the Equitable Life Assurance Society of the United States.
10(g) 1992 Employee Incentive Stock Option Plan. (Incorporated by
reference to the 1992 Proxy Statement of the Company.)
10(h) 1993 Directors' Stock Option Plan. (Incorporated by reference to
the 1993 Proxy Statement of the Company.)
11 Computation of Earnings per Share.
21 Subsidiaries of the Registrant.
Registrant agrees to furnish the Commission, upon request, a copy of each
instrument with respect to issues of long-term debt. The principal amount
of any individual instrument, which has not been previously filed, does not
exceed ten percent of the total assets of the Registrant and its subsidiaries
on a consolidated basis.
B. Reports on Form 8-K
The Company had no filings on Form 8-K during the fourth quarter of the
fiscal year ending June 30, 1996.
<PAGE>11
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DBA SYSTEMS, INC.
(Registrant)
DATED: September 16, 1996
By________________________
(signature)
John L. Slack
Chairman of the Board, President,
Treasurer, Acting, &
Chief Executive Officer
By_________________________
(signature)
Charles B. Robertson
Vice President of Administration
Corporate Secretary
By________________________
(signature)
Edward M. Bielski
Corporate Controller
<PAGE>12
Pursuant to the requirement of the Securities Exchange Act of 1934, this
Report has been executed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
- ------------------------- Treasurer, Acting
(signature) (Principal Financial Officer)
John L. Slack
- ------------------------ Director
(signature)
Dr. Richard N. Baney
_______________________ Director
(signature)Dr. Joseph A. Boyd
- ----------------------- Director
(signature) Ambassador Robert F. Ellsworth
_______________________ Director
(signature) William C. Potter
- ----------------------- Director
(signature) Dr. Lynn E. Weaver
</TABLE>
<PAGE>13
INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
Page(s) in this Report
The following documents are filed as part of this Report:
(1) Financial Statements:
Selected Financial Data 15
Management's Discussion and Analysis 15-19
Quarterly Financial Data (Unaudited) 20
Consolidated Statements of Income for the
years ended June 30, 1996, 1995 and 1994 21
Consolidated Balance Sheets at June 30, 1996 and
June 30, 1995 22-23
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, 1995 and 1994 24-25
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1996, 1995 and 1994 26
Notes to Consolidated Financial Statements 27-34
Independent Auditors' Report 35
(2) Valuation and Qualifying Accounts
II Allowance for Doubtful Accounts on Accounts Receivable 36
(3) Exhibits
11 Computation of Earnings per Share 38
21 Subsidiaries of the Registrant 39
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or
Notes thereto.
<PAGE>14
DBA Systems, Inc. and Subsidiaries
SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Information)
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenue $ 20,470 $ 29,696 $ 24,316 $ 33,298 $ 38,570
Operating income $ 1,140 $ 1,675 $ 1,231 $ 3,047 $ 3,203
Net income $ 1,161 $ 1,502 $ 837 $ 2,209 $ 1,939
Total assets $ 33,851 $ 32,209 $ 29,061 $ 30,687 $ 31,046
Long-term debt $ 1,926 $ 1,926 $ 2,540 $ 4,816 $ 9,359
Stockholders' equity $ 27,815 $ 26,424 $ 24,632 $ 22,071 $ 15,834
Earnings per common
share assuming full
dilution:
Net income per share $ .26 $ .34 $ .20 $ .56 $ .61
</TABLE>
Management's Discussion and Analysis
Business Environment
The defense industry continues to experience numerous mergers and
consolidations of companies doing business with the Federal Government, and
this trend is expected to continue for the immediate future. In addition,
the Federal Government continues to decrease in size, it is increasing the
scrutiny of its spending in the high technology and defense areas.
Therefore, competition for available contracts remains intense. In response,
the Company has aggressively managed its costs, focusing resources on new
business opportunities with the greatest promise of success. Current and
long-term liabilities remain at very low levels in order to position the
Company to take advantage of market opportunities. Indirect costs have been
maintained at historically all-time-low levels to enhance competitiveness in
the fierce marketplace. The Company will continue to maintain this posture
as it marches through the challenging transition period of capturing
commercial markets.
Reduction in the Department of Defense budget, continued Congressional and
regulatory oversight of the Government procurement process, increased
competition within the Company's traditional market niches, and the current
Government procurement policy to award contracts based primarily on price
and not exclusively on technical capabilities are all factors which may have
a material effect on the Company's future operating revenues and profit
margins. The Government's decisions reguarding options presently held by the
Company under existing contracts may also have an impact on the Company.
These trends may result in delays in previously anticipated contracts or the
loss of anticipated business to competitors. As a result, the reported
financial information may not necessarily be indicative of the Company's
future operating results or financial condition.
<PAGE>15
Results of Operations
The following table sets forth, for the periods indicated, the percentage
that certain items in the Company's Consolidated Statements of Income bear
to revenues and the annual percentage change of such items for the period
indicated:
<TABLE>
<CAPTION>
Percentage of Revenues Percentage Change
Year Ended June 30, Year Ended June 30,
1996 1995 1994 1995 to 1994 t
1996 1995
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% (31.1)% 22.1%
Costs and expenses 94.4 94.4 94.9 (31.0) 21.4
Operating income 5.6 5.6 5.1 (31.9) 36.1
Interest income 2.8 1.0 0.4 93.3 203.1
Interest expense (0.9) (0.7) (1.5) (12.1) (43.9)
Other expense - net (1.4) (0.7) (0.5) 27.9 90.8
Total other expense 0.5 (0.4) (1.6) (180.9) (65.3)
Income before taxes 6.1 5.2 3.5 (19.3) 80.8
Provision for taxes (0.4) (0.1) (0.1) 102.4 147.1
Net income 5.7% 5.1% 3.4% (22.7)% 79.5%
</TABLE>
During the years ended June 30, 1996, 1995 and 1994, approximately 95%, 88%
and 92%, respectively, of the Company's revenues were derived from contracts
with agencies of the U.S. Government and from subcontracts with government
prime contractors. Future revenues and income of the Company could be
materially affected by changes in Government procurement policies or a
Reduction in Government expenditures for services of the type provided by
the Company. The Company's business is performed under cost reimbursement,
fixed price and fixed rate time and material contracts.
Significant Event
The Company has a $12.5 million contract with Advanced Medical Management
Systems, Inc. (AMMS) for the production and exclusive worldwide distribution
of its ImagClear (TM) medical digitizers. On August 10, 1995, the Company
filed suit in the U.S. District Court to recover liquidated damages which
arose from non-performance of the contract by AMMS. Six defendants were
named in the lawsuit: AMMS, Manatee Insurance Company (guarantor of the
contract), Mr. Gary Long (director of Manatee), Johnston & Kent Securities,
Inc. (brokers), Mr. George Johnston and Mr. Bob Wilson. As of August 1996,
Manatee Insurance Company and Mr. Wilson had been served with a Summons and
Complaint.
At this time, the Company is not able to assess the probability of recovering
any damages resulting from this contract default.
Fiscal Year 1996 Compared with Fiscal Year 1995
Revenues for the fiscal year ending June 30, 1996 were approximately
$20,470,000 a decrease of $9,226,000 or 31.1% when compared to the
$29,696,000 recorded in the prior fiscal year. The decrease in revenues was
attributable to default of the AMMS production contract and loss of expected
competitively bid government proposals. The Company recorded approximately
$32,100,000 in new bookings during fiscal 1996 as compared to approximately
$23,000,000 during fiscal 1995. Increased bookings in fiscal year 1996 were
due mainly to follow-on procurements of Proprietary Imagery Exploitation and
Tactical Imagery Exploitation which occur every two years.
<PAGE>16
Costs and expenses decreased from approximately $28,021,000 for the fiscal
year ending June 30, 1995 to approximately $19,330,000 for the fiscal year
ending June 30, 1996. The decrease in costs and expenses was attributable
to lower levels of direct contract activity. Indirect support costs were
reduced by approximately $9,000 or 0.1% from fiscal 1995 to fiscal 1996.
Interest expense for fiscal 1996 was $175,000 as compared to $199,000 during
fiscal 1995. The reduction in interest expense was primarily attributable
to advance payment of the Company's Industrial Development Revenue Bonds
in 1995.
As a result of the above factors net income of $1,161,000 was earned during
fiscal 1996 as compared to $1,502,000 in the prior fiscal year.
Fiscal Year 1995 Compared with Fiscal Year 1994
Revenues for the fiscal year ending June 30, 1995 were approximately
$29,696,000, an increase of $5,380,000 or 22.1% when compared to the
$24,316,000 recorded in the prior fiscal year. The increase in revenues
was attributable to favorable bookings during fiscal year 1994 and 1995 as
well as increased levels of government and commercial contract activity
throughout the year. The Company recorded approximately $23,000,000 in new
bookings during fiscal 1995 as compared to approximately $28,300,000 during
fiscal 1994. Decreased bookings in fiscal year 1995 were due to
rescheduling of certain Government procurements into the Company'S 1996
fiscal year.
The Company has entered into certain contracts with The Sokol Group, Inc.,
whose President and CEO is a DBA director. Under such contracts, the Company
recognized revenues of approximately $128,000 and $315,000 for the fiscal
years ending June 30, 1995 and 1994, respectively.
Costs and expenses increased from approximately $23,085,000 for the fiscal
year ending June 30, 1994 to approximately $28,021,000 for the fiscal year
ending June 30, 1995. The increase in costs and expenses was attributable
to heightened levels of direct contract activity. Indirect support costs
were reduced by approximately $3,030,000 or 24.5% from fiscal 1994 to fiscal
1995.
Interest expense for fiscal 1995 was $199,000 as compared to $355,000 during
fiscal 1994. The reduction in interest expense was primarily attributable to
advance payment of the Company's Industrial Development Revenue Bonds. A
secondary factor was the reduction of other interest costs and financing fees
as a result of active management of the Company's treasury function. The
Company has approximately $1,843,000 of federal net operating loss
carryforwards as of June 30, 1995.
As a result of the above factors net income of $1,502,000 was earned during
fiscal 1995 as compared to $837,000 in the prior fiscal year.
Fiscal Year 1994 Compared with Fiscal Year 1993
Revenues for the fiscal year ending June 30, 1994 were approximately
$24,316,000, a decline of $8,982,000 or 27% when compared to the $33,298,000
recorded in the prior fiscal year. The decline in revenues was attributable
to delays in the procurement cycle of anticipated new business and increased
competition which resulted in a loss of certain new business opportunities
to competitors. The Company recorded approximately $28,300,000 in new
bookings during fiscal 1994 as compared to approximately $26,100,000 during
fiscal 1993.
The Company entered into certain contracts with The Sokol Group, Inc., whose
President and CEO is a DBA director. Under such contracts, the Company
recognized revenues of approximately $315,000 and $235,000 for the fiscal
years ending June 30, 1994 and 1993, respectively.
<PAGE>17
Costs and expenses decreased from approximately $30,251,000 for the fiscal
year ending June 30, 1993 to approximately $23,085,000 for the fiscal year
ending June 30, 1994. The reduction in costs and expenses was attributable
to the reduction in revenues mentioned above. Additionally, indirect support
costs were reduced by approximately $1,274,000 or 9.3% from fiscal 1993 to
fiscal 1994.
Interest expense for fiscal 1994 was $355,000 as compared to $449,000 during
fiscal 1993. The reduction in interest expense was primarily attributable to
repayment of the Chrysler Capital note and the calling of the Company's
Convertible Subordinated Debenture conversion described herein.
The Company has approximately $3,463,000 of federal net operating loss
carryforwards as of June 30, 1994.
As a result of the above factors net income of $837,000 was earned during
fiscal 1994 as compared to $2,209,000 in the prior fiscal year.
Liquidity and Capital Resources
At June 30, 1996, the Company had working capital of approximately
$18,215,000 as compared to approximately $15,998,000 at June 30, 1995. The
current ratio on June 30, 1996 was approximately 5.44:1 versus 5.15:1 on
June 30, 1995. The Company has retained a very strong cash position and
remains financially flexible.
The Company has a $4,000,000 unsecured line of credit with a bank which
expires January 31, 1997. Amounts drawn on this line of credit accrue
interest at either the bank's prime rate or the bank's LIBOR plus 2.5%, as
selected by the Company upon the utilization of any portion of the line of
credit. The Company had no borrowings against the line of credit at
June 30, 1996.
During the year ended June 30, 1996, the Company incurred capital
expenditures of approximately $333,000 for manufacturing equipment, test
fixtures and office equipment which were financed from working capital.
The Company believes capital requirements for fiscal 1997 can be internally
generated from working capital. The Company anticipates that capital
requirements for fiscal 1997 will include manufacturing equipment, test
fixtures and office equipment and will be comparable or less than the amounts
incurred during fiscal 1996. The Company believes its capital requirements
in the foreseeable future will be similar to those experienced in the recent
past and will be funded through working capital or lease financing
arrangements.
The only long-term liability outstanding, consists of Convertible
Subordinated Debentures of $1,926,000.
In connection with the sale of the Company's commercial operations to an
unrelated entity (the "Buyer") in 1987, the Company was named as a guarantor
under a mortgage assumed by the Buyer. The mortgage was collateralized by a
building which the Buyer sold for less than the mortgage value during October
1994. In exchange for settlement of the mortgage, the Company received a
promissory note from the Buyer in the amount of $250,000, plus interest at
the prime lending rate plus 1.50%. The note is payable in quarterly
installments of $16,666 which began March 31, 1995 and concludes
March 31, 1997. On June 30, 1996, the balance outstanding on the promissory
note was $66,664.
<PAGE>18
On July 17, 1992, DBA completed its offer (the "Offer") to issue and deliver
to each holder of its 9.5% Convertible Subordinated Debentures due 2003 (the
"New Debentures") an additional five (5) shares of the Company's common stock
for each $1,000 principal amount of its New Debentures tendered for conversion
into common stock. The New Debentures are convertible at the option of the
holder, at the conversion price of $4.00 per share, into 250 shares of common
stock for each $1,000 principal amount of Debentures. The Offer was subject
to the terms and conditions of the Company's Offering Circular dated June 19,
1992.
Prior to the Offer, the Company had $5,272,000 aggregate principal amount of
New Debentures outstanding. Approximately $3,956,000 or 75% of the New
Debentures were tendered and accepted by the Company for conversion. The
Company issued approximately 1,010,000 shares of DBA common stock as a result
of the conversions.
On December 2, 1993, the Company called all of its outstanding 9.5%
Convertible Subordinated Debentures in the amount of $1,311,000 for
redemption. The Debentures were convertible into common stock of the
Company at a conversion price of $4.00 per share. Debentures not converted
into stock were redeemed for $21,000 cash. Approximately $1,290,000
Debentures were submitted for conversion into 322,500 shares of the Company's
common stock.
<PAGE>19
DBA Systems, Inc. and Subsidiaries
QUARTERLY FINANCIAL DATA
(Unaudited)
(In Thousands, Except Per Share Information)
Selected quarterly financial data is summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended
<S> <C> <C> <C> <C>
1996 Sep 30 Dec 31 Mar 31 Jun 30
Revenues $4,900 $4,596 $5,418 $5,556
Operating income $ 233 $ 210 $ 291 $ 406
Income before income taxes $ 275 $ 249 $ 298 $ 424
Net income $ 259 $ 215 $ 272 $ 415
Fully-diluted earnings per share $ .06 $ .05 $ .06 $ .09
Quarter Ended
1995 Sep 30 Dec 31 Mar 31 Jun 30
Revenues $ 7,720 $ 5,514 $10,585 $ 5,877
Operating income $ 442 $ 373 $ 571 $ 289
Income before income taxes $ 400 $ 284 $ 550 $ 310
Net income $ 387 $ 275 $ 530 $ 310
Fully-diluted earnings per share $ .09 $ .06 $ .12 $ .07
</TABLE>
<PAGE> 20
DBA Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share information)
<TABLE>
<CAPTION>
Years Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Revenues (Note 1) $20,470 $29,696 $24,316
Costs and expenses (Note 1) 19,330 28,021 23,085
Operating income 1,140 1,675 1,231
Other income (expense):
Interest income 574 297 98
Interest expense (Note 3) (175) (199) (355)
Other expense-net (Note 9) (293) (229) (120)
Total other income (expense) - net 106 (131) (377)
Income before income taxes 1,246 1,544 854
Less provision for income taxes
(Notes 1 and 6) 85 34 17
Net income $ 1,161 $ 1,502 $ 837
Earnings per common and
common equivalent share (Note 7) $ .26 $ .34 $ .20
Earnings per common share
assuming full dilution (Note 7) $ .26 $ .34 $ .20
Primary weighted shares outstanding 4,493 4,460 4,210
Fully diluted shares outstanding 4,493 4,480 4,210
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>21
DBA Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30,
ASSETS 1996 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Notes 1 & 11) $2,699 $3,202
Investments (Notes 1 & 11) 9,888 5,000
Accounts receivable, less allowance for doubtful
accounts of $200 in 1996 and $100 in 1995
(Notes 1 & 11) 2,586 4,919
Costs and estimated earnings in excess of billings
on uncompleted contracts (Notes 1 & 2) 4,055 4,164
Inventory (Notes 1 & 11):
Finished goods 2,509 1,420
Work in progress 37 348
Raw materials 14 417
Total inventory 2,560 2,185
Other current assets 537 387
Total Current Assets 22,325 19,857
Property (Note 1):
Land 1,552
Buildings and improvements 5,681 8,902
Furniture and fixtures 1,386 1,599
Machinery and equipment 9,421 9,264
Leasehold improvements 374 374
Total 16,862 21,691
Less: accumulated depreciation and amortization 10,401 10,159
Property-net 6,461 11,532
Other Assets:
Cost in excess of value of net assets of businesses
acquired less accumulated amortization of $101
in 1996and $94 in 1995 (Note 1) 232 239
Real estate held for sale (Note 1) 4,436
Other assets 397 581
Total Other Assets 5,065 820
TOTAL $33,851 $32,209
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>22
DBA Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30,
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
Current Liabilities:
Accounts payable (Note 11) $ 968 $ 1,556
Accrued expenses (Note 11):
Salaries and wages 169 148
Vacation pay 495 459
Other (Note 6) 631 654
Billings in excess of costs and estimated earnings
on uncompleted contracts (Notes 1 and 2) 1,376 694
Estimated losses on uncompleted contracts (Note 1) 271 241
Other current liabilities 200 107
Total Current Liabilities 4,110 3,859
Long-term Debt (Note 3) 1,926 1,926
Commitments and contingencies (Notes 5 and 10)
Stockholders' Equity (Notes 1 and 4):
Common stock-$.10 par value; shares authorized,
10,000; shares issued, 5,541 shares in 1996; and
5,514 in 1995; shares outstanding, 4,483 in 1996;
and 4,434 in 1995 554 551
Additional paid-in capital 24,432 24,307
Retained earnings 21,432 20,548
Total 46,418 45,406
Treasury stock-at cost, 1,058 shares in 1996
and 1,080 shares in 1995 (18,603) (18,982)
Total Stockholders' Equity-net 27,815 26,424
TOTAL $33,851 $32,209
</TABLE>
See accompanying Notes to Consolidated Financial Statement
<PAGE>23
DBA Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Years Ended June 30
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $1,161 $1,502 $ 837
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,078 1,179 1,320
Loss (gain) on disposal of property (23) 14
Cost of property used on a contract 3
Issuance of treasury stock to employees 2 24 14
Contribution of treasury stock to ESOP 100 100 100
Decrease (increase) in current assets:
Accounts receivable 2,333 (1,433) 17
Costs and estimated earnings in excess of
billings on uncompleted contracts 109 1,235 2,469
Inventory (375) 268 (889)
Other current assets (150) 640 (499)
Increase (decrease) in current liabilities:
Accounts payable (588) 1,373 (791)
Accrued expenses 34 (5) (158)
Billings in excess of costs and estimated
earnings on uncompleted contracts 682 571 (53)
Estimated losses on uncompleted contracts 30 196 (413)
Other current liabilities 93 26 (195)
Other-net 73 (62) 18
Net cash provided by operating activities 4,559 5,616 1,794
Cash Flows from Investing Activities:
Capital expenditures (333) (427) (1,219)
Purchase of investment (9,888) (5,000)
Proceeds from sale of investment 5,000
Proceeds from sale of property 31 1
Net cash used in investing activities (5,190) (5,426) (1,219)
Cash Flows from Financing Activities:
Repayments of long-term debt (15) (1,166)
Cash paid for conversion of debentures (21)
Repayments on Industrial Development Revenue Bond (790) (175)
Proceeds from issuance of common stock 128 166 347
Net cash provided by (used in) financing
activities 128 (639) (1,015)
Net Decrease in Cash for the Year (503) (449) (440)
Cash and Cash Equivalents at Beginning of Year 3,202 3,651 4,091
Cash and Cash Equivalents at End of Year $2,699 $3,202 $3,651
</TABLE>
<PAGE>24
DBA Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Supplemental Disclosure of Non-Cash Investing and Financing Activities
(In Dollars):
For the years ended June 30, 1996 and 1995, the Company transferred assets
of approximately $10,000 and $72,000, respectively, from inventory to
property.
On December 2, 1993, DBA called all of its outstanding 9.50% Convertible
Subordinated Debentures. The Debentures were convertible into common stock
at a conversion price of $4.00 per share. Approximately $1,290,000 in
debentures were submitted for conversion into 322,500 shares of the
Company's common stock.
During the year ended June 30, 1996, property with a net book value of
$4,436,000 was reclassified as real estate held for sale.
Supplemental Disclosure of Cash Flow Information (In Thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income taxes paid $ 89 $ 20 $ 28
Interest paid $175 $199 $355
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>25
DBA Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1993 $502 $22,562 $18,805 $(19,798) $22,071
Stock issued to ESOP:
23 shares (303) 403 100
Stock issued to employees:
5 shares (72) 86 14
Stock options exercised:
107 shares 11 337 348
Conversion of debentures:
323 shares 32 1,230 1,262
Net income 837 837
Balance at June 30, 1994 545 24,129 19,267 (19,309) 24,632
Stock issued to ESOP:
15 shares (161) 261 100
Stock issued to employees:
5 shares (60) 84 24
Stock options exercised:
63 shares 6 178 (18) 166
Net income 1,502 1,502
Balance at June 30, 1995 551 24,307 20,548 (18,982) 26,424
Stock issued to ESOP:
21 shares (261) 361 100
Stock issued to employees:
1 shares (16) 18 2
Stock options exercised:
27 shares 3 125 128
Net income 1,161 1,161
Balance at June 30, 1996 $554 $24,432 $21,432 $(18,603 $27,815
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>26
DBA Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Description of Business and Major Customer
DBA Systems, Inc. and subsidiaries ("DBA" or the "Company") operate in a
single line of business. DBA is principally engaged in developing and
manufacturing computerized image processing and electro-optical systems for
a variety of defense electronics applications. Approximately 95%, 88% and
92% of DBA's fiscal 1996, 1995 and 1994 revenues from continuing operations,
respectively, were derived from contracts with the U.S. Government, or
agencies thereof.
Principles of Consolidation
The consolidated financial statements include the accounts of DBA Systems,
Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Revenue and Cost Recognition
Revenues and costs from government fixed-priced and time-and-material
contracts are recognized on the Percentage-of-completion method, measured by
the percentage of total costs incurred to date to total estimated costs for
each contract. This method is used because management considers total
expended costs to be the best available measure of progress on these
contracts. Revenues from cost-plus-fee Government contracts are recognized
on the basis of costs incurred during the period plus the fee earned measured
by the same method. Total expended costs as used to compute revenues
exclude, especially during early stages of a contract, all or a portion of
the costs of such materials or subcontracts if, in the opinion of management,
it appears that such an exclusion would result in a more accurate measurement
of the level of work performed towards contract completion. Estimates of
the effect of changes in total estimated contract costs are recognized in the
period determined. At the time a loss on a contract becomes known, the
entire amount of the estimated loss on the contract is accrued.
Government contract costs include all direct material and labor costs and
those indirect costs related to contract performance such as indirect labor,
supplies, repairs and depreciation costs. General and administrative
expenses (including bid and proposal expenses and independent research and
development costs) allowable in accordance with United States Government
procurement practices are included in contract costs because they are
identifiable with contract revenue and are reimbursable under the contracts.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts," represents billings in excess of revenues recognized. The Company
progress bills its customers monthly as the work is in progress.
Use of Estimates in Preparation of the Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
<PAGE>27
Property
DBA amortizes the cost of depreciable properties over their estimated service
lives. Expenditures for maintenance, repairs and minor renewals are charged
against operations. Interest cost is capitalized for qualifying assets during
the assets' acquisition periods.
The approximate annual rates of depreciation and the methods of application
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements 2.5%-3% straight-line
Furniture and fixtures 10%-33% straight-line and declining balance
Machinery and equipment 10%-33% straight-line and declining balance
Leasehold improvements 7%-50% straight-line
Leased equipment under capital
leases 14%-33% straight-line
</TABLE>
Real Estate Held for Sale
Real estate held for sale is carried at the lower of cost or fair value less
estimated costs to sell. The value of such real estate is periodically
reviewed and reduced if appropriate.
Income Taxes
Deferred income taxes are provided on items which are recognized in different
years for tax and financial reporting purposes. The Company accounts for
income taxes using the liability method of computing deferred income taxes.
Deferred tax assets and liabilities are recognized for the future
consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Differences between income for financial and tax reporting purposes
arise primarily from the use of accelerated depreciation as required for
income tax purposes and recording of estimated losses on uncompleted
contracts for financial reporting purposes. Also, under the liability
method, deferred tax assets and liabilities are measured using estimated tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Inventory
Inventories are valued at the lower of cost (weighted average) or market and
include applicable material, labor and overhead costs. During the years
ending June 30, 1996, 1995 and 1994, approximately $274,000, $110,000
and $67,000, respectively, in general and administrative costs were charged
to inventory. As of June 30, 1996 and 1995, approximately $403,000 and
$101,000, respectively, in general and administrative costs were included
in inventory.
Leases
Leases which meet certain criteria are classified as capital leases, and
assets and liabilities are recorded at amounts equal to the lesser of the
present value of the minimum lease payments or the fair value of the leased
properties at the beginning of the respective lease terms. Such assets are
amortized over their economic useful life on a straight-line basis. Leases
which do not meet such criteria are classified as operating leases and
related rentals are charged to expense as incurred.
<PAGE>28
Cost in Excess of Value of Net Assets of Businesses Acquired
The cost in excess of the value of net assets of businesses acquired is
amortized using the straight-line method over forty years. Management
evaluates the recoverability of such assets quarterly and annually based on
current operating trends in relation to the recorded values of such assets.
Research and Development Costs
Research and development costs associated with product development programs
are expensed as incurred. Research and development expenditures incurred by
the Company and not expressly reimbursed pursuant to contracts with customers
were approximately $424,000 in fiscal 1996, $331,000 in fiscal 1995 and
$206,000 in fiscal 1994.
Cash and Cash Equivalents
Cash equivalents consist of financial instruments which are readily
convertible to cash and mature less than three months after the date of
acquisition.
Investments
The Company does not invest in securities as its primary business and does
not maintain a trading account. Occasionally, however, the Company purchases
financial instruments with maturities greater than three months from the date
of acquisition. Such securities are classified as either "available for
sale" or "held to maturity" as required by Statement of Financial Accounting
Standards No. 115 (FAS 115) "Accounting for Certain Investments in Debt and
Equity Securities" which the Company adopted as of June 30, 1994. As of
June 30, 1996 and 1995, all such investment securities owned by the Company
mature in one year or less, were classified as "available for sale," and
were carried at their current market value, which approximates their cost, as
required by FAS 115.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" effective for fiscal years beginning after December
15, 1995. Management believes that the adoption of SFAS No. 121 will not
have a material impact on the Company's consolidated financial statements.
Also in 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation', which requires companies to measure employee stock
compensation plans based on the fair value method of accounting or to
continue to apply APB No. 25. "Accounting for Stock Issued to Employees",
and provide pro forma footnote disclosures under the fair value method in
SFAS No. 123. The Company will continue to apply the principles of APB No.
25 and provide pro forma fair value disclosures starting in the 1997
consolidated financial statements.
Reclassification
Certain amounts have been reclassified in the prior years' financial
statements to conform with the current year presentation.
<PAGE>29
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
As of June 30,
1996 1995
(in thousands)
<S> <C> <C>
Costs and estimated earnings on uncompleted
contracts $241,770 $262,628
Less: billings to date 239,091 259,158
Total $ 2,679 $ 3,470
Included in accompanying balance sheet
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 4,055 $ 4,164
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,376) (694)
Total $ 2,679 $ 3,470
</TABLE>
As of June 30, 1996 and 1995, the amounts billed but not paid under contract
retainage provisions were approximately $65,000 and $1,130,000, respectively.
Such retainage amounts are expected to be collected within one year. Amounts
included in Costs and Estimated Earnings on Uncompleted Contracts which are
subject to future negotiation were approximately $574,000 as of June 30, 1996
and 1995.
3. LONG-TERM DEBT
Long-term debt at June 30, 1996 and 1995 consisted of $1,926,000 of 8.25%
Convertible Subordinated Debentures, $1,000 par value, mature on November 1,
2010 and pay interest semi-annually on November 1 and May 1. The debentures
may be converted at any time up to maturity into shares of DBA common stock at
a price of $19.50 per share (subject to adjustments).
The Company has a $4,000,000 unsecured line of credit with a bank which
expires January 31, 1997. Amounts drawn on this line of credit accrue
interest at either the bank's prime rate or the bank's LIBOR plus 2.5%, as
selected by the Company upon the utilization of any portion of the line of
credit. The Company had no borrowings against the line of credit at
June 30, 1996.
4. STOCKHOLDERS' EQUITY
The 1992 Employee Incentive Stock Option Plan which will expire on November
12, 2002, provided for the issuance of up to 500,000 shares of the Company's
common stock. Options may be granted only to employees of DBA and its
subsidiaries at an option price not less than the fair market value of DBA
common stock on the date of grant. At June 30, 1996, 297,085 of these
shares were under option.
The 1993 Directors' Stock Option Plan which will expire on November 17, 1998,
provided for the issuance of up to 200,000 shares of DBA's common stock.
Options can only be granted to members of the Board of Directors at an option
price not less than the fair market value of DBA's common stock on the date
of grant. At June 30, 1996, 30,000 of these shares were under option.
DBA also grants options not pursuant to a formal plan to officers, directors
and key employees at the discretion of the Board of Directors. Options are
granted at an option price not less than the fair market value of DBA's
common stock on the date of grant. At June 30, 1996, options for 25,000
shares were outstanding.
<PAGE>30
The following is a summary of the activity in all of DBA's Option Plans for
the three year period ended June
30, 1996:
<TABLE>
<CAPTION
Option Price
Shares Per Share
<S> <C> <C>
Outstanding June 30, 1993 398,300 $2.50 - $16.25
Options Granted Fiscal 1994 148,250 $2.56 - $ 4.50
Options Canceled Fiscal 1994 (134,819) $2.50 - $ 4.75
Options Exercised Fiscal 1994 (107,079) $2.50 - $ 4.75
Outstanding June 30, 1994 304,652
Options Granted Fiscal 1995 126,100 $3.88 - $ 8.63
Options Canceled Fiscal 1995 (43,801) $2.50 - $16.25
Options Exercised Fiscal 1995 (63,481) $2.50 - $ 4.75
Outstanding June 30, 1995 323,470
Options Granted Fiscal 1996 109,600 $4.88 - $ 6.00
Options Canceled Fiscal 1996 (53,985) $3.88 - $ 6.75
Options Exercised Fiscal 1996 (27,000) $4.75
Outstanding June 30, 1996 352,085
Shares Exercisable June 30, 1996 176,298
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
DBA leases land, office space, manufacturing facilities and various equipment
under non-cancelable operating leases. The leased facilities are occupied
under leases with escalation clauses and terms ranging from one to forty
years, a majority of which can be terminated or renewed at no longer than
five (5) year intervals at the Company's option.
Total rent expense charged to operations for all operating leases was
approximately $422,000 in 1996, $396,000 in 1995, and $488,000 in 1994.
<PAGE>31
Future minimum payments under all operating leases having a remaining
non-cancelable term of more than one year are approximately as follows:
<TABLE>
<CAPTION>
For the Year Ended June 30, (in thousands)
<S> <C> <C>
1997 $ 414
1998 392
1999 118
2000 107
2001 99
Thereafter 834
Total $1,964
</TABLE>
In connection with the sale of the Company's commercial operations to an
unrelated entity (the "Buyer") in 1987, the Company was named as a guarantor
under a mortgage assumed by the Buyer. The mortgage was collateralized by a
building which the Buyer sold for less than the mortgage value during October
1994. In exchange for settlement of the mortgage, the Company received a
promissory note from the Buyer in the amount of $250,000, plus interest at
the prime lending rate plus 1.50%. The note is payable in quarterly
installments of $16,666 which began March 31, 1995 and conclude March 31,
1997. On June 30, 1996, the balance outstanding on the promissory note
was $66,664.
As a normal consequence of the Company's business, contract claims against
the U.S. Government, or agencies thereof, can arise. Contract claims are
comprised of costs which the Company has incurred and expects to recover from
the U.S. Government. The Company had various claims pending against the U.S.
Government at June 30, 1996 and 1995.
6. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Current federal $ 85 $ 42 $ 17
</TABLE>
DBA's effective tax rate differs from the statutory federal income tax rate
for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Computed statutory amount $423 $525 $290
Change in valuation allowance
for deferred tax assets (354) (374) (291)
Other 16 (109) 18
$ 85 $ 42 $ 17
</TABLE>
<PAGE>32
The tax effect of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at June 30, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
(in thousands)
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards $ 41 $ 627
Alternative minimum tax credits 399 344
Deferred compensation 137 105
Reserve for uncompleted contracts 92 154
Other individually immaterial items 340 220
Total deferred tax assets 1,009 1,450
Deferred Tax Liabilities:
Depreciation 982 1,033
Purchase accounting adjustment 63 63
Total deferred tax liabilities 1,045 1,096
(36) 354
Valuation allowance (354)
Total net deferred tax asset (liability) $ (36) $ 0
</TABLE>
DBA has approximately $114,000 of federal net operating loss carryforwards
and $399,000 of minimum tax credits remaining at June 30, 1996 which give
rise to a deferred tax asset. Management believes that the inability to
utilize net operating loss carryforwards and minimum tax credits to offset
future taxable income within the carryforward periods under existing tax
laws and regulations is more likely than not. Therefore, a valuation
allowance against the deferred tax asset of approximately $354,000 has been
recorded as of June 30, 1995. The valuation allowance was reversed during
the year ended June 30, 1996 as the net operating loss carryforwards were
utilized. The net operating loss carryforwards expire in 2006. The minimum
tax credits do not expire.
7. EARNINGS PER SHARE
Earnings per common share and common equivalent share are computed by
dividing net income by the weighted average number of common shares and
common equivalent shares outstanding during the period. Common equivalent
shares consist of common stock which may be issued upon exercise of
outstanding stock options. Weighted shares used in 1996, 1995 and 1994 were
approximately 4,493,000, 4,460,000 and 4,210,000, respectively.
As to common stock equivalents, consideration is given to the additional
dilutive effect which results from year-end market prices exceeding the
average market price during the period. Weighted shares used in 1996, 1995
and 1994 were approximately 4,493,000, 4,480,000 and 4,210,000, respectively.
8. EMPLOYEE BENEFIT PLANS
Effective July 1, 1981 and most recently amended August 5, 1995, the Company
adopted a qualified retirement plan (the "Plan") covering all employees who
meet the eligibility requirement of one month of service. The Plan has a
profit-sharing component to which DBA makes contributions equal to amounts
determined by the Board of Directors. Expense for the profit-sharing
component for 1996, 1995 and 1994 was $150,000, $150,000 and $150,000,
respectively. Effective July 1, 1989, the Company adopted a qualified 401(k)
component to which the Company has agreed to contribute an amount equal to
50% of a participant's contributions up to the lessor of 3% of the employee's
aggregate compensation or $750. Expense for the 401(k) component for 1996,
1995 and 1994 was approximately $114,000, $119,000 and $136,000,
respectively. Effective July 1, 1988 and most recently restated May 7, 1995,
the Company
<PAGE>33
adopted an Employee Stock Ownership Plan (the "ESOP").
Contributions to the ESOP are at the discretion of the Board of Directors.
During the fiscal years 1996, 1995 and 1994, accrued towards stock
contributions was $100,000, $100,000 and $100,000, respectively. The actual
contributions of stock are made from Treasury Stock.
9. OTHER EXPENSE-NET
The components of other expense-net are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Patent amortization expense $(112) $(112) $(112)
Other-net (173) (117) (8)
Total $(285) $(229) $(120)
</TABLE>
10. LITIGATION
From time to time, as is normal with respect to the nature and kind of
business in which DBA is engaged, various claims, charges and litigation are
asserted or commenced against DBA arising from or related to product
liability, patent, breach of warranty, contractual relations or employee
relations. The amounts claimed in such litigation may be substantial but
may not bear any reasonable relationship to the merits of the claim or
the extent of any real risk of court awards. In the opinion of management,
final judgments, if any, which might be rendered against DBA in potential or
pending litigation, would not have a material adverse effect on its assets or
business.
The Company maintains officers' and directors' liability insurance which
insures individual officers and directors of the Company against certain
claims as well as attorney's fees and related expenses incurred in
connection with the defense of such claims.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments: cash and cash
equivalents, investments, receivables, accrued expenses and accounts
payable, approximate their estimated fair values at June 30, 1996.
<PAGE>34
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of DBA Systems, Inc.:
We have audited the accompanying consolidated balance sheets of DBA Systems,
Inc. and subsidiaries (the "Company") as of June 30, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14. The financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at June 30, 1996
and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Orlando, Florida
September 9, 199
<PAGE>35
SCHEDULE II
DBA Systems, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Valuation and Qualifying Accounts
(In Thousands)
Balance at Charged to Charged Balance
Allowance for Beginning Costs and to Other at End
Doubtful Accounts of Year Expense Accounts Deductions of Year
<S> <C> <C> <C> <C> <C>
1996 $ 100 $ 100 $ 2 $ (2) $ 200
1995 $ 96 $ 34 $ 4 $ (34) $ 100
1994 $ 76 $ 20 $ 0 $ 0 $ 96
</TABLE>
<PAGE>36
DBA SYSTEMS, INC.
EXHIBIT INDEX
Page No.
Exhibit 11 - Computation of earnings per share 38
Exhibit 21 - Subsidiaries of the Registrant 39
<PAGE>37
EXHIBIT 11
<TABLE>
<CAPTION>
DBA Systems, Inc. and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Information)
Year Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Net income (A) $1,161 $1,502 $ 837
Interest on convertible debentures-net of tax effect
Amortization of registration costs incurred in the
issuance of convertible debentures net of tax effect
Adjusted net income (B) $1,161 $1,502 $ 837
Weighted average shares outstanding 4,447 4,385 4,130
Incremental shares-stock options 46 75 80
Subtotal (C) 4,493 4,460 4,210
Incremental shares-stock options 20
Assumed conversion of convertible debentures
Total (D) 4,493 4,480 4,210
Primary earnings per share:
Net Income (A/C) $.26 $.34 $.20
Fully diluted earnings per share:
Net income (B/D) $.26 $.34 $.20
</TABLE>
<PAGE>38
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
(1) DBA/Delaware Systems Corporation
100% Owned Subsidiary
Incorporated in the State of Delaware
(2) LTM Corporation
100% Owned Subsidiary
Incorporated in the State of Ohio
(3) Energy/Environmental Research Group, Inc.
100% Owned Subsidiary
Incorporated in the State of Arizona
<PAGE>39
