UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 0-4633
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)
(407) 727-0660
(Registrant's telephone number, including area code)
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 _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
DBA Systems, Inc. Common Stock, $.10 par value, 4,418,612 shares outstanding
as of March 31, 1997.
Total number of sequentially numbered pages: 12
The Exhibit index appears on sequential page 11
<PAGE>1
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share information)
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
1997 1996 1997 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $ 6,381 $ 5,418 $18,105 $14,914
Costs and expenses 5,757 5,127 16,450 14,180
Operating income 624 291 1,655 734
Other income (expense):
Interest income 183 140 548 410
Interest expense (2) (43) (82) (133)
Other expense - net 86 (90) (126) (189)
Total other expense - net 267 7 340 88
Income before taxes 891 298 1,995 822
Less provision for income taxes 187 26 596 76
Net Income $ 704 $ 272 $ 1,399 $ 746
Net Earnings per common
and common equivalent share $.16 $.06 $.31 $.17
Net Earnings per common share
assuming full dilution $.16 $.06 $.31 $.17
Primary weighted shares outstanding 4,439 4,488 4,488 4,486
Fully diluted shares outstanding 4,439 4,488 4,488 4,486
</TABLE>
See accompanying Notes to Condensed Consolidated Interim Financial Statements
<PAGE>2
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, 1997 June 30, 1996
(Unaudited) (Audited)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents.................... $ 1,535 $ 2,699
Investments 11,766 9,888
Accounts receivable - net .................. 2,493 2,586
Costs and estimated earnings in excess
of billings on uncompleted government
contracts ................................. 3,526 4,055
Inventory .................................. 2,366 2,560
Other current assets........................ 443 537
Total Current Assets ...................... 22,129 22,325
Property:
Cost ...................................... 17,172 16,862
Less accumulated depreciation
and amortization ........................ 10,957 10,401
Property--net .......................... 6,215 6,461
Other Assets:
Cost in excess of value of net assets of
businesses acquired ..................... 226 232
Real estate held for sale................. 4,370 4,436
Other assets ............................. 275 397
Total Other Assets ...................... 4,871 5,065
Total Assets .............................. $ 33,215 $ 33,851
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ......................... $ 1,318 $ 968
Accrued expenses .................. ...... 1,005 1,295
Billings in excess of costs and estimated
earnings on uncompleted government
contracts ................................ 913 1,376
Estimated losses on uncompleted contracts . 1,041 271
Other current liabilities ................. 160 200
Total Current Liabilities................ 4,437 4,110
Long-term Debt ............................ 0 1,926
Stockholders' Equity:
Common stock ............................. 557 554
Paid-in capital .......................... 24,539 24,432
Retained earnings ........................ 22,830 21,432
Total ................................... 47,926 46,418
Treasury stock............................ (19,148) (18,603)
Stockholders' Equity - net .............. 28,778 27,815
Total Liabilities and Stockholders' Equity $ 33,215 $ 33,851
</TABLE>
See Notes to Condensed Consolidated Interim Financial Statements.
<PAGE>3
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ending
March 31, 1997 March 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,399 $ 746
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & amortization 789 771
Gain on sale of assets (13)
Decrease (increase) in current assets:
Accounts receivable 93 1,566
Costs and estimated earnings in excess of
billings on uncompleted Government contracts 529 (142)
Inventory 194 (280)
Other current assets 94 (382)
Increase (decrease) in current liabilities:
Accounts payable 350 134
Accrued expenses (295) (43)
Billings in excess of costs and estimated
earnings on uncompleted Government contracts (463) (63)
Estimated losses on uncompleted contracts 770 99
Other current liabilities (35) 37
Other - net (401) 139
Net cash provided by operating activities 3,011 2,582
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchase) of Investments (1,878) 5,000
Capital expenditures (387) (277)
Proceeds from sale of property 16 25
Net cash provided by (used in) investing activities ( 2,249) 4,748
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments on long-term debt (1,926) ( 0)
Net cash used in financing activities (1,926) ( 0)
Net increase (decrease) in cash during the period (1,164) 7,330
Cash and cash equivalents at beginning of period 2,699 3,202
Cash and cash equivalents at end of period $ 1,535 $ 10,532
</TABLE>
See Notes to Condensed Consolidated Interim Financial Statements.
<PAGE>4
DBA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(1) The Condensed Consolidated Interim Financial Statements contained herein
reflect all adjustments of a normal recurring nature which are, in the opinion
of management, necessary to a fair statement of the results for the interim
periods presented. The results of operations for the interim periods
contained herein are not necessarily indicative of the results to be expected
for the fiscal year.
(2) Refer to the Company's Annual Consolidated Financial Statements for the
Year Ended June 30, 1996, for a description of accounting policies, which
have been continued without change. Also, refer to the Notes included in
those Consolidated Financial Statements for additional details of the
Company's financial condition, results of operations and changes in financial
position.
(3) Inventories consist of the following (in thousands):
March 31, 1997 June 30, 1996
(Unaudited) (Audited)
<TABLE>
<CAPTION>
<S> <C> <C>
Finished Goods $ 2,224 $ 2,509
Work in Progress 102 37
Raw Materials 40 14
TOTAL $2,366 $ 2,560
</TABLE>
(4) Net earnings per common 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. For the three-month periods ending March 31, 1997
and 1996, weighted average shares were 4,439,000 and 4,488,000, respectively.
<PAGE>5
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The forward-looking statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations, which reflect
management's best judgment based on factors currently known, involve risks
and uncertainties. Actual results could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors. Forward-looking information provided by DBA Systems pursuant to the
safe harbor established by recent securities legislation should be evaluated
in the context of these factors.
Business Environment
The defense industry continues to experience numerous mergers and
consolidations of companies doing business with the Government, and this
trend is expected to continue for the immediate future. In addition, the
Federal Government continues to closely scrutinize its spending in the high
technology and defense areas. As a result, competition for available
contracts is intense. In response, the Company closely manages its
liabilities and indirect cost, thereby maintaining its indirect overhead
rates at competitive levels. Additionally, the Company has focused its primary
marketing efforts in areas where it has been the most successful and will
attempt to translate its success into commercial areas where its core
technologies apply. The Company will continue to pursue this strategy during
fiscal year 1997 with increased competitiveness as its primary goal.
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 of whether to exercise 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.
Results of Operations
During the three-month period ended March 31, 1997, DBA recorded revenues of
$6,381,000, up $963,000 (18%) from the $5,418,000 recorded in the comparable
three-month period in the prior fiscal year. The increase in revenues was
primarily attributable to work on the $8.8 million Common Imagery Ground/
Surface System (CIGSS) contract awarded in June 1996 and the associated
Operations and Maintenance effort. $2.5 million of sales have been achieved
on the CIGSS year-to-date. The start of this contract has created a higher
pass through of material costs as well as a limited amount of increase in the
level of direct labor.
Operating income was $624,000 during the current three-month period, up
$333,000 (114%) from $291,000 in the comparable period in the prior fiscal
year. This marks the 25th consecutive quarter of profitable operations for
DBA. The current quarter's operating margin was 9.8% as compared to the
operating margin of 5.4% in the prior year's comparable quarter. The increase
in operating margin was attributable to completion last year of remaining
Kissimmee plant contracts that were unprofitable due to site relocation as
well as continued robust performance by the Company's two long-time successful
core programs, Proprietary Imagery Exploitation and Tactical Imagery
Exploitation. These two programs currently make up 68% of DBA's revenues.
Performance is expected to remain strong for the foreseeable future subject
to the vagaries of defense funding.
<PAGE>6
During the three-month period ending March 31, 1997, the Company recorded new
business bookings of $2,257,000 (up 9%) as compared to $2,074,000 in the prior
year. (The major components of these bookings are the $700K LightSAR study
for NASA/JPL, the $650K Taiwan Avenger Video Trackers, and the $500K US MICOM
PADS integration.) As a result, the backlog at March 31, 1997 was approximately
$19,800,000, down $8,600,000 or 30.3% as compared to the June 30, 1996
balance of approximately $28,400,000. Backlog by the end of the fiscal year is
expected to remain near the $20 million level.
In late December 1996 it was announced that DBA was not awarded the subcontract
for its proposal of $9 million concerning the competition for new business as a
derivative offshoot of its tactical imagery exploitation market. Fortunately
as a condition of our willingness to team exclusively, our team leader formally
agreed to provide supplanting opportunities over the next five years if the
contract was not awarded to the team. Although the loss was a disappointment
to the Company in its overall strategic plan for growth, efforts are now being
directed towards other major competitive proposals in the areas of commercial
satellite development, commercial manufacturing of communication/location
devices, and analysis of the computer Year 2000 issue. The Company will seek
to exploit its competitive advantages of technical resources and affordable
cost structure to capture these new business opportunities.
Concerning the Prompting Mammography (PROMAM) project for development of an
early detection system for breast cancer, DBA's partner through formal
agreement, the Particle Physics and Astronomy Research Council (PPARC) of the
UK government, has not yet designated funding for start of the clinical trials
in the UK which had been scheduled for April 1997. DBA senior management
continues to focus its efforts on securing the funding and recovery of the
schedule leading to roll-out of this product. Alternative solutions for
funding are being discussed with representatives of the UK government and
industry. At this time no definite plan has been agreed to. The PROMAM
approach with UK clinical trials remains the quickest-to-market option
for exploitation of this technology. In the meantime, the Company will soon
introduce to the market a review station, which is a medical digitizing
scanner interim product that would be convertible to a full PROMAM system at
a later date.
Interest income during the current period was $183,000 as compared to $140,000
in the comparable quarter in the prior fiscal year. This increase was due to
a larger investment base of cash, a more aggressive treasury policy in securing
an improved rate of return, and an upswing in available short-term market
interest rates. Interest expense during the current period was $2,000 as
compared to $43,000 recorded in the comparable quarter in the prior fiscal
year. The reduction in interest expense was attributable to liquidation of
the Company's long term debt during December 1996. This action is estimated
to save approximately $55,000 annually.
As forecasted previously and as discussed under Legal Proceedings below, the
Company finalized a settlement of a long-time note receivable which resulted
in a one-time recognition of $175,000 of other income during March.
The Company currently has only a limited net operating loss (NOL) carryforward
available for federal tax purposes, and thus is paying significant federal and
state income taxes this year. The Company accrues a provision for state income
taxes as income is recognized based on the current prevailing state tax rates.
As a result of the above factors, net income was $704,000 (up 159%) in the
current period as compared to $272,000 in the same period of the prior fiscal
year. Fully diluted earnings per share were $.16 for the three months ending
March 31, 1997 versus $.06 recorded in the comparable quarter in the prior
fiscal year.
<PAGE>7
Liquidity and Capital Resources
At March 31, 1997, the Company had working capital of approximately $17,692,000,
down $523,000 or 2.9%, when compared to the $18,215,000 as of June 30, 1996.
This reduction was primarily driven by liquidation at par in December 1996 of
the 8 1/4% debentures worth $1,926,000. The Company is seriously studying
several investment alternatives to utilize part of its remaining $13 million
of cash in order to increase return-on-equity. Accounts receivable-net
decreased $93,000 from $2,586,000 at June 30, 1996 to $2,493,000 at March 31,
1997 due to efficient collection of outstanding trade receivables and
aggressive pursuit of "past due" accounts. Costs and estimated earnings in
excess of billings on uncompleted contracts decreased from $4,055,000 at
June 30, 1996 to $3,526,000 at March 31, 1997.
The Company has renegotiated its $4,000,000 unsecured line of credit with a
bank which now expires January 31, 1998. Amounts drawn on this line of credit
accrue interest at either the bank's prime rate or LIBOR plus 1.75% 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 March 31,
1997.
On February 26, 1997 the Company announced that its Board of Directors
authorized a stock repurchase program whereby the Company may repurchase up
to 200,000 shares of its outstanding stock in the open market or in negotiated
transactions through August 31, 1997 and at such prices as the Company may
decide. This action was taken based on the assessment that DBA's common
shares were undervalued.
During the quarter ending March 31, 1997, the Company recognized additions to
capital equipment of approximately $99,000. The Company believes capital
funding requirements for fiscal 1997 can be internally satisfied from working
capital.
PART II -- OTHER INFORMATION
ITEM 1 -- 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 finalized a negotiated settlement during the current quarter of a
lawsuit filed by DBA in 1987 in Rhode Island stemming from default on a note
payable by purchasers of Graphics Marketing, formerly a subsidiary of DBA
Systems. $175,000 was received in March by DBA as the complete and final
settlement payment.
As of December 6, 1996, the Company formally appealed to the Armed Services
Board of Contract Appeals (ASBCA) a final decision by the Contracting Officer
for the United States Army Tank-Automotive and Armaments Command on the M23
Mortar Ballistic Computer (MBC) contract to award only $225,000 on a $9.4
million certified claim for equitable adjustment for work completed in 1992.
DBA believes that it has a valid claim which arose out of a large number of
defects in the government's drawing package that caused an incompatibility
between the product's design and manufacturing and test specifications, which
substantially increased contract performance costs and contained potential
for defective products being fielded. When DBA informed the Contacting
Officer (CO) of this situation, the Government's response to these concerns
was to direct DBA to continue with the completion of the contract, which it
did, and for which the Company subsequently filed a claim. Progress on the
case to date has been very slow due to an extremely large number of requests
for information from the government under discovery. Based on the normal
course of such legal proceedings, it is anticipated that it will be at least
another two years before the ASBCA issues its decision on this case.
<PAGE>8
The Company had 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
nonperformance of the contract by AMMS. On October 3, 1996, the court awarded
DBA a favorable judgment against Mr. Bob Wilson, the principal financial backer
of AMMS, for $9,375,000 plus attorney fees. In DBA's opinion, collection on
this judgment is problematic. The Company is proceeding with plans to bring
the medical digitizers to market through partnership with another entity.
ITEM 5. -- OTHER INFORMATION
In September 1996, 10 1/2 months after DBA's initial submission, the Company
received official notification from the FBI about its successful completion of
the Image Quality Specification (IQS), Appendix F, testing. Appendix F of the
IQS is one of the most arduous levels on record, and numerous companies have
withdrawn their efforts from this approval cycle. DBA is one of only two
companies to achieve Appendix F of the IQS, and it is the only company to pass
with a scanner working in the high volume fingerprint batch mode. This
achievement is a critical milestone in establishing the Company's expertise
and in penetrating the fingerprint card scanner market. This milestone led to
the initial commercial order worth $200,000 in April 1997. The Company
expects potential revenues in the law enforcement market to amount to a
possible $2 million in the foreseeable future.
On December 16, 1996, DBA liquidated at market value its Employee Stock
Ownership Plan (ESOP) consisting of 106,000 shares of DBA common stock. This
action was intended to streamline and enhance the employee benefit plan in
order to retain and attract highly skilled and valuable employees.
On April 16, 1997 the Company announced the receipt of a $700K NASA contract to
perform a definition study of a low-cost synthetic aperture radar (SAR)
satellite for Earth-imaging applications. DBA Systems was one of four
companies awarded contracts to study possible design and implementation
approaches for the LightSAR system to meet the NASA scientific needs
and also maximize the commercial application of SAR-related products. DBA
has teamed with CTA Space Systems, a McLean, Virginia based firm which is the
architect and producer of the majority of small satellites built in the US.
If the DBA/CTA team is successful winning the next phase of the contract
which will be worth approximately $120 million, it is DBA's intent to finance
the commercialization portion via an initial public offering of a company which
will be called RadarSat of America, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibit index filed with this report is on page 10.
(b) Reports on Form 8-K - none.
<PAGE>9
Pursuant to the requirements of Section 13 and 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be
executed on its behalf by the undersigned, thereto duly authorized.
DBA SYSTEMS, INC.
Date: ______5/13/97______ By: ______signature______________
John L. Slack
Chairman of the Board,
President, Treasurer, Acting
and Chief Executive Officer
Date: _____5/13/97______ By: ______signature____________
Edward M. Bielski
Corporate Controller
<PAGE>10
DBA SYSTEMS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Page No.
Exhibit 11 - Computation of earnings per share 12
</TABLE>
<PAGE>11
EXHIBIT 11
DBA SYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share information)
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
1997 1996 1997 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net Income (A) $ 704 $ 272 $ 1,399 $746
Weighted Average Shares Outstanding 4,419 4,459 4,459 4,442
Incremental Shares - Stock Options 20 29 29 44
Subtotal (B) 4,439 4,488 4,488 4,486
Incremental Shares - Stock Options 0 0 0 0
Total (C) 4,439 4,488 4,488 4,486
Net Earnings per Common and Common
Equivalent Share (A/B) $ .16 $ .06 $ .31 $ .17
Net Earnings per common share, Assuming
Full Dilution (Cannot be
Antidilutive (A/C) $ .16 $ .06 $ .31 $ .17
</TABLE>
<PAGE>12
<TABLE> <S> <C>
<ARTICLE>5
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,535
<SECURITIES> 11,766
<RECEIVABLES> 2,633
<ALLOWANCES> 140
<INVENTORY> 2,366
<CURRENT-ASSETS> 22,129
<PP&E> 17,172
<DEPRECIATION> 10,957
<TOTAL-ASSETS> 33,215
<CURRENT-LIABILITIES> 4,437
<BONDS> 0
0
0
<COMMON> 557
<OTHER-SE> 28,221
<TOTAL-LIABILITY-AND-EQUITY> 33,215
<SALES> 18,105
<TOTAL-REVENUES> 18,653
<CGS> 0
<TOTAL-COSTS> 16,450
<OTHER-EXPENSES> 126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> 1,995
<INCOME-TAX> 596
<INCOME-CONTINUING> 1,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,399
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
