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 December 31, 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 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 December 31, 1996.
Total number of sequentially numbered pages: 11
The Exhibit index appears on sequential page 10
<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 Six Months Ended
December 31 December 31
1996 1995 1996 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $ 5,431 $ 4,596 $11,724 $ 9,496
Costs and expenses 4,934 4,386 10,693 9,053
Operating income 497 210 1,031 443
Other income (expense):
Interest income 191 154 365 270
Interest expense (38) (49) (80) (90)
Other expense - net (58) (66) (212) (99)
Total other expense - net 95 39 73 81
Income before taxes 592 249 1,104 524
Less provision for income taxes 220 34 409 50
Net Income $ 372 $ 215 $ 695 $ 474
Net Earnings per common
and common equivalent share $.08 $.05 $.15 $.11
Net Earnings per common share
assuming full dilution $.08 $.05 $.15 $.11
Primary weighted shares outstanding 4,521 4,478 4,513 4,486
Fully diluted shares outstanding 4,521 4,478 4,514 4,486
</TABLE>
See accompanying Notes to Condensed Consolidated Interim Financial Statements
<PAGE>2
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Dec. 31, 1996 June 30, 1996
(Unaudited) (Audited)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents....................... $ 2,488 $ 2,699
Investments 9,483 9,888
Accounts receivable - net ..................... 2,449 2,586
Costs and estimated earnings in excess
of billings on uncompleted government
contracts ....................................... 2,404 4,055
Inventory ......................................... 2,420 2,560
Other current assets............................ 494 537
Total Current Assets .......................... 19,738 22,325
Property:
Cost ............................................. 17,074 16,862
Less accumulated depreciation
and amortization ............................. 10,747 10,401
Property--net ............................... 6,327 6,461
Other Assets:
Cost in excess of value of net assets of
businesses acquired ......................... 227 232
Real estate held for sale........................ 4,392 4,436
Other assets .................................... 303 397
Total Other Assets ........................... 4,922 5,065
Total Assets ......................................$ 30,987 $ 33,851
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................. $ 720 $ 968
Accrued expenses .............................. 988 1,295
Billings in excess of costs and estimated
earnings on uncompleted government
contracts ....................... 872 1,376
Estimated losses on uncompleted contracts . 322 271
Other current liabilities ......................... 10 200
Total Current Liabilities ....................... 2,912 4,110
Long-term Debt ................................. 0 1,926
Stockholders' Equity:
Common stock ................................. 557 554
Paid-in capital .................................. 24,539 24,432
Retained earnings .............................. 22,127 21,432
Total ........................................... 47,223 46,418
Treasury stock................................ (19,148) (18,603)
Stockholders' Equity - net ................. 28,075 27,815
Total Liabilities and Stockholders' Equity $ 30,987 $ 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)
Six Months Ending
Dec. 31, 1996 Dec. 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 695 $ 474
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation & amortization 523 511
Gain on sale of assets 12
Decrease (increase) in current assets:
Accounts receivable 137 3,248
Costs and estimated earnings in excess o
billing on uncompleted Government contracts 1,651 (445)
Inventory 140 (221)
Other current assets 43 (445)
Increase (decrease) in current liabilities:
Accounts payable (248) 603
Accrued expenses (307) (218)
Billings in excess of costs and estimated
earnings on uncompleted Government contracts (504) (127)
Estimated losses on uncompleted contracts 51 (10)
Other current liabilities (190) 1
Other - net (419) 114
Net cash provided by operating activities 1,584 3,485
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of Investments 405 5,000
Capital expenditures (288) (263)
Proceeds from sale of property 14 24
Net cash provided by (used in) investing activities 131 4,761
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments on long-term debt (1,926) ( 3)
Net cash used in financing activities (1,926) ( 3)
Net increase in cash during the period (211) 8,243
Cash and cash equivalents at beginning of period 2,699 3,202
Cash and cash equivalents at end of period $ 2,488 $ 11,445
</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):
December 31, 1996 June 30, 1996
(Unaudited) (Audited)
<TABLE>
<CAPTION>
<S> <C> <C>
Finished Goods $ 2,274 $ 2,509
Work in Progress 98 37
Raw Materials 48 14
TOTAL $ 2,420 $ 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 December 31,
1996 and 1995, weighted average shares were 4,521,000 and 4,478,000,
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 decrease and scrutinize its spending in the
high technology and defense areas. As a result, competition for available
contracts is intense. In response, the Company has significantly reduced its
liabilities and indirect cost, thereby reducing its indirect overhead rates.
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.
Significant Event
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.
Results of Operations
During the three-month period ended December 31, 1996, DBA recorded revenues
of $5,431,000, up $835,000 from the $4,596,000 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. $1.5 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.
<PAGE>6
Operating income was $497,000 during the current three-month period, up
$287,000 from $210,000 in the comparable period in the prior fiscal year.
This marks the 24th consecutive quarter of profitable operations for DBA.
The current quarter's operating margin was 9.2% as compared to the operating
margin of 4.6% 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 65% of DBA's
revenues. Performance is expected to remain strong for the foreseeable
future subject to the vagaries of defense funding.
During the three-month period ending December 31, 1996, the Company recorded
new business bookings of $4,939,000 as compared to $16,163,000 in the prior
year. ($3,442,000 of the current quarter's bookings was due to the exercise
of the annual option for the Operation and Maintenance contract on the
Modernized Imagery Exploitation System.) As a result, the backlog at
December 31, 1996 was approximately $23,937,000, down $4,463,000 or 15.7% as
compared to the June 30, 1996 balance of approximately $28,400,000. An
order is entered into backlog only when the Company receives a definite
commitment from a customer. The decrease in bookings from the second quarter
of the prior year is attributable to the fact that DBA received a two-year
contract in the Proprietary Imagery Exploitation area for $12.7 million in
December 1995. Backlog by the end of the fiscal year is expected to remain
above 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 the teaming agreement, our team
leader formally agreed to provide supplanting opportunities over the next
five years if the proposal 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 imagery technical services, government management services, and
commercial satellite development. The Company will seek to exploit its
competitive advantages of core imagery technical resources and affordable
costs 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, 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 is focusing its efforts on
securing the funding and recovery of the schedule leading to roll-out of this
product.
Interest income during the current period was $191,000 as compared to
$154,000 in the comparable quarter in the prior fiscal year. This increase
was due to both a larger investment base of cash as well as a more aggressive
treasury policy in securing an improved rate of return. Interest expense
during the current period was $38,000 as compared to $49,000 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.
The Company currently has only a very limited net operating loss (NOL)
carryforward available for federal tax purposes, and thus is now paying
significant federal 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 $372,000 in the current
period as compared to $215,000 in the same period of the prior fiscal year.
The net income percentage increase was not as dramatic as the operating
income percentage increase due to the expiration this year of the Company's
net operating loss (NOL) carryforwards. Fully diluted earnings per share
were $.08 for the three months ending December 31, 1996 versus $.05 recorded
in the comparable quarter in the prior fiscal year.
<PAGE>7
Liquidity and Capital Resources
At December 31, 1996, the Company had working capital of approximately
$16,826,000, down $1,389,000 or 7.6%, 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 $12 million of cash in order to increase return-on-equity.
Accounts receivable-net decreased $137,000 from $2,586,000 at June 30, 1996
to $2,449,000 at December 31, 1996 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 $3,004,000 at December 31, 1996.
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 December
31, 1996.
During the quarter ending December 31, 1996, the Company recognized additions
to capital equipment of approximately $288,000. 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 expects to finalize a negotiated settlement within the next
quarter of a lawsuit filed by DBA in 1987 in Rhode Island stemming from
default on a $173,000 note payable by purchasers of Graphics Marketing,
formerly a subsidiary of DBA Systems.
As of October 30, 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 it has a valid claim. This claim 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
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. DBA
projects that it could achieve in the range of $8-12 million of revenue over
the next five years in this market.
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.
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.
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: _______2/12/96_________ By: _____SIGNATURE_____________
John L. Slack
Chairman of the Board, President,
Treasurer, Acting
and Chief Executive Officer
Date: ________2/12/96_______ By: ______SIGNATURE______________
Edward M. Bielski
Corporate Controller
<PAGE>9
DBA SYSTEMS, INC.
EXHIBIT INDEX
Page No.
Exhibit 11 - Computation of earnings per share 11
<PAGE>10
EXHIBIT 11
DBA SYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share information)
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
1996 1995 1996 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net Income (A) $ 372 $ 215 $ 695 $474
Weighted Average Shares Outstanding 4,474 4,433 4,479 4,433
Incremental Shares - Stock Options 47 45 34 53
Subtotal (B) 4,521 4,478 4,513 4,486
Incremental Shares - Stock Options 0 0 1 0
Total (C) 4,521 4,478 4,514 4,486
Net Earnings per Common and Common
Equivalent Share (A/B) $ .08 $ .05 $ .15 $ .11
Net Earnings per common share,
Assuming Full Dilution (Cannot
be Antidilutive (A/C) $ .08 $ .05 $ .15 $ .11
</TABLE>
<PAGE>11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,488
<SECURITIES> 9,483
<RECEIVABLES> 2,649
<ALLOWANCES> 200
<INVENTORY> 2,420
<CURRENT-ASSETS> 19,738
<PP&E> 17,074
<DEPRECIATION> 10,747
<TOTAL-ASSETS> 30,987
<CURRENT-LIABILITIES> 2,912
<BONDS> 0
0
0
<COMMON> 557
<OTHER-SE> 28,075
<TOTAL-LIABILITY-AND-EQUITY> 30,987
<SALES> 11,724
<TOTAL-REVENUES> 12,089
<CGS> 0
<TOTAL-COSTS> 10,693
<OTHER-EXPENSES> 212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 1,104
<INCOME-TAX> 409
<INCOME-CONTINUING> 695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 695
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
