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, 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 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) of the Act:
Title of each class: None Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
DBA Systems, Inc., Common Stock, $.10 par value
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 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 September 1, 1997, 4,422,062 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 $22,942,868 (based on the last price on that
date of $5.4375 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: 40
The Exhibit index appears on sequential page 38
<PAGE>1
PART 1
ITEM 1
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.
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
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.
The imaging systems' area 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. There are three company divisions involved in imaging systems:
Proprietary Imagery Exploitation (PIE), Tactical Imagery Exploitation (TIE),
and Commercial Imagery Exploitation (CIE). 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.
The electro-optical systems area is identified as the Systems Engineering and
Development (SED) Division. It encompasses DBA's design, development and
manufacture of electronic products and systems. It is not imagery-based, but
uses some of the same core technologies as the imaging systems area. This
equipment is primarily used in the test and evaluation of weapons systems and
is 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, but are not
limited to 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,
1997 1996 1995
<S> <C> <C> <C>
TIE,PIE and CIE 73% 62% 68%
Systems Engineering & Development 27% 38% 32%
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 remains 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.
Proprietary Imagery Exploitation
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 multi-million 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 April
1997, customer authority was transitioned to a new entity, as the federal
government reorganized responsibilities in this area. At that time $1.9
million of orders was booked, with an additional booking of $5-6 million
expected in late calendar year 1997. This longtime program accounted for 25%
of Company revenues this year. This past year a study concerning softcopy
applications was completed. The results of this study are expected to lead
to a major hardware and software upgrade over and above current scope on the
contract.
Tactical Imagery Exploitation
DBA continued its longtime support of the Army's Tactical Exploitation of
National CAPabilities (TENCAP) system during 1997. The three existing MIES
(Modernized Imagery Exploitation Systems) are being migrated toward Common
Imagery Ground/Surface Systems (CIGSS) compliance as established by the
Defense Airborne Reconnaissance Office and the Central Imagery Office. This
work is being performed on the contract worth $8.8 million received in June
1996.
The MIES to CIGSS migration involves the coordinated integration of
several evolving Government Furnished Equipment (GFE) architectures as well
as the development of new hardware and software by DBA. The major components
being integrated are: Imagery Exploitation Support System (IESS), Image
Product Library (IPL), and Digital Imagery Exploitation and Production System
(DIEPS). DBA is an active participant with the Government agencies and
defense contractors responsible for these products. The DBA development
effort includes the design and fabrication of a new hardware module and its
associated software, to receive National Imagery as well as the design and
implementation of the required Graphical User Interfaces (GUIs).
An option for $1.5 million awarded in June 1997 will reconfigure MIES to be
housed in 31 foot mobile enclosures. The resultant systems will have greatly
enhanced transportability features. Specifically they will be capable of
being driven on or off of a C-130 transport aircraft. This feature will
allow rapid deployment into areas not able to support the larger air cargo
vehicles.
The longtime TIE customer accounted for 43% of the Company revenues
in fiscal 1997. Renewal of the Operations & Maintenance part of the contract
is expected in March 1998 for between $3-4 million.
<PAGE>3
Commercial Imagery Exploitation
July 1997 marked the successful installation of DBA's first ImagClear(tm)
Model F5000 High Volume Fingerprint Card Scanner in Michigan State Police
Central Records Department in Lansing, Michigan. The scanner, workstation
and QuickScan software were delivered under a contract with NEC Technologies,
Inc. The ImagClear(tm) Model F5000 Scanner is DBA's newest addition to their
line of high-speed, high-resolution scanning systems. Identified last year as
an emerging market, DBA developed the F5000 under Internal Research and
Development and Capital Programs. It was submitted to the Federal Bureau of
Investigation (FBI) for certification against their Integrated Automated
Fingerprint Identification System (IAFIS) Image Quality Specification (IQS) and
was subsequently certified in September 1996 and January 1997, meeting the
Appendix F requirement. Appendix F is the highest level of image quality
certification attainable with the FBI. DBA's ImagClear(tm) Model F5000
Scanner is currently the only scanner available that has attained the Appendix
F certification that scans cards in a batch fashion.
PROMAM, the computer-aided radiologist prompting system which uses DBA's
ImagClear(tm) medical film scanner to help radiologists detect breast cancer
in mammograms, has continued to make technical progress toward completing
development. A demonstration of feasibility in a preclinical trial of 2,000
cases at the West Scotland Breast Screening Center in Glasgow is scheduled for
completion in September 1997. Findings appear to confirm that PROMAM is able
to increase the sensitivity of a radiologist to detect cancer in the mammograms
of asymptomatic women to about the level normally associated with two
radiologists "double reading" the mammograms, without the negative impacts of
increasing patient recalls or biopsies due to false positive readings.
Unfortunately, DBA's partner in this venture, the UK's Particle Physics
Astronomy Research Council, has failed to date in its responsibility to
secure public funding to continue on with full clinical trials involving
30,000-100,000 cases. Attempts to secure private funding over the past six
months have yielded the serious interest of several investors, however,
negotiations as yet have been unable to produce an agreeable company structure
and work-share arrangement which would enable the next phase of the program
to continue. Meanwhile, DBA is proceeding to implement plans in December to
roll-out an interim product, the Mammogram Review Station.
DBA is one of four contractors to the Jet Propulsion Laboratory (NASA/JPL)
participating in an eight month study to assess technical, cost and schedule
requirements for a future L-Band Synthetic Aperture Radar (SAR) satellite and
associated ground processing facilities. The study goal is to validate and/or
modify the LightSAR design to retain mission science objectives as well as to
ensure a high commercial content through future sales of value-added SAR
products. A commercial enterprise, RadarSat of America, has been formed to
develop the market and to offset the mission development and operational
costs.
DBA's manufacturing group won two commercial "build-to-print" contracts with
General Electric Medical Systems (GEMS). The Optima Transmission Scanner is
a medical device used in the nuclear medicine field. This scanner is part of
a Diagnostic Imaging System developed by GEMS. The other program, Starcam, is
a group of component kits that are ordered, packaged and shipped by DBA.
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. Revenues accounted for 27% of the Company's 1997 performance.
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.
Continued interest in DBA's Portable Air Defense Threat Simulators from all
branches of the military remained high during this fiscal year. DBA Systems
completed and delivered five XM18A Threat Simulators and modified the five
High Mobility Multi-purpose Wheeled Vehicles (HMMWV) which will be used as
deployment vehicles for the XM18A Systems. The XM18A systems were delivered
to the U.S. Army Operational Test and Evaluation Command (OPTEC) Threat Support
Activity (OTSA)
<PAGE 4>
located at Ft. Bliss, Texas. The XM18A Systems will be used during
Developmental and Operational Test and Evaluation to simulate advanced foreign
manportable surface-to-air infrared missiles.
During the current year DBA was awarded a five year contract to manufacture
threat simulators, training systems and associated spares and support
equipment. This contract, with a ceiling of $10 million, will be used by
various procuring activities to obtain a variety of equipment for specialized
testing and training purposes.
DBA was also awarded a contract to design and build two threat simulation
systems for the Southern California Offshore Range (SCORE). These unique
systems will provide the capability to operate two different advanced missile
threats from a common scoring package.
DBA's ongoing Infrared Target Simulators (IRTS) programs have been very
successful during this past year. The Target Simulators are used to test the
infrared guidance units of various missiles, such as the Mavericks, GBU-15's,
Slam, Harpoon, and the AGM-130's. DBA has completed three separate contracts
this past year worth $2.3 million. These contracts were to assemble, test and
deliver thirteen Maverick Infrared Target Simulators. This brings the total
quantity of Maverick IRTSs to 260 delivered by DBA to customers around the
world. Thirteen of these units under the USAF contract were marked for Foreign
Military Sales. Orders in FY 98 are expected to be in the $1-2 million range.
DBA has recently been awarded a two-year contract by U.S. Army Communications/
Electronics Command (CECOM) for depot level repair and overhaul of CN1314
Vertical Displacement Gyroscopes. DBA has been a primary supplier of gyroscopes
for U.S. Army helicopters for over 17 years. The award of this contract,
valued at just under $1 million (including the option), will position the
Company to pursue other depot level gyro repair contracts that are available,
in part, due to the reduction in defense budgets to procure new helicopters.
DBA believes that the helicopter service life extension programs will provide a
continuing and growing need for DBA, with its proven record of competence and
integrity in this field, to repair and overhaul other gyroscope models for the
U.S. Army Depot system. Also, as a consequence of this contract, DBA will have
opportunities for sales of a small number of new gyros to the U.S. Army as
well as domestic and foreign commercial air frame manufacturers.
DBA was awarded a contract for eight video trackers in support of the Navy's
Optical Director program. The award represents DBA's third contract with the
Kollmorgen Corporation for this program. The tracker is the latest addition to
DBA's broad family of video tracker products and is being customized to ensure
the design supports multi-target tracking allowing target prioritization
during engagements. The tracker architecture also provides the ability to
interface the system with a wide variety of video sensors, including the
newer digital output format sensors. The award is significant in that there is
a strong potential to equip not only Destroyer class vessels, but Cruiser class
and other naval surface ships. There is also a significant market with foreign
navies requiring this type system for coastal defense.
DBA is entering into the final design stage of a new product, the Asset
Monitor. The DBA Asset Monitor will provide the exact location of an item and
have the capability to transmit a variety of sensor data to our customers.
The initial target market for the Asset Monitor will be the trucking industry
to provide location and security for the trailers. The DBA Asset Monitor has
the ability to provide data for up to 12 weeks with a built-in power source.
This device enables the customer to obtain the location of his trailer, the
temperature inside the trailer, the size of the load and when the doors were
opened and shut. If the customer desires to be notified when interrupts (door
openings or out of temperature ranges) occur, the DBA Asset Monitor and sensor
suite has the capability to notify them immediately. As the product matures,
its applications will expand into other areas including rail car location and
remote asset status reporting. DBA is in discussions with a telecommunications
firm in forming a partnership for providing customers with a product and
recurring service.
The Advanced Multi-Mode Video Tracker (AMMVT) represents the latest product in
DBA's continued evolution of video tracker products, dating back to the early
70's. The system is designed to provide the user with an inherently flexible
architecture, allowing adaptation to a broad range of target and tracking
requirements. The system design permits easy integration into laboratory,
surveillance, robotics, inspection, test range and tactical environments.
<PAGE>5
DBA successfully continued its goal of transferring military technology into
the commercial/medical marketplace with the completion of a National
Institutes of Health (NIH) Phase I SBIR for an Eccentric Videorefractometer.
The device provides the ability to rapidly screen large populations of
noncooperative subjects such as infants, young children, and the multi-
handicapped for eye misfocus and related disorders. The device integrates
core technologies from DBA's imaging, photogrammetric and video tracker product
areas. The Phase I research proved the feasibility of the proposed device and
developed a preliminary design. With submittal of the Phase I Final Report, a
Phase II grant request was also submitted. This request, if approved, will
allow development of a prototype device to verify and refine the Phase I design
concept.
DBA was awarded a new Phase I SBIR by NIH for the development of an Infant
Binocular Vision Test System. The primary goal of this research is to design
a compact, portable, stereoscopic test system for use in vision testing of
infants and young children for early detection of amblyopia, strabismus and
related disorders. The system uses a state-of-the-art stereoscopic display and
the latest in DBA PC based tracker technology to provide a non-intrusive means
of measuring eye and head movement.
Enterprise Florida has selected DBA to participate in the "Florida Defense
Business Adjustment Small Business Innovation Research Program." This
program provides the opportunity for defense-related companies to apply for
co-investment funding in promising technology or commercialization leading to
introduction of a product into the marketplace. The basis of the award is to
assist DBA with the implementation of a "Manufacturing Methods and Technology
Program" which would enable the Company to develop specialized techniques for
the manufacture of the "Eccentric Video Refractometer." This device is planned
to be developed under a National Institutes of Health (NIH) Phase II Small
Business Innovation Research Grant. The instrument is designed to provide
screening of vision disorders in non-communicative populations using advanced
video tracking techniques, a leading DBA technology product. The Infant Study
Center of Brooklyn College will be DBA's clinical partner.
Customers and Suppliers
During the fiscal years which ended June 30, 1997, 1996 and 1995, approximately
95%, 95% and 88% 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. It is the goal of the Company to reach a mix of 30%
commercial business base by the year 2000.
The Company is not dependent on any one supplier in connection with the
development or manufacture of its products and services. No one sole source
supplier is responsible for more than 4% of the Company's revenues. Sole
source suppliers account for less than 16% of the Company's revenues for fiscal
1997.
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.
<PAGE>6
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,
1997 1996 1995
<S> <C> <C> <C>
Total Research & Development $637,000 $424,000 $331,000
</TABLE>
Backlog
The Company's backlog of unfilled orders at June 30, 1997 was approximately
$16.6 million as compared to $28.4 million at June 30, 1996. TIE is credited
with 48% of the backlog and 34% is attributable to PIE. Approximately $15
million of the June 30, 1997 backlog is expected to be converted into revenues
during the fiscal year ending June 30, 1998. An order is entered into backlog
only when the Company receives a definite commitment from a customer. The
Company plans to grow its backlog by nearly 30% over the next 12 months. The
emerging market for the Asset Monitor should generate $4-7 million of orders.
Over $11 million of orders are expected from the two longtime customers in the
PIE and TIE areas.
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.
Divisions of certain large industrial concerns with financial resources and
facilities substantially greater than those of DBA, such as Raytheon/E-Systems,
General Dynamics, Intergraph, Lockheed-Martin, TRW, 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, and Metric.
As DBA enters the new commercial market for nationwide wireless data
communications systems, DBA will be competing with QualComm, Highway Master,
and AMSC.
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
<PAGE>7
patents or licenses or any group of them. In DBA's opinion, engineering,
production skills and experience are more important to its market position
than patents or licenses.
Employees
As of September 2, 1997, the Company had 209 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, Florida.
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>
<S> <C> <C> <C>
Location Title Size Use
1200 S. Woody Burke Rd. Land Lease, 64,000 sq. ft. Engineering, office
Melbourne, FL Improvements space & assembly area
Owned
Redwood Plaza 1 Leased 20,060 sq. ft. Office space
10560 Arrowhead Dr.
Fairfax, VA
1101-1103 W. Hibiscus Owned 27,500 sq. ft. Office space & retail
Blvd. space
Melbourne, FL
</TABLE>
The Kissimmee, Florida property, located at 2931 Poinciana Boulevard, is a
141,500 sq. ft. building previously used for manufacturing. This property is
being held for sale and has received interest from numerous prospective buyers.
Approximately 2,000 sq. ft. is currently being used for manufacturing purposes,
as the gyroscope repair line has recently been reactivated. This area is
expected to grow as more contracts are awarded. The majority of the property
is under short lease as a storage facility in order to defray facility expenses.
Approximately 6,500 sq. ft. of the Fairfax office has been sublet in order to
defray operating expenses.
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.
The Company finalized a negotiated settlement during the third 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. DBA received $175,000 in March as the complete and final settlement
payment.
<PAGE>8
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 Contracting 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 during the discovery process. Based on the normal course
of such legal proceedings, it is anticipated that it will be another two years
before the ASBCA issues its decision on this case.
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. 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 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 FY97 4 3/4 5 3/4
2nd Quarter FY97 5 3/8 6 3/4
3rd Quarter FY97 4 3/8 6
4th Quarter FY97 4 7/8 6
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
</TABLE>
B. The number of record holders of DBA Systems, Inc. common stock as of June 30,
1997 and 1996 was 587 and 614, respectively.
C. As of June 30, 1997, 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.
<PAGE>9
D. In December 1996, DBA liquidated all remaining long term debt by exercising
its option to redeem the $1.9 million of outstanding 8.25% debentures at par.
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 Condition Analysis" 15-19
and Results of Operations
ITEM 8 Financial Statements and DBA Systems, Inc. and
Supplementary Data Subsidiaries "Consolidated
Financial Statements" 20-34
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
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, 1997.
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.)
<PAGE>10
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.
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.
(Incorporated by reference to the Registrant's 1994 Form 10-K.)
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, 1997.
<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 18, 1997
By ___(SIGNATURE)______
John L. Slack
Chairman of the Board, President,
and Chief Executive Officer
By ____(SIGNATURE)_____
Charles B. Robertson
Vice President of Administration
Corporate Secretary
By____(SIGNATURE)_____
Edward M. Bielski
Corporate Treasurer
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.
SIGNATURE TITLE DATE
___(signature)_____
John L. Slack Director 8/13/96
___(signature)______ Director 9/18/97
Dr. Richard N. Baney
____(signature)_____ Director 9/18/97
Thomas J. Boyce, Jr.
____(signature)_____ Director 8/13/97
Ambassador Robert F. Ellsworth
____(signature)____ Director 9/18/97
William C. Potter
____(signature)___ Director 9/18/97
Dr. Lynn E. Weaver
<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, 1997, 1996 and 1995 21
Consolidated Balance Sheets at June 30, 1997 and
June 30, 1996 22-23
Consolidated Statements of Cash Flows for the years
ended June 30, 1997, 1996 and 1995 24-25
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1997, 1996 and 1995 26
Notes to Consolidated Financial Statements 27-35
Independent Auditors' Report 36
(2) Valuation and Qualifying Accounts
II Allowance for Doubtful Accounts on Accounts Receivable,
Obsolete Inventory and Estimated losses on uncompleted
contracts for the years ended June 30, 1997, 1996 and 1995 37
(3) Exhibits
11 Computation of Earnings per Share 39
21 Subsidiaries of the Registrant 40
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>
Years Ended June 30
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Revenues $ 25,508 $ 20,470 $ 29,696 $ 24,316 $ 33,298
Operating income $ 2,355 $ 1,140 $ 1,675 $ 1,231 $ 3,047
Net income $ 1,785 $ 1,161 $ 1,502 $ 837 $ 2,209
Total assets $ 34,014 $ 33,851 $ 32,209 $ 29,061 $ 30,687
Long-term debt $ 0 $ 1,926 $ 1,926 $ 2,540 $ 4,816
Stockholders' equity $ 29,175 $ 27,815 $ 26,424 $ 24,632 $ 22,071
Earnings per common share
assuming full dilution:
Net income per share $ .40 $ .26 $ .34 $ .20 $ .56
Dividends per common
share $ .00 $ .00 $ .00 $ .00 $ .00
</TABLE>
Management's Discussion and Analysis
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
Over the past year the defense industry experienced further mergers and
consolidations of government contractors. This trend is expected to increase
in pace but decrease in size as the pool of candidate merger companies
contracts. The U.S. general economy is enjoying an unprecedented boom period
with record-low interest rates, unemployment and inflation. On the other
hand, the Federal Government continues to decrease in size and increase the
scrutiny of its spending in the defense area as the country anticipates a
"peace dividend" resulting from the end of the Cold War. Therefore,
competition for available government contracts remains intense, especially as
merged firms are able to muster greater resources in the development and
proposal process. In response, the Company continues its policy of aggressively
managing costs while focusing resources on new business opportunities with the
greatest promise of success.
Liabilities remain at very low levels and liquid assets at very high levels
while the Company poises itself to expand by taking advantage of commercial
market opportunities. The Company is seriously seeking to acquire other
companies and/or product lines in its bid to broaden sales within core
competencies and enhance shareholder value. 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. Meanwhile, the Company's two long-term traditional government
customers that make up two-thirds of the revenue base are projected to
continue their current levels of revenues in the foreseeable future.
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
<PAGE>15
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 regarding 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
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,
1997 1996 1995 1996 to 1995 to
1997 1996
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 24.6% (31.1)%
Costs and expenses 90.8 94.4 94.4 19.8 (31.0)
Operating income 9.2 5.6 5.6 106.6 (31.9)
Interest income 3.0 2.8 1.0 32.9 93.3
Interest expense (0.4) (0.9) (0.7) (44.0) (12.1)
Other expense - net (0.6) (1.4) (0.7) (41.3) 27.9
Total other expense 2.0 0.5 (0.4) 365.1 (180.9)
Income before taxes 11.2 6.1 5.2 128.6 (19.3)
Provision for taxes (4.2) (0.4) (0.1) 1150.6 102.4
Net income 7.0% 5.7% 5.1% 53.7% (22.7)%
</TABLE>
During the years ended June 30, 1997, 1996 and 1995, approximately 95%, 95%
and 88%, 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.
Fiscal Year 1997 Compared with Fiscal Year 1996
Revenues for the fiscal year ending June 30, 1997 were approximately
$25,508,000, an increase of $5,038,000 or 24.6% when compared to the
$20,470,000 recorded in the prior fiscal year. Over $4 million of the
increase in revenues was attributable to increased Tactical Imagery
Exploitation revenues resulting from the $8.8 million Common Imagery Ground
Surface System (CIGSS) contract awarded in June 1996. The Company recorded
approximately $13,500,000 in new bookings during fiscal 1997 as compared to
approximately $32,100,000 during fiscal 1996. Decreased bookings in fiscal
year 1997 were due mainly to the nature of follow-on procurements of
Proprietary Imagery Exploitation and Tactical Imagery Exploitation which occur
every two years. In December 1996, it was announced that DBA was not awarded
the subcontract for its proposal worth $9 million concerning the competition
for new business as a derivative offshoot of its Tactical Imagery Exploitation
market. However, the Contractor formally agreed to provide supplanting
opportunities over the next five years.
<PAGE>16
Costs and expenses increased from approximately $19,330,000 for the fiscal
year ending June 30, 1996 to approximately $23,153,000 for the fiscal year
ending June 30, 1997. As a percentage of revenues, expenses dropped from
94.4% to 90.8%. This relative decrease in costs and expenses was
attributable to the successful completion of the $9.2 million Multi-year
Avenger production contract as well as the fact that several unprofitable
production contracts from previous years no longer were in operation. The
Tactical Imagery Exploitation (TIE) and Proprietary Imagery Exploitation
(PIE) programs continued their cost-effective high levels of performance.
Indirect support costs increased by approximately $2,300,000.
Interest income for fiscal 1997 was $763,000 as compared to $574,000 during
fiscal 1996. This rise of 33% was primarily attributable to a $2.5 million
increase in the cash available for investment as well as a modestly more
aggressive investment policy combined with higher market interest rates which
increased investment returns by over .5%. Management anticipates use of
significant amounts of this available cash in the coming year for acquisition
purposes which should help increase the Company's Return-On-Equity. During the
interim, interest earned will be reinvested.
Interest expense for fiscal 1997 was $99,000 as compared to $175,000 during
fiscal 1996. The reduction in interest expense was primarily attributable to
the liquidation of the $1.9 million in 8.25% debentures in December 1996,
which was viewed as a prudent use of available working capital. All long-term
debt has now been eliminated from the Company's balance sheet. There are no
current plans to incur further debt or raise capital from equity due to the
current significant levels of working capital.
In March 1997, other income was significantly increased by a one-time
recognition of a $175,000 settlement of a nine-year old lawsuit filed in Rhode
Island stemming from default on a note payable by purchasers of Graphics
Marketing, formerly a subsidiary of DBA Systems.
Significant state and federal income taxes were incurred this year for the
first time since 1988 due to the consumption of Net Operating Loss (NOL)
carryforwards from previous years.
As a result of the above factors net income of $1,785,000 was earned during
fiscal 1997 as compared to $1,161,000 in the prior fiscal year.
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.
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.
<PAGE>17
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 for the fiscal year ended
June 30, 1995
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.
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.
Liquidity and Capital Resources
At June 30, 1997, the Company had working capital of approximately $18,330,000
as compared to approximately $18,215,000 at June 30, 1996. The current ratio
on June 30, 1997 was approximately 4.79:1 versus 5.44:1 on June 30, 1996.
The Company has retained a very strong cash position and remains financially
flexible. As of June 30, 1997 there was a total of $14.9 million of cash and
short term investments recorded.
The Company has a $4,000,000 unsecured line of credit with a bank which expires
January 31, 1998. Amounts drawn on this line of credit accrue interest at
either the bank's prime rate or the bank's 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 June 30, 1997.
During the year ended June 30, 1997, the Company incurred capital expenditures
of approximately $454,000 for manufacturing equipment, test fixtures and office
equipment which were financed from working capital. The Company believes
capital requirements for fiscal 1998 can be internally generated from working
capital. The Company anticipates that capital requirements for fiscal 1998
will include manufacturing equipment, test fixtures and office equipment and
will increase to slightly more than $.5 million in order to provide for
expansion of the Company, especially in the area of its facilitization of the
production line for manufacturing the asset monitor for truck trailer
communications.
There is no outstanding long term debt with the liquidation of 8 1/4%
debentures as of December 1996 when the Company exercised its option to
redeem these bonds at par. This action is estimated to save approximately
$55,000 annually.
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 was payable in quarterly
installments of $16,666 which began March 31, 1995 and concluded March 31,
1997.
<PAGE>18
The 141,000 square foot manufacturing facility in Kissimmee remains for sale,
and is currently utilized for leased storage as well as for limited
manufacturing operations concerning the recent award of a $1 million (including
the option) gyroscope repair contract.
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.
In keeping with its long-standing policy of enhancing growth through usage of
internally generated funds, the Company does not plan to issue dividends to
shareholders.
<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>
1997 Sept 30 Dec 31 Mar 31 June 30
Revenues $ 6,293 $ 5,431 $ 6,381 $ 7,403
Operating income $ 534 $ 497 $ 624 $ 700
Income before income taxes $ 512 $ 592 $ 891 $ 853
Net income $ 323 $ 372 $ 704 $ 386
Fully-diluted earnings per share $ .07 $ .08 $ .16 $ .09
Quarter Ended
1996 Sept 30 Dec 31 Mar 31 June 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
</TABLE>
<PAGE>20
DBA Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share information)
<TABLE>
<CAPTION>
Years Ended June 30,
<S> <C> <C> <C>
1997 1996 1995
Revenues (Note 1) $25,508 $20,470 $29,696
Costs and expenses (Note 1) 23,153 19,330 28,021
Operating income 2,355 1,140 1,675
Other income (expense):
Interest income 763 574 297
Interest expense (Note 3) (99) (175) (199)
Other expense-net (Note 9) (171) (293) (229)
Total other income (expense) - net 493 106 (131)
Income before income taxes 2,848 1,246 1,544
Less provision for income taxes (Notes 1 and 6) 1,063 85 42
Net income $ 1,785 $ 1,161 $ 1,502
Earnings per common and
common equivalent share (Note 7) $ .40 $ .26 $ .34
Earnings per common share
assuming full dilution (Note 7) $ .40 $ .26 $ .34
Primary weighted shares outstanding 4,479 4,493 4,460
Fully diluted shares outstanding 4,485 4,493 4,480
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>21
DBA Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30,
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1997 1996
Current Assets:
Cash and cash equivalents (Note 1) $ 5,595 $ 2,699
Investments (Note 1) 9,311 9,888
Accounts receivable, less allowance for doubtful
accounts of $140 in 1997 and $200 in 1996 (Note 1) 3,523 2,586
Costs and estimated earnings in excess of billings
on uncompleted contracts (Notes 1 & 2) 2,318 4,055
Inventory (Note 1):
Finished goods 1,815 2,509
Work in progress 103 37
Raw materials 66 14
Total inventory 1,984 2,560
Other current assets 438 537
Total Current Assets 23,169 22,325
Property (Note 1):
Buildings and improvements 5,707 5,681
Furniture and fixtures 1,315 1,386
Machinery and equipment 9,296 9,421
Leasehold improvements 376 374
Total 16,694 16,862
Less: accumulated depreciation and amortization 10,667 10,401
Property-net 6,027 6,461
Other Assets:
Cost in excess of value of net assets of businesses
acquired less accumulated amortization of $110
in 1997 and $101 in 1996 (Note 1) 224 232
Real estate held for sale (Note 1) 4,347 4,436
Other assets 247 397
Total Other Assets 4,818 5,065
TOTAL $34,014 $33,851
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>22
DBA Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30,
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
Current Liabilities:
Accounts payable (Note 1) $ 1,050 $ 968
Accrued expenses (Note 1):
Salaries and wages 206 169
Vacation pay 495 495
Other 604 631
Billings in excess of costs and estimated earnings on
uncompleted contracts (Notes 1 and 2) 1,071 1,376
Estimated losses on uncompleted contracts (Note 1) 1,398 271
Other current liabilities 15 200
Total Current Liabilities 4,839 4,110
Long-term Debt (Note 3) 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, 5,569 in 1997; and 5,541 in 1996;
shares outstanding, 4,422 in 1997; and 4,483 in 1996 557 554
Additional paid-in capital 24,539 24,432
Retained earnings 23,153 21,432
Total 48,249 46,418
Treasury stock-at cost, 1,147 shares in 1997 and
1,058 shares in 1996 (19,074) (18,603)
Total Stockholders' Equity-net 29,175 27,815
TOTAL $34,014 $33,851
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>23
DBA Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Years Ended June 30
<S> <C> <C> <C>
1997 1996 1995
Cash Flows from Operating Activities:
Net income $1,785 $1,161 $1,502
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,091 1,078 1,179
Loss (gain) on disposal of property (13) (23) 2
Issuance of treasury stock to employees 19 2 24
Contribution of treasury stock to ESOP 100 100
Decrease (increase) in current assets:
Accounts receivable (937) 2,333 (1,433)
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,737 109 1,235
Inventory 576 (375) 268
Other current assets 99 (150) 640
Increase (decrease) in current liabilities:
Accounts payable 82 (588) 1,373
Accrued expenses 10 34 (5)
Billings in excess of costs and estimated earnings
on uncompleted contracts (305) 682 571
Estimated losses on uncompleted contracts 1,127 30 196
Other current liabilities (185) 93 26
Other-net (43) 73 (62)
Net cash provided by operating activities 4,101 4,559 5,616
Cash Flows from Investing Activities:
Capital expenditures (454) (333) (427)
Purchase of investments (9,311) (9,888) (5,000)
Proceeds from sale of investments 9,888 5,000
Proceeds from sale of property 20 31 1
Net cash provided by (used in) investing activities 143 (5,190) (5,426)
Cash Flows from Financing Activities:
Repayments of long-term debt (1,926) (15)
Repayments on Industrial Development Revenue Bond (790)
Purchase of stock from ESOP 471
Proceeds from issuance of common stock 107 128 166
Net cash provided by (used in) financing activities (1348) 128 (639)
Net Increase (Decrease) in Cash for the Year 2,896 (503) (449)
Cash and Cash Equivalents at Beginning of Year 2,699 3,202 3,651
Cash and Cash Equivalents at End of Year $5,595 $2,699 $3,202
</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, 1997 and 1996, the Company transferred assets of
approximately $88,000 and $10,000, respectively, from inventory to property.
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>
<S> <C> <C> <C>
1997 1996 1995
Income taxes paid $867 $ 89 $ 20
Interest paid $ 99 $175 $199
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>25
DBA Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additional Total
Common Paid-In Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
Balance at July 1, 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 share (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
Stock issued to employees:
5 shares (64) 82 18
Stock options exercised:
107 shares 3 107 110
Stock purchased:
1,500 shares (8) (8)
Stock purchased from ESOP:
92,762 shares (545) (545)
Net income 1,785 1,785
Balance at June 30, 1997 $557 $24,539 $23,153 $(19,074) $29,175
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>26
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%, 95% and 88%
of DBA's fiscal 1997, 1996 and 1995 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> <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, 1997, 1996 and 1995, approximately $10,000, $274,000 and $110,000,
respectively, in general and administrative costs were charged to inventory.
As of June 30, 1997 and 1996, approximately $174,000 and $403,000,
respectively, in general and administrative costs were included in inventory.
The allowance for obsolete inventory at June 30, 1997 and 1996 was approximately
$452,000 and $450,000, respectively.
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.
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.
<PAGE>28
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 $637,000 in fiscal 1997, $424,000 in fiscal 1996 and
$331,000 in fiscal 1995.
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." As of June 30, 1997 and 1996, 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 February 1997, FAS No. 128, "Earnings Per Share," was issued. FAS No. 128,
which supersedes Accounting Principles Board ("APB") Opinion No. 15, requires
a dual presentation of basic and diluted earning per share on the face of the
income statement. Basic earnings per share excludes dilution and is computed
by dividing income or loss attributable to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earning of the entity. Diluted earnings per share is computed similarly to
fully diluted earnings per share under APB Opinion No. 15. FAS No. 128 is
effective for financial statements issued for periods ending after
December 15, 1997.
Had FAS No. 128 been adopted, pro forma basic earnings per
share and pro forma diluted earnings per share would have been as follows:
<TABLE>
<CAPTION>
Pro Forma Earnings Per Share
Basic Diluted
<S> <C> <C>
Years Ended June 30:
1995 $.34 $.34
1996 $.26 $.26
1997 $.40 $.40
</TABLE>
In June 1997, FAS No. 130, "Reporting Comprehensive Income," was issued.
FAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gain, and losses) in a full
set of general-purpose financial statements. FAS No. 130 requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. FAS No. 130
requires that a company (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. FAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes
is required. The Company has not determined the effects, if any, that FAS No.
130 will have on its consolidated financial statements.
<PAGE>29
In June 1997, FAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued. FAS No. 131 establishes standards for the
way that public companies report selected information about operating segments
in annual financial statements and required that those companies report
selected information about segments in interim financial reports issued to the
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. FAS No. 131
which supersedes FAS No. 14"Financial Reporting for Segments of a Business
Enterprise," but retains the requirement to report information about major
customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance.
Generally, financial information is required to be reported on the basis that
is used internally for evaluating segments performance and deciding how to
allocate resources to segments. FAS No. 131 requires that a public company
report a measure of segment profit or loss, certain specific revenue and
expense items, and segment assets. However, FAS No. 131 does not require the
reporting of information that is not prepared for internal use if reporting it
would be impracticable. FAS No. 131 also requires that a public company report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segments information
and those used in the enterprise's general-purpose financial statements, and
changes in the measurement of segment amounts from period to period. FAS
No. 131 is effective for financial statements for periods beginning after
December 15, 1997. The Company has not determined the effects, if any, that
FAS No. 131 will have on the disclosures in its consolidated financial
statements.
Reclassification
Certain amounts have been reclassified in the prior years' financial statements
to conform with the current year presentation.
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,
1997.
<PAGE>30
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
As of June 30,
1997 1996
(in thousands)
<S> <C> <C>
Costs and estimated earnings on uncompleted contracts $ 231,560 $ 241,770
Less: billings to date 230,313 239,091
Total $ 1,247 $ 2,679
</TABLE>
Included in accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 2,318 $ 4,055
Billings in excess of costs and estimated earnings on
uncompleted contracts (1,071) (1,376)
Total $ 1,247 $ 2,679
</TABLE>
As of June 30, 1997 and 1996, the amounts billed but not paid under contract
retainage provisions were approximately $81,000 and $65,000, 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, 1997
and 1996.
3. LONG-TERM DEBT
Long-term debt at June 30, 1996 consisted of $1,926,000 of 8.25% Convertible
Subordinated Debentures, $1,000 par value, scheduled to mature on November 1,
2010 which paid interest semi-annually on November 1 and May 1. In December
1996, the Company exercised its option to redeem all remaining debentures at
par value. As of June 30, 1997, there was no long-term debt.
The Company has a $4,000,000 unsecured line of credit with a bank which
expires January 31, 1998. Amounts drawn on this line of credit accrue interest
at either the bank's prime rate or the bank's 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 June 30, 1997 or 1996.
4. STOCKHOLDERS' EQUITY
The Company has two stock-based compensation plans, which are described below.
The Company applied APB Opinion 25, "Accounting for Stock Issued to Employees",
and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for the plans. Had compensation cost for
the Company's two stock-based compensation plans been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method of FAS No. 123, "Accounting for Stock-Based Compensation", the Company's
1997 and 1996 net income and earnings per common share would have changed to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
Net income
As reported (in thousands) $ 1,785 $ 1,161
Pro forma (in thousands) $ 1,573 $ 908
Earnings per common share assuming no dilution:
As reported $ 0.40 $ 0.26
Pro forma $ 0.35 $ 0.20
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: no dividend yield for 1997 or 1996, expected volatility of 57%
and 55% for 1997 and 1996, respectively, risk-free interest rate of 6.22% and
6.07% for 1997 and 1996, respectively, and expected lives of 3.29 years and
3.33 years for 1997 and 1996, respectively.
<PAGE>31
The 1992 Employee Incentive Stock Option Plan which will expire on November 12,
2002, provides 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, 1997, 304,533 of these shares
were under option.
The 1993 Directors' Stock Option Plan which will expire on November 17, 1998,
provides 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, 1997, 20,000 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, 1997, options for 25,000 shares
were outstanding.
The following is a summary of the activity in all of DBA's Option Plans for
the three year period ended June 30, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
Option Price
Shares Per Share
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
Options Granted Fiscal 1997 91,750 $ 4.75 - $ 5.50
Options Canceled Fiscal 1997 (65,966) $ 3.88 - $ 6.75
Options Exercised Fiscal 1997 (28,336) $ 3.88
Outstanding June 30, 1997 349,533
Shares Exercisable June 30, 1997 190,495
</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 $453,000 in 1997, $422,000 in 1996, and $396,000 in 1995.
<PAGE>32
Future minimum payments under all operating leases having a remaining non-
cancelable term of more than one year are approximately as follows:
<TABLE>
<CAPTION>
<S> <C>
For the Year Ended June 30, (in thousands)
1998 $ 399
1999 124
2000 115
2001 108
2002 54
Thereafter 703
Total $ 1,503
</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 was payable in quarterly installments
of $16,666 which began March 31, 1995 and concluded March 31, 1997. On June 30,
1997, the balance outstanding on the promissory note was $0.
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, 1997 and 1996.
6. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
(in thousands)
Current Federal income tax expense $ 682 $ 85 $ 42
Current State income tax expense 136
Deferred Federal and State income tax expense 245
Total 1,063 $ 85 $ 42
</TABLE>
DBA's effective tax rate differs from the statutory federal income tax rate
for the following reasons:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
(in thousands)
Computed Federal statutory amount $ 968 $ 423 $ 525
State income taxes, net of federal benefit 136
Change in valuation allowance for deferred tax assets (354) (374)
Other (41) 16 (109)
$ 1,063 $ 85 $ 42
</TABLE>
<PAGE>33
The tax effect of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at June 30, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
(in thousands)
Deferred Tax Assets:
Net operating loss carryforwards $ 41
Alternative minimum tax credits 399
Deferred compensation $ 117 137
Reserve for uncompleted contracts 510 92
Other individually immaterial items 216 340
Total deferred tax assets 843 1,009
Deferred Tax Liabilities:
Depreciation 1,020 982
Purchase accounting adjustment 68 63
Total deferred tax liabilities 1,088 1,045
Total net deferred tax asset (liability) $ (245 $ (36)
</TABLE>
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 1997, 1996 and 1995 were approximately
4,479,000, 4,493,000 and 4,460,000, respectively.
In determining earnigs per common share assuming full dilution, consideration
is given to the additional dilutive effect of common stock equivalents which
results from year-end market prices exceeding the average market price during
the period. Weighted shares used in 1997, 1996 and 1995 were approximately
4,485,000, 4,493,000 and 4,480,000, 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 1997, 1996 and 1995 was $175,000, $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. On December 7, 1996 the Company rescinded the
$750 cap and modified the Employer Matching Contributions with a sliding scale
up to a maximum of 6% of the employee's compensation. Expense for the 401(k)
component for 1997, 1996 and 1995 was approximately $287,000, $114,000 and
$119,000, respectively. Effective July 1, 1988 and most recently restated May
7, 1995, the Company 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 and 1995, accruals towards stock contributions
were $100,000 and $100,000, respectively. The actual contributions of stock
are made from Treasury Stock. Effective December 16, 1996 the Company t
erminated the ESOP Plan and no contribution was made in fiscal year 1997.
<PAGE>34
9. OTHER EXPENSE-NET
The components of other expense-net are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
<S> <C> <C> <C>
1997 1996 1995
(in thousands)
Patent amortization expense $ (112) $ (112) $ (112)
Other-net (59) (181) (117)
Total $ (171) $ (293) $ (229)
</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.
<PAGE>35
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, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1997. 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, 1997 and
1996, and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 1997, 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
August 20, 1997
<PAGE>36
SCHEDULE II
DBA Systems, Inc. and Subsidiaries
Valuation and Qualifying Accounts
(In Thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance at Charged to Charged Balance
Allowance for Beginning Costs and to Other at End
Doubtful Accounts of Year Expense Accounts Deductions of Year
1997 $ 200 $ 0 $ 0 $ (60) $ 140
1996 $ 100 $ 100 $ 2 $ (2) $ 200
1995 $ 96 $ 34 $ 4 $ (34) $ 100
Balance at Charged to Charged Balance
Allowance for Beginning Costs and to Other at End
Obsolete Inventory of Year Expense Accounts Deductions of Year
1997 $ 450 $ 5 $ 0 $ (3) $ 452
1996 $ 350 $ 76 $ 24 $ 0 $ 450
1995 $ 109 $ 35 $ 206 $ 0 $ 350
Balance at Charged to Charged Balance
Estimated losses on Beginning Costs and to Other at End
Uncompleted Contracts of Year Expense Accounts Deductions of Year
1997 $ 271 $1,016 $ 112 $ (1) $1,398
1996 $ 241 $ 124 $ 0 $ (94) $ 271
1995 $ 45 $ 347 $ 0 $(151) $ 241
</TABLE>
<PAGE>37
DBA Systems, Inc. and Subsidiaries
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Page No.
Exhibit 11 - Computation of earnings per share 38
Exhibit 21 - Subsidiaries of the Registrant 39
</TABLE>
<PAGE>38
EXHIBIT 11
DBA Systems, Inc. and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Information)
Year Ended June 30,
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
Net income (A) $1,785 $1,161 $1,502
Weighted average shares outstanding 4,449 4,447 4,385
Incremental shares-stock options 30 46 75
Subtotal (B) 4,479 4,493 4,460
Incremental shares-stock options 6 20
Total (C) 4,485 4,493 4,480
Primary earnings per share:
Net Income (A/B) $.40 $.26 $.34
Fully diluted earnings per share:
Net income (A/C) $.40 $.26 $.34
</TABLE>
<PAGE> 39
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
(4) RadarSat of America, Inc.
100% Owned Subsidiary
Incorporated in the State of Florida
<PAGE>40
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1,000
<CURRENCY>U.S. DOLLARS
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END>JUN-30-1997
<PERIOD-END>JUN-30-1997
<EXCHANGE-RATE>1
<CASH> 5,595
<SECURITIES> 9,311
<RECEIVABLES> 3,633
<ALLOWANCES> 140
<INVENTORY> 1,984
<CURRENT-ASSETS> 23,169
<PP&E> 16,694
<DEPRECIATION> 10,667
<TOTAL-ASSETS> 34,014
<CURRENT-LIABILITIES> 4,839
<BONDS> 0
0
0
<COMMON> 557
<OTHER-SE> 28,618
<TOTAL-LIABILITY-AND-EQUITY> 34,014
<SALES> 25,508
<TOTAL-REVENUES> 26,271
<CGS> 0
<TOTAL-COSTS> 23,153
<OTHER-EXPENSES> 171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> 2,848
<INCOME-TAX> 1,063
<INCOME-CONTINUING> 1,785
<DISCONTINUED>0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,785
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
