<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------
Commission file number 0-4633
DBA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-0996417
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 South Woody Burke Road, Melbourne, Florida 32901
(Address of principal executive offices)
(407) 727-0660
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
DBA Systems, Inc. Common Stock, $.10 par value, 4,471,290 shares outstanding as
of December 31, 1997.
Total number of sequentially numbered pages: 19
The Exhibit index appears on sequential page 18
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
----------- -----------
1997 1996 1997 1996
---- ---- ---- ----
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $ 5,995 $ 5,431 $11,660 $11,724
Costs and expenses . . . . . . . . . . . . . . . . 5,457 4,934 10,430 10,693
Special charge (Note 1). . . . . . . . . . . . . . 3,500 ---- 8,500 ----
------- ------- ------- -------
Operating income (loss). . . . . . . . . . . . . . (2,962) 497 (7,270) 1,031
Other income (expense):. . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . 194 191 432 365
Interest expense. . . . . . . . . . . . . . . (2) (38) (2) (80)
Other expense - net . . . . . . . . . . . . . (107) (58) (177) (212)
------- ------- ------- -------
Total other income - net . . . . . . . . 85 95 253 73
------- ------- ------- -------
Income (loss) before taxes. . . . . . (2,877) 592 (7,017) 1,104
Less provision (benefit) for income taxes. . . . . (218) 220 (542) 409
------- ------- ------- -------
Net Income (Loss) . . . . . . . . . . . . . . . . $(2,659) 372 $(6,475) $ 695
------- ------- ------- -------
------- ------- ------- -------
Basic Earnings (Loss) per Share . . . . . . . . . $(.60) $.08 $(1.46) $.16
------- ------- ------- -------
Diluted Earnings (Loss) per Share . . . . . . . . $(.60) $.08 $(1.46) $.15
------- ------- ------- -------
------- ------- ------- -------
Basic weighted average shares outstanding. . . . . 4,427 4,474 4,425 4,479
------- ------- ------- -------
------- ------- ------- -------
Diluted weighted average shares outstanding. . . 4,427 4,521 4,425 4,513
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying Notes to Condensed Consolidated Interim Financial Statements.
2
<PAGE>
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Dec. 31, 1997 June 30, 1997
ASSETS (Unaudited) (Audited)
(Restated)
<S> <C> <C>
Current Assets:
Cash & cash equivalents . . . . . . . . . . . $ 9,364 $ 5,595
Investments . . . . . . . . . . . . . . . . . 4,499 9,311
Accounts receivable - net . . . . . . . . . . 2,030 3,523
Costs and estimated earnings in excess
of billings on uncompleted contracts . . 3,575 2,318
Inventory (Note 1). . . . . . . . . . . . . . 708 1,984
Deferred income taxes . . . . . . . . . . . . 1,105 ----
Other current assets. . . . . . . . . . . . . 886 438
------- -------
Total Current Assets . . . . . . . . . . 22,167 23,169
------- -------
Property:
Cost . . . . . . . . . . . . . . . . . . . . 14,633 16,694
Less accumulated depreciation
and amortization . . . . . . . . . . . . 9,419 10,667
------- -------
Property--net (Note 1) . . . . . . . 5,212 6,027
------- -------
Other Assets:
Cost in excess of value of net assets of
businesses acquired. . . . . . . . . . . 220 224
Real estate held for sale...(Note 1). . . . . 2,303 4,347
Investment in preferred stock. (Note 1) . . . 0 0
Other assets. . . . . . . . . . . . . . . . . 192 247
------- -------
Total Other Assets . . . . . . . . . . . 2,715 4,818
------- -------
Total Assets. . . . . . . . . . . . . $30,094 $34,014
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable. . . . . . . . . . . . . . . $ 1,319 $ 1,050
Accrued expenses. . . . . . . . . . . . . . . 928 1,122
Billings in excess of costs and estimated
earnings on uncompleted contracts. . . . 714 1,071
Income Taxes Payable. . . . . . . . . . . . . 104 183
Estimated losses on uncompleted contracts . . 1,109 1,398
Other current liabilities . . . . . . . . . . 176 15
------- -------
Total Current Liabilities. . . . . . . . 4,350 4,839
------- -------
Non-current liabilities (Note 1). . . . . . . 2,850 -------
-------
Stockholders' Equity:
Common stock. . . . . . . . . . . . . . . . . 562 557
Paid-in capital . . . . . . . . . . . . . . . 24,737 24,539
Retained earnings . . . . . . . . . . . . . . 16,690 23,153
------- -------
Total. . . . . . . . . . . . . . . . . . 41,989 48,249
Treasury stock. . . . . . . . . . . . . . . . (19,095) (19,074)
------- -------
Stockholders' Equity - net . . . . . . . 22,894 29,175
------- -------
Total Liabilities and Stockholders' Equity . . . . $30,094 $34,014
------- -------
------- -------
</TABLE>
See Notes to Condensed Consolidated Interim Financial Statements.
3
<PAGE>
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ending
Dec. 31, 1997 Dec. 31, 1996
------------- -------------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
<S> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,475) $ 695
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation & amortization . . . . . . . . . . . . . . . . . . . . . 491 523
Gain on sale of assets. . . . . . . . . . . . . . . . . . . . . . . . 5 12
Special charge (Note 1) . . . . . . . . . . . . . . . . . . . . . . . 8,500 --
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . (1,105) --
Decrease (increase) in current assets:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . 1,493 137
Costs and estimated earnings in excess of billings on
uncompleted Government contracts. . . . . . . . . . . . . . . (1,257) 1,651
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . (24) 140
Other current assets . . . . . . . . . . . . . . . . . . . . . . (448) 43
Increase (decrease) in current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 269 (248)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . (377) (307)
Billings in excess of costs and estimated earnings on
uncompleted Government contracts. . . . . . . . . . . . . . . (357) (504)
Estimated losses on uncompleted contracts. . . . . . . . . . . . (289) 51
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . 115 (190)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) (419)
-------- -------
Net cash provided by operating activities . . . . . . . . . . . . . . 521 1,584
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of Investments . . . . . . . . . . . . . . . . 9,311 405
Purchase of Investments . . . . . . . . . . . . . . . . . . . . . . . (4,499) 0
Investment in preferred stock . . . . . . . . . . . . . . . . . . . . (1,600) 0
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . (173) (288)
Proceeds from sale of property. . . . . . . . . . . . . . . . . . . . 6 14
-------- -------
Net cash provided by investing activities . . . . . . . . . . . . . . 3,045 131
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock. . . . . . . . . . . . . . . . 203 0
Repayments on long-term debt. . . . . . . . . . . . . . . . . . . . . 0 (1,926)
-------- -------
Net cash provided by (used in) financing activities . . . . . . . . . 203 (1,926)
-------- -------
Net increase (decrease) in cash during the period. . . . . . . . . . . . . 3,769 (211)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 5,595 2,699
-------- -------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 9,364 $ 2,488
-------- -------
-------- -------
</TABLE>
See Notes to Condensed Consolidated Interim Financial Statements.
4
<PAGE>
DBA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(1) The accompanying Condensed Consolidated Interim Financial Statements of DBA
Systems, Inc. ("the Company" or "DBA") should be read in conjunction with
the Notes to Consolidated Financial Statements contained in the Company's
Annual Report on Form 10-K to the Securities and Exchange Commission for
the year ended June 30, 1997. The accompanying financial statements
contained herein reflect all adjustments of a normal recurring nature which
are, in the opinion of management, necessary to a fair statement of the
results for the interim periods presented. The results of operations for
the interim periods contained herein are not necessarily indicative of the
results to be expected for the fiscal year.
The accompanying unaudited financial statements for the three months and
six months ended December 31, 1997 have been restated from amounts
previously reported to reflect the recognition of a special charge of $3.5
million and $8.5 million, respectively. The $8.5 million charge consists
of a $2.0 million write down of an Asset Held for Sale, $3.0 million
related to the accrual of certain environmental liabilities, $1.3 million
related to the write down of inventory, $.6 million related to the write
down of certain machinery and equipment, and $1.6 million related to the
write-down of an investment in a start-up company as follows:
(a) The Asset Held for Sale is a 141,000 square foot manufacturing facility
in Kissimmee, Florida which was originally classified as held for sale
in June 1996, at which time the recorded book value was approximately
$4.4 million. An independent appraisal of the property and land was
performed in August 1996, which indicated a market value of
approximately $5.0 million. Thereafter, the property was listed for
sale with a realtor for approximately $5.2 million. Several potential
buyers expressed interest in acquiring the property throughout fiscal
1997, and in July 1997, the Company received a written offer from a
prospective buyer and entered into negotiations for the sale of this
property to this buyer for consideration approximating the recorded
book value. Ongoing negotiations with this buyer ultimately proved
unsuccessful and no further offers were received until October 1997.
The offer received in October 1997 led management to conclude that
there had been an impairment in the carrying value of the asset of
approximately $2.0 million. Since this impairment was determined
prior to the issuance of the Company's reported results from
operations for the quarter ended September 30, 1997, a corresponding
adjustment to reflect this impairment has been recorded in the
accompanying financial statements for this quarter. This amount
reflects an adjustment to previously reported results of operations
for this quarter.
5
<PAGE>
(b) In August 1997, DBA management entered into discussions with The Titan
Corporation with regard to a potential acquisition of the Company by
Titan. In October 1997, Titan commenced its acquisition due diligence
process, which included engaging independent environmental consultants
to perform a preliminary environmental site assessment of all DBA's
land and property. This study revealed certain environmental matters,
which included, but was not limited to, soil contamination and
potential asbestos and lead based paint contamination, all of which
DBA management had no prior knowledge.
The Company subsequently engaged these environmental consultants to
assist in determining the potential range of costs to remediate such
contamination as well as to determine whether any additional
environmental exposures exist with the Company's property. An initial
assessment considering pre clean-up activities, and operation and
maintenance of the remediation plan indicates that these costs could
range from approximately $3.0 million to $5.5 million (undiscounted).
Such amounts represent an initial estimate, which could change
significantly as more extensive studies are performed. In accordance
with SFAS No. 5, "Accounting for Contingencies" and SOP 96-1,
"Environmental Remediation Liabilities", the Company recorded a $3.0
million charge, representing the low end of the estimate as no amount
within the range was deemed to be a better estimate at that time. The
environmental remediation actions are being undertaken at the sole
discretion of management and have not been induced by threat, by
government agencies, or by litigation. Therefore, amounts included in
the aforementioned estimates, specifically related to legal costs and
internal labor costs, are not significant relative to the total
estimated costs. Since this environmental issue initially became
known to management and was reasonably quantifiable in October 1997,
prior to the Company's release of its quarterly results from
operations for the three months ended September 30, 1997, an
adjustment of $3.0 million was recorded in the accompanying income
statement for this quarter. In the accompanying balance sheet,
approximately $.2 million is included in Other current liabilities and
the remaining $2.8 million is included in Non-current liabilities,
based upon the estimated timing of payments related to this liability.
This amount represents an adjustment to the previously reported
results for this quarter.
(c) In December 1997, DBA management became aware of certain facts and
circumstances which indicated that there was a likely impairment in
the value of certain inventory which management hoped to use in a
potential contract being discussed with a strategic partner.
Subsequent to December 31, 1997, the Company received written
notification that the customer wished to terminate discussions
regarding the contract. The Company is exploring alternative uses for
the inventory, however, in light of these circumstances, management
believes that the inventory has been impaired by approximately $1.3
million. Accordingly, an adjustment of $1.3 million has been recorded
in the accompanying results from operations for the quarter ended
December 31, 1997. This represents an adjustment to the previously
reported results of operations for this quarter.
6
<PAGE>
(d) In December 1997, the Company determined that it was unable to
physically locate certain test machinery and equipment which it needed
to perform on a recently awarded contract. Management believes that
the equipment may have been utilized in other operations within the
business, however, management is unable to determine the exact
disposition and/or timing of the use of such equipment. The net book
value of this equipment was approximately $.6 million at December 31,
1997. Accordingly, the Company is recording a charge of $.6 million
to write off the book value of these assets in the accompanying
results from operations for the quarter ended December 31, 1997. This
represents an adjustment to the previously reported results of
operations for this quarter. The Company intends to closely examine
its control procedures over such assets and make modifications as
appropriate.
(e) In September 1997, the Company invested $1.6 million by purchasing
convertible preferred Series B stock in Flash Comm, Inc. ("FCI"). At
the time of making this investment, DBA management was led to believe
that FCI would be raising significant additional debt or equity
financing by December 31, 1997, which amounts would enable FCI to
perform under its $10.6 million contract entered into with DBA. FCI
to date has not raised the additional capital, has not yet generated
any significant new business, and has made limited progress toward
performing under its contract with DBA. In light of these
circumstances, and the current financial condition of FCI, DBA
management presently believes that there is doubt about FCI's ability
to achieve commercial success, and thus recognizes that there has been
an impairment in the value of the $1.6 million investment recorded by
DBA. An adjustment to write-down the investment by $1.6 million is
reflected in the results from operations for the quarter ended
December 31, 1997. This amount reflects an adjustment to the
previously reported results from operations for this quarter.
A summary of the special charges noted above and the impact on net income
(loss) and earnings per share is as follows (in thousands):
<TABLE>
<CAPTION>
3 mos ended 3 mos ended 6 mos ended
Sep 30, 1997 Dec 31, 1997 Dec 31, 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) as
originally reported $ 534 $ 386 $ 920
------- ------- -------
Special Charges:
Write-down of Asset Held
For Sale 2,000 ----- 2,000
Environmental costs 3,000 ----- 3,000
Inventory write-down ----- 1,300 1,300
Machinery & equipment
write-down ----- 600 600
Investment write-down ----- 1,600 1,600
------- ------- -------
Total special charges $ 5,000 $ 3,500 $ 8,500
Tax impact of special charges (650) (455) (1,105)
------- ------- -------
Net income (loss) as restated $(3,816) $(2,659) $(6,475)
------- ------- -------
------- ------- -------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
3 mos ended 3 mos ended 6 mos ended
Sep 30, 1997 Dec 31, 1997 Dec 31, 1997
------------ ------------ ------------
<S> <C> <C> <C>
Basic earnings per share
as originally reported: $ 0.12 $ 0.09 $ 0.21
Basic earnings (loss) per
share as restated: $(0.85) $(0.60) $(1.46)
Diluted earnings per share
as originally reported: $ 0.12 $ 0.09 $ 0.21
Diluted earnings (loss)
per share as restated: $(0.85) $(0.60) $(1.46)
</TABLE>
(2) Refer to the Company's Annual Consolidated Financial Statements for the
Year Ended June 30, 1997, for a description of accounting policies, which
have been continued without change (except for the adoption of SFAS #128 as
discussed in Note (4) below). Also, refer to the Notes included in those
Consolidated Financial Statements for additional details of the Company's
financial condition, results of operations and changes in financial
position.
(3) Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997
----------------- -------------
(Unaudited) (Audited)
(Restated)
<S> <C> <C>
Finished Goods $303 $1,815
Work in Progress 347 103
Raw Materials 58 66
---- ------
TOTAL $708 $1,984
---- ------
---- ------
</TABLE>
(4) The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" (SFAS 128) during the current period. In accordance
with SFAS 128, earnings per share for prior periods has been restated to
conform with the provisions of SFAS 128. Basic earnings per common share
is computed by dividing net income by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of common
shares and all dilutive potential common shares outstanding during the
period. Dilutive potential common shares consist of common stock which may
be issued upon the exercise of outstanding stock options.
8
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgment based on factors currently known, involve risks and uncertainties.
Actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors as discussed
below. 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. economy in general is enjoying a sustained period of 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 realizes 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. Indirect costs have been maintained at low levels to
enhance competitiveness in the fierce marketplace. 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 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.
9
<PAGE>
RESULTS OF OPERATIONS
During the three-month period ended December 31, 1997, DBA recorded revenues
of $5,995,000, up $564,000 from the $5,431,000 recorded in the comparable
three-month period in the prior fiscal year. This revenue increase was
driven by additional sales of $1,178,000 in Commercial Imagery Exploitation
(CIE) versus offsetting decreased sales of $520,000 in Tactical Imagery
Exploitation (TIE). CIE revenues consisted mainly of expanded sales in the
fingerprint product area as well as completion of the $700,000 LightSAR study
contract for NASA JPL Tactical Imagery Exploitation revenue decreases were
due to expected lower levels of material procured as the Common Imagery
Ground/Surface System (CIGSS) contract moved into its second year of
performance.
Revenues for the six-month period ended December 31, 1997 equaled
$11,660,000, roughly the same as $11,724,000 for the same period last fiscal
year. Revenue for CIE was $1,676,000, up by $1,541,000 over the same period
last year, while revenue for TIE was $3,872,000, lower by $859,000 from the
same period last year. Reasons for these trends are the same as discussed
above for the second quarter results. Revenue in Proprietary Imagery
Exploitation (PIE) for the first six months of this year was $3,766,000, an
increase of $930,000 over the same period last year due to recovery to full
DBA program manpower staffing levels as well as increased expenses in
updating software and hardware capabilities.
The accompanying unaudited financial statements for the three months and six
months ended December 31, 1997 have been restated from amounts previously
reported to reflect the recognition of a special charge of $3.5 million and
$8.5 million, respectively. The $8.5 million charge consists of a $2.0
million write down of an Asset Held for Sale, $3.0 million related to the
accrual of certain environmental liabilities, $1.3 million related to the
write down of inventory, $.6 million related to the write down of certain
machinery and equipment, and $1.6 million related to the write-down of an
investment in a start-up company as follows:
(a) The Asset Held for Sale is a 141,000 square foot manufacturing facility in
Kissimmee, Florida which was originally classified as held for sale in June
1996, at which time the recorded book value was approximately $4.4 million.
An independent appraisal of the property and land was performed in August
1996, which indicated a market value of approximately $5.0 million.
Thereafter, the property was listed for sale with a realtor for
approximately $5.2 million. Several potential buyers expressed interest in
acquiring the property throughout fiscal 1997, and in July 1997, the
Company received a written offer from a prospective buyer and entered into
negotiations for the sale of this property to this buyer for consideration
approximating the recorded book value. Ongoing negotiations with this
buyer ultimately proved unsuccessful and no further offers were received
until October 1997. The offer received in October 1997 led management to
conclude that there had been an impairment in the carrying value of the
asset of approximately $2.0 million. Since this impairment was determined
prior to the issuance of the Company's reported results from operations for
the quarter ended September 30, 1997, a corresponding adjustment to reflect
10
<PAGE>
this impairment has been recorded in the accompanying financial statements
for this quarter. This amount reflects an adjustment to previously
reported results of operations for this quarter.
(b) In August 1997, DBA management entered into discussions with The Titan
Corporation with regard to a potential acquisition of the Company by Titan.
In October 1997, Titan commenced its acquisition due diligence process,
which included engaging independent environmental consultants to perform a
preliminary environmental site assessment of all DBA's land and property.
This study revealed certain environmental matters, which included, but was
not limited to, soil contamination and potential asbestos and lead based
paint contamination, all of which DBA management had no prior knowledge.
The Company subsequently engaged these environmental consultants to assist
in determining the potential range of costs to remediate such contamination
as well as to determine whether any additional environmental exposures
exist with the Company's property. An initial assessment considering pre
clean-up activities, and operation and maintenance of the remediation plan
indicates that these costs could range from approximately $3.0 million to
$5.5 million (undiscounted). Such amounts represent an initial estimate,
which could change significantly as more extensive studies are performed.
In accordance with SFAS No. 5 "Accounting for Contingencies" and SOP 96-1
"Environmental Remediation Liabilities", the Company recorded a $3.0
million charge, representing the low end of the estimate as no amount
within the range was deemed to be a better estimate at that time. The
environmental remediation actions are being undertaken at the sole
discretion of management and have not been induced by threat, by government
agencies, or by litigation. Therefore, amounts included in the
aforementioned estimates, specifically related to legal costs and internal
labor costs, are not significant relative to the total estimated costs.
Since this environmental issue became known to management and was
reasonably quantifiable in October 1997, prior to the Company's release of
its quarterly results from operations for the three months ended September
30, 1997, an adjustment of $3.0 million was recorded in the accompanying
income statement for this quarter. In the accompanying balance sheet,
approximately $.2 million is included in Other current liabilities and the
remaining $2.8 million is included in Non-current liabilities, based upon
the estimated timing of payments related to this liability. This amount
represents an adjustment to the previously reported results for this
quarter.
(c) In December 1997, DBA management became aware of certain facts and
circumstances which indicated that there was a likely impairment in the
value of certain inventory which management hoped to use in a potential
contract being discussed with a strategic partner. Subsequent to December
31, 1997, the Company received written notification that the customer
wished to terminate discussions regarding the contract. The Company is
exploring alternative uses for the inventory, however, in light of these
circumstances, management believes that the inventory has been impaired by
approximately $1.3 million. Accordingly, an adjustment of $1.3 million
has been recorded in the accompanying results from operations for the
quarter ended December 31, 1997. This represents an adjustment to the
previously reported results of operations for this quarter.
11
<PAGE>
(d) In December 1997, the Company determined that it was unable to physically
locate certain test machinery and equipment which was needed to perform on
a recently awarded contract. Management believes that the equipment may
have been utilized in other operations within the business, however,
management was unable to determine the exact disposition and/or timing of
the use of such equipment. The net book value of this equipment was
approximately $.6 million at December 31, 1997. Accordingly, the Company
is recording a charge of $.6 million to write off the book value of these
assets in the accompanying results from operations for the quarter ended
December 31, 1997. This represents an adjustment to the previously
reported results of operations for this quarter. The Company intends to
closely examine its control procedures over such assets and make
modifications as appropriate.
(e) In September 1997, the Company invested $1.6 million by purchasing
convertible preferred Series B stock in Flash Comm, Inc. ("FCI"). At the
time of making this investment, DBA management was led to believe that FCI
would be raising significant additional debt or equity financing by
December 31, 1997, which amounts would enable FCI to perform under its
$10.6 million contract entered into with DBA. FCI to date has not raised
the additional capital, has not yet generated any significant new business,
and has made limited progress toward performing under its contract with
DBA. In light of these circumstances, and the current financial condition
of FCI, DBA management presently believes that there is doubt about FCI's
ability to achieve commercial success, and thus recognizes that there has
been an impairment in the value of the $1.6 million investment recorded by
DBA. An adjustment to write-down the investment by $1.6 million is
reflected in the results from operations for the quarter ended December 31,
1997. This amount reflects an adjustment to the previously reported
results from operations for this quarter.
Excluding the special charge discussed above, operating income was $538,000
during the current three-month period, up $41,000 from $497,000 in the
comparable period in the prior fiscal year. Increase in total operating
profit was driven by the increase in base revenues.
Excluding the special charge discussed above, operating income for the
six-month period ended December 31, 1997 equaled $1,230,000, an increase of
$199,000 over the same period last fiscal year. This operating margin
increase from 8.8% to 10.5% was most notably driven by Systems
Engineering/Development's more favorable performance reflecting successful
completion of certain Avenger Tracker contracts.
During the three-month period ending December 31, 1997, the Company recorded
new business bookings of $8,846,000 as compared to $4,939,000 in the prior
year. As a result, the backlog at December 31, 1997 was approximately
$16,000,000, up by $2,700,000 as compared to the September 30, 1997 balance.
Significant orders booked in the second quarter ended December 31, 1997,
included $6,283,000 of continuing work for PIE and $1,636,000 of fingerprint
jobs in CIE. An order is entered into backlog only when the Company receives
a definite commitment from a customer.
12
<PAGE>
Interest expense during the current period was $2,000 as compared to $38,000
recorded in the comparable quarter in the prior fiscal year since all
remaining debentures were liquidated in December 1996. The Company has no
long term debt. Interest income for the six-month period ended December 31,
1997 increased to $432,000 from $365,000 as comparable to the same period
last year mainly due to a higher cash balance of $1,892,000.
The tax benefit for the three months and six months ended December 31, 1997
represents the deferred tax benefit, primarily resulting from the special
charge noted above, net of a valuation allowance, which management believes
more likely than not will be realized in future periods. The tax provision
for the three months and six months ended December 31, 1996 approximates the
statutory federal and state income tax rates.
As a result of the above factors, net loss was $2,659,000 or $(.60) per share
in the current quarter ended December 31, 1997 as compared to $372,000 or
$.08 per share in the same period of the prior fiscal year.
Net loss for the six-month period ended December 31, 1997, equaled $6,475,000
or $(1.46) per share, compared to net income of $695,000 or $.15 per share
over the comparable period for last year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997 the Company had working capital of approximately
$17,817,000, down $513,000 or 2.8%, when compared to the $18,330,000 as of
June 30, 1997. Accounts receivable-net decreased $1,493,000 from $3,523,000
at June 30, 1997 to $2,030,000 at December 31, 1997 due to efficient
collection of outstanding trade receivables and aggressive pursuit of "past
due" accounts. Costs and estimated earnings in excess of billings on
uncompleted contracts increased from $2,318,000 at June 30, 1997 to
$3,575,000 at December 31, 1997 due to timing differences. A large part of
these timing differences was due to $554,000 of expenses on the new contract
with CBM Archives.
The Company has been seriously studying several further investment
opportunities in planning to utilize part of its remaining $14.0 million of
cash in order to increase return-on-equity and enable the Company to grow in
revenue and income. Additionally, in the first quarter of FY 98 the Company
engaged The Robinson-Humphrey Company, Inc., investment bankers, to develop,
evaluate and report to the Board of Directors on alternatives to maximize
shareholder value. The alternatives evaluated by Robinson-Humphrey were not
constrained and they covered the gamut including sale of the Company or a
division thereof, merger acquisitions or divestitures, revising the Company's
capital structure, and identifying possible strategic partners.
In September 1997 the Company invested $1.6 million by purchasing convertible
preferred Series B stock in Flash Comm, Inc. (FCI). This investment will
result in 6.2% ownership of FCI, or 7.2% if DBA exercises outstanding
warrants. DBA is the manufacturing partner for FCI, a start-up company which
awarded a $10.6 million contract to DBA for the design, development,
13
<PAGE>
and manufacturing of asset monitors for its truck-trailer location device.
However, as noted above, the $1.6 million investment was written off in the
quarter ended December 31, 1997 and FCI has made limited progress toward
performing under the contract.
Subsequent to the close of the second quarter, on January 6, 1998, the
Company announced acceptance by the DBA Board of Directors of a proposal by
the Titan Corporation to acquire DBA Systems, Inc. The proposal includes a
stock-for-stock swap of Titan common shares for DBA common shares computed
with an exchange ratio of 1.367. A special meeting of the DBA shareholders
is expected to be held on February 27, 1998, to obtain the concurrence of the
shareholders with the Titan proposal.
The Company's $4,000,000 unsecured line of credit with a bank expires January
31, 1999. Amounts drawn on this line of credit accrue interest at either the
bank's prime rate or LIBOR plus 1.75% as selected by the Company upon the
utilization of any portion of the line of credit. The Company had no
borrowings against the line of credit at December 31, 1997.
During the quarter ending December 31, 1997, the Company acquired capital
equipment of approximately $82,000.
The Company believes liquidity and capital funding requirements for fiscal
1998 can be internally satisfied from working capital.
PART II -- OTHER INFORMATION
ITEM 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the Company was held on November
12, 1997.
(b) The Board of Directors for the ensuing year was established at seven
(7). Mr. James E. Pruitt was nominated and elected at the meeting as
a Director of the Company for a three year term. Dr. Lynn E. Weaver
and Mr. Thomas J. Boyce, Jr. and were nominated and re-elected at the
meeting as Directors of the Company for a three-year term.
Mr. John L. Slack, Amb. Robert F. Ellsworth, Mr. William C. Potter
and Dr. Richard N. Baney continued as Directors of the Company after
the meeting.
14
<PAGE>
(c) A brief description of the matters voted upon at the Annual
Shareholders' Meeting on November 12, 1997 is as follows:
(1) To elect three Class I Directors:
<TABLE>
<CAPTION>
Votes Votes
For Withheld
----- --------
<S> <C> <C>
Mr. Thomas J. Boyce, Jr. 3,898,428 65,762
Dr. Lynn E. Weaver 3,897,922 66,268
Mr. James E. Pruitt 2,277,430 1,686,760
</TABLE>
(2) To approve the selection of Deloitte & Touche LLP; Orlando,
Florida as Independent Certified Public Accountants for the
Company for the 1998 fiscal year.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
<S> <C> <C>
3,957,033 2,427 4,730
</TABLE>
ITEM 5. -- OTHER INFORMATION
On September 29 the Company announced the signing of a $10.6 million
Agreement with Flash Comm, Inc. (FCI) for the design, development, and
manufacture of mobile sensor and transceiver asset monitor units to be
employed in a two-way, North American continent wireless data communications
system. The asset monitor units enable operators in the commercial
transportation market to track fixed and mobile assets such as trucks and
trailers. FCI is majority owned by HVFM-II, whose major investor is the
Harris Corporation. HVFM-II partners with Harris for Harris' commercial
technology spin-offs, counting among its accomplishments a portfolio of
successful startup commercial companies. Based on facts and circumstances
which became known to the Company after entering into this agreement, the
Company determined that it would likely receive no future benefit under this
contract. Refer to Management's Discussion and Analysis for further
discussion.
In July the Company announced the award of a $1 million two year contract by
US Army Communications/Electronics Command (CECOM) for depot level repair and
overhaul of Vertical Displacement Gyroscopes. The award of this contract
marks DBA's return to the gyro business and will position the Company to
pursue other depot level gyro repair contracts.
On December 19, 1997 the Company announced the award of a $1.4 million
commercial order for fingerprint digitizing scanners with associated
workstation and document image archiving equipment. The order was received
from CBM Archive Company as part of their prime contract to provide the Texas
Department of Public Safety a turnkey ANSI/NIST Fingerprint-Criminal History
Document Image Archive system.
15
<PAGE>
On January 6, 1998 the Titan Corporation (NYSE: TTN) and DBA Systems, Inc.
jointly announced that they have signed a definitive merger agreement under
which Titan will acquire all of DBA's 4,422,000 outstanding shares in a tax free
exchange of common stock, with a fixed exchange ratio of 1.367 shares of Titan
common stock for each DBA share. DBA Systems will become a part of Titan
Technologies and Information Systems, a newly formed, wholly owned subsidiary of
The Titan Corporation. The transaction is subject to approval by the
shareholders of both companies, as well as certain other conditions. The Titan
Corporation, headquartered in San Diego, designs, manufactures and installs high
technology information and electronic systems and products for commercial and
government clients.
16
<PAGE>
ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibit index filed with this report is on page 18.
(b) Reports on Form 8-K - none.
Pursuant to the requirements of Section 13 and 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be
executed on its behalf by the undersigned, thereto duly authorized.
DBA SYSTEMS, INC.
Date: By:
----------------------- ------------------------------
Eric M. DeMarco
Principal Accounting Officer
17
<PAGE>
DBA SYSTEMS, INC.
EXHIBIT INDEX
Page No.
--------
Exhibit 11 - Computation of earnings (loss) per share 19
18
<PAGE>
EXHIBIT 11
DBA SYSTEMS, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31 December 31
----------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net income (loss). . . . . . . . . . . . . . . (A) $ (2,659) $ 372 $(6,475) $ 695
Weighted average shares outstanding. . . . . . (B) 4,427 4,474 4,425 4,479
Incremental shares - stock options . . . . . . . 77 47 53 34
-------- ------- ------- ------
Total. . . . . . . . . . . . . . . . . . . . . (C) 4,504 4,521 4,478 4,513
Basic Earnings (loss) per Share . . . . . . (A/B) $ (.60) $ .08 $ (1.46) $ .16
-------- ------- ------- ------
Diluted Earnings (loss) per Share . . . . . (A/C) $ (.60) $ .08 $ (1.46) $ .15
-------- ------- ------- ------
</TABLE>
19
