<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 . . . . . . . . . . . . . . . . . . . . $ 5,249 $ 5,431 $10,914 $11,724
Costs and expenses . . . . . . . . . . . . . . . . 6,057 4,934 12,930 10,693
Write-down of assets, investments and
environmental accrual (Note 1) . . . . . . . . . 3,500 ---- 6,600 ----
------- ------- ------- -------
Operating income (loss). . . . . . . . . . . . . . (4,308) 497 (8,616) 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. . . . . . (4,223) 592 (8,363) 1,104
Less provision (benefit) for income taxes. . . . . (218) 220 (542) 409
------- ------- ------- -------
Net Income (Loss) . . . . . . . . . . . . . . . . $(4,005) 372 $(7,821) $ 695
------- ------- ------- -------
------- ------- ------- -------
Basic Earnings (Loss) per Share . . . . . . . . . $(.90) $.08 $(1.77) $.16
------- ------- ------- -------
Diluted Earnings (Loss) per Share . . . . . . . . $(.90) $.08 $(1.77) $.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 . . 2,975 2,318
Inventory (Note 1). . . . . . . . . . . . . . 708 1,984
Deferred income taxes . . . . . . . . . . . . 1,105 ----
Other current assets. . . . . . . . . . . . . 140 438
------- -------
Total Current Assets . . . . . . . . . . 20,821 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. . . . . . . . . . . . . $28,748 $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 . . . . . . . . . . . . . . 15,344 23,153
------- -------
Total. . . . . . . . . . . . . . . . . . 40,643 48,249
Treasury stock. . . . . . . . . . . . . . . . (19,095) (19,074)
------- -------
Stockholders' Equity - net . . . . . . . 21,548 29,175
------- -------
Total Liabilities and Stockholders' Equity . . . . $28,748 $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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (7,821) $ 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
Write-down of assets, investments and environmental accrual (Note 1). 9,846 --
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 restatement charges
of $4.8 million and $9.8 million, respectively. The $9.8 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, $1.6 million
related to the write-down of an investment in a start-up company, $.7
million related to the writeoff of certain capitalized rate variances
and $.6 million related to the writeoff of certain unbilled overrun
costs 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 that the property had 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. A written offer was received in July 1997,
at which time negotiations with the prospective buyer commenced for
the sale of the property at an amount which management believed
supported the recorded book value at that time. These negotiations
eventually terminated and did not result in the sale of the property.
The Company received no further offers until October 1997, at which
time a written offer was received at an amount substantially below
the recorded book value. Negotiations with this potential buyer took
place but, again, did not result in a sale of the property. During
this extended time period for which the property has been held for
sale, the Company reduced ongoing maintenance and general upkeep of
the property. As a result of these factors, management concluded
that there has been an impairment in the carrying value of the asset.
A restatement charge of $2.0 million was recorded in the Company's
financial statements for the quarter ended September 30, 1997 which
reflects management's estimate of the impairment, including estimated
disposal costs. Management has currently reinstated a program of
ongoing maintenance (and environmental remediation--see below) and is
actively marketing the property for sale through various channels.
Management regularly reviews the adjusted value of this asset for
further impairment, and believes that the current book value reflects
an amount which approximates fair market value.
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,
at the Company's Kissimmee facility. These environmental matters
included, but were 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
perform a limited initial determination of 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. The Company commenced its pre-clean up
activities which are expected to continue through at least fiscal year
1998.
(c) In December 1997, the Company received verbal indication from a
systems integrator for whom it had been developing special purpose
mammography scanners that the integrator would likely terminate
further discussions regarding its pending contract with DBA.
Subsequent to December 31, 1997, the Company received written
notification that the integrator would likely terminate further
discussions regarding its pending contract with the Company. Prior
to December 31, 1997 the Company had identified several customers for
fingerprint scanners, which are based on similar technology to the
mammography scanners, and had entered into contracts to sell
fingerprint scanners. Since the scanners could not be utilized in
their intended form, management identified an impairment in the
value of this inventory and recorded an adjustment of $1.3 million
in the accompanying results from operations for the quarter ended
December 31, 1997 in order to reflect these scanners at their
realizable value. This represents an adjustment to the previously
reported results of operations for this quarter.
6
<PAGE>
(d) In December 1997, the Company determined that certain test machinery
and equipment which it needed to perform on a recently awarded
contract was missing parts essential to its operation. Management
believes that the parts may have been removed for use in other
equipment, however, management is unable to determine the exact
disposition and/or timing of the use of such equipment. Without
these essential parts, the test machinery and equipment was of little
or no value and the Company determined that replacing this test
machinery and equipment appeared to be more economically advantageous
than repairing it. 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 internal control procedures
with respect to its 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"), a
start-up venture. 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
to purchase products from DBA. FCI to date has not raised the
additional capital, has not yet generated any significant business,
and, to date, no products have been purchased by FCI under its
contract with DBA. To the Company's knowledge, to date, FCI has
generated no significant revenue. 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 of operations for this quarter.
(f) At December 31, 1997, DBA had inappropriately capitalized rate
variances of $746 on its Cost Plus Fixed Fee (CPFF) contracts
representing costs incurred in excess of provisional billing rates.
Such variances occurred primarily in the quarter ended December 31,
1997. A charge of $.7 million was recorded against revenue at
December 31, 1997 to write off these variances.
(g) DBA recorded approximately $.6 million in unbilled receivables in
fiscal years 1991, 1992 and 1994 related to an overrun claim which
is being litigated. THe Company had entered into settlement
discussions with the U.S. government. In 1992 the settlement offer
of the U.S. government was rejected. Management believes that this
amount should have been written off in prior periods. However, the
amounts were not written off until December 1997, due to a breakdown
in DBA's internal controls. The $.6 million is reflected as a charge
to SG&A in the quarter ended December 31, 1997. Management believes
that the continuing recognition of this receivable by DBA represents
a breakdown in DBA's internal controls. Titan is reviewing DBA's
internal control procedures.
A summary of the restatement 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
------- ------- -------
Restatement 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
Rate variances 0 746 746
Unbilled overrun claims 0 600 600
------- ------- -------
Total restatement charges $ 5,000 $ 4,846 $ 9,846
Tax impact of restatment charges (650) (455) (1,105)
------- ------- -------
Net income (loss) as restated $(3,816) $(4,005) $(7,821)
------- ------- -------
------- ------- -------
</TABLE>
<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) $(0.90) $(1.77)
Diluted earnings per share
as originally reported: $ 0.12 $ 0.09 $ 0.21
Diluted earnings (loss)
per share as restated: $(0.85) $(0.90) $(1.77)
</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 $5,249,000, down slightly from the $5,431,000 recorded in the comparable
three-month period in the prior fiscal year. This increase was driven by
additional sales of $1,178,000 in Commercial Imagery Exploitation (CIE),
offset by decreased sales of $1,266,000 in Tactical Imagery Exploitation
(TIE) principally due to the writedown of certain capitalized rate variances
of $746,000 recorded during the quarter ended December 31, 1997. Refer to
Note 1 for further discussion. 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
$10,914,000, down from $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 $3,126,000 lower by $1,605,000 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 restatement charge of $4.8 million
and $9.8 million, respectively. The $9.8 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, $1.6 million related to the write-down of an
investment in a start-up company, $.7 million related to the write-off of
certain capitalized rate variances and $.6 million related to the write-off
of certain unbilled overrun costs 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 the property had 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. A written offer was received
in July 1997, at which time negotiations with the prospective buyer
commenced for the sale of the property at an amount which management
believed supported the recorded book value at that time. These negotiations
eventually terminated and did not result in the sale of the property. The
Company received no further offers until October 1997, at which time a
written offer was received at an amount substantially below the recorded
book value. Negotiations with this potential buyer took place but, again,
did not result in a sale of the property. During this extended time period
for which the property has been held for sale, the Company reduced ongoing
maintenance and general upkeep of the property. As a result of these
factors, management concluded that there has been an impairment in the
carrying value of the asset. A restatement charge of $2.0 million was
recorded in the Company's financial statements for the quarter ended
September 30, 1997 which reflects management's estimate of the impairment,
including estimated disposal costs. Management has currently reinstated a
program of ongoing maintenance (and environmental remediation--see below)
and is actively marketing the property for sale through various channels.
Management regularly reviews the adjusted value of this asset for further
impairment, and believes that the current book value reflects an amount
which approximates fair market value.
10
<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 at the company's Kissimmee
facility. These environmental matters included, but were 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 perform
a limited initial determination of 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. The Company commenced its pre-cleanup activities
which are expected to continue through at least fiscal year 1998.
(c) In December 1997, the Company received verbal indication from a systems
integrator for whom it had been developing special purpose mammography
scanners that the integrator would likely terminate further discussions
regarding its pending contract with DBA. Subsequent to December 31, 1997,
the Company received written notification that the integrator would
likely terminate further discussions regarding its pending contract with
the Company. Prior to December 31, 1997 the Company had identified several
customers for fingerprint scanners, which are based on similar technology
to the mammography scanners, and had entered into contracts to sell
fingerprint scanners. Since the scanners could not be utilized in their
intended form, management identified an impairment in the value of this
inventory and recorded an adjustment of $1.3 million in the accompanying
results from operations for the quarter ended December 31, 1997 in order
to reflect these scanners at their net realizable value. This represents
an adjustment to the previously reported results of operations for this
quarter.
11
<PAGE>
(d) In December 1997, the Company determined that certain test machinery and
equipment which was needed to perform on a recently awarded contract was
missing parts essential to its operation. Management believes that the
parts may have been removed for use in other equipment, however, management
was unable to determine the exact disposition and/or timing of the use of
such equipment. Without these essential parts the test machinery and
equipment was of little or no value and the Company determined that
replacing this test machinery and equipment appeared to be more
economically advantageous than repairing it. 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 internal control procedures with respect to its 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"), a
start-up venture. 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 to purchase products from
DBA. FCI to date has not raised the additional capital, has not yet
generated any significant business, and has to date, no products have
been purchased by FCI under its contract with DBA. To the Company's
knowledge FCI has not generated significant revenues. 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.
(f) At December 31, 1997, DBA had inappropriately capitalized rate variances
of $746 on its Cost Plus Fixed Fee (CPFF) contracts representing costs
incurred in excess of provisional billing rates. Such variances occurred
primarily in the quarter ended December 31, 1997. A charge of $.7 million
has been recorded against revenue at December 31, 1997 in the accompanying
financial statements to write off these variances.
(g) DBA recorded approximately $.6 million in unbilled receivables in
fiscal years 1991, 1992 and 1994 related to an overrun claim which
is being litigated. The Company had entered into settlement discussions
with the U.S. government. In 1992 the settlement offer of the U.S.
government was rejected. Management believes that this amount should have
been written off in prior periods. However, the amounts were not written
off until December 1997, due to a breakdown in DBA's internal controls.
The $.6 million is reflected as a charge to SG&A in the quarter ended
December 31, 1997. Management believes that the continuing recognition of
this receivable DBA represents a breakdown in DBA's internal controls.
Titan is reviewing DBA's interal procedures.
Excluding the restatement 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 restatement 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 $4,005,000 or $(.90) 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 $7,821,000
or $(1.77) 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"), a start-up
venture. 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 to purchase products from DBA. FCI to date
has not raised the additional capital, has not yet generated any significant
business, and to date, no products have been purchased by FCI under its
contract with DBA. To Titan's knowledge, FCI has generated no significant
revenue. 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.
13
<PAGE>
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), a start-up venture, 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: June 9, 1998 By: /s/ Eric M. DeMarco
----------------------- ------------------------------
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) $ (4,005) $ 372 $(7,821) $ 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) $ (.90) $ .08 $ (1.77) $ .16
-------- ------- ------- ------
Diluted Earnings (loss) per Share . . . . . (A/C) $ (.90) $ .08 $ (1.77) $ .15
-------- ------- ------- ------
</TABLE>
19
