UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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: 12
The Exhibit index appears on sequential page 11
<PAGE>1
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Revenues $ 5,995 $ 5,431 $11,660 $11,724
Costs and expenses 5,457 4,934 10,430 10,693
Operating income 538 497 1,230 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 expense - net 85 95 253 73
Income before taxes 623 592 1,483 1,104
Less provision for income taxes 237 220 563 409
Net Income $ 386 $ 372 $ 920 $ 695
Basic Earnings per Share $ .09 $ .08 $ .21 $ .16
Diluted Earnings per Share $ .09 $ .08 $ .21 $ .15
Basic weighted shares outstanding 4,427 4,474 4,425 4,479
Diluted weighted shares outstanding 4,466 4,521 4,440 4,513
</TABLE>
See accompanying Notes to Condensed Consolidated Interim Financial Statements.
<PAGE>2
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Dec. 31, 1997 June 30, 1997
ASSETS (Unaudited) (Audited)
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 2,008 1,984
Other current asset 886 438
Total Current Assets 22,362 23,169
Property:
Cost 16,803 16,694
Less accumulated depreciation
and amortization 10,991 10,667
Property--net 5,812 6,027
Other Assets:
Cost in excess of value of net assets of
businesses acquired 220 224
Real estate held for sale 4,303 4,347
Investment in preferred stock. 1,600 0
Other assets 192 247
Total Other Assets 6,315 4,818
Total Assets $ 34,489 $ 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 26 15
Total Current Liabilities 4,200 4,839
Stockholders' Equity:
Common stock 562 557
Paid-in capital 24,737 24,539
Retained earnings 24,085 23,153
Total 49,384 48,249
Treasury stock (19,095) (19,074)
Stockholders' Equity - net 30,289 29,175
Total Liabilities and Stockholders' Equity $ 34,489 $ 34,014
</TABLE>
See Notes to Condensed Consolidated Interim Financial Statements.
<PAGE>3
DBA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ending
<S> <C> <C>
Dec. 31, 1997 Dec. 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 920 $ 695
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation & amortization 491 523
Gain on sale of assets 5 12
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 earning
on uncompleted Government contracts (357) (504)
Estimated losses on uncompleted contracts (289) 51
Other current 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.
<PAGE>4
DBA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(1) The Condensed Consolidated Interim Financial Statements contained herein
reflect all adjustments of a normal recurring nature which are, in the opinion
of management, necessary to a fair statement of the results for the interim
periods presented. The results of operations for the interim periods contained
herein are not necessarily indicative of the results to be expected for the
fiscal year.
(2) Refer to the Company's Annual Consolidated Financial Statements for the
Year Ended June 30, 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>
<S> <C> <C>
December 31, 1997 June 30, 1997
(Unaudited) (Audited)
Finished Goods $ 1,603 $ 1,815
Work in Progress 347 103
Raw Materials 58 66
TOTAL $2,008 $ 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.
<PAGE>5
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The forward-looking statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations, which reflect
management's best judgment based on factors currently known, involve risks
and uncertainties. Actual results could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors 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.
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
<PAGE>6
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.
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.
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.
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 Company currently accrues 38% of income before taxes for federal and
state income taxes.
As a result of the above factors, net income was $386,000 in the current
period as compared to $372,000 in the same period of the prior fiscal year.
Diluted earnings per share was $.09 for the three months ending December 31,
1997 versus $.08 recorded in the comparable quarter in the prior fiscal year.
Net income for the six-month period ended December 31, 1997, equaled $920,000,
an increase of $225,000 over the comparable period for last year. Diluted
earnings per share was $.21 compared to $.15 for the same period last year.
Liquidity and Capital Resources
At December 31, 1997 the Company had working capital of approximately
$18,162,000, down $168,000 or .9%, 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 million of
cash in order to increase return-on-equity and enable the
<PAGE>7
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 from, 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, and manufacturing
of asset monitors for its truck-trailer location device.
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.
<PAGE>8
(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>
<S> <C> <C>
Votes Votes
For Withheld
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>
<C> <C> <C>
Votes For Votes Against Votes Abstaining
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.
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.
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.
<PAGE>9
ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibit index filed with this report is on page 11.
(b) Reports on Form 8-K - none.
Pursuant to the requirements of Section 13 and 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be
executed on its behalf by the undersigned, thereto duly authorized.
DBA SYSTEMS, INC.
Date: ____2/9/98___________ By: ________(signature)_________
John L. Slack
Chairman of the Board, President,
and Chief Executive Officer
Date: ______2/9/98_______ By: ____(signature)________________
Edward M. Bielski
Corporate Controller and Treasurer
<PAGE>10
DBA SYSTEMS, INC.
EXHIBIT INDEX
Page No.
Exhibit 11 - Computation of earnings per share 12
<PAGE>11
EXHIBIT 11
DBA SYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Net income (A) $ 386 $ 372 $ 920 $ 695
Weighted average shares outstanding (B) 4,427 4,474 4,425 4,479
Incremental shares - stock options 39 47 15 34
Total (C) 4,466 4,521 4,440 4,513
Basic Earnings per Share (A/B) $ .09 $ .08 $ .21 $ .16
Diluted Earnings per Share (A/C) $ .09 $ .08 $ .21 $ .15
</TABLE>
<PAGE>12
<TABLE> <S> <C>
<ARTICLE>5
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 9,364
<SECURITIES> 4,499
<RECEIVABLES> 2,230
<ALLOWANCES> 200
<INVENTORY> 2,008
<CURRENT-ASSETS> 22,362
<PP&E> 16,803
<DEPRECIATION> 10,991
<TOTAL-ASSETS> 34,489
<CURRENT-LIABILITIES> 4,200
<BONDS> 0
0
0
<COMMON> 562
<OTHER-SE> 29,727
<TOTAL-LIABILITY-AND-EQUITY> 34,489
<SALES> 11,660
<TOTAL-REVENUES> 12,092
<CGS> 0
<TOTAL-COSTS> 10,430
<OTHER-EXPENSES> 177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 1,483
<INCOME-TAX> 563
<INCOME-CONTINUING> 920
<DISCONTINUED>0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 920
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
