SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
July 31, 1996 0-011228
For the Quarter Ended Commission File Number:
SYSTEMS ASSURANCE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 02-0337028
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
18 West King Street, Malvern, PA 19355 19355
(Address of principal executive offices) (zip code)
(610) 647 -7840
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 possible date.
Class Outstanding at September 9, 1996
Common Stock, 27,918,454
par value $.01 per share
<PAGE>
SYSTEMS ASSURANCE CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 31, 1996 October 31, 1995
ASSETS
<S> <C> <C>
Current assets:
Cash $ 842 $ 382
Income taxes refundable 1,442 1,442
------------ ------------
Total current assets 2,284 1,824
------------ ------------
Total Assets $ 2,284 $ 1,824
============ ============
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Notes payable $ 50,000 $ --
Accounts payable and accrued expenses 2,518 19,000
Advances from shareholders -- 63,960
------------ ------------
Total current liabilities 52,518 82,960
------------ ------------
Capital deficit:
Common stock, par value $.01 per share;
authorized 30,000,000 shares; outstanding
27,918,454 and 24,418,454 shares, respectively 279,185 244,185
Additional paid-in capital 9,802,200 9,786,233
Deficit (10,131,619) (10,111,554)
------------ ------------
Total capital deficit (50,234) (81,136)
------------ ------------
Total liabilities and capital $ 2,284 $ 1,824
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
SYSTEMS ASSURANCE CORPORATION
STATEMENTS OF OPERATIONS
Three and Nine-Month Periods Ended July 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three- Month Nine -Month
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
General and administrative expenses 1,240 57,991 19,044 57,991
Interest expense 875 -- 1,021 --
------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes (2,115) (57,991) (20,065) (57,991)
Provision (credit) for income taxes -- (1,445) -- (1,445)
------------ ------------ ------------ ------------
Net income (loss) $ (2,115) $ (56,546) (20,065) $ (56,546)
============ ============ ============ ============
Income (loss) per common share:
Net income (loss) $ -- $ -- $ -- $ --
============ ============ ============ ============
Weighted average number of common shares 27,918,454 23,118,454 25,818,454 23,118,454
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
SYSTEMS ASSURANCE CORPORATION
STATEMENTS OF CAPITAL DEFICIT
Twelve-month Period Ended October 31, 1995
and the Nine-Month Period Ended July 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Number Par Paid-in Capital
of Shares Value Capital Deficit Deficit
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1994 23,118,454 $ 231,185 $ 9,798,983 $(10,077,753) $ (47,585)
Issuance of common shares 1,300,000 13,000 (12,750) 250
Net loss (33,801) (33,801)
--- ---- ---------- ------------ ------------ ------------ ------------
Balance, October 31, 1995 24,418,454 244,185 9,786,233 (10,111,554) (81,136)
Issuance of common shares 3,500,000 35,000 15,967 50,967
Net loss (20,065) (20,065)
--- ---- ---------- ------------ ------------ ------------ ------------
Balance, July 31, 1996 27,918,454 $ 279,185 $ 9,802,200 $(10,131,619) $ (50,234)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
SYSTEMS ASSURANCE CORPORATION
STATEMENTS OF CASH FLOWS
Nine-Month Periods Ended July 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(20,065) $(56,546)
Adjustment for items not affecting cash flow:
Increase in refundable income taxes -- (1,445)
Change in accounts payable and
accrued expenses (16,482) 6,500
-------- --------
Net cash provided (used) by operating
activities (36,547) (51,491)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of note 50,000 --
Shareholder advances, net (12,993) 51,645
-------- --------
Net cash provided by financing activities 37,007 51,645
-------- --------
Net increase (decrease) in cash $ 460 154
Cash at beginning of period 382 --
-------- --------
Cash at end of period $ 842 $ 154
======== ========
Supplemental cash flow information:
Issuance of stock to satisfy shareholder advances-
Common stock, at par value $ 35,000 $ --
Additional paid-in capital 15,967 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
SYSTEMS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information normally included
in footnote disclosures in financial statements prepared in accordance with
generally accepted accounting principles has been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K for the year
ended October 31, 1995.
2. Net Income Per Share
Net income per share of Common Stock is computed by dividing net income by
the weighted average number of shares of Common Stock and Common Stock
Equivalents, if dilutive, outstanding during the year.
3. Restatement - Correction of Errors
Certain liabilities of the Company have been determined to have exceeded
various applicable states statutes of limitations. These liabilities should
have been written off by the Company in the years in which the statutes
were determined to have expired. The Company has corrected this error and,
accordingly, has restated its statements of capital deficit through October
31, 1994 as noted in the Company's annual report on Form 10-K for the year
ended October 31, 1995.
Additionally, during 1991, a majority shareholder forgave certain
indebtedness of the Company amounting to $825,242 which was previously
reflected as extraordinary income in 1991. The financial statements have
been adjusted to reflect this transaction as a contribution to capital.
4. Notes Payable
The note payable in the amount of $50,000 is unsecured and bears interest
at 7%. The note and all accrued interest is due and payable on the later of
December 31, 1996 or the extended expiration of certain irrevocable proxies
granted by certain shareholders to the issuer of the note.
<PAGE>
SYSTEMS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
5. Shareholder Advances
On April 1, 1996, the Board of Directors of Systems Assurance Corporation
authorized the issuance of 3,500,000 shares of common stock to AAH
Development Company, Inc. (a related entity of certain shareholders of the
Company) in exchange for all shareholder advances existing as of March 31,
1996 in excess of $40,000.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
During the nine months ended July 31, 1996 the Company had no principal business
activity. The company had no revenues and had operating expenses totaled
$20,065. The Company is presently seeking investment opportunities but has not
yet entered into any substantive negotiations other than as described under
Financial Condition and Liquidity.
Financial Condition and Liquidity
The Company has suffered recurring losses, has no current expectations of
revenue and has a capital deficit. The Company has entered into certain
agreements with an investment firm to actively seek an investment opportunity
acceptable to the Company. In connection with those agreements, the investment
firm has received irrevocable proxies from certain of the Company's shareholders
to vote their shares in connection with any recapitalization of the Company's
common stock, election of members of the Board of Directors and any proposed
merger candidate that meets certain minimum requirements. The irrevocable
proxies expire on September 1, 1996 but may be extended at the option of the
investment firm. As an incentive to enter into the above agreements, the
investment firm has lent the Company $50,000 evidenced by a Promissory Note due
and payable (including interest at the rate of 7%, per annum) on the later of
December 31, 1996 or the extended expiration of the irrevocable proxies. The
investment firm has additionally agreed to assume responsibility for certain
operating costs which may be incurred.
General
The Company has completed its review of the legal status of previously reported
liabilities. The purpose of the review was to determine whether any or all of
the liabilities are no longer enforceable under the statutes of the particular
states involved. See Note 3 to the accompanying financial statements for a
discussion of the results of that review. The Annual Report on Form 10-K for the
year ended October 31, 1995 was filed with the appropriate restatements of
previously reported liabilities and was audited by independent certified public
accountants whose opinion is included therein and which opinion covers the
financial statements as of and for the years ended October 31, 1995 and 1994.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is the defendant in an action brought in Massachusetts Superior
Court, County of Suffolk, by McDevitt Recruitment Advertisement, Inc. The
complaint was served in December 1986 and alleges a breach of an oral warranty
of fitness for a particular purpose of a computer system sold to plaintiff in
1982, which allegedly never performed properly. Plaintiff seeks damages of
$30,000. The Company believes that it is not liable for any damages; however, in
order to save the cost of potential litigation, has offered a settlement in the
amount of $1,000 to attorneys for the plaintiff which it believes is sufficient
to settle this case. At this date, the attorneys have not been able to locate
plaintiff.
The Company, in conjunction with its research regarding the various statutes of
limitations, also pursued the current status of any legal proceedings previously
reported as having been brought against the Company. The Company has determined
that, except for the matter discussed above, it is not probable that any of the
previously reported legal proceedings will have a materially adverse effect on
the Company.
Item 6 - Exhibits and Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYSTEMS ASSURANCE CORPORATION
(Registrant)
Date: September 13, 1996 By: /s/ William E. Chipman, Sr.
WILLIAM E. CHIPMAN, SR.,
PRESIDENT AND CHAIRMAN
Date: September 13, 1996 By: /s/ Thomas R. Petree
THOMAS R. PETREE, TREASURER
AND DIRECTOR
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000705581
<NAME> SYSTEMS ASSURANCE CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 842
<SECURITIES> 0
<RECEIVABLES> 1,442
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,248
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,248
<CURRENT-LIABILITIES> 52,518
<BONDS> 0
0
0
<COMMON> 279,185
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,284
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 19,044
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,021
<INCOME-PRETAX> (20,065)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,065)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
