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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED COMMISSION FILE NO.
AUGUST 31, 1996 0-13920
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 54-0802071
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER ID NO.)
INCORPORATION OR ORGANIZATION)
14 BRYANT COURT
STERLING, VIRGINIA 20166
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(703) 471-8000
(REGISTRANT'S TELEPHONE NUMBER)
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 No X
----------------- --------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: Common Stock, par value $.50
per share; 3,215,259 shares outstanding as of August 31, 1996.
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PART I - FINANCIAL INFORMATION
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
Balance Sheet
ITEM I. FINANCIAL STAT ASSETS
<TABLE>
<CAPTION>
Unaudited Unaudited
----------- -----------
AUGUST 31, May 31,
1996 1996
CURRENT ASSETS: ----------- -----------
<S> <C> <C>
Cash 5,687 24,859
Accounts Receivable 119,242 89,252
Costs and Estimated Earings in Excess 19,400 42,348
of Billings on Uncompleted Contracts
Inventory 43,310 43,310
Prepaid Expenses and Miscellaneous 25 25
----------- -----------
Total Current Assets 187,663 199,793
Fixed assets - cost net of accum deprn 12,785 14,294
----------- -----------
TOTAL ASSETS 200,448 214,087
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable - Bank 12,500 12,500
Notes Payable - Other 63,950 37,950
Accounts Payable - Trade 22,437 10,841
Payroll Taxes Payable 976 2,946
Accrued Expenses 18,524 24,934
----------- -----------
Total Current Liabilities 118,386 89,171
----------- -----------
LONG-TERM LIABILITIES:
Notes Payable - Bank 11,083 14,208
Notes Payable - Other 78,233 154,233
Accrued Expenses 34,046 36,949
Deferred Interest-Former Officer 0 31,418
Deferred Accounts Payable 16,700 63,650
----------- -----------
Total Long-term Liabilities 140,062 300,458
----------- -----------
Total Liabilities 258,448 389,628
----------- -----------
STOCKHOLDERS' EQUITY
Redeemable Preferred Stock, $50 Par Value 0 100,000
2,000 Shrs Authorized 2,000 Issued and
Outstanding ($200,000 Aggregate Liquidation Preference)
Common Stock, $.50 Par Value, 8,000,000 Shares 1,754,585 1,712,635
Authorized, 3,424,363 Shrs Issued and
3,215,259 Shares Outstanding
Capital in Excess of Par Value 2,464,536 2,330,161
Retained Deficit (4,257,381) (4,317,770)
Treasury Stock (19,740) (568)
----------- -----------
Total Stockholders' Equity (58,000) (175,542)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 200,448 214,087
=========== ===========
</TABLE>
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SYSTEMS TECHNOLOGY ASSOCIATES, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED AS OF:
--------------------------------
AUGUST 31, AUGUST 31,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Sales of product less sales discount 131,583 358,020
------------ ------------
Cost of sales 88,537 299,728
Research and Development expense 0 0
Selling, general & administrative expense 55,490 43,905
Interest expense 3,472 5,452
------------ ------------
147,499 349,085
------------ ------------
Operating Income (Loss) (15,916) 8,935
Other Income
Extinguishment/Forgiveness of Indebtedness 76,305 0
------------ ------------
Income(Loss) before provision for income taxes
and extraordinary item 60,389 8,935
Provision for income taxes 10,097 1,340
------------ ------------
Net income(loss) before extraordinary item 50,291 7,595
Extraordinary Items:
Tax Benefit from Prior Year Net Operating Loss
Carryforward 10,097 1,340
------------ ------------
Net Income (Loss) 60,389 8,935
============ ============
Earning (Loss) per share (based upon the weighted
average number of shares outstanding in each years:
Income before extraordinary items $0.02 $0.00
Extraordinary items 0.00 0.00
------------ ------------
Net Income Per Share $0.02 $0.00
------------ ------------
Weighted average number of shares outstanding 3,215,259 3,424,363
============ ============
</TABLE>
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SYSTEMS TECHNOLOGY ASSOCIATES, INC.
Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
- -------------------------------------------------------
Net Income (Loss) $60,389 $8,935
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by (used in) Operating
Activities:
Depreciation and Amortization 1,509 2,119
Decrease (Increase) in Assets:
Accounts Receivable-Billed (29,990) 86,317
Accounts Receivable-Unbilled 22,948 5,113
Inventory 0 0
Prepaid Expenses and Miscellaneous 0 (6,361)
Deposits 0 0
Increase (Decrease) in Liabilities:
Accounts Payable-Trade 11,596 71,162
Payroll Taxes Payable (1,970) (621)
Accrued Expenses (12,413) (31,504)
Advance from Customer 8,190 0
------------ ------------
Net Cash Provided by (Used in) operating
Activities $60,258 $135,160
------------ ------------
INVESTING ACTIVITIES:
- -------------------------------------------------------
Acquisition of Property and Equipment $0 $0
------------ ------------
Net Cash Used in Investing Activities $0 $0
------------ ------------
FINANCING ACTIVITIES:
- -------------------------------------------------------
Long-Term Borrowings/Issue New Note Payable $26,000 $0
Extinguishment/Forgiveness of Debt (36,507) 0
Repayment of Notes Payable (3,125) (14,179)
Increase Paid in Capital 134,375 0
Issuance Common Stock 41,950 0
Purchase of Treasury Stock (39,797) 0
Sale of Treasury Stock 20,625 0
Retirement Preferred Stock (100,000) 0
Proceeds Sale of Equipment 0 725
Retirement Long-Term Deffered Payables (46,950) 0
Reduction Long-Term Debt-Notes Payable (76,000) 0
------------ ------------
Net Cash Provided by (Used in) Financing
Activities ($79,430) ($13,454)
------------ ------------
Net Increase (Decrease) in Cash (19,172) 121,706
Cash-Beginning of Year 24,859 34,998
------------ ------------
Cash-Ending Balance $5,687 $156,704
============ ============
</TABLE>
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SYSTEMS TECHNOLOGY ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
8/31/96 8/31/95
--------- ----------
<S> <C> <C>
Raw Materials $ 34,039 $ 253,000
Work-In-Process -0- -0-
Sub-assembly 9,270 60,808
--------- ---------
Total: $ 43,309 $ 313,808
========== =========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION OF ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
It was the best of times, it was the worst of times. It was the worst of times
in that our sales and earnings from operations dropped substantially from last
year's $358,020 and $8,935 to $131,583 and a loss of $15,145. There were two
major reasons for this: the demise of STA's own product lines and our inability
to sell the Coherent and Anadigicom products with which we have reseller
agreements. Our ability to resell these two product lines is extremely critical
as these products will provide much of our sales and earnings for at least the
rest of this fiscal year. Management is extremely concerned with the low level
of sales and is taking steps to remedy the situation. However, our financial
condition has also forced us to remain under staffed in key positions. The
Company's financial condition over the past five years represented a challenge
most companies would not have survived.
With the outlook dimming in early March, and the Company's financial condition
still very weak, Management assigned itself four tasks to improve its prospects
for survival and growth: (1) reduce debt, (2) provide 200,000 shares of Common
Stock as an incentive to hire a new President, (3) obtain the funding for the
above items, and (4) hire a President. With almost half the Company's existing
debt of about $500,000 owed to the previous management (who managed to leave
the Company with debt of $1,250,000 as of January 1, 1992 along with a negative
net worth of $729,000 and unpaid payroll taxes of around $200,000), it was felt
that a debt reduction deal should be worked out with the old management to
reduce debt to a less burdensome level. After lengthy negotiations, a deal was
struck with Mr. Marvin Friedland, former STA President, whereby Mr. Friedland
would 1) forgive notes and accrued interest of $76,000 and $36,467
respectively; 2) surrender 2,000 shares of $50 Preferred Stock; and 3)
surrender 636,754 shares of STA Common Stock. In return, Mr. Friedland agreed
to accept $50,000, payable immediately in cash, and $26,000 in a non-interest
bearing note payable over 50 months. Another individual, not part of the old
management, agreed to accept $5,000 in cash and 83,900 in newly issued shares
of STA Common Stock in exchange for debt of $46,950 owed to him by the Company.
That individual, the Company's General Counsel, has been very supportive over
the last five years and has provided generous amounts of time to the Company at
no charge.
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The two deals combined to drop the Company's debt to about $250,000, a more
tolerable level of debt. It removed $100,000 of Preferred Stock that was senior
to the Common Stockholders and placed that amount into Common Shareholder
Equity. The company also obtained enough Common Stock, our second goal, to
provide an inducement to a new President.
To accomplish the third task, the Company was fortunate to find the management
and investment firm of Rutchik, Catron, St.Peter & Co. of Frederick, Maryland,
who raised the $55,000 needed to complete the two deals. In return, the
investment firm received 330,000 shares of the newly acquired common stock and
a finders fee, leaving 306,754 shares available for Company use. The Company
set aside 106,754 shares to cover existing options granted for stock at less
than par value leaving 200,000 common shares on which the Board of Directors
could use to provide options to attract and hire a top level executive as our
new President.
The final task, to find a top level executive with a telecommunication
background capable of developing and carrying out a new business plan, was
completed when Mr. James D. Jancso (Jim), was hired to start work at STA on
August 26th as President and Chief Operating Officer. Jim, previously President
of IDB Mobile Communications, played a key role in taking that Company from its
inception in 1991 to $47 Million in sales in 1995. Prior to joining IDB, Jim
was employed at COMSAT where he was Vice President of Operations of COMSAT
Mobil Communications, Inc. Previously, Jim spent twenty years with Western
Union Telegraph Co. before joining COMSAT.
In his first month with STA, Jim has added several new reseller agreements to
include selling space segment for Orion Communications' VSAT systems and with
Redcom Communications, a telephone switch manufacturer with substantial
overseas sales. Other agreements are forthcoming. The reseller agreements give
the Company a broader product line and a greater chance to increase sales. He
is also developing a business plan for STA so that the company, once again, can
thrive in the telecommunications market.
The Board of Directors believes Jim brings to STA a better sense of
organization and a comprehensive understanding of the world of
Telecommunications at a time where technology and markets are in rapid change.
It is believed that Jim can position STA, given its limitations, in areas that
will allow the Company to grow and prosper.
LIQUIDITY AND CAPITAL RESOURCES
While the Board feels it has a very good President in Jim, it feels that his
effectiveness will be impaired by the Company's weak financial position. The
weak financial position limits the Company's ability to operate from a plan.
Instead, we are usually forced to manage for cash flow. We also lack adequate
staff and funding for Jim to execute his plan effectively. The acquisition of a
very small but highly regarded telecommunications engineering company is being
discussed, which would provide STA an engineering staff of some strength but,
this again would take funding to sustain these people until their operations
can contribute. Therefore, it is likely that the Company will try to raise
capital in the very near future to adequately fund and expedite the Company's
new business plan. The funding will likely take the form of convertible debt or
placement of the newly re-acquired Preferred Stock with a convertibility
feature at a price above current levels.
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a) Reference is made to the Exhibit Index immediately following the
signature page of this report.
b) There were three Form 8-K's filed during this quarter.
c) An extension request was filed for the 10-K for the fiscal year
ended May 31, 1996.
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.
Date: 15 October 1996 Systems Technology Associates, Inc.
--------------- ---------------------------------------
(Registrant)
/s/ Terry A. Scott
- ------------------------------------------------------------------------------
Terry A. Scott
Chairman of the Board
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EXHIBIT INDEX
Exhibits
* 3(a) - Articles of Incorporation of Registrant
* 3(b) - By-Laws of Registrant
*Incorporated by reference from exhibits to Registrants for
S-18 Registration Statement, Registration No. 2-94042W.
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 5,687
<SECURITIES> 0
<RECEIVABLES> 119,242
<ALLOWANCES> 0
<INVENTORY> 43,310
<CURRENT-ASSETS> 187,663
<PP&E> 17,506
<DEPRECIATION> 4,721
<TOTAL-ASSETS> 200,448
<CURRENT-LIABILITIES> 118,386
<BONDS> 140,062
0
0
<COMMON> 1,754,585
<OTHER-SE> (1,812,585)
<TOTAL-LIABILITY-AND-EQUITY> 200,448
<SALES> 131,583
<TOTAL-REVENUES> 131,583
<CGS> 88,537
<TOTAL-COSTS> 88,537
<OTHER-EXPENSES> 55,490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,472
<INCOME-PRETAX> 60,389
<INCOME-TAX> 10,097
<INCOME-CONTINUING> (15,916)
<DISCONTINUED> 0
<EXTRAORDINARY> 10,097
<CHANGES> 0
<NET-INCOME> 60,389
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
