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.
February 28, 1997 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 X No
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 February 28, 1997.
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
Notes to Financial Statements
1. Inventories:
<TABLE>
<CAPTION>
Inventories consist of the following:
<S> <C> <C>
2/28/97 2/29/96
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
The Company showed continued loses in the third quarter. Sales declined from
$629,962 in the second quarter to $391,675. Gross margins were approximately
12.5 percent. With sales, general and administrative (SG&A) expenses of
$82,278, 21 percent of sales, the result was a net loss of $36,089. While
sales for the last two quarters totaled over $1 Million compared to sales of
only $902,000 for all of last fiscal year, the meager gross margins could not
support the SG&A cost structure the company had. Therefore, as mentioned in last
quarters narrative, the Company, starting in February, undertook to both cut
G&A expenses and to try to improve gross sales margins. Overhead costs have
been reduced from about $40,000 in January to about $12,000 as of May, reducing
our breakeven point to about $100,000 in monthly sales. Sales for the three
months ended May appear to have slightly exceeded $300,000.
Improving gross sales margins is a much more difficult problem to resolve as
most of our sales are as a reseller where the discounts from our suppliers limit
us to about a twenty percent markup or about 16.6 percent of actual sales. We
also have to compete with our suppliers for the same customers and have no
protected territories. Since our suppliers can offer their product direct and
have greater pricing flexibility, STA faces a continual uphill battle for sales
and acceptable margins. The Company, lacking the financial strength to
undertake product development directly, is attempting to work with a university
and another Company to develop a new product that should provide more
satisfactory margins with less competition. This product, however, is designed
to serve a limited market. The Company continues to look for new products to
resell that will provide better margins and sales growth.
Liquidity and Capital Resources
The Company's losses for the last nine months entirely sapped what little
working capital the Company had. With a negative net worth, which deteriorated
further in each of the last three quarters, it is now most critical for the
Company to return to profitability immediately if it is to continue its
existence. The Company will also attempt to convert existing notes payable to
affiliated parties and past management into common stock to reduce debt and
improve net worth.
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 was one Form 8-K filed during this quarter.
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: 11 June 1997 Systems Technology Associates, Inc.
(Registrant)
/s/ Terry A. Scott
Terry A. Scott
Chairman of the Board
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.
<TABLE>
<CAPTION>
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
Balance Sheet
<S> <C> <C>
Unaudited Audited
ASSETS 2/28/97 5/31/96
CURRENT ASSETS:
Cash 16,259 24,859
Accounts Receivable 192,992 89,252
Costs and Estimated
Earnings in excess
of Billings on Uncompleted
Contracts - 42,348
Inventory 43,309 43,309
Prepaid Expenses and
Miscellaneous 1,380 25
TOTAL CURRENT ASSETS 253,940 199,793
Fixed Assets Net of
accum deprn 15,357 14,294
TOTAL ASSETS 269,297 214,087
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable-Bank 12,500 12,500
Notes Payable-Other 58,508 37,950
Accounts Payable-Trade 156,808 10,841
Payroll Taxes Payable 681 2,946
Accrued Expenses 25,616 24,934
TOTAL CURRENT LIABILITIES 254,113 89,171
LONG TERM LIABILITIES:
Notes Payable-Bank 4,833 14,208
Notes Payable-Other 78,233 154,233
Accrued Expenses 27,096 68,366
Deferred Accounts Payable 16,700 63,650
TOTAL LONG TERM LIABILITIES 126,862 300,457
TOTAL LIABILITIES 380,975 389,628
STOCKHOLDERS' EQUITY:
Redeemable Preferred Stock,
$50 Par 2000 shrs
Authorized, 2000 issued - 100,000
Common Stock, $.50 Par,
8,000,000 shrs
Authorized, 3,424,363
shrs Issued, 3,215,259
shrs Outstanding 1,754,585 1,712,635
Capital in Excess of Par
Value 2,464,536 2,330,162
Retained Deficit (4,311,059) (4,317,770)
Treasury Stock (19,740) (568)
TOTAL STOCKHOLDERS'
EQUITY (111,678) (175,541)
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY 269,297 214,087
</TABLE>
<TABLE>
<CAPTION>
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
Statements of Operations
(Unaudited)
<S> <C> <C>
THREE MONTHS ENDED AS OF:
2/28/97 2/28/96
Revenues:
Sales of product less sales
discount 391,675 244,809
Cost of sales 342,389 165,660
Selling, general &
administrative expense 82,278 79,656
Interest expense 3,097 4,303
Total 427,764 249,619
Operating Income (36,089) (4,810)
Other Income 1,382 2,000
Income (Loss) before provision
for income taxes and
extraordinary item (34,707) (2,810)
Provision for income taxes - -
Net income (loss) before
extraordinary item (34,707) (2,810)
Extraordinary Items:
Tax Benefit from prior year
Net Operating Loss
Carryforward -
Net Income (Loss) (34,707) (2,810)
Earnings (Loss) per share
(based on the weighted
average number of shares
outstanding in each year:
Income (Loss) before
extraordinary items $- $-
Extraordinary items $- $-
Net Income Per Share $- $-
Weighted average number of
shares outstanding 3,215,259 3,424,363
</TABLE>
<TABLE>
<CAPTION>
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
Statements of Operations
(Unaudited)
<S> <C> <C>
NINE MONTHS ENDED AS OF
2/28/97 2/28/96
Revenues:
Sales of product less sales
discount 1,137,728 757,737
Cost of sales 964,240 586,295
Selling, general &
administrative expense 234,492 176,657
Interest expense 9,972 14,342
Total 1,208,704 777,294
Operating Income (70,976) (19,557)
Other Income
Extinguishment/Forgiveness
of Indebtedness 77,687 32,857
Income (Loss) before provision
for income taxes and
extraordinary item 6,711 13,300
Provision for income taxes 1,007 1,995
Net income (loss) before
extraordinary item 5,704 11,305
Extraordinary Items:
Tax Benefit from prior year
Net Operating Loss
Carryforward 1,007 1,995
Net Income (Loss) 6,711 13,300
Earnings (Loss) per share (based
on the weighted average number
of shares outstanding in each
year:
Income (Loss) before
extraordinary items $- $-
Extraordinary items $0.02 $0.00
Net Income Per Share $0.00 $0.00
Weighted average number of
shares outstanding 3,215,259 3,424,363
</TABLE>
<TABLE>
<CAPTION>
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
Statements of Cash Flow
(Unaudited)
<S> <C> <C>
2/28/97 2/28/96
OPERATING ACTIVITIES:
Net Income (Loss) 6,711 13,300
Adjustments to reconcile
Net Income (Loss) to
Net Cash provided by
operating activities:
Depreciation and
Amortization 5,328 6,357
Decrease (Increase) in
Assets:
Accounts Receivable-Billed (103,740) (41,767)
Accounts Receivable-
Unbilled 42,348 124,695
Inventory - 5,000
Prepaid Expenses &
Miscellaneous (1,355) (1,409)
Increase (Decrease)
in Liabilities:
Accounts Payable-Trade 145,967 (33,895)
Payroll Taxes Payable (2,265) 1,587
Accrued Expenses (6,337) (40,814)
Advance from Customer 7,020 6,561
Net Cash Provided by
(Used in) Operating
Activities 93,677 39,615
INVESTING ACTIVITIES:
Acquisition of Property
& Equipment (6,391) (4,644)
Net Cash Used in
Investing Activities (6,391) (4,644)
FINANCING ACTIVITIES:
Proceeds from Additional
Borrowing 26,000 -
Extinguishment/Forgiveness
of Debt (76,000) (32,857)
Repayment of Notes Payable (14,817) (42,021)
Increase Paid in Capital 134,374 -
Issue Common Stock 41,950 -
Purchase Treasury Stock (39,797) -
Sale of Treasury Stock 20,625 -
Retirement Preferred Stock (100,000) -
Retirement long-term
Deferred Payables (46,950) -
Proceeds on Sale of
Stocks/Equipment - 725
Net Change in long-
term Accrued Expenses (41,271) 16,700
Net Cash Provided by
(Used in) Financing
Activities (95,886) (57,453)
Net Increase (Decrease) in
Cash (8,600) (22,482)
Cash-Beginning of Year 24,859 35,263
Cash-Ending Balance 16,259 12,781
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<EXCHANGE-RATE> 1
<CASH> 16,259
<SECURITIES> 0
<RECEIVABLES> 192,992
<ALLOWANCES> 0
<INVENTORY> 43,309
<CURRENT-ASSETS> 253,940
<PP&E> 28,925
<DEPRECIATION> 13,568
<TOTAL-ASSETS> 269,297
<CURRENT-LIABILITIES> 254,113
<BONDS> 0
0
0
<COMMON> 1,754,585
<OTHER-SE> (1,866,263)
<TOTAL-LIABILITY-AND-EQUITY> 269,267
<SALES> 391,675
<TOTAL-REVENUES> 393,057
<CGS> 342,389
<TOTAL-COSTS> 342,389
<OTHER-EXPENSES> 85,375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,097
<INCOME-PRETAX> (34,707)
<INCOME-TAX> 0
<INCOME-CONTINUING> (34,707)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,707)
<EPS-PRIMARY> (0.070)
<EPS-DILUTED> (0.070)
</TABLE>
