<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report Under Section 13 or 15(d) of The Securities Exchange
- ----- Act of 1934
For the quarterly period ended March 31, 1996
--------------------------
- ----- Transaction Report Under Section 13 or 15(d) of the Securities
Exchange Act
For the transition period from to
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Commission File Number 0-4169
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SYS
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
California 95-2467354
- --------------------------------- ---------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6363 Greenwich Drive, Suite 200, San Diego, California 92122
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(Address of Principal Executive Offices)
(619) 587-0484
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(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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
------ ------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,822,086 SHARES OF COMMON
STOCK, WITHOUT PAR VALUE, AS OF MARCH 31, 1996.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
March 31, 1996 and December 31, 1995.......................3
Consolidated Statements of Operations (unaudited)
Three Months and Nine Months Ended March 31, 1996
and Three Months and Nine Months Ended March 31, 1995......4
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended March 31, 1996
and Nine Months Ended March 31, 1995.......................5
Notes to Consolidated Financial Statements (unaudited)..........6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Description of Business....................................6
Results of Operations......................................6
Liquidity and Capital Resources............................7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................8
Item 2. Changes in Securities...........................................9
Item 3. Defaults Upon Senior Securities.................................9
Item 4. Submission of Matters to a Vote of Security Holders.............9
Item 5. Other Information...............................................9
Item 6. Exhibits and Reports on Form 8-K................................9
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYS
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
3/31/96 12/31/95
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
- ---------------------------------------------
Current assets:
Cash $ 54,000 $ 8,000
Contract receivables, net 861,000 718,000
Other current assets 91,000 70,000
----------- -----------
Total current assets $ 1,006,000 $ 794,000
Equipment, furniture and fixtures,
at cost, less accumulated
depreciation and amortization 97,000 90,000
Other assets 73,000 74,000
----------- -----------
$ 1,176,000 $ 958,000
----------- -----------
----------- -----------
LIABILITIES & STOCKHOLDERS' EQUITY
- ---------------------------------------------
Current liabilities:
Note payable to bank $ 237,000 $ 166,000
Accounts payable 305,000 260,000
Accrued payroll and related taxes 199,000 174,000
Other accrued liabilities 21,000 15,000
Current portion of other long-term debt 26,000 26,000
Income taxes payable 1,000 1,000
----------- -----------
Total current liabilities $ 789,000 $ 642,000
Other long-term debt 63,000 67,000
Stockholders' equity:
Preferred stock 55,000 55,000
Common stock 373,000 373,000
Retained earnings from Jan. 1, 1978 (104,000) (179,000)
----------- -----------
Total stockholders' equity $ 324,000 $ 249,000
----------- -----------
$ 1,176,000 $ 958,000
----------- -----------
----------- -----------
</TABLE>
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<PAGE>
SYS
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31 March 31
------------------------------ -------------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Contract revenues $1,484,000 $ 974,000 $ 4,300,000 $ 3,280,000
---------- ---------- ----------- -----------
Costs and expenses:
Contract costs $1,233,000 $ 796,000 $ 3,611,000 $ 2,719,000
General and administrative 164,000 138,000 438,000 297,000
---------- ---------- ----------- -----------
$1,397,000 $ 934,000 $ 4,049,000 $ 3,016,000
---------- ---------- ----------- -----------
Income from operations $ 87,000 $ 40,000 $ 251,000 $ 264,000
Other expenses:
SEI related expenses and interest 0 97,000 0 291,000
Interest 11,000 8,000 39,000 27,000
---------- ---------- ----------- -----------
$ 11,000 $ 105,000 $ 39,000 $ 318,000
Income (loss) before income taxes 76,000 (65,000) 212,000 (54,000)
Provision for income taxes 1,000 0.00 1,000 0.00
---------- ---------- ----------- -----------
Net income (loss) $ 75,000 $ (65,000) $ 211,000 $ (54,000)
Dividends on preferred shares 0.00 0.00 2,000 2,000
---------- ---------- ----------- -----------
Net income (loss) applicable to
common and common
equivalent shares $ 75,000 $ (65,000) $ 209,000 $ (56,000)
Retained earnings at beginning
of period (179,000) (81,000) (313,000) (90,000)
---------- ---------- ----------- -----------
Retained earnings at end of period $ (104,000) $ (146,000) $ (104,000) $ (146,000)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earning (losses) per common
and common equivalent shares $ 0.03 $ (0.02) $ 0.07 $ (0.02)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average number of
common and common
equivalent shares 2,822,000 2,822,000 2,822,000 2,822,000
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
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<PAGE>
SYS
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
March 31
------------------------
1996 1995
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<S> <C> <C>
Operating activities:
Net income (loss) $ 211,000 $ (54,000)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 22,000 22,000
Provision for doubtful accounts 0 0
Changes in operating assets and liabilities:
Contract receivables 83,000 11,000
Other current assets and other assets (30,000) (33,000)
Receivables - SEI 0 0
Accounts payable (152,000) 176,000
Accrued payroll and related taxes 21,000 (2,000)
Other accrued liabilities (2,000) (13,000)
---------- ---------
Net cash provided by (used for) operating activities $ 153,000 $ 107,000
Investing activities:
Acquisition of furniture and equipment (20,000) (21,000)
(Increase) decrease in other assets 0 0
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Net cash provided by (used in) investing activities $ (20,000) $ (21,000)
Financing activities:
Proceeds from note payable to bank 4,231,000 3,182,000
Payments on note payable to bank (4,302,000) (3,102,000)
Other notes payable 0 0
Payments of capital lease obligations (9,000) (11,000)
Payments of preferred stock dividends (2,000) (2,000)
Proceeds from issuance of common stock 0 0
---------- ---------
Net cash provided by (used in) financing activities $ (82,000) $ 67,000
Increase (decrease) in cash 51,000 153,000
Cash at beginning of period 3,000 6,000
---------- ---------
Cash at end of period $ 54,000 $ 159,000
---------- ---------
---------- ---------
</TABLE>
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<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) In the opinion of the Registrant, the unaudited financial information
in this report reflects all adjustments, consisting only of normal recurring
accruals, which are considered necessary to a fair presentation of the results
of the periods shown. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC
regulations. It is suggested that these financial statements be read in
conjunction with the audited financial statements included in the Registrant's
Report on Form 10-KSB for the fiscal year ended June 30, 1995.
(2) Earnings per common and common equivalent shares are computed after
consideration of the dividend requirements on the convertible preferred stock,
based on the weighted average number of common shares and, when dilutive, common
equivalent shares outstanding. The convertible preferred stock is considered a
common stock equivalent, but was anti-dilutive in 1995 and 1994, and therefore
not included in the computation.
(3) The results of operations for the quarter and nine-month period ended
March 31, 1996, are not necessarily indicative of the results to be expected for
the full year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DESCRIPTION OF BUSINESS
The Company provides management and technical services in systems planning,
management and analysis, systems engineering, naval architecture, marine
engineering, ordnance engineering, logistics analysis and engineering,
operations analysis, design development, reliability engineering and analysis,
hazardous materials reduction studies, computer systems analysis, office
automation, information management systems and related support services. The
Company also provides hardware integration and fabrication.
RESULTS OF OPERATIONS
The Company revenues for this quarter are about 52% more than those in the
same quarter in FY 1995. For the first nine months of FY 1996, revenues
increased by about 31% over the prior year's same period. The increased
revenues is due to additional work on the UNREP and MPA contracts. Revenues in
the third quarter of FY 1996 are about 6% and 5% higher than in the first and
second quarters respectively. Net Income for the quarter is $75,000 and for
the year to date $211,000. The booked contract backlog is approximately
$5,254,000 at the end of the third quarter. Contract backlog, including
contract options, is approximately $15,600,000 at March 31, 1996.
The Company's bank note increased to $237,000 at the end of the third
quarter of FY 1996. The balance at the end of the second quarter was $166,000.
At the end of the third quarter in FY 1995, the note balance was $359,000.
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LIQUIDITY AND CAPITAL RESOURCES
The Company had contract receivables (net) of $861,000 at the end of the
third quarter of FY 1996. For the same quarter in FY 1995, the contract
receivables (net) were $848,000.
The Company had accounts payable of $305,000 at the end of the third
quarter of FY 1996. For the same quarter in FY 1995, the accounts payable were
$376,000.
The Company maintains a $500,000 revolving credit facility with First
National Bank of San Diego (FNB). FNB advances funds to the Company of up to
80% of the Company's billed contract receivables less than 90 days old. The
note matures on May 3, 1996. The Company pays an interest rate of prime plus
3.750 points. The credit facility is collateralized by substantially all assets
of the Company. It requires the Company to maintain certain minimum financial
ratios, including levels of working capital and net worth.
The Company anticipates no significant commitments for Capital
Expenditures. The Company believes that its cash flow from operations and
available bank borrowings will be sufficient to satisfy the current and
anticipated capital requirements for operations.
-7-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The two settlement letters between the Company and the SEI parties
became the formal settlement documents between the parties based on the Superior
court ruling in November 1994 and the court would provide continuing
interpretation of the agreements as necessary. In a May 1995 interpretation,
the Superior Court ruled that the Company owes additional consulting fees, that
the Company is not entitled to liens of subrogation based on payments SYS made
to a major secured creditor of SEI, and that the Company shall account to the
SEI parties for collection costs. An appeal of these rulings was filed by the
Company on January 9, 1996.
The Company filed a lawsuit against Gray, Cary, Ames & Frye (GCAF), its
former general counsel, for legal malpractice and for breach of fiduciary duty
arising during the Company's acquisition of SEI assets and its subsequent
rescission. This case will have completed the discovery phase in July 1995 and
the jury trial was scheduled for August 1995. Subsequently, the jury trial was
finished in February 1996. The jury returned a verdict that the defendant was
negligent, and awarded damages to the Company of approximately $4,000. Under
California law, the defendant was able to file post-trial motions that sought to
assess the Company. The court ruled in July 1996 that SYS was liable for
approximately $145,000 of those costs. On June 14, 1996, SYS filed a notice of
appeal from the Judgment and Order on Jury Verdict of April 3, 1996.
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) EXHIBITS
* EXHIBIT NO. DESCRIPTION
27 Financial data schedule
(b.) FORM 8-K None
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<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.
SYS
-----------------
(Registrant)
Date: June 30, 1996
/s/ Lawrence L. Kavanau
- -------------------------
Lawrence L. Kavanau
Chairman and
Chief Executive Officer
Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial & Accounting Officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 54,000
<SECURITIES> 0
<RECEIVABLES> 861,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,006,000
<PP&E> 679,000
<DEPRECIATION> 582,000
<TOTAL-ASSETS> 1,176,000
<CURRENT-LIABILITIES> 789,000
<BONDS> 0
0
55,000
<COMMON> 373,000
<OTHER-SE> (104,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,176,000
<SALES> 0
<TOTAL-REVENUES> 4,300,000
<CGS> 0
<TOTAL-COSTS> 4,049,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,000
<INCOME-PRETAX> 212,000
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 211,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211,000
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
