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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- - ----- OF 1934
For the fiscal year ended June 30, 1997
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - ----- ACT OF 1934
For the Transition Period From to
------------------ ------------------
Commission File Number 0-4169
SYS
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(Name of Small Business Issuer in Its charter)
California 95-2467354
------------------------------------- -------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6363 Greenwich Drive, San Diego, California 92122
--------------------------------------------- -------------------------
(Address of Principal Executive Offices) (Zip Code)
(619) 587-0484
--------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, No Par Value
Preferred Stock, $.50 Par Value
Indicate by check mark whether the issuer: (1) filed all reports required
to be filed by Section 13 or 15(d) of the 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 past 90 days.
Yes X No
----------- ----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in
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definitive proxy or information statements by reference in Part III of this Form
10-KSB or any amendment to this form 10-KSB. (X)
Revenues for the fiscal year ended June 30, 1997 were $7,648,578.
As of June 30, 1997, the Issuer had outstanding 3,133,418 shares of Common
stock, no par value, 110,000 shares of preferred stock, $0.50 par value, and
78,195 shares of Preference Series B stock, $1.00 par value.
The approximate aggregate market value and total number of shares of Common
stock held by non-affiliates at June 30, 1997 was $736,230 and 942,314,
respectively. The total number of non-affiliate shares of Common stock was
multiplied by $0.7813 per share (the average of the bid and asked prices of such
shares of Common stock on June 30, 1997) to determine the aggregate market value
of non-affiliate shares of Common stock set forth above. (The assumption is
made, solely for purposes of the above computation, that all Officers, Directors
and holders of more than 5% of the outstanding Common stock of registrant are
affiliates.) The approximate total aggregate market value of Common stock,
including affiliates, is $2,448,139.
Documents incorporated by reference: Refer to Exhibits set forth in Item 13
of this Form 10-KSB.
Traditional Small Business Disclosure Format (check one): Yes X No
----- ---
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SYS
FOR FISCAL YEAR ENDED JUNE 30, 1997
FORM 10-KSB ANNUAL REPORT
INDEX
Page
----
PART I
Item 1. DESCRIPTION OF BUSINESS 5
Background of the Company 5
Products and Services 5
Business Developments 5
Contract Backlog and Customers 6
Competitive Conditions 7
Employees 7
Factors Which May Affect Future Results 7
Item 2. DESCRIPTION OF PROPERTY 9
Item 3. LEGAL PROCEEDINGS 9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-
HOLDERS 9
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 10
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION 11
Selected Financial Data 11
Results of Operations 12
Liquidity and Working Capital 13
Item 7. FINANCIAL STATEMENTS 14
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 29
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT 29
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Item 10. EXECUTIVE COMPENSATION 33
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 34
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 36
Item 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K 37
SIGNATURES 39
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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.
The Company was formed and incorporated in the State of California in 1966
as Systems Associates, Inc. It became a public corporation in 1968, and engaged
in systems analysis, systems engineering, computer services and software for
Government and industry. In addition to providing these services, the Company
conducted other business activities in computer network operations and software
applications, water resources development and management, and in engineering
services for sanitary waste development and construction management, which it
subsequently (1975) sold to other companies. The Company changed its name to
Systems Associates, Inc. of California on December 4, 1979, and, as of March 18,
1985, it was changed to SYS. The Company corporate offices were moved to San
Diego, California in February 19, 1984, from Long Beach, California.
PRODUCTS AND SERVICES
The Company provides support services (engineering, technical, and
management) to agencies of the United States Government as a prime contractor
and as a subcontractor to other government prime contractors. The company also
acts as prime contractor to subcontractors. These services are primarily in the
fields of:
Systems Planning Computer Hardware and Software
Management and Analysis Integration
Office Automation Software Development
Information Management Systems Operations Analysis
Design Development Computer System Analysis
Marine Engineering Systems Engineering
Ordnance Engineering Naval Architecture
Logistics Analysis and Engineering Reliability Engineering and Analysis
Hardware Integration and Fabrication Hazardous Materials Reduction Studies
Computer and Computer Equipment Sales
BUSINESS DEVELOPMENTS
Company revenues for Fiscal Year 1997 increased almost 29% over the
previous fiscal year. Net income for Fiscal Year 1997 increased 79% over the
previous fiscal year.
The Underway Replenishment (UNREP) Program was extended into its final of
three option years on September 1, 1996. On July 25, 1997, the contract was
extended an additional six months which runs it through February 28, 1998. The
proposal for the follow on contract was submitted on September 11, 1997. UNREP
provides in-service engineering support to the U.S. Navy fleet. The Company is
continuing its support for the research and development project to design and
build a full
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size ship mock-up of a missile rearming system. An Aegis Cruiser Vertical
Launch Test System was fitted with a full scale mock-up capable of demonstrating
the rearming and strikedown system feasibility for replenishing the Navy
Standard Missile and the shipboard Tomahawk missile system while underway at
sea. This project will now continue to refine the detail design. Shipboard
technical assistance continues to expand and provides the basis for continued
business confidence in the coming year.
The Management, Planning and Analysis (MPA) Program had its second of four
option years exercised on February 1, 1997. This program supports the U.S.
Navy's Port Hueneme Division, Naval Surface Warfare Center. The Statement of
Work provides a broad and flexible scope of work which allows a wide range of
tasking. SYS has developed work competencies in such areas as Management
Consulting, Information Services, Human Resource Services, Combat Systems
Engineering and Facilities Engineering. The MPA program has received customer
recognition for its high standards of excellence and professionalism. Continued
growth of this Program area is anticipated.
The Naval Architecture and Marine Engineering (NAME) Program had its first
of four option years exercised on November 25, 1996. This cost plus fixed fee
contract was issued by the U.S. Navy's Port Hueneme Division, Naval Surface
Warfare Center (PHD NSWC). The Company's largest customer on this contract is
the Ship Self Defense Department of PHD NSWC. Along with our Associate
Subcontractor, John J. McMullen Associates, Inc. (JJMA), we provide extensive
support for Ship Self Defense Systems in the areas of weapon systems
installation design, planning and coordination. The outlook for this contract
next year is good, but challenging. We are attempting to expand our customer
base in an environment of decreasing customer budgets.
The Company was awarded a two year subcontract from Systems Application and
Technologies to continue its support to the Naval Air Systems Command. This
support provides engineering and technical services focusing on the
identification and reduction of hazardous material when providing maintenance to
weapons and associated handling and shipping equipment. Hazardous material
reduction support is being expanded to include support for Foreign Military
Sales.
Washington Operations successfully recompeted for another five year
subcontract with their prime contractor, Tracor, to continue program management
support to the Program Executive Office, Surface Combatants/AEGIS Program
(PEO,SC/AP), PMS400. The Company provides contract and other financial
reconciliation and closure support for the Japanese AEGIS Foreign Military Sales
cases. The Company also provides other financial management support including
case closure processing support to PMS400.
While Company's sales of Sun computers and equipment continued at a reduced
level, the Company is attempting to apply the skills acquired in the Defense
arena into the commercial world.
CONTRACT BACKLOG AND CUSTOMERS
As of June 30, 1997, the Company's contract backlog, including negotiated
contract options, was approximately $20,342,000, compared with approximately
$24,841,000 on June 30, 1996. The primary reason for the decrease in
year-to-year backlog is due to the fact that the Company had no major contract
recompetitions during Fiscal Year 1997. Contract value backlog is converted to
revenues by performance on funded delivery orders or contracted tasks within
each contract or subcontract. Specific work activity is defined, scheduled and
priced by individual delivery orders (D.O.s) or contracted tasks (C.T.s). The
actual D.O. and C.T. backlog on June 30, 1997 was approximately $5,718,000, as
compared with approximately $2,801,000 on June 30, 1996.
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The majority of the Company's total revenues were derived from contracts
with the United States Government, principally agencies of the Department of
Defense. Nearly all of these revenues were from contracts with the United
States Navy. Should changes in procurement policies or further reductions in
government expenditures occur, revenue and the income of the Company could be
adversely affected. Government contracts are not seasonal, however, variations
may occur due to funding from time to time.
COMPETITIVE CONDITIONS
Nearly all of the Company's business is awarded through competitive
procurements. The engineering and management services industry consists of
hundreds of companies with which the Company competes and who can provide the
same type of services. A great many of the Company's competitors are larger and
have greater financial resources than the Company. The Company obtains much of
its business on the basis of proposals to new and existing customers.
Competition usually centers on successful past performance, technical
capability, management, personnel experience and price.
EMPLOYEES
The Company had 58 full-time and 37 part-time employees on June 30, 1997,
compared to 49 full-time and 34 part-time employees on June 30, 1996
FACTORS WHICH MAY AFFECT FUTURE RESULTS
Information contained in this Form 10-KSB should be studied carefully by
any potential investor while considering the following risk factors to the
Company.
1. LACK OF BUSINESS DIVERSIFICATION Essentially all the Company's
business at the present time is with the U.S. Navy. Even though the level of
business with its customers is growing and the Company has negotiated
multiple-year contracts, there is no certainty that budget changes in Congress
or the Defense Department will not seriously affect the Company.
2. DEPENDENCE ON KEY PERSONNEL The Company has a few key management,
project and technical personnel that are intimately involved in their functions
and have day to day relationships with critical customers. The Company is not
able to afford extra standby staff. As a result, at its current size, it would
be affected in an uncertain way if any of these personnel are lost to the
company.
3. COMPETITION The Company has many competitors who vie for the same
customers as SYS. They are competent, experienced and continuously working to
take work projects away from the Company.
4. PRIOR OPERATING HISTORY AND LACK OF TIMELY SEC FILINGS The Company is
current on its SEC filings and has been throughout the two years covered by this
10-KSB.
5. LIMITED ASSETS OF THE COMPANY The Company has very limited assets
upon which to rely on for adjusting to business variations and for growing new
businesses. While the Company is likely to look for new funding to assist in
the acquisition of other profitable businesses, it is uncertain whether such
funds will be available.
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6. LIMITED MARKET FOR COMMON STOCK. The Company's stock is traded (OTC)
on the Electronic Bulletin Board. Trading for the stock is sporadic and at
present there is a limited market for the Company's Common Stock. There can be
no assurance that a market will in fact develop. Even if a market does develop,
it may not be sustained.
7. POSSIBLE RULE 144 STOCK SALES. A total of 2,191,104 shares of the
Company's outstanding Common Stock are "restricted securities" and may be sold
only in compliance with Rule 144 adopted under the Securities Act of 1933 or
other applicable exemptions from registration. Rule 144 provides that a person
holding restricted securities for a period of one year may thereafter sell in
brokerage transactions, an amount not exceeding in any three month period the
greater of either (i) 1% of the Company's outstanding Common Stock, or (ii) the
average weekly trading volume during a period of four calendar weeks immediately
preceding any sale. Persons who are not affiliated with the Company and who
have held their restricted securities for at least two years are not subject to
the volume limitation. Possible or actual sales of the Company's Common Stock
by present shareholders under Rule 144 may have a depressive effect on the price
of the Company's Common Stock in any market which may develop.
8. RISKS OF LOW PRICED STOCKS. Trading in the Company's stock is
limited. Consequently, a shareholder may find it more difficult to dispose of,
or to obtain, accurate quotations as to the price of, the Company's securities.
In the absence of a security being quoted on NASDAQ, trading in the Common Stock
is covered by Rule 3a51-1 promulgated under the Securities Exchange Act of 1934
for non-NASDAQ and non-exchange listed securities.
Under such rules, broker/dealers who recommend such securities to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000
jointly with their spouse) must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are also exempt from this rule if the market price is
at least $5.00 per share, or for warrants, if the warrants have an exercise
price of at least $5.00 per share. The Securities Enforcement and Penny Stock
Reform Act of 1990 requires additional disclosure related to the market for
penny stocks and for trades in any penny stock defined as a penny stock.
The Commission has recently adopted regulations under such Act which define
a penny stock to be any NASDAQ or non-NASDAQ equity security that has a market
price or exercise price of less than $5.00 per share and allow for the
enforcement against violators of the proposed rules.
In addition, unless exempt, the rules require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule prepared by the
Commission explaining important concepts involving a penny stock market, the
nature of such market, terms used in such market, the broker/dealer's duties to
the customer, a toll-free telephone number for inquiries about the
broker/dealer's disciplinary history, and the customer's rights and remedies in
case of fraud or abuse in the sale.
Disclosure also must be made about commissions payable to both the
broker/dealer and the registered representative, current quotations for the
securities and, if the broker/dealer is the sole market maker, the broker/dealer
must disclose this fact and its control over the market.
Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks. While many NASDAQ stocks are covered by the proposed definition of
penny stock, transactions in NASDAQ stock are exempt from all but the sole
market-maker provision for (i) issuers $2,000,000 in tangible assets ($5,000,000
if the issuer has not been in continuous operation for three years), (ii)
transactions in which the customer is an institutional accredited investor and
(iii) transactions that are not recommended by the
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broker/dealer. In addition, transactions in a NASDAQ security directly with the
NASDAQ market maker for such securities, are subject only to the sole
market-maker disclosure, and the disclosure with regard to commissions to be
paid to the broker/dealer and the registered representatives.
Finally, all NASDAQ securities are exempt if NASDAQ raised its requirements
for continued listing so that any issuer with less than $2,000,000 in net
tangible assets or stockholder's equity would be subject to delisting. These
criteria are more stringent than the proposed increase in NASDAQ'S maintenance
requirements. the company's securities are subject to the above rules on penny
stocks and the market liquidity for the Company's securities could be severely
affected by limiting the ability of broker/dealers to sell the Company's
securities.
ITEM 2. DESCRIPTION OF PROPERTY
The business and operations of the Company are now conducted in the
following office spaces:
<TABLE>
<CAPTION>
Approx.
Location Sq. Feet Lease Term Rental
- - -------- -------- ---------- -------
<S> <C> <C> <C>
6363 Greenwich Drive 4,020 Expired July 1, 1997 $ 5,226/mo.
San Diego, CA 92122 (Month-to-month basis)
2011 Crystal Drive 1,553 Expires July 31, 1998 $ 3,688/mo.
One Crystal Park
Arlington, VA 22202
1721 Pacific Avenue 7,117 Expires March 31, 1998 $ 8,317/mo.
Oxnard, CA 93033 (Cancelable with 6 months
prior written notice)
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
On June 14, 1996, the Company filed a Notice of Appeal from the Judgement
and Order on the Jury Verdict of April 3, 1996 regarding the outcome of the
Gray, Cary Ames & Frye (GCAF) lawsuit. To obviate the necessity for bonding the
appeal to preclude collection efforts during the appeal, the Company paid the
Judgement on May 9, 1997, reserving its rights to continue the appeal.
In November 1995, a creditor of Systems Exploration, Inc. (SEI) filed a
breach of contract action against the Company in California Superior Court. The
Company maintains it has no liability to this plaintiff with respect to this
matter and has vigorously defended this action. On September 17, 1997, the
Company submitted a settlement offer on this matter in an effort to bring it to
closure.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the final quarter of Fiscal Year
1997.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is traded in the over-the-counter market.
The ranges of bid and asked quotations during the Company's two most recent
fiscal years are as follows:
FISCAL YEAR 1996 BID ASK
---------------- ----- -----
First Quarter $.015 $.1875
Second Quarter $.015 $.1875
Third Quarter $.015 $.1875
Fourth Quarter $.015 $.1875
FISCAL YEAR 1997 BID ASK
---------------- ------ -----
First Quarter $.067 $.379
Second Quarter $.211 $.539
Third Quarter $.291 $.688
Fourth Quarter $.415 $1.003
The sources of these quotations are stock brokerages that make a market in
the Company's stock, other brokerages representing both bidders and sellers, and
bidders which have made direct contact with the Company. The brokers have
indicated that there has been light trading in the Company's Common Stock for
the past year.
(b) As of June 30, 1997, there were approximately 458 record holders of
the Company's Common Stock.
(c) No cash dividends have been paid on the Company's Common Stock during
the Company's two most recent fiscal years, and the Company does not intend to
pay cash dividends on its Common Stock in the immediate future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SELECTED FINANCIAL DATA:
The data that follows summarizes financial information about the Company that is
further discussed below:
<TABLE>
<CAPTION>
AS OF AND FOR THE FISCAL YEARS ENDED JUNE 30
(thousands except per share amounts)
1997 1996 1995 1994 1993
-------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Contract revenues $7,649 $5,942 $4,751 $4,692 $5,302
Costs and expenses:
Contract costs 6,596 4,933 3,969 3,904 4,410
General and administrative 783 681 573 435 609
Income from operations 269 328 209 353 283
Other expenses:
Expenses related to
settlement of litigation and
rescinded acquisition 0 156 309 51 51
Interest related to rescinded
acquisition 0 0 80 130 133
Other interest 40 44 40 46 51
Income (loss) before
income taxes 229 128 (220) 126 48
Provision for income taxes 0 0 1 9 6
Net income (loss) 229 128 (221) 117 42
Net income (loss) applicable to
common stock 227 126 (223) 116 42
Net income (loss) per
common share 0.07 0.04 (0.08) 0.04 0.02
BALANCE SHEET DATA:
Total assets 1,615 1,310 1,180 2,151 2,682
Borrowings-bank line of credit 0 98 346 1,384 1,618
Long-term obligations 125 28 37 24 14
Stockholders' equity 612 380 115 338 220
</TABLE>
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RESULTS OF OPERATIONS
FISCAL YEAR 1997 VS. FISCAL YEAR 1996
The Company's revenues from government contracts were approximately
$7,608,000 and $5,821,000, respectively, for 1997 and 1996. Total revenues for
1997 were $7,649,000 compared to $5,942,000 for 1996.
The improvement in the Company's revenues were primarily related to
approximately $250,000 in increased sales on the MPA contract and $1,815,000 in
sales on the NAME contract which had no sales in 1996. The increase in sales
occurred despite the reduced sales on the UNREP contract and in the SYS Computer
Division which experienced sales reductions of $210,000 and $87,000,
respectively. Other contract sales remained relatively stable.
During 1997, the Company's income from operations was $269,000, compared to
$328,000 in 1996. The Company's income from operations is lower in 1997 than in
1996 due primarily to a write-off of $25,000 in old contract receivables and
reserving $26,000 for doubtful accounts in 1997. On the NAME contract, the
Company does not receive any fee on its Associate Subcontractor's work and the
Associate Subcontractor has performed almost half of the $1,815,000 in sales on
the contract.
During 1997, the Company had net income of $229,000, compared to $128,000
in 1996. Earnings were negatively impacted by a Judgement against the Company
for $156,000 in 1996.
Essentially all the Company's contracts are of the cost reimbursable plus
fee type. Revenues on cost reimbursement contracts are recorded as costs are
incurred and include estimated earned fees in the proportion that costs or hours
incurred to date bear to total estimated costs or hours, respectively, as
specified by each contract. Contract costs increased to $6,596,000 in 1997 from
$4,933,000 in 1996 and general and administrative expenses increased to $783,000
in 1997 from $681,000 in 1996 primarily as a result of the increase in sales.
Costs and expenses include $140,000 in 1996 for employee compensation through
the issuance of both Common shares and 9% Series B Preference shares.
Other expenses in 1996 include $156,000 arising from a court order
attributable to the GCAF litigation settlement. However, the Company is
appealing the settlement.
As a result of the availability of net operating loss carryforwards, the
provision for income taxes in 1997 was substantially below the amounts expected
based on statutory rates. At June 30, 1997, the Company had federal net
operating loss carryforwards of approximately $190,000 available to offset
future taxable income.
Net income per common share was $0.07 in 1997 compared to $0.04 in 1996.
The weighted average number of shares was 3,057,269 in 1997 and 2,822,086 in
1996.
FISCAL YEAR 1996 VS. FISCAL YEAR 1995
The Company's revenues from government contracts were $5,821,000 and
$4,620,000,
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respectively, for 1996 and 1995. Total revenues for 1996 were $5,942,000
compared to $4,751,000 for 1995.
During 1996, the Company's income from operations was $328,000, compared to
$209,000 in 1995. During 1996, the Company had net income of $128,000, compared
to a net loss of $221,000 in 1995. Earnings were negatively impacted by a
Judgement against the Company for $156,000 in 1996 and $309,000 in 1995.
The improvement in the Company's revenues, income from operations and net
income were primarily related to approximate increases of $1,275,000, $142,000
and $181,000 from MPA, UNREP and Washington Operations contract sales,
respectively. The increases occurred despite the loss of a NAVAIR contract that
generated sales of $339,000 in 1995 but no sales in 1996. Other contract sales
remained relatively stable.
Essentially all the Company's contracts are of the cost reimbursable plus
fee type. Contract costs increased to $4,933,000 in 1996 from $3,969,000 in
1995 and general and administrative expenses increased to $681,000 in 1996 from
$573,000 in 1995 primarily as a result of the increase in sales. Costs and
expenses include $140,000 in 1996 for employee compensation through the issuance
of both Common shares and 9% Series B Preference shares.
Other expenses in 1996 include $156,000 arising from a court order
attributable to the GCAF litigation settlement compared to $389,000 attributable
to the combined cost of litigation, interest and other SEI related expenses in
1995. SEI related expenses in 1995 were reduced by SEI related income of
$80,000.
As a result of the availability of net operating loss carryforwards, the
provision for income taxes in 1996 and the credit for income taxes in 1995 were
substantially below the amounts expected based on statutory rates.
Net income per common share was $0.04 in 1996 compared to a net loss of
$0.08 in 1995. The weighted average number of shares was the same in each year.
LIQUIDITY AND WORKING CAPITAL
The Company had working capital of $574,000 at June 30, 1997 compared to
$250,000 at June 30, 1996. Contract receivables increased by $55,000 during
1997. The Company was able to eliminate its line of credit borrowings at June
30, 1997. Accounts payable was $159,000 higher in 1997 than in 1996. This was
mainly attributable to the Associate Subcontractor invoices on the NAME
contract. Accrued liabilities in 1997 were less than 1996 primarily because
$160,000 was converted into a note payable. In addition to the $160,000 note
payable, there are two smaller notes that make up the total of the current and
long-term notes payable. The Company's net worth increased by $233,000 in 1997
to $612,000. These improvements were due primarily to the net income of
$229,000 generated in 1997. Net furniture and equipment increased by $7,000 in
1997.
Notes payable at June 30, 1997 consists of three notes. The principal
amounts due annually from these notes consists of $90,195, $40,532 and $84,888
for the years then ending June 30, 1998, 1999 and 2000, respectively. The
following table provides additional detail on these notes:
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Monthly Amount,
Monthly Payments Interest Balloon
Note Payment Remaining Rate Payment
- - ---- ------- --------- ---- -------
1. $2,500 12 None None
2. $2,500 13 9.28% None
3. $4,076 34 10.25% $54,156
The Company's primary source of liquidity is its $500,000 revolving line of
credit facility under a loan agreement with Scripps Bank that expired on August
30, 1997. Scripps has extended this loan to October 15, 1997 at which time an
annual renewal will take place. The loan is secured by all of the Company's
assets including contract receivables. Scripps advances funds to the Company of
up to 75% of the Company's billed contract receivables which are less than 90
days old. Scripps charges an interest rate of 1.5% over prime.
The Company also finances a portion of its operations through leases. At
June 30, 1997, the Company had non-cancelable operating leases for its offices
which expire at various dates through July 1998. The Company also leases
certain computer and office equipment under capital leases expiring at various
dates through June 1998.
Annual future minimum lease payments under capital leases with initial
terms of one year or more as of June 30, 1997 totaled $24,453 for the year
ending June 30, 1998.
Annual future minimum lease payments under operating leases with initial
terms of one year or more as of June 30, 1997 totaled $116,359 and $3,688 for
the years ending June 30, 1998 and 1999, respectively.
Several key factors indicating the Company's financial condition include:
June 30, 1997 June 30, 1996
------------- -------------
Current ratio 1.65 1.28
Maximum debt to net worth 1.64 2.45
Net worth $612,000 $380,000
Working capital $574,000 $250,000
Debt to total assets 62% 71%
Book value per Common share $0.20 $0.13
The Company continued to demonstrate improvements in the above financial factors
during fiscal year 1997, primarily due to increased sales.
Management believes that the Company will have sufficient cash flow from
operations and funds available under the revolving credit agreement with Scripps
Bank to finance its operating and capital requirements through at least the
fiscal year ending June 30, 1998.
ITEM 7. FINANCIAL STATEMENTS
(a) The following documents are filed as part of this report.
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SYS
INDEX TO FINANCIAL STATEMENTS
PAGE
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REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS F-17
BALANCE SHEETS
JUNE 30, 1997 AND 1996 F-18
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997 AND 1996 F-19
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997 AND 1996 F-20
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997 AND 1996 F-21
NOTES TO FINANCIAL STATEMENTS F-22/29
* * *
F-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
SYS
We have audited the accompanying balance sheets of SYS as of June 30, 1997 and
1996, and the related statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SYS as of June 30, 1997 and
1996, and its results of operations and cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ J. H. COHN LLP
------------------
J. H. COHN LLP
San Diego, California
August 15, 1997
F-16
<PAGE>
SYS
BALANCE SHEETS
JUNE 30, 1997 AND 1996
ASSETS 1997 1996
----------- ----------
Current assets:
Cash $ 194,462 $ 24,776
Contract receivables, net of allowance
for doubtful accounts of $26,000
and $201,000 1,042,520 987,028
Other receivables 92,809 70,294
Other current assets 121,824 70,647
---------- ----------
Total current assets 1,451,615 1,152,745
Furniture and equipment, less accumulated
depreciation and amortization of $279,300
and $394,033 148,375 141,748
Other assets 15,220 15,695
---------- ----------
Totals $1,615,210 $1,310,188
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank under line of credit $ 98,050
Accounts payable $ 461,988 302,662
Accrued payroll and related taxes 237,407 225,554
Other accrued liabilities 64,762 231,308
Current portion of other notes payable 90,195
Current portion of capital lease obligations 23,174 45,004
---------- ----------
Total current liabilities 877,526 902,578
Other notes payable, net of current portion 125,420
Capital lease obligations, net of current
portion 28,029
---------- ----------
Total liabilities 1,002,946 930,607
---------- ----------
Commitments and contingencies
Stockholders' equity:
4% convertible preferred stock, $.50 par
value; 250,000 shares authorized; 110,000
shares issued and outstanding 55,000 55,000
9% convertible preference stock, $1.00 par
value; 2,000,000 shares authorized;
78,195 and 139,561 Series B shares
issued and outstanding 78,195 139,561
Common stock, no par value; 6,000,000
shares authorized; 3,133,418 and 2,827,186
shares issued and outstanding 443,419 372,878
Retained earnings (accumulated deficit) 35,650 (187,858)
---------- ----------
Total stockholders' equity 612,264 379,581
---------- ----------
Totals $1,615,210 $1,310,188
---------- ----------
---------- ----------
See Notes to Financial Statements.
F-17
<PAGE>
SYS
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996
---------- ----------
Contract revenues $7,648,578 $5,941,661
---------- ----------
Costs and expenses:
Contract costs 6,596,240 4,932,605
General and administrative expenses 783,368 680,831
---------- ----------
Totals 7,379,608 5,613,436
---------- ----------
Income from operations 268,970 328,225
---------- ----------
Other expenses:
Expenses related to settlement of
litigation 155,996
Interest 39,962 44,104
---------- ----------
Totals 39,962 200,100
---------- ----------
Net income $ 229,008 $ 128,125
---------- ----------
---------- ----------
Net income applicable to common stock $ 226,808 $ 125,925
---------- ----------
---------- ----------
Net income per common share $.07 $.04
---- ----
---- ----
Weighted average number of common
shares outstanding 3,057,269 2,822,086
---------- ----------
---------- ----------
See Notes to Financial Statements.
F-18
<PAGE>
SYS
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Convertible Retained
Convertible Series B Earnings
Preferred Stock Preference Stock Common Stock (Accumu-
------------------- -------------------- ---------------------- lated
Shares Amount Shares Amount Shares Amount Deficit) Total
------- ------- ------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 110,000 $55,000 2,822,086 $372,623 $(313,783) $113,840
Cash dividends on 4%
convertible preferred
stock at $.02 per share (2,200) (2,200)
Issuance of 9% convertible
Series B preference
stock and common stock
as compensation 139,561 $139,561 5,100 255 139,816
Net income 128,125 128,125
------- ------- ------- -------- --------- -------- --------- --------
Balance, June 30, 1996 110,000 55,000 139,561 139,561 2,827,186 372,878 (187,858) 379,581
Cash dividends on 4%
convertible preferred
stock at $.05 per share (5,500) (5,500)
Issuance of common stock as
compensation 3,500 175 175
Proceeds from exercise of
stock options 180,000 9,000 9,000
Conversion of 9% convertible
Series B preference stock
into common stock (61,366) (61,366) 122,732 61,366
Net income 229,008 229,008
------- ------- ------- -------- --------- -------- --------- --------
Balance, June 30, 1997 110,000 $55,000 78,195 $ 78,195 3,133,418 $443,419 $ 35,650 $612,264
------- ------- ------- -------- --------- -------- --------- --------
------- ------- ------- -------- --------- -------- --------- --------
</TABLE>
See Notes to Financial Statements.
F-19
<PAGE>
SYS
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 229,008 $ 128,125
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 52,528 48,321
Loss on disposition and write-down
of equipment 13,829
Provision for doubtful accounts 51,000
Issuance of capital stock as compensation 175 139,816
Changes in operating assets and liabilities:
Contract receivables (106,492) (42,771)
Other receivables (22,515) (24,787)
Other current assets (51,177) (18,955)
Accounts payable 259,714 (154,563)
Accrued payroll and related taxes 11,853 47,198
Other accrued liabilities (166,546) 171,893
----------- -----------
Net cash provided by operating
activities 271,377 294,277
----------- -----------
Investing activities:
Acquisition of furniture and equipment (79,636) (44,218)
Decrease in other assets 475 20,563
----------- -----------
Net cash used in investing activities (79,161) (23,655)
----------- -----------
Financing activities:
Proceeds from line of credit borrowings 7,240,000 5,361,000
Payments of line of credit borrowings (7,338,050) (5,570,549)
Proceeds from other notes payable 160,000
Payments of other notes payable (44,773)
Payments of capital lease obligations (43,207) (37,151)
Payments of preferred stock dividends (5,500) (2,200)
Proceeds from issuance of common stock 9,000
----------- -----------
Net cash used in financing activities (22,530) (248,900)
----------- -----------
Net increase in cash 169,686 21,722
Cash, beginning of year 24,776 3,054
----------- -----------
Cash, end of year $ 194,462 $ 24,776
----------- -----------
----------- -----------
Supplemental disclosure of cash flow data:
Interest paid $ 39,962 $ 44,104
----------- -----------
----------- -----------
Supplemental disclosure of noncash investing
and financing activities:
Conversion of accounts payable into other
notes payable $ 100,388
-----------
-----------
Conversion of 9% convertible Series B
preference stock into common stock $ 61,366
-----------
-----------
Capital lease obligations incurred for
furniture and equipment $ 47,184
-----------
-----------
</TABLE>
See Notes to Financial Statements.
F-20
<PAGE>
SYS
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and summary of significant accounting policies:
Organization:
SYS (the "Company") was incorporated in 1966 in the State of
California. 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.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results could differ from
those estimates.
Revenue recognition:
Substantially all revenues are derived from contracts with the
United States Government. Revenues on fixed-price contracts are
recorded on the percentage of completion method in the ratio that
costs incurred bear to total estimated costs at completion.
Revenues on cost-reimbursement contracts are recorded as costs are
incurred and include estimated earned fees in the proportion that
costs or hours incurred to date bear to total estimated costs or
hours, respectively, as specified by each contract. Provisions for
estimated losses on contracts are recorded as such losses become
known.
Furniture and equipment:
Furniture and equipment are carried at cost. Depreciation is
provided using the straight-line method over the estimated useful
lives of the related assets, which range from 3 to 10 years.
Leasehold improvements are amortized over the shorter of the useful
lives of the assets or the lease term. Furniture and equipment
include assets under capital leases with a cost of $139,559 and
$261,446 and accumulated amortization of $97,106 and $186,092 at
June 30, 1997 and 1996, respectively.
Impairment of long-lived assets:
Impairment losses on long-lived assets are recognized when events
or changes in circumstances indicate that the undiscounted cash
flows estimated to be generated by such assets are less than their
carrying value and, accordingly, all or a portion of such carrying
value may not be recoverable. Impairment losses are then measured
by comparing the fair value of assets to their carrying amounts.
F-21
<PAGE>
SYS
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and summary of significant accounting policies
(concluded):
Net income per common share:
Net income per common share has been computed by dividing the net
income applicable to common stock for the year by the weighted
average number of common shares outstanding as adjusted for the
dilutive effects of the assumed conversion of the 4% preferred
stock (a common stock equivalent) and the exercise of stock
options. The effects of the assumed conversion of the 9% preference
stock were either anti-dilutive or immaterial.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share," ("SFAS 128") which replaces the presentation of primary
earnings per share required under previously promulgated accounting
standards with a presentation of basic earnings per share. It also
requires dual presentation of basic and diluted earnings per share
on the face of the statement of income for all entities with
complex capital structures and provides guidance on other
computational changes. SFAS 128 is effective for financial
statements for both interim and annual periods ending after
December 15, 1997. Earlier application is not permitted. The
Company does not expect the adoption of SFAS 128 to have a material
impact on its computations of net income per share.
Income taxes:
The Company accounts for income taxes pursuant to the asset and
liability method which requires deferred income tax assets and
liabilities to be computed annually for differences between the
financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on
enacted laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. The income tax
provision or credit is the tax payable or refundable for the period
plus or minus the change during the period in deferred tax assets
and liabilities.
Note 2 - Contract receivables:
Contract receivables consist of the following at June 30, 1997 and
1996:
1997 1996
---------- --------
Amounts billed, less allowance for doubt-
ful accounts of $7,000 and $54,000 $ 177,083 $445,693
Recoverable costs and accrued profit
on progress completed - not billed 610,970 347,555
Retentions, due upon completion of con-
tracts 74,947 138,523
Unrecovered costs subject to future nego-
tiation - not billed, less allowance for
doubtful accounts of $19,000 and $147,000 179,520 55,257
---------- --------
Totals $1,042,520 $987,028
---------- --------
---------- --------
F-22
<PAGE>
SYS
NOTES TO FINANCIAL STATEMENTS
Note 2 - Contract receivables (concluded):
At June 30, 1997, recoverable costs and accrued profit on progress
completed - not billed consisted of amounts billed in July 1997. The
balances comprising receivables pursuant to retainage provisions will
be due upon completion of the contracts and acceptance by the
customer; based on the Company's experience with similar contracts in
recent years, the balances at June 30, 1997 are expected to be
collected in fiscal 1998 and 1999.
Unrecovered costs subject to future negotiation - not billed consist
primarily of revenues recognized on specific delivery orders within
certain contracts whereby the costs incurred have exceeded the
current funding limitation for the specific delivery order; however,
the Company has not exceeded the cost limitations for the entire
contract as a whole. The costs incurred in excess of specific funding
limitations arose primarily as a result of actual indirect expense
rates exceeding the Defense Contract Audit Agency ("DCAA") approved
billing rates. However, after an audit by the DCAA has been
completed, the Company intends to request that the cost limitation on
certain delivery orders be increased to cover the actual indirect
expenses incurred and the cost limitations on completed delivery
orders with funds still available within the same contract be
decreased to the amount of costs actually incurred. Even though the
government contracting officer is not legally obligated to abide by
the Company's request, management believes that the amounts will be
collected.
Note 3 - Settlement of litigation:
Expenses of $155,996, included in other expenses in the accompanying
1996 statement of operations, are attributable to the settlement of
litigation related to the recision of a 1992 agreement to purchase
certain assets of System Exploration, Inc. The Company is appealing
the settlement.
Note 4 - Note payable to bank under line of credit:
At June 30, 1997, the Company had no outstanding borrowings under a
$500,000 revolving line of credit provided by a bank which expires on
August 30, 1997. Any borrowings under the line of credit will be
limited to 75% of qualifying contract receivables, will be
collateralized by substantially all of the assets of the Company and
will bear interest at 1.5% above a specified prime rate. Among other
things, the terms of the line of credit agreement require the Company
to maintain certain financial statement ratios.
Note 5 - Other notes payable:
As of June 30, 1997, other notes payable had an aggregate principal
balance of $215,615. These notes bear interest at rates ranging up to
10.25%. One note (which had a principal
F-23
<PAGE>
SYS
NOTES TO FINANCIAL STATEMENTS
Note 5 - Other notes payable (concluded):
balance of $157,317) is payable to a bank and has terms that require
the Company to maintain certain financial ratios. Principal amounts
due under these obligations for each of the years subsequent to June
30, 1997 are as follows:
AMOUNT
------
1998 $ 90,195
1999 40,532
2000 84,888
Note 6 - Leases:
The Company has noncancelable operating leases for its offices which
expire at various dates through July 1998. Certain leases provide for
increases in the minimum lease payments based on fluctuations in
various price indices. Rent expense under all operating leases
totaled $187,547 and $182,524 in 1997 and 1996, respectively.
The Company also leases certain computer and office equipment under
capital leases which expire at various dates through June 1998.
Annual future minimum lease payments under noncancelable operating
and capital leases with initial terms of one year or more as of June
30, 1997 are as follows:
Operating Capital
Leases Leases
--------- -------
1998 $116,359 $24,453
1999 3,688
-------- -------
Totals $120,047 24,453
--------
--------
Less amounts representing interest 1,279
-------
Present value of net minimum lease
payments $23,174
-------
-------
Note 7 - Stockholders' equity:
Convertible preferred stock:
The Company has been authorized to issue up to 250,000 shares of
nonvoting convertible preferred stock with a par value of $.50 per
share, of which 110,000 shares had been issued at June 30, 1997.
Cumulative dividends on such shares are payable at the annual rate
of 4%. Each share is convertible into one share of common stock
upon the payment of $6.50 per share and redeemable at the option of
the Company at its par value plus accrued dividends. In the event
of the Company's liquidation, the holders of the preferred stock
are entitled to $.50 per share plus all accumulated and unpaid
dividends.
F-24
<PAGE>
SYS
NOTES TO FINANCIAL STATEMENTS
Note 7 - Stockholders' equity (continued):
Convertible preferred stock (concluded):
The payments of cash dividends on the preferred stock totaled
$5,500 in 1997, which includes $2,200 for the payment of dividends
that accrued in 1997 and $3,300 for the payment of all dividends in
arrears at June 30, 1996.
Convertible preference stock:
In June 1996, the Company issued to employees 139,561 of the
2,000,000 authorized shares of preference stock, which were
designated as Series B 9% cumulative convertible callable nonvoting
preference stock ($1.00 par value), along with 5,100 shares of
common stock and charged $139,816 as compensation. Payments of
dividends on the preference stock are subordinate to the payment of
dividends on the 4% preferred stock. Each share of preference
stock, without any cumulative dividends, is convertible into two
shares of common stock until the Company has issued a maximum of
139,561 common shares. During 1997, a total of 61,366 shares of
preference stock were converted into 122,732 shares of common
stock. Accordingly, 78,195 shares of preference stock remained
outstanding as of June 30, 1997. At June 30, 1997, cumulative
dividends in arrears on the preference stock totaled $7,038 ($.09
per share). There were no dividends in arrears at June 30, 1996. In
the event of the Company's liquidation, the holders of the
preference stock are entitled to $1.00 per share plus all
accumulated and unpaid dividends.
Non-qualified stock options:
During the year ended June 30, 1997, the Company entered into
agreements for grants of non-qualified stock options to three key
employees. Under these agreements, the Company granted options to
purchase 105,000 shares of common stock at $.05 per share (the fair
market value at the date of grant). These options were exercised
immediately. However, the right of the employees to retain these
shares is contingent upon their future employment by the Company.
The right of retention vests ratably over the three year period
that commenced with the date of grant. The Company has the right to
purchase unvested shares upon termination of employment at the
original purchase price.
Incentive stock option and restricted stock plan:
On August 20, 1996, the Company's Board of Directors adopted the
SYS 1997 Incentive Stock Option and Restricted Stock Plan (the
"Plan"), which was ratified by the Company's stockholders on March
21, 1997. The Plan initially provided for grants by the Board of
Directors of incentive stock options to purchase up to 350,000
shares of common stock to employees and grants of restricted stock
options to purchase up to 100,000 shares of common stock to
directors and consultants. However, the Board of Directors has
approved an amendment to the Plan whereby, subject to ratification
by stockholders, it will be authorized to grant restricted stock
options to purchase up to 350,000 shares
F-25
<PAGE>
SYS
NOTES TO FINANCIAL STATEMENTS
Note 7 - Stockholders' equity (continued):
Incentive stock option and restricted stock plan (concluded):
of common stock to directors and consultants. There were no
incentive stock options granted in 1997. Restricted stock options
for the purchase of 150,000 shares were granted in 1997, including
grants that are subject to ratification of the amendment to the
Plan by the stockholders. Options cannot be granted under the Plan
at less than 100% of the fair market value on the date of grant.
Options vest at such time and under such conditions as determined
by the Board of Directors at the time of grant.
Additional required disclosures related to stock options:
The following table summarizes certain information regarding
options granted during 1997 and options outstanding at June 30,
1997:
Weighted
Shares or Average
Price per Exercise
Share Price
--------- --------
Options granted 255,000 $.11
Options exercised (180,000) .05
---------
Options outstanding at end of year 75,000 .29
---------
---------
Option price range at end of year $.09-$.47
Weighted average fair value of
options granted during the year $.11
Option price range for options
exercised during the year $.05
The following table summarizes information about stock options
outstanding at June 30, 1997, all of which are at fixed-prices:
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise Options
Prices Outstanding Life Price Exercisable
--------- ----------- ----------- --------- -----------
$.09-$.47 75,000 7 years $.29 None
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Since all of the
options were granted at the fair market value on the date of
grant, no earned or unearned compensation cost was recognized in
the accompanying financial statements for stock options granted
in 1997. Had compensation cost been determined based on the fair
value at the grant date for all awards in 1997 consistent with
the provisions of SFAS No. 123, the Company's net income and
F-26
<PAGE>
SYS
NOTES TO FINANCIAL STATEMENTS
Note 7 - Stockholders' equity (concluded):
Additional required disclosures related to stock options (concluded):
net income per share would have been reduced to the pro forma
amounts set forth below:
Net income - as reported $229,008
Net income - pro forma 217,458
Net income per common share - as reported $.07
Net income per common share - pro forma $.07
The fair value of each option granted in 1997 was estimated on the
date of grant using the Black-Sholes option-pricing model with the
following weighted-average assumptions: dividend yield of 0%;
expected volatility of 200%; risk-free interest rate of 7%; and
expected lives of one month to seven years.
Note 8 - Income taxes:
At June 30, 1997, the Company had a net operating loss carryforward
for Federal income tax purposes of approximately $190,000 which will
begin to expire in 2008 unless previously utilized. Pursuant to the
provisions of the Internal Revenue Code, the utilization of Federal
net operating loss carryforwards in future years may be subject to
substantial annual limitations if a change of more than 50% in the
ownership of the Company occurs.
Significant components of the Company's deferred tax assets (there
were no significant deferred tax liabilities) and a related valuation
allowance as of June 30, 1997 and 1996 are shown below:
1997 1996
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 65,000 $121,000
Other 57,000 164,000
-------- --------
Total deferred tax assets 122,000 285,000
Valuation allowance for deferred
tax assets (122,000) (285,000)
-------- --------
Net deferred tax assets $ - $ -
-------- --------
-------- --------
The Company has offset the deferred tax assets by an equivalent
valuation allowance due to the uncertainties related to the extent
and timing of its future taxable income.
The expected Federal income tax provision, computed based on the
Company's pre-tax income in 1997 and 1996 and the statutory Federal
income tax rate, is reconciled to the actual tax
F-27
<PAGE>
SYS
NOTES TO FINANCIAL STATEMENTS
Note 8 - Income taxes (concluded:
provision reflected in the accompanying financial statements as
follows:
1997 1996
-------- -------
Expected tax provision at statutory
rates $ 77,863 $43,034
Decrease resulting primarily from
availability of net operating
loss carryforwards (77,863) (43,034)
-------- -------
Totals $ - $ -
-------- -------
-------- -------
Note 9 - Retirement plan:
The Company sponsors a deferred savings and profit sharing plan
under Section 401(k) of the Internal Revenue Code. Substantially
all of its employees may participate in and make voluntary
contributions to this defined contribution plan after they meet
certain eligibility requirements. The Company has agreed to match
50% of each employee's contributions, provided the matching amount
does not exceed 3% of the employee's annual compensation. The Board
of Directors can authorize additional discretionary contributions
by the Company. Contributions to the plan by the Company totaled
$66,761 and $36,097 in 1997 and 1996, respectively.
Note 10 - Contingencies:
The Company is a party to various legal proceedings. In the opinion
of management, these actions are routine in nature and will not have
any material adverse effect on the Company's financial statements in
subsequent years.
* * *
F-28
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
(1) Mr. Paul I. Anderson, age 62, was elected to the Board of Directors
on October 4, 1996, and served as Acting Chairman of the Company from March 21,
1997 to July 31, 1997. Mr. Anderson is President and CEO of Strategic
Catalysts, Inc., an international strategic consulting organization. In 1983
and 1984, Mr. Anderson was Division Vice President of RCA Video Disc Operations.
From 1979 to 1983 he was Senior Vice President and General Manager of Rayovac
Corporation, a manufacturer of primary power sources and lighting devices. In
this capacity, Mr. Anderson was responsible for the restructuring of North
American Operations which included product development, eight manufacturing
facilities, ten distribution centers, and a direct sales force. From 1956 to
1979 he was with the 3M Company in various management capacities including
engineering, marketing, business development, and general management. These
responsibilities included four years as General Manager, 3M Europe, where he was
responsible for the manufacture and sales of 3M's optical and magnetic systems
and media throughout Western Europe, Eastern Europe, and the Middle East. Mr.
Anderson's educational background includes an engineering degree from Oregon
State University and graduate business studies at Boston University.
(2) Mr. Robert E. Carroll, age 75, was elected to the Board of Directors
as of October 19, 1993. Mr. Carroll is a Consultant on Corporate and Program
Management, Professional Seminar Leader on Government Contracting and Chairman
and CEO of Sedona Cultural Park, Inc. He was President, Chief Executive
Officer, Chief Financial Officer and a Director of the Company from March 1984
to March 1989. Prior to joining the Company, he served as President of the
Systems Management and Engineering Corporation (SMEC), a Burroughs company. In
1978, he formed that organization as the Energy and Environment Division of the
System Development Corporation (SDC). From 1962 to 1978, he had been Vice
President and President of other SDC operations. Mr. Carroll has over 40 years
of industrial and government management experience, including a number of
successive Vice President assignments at North American Rockwell, Space
Division; and procurement, pricing and other management executive positions with
Sperry Utah Company (Sperry-Rand) and the Hughes Aircraft Company. Prior to
that, he served as the Civilian Executive Officer and Principal Contracting
Officer of the Pittsburgh Ordnance District of the United States Army. He
received his Bachelors degree from Duquesne University and his Doctor of
Jurisprudence degree from the University of Pittsburgh and was a practicing
attorney in the Commonwealth of Pennsylvania.
(3) Michael W. Fink, age 40, is Vice President - Administration at the
Corporate offices.
29
<PAGE>
Mr. Fink joined the Company in July of 1995. He is responsible for the
administrative functions of the Company, including finance, accounting, human
resources, contracts and other management areas. He was President of SANDAIRE
before being hired by the Company. SANDAIRE is an engineering firm specializing
in the aerospace industry. Mr. Fink received a Bachelor of Science degree in
Business Administration (Accounting) from San Diego State University (SDSU). He
has also attended Graduate School at SDSU where he studied mechanical
engineering.
(4) Dr. Lawrence L. Kavanau, age 70, is the Founder and served as
President of the Company from the Company's formation in 1966 until June 1975.
He has been a Director of the Company continuously since 1966. He was elected
Chairman of the Board, Chief Executive Officer and Chief Financial Officer by
the Board of Directors on November 19, 1993 and remained Chairman until March
21, 1997, and CEO until August 1, 1997. From June 1975 to November 1993, he was
a business and management consultant and Principal Associate of Kavanau &
Associates. He served as Corporate Secretary for the Company from June 25, 1992
to November 19, 1993. From January 1989 to December 1992, he was President of
Golf Lake Development, Inc. He was Chairman and Chief Executive Officer of Team
Austin, Inc., a computer software and contract programming company located in
San Diego, until December 1988. From February 1978 to February 1980, Dr.
Kavanau also was Executive Vice President and Chief Financial Officer of
Spatial, Inc., a manufacturer of pre-amplifiers. From August 1978 to January
1985, Dr. Kavanau was President of SKC Research, Inc., a company engaged in
contracted research. Dr. Kavanau was a member of the Board of Directors of SKC
Research, Inc. from August 1978 to February 1986. He was a member of the group
which, in 1956, formed Aeronutronics Division of Ford Motor Company. He
subsequently served in the Department of Defense responsible for DOD's interests
in space research and development activities and was the Department's principal
liaison with NASA. Prior to his founding of the Company, he was Executive Vice
President - Technical of the North American Aviation (now Rockwell
International) Space and Information Systems Division, and Assistant to the
President, North American Aviation.
(5) Mr. Robert D. Mowry, age 41, was elected to the Board of Directors on
March 21, 1997, and became the Company's Chairman of the Board and Acting Chief
Executive Officer effective August 1, 1997. Mr. Mowry is also is Chief
Executive Officer of UniPrise Systems, Inc., which is engaged in the development
and marketing of proprietary software products. Mr. Mowry is the founder of Big
Canyon Investments, Inc., which was formed for investment and management of
investments and which was sold to UniPrise Systems, Inc. in December, 1996. He
is also President of North American Timeshare, Inc., dba United Computer
Systems, a computer hardware and software company, and is President and owner of
American Technology Investments, Inc., formed in May, 1997 for investment and
management of investments. In 1983, Mr. Mowry was founder and President of
Personal Computer Centre, which was a retail outlet for Compaq, IBM and Apple
Computers. He sold his interest in this company in 1985. Prior to this, in
1974, Mr. Mowry founded California Minicomputer Systems, Inc. (CMS), which
installed on-line distributed computer systems to large corporations. In 1982,
he sold CMS to a computer electronics manufacturer and remained President of
CMS, overseeing operations of the subsidiary company including new business
activities with the Federal Aviation Administration until 1984.
(6) Mr. W. Gerald Newmin, age 60, was elected to the Board of Directors as
of October
30
<PAGE>
19, 1993 and has served as Corporate Secretary since December 10, 1993. Mr.
Newmin is the principal of Newmin Associates specializing in mergers and
acquisitions and the operational management of turnaround companies. Mr. Newmin
is currently Chairman and Chief Executive Officer of Exten Industries, Inc., a
publicly held bio-medical company and serves on the Board of Directors of Occu-
Med, Inc., a managed health care company, Greene International West, Inc., and
Caldwell Industries, Inc., both industrial manufacturing companies. Mr. Newmin
is also currently Chairman of International Forum of Corporate Directors, a non-
profit organization. He was President of HealthAmerica Corp. which grew to
over $500 million annually and the company was the first in its industry to be
listed on the New York Stock Exchange. Mr. Newmin was President of the
International Silver Company, a diversified multi-national manufacturing company
which he restructured. He was Vice President and Regional Director for American
Medicorp, Inc. In this capacity Mr. Newmin was responsible for the management
of 23 acute care hospitals located throughout the Western United States. Mr.
Newmin was instrumental in Whittaker Corporation's entry into both the United
States and International health care markets. At Whittaker, Mr. Newmin has held
various other senior executive positions, including those of Chief Executive
Officer of Whittaker's Production Steel Company, Whittaker Textiles Corporation,
Trojan Yacht Corporation and Anson Automotive Corporation. Mr. Newmin holds a
Bachelors degree in Accounting from Michigan State University.
(7) Charles E. Vandeveer, age 55, was elected to the Board of Directors on
March 21, 1997, and is Vice President, Director of Operations of the Oxnard
office and Senior Program Manager of the Company's contractual endeavors with
the United States Navy. Mr. Vandeveer has held various management, supervisory,
administrative and project positions since he joined the Company is 1987. He is
a retired Commander, United States Navy, Supply Corps. Mr. Vandeveer served as
a Director of Naval Supply Centers and Supply Annexes, managing material
operations and ship repairable programs. He was also a Ship Superintendent/Type
Desk Officer, responsible for coordinating Naval Shipyard repairs and overhauls.
Mr. Vandeveer has brought his valuable Navy experience to the Company and has
put it to work expanding the Company's presence in the Oxnard area. He has
organized and directed large scale management studies and supervised
subcontractors with various firms. Mr. Vandeveer received his Bachelors degree
in Agricultural Industries from Southern Illinois University in 1963.
(8) Charles H. Werner, age 70, was elected to the Board of Directors as of
March 6, 1989. From March 1989 to December 1991 Mr. Werner served as President,
Chief Executive Officer, and Chief Financial Officer. In January 1992 Mr.
Werner became President of the Company and in August 1992 became the Company's
Chief Operating Officer until November 19, 1993, when his title became
President, Administration. Mr. Werner resigned from his position of President -
Administration in July 1995. He remained on the Board of Directors. Prior to
joining the Company, he served as Executive Vice President of Arrowsmith
Industries, Inc., a wholly owned subsidiary of KDT Industries, Inc., of Austin,
Texas. In 1986 and 1987, Mr. Werner served as a consultant to the Strategic
Defense Initiative Organization in Washington, D.C. Previously, he had been a
management consultant; Vice President of Marketing and Advanced Programs for
Convair, San Diego, CA; Executive Vice President, Defense Systems, Emerson
Electric Company; and Vice President and Chief Operating Officer of SSP
Industries, Inc., Burbank, CA. He received his engineering degrees from
Washington University in St. Louis and Ohio State University in Columbus, OH.
31
<PAGE>
CERTAIN SIGNIFICANT EMPLOYEES
(9) Larry W. Moe, age 44, is the Program Manager for the Management,
Planning and Analysis Contract in the Oxnard office. Mr. Moe joined SYS in 1991
continuing his support of Navy Management at Port Hueneme. He began consulting
with the Navy in 1989. Prior to that, he spent seven years in the
insurance/investment field in both sales and management. He started his career
spending 10 years with a Fortune 500 Printing Company where he gained management
and marketing experience. He continues building a team of management consulting
experts and personally consulting with executive level management. Mr. Moe
received his Bachelor of Science degree in Education from St. Cloud State
University, Minnesota in 1973.
(10) James H. Baker, age 63, is the Manager of the Arlington Office and
the Program Manager for the AEGIS Foreign Military Sales (FMS) support
effort. Mr. Baker joined SYS in March 1991. Prior to joining SYS, Mr. Baker
was the Director of Operations for Operations Systems, Inc. (OSI). Prior to
OSI, Mr. Baker was the Senior Project Manager for EG&G, Inc.. He is a
retired Commander, United States Navy, Supply Corps having completed over 24
years of active service with the U.S. Navy. Mr. Baker has brought his
expertise in DOD contracting, DOD Financial management and FMS to the Company
and has put it to work expanding the Company's presence in the Washington DC
Metropolitan Area. Mr. Baker received his Master of Management Science in
Contracting from the U.S. Navy Postgraduate School, Monterey in 1968 and
Bachelors degree in Statistics from Oklahoma University, Norman in 1958.
(11) Karen White joined the Company in September, 1997 as Director, New
Business Development. Most recently Ms. White was Director of New Business
Development for Telecom Solutions, Inc. Prior to that, Ms. White was Vice
President of New Business Development for Polytron Corporation, responsible
for business development planning, and long term strategic planning,
including preparation of corporate strategy for moving into the federal arena
from a commercial arena. From 1987 to 1996 she was Director of New Business
Development for Infotec Development, Inc., leading the capture of several
large US Navy and US Air Force contracts. Karen White completed her
undergraduate studies at University of Missouri, and obtained a Master's
Level Professional Certification in Acquisition and Contract Management from
West Coast University in Los Angeles, CA.
OFFICERS OR DIRECTORS RESIGNING OR TERM ENDING IN 1997:
Mr. Zoltan A. "Walt" Harasty, age 67, was elected to the Board of
Directors as of April 14, 1994 and remained a director until March 21, 1997.
FAMILY RELATIONSHIPS AND AFFILIATES:
There is no family relationship among any of the directors and executive
officers of the Company. The term of office for a director runs until the next
annual meeting of shareholders and until a successor has been elected and
qualified. The term of office for each executive officer runs until removal by
the Board of Directors or election and qualification of his successor.
None of the organizations described in paragraphs (1) through (11) above is
affiliated with the Company with the following exceptions: The Company has
pledged all its rights in Systems
32
<PAGE>
Exploration, Inc. (SEI) accounts receivable and claims to a third party known as
KRW Contracts and Financial Management, Inc. (KRW), which is currently owned by
Robert D. Mowry, the Company's Chairman and Chief Executive Officer. Mr. Mowry
is currently Chief Executive Officer of UniPrise Systems, Inc. (UniPrise). A
subsidiary of UniPrise, Big Canyon Investments, Inc. (BCI), formerly owned by
Mr. Mowry, is the first secured debtor of all SEI accounts receivable and
claims. SYS has an agreement with BCI to support the collection efforts on a
cost reimbursement basis and, during the past year, two Company employees have
been assisting BCI in the collection of SEI receivables, claims and contract
closeouts. UniPrise currently owes the Company approximately $80,000. In
October 1995, Mr. Mowry advanced funds to finance certain SYS Trial expenses in
return for possible future proceeds. These expenses by Mowry were guaranteed by
SYS to the extent that SYS would in the future receive funds from SEI assets
being collected by BCI.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Pursuant to
Section 16(a) of the Securities Exchange Act of 1934 and the rules issued
thereunder, the Company's executive officers and directors are required to file
with the SEC reports of ownership and changes in ownership of the Common Stock.
Based solely on its review of the copies of such reports furnished to the
Company, or written representations that no reports were required, the Company
believes that, during Fiscal year 1997, its executive officers and directors
complied with Section 16(a) requirements with the following exceptions: Robert
E. Carroll was delinquent in filing three Form 4s disclosing three transactions;
Charles E. Vandeveer was delinquent in filing two Form 4s disclosing three
transactions; Charles H. Werner was delinquent in filing Form 5. Robert D.
Mowry failed to file Form 5.
ITEM 10. EXECUTIVE COMPENSATION
The following is a table showing the remuneration paid by the Company
during its fiscal years ended June 30, 1997 and 1996 for services in all
capacities to each officer, the sum of whose cash and cash-equivalent forms of
remuneration during such year exceeded $100,000, and the remuneration paid
during such year to all executive officers as a group (number):
- - --------------------------------------------------------------------------
Annual Compensation
-------------------------
Name and Principal Fiscal
Position Year Salary Other
- - --------------------------------------------------------------------------
Lawrence L. Kavanau(1) 1997 $90,000 $6,000
Chief Executive Officer
- - --------------------------------------------------------------------------
All Executive Officers (4)
as a Group 1997 $232,092 $20,500
- - --------------------------------------------------------------------------
Lawrence L. Kavanau
Chairman and Chief
Executive Officer 1996 $84,817 $6,000
- - --------------------------------------------------------------------------
All Executive Officers (4)
as a Group 1996 $229,397 $17,300
- - --------------------------------------------------------------------------
(1)Lawrence L. Kavanau was the Company's Chief Executive Officer for Fiscal
Year 1997; Robert D. Mowry assumed this position effective August 1, 1997.
33
<PAGE>
During Fiscal Year 1997, each Director of the Company (excluding full time
executive officers) received a fee in the amount of $500.00 plus approved
expenses per month. During the last year, the Board of Directors of the Company
has been meeting on an average of once per month. Directors serve as chairmen
or members of standing committees of the Board of Directors and may meet in
these capacities at times other than those designated for meetings of the Board.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (as of June 30, 1997)
(Source of Information: Records of the Company's Transfer Agent, and reports
and information available to the Company as disclosed through the Company's
inquiries):
Amount and Nature
Name and Address of of Beneficial Percent of
Title Of Class Beneficial Owner Owner (1) Class(2)
- - -------------- ---------------- ------------------------ --------
Common Stock Robert D. Mowry 658,504 (Direct) 31.2%
Without Par 19 Cherry Hills Lane 320,000 (Indirectly,
Value Newport Beach, CA 92660 with Voting Rights,
through American
Technology Investments,
Inc.) (3), (4)
Lawrence L. Kavanau 333,189 (Direct) 15.8%
3320-140 Caminito East Bluff 162,333 (As Trustee
La Jolla, CA 92037 or Executor, With
Voting Rights)
W. Gerald Newmin 271,679 8.7%
3223-18 Caminito East Bluff
La Jolla, CA 92037
Charles H. Werner 229,789 7.3%
P.O. Box 1966
Rancho Santa Fe, CA 92067
Robert E. Carroll 60,500(4) 1.9%
110 Painted Cliffs Drive
Sedona, AZ 86336
(1) To the best knowledge of the Company, each of the beneficial owners listed
herein has direct ownership of and sole voting power and sole investment
power with respect to the shares of the Company's Common Stock, except as
set forth herein.
(2) A total of 3,133,418 shares of Common Stock of the Company have been
considered to
34
<PAGE>
be outstanding pursuant to SEC Rule 13d-3(d)(1) for purposes of Item 11 of
this Form 10-KSB.
(3) American Technology Investments, Inc. (ATI) , is an entity solely
controlled by Mr. Mowry, and of which Mr. Mowry is the sole shareholder.
(4) Robert E. Carroll granted to ATI, an option to purchase a total of 123,078
common shares over a three year period; at this time Mr. Carroll retains
beneficial ownership to these shares, but has assigned all voting rights
to ATI.
(b) SECURITY OWNERSHIP OF MANAGEMENT (as of June 30, 1997) (Source of
Information: Records of the Company's Transfer Agent, and reports and
information available to the Company as disclosed through the Company's
inquiries):
Amount and Nature
Name and Title of of Beneficial Percent of
Title Of Class Beneficial Owner Owner (1) Class (2)
- - -------------- ---------------- ----------------------- ----------
Common Stock Robert D. Mowry 658,504 (Direct) 31.2%
Without Par (Chairman, Chief 320,000 (Indirect,
Value Executive Officer) (5) with Voting Rights,
through American
Technology Investments,
Inc.) (3), (4)
Lawrence L. Kavanau 333,189 (Direct) 15.8%
(Chief Financial 162,333 (As Trustee
Officer, Director) or Executor, with
Voting Rights)
W. Gerald Newmin 271,679 8.7%
(Director)
Charles H. Werner 229,789 7.3%
(Director)
Charles E. Vandeveer 119,616 3.8%
(Vice President -
Oxnard Operations)
Robert E. Carroll 60,500(4) 1.9%
(Director)
Michael W. Fink 35,494 1.1%
(Vice-President,
Administration)
All Directors and 2,191,104 69.9%
Officers as a Group
35
<PAGE>
(1) To the best knowledge of the Company, each of the beneficial owners listed
herein has direct ownership of and sole voting power and sole investment
power with respect to the shares of the Company's Common Stock, except as
set forth herein.
(2) A total of 3,133,418 shares of Common Stock of the Company have been
considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) for purposes
of Item 11 of this Form 10-KSB.
(3) American Technology Investments, Inc. (ATI), is an entity solely controlled
by Mr. Mowry, and of which Mr. Mowry is the sole shareholder.
(4) Robert E. Carroll granted to ATI an option to purchase a total of 123,078
common shares over a three year period; at this time Mr. Carroll retains
beneficial ownership to these shares, but has assigned all voting rights to
ATI.
(5) Lawrence L. Kavanau was the Company's Chief Executive Officer for Fiscal
Year 1997; Robert D. Mowry assumed these positions effective August 1,
1997.
No director or officer of the Company is the beneficial owner of any shares
of the Company's Preferred Stock, $.50 par value, or Series B 9% Cumulative
Convertible Callable Non-Voting Preference Stock, $1.00 par value.
(c) CHANGES IN CONTROL. Mr. Mowry and Mr. Werner have an informal
agreement, disclosed in Form 13D and amendments thereto, to vote their aggregate
1,208,293 common shares in a manner to achieve the purpose of changing the Board
of Directors and gaining control over the management and policies of SYS. In an
event subsequent to June 30, 1997, Mr. Mowry was elected by the Board of
Directors to the positions of Chairman of the Board and Acting Chief Executive
Officer effective August 1, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the year ended June 30, 1997 the Board of Directors granted stock
purchase options to three key employees and three outside directors totaling
180,000 common shares, exercisable at $.05 per share. These purchase options
contain certain buy-back provisions which become effective in the event of
termination of employment or directorship. All of these purchase options have
been exercised as follows:
(i) On October 11, 1996 Michael W. Fink exercised his option to purchase
30,000 common shares; on October 12, 1996 Charles E. Vandeveer exercised
his option to purchase 50,000 common shares and Larry W. Moe exercised his
option to purchase 25,000 common shares.
(ii) On May 8, 1997, outside directors W. Gerald Newmin, Zoltan A. Harasty
and Robert E. Carroll each exercised their options to purchase 25,000
common shares each.
36
<PAGE>
On March 11, 1997 the Company authorized the conversion of Series B 9%
Cumulative Convertible Callable Non-Voting Preference Stock to common stock, at
the rate of two common shares for each preference share converted, for the
following individuals: Lawrence L. Kavanau converted 4,243 preference shares for
8,486 common shares; Charles E. Vandeveer converted 9,758 preference shares for
19,516 common shares; Larry W. Moe converted 8,566 preference shares for 17,132
common shares; and Michael W. Fink converted 2,697 preference shares for 5,394
common shares.
On April 15, 1997, Mr. Robert E. Carroll agreed to sell Mr. Robert D. Mowry
186,922 shares of Common stock from the Carroll Living Trust and 10,000 shares
owned directly by Mr. Carroll. Mr. Carroll gave options to Mr. Mowry to
purchase an additional 123,078 shares over a three year period. As part of the
option agreement, Mr. Mowry was given irrevocable voting rights for the shares
on which he has options.
During the year ended June 30, 1997 the Board of Directors authorized non-
qualified stock purchase options of 25,000 common shares each to outside
directors Paul I. Anderson, Charles H. Werner and Robert D. Mowry, which may be
exercised at $.31, $.09 and $.47 per share, respectively. Exercise of the
Mowry and Werner options is subject to the approval of the Shareholders to
increase the number of shares allocated under the 1997 SYS Incentive Stock
Option and Restricted Stock Plan for non-employee directors and consultants by
250,000 shares. The remaining 25,000 shares currently issuable were allocated,
subsequent to fiscal year end, to Mr. Anderson under a Non-Qualified Stock
Option Agreement dated July 31, 1997.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) EXHIBITS
1.1 Copy of Certificate of Determination of Preferences of Preferred
Shares of Systems Associates, Inc., filed by the Company with the
California Secretary of State on July 28, 1968, filed as Exhibit
3.2 to the Company's Form 10-K for the fiscal year ended June 30,
1981, and incorporated by this reference.
1.2 Copy of Certificate of Determination of Preferences of Preference
Shares of Systems Associates, Inc., filed by the Company with the
California Secretary of State on December 27, 1968, filed as
Exhibit 3.3 to the Company's Form 10-K for the fiscal year ended
June 30, 1981, and incorporated by this reference.
1.3 Copy of Certificate of Ownership filed with the California
Secretary of State on November 28, 1979, filed as Exhibit 2.1 to
the Company's Form 10-K for the fiscal year ended June 30, 1979,
and incorporated by this reference.
1.4 Copy of Bylaws of Systems Associates, Inc., filed as Exhibit 3.5
to the Company's Form 10-K for the fiscal year ended June 30,
1981, and incorporated by this reference.
1.5 Copy of Certificate of Ownership filed with the California
Secretary of State on March 18, 1985, incident to change of name
of the Company, filed
37
<PAGE>
as Exhibit 3.6 to this Company's Form 10-K for the fiscal year
ended June 30, 1985, and incorporated by this reference.
1.6 Certificate of Determination of Series B 9% Cumulative
Convertible Callable Non-Voting Preference Stock was filed by
the Company with the California Secretary of State on August 15,
1996, and incorporated by this reference.
1.7 A Proxy Statement pursuant to Section 14(a) of the Securities
Exchange Act of 1934 was filed on February 21, 1997, and
incorporated by this reference.
1.8 A copy of the SYS 1997 Incentive Stock Option and Restricted
Stock Plan was filed as Attachment 1 to the Company's Proxy
Statement, filed on February 21, 1997, and is incorporated by
this reference.
(b) Exhibits to this Form 10-KSB are listed in subsection (1) above.
(c) 1. A Form 8-K was filed on August 6, 1996, reporting that SYS had
dismissed their independent auditors, Ernst & Young LLP. It also
states that SYS has retained the firm of J.H. Cohn LLP as the
Company's independent auditors for the fiscal year ended June 30,
1996.
2. Form 8-K was filed on August 1, 1997, reporting the Mr. Robert D.
Mowry had been elected as Chairman of the Board and Chief
Executive Officer of the Company.
38
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SYS
By: /s/ Robert D. Mowry Date: September 29, 1997
------------------------------------- --------------------
ROBERT D. MOWRY
Chairman and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Paul I. Anderson Date: September 30, 1997
------------------------------------- --------------------
PAUL I. ANDERSON
Director
By: /s/ Robert E. Carroll Date: September 25, 1997
------------------------------------- --------------------
ROBERT E. CARROLL
Director
By: /s/ Lawrence L. Kavanau Date: September 29, 1997
------------------------------------- --------------------
LAWRENCE L. KAVANAU
Director and Chief Financial Officer
By: /s/ Robert D. Mowry Date: September 29, 1997
------------------------------------- --------------------
ROBERT D. MOWRY
Director
By: /s/ W. Gerald Newmin Date: September 30, 1997
------------------------------------- --------------------
W. GERALD NEWMIN
Director and Corporate Secretary
By: /s/ Charles E. Vandeveer Date: September 24, 1997
------------------------------------- --------------------
CHARLES E. VANDEVEER
Director
By: /s/ Charles H. Werner Date: September 29, 1997
------------------------------------- --------------------
CHARLES H. WERNER
Director
39
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 194,000
<SECURITIES> 0
<RECEIVABLES> 1,069,000
<ALLOWANCES> 26,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,452,000
<PP&E> 428,000
<DEPRECIATION> 279,000
<TOTAL-ASSETS> 1,615,000
<CURRENT-LIABILITIES> 1,153,000
<BONDS> 0
0
133,000
<COMMON> 443,000
<OTHER-SE> 36,000
<TOTAL-LIABILITY-AND-EQUITY> 1,615,000
<SALES> 0
<TOTAL-REVENUES> 7,649,000
<CGS> 0
<TOTAL-COSTS> 7,380,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,000
<INCOME-PRETAX> 229,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 229,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229,000
<EPS-PRIMARY> 0.07
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