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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, 1998
----------------------------
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
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(Exact Name of Small Business Issuer as Specified in Its Charter)
California 95-2467354
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(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)
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(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: 3,148,518 shares of common
stock, without par value, as of March 31, 1998.
Traditional Small Business Disclosure Format (check one):
Yes X No
--- ---
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TABLE OF CONTENTS
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Page
PART I - FINANCIAL INFORMATION Number
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Item 1. Financial Statements
Condensed Balance Sheets (unaudited)
March 31, 1998 and December 31, 1997 . . . . . . . . . . 3
Condensed Statements of Operations (unaudited)
Three Months and Nine Months Ended March 31, 1998
and Three Months and Nine Months Ended March 31, 1997. . 4
Condensed Statements of Cash Flows (unaudited)
Nine Months Ended March 31, 1998
and Nine Months Ended March 31, 1997 . . . . . . . . . . 5
Notes to Condensed Financial Statements (unaudited) . . . . . 6
Item 1a. Factors Which May Affect Future Results . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Description of Business. . . . . . . . . . . . . . . . . 9
Results of Operations. . . . . . . . . . . . . . . . . .10
Liquidity and Capital Resources. . . . . . . . . . . . .11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .12
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . .12
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . .12
Item 4. Submission of Matters to a Vote of Security Holders . . . . .13
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . .13
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . .14
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYS
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
3/31/98 12/31/97
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(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 15,000 $ 16,000
Contract receivables, net 1,441,000 1,333,000
Other current assets 250,000 101,000
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Total current assets $1,706,000 $1,450,000
Equipment, furniture and fixtures,
at cost, less accumulated
depreciation and amortization 164,000 152,000
Other assets 137,000 124,000
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$2,007,000 $1,726,000
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 478,000 $ 257,000
Accounts payable 255,000 175,000
Accrued payroll and related taxes 177,000 234,000
Other accrued liabilities 14,000 12,000
Current portion of other long-term debt 26,000 46,000
Income taxes payable 31,000 23,000
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Total current liabilities $ 981,000 $ 747,000
Other long-term debt 158,000 176,000
Stockholders' equity:
Preferred stock 55,000 55,000
Series B preference stock 71,000 73,000
Common stock 451,000 449,000
Retained earnings 291,000 226,000
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Total stockholders' equity $ 868,000 $ 803,000
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$2,007,000 $1,726,000
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SYS
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
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<CAPTION>
Three months ended Nine months ended
March 31 March 31
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Contract revenues $1,875,000 $2,065,000 $5,899,000 $5,381,000
Costs and expenses:
Contract costs $1,599,000 $1,813,000 $5,019,000 $4,585,000
General and administrative 193,000 150,000 579,000 527,000
---------- ---------- ---------- ----------
$1,792,000 $1,963,000 $5,598,000 $5,112,000
---------- ---------- ---------- ----------
Income from operations $ 83,000 $ 102,000 $ 301,000 $ 269,000
Other expenses:
Interest 11,000 5,000 25,000 32,000
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11,000 5,000 25,000 32,000
---------- ---------- ---------- ----------
Income before income taxes $ 72,000 $ 97,000 $ 276,000 $ 237,000
Provision for income taxes 4,000 0 17,000 0
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Net income 68,000 97,000 259,000 237,000
Dividends on preferred shares 0 3,000 1,000 4,000
Dividends on preference shares 2,000 0 2,000 0
---------- ---------- ---------- ----------
Net income applicable to
common and common
equivalent shares $ 66,000 $ 94,000 $ 256,000 $ 233,000
Retained earnings at beginning
of period 226,000 (48,000) 36,000 (187,000)
---------- ---------- ---------- ----------
Retained earnings at end of period $ 292,000 $ 46,000 $ 292,000 $ 46,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earning per common and
common equivalent shares $ 0.02 $ 0.03 $ 0.08 $ 0.08
---------- ---------- ---------- ----------
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Weighted average number of
common and common
equivalent shares 3,271,000 2,956,000 3,266,000 2,901,000
---------- ---------- ---------- ----------
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SYS
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
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<CAPTION>
Nine months ended
March 31
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1998 1997
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Operating activities:
Net income $ 259,000 $ 237,000
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 38,000 34,000
Provision for doubtful accounts 0 0
Changes in operating assets and liabilities:
Contract receivables (398,000) (45,000)
Other current assets and other assets (157,000) (42,000)
Accounts payable (207,000) (52,000)
Accrued payroll and related taxes (61,000) (86,000)
Income taxes payable 26,000 0
Other accrued liabilities (51,000) (13,000)
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Net cash provided by (used for) operating activities $ (551,000) $ 33,000
Investing activities:
Acquisition of furniture and equipment $ (54,000) $ 47,000
(Increase) decrease in other assets 0 0
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Net cash provided by (used in) investing activities $ (54,000) $ 47,000
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Financing activities:
Proceeds from note payable to bank 6,140,000 5,291,000
Payments on note payable to bank (5,662,000) (5,446,000)
Other notes payable and capital lease obligations (49,000) 77,000
Payments of preferred stock dividends (3,000) (4,000)
Proceeds from issuance of common stock 0 0
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Net cash provided by (used in) financing activities $ 426,000 $ (82,000)
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Increase (decrease) in cash $ (179,000) $ (2,000)
Cash at beginning of period 194,000 25,000
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Cash at end of period $ 15,000 $ 23,000
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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, 1997.
(2) Income per common share is 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 immaterial or antidilutive.
(3) The results of operations for the quarter and nine-month period
ended March 31, 1998, are not necessarily indicative of the results to be
expected for the full year.
ITEM 1a. FACTORS WHICH MAY AFFECT FUTURE RESULTS
Information contained in this Form 10-QSB 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 were to be 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. RECEIVABLE FROM AFFILIATE & ABSENCE OF COLLATERAL Big Canyon
Investments, Inc. (BCI), a wholly owned subsidiary of UniPrise Systems, Inc.
(UniPrise), a company partially owned by Robert D. Mowry, the Company's Chairman
and Chief Executive Officer, has entered into an agreement with the Company in
which BCI is providing collection services for certain receivables. The
Company could potentially benefit from these receivables over and above the
amount owed. Under this arrangement and as of May 2, 1998, UniPrise owes the
Company an aggregate of $229,000. Some
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of the $229,000 owed to the Company is subject to other agreements between
the Company and BCI and/or UniPrise and will be paid pursuant to those
agreements and as payments are received on the receivables. The total of
these receivables is greater than the debt owed to the Company, however, the
Company has no means to determine the validity of these receivables.
Although the Company's Board of Directors is working to collect these funds
from UniPrise and assist in the collection of the receivables, the amount of
this indebtedness is not secured by any collateral. In the event that the
Company is not able to secure the return of these advances, the Company may
incur losses. (See "Item 5, Other Information.")
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. While the Company's management
believes that its financial policies have been prudent, the Company's
substantial reliance on a short term bank loan with Scripps Bank and other
short-term accruals imposes certain limitations on the Company. If the
Company is to grow and expand its operations, the Company will need to raise
significant amounts of additional capital. There can be no assurance that
the Company will be successful in raising a sufficient amount of additional
capital, or if it is successful, that the Company will be able to raise
capital on reasonable terms in light of the Company's current circumstances.
In the event that the Company raises additional capital, the Company's
existing stockholders may incur substantial and immediate dilution.
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 2,156,104 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
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$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
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.
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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.
The Company currently has three principle contracts with the U. S. Navy.
These prime contracts are Underway Replenishment (UNREP); Management,
Planning and Administrative (MPA); and Naval Architecture and Marine
Engineering (NAME).
The Company was successful in winning the recompete of the Underway
Replenishment (UNREP) Program which provides in-service engineering support
to the U. S. Navy Fleet. The new contract became effective on December 4,
1997 and consists of a base year and three one year options. The Company is
continuing its support for the research and development project to design and
build a full 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 continue to refine the
detail design. Shipboard technical assistance continues to expand and
provides the basis for continued business confidence in the current fiscal
year.
The Management, Planning and Administrative (MPA) Program had its third
of four option years exercised on February 1, 1998. 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
second of four option years exercised on November 25, 1997. 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 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 on August 18, 1997 from
Systems Application and Technologies to continue its support to the Naval Air
Systems Command. This
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support provides environmental 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, D.C. Operations successfully recompeted a five year
subcontract with their prime contractor, Tracor, on April 24, 1997. This
will allow continued 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.
On September 5, 1997, the Company began to provide UNREP-type services
to the Republic of Korea Navy through a subcontract with Lake Shore, Inc.
This program will run through most of this fiscal year.
The Company's sales of Sun computers and equipment continued at a
reduced level. The Company is also attempting to apply the skills acquired
in the Defense arena into the commercial sector. The Company recently
received notification from the State of California that it has been approved
as a supplier of services to the State.
RESULTS OF OPERATIONS
The Company revenue for this quarter is approximately 9% less than those
in the same quarter in FY 1997. The primary reason for the decline in
revenue is a reduction in funding from the government which has adversely
effected the UNREP, NAME and Tracor programs during this third period. For
the first nine months of FY 1998, revenues increased by about 10% over the
prior year's same period. The increased revenue for the nine months to date
is primarily due to additional revenue on the MPA and NAME contracts and the
new Lake Shore program. Revenue in the third quarter of FY 1998 was about 9%
lower than in each of the first two quarters of the year. This was mainly
due to the reduction in government funding described above.
Total contract and general and administrative expenses have consistently
been about 95% of the contract revenue for the three and nine month periods
ended March 31, 1998 and 1997. Interest expense has been lower in fiscal
year 1998 due to less borrowing on the Company's line of credit with Scripps
Bank, however, borrowing has increased in the third quarter. The Company has
used all available tax loss carry forwards and has therefore provided for
income taxes for the current fiscal year.
Income from operations has been consistently about 5% of the contract
revenue for the three and nine month periods ended March 31, 1998 and 1997.
Net income for the quarter is $68,000 and for the year to date is $259,000.
For the same periods in FY 1997, the net income was $97,000 and $237,000,
respectively. The reason for the lower net income for the quarter and the
higher net income for the year to date is the same as that outlined in the
revenue section above. The negotiated contract backlog was approximately
$3,701,000 at the end of the third quarter.
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The outstanding balance on the Company's revolving line of credit with
Scripps Bank increased to $478,000 at the end of the third quarter of FY
1998. The balance at the end of the second quarter was $257,000. At the end
of the third quarter in FY 1997, the note balance was $69,000. The primary
reasons for the increase in the line of credit is due to slower payments by
the government and $192,000 owed at period end to the Company by UniPrise for
SEI collections related expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had contract receivables (net) of $1,441,000 at the end of
the third quarter of FY 1998. For the same quarter in FY 1997, the contract
receivables (net) were $1,032,000. The reason FY 1998 contract receivables
are higher than the prior year is because of less efficient payment
processing by Defense Finance and Accounting Service (DFAS).
The Company had accounts payable of $255,000 at the end of the third
quarter of FY 1998. For the same quarter in FY 1997 the accounts payable
were $263,000. With the slow down of payments from DFAS, the Company has
been able to remain current with their accounts payable, but to the detriment
of the line of credit.
The Company maintains a $500,000 revolving credit facility with Scripps
Bank which matures on October 15, 1998. The loan is secured by all the
Company's assets including contract receivables. Scripps advances funds
requested by the Company of up to 80% of the Company's billed contract
receivables which are less than 90 days old. Scripps charges an interest
rate of 1.5% over prime.
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 current fiscal year.
Several key factors indicating the Company's financial condition include:
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<CAPTION>
March 31, 1998 June 30, 1997
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<S> <C> <C>
Current ratio 1.74 1.65
Maximum debt to net worth 1.32 1.64
Net worth $868,000 $612,000
Net working capital $725,000 $574,000
Debt to total assets 46% 62%
Book value per common share $0.27 $0.20
</TABLE>
The current ratio is derived by dividing total current assets by total
current liabilities. Maximum debt to net worth is calculated by dividing
total liabilities (total current liabilities plus other liabilities) by net
worth. Net worth is total stockholders' equity. Net working capital is total
current assets less total current liabilities. Debt to total assets is total
liabilities divided by total assets. Book value per common share is total
stockholders' equity divided by the weighted average number of common and
common equivalent shares.
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PART II - OTHER INFORMATION
ITEM 1. 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.
This matter was settled on January 20, 1998.
ITEM 2. CHANGES IN SECURITIES
On July 1, 1997, the Company granted the conversion of 2,684 shares of
Series B 9% Cumulative Convertible Callable Non-Voting Preference Stock into
5,368 shares of Common Stock.
On November 14, 1997, the Company granted the conversion of 3,042 shares
of Series B 9% Cumulative Convertible Callable Non-Voting Preference Stock
into 6,084 shares of Common Stock.
On January 21, 1998, the Company granted the conversion of 1,824 shares
of Series B 9% Cumulative Convertible Callable Non-Voting Preference Stock
into 3,648 shares of Common Stock
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 $0.31, $0.09 and $0.47 per share, respectively. Anderson's
Non-Qualified Stock Option Agreement was completed July 31, 1997.
Non-Qualified Stock Option Agreements for Mowry and Werner are currently
being finalized.
On September 3, 1997, a Director of New Business Development was hired
by the Company. As part of her compensation package, she was granted
qualified options on 50,000 shares of the Company's common stock. The stock
option agreement has not been finalized.
On February, 18, 1998, the Board of Directors authorized non-qualified
stock purchase options of 25,000 Common shares each to outside directors L.
Randolph Knapp and Richard W. Wood, which may be exercised at $0.75 per
share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On October 28, 1997, an Action of the Holders of a Majority of the
Shares Outstanding by Written Consent in Lieu of a Meeting of SYS approved an
amendment of Section (a), Fourth Article, of the Articles of Incorporation.
This amendment stated "The number of directors of this corporation shall not
be less than five, nor more than nine, the exact number of which shall be
fixed by a bylaw duly adopted by the shareholders or by the corporation's
board of directors." A Certificate of Amendment of Articles of Incorporation
of SYS was approved by the Board of Directors and by the required vote of
Shareholders and was filed with the Secretary of State of California on
November 7, 1997.
On January 8, 1998, the Company held its 1997 Annual Meeting of
Shareholders. There were 3,138,786 shares eligible as of the record date and
2,733,597 shares were represented either in person or by proxy at the
meeting. The following matters were voted on at the meeting:
(a.) Proposal to elect the Directors pursuant to management's
nominations. This proposal was approved with a voice vote.
(b.) Proposal to approve the appointment of J.H. Cohn LLP as the
independent certified public accountants for the corporation for its 1998
fiscal year. This proposal was approved with a voice vote.
(c.) Proposal to increase number of authorized common shares to 12.0
million. This proposal was approved with a voice vote. Filing of an
amendment to Article Fourth of the Company's Articles of Incorporation is now
pending with the Secretary of State of California.
(d.) Proposal to amend the SYS 1997 Incentive Stock Option and
Restricted Stock Plan increasing the number of common shares allocated for
non-employee directors and consultants to 350,000 shares.
(e.) Proposal to further amend the SYS 1997 Incentive Stock Option and
Restricted Stock Plan increasing the number of common shares allocated for
employees to 500,000 shares.
ITEM 5. OTHER INFORMATION
Effective August 1, 1997, Mr Robert D. Mowry was elected as Chairman of
the Board and Chief Executive Officer of the Company.
Mr. Mowry is also Chief Executive Officer of UniPrise Systems, Inc.
(UniPrise). Big Canyon Investments, Inc. (BCI), formerly owned by Mr. Mowry,
and now a subsidiary of UniPrise, is the first secured debtor of the accounts
receivable and claims of an unrelated third party company. The Company has
pledged its security interest in certain related assets to BCI and has an
agreement with BCI to support the collection efforts on a cost reimbursement
basis and two Company employees have been assisting BCI in the collection of
these receivables and
-13-
<PAGE>
claims and in the closing out of the contracts. Mr. Charles H. Werner, a
director of the Company, is also a consultant to BCI and manages the
collection process. Mr. L. Randolph Knapp, a director of the Company, is the
Chairman of UniPrise. As of May 2, 1998, UniPrise owes the Company
approximately $229,000 for the use of these employees and other related
costs. At the Board of Directors meeting held on April 15, 1998, the Board
formed a subcommittee that was tasked with the development of a plan to
insure repayment of this debt as soon as possible.
At the Board of Directors meeting on August 20, 1997, Mr. L. Randolph
Knapp was elected to fill the vacant seat on the Board effective as of
September 16, 1997.
At the Board of Directors meeting on September 16, 1997, Mr. Richard W.
Wood was elected as a director of the Company effective on the date the
Company's Articles of Incorporation provide for nine (9) directors. The
Articles were amended on November 7, 1997.
On March 30, 1998, the Company entered into a sixty (60) month lease for
office space located at 9620 Chesapeake Drive, Suite 201, San Diego,
California, 92123, for relocation of the corporate headquarters. The 6,820
square feet of office space is leased at the rate of $6,479 monthly. The
Company anticipates relocation into the new premises on May 15, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K was filed on August 1, 1997, reporting that Mr. Robert D. Mowry
had been elected as Chairman of the Board and Chief Executive Officer of the
Company.
On May 5, 1998, Charles H. Werner, a Director of the Company, purchased
Five Hundred Fifty-Six Thousand Seven (556,007) shares of the Company's
Common stock held by Robert D. Mowry, the Company's Chairman and Chief
Executive Officer. All of the 556,007 shares acquired by Mr. Werner were
purchased by him with his personal funds, including funds held in a
retirement account. As a result and after including other shares held by Mr.
Werner, Mr. Werner now holds approximately 25% or an aggregate of 785,796
shares of the Company's Common stock. The transaction between Mr. Mowry and
Mr. Werner was effected through a private resale.
-14-
<PAGE>
SIGNATURES
In accordance with the requirements Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SYS
-------------------------------
(Registrant)
Date: May 13, 1998 /s/ Robert D. Mowry
------------------ -------------------------------
Robert D. Mowry
Chairman and
Chief Executive Officer
-15-
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 15,000
<SECURITIES> 0
<RECEIVABLES> 1,467,000
<ALLOWANCES> 26,000
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<PP&E> 481,000
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126,000
<COMMON> 451,000
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