SYS Technologies Reports Fiscal 2008 Second Quarter and Six Months Results

Share Name	Share Symbol	Market	Type
Sys Technologies, Inc.	AMEX:SYS	AMEX	Ordinary Share

Sys (AMEX:SYS)
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SYS Technologies (SYS), (AMEX:SYS), a leading provider of information connectivity solutions that enable real-time, complex decision-making, today reported results for the second quarter and six months ended December 28, 2007. Cliff Cooke, chief executive officer of SYS Technologies, said, �Our revenues of $18.1 million for the second quarter tracked to our guidance range of $17.0 million to $19.0 million. As reported previously, we anticipated that in the near-term the combined services, software license and product revenue would be less than the first quarter; nevertheless, we expected to and have maintained profitability.� Second quarter 2008 revenues were $18.1 million, down $1.1 million from the prior year second quarter. The decrease in revenues was attributable to an increase of $0.2 million from acquisition revenues offset by net decreases of $1.3 million, of which, $0.9 million was from services and $0.4 million was from products. The decrease in services was attributable to decreases in IT support programs. Growth in learning and performance training solutions and public safety solutions partially offset the other reductions. Gross margin was 25.4 percent in the quarter as compared to 23.7 percent in the prior year, as a result of higher overall margins on our services business due to growth in our time and material contracts. Operating expenses were $4.5 million, or 24.8 percent of revenues, in the current year quarter, as compared to $4.8 million, or 24.9 percent of revenues, in the prior year. Importantly, on a sequential quarter basis, operating expenses for the first and second quarters of this fiscal year have each been reduced by $1.1 million or 19 percent compared to the fourth quarter of 2007. Cooke stated that, �Our core DoD service based revenues were down in the second quarter as a result of uncertainties concerning the DoD budget while we operated under a continuing resolution which resulted in delayed funding for certain contracts. This combined with the fact that we typically generate less revenue in the second fiscal quarter in our services business due to vacations and holidays that reduce billable hours impacted our revenues for the quarter. However, since we have been implementing sustainable overall cost reductions we were able to maintain profitability.� Management has included information about non-GAAP net income because management believes it provides a more meaningful measure of quarter-over-quarter and year-over-year financial performance. A reconciliation of generally accepted accounting principles (GAAP) results to non-GAAP net income results follows in this press release. Non-GAAP net income and non-GAAP net income per share are non-GAAP measures and exclude amortization of intangibles from acquisitions, non-cash share-based compensation charges and asset impairment charges, if any, all net of their related tax effect. For further information, please refer to the section of the press release titled, �Note Regarding Use of Non-GAAP Financial Measures.� Second quarter 2008 net income was $45,000, or $0.00 per diluted share, compared to a net loss of $342,000, or $0.02 per share, in the prior year�s second quarter. For the second quarter of 2008, the company reported non-GAAP net income of $236,000 or $0.01 per diluted share, compared to net income of $29,000 or $0.00 per share in the prior year�s second quarter. At December 28, 2007, the company had a cash balance of $2.2 million, working capital of $10.7 million and an available credit facility balance of $2.4 million. Cooke added, �We anticipate that for the third quarter, our top line revenues will increase to a range of $19.0 million to $20.0 million with increases in all our business areas. Recent contract awards which began generating revenue in January will help drive our services revenues and we also anticipate that our mix of products based revenues, particularly in our network management solutions products business to grow from the second quarter. This revenue growth, together with cost reductions already implemented put us in a strong position for the third quarter.� For the six months ended December 28, 2007, revenues were $38.6 million, up $3.2 million from the prior year six-month period, reflecting contributions from an acquisition, engineering and program management services and products which were slightly offset by a decrease in certain of the company�s net-centric engineering services programs. The six-month to date GAAP net income was $572,000, or $0.03 per share, compared to GAAP net loss of $457,000, or $0.03 per diluted share, in the prior year�s six-month period. For the six month period, the company reported non-GAAP net income of $949,000, or $0.05 per diluted share, compared to non-GAAP net income of $25,000 or $0.00 per diluted share, in the prior year�s six-month period. Outlook for Fiscal Year 2008 The business continues to be dependent upon awards from large government agencies and corporations, and as such, the revenue stream may be unpredictable. For the fiscal 2008 third quarter, management expects revenue to be in the range of $19.0 million to $20.0 million and the company to be profitable. For fiscal year 2008, management expects revenue to be in the range of $78.0 million to $80.0 million. The company expects to be profitable throughout the year; however, management anticipates the level of profitability will fluctuate based on the timing and composition of revenues. Fiscal 2008 Second Quarter Conference Call SYS management will host a conference call on Monday, February 11, 2008 at 11:00 a.m. ET (8:00 a.m. PT) to discuss its financial results for the recent quarter and to answer questions. Participating in the call will be Cliff Cooke, chief executive officer, and Ed Lake, chief financial officer. To participate in the live call, please dial (888) 396-2384 from the US or, for international callers, please dial (617) 847-8711 passcode #22569740 approximately 15 minutes before the start time. A telephone replay will be available for one week by dialing (888) 286-8010 from the US, or (617) 801-6888 for international callers, and entering passcode #90766477. To listen to the conference call live via the Internet, visit the SYS web site at www.systechnologies.com. Please go to the web site 15 minutes prior to its start to register, download, and install the necessary audio software. About SYS Technologies SYS (AMEX:SYS), is a leading provider of information connectivity solutions that capture, analyze and present real-time information to our customers in the Department of Defense, Department of Homeland Security, other government agencies and to commercial companies. Using interoperable communications software, sensors, digital video broadcast and surveillance technologies, wireless networks, network management, decision-support tools and Net-centric technologies, our technical experts enhance complex decision-making. We also provide solution lifecycle support with program, financial, test and logistical services and training. Founded in 1966, SYS is headquartered in San Diego and has principal offices in California and Virginia. For additional information, visit www.systechnologies.com. Notice Regarding Use of Non-GAAP Financial Measures Certain of the information set forth herein, including non-GAAP net income (loss) and non-GAAP net income (loss) per share, are non-GAAP financial measures. SYS believes this information is useful to investors because it provides a basis for measuring SYS�s available capital resources, the operating performance of SYS� business and SYS� cash flow, excluding the effects of non-cash charges for amortization of intangibles from acquisitions, non-cash share-based compensation charges and asset impairment charges, if any, all net of their related tax effects, that would normally be included in the most directly comparable measures calculated and presented in accordance with GAAP. SYS� management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating SYS� operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP. Non-financial measures as reported by SYS may not be comparable to similarly titled amounts reported by other companies. A reconciliation of GAAP results to non-GAAP results has been provided in the financial statement tables that accompany this press release. Notice Regarding Forward-Looking Statements This press release includes �forward-looking statements� within the meaning of section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this press release regarding the Company�s strategies, plans, objectives, expectations, and future operating results are forward-looking statements. Although SYS believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to have been correct. Actual results could differ materially based upon a number of factors including, but not limited to, the state of economy, competition, unanticipated business opportunities, availability of financing, market acceptance, government regulation, dependence on key personnel, limited public markets and liquidity, shares eligible for future sale, continuation and renewal of contracts and other risks that may apply to the Company, including risks that are disclosed in the Company�s Securities and Exchange Commission filings. SYS AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data) � � � � � Three Months Ended Six Months Ended December 28, December 29, December 28, December 29, � 2007 � � 2006 � � 2007 � � 2006 � � Revenues $ 18,121 � $ 19,216 � $ 38,631 � $ 35,459 � � � Operating costs and expenses: Costs of revenue 13,517 14,655 28,417 27,185 Selling, general and administrative 3,373 3,666 6,750 6,720 Research, engineering and development � 1,126 � � 1,110 � � 2,214 � � 1,991 � Total operating costs and expenses � 18,016 � � 19,431 � � 37,381 � � 35,896 � � Income (loss) from operations � 105 � � (215 ) � 1,250 � � (437 ) � Other (income) expense: Other income (35 ) (24 ) (74 ) (61 ) Interest expense � 72 � � 186 � � 200 � � 383 � Total other expense � 37 � � 162 � � 126 � � 322 � � � Income (loss) before income taxes 68 (377 ) 1,124 (759 ) � Income tax provision (benefit) 23 (35 ) 552 (302 ) � � � � Net income (loss) $ 45 � $ (342 ) $ 572 � $ (457 ) � � � Net income (loss) per share: Basic $ 0.00 � $ (0.02 ) $ 0.03 � $ (0.03 ) Diluted $ 0.00 � $ (0.02 ) $ 0.03 � $ (0.03 ) � Weighted average shares: Basic 19,483 17,521 19,401 16,463 Diluted 19,569 17,521 19,504 16,463 SYS TECHNOLOGIES RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME (In thousands except per share data) � � Three Months Ended � Six Months Ended December 28, � December 29, December 28, � December 29, � 2007 � � 2006 � � 2007 � � 2006 � � GAAP net income (loss) $ 45 $ (342 ) $ 572 $ (457 ) � Amortization of intangibles 254 320 510 573 Share-based compensation expense 113 113 230 227 Tax effect � (176 ) � (62 ) � (363 ) � (318 ) Non-GAAP net income (loss) $ 236 � $ 29 � $ 949 � $ 25 � � � Basic Non-GAAP income (loss) per share $ 0.01 � $ 0.00 � $ 0.05 � $ 0.00 � Diluted Non-GAAP income (loss) per share $ 0.01 � $ 0.00 � $ 0.05 � $ 0.00 � � Shares used in the calculation of basic Non-GAAP EPS 19,483 17,521 19,401 16,463 Shares used in the calculation of diluted Non-GAAP EPS 19,569 17,521 19,504 16,463 SYS AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (amounts in thousands, except par value amounts) � � December 28, 2007 � June 30, 2007 ASSETS Current Assets: Cash and cash equivalents $ 2,188 $ 2,770 Accounts receivable, net 18,574 16,321 Inventories, net 484 599 Prepaid expenses 456 603 Deferred taxes � 748 � � 275 � Total current assets 22,450 20,568 � Furniture, equipment and leasehold improvements, net 1,997 1,951 Intangible assets, net 5,601 6,111 Goodwill 23,107 23,477 Other assets � 227 � � 276 � Total assets $ 53,382 � $ 52,383 � � LIABILITIES AND STOCKHOLDERS� EQUITY Current Liabilities: Line of credit $ 1,062 $ -- Accounts payable 4,261 5,270 Accrued payroll and related expenses 3,231 3,887 Income taxes payable 757 194 Other accrued liabilities 1,153 1,474 Current portion of note payable 125 -- Deferred revenue � 1,207 � � 1,552 � Total current liabilities 11,796 12,377 � Convertible notes payable, net of current portion, related party 975 975 Convertible notes payable, net of current portion 2,150 2,150 Note payable, net of current portion 375 500 Other long-term liabilities 56 69 Deferred revenue, net of current portion 330 210 Deferred taxes � 1,023 � � 1,023 � Total liabilities � 16,705 � � 17,304 � � Commitments and Contingencies � Stockholders' Equity: 4% convertible preferred stock, $.50 par value; 250 shares authorized; none issued or outstanding -- -- 9% preference stock, $1.00 par value; 2,000 shares authorized; none issued or outstanding -- -- Common stock, no par value; 48,000 shares authorized; and 19,425 and 19,232 shares issued and outstanding as of September 28, 2007 and June 30, 2007, respectively 36,929 35,903 Accumulated deficit � (252 ) � (824 ) Total stockholders� equity � 36,677 � � 35,079 � � Total liabilities and stockholders� equity $ 53,382 � $ 52,383 �

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SYS Sys Technologies, Inc.