<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended December 31, 1994 Commission File Number 1-9309
------------------- ------
VERSAR, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 54-0852979
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6850 Versar Center
Springfield, Virginia 22151
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 750-3000
----------------------------
Not Applicable
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(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class of Common Stock Outstanding at January 31, 1995
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$ .01 par value 4,704,243 shares
<PAGE> 2
VERSAR, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of
December 31, 1994 and June 30, 1994 3
Consolidated Statements of Operations for the
Three-Month and Six-Month Periods Ended
December 31, 1994 and 1993 4
Consolidated Statements of Cash Flows
for the Six-Month Periods Ended December 31,
1994 and 1993. 5
Notes to Consolidated Financial Statements 6-7
ITEM 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 11
ITEM 4 - Submission of Matters to a Vote of Stockholders 12
ITEM 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
<PAGE> 3
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
---------------- --------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents . . . . . . . . $ 56 $ 72
Accounts receivable, net . . . . . . . . 11,481 10,693
Prepaid expenses and other current assets 339 1,374
Deferred taxes . . . . . . . . . . . . . 536 536
-------- --------
Total current assets . . . . . . . . 12,412 12,675
Property and equipment, net . . . . . . . . 1,441 1,686
Other assets . . . . . . . . . . . . . . . 38 59
-------- --------
Total assets . . . . . . . . . . . . $13,891 $14,420
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . $ 1,873 $ 1,476
Current portion of long-term debt . . . . 521 1,201
Income taxes payable . . . . . . . . . . --- 95
Accrued salaries and vacation . . . . . . 1,373 1,269
Other liabilities . . . . . . . . . . . . 1,570 2,291
Liabilities of discontinued operations. . 727 791
-------- --------
Total current liabilities . . . . . . 6,064 7,123
Long-term debt . . . . . . . . . . . . . . 6 17
Other long-term liabilities . . . . . . . . 1,023 1,011
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Total liabilities . . . . . . . . . . 7,093 8,151
-------- --------
Stockholders' equity
Common stock, $.01 par value, 10,000,000
shares authorized; 4,688,591 shares and
4,609,213 shares issued and outstanding
at December 31, 1994, and June 30,
1994, respectively . . . . . . . . . . . 47 46
Capital in excess of par value . . . . . . 12,504 12,238
Accumulated deficit . . . . . . . . . . . . (5,753) (6,015)
-------- --------
Total stockholders' equity . . . . . 6,798 6,269
-------- --------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . $13,891 $14,420
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
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VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited - in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three-Month For the Six-Month
Periods Ended December 31, Periods Ended December 31,
-------------------------- ---------------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
GROSS REVENUE . . . . . . . . . . . . $ 9,364 $ 10,935 $ 18,783 $ 22,431
Purchased services and materials,
at costs . . . . . . . . . . . . . . 2,085 3,211 4,355 6,710
---------- --------- --------- ---------
NET SERVICE REVENUE . . . . . . . . . 7,279 7,724 14,428 15,721
Direct costs of services and overhead 5,934 6,139 11,909 12,493
Selling, general and administrative
expenses . . . . . . . . . . . . . . 1,134 1,492 2,188 2,785
Other (income) . . . . . . . . . . . (12) (20) (24) (39)
---------- --------- --------- ---------
OPERATING INCOME . . . . . . . . . . 223 113 355 482
OTHER EXPENSE
Interest expense . . . . . . . . . . 32 18 70 28
Income tax expense . . . . . . . . . 15 9 23 16
---------- --------- --------- ---------
INCOME FROM
CONTINUING OPERATIONS . . . . . . . . 176 86 262 438
---------- --------- --------- ---------
LOSS FROM
DISCONTINUED OPERATIONS . . . . . . . --- (324) --- (593)
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . . --- --- --- 556
---------- --------- --------- ---------
NET INCOME (LOSS) . . . . . . . . . . $ 176 $ (238) $ 262 $ 401
========== ========= ========= =========
INCOME PER SHARE FROM
CONTINUING OPERATIONS . . . . . . . . $ .04 $ .02 $ .05 $ .10
========== ========= ========= =========
(LOSS) PER SHARE FROM
DISCONTINUED OPERATIONS . . . . . . . $ --- $ (.07) $ --- $ (.13)
========== ========= ========= =========
INCOME PER SHARE FROM
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . . $ --- $ --- $ --- $ .12
========== ========= ========= =========
NET INCOME (LOSS) PER SHARE . . . . . $ .04 $ (.05) $ .05 $ .09
========== ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING . . . . . . . . . 4,878 4,592 4,820 4,531
========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
For the Six-Month
Periods Ended December 31,
-------------------------------
1994 1993
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<S> <C> <C>
Cash flows from operating activities
Income from continuing operations . . . . . . $ 262 $ 438
(Loss) from discontinued operations . . . . . --- (593)
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . --- 556
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization . . . . . . 358 513
Provision for doubtful accounts receivable (37) 53
Common stock issued to 401K and ESSOP . . 231 614
Taxes payable . . . . . . . . . . . . . . (95) (725)
Change in assets and liabilities
(Increase) in accounts receivable . . . . (751) (1,468)
Decrease in prepaids and other assets . . 1,041 594
Increase in accounts payable . . . . . . . 397 685
Increase in accrued salaries and vacation 106 90
(Decrease) in other liabilities . . . . . (709) (1,151)
--------- ---------
Net cash from continuing operations . . . . . 803 (394)
Changes in net liabilities of discontinued
operations . . . . . . . . . . . . . . (65) 47
--------- ---------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . 738 (347)
--------- ---------
Cash flows from investing activities
Purchase of property and equipment . . . . (98) (170)
--------- ---------
Net cash (used in) investing activities . . . (98) (170)
--------- ---------
Cash flows from financing activities
Net borrowings on the line of credit . . . --- 95
Principal payments on long-term debt . . . (692) (319)
Proceeds from issuance of common stock . . 36 45
--------- ---------
Net cash (used in) financing activities . . . (656) (179)
--------- ---------
Net (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . (16) (696)
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . 72 696
--------- ---------
Cash and cash equivalents at the end of the
period . . . . . . . . . . . . . . . . . . $ 56 $ 0
========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
Interest . . . . . . . . . . . . . . . $ 80 $ 25
Income taxes . . . . . . . . . . . . . 141 22
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(A) Basis of Presentation
The accompanying consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally made in Versar, Inc.'s ("Versar" or the "Company")
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
These financial statements should be read in conjunction with the Company's
Annual Report filed on Form 10-K for the year ended June 30, 1994 for
additional information.
The financial information has been prepared in accordance with the
Company's customary accounting practices. In the opinion of Management, the
information presented reflects all adjustments necessary for a fair
presentation of the Company's consolidated financial position as of December
31, 1994, and the results of operations for the six- month periods ended
December 31, 1994 and 1993. The results of operations for such periods,
however, are not necessarily indicative of the results to be expected for a
full fiscal year.
The Company's real estate and analytical laboratory operations have been
presented as discontinued operations for income statement purposes and the
assets and liabilities of the laboratory operations have been netted together
and presented as a net liability on the balance sheet.
Certain Balance Sheet, Statement of Operations, and Statement of Cash
Flows items have been restated for comparative financial statement purposes.
(B) Debt
Versar maintains a revolving bank line of credit for working capital
purposes with a commercial bank which provides for advances up to $1,500,000.
Borrowing availability under the line of credit agreement is restricted to the
borrowing base of qualifying receivables, less $3,150,000. Borrowings on the
line are at the prime rate of interest plus 2.5%, or 11% at December 31, 1994.
The bank line is guaranteed by the Company and each subsidiary individually and
collectively, secured by accounts receivable, equipment and intangibles, plus
all insurance policies on property constituting collateral. The loan is due
upon demand or September 30, 1995. The Company must obtain the bank's
approval prior to paying dividends.
With the spin-off of Versar's real estate operations to Sarnia
Corporation in the fourth quarter of fiscal year 1994, Versar assumed
$1,000,000 of the outstanding mortgages and the remaining balance of
$12,450,000 was retained by Sarnia Corporation. Versar will continue to act as
guarantor of the debt retained by Sarnia.
(C) Adoption of SFAS 109 "Accounting for Income Taxes"
Versar adopted SFAS 109 "Accounting for Income Taxes" as of July 1, 1993.
The cumulative effect of this change was a credit to earnings of $556,000 in
the first quarter of fiscal year 1994, which related to the release of deferred
tax liabilities that were previously established under APB 11. The Company
utilized the tax planning strategies available under SFAS 109 to accelerate the
reversal of excess depreciation on the Versar Headquarters buildings. A
substantial portion of the $2.4 million net deferred tax assets relate to net
operating loss and tax credit carryforwards. Due to the Company's history of
operating losses, a valuation allowance of $1.8 million has been established
under SFAS 109. With increased profitability, such net operating loss and tax
credit carryforwards would be utilized and the valuation allowance would be
adjusted accordingly.
6
<PAGE> 7
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(D) Discontinued Operations
Sarnia Corporation: Sarnia Corporation (Sarnia), formerly Versar Virginia,
Inc. was spun- off to the Versar shareholders on June 30, 1994. Sarnia owns
and operates an 18.3 acre office park in Springfield, Virginia, consisting of
two office buildings which aggregate 229,000 square feet. One building is
primarily occupied by Versar and the other building primarily by unrelated
third-party tenants.
At June 30, 1994, approximately $13,450,000 of building debt was
outstanding of which Versar retained $1,000,000 and Sarnia has the remaining
$12,450,000. The $1,000,000 of Versar's debt will be paid in fiscal year 1995.
At December 31, 1994, the remaining balance of the reducing revolver loan was
$480,700. Versar will continue to act as guarantor on Sarnia's debt. Versar
may elect from time to time, in its sole discretion, to loan funds to Sarnia if
needed by Sarnia to make its debt service payments on a timely basis, in order
to avoid call of Versar's guaranty.
Divestiture of real estate operations resulted in a $606,000 decrease in
equity due to the recognition of $1,309,000 in tax liabilities and $300,000 in
transaction costs offset by the spin-off of real estate operations' deficit
equity of $1,003,000.
As a part of this transaction, Versar has entered into a 15-year lease in
the 6850 building for 99,588 square feet at an initial rate of $13.49 per
square foot. Also, the Company leases 8,918 square feet of storage space at an
initial rate of $8.00 per square foot. Both leases are subject to a two
percent escalation per year and readjustment every five years based upon the
fair market rental. Certain financial and administrative activities will be
performed by Versar for Sarnia at a fixed rate of $3,000 per month.
Versar Laboratories: In the third quarter of fiscal year 1994, management
announced that Versar was going to discontinue further operations of Versar
Laboratories, Inc. ("VLI"). VLI had lost approximately $800,000 per year for
the last three years. Subsequent to this decision, Kemron Environmental
Services, Inc. purchased the fixed assets of VLI for $250,000 on August 1,
1994. With the purchase of assets and the assumption of certain lease
obligations, the Company was able to reverse $300,000 of the previously
recorded reserve in the fourth quarter of fiscal year 1994.
(E) Contingencies
The Company is a defendant in lawsuits that have arisen in the ordinary
course of its business. Such lawsuits include actions brought by a former
officer of the Company, certain customers, and some third parties are currently
in various stages of litigation. Management believes that the outcome of these
lawsuits will not have a material adverse effect of the Company's consolidated
financial position and results of operations.
(F) Net Income (Loss) Per Share
Income per share from continuing operations, loss per share from
discontinued operations, and net income per share are computed by dividing each
by the weighted average number of common shares outstanding during the
applicable period being reported.
7
<PAGE> 8
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(G) Common Stock
In fiscal year 1995, Versar issued approximately 28,000 shares to various
employee benefit plans as part of the Company's contribution to employee
benefits for fiscal year 1994 and 29,000 shares for the first quarter of fiscal
year 1995.
In the fiscal year 1994, Versar issued approximately 296,000 shares to
various employee benefit plans as part of the Company's contribution to
employee benefits for fiscal years 1994 and 1993.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Second Quarter Comparison for Fiscal Years 1995 and 1994
Versar's gross revenue for the fiscal quarter ended December 31, 1994
totaled $9,364,000 a decrease of $1,571,000 (14%) compared to gross revenue of
$10,935,000 for the second quarter of the prior fiscal year. The decrease is
primarily due to the winding down of the Company's USATHAMA Total Program
Support and Metropolitan Washington Airport Authority contracts. The Company
continues to experience delays in the award of new Air Force task orders and
expects that the Air Force will commence awarding task orders during the third
quarter of fiscal year 1995.
Purchased services and materials for the second quarter of fiscal year
1995 decreased by $1,126,000 (35%) compared to costs for the comparable period
of the previous year. The decrease is principally due to the decrease in gross
revenue as mentioned above.
Net service revenue is derived by deducting the costs of purchased
services from the gross revenue. Versar considers it appropriate to analyze
operating margins and other ratios in relation to net service revenue because
such revenues reflect the actual work performed by the Company. Net service
revenue decreased by 6% compared to the second quarter of fiscal year 1994.
The decrease is due to the lower volume in gross revenue.
Direct costs of services and overhead include the cost to Versar of
direct and overhead staff, including recoverable overhead costs and unallowable
costs that are directly attributable to contracts. The percentage of costs to
net service revenue increased to 82% in the second quarter of 1995 compared to
80% in the second quarter of fiscal year 1994. The increase is attributable to
more competitive pricing, and the lower markup on purchased services and
materials, which reduced the net service revenue in relation to direct costs of
services and overhead.
Selling, general and administrative expenses approximated 16% of net
service revenue in the second quarter of fiscal year 1995, compared to 19% in
the second quarter of fiscal year 1994. The decrease is the result of
managements efforts to reduce administrative staff.
8
<PAGE> 9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Other costs include the costs and revenues that are not directly
attributable to contracts. For the second quarter of fiscal year 1995, the
Company recognized non-compete income from the sale of its majority-owned
subsidiary, Gammaflux, Inc. of $12,000 compared to $20,00 recognized in the
second quarter of fiscal year 1994.
Operating income for the second quarter of fiscal year 1995 was $223,000,
an increase of $110,000 over the second quarter of fiscal year 1994. The
increase is attributable to the decrease in selling, general and administrative
expenses as discussed above.
Interest expense during the second quarter of fiscal year 1995 increased
by $14,000 (78%) compared to costs for the comparable period of the previous
year. The increase for the second quarter of 1995 compared to the same period
in fiscal year 1994, reflects the assumption of $1,000,000 of debt from the
spin-off of the Company's real estate operations in the fourth quarter of
fiscal year 1994 and from higher interest rates.
Versar had a net income of $176,000 in the second quarter of fiscal year
1995 compared to a net loss of $238,000 in the second quarter of fiscal year
1994. The increase is primarily the result of the Company discontinuing its
unprofitable laboratory and real estate operations in the third quarter of
fiscal year 1994.
Six Month Comparison for Fiscal Years 1995 and 1994
Versar's gross revenue for the six-months ended December 31, 1994 totaled
$18,783,000 a decrease of $3,648,000 (16%) compared to gross revenue of
$22,431,000 for the six months of the prior fiscal year. The decrease in gross
revenue was due to the winding down of efforts on the Company's USATHAMA and
Metropolitan Washington Airport Authority contracts, which are being performed
by the Company's Atlantic division and Geomet subsidiary.
Purchased services and materials for the first six months of fiscal year
1995 decreased by $2,355,000 (35%) compared to costs for the comparable period
of the previous year. The decrease is principally due to the decrease in gross
revenue as mentioned above.
Net service revenue decreased by 8% compared to the first six months of
fiscal year 1994. The decrease is due to the lower volume in gross revenue.
The percentage of direct costs of services and overhead to net service
revenue increased to 83% in the first six months of 1995 compared to 79% in the
first six months of fiscal year 1994. The increase is attributable to more
competitive pricing, and lower markup from purchased services and materials due
to the lower volume.
Selling, general and administrative expenses approximated 15% of net
service revenue in the first six months of fiscal year 1995, compared to 18% in
the first six months of fiscal year 1994. The decrease is the result of
management's continued efforts to reduce selling, general and administrative
costs in relation to net service revenue.
Other costs include costs and revenues that are not directly attributable
to contracts. For the first six months of fiscal year 1995, the Company
recognized non- compete income from the sale of its majority-owned subsidiary,
Gammaflux, Inc. of $24,000 compared to $39,000 recognized in the first six
months of fiscal year 1994.
9
<PAGE> 10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Operating income for the first six months of fiscal year 1995 was
$355,000 a decrease of $127,000 over the first six months of fiscal year 1994.
The decrease is attributable to the lower volume and the increased direct costs
of services and overhead as discussed above.
Interest expense during the first six months of fiscal year 1995
increased by $42,000 (150%) compared to costs for the comparable period of the
previous year. The increase for the first six months of 1995 compared to the
same period in fiscal year 1994, reflects the assumption of $1,000,000 of debt
from the spin-off of the Company's real estate operations and from higher
interest rates.
Versar has net income of $262,000 for the first six months of fiscal year
1995 compared to net income of $401,000 for the first six months of fiscal year
1994. The decrease is primarily the result of a change in accounting principle
under SFAS 109 "Accounting for Income Taxes", which required the Company to
compute deferred taxes using the liability method. Versar recognized the
cumulative effect of the change in accounting principle of $556,000 in the
first quarter of fiscal year 1994 as a result of the implementation of SFAS
109.
Liquidity and Capital Resources
The Company's working capital at December 31, 1994 approximated
$6,348,000 or $796,000 (14%) higher than June 30, 1994. In addition, the
Company's current ratio at December 31, 1994 was 2.05 to 1, a 15% increase over
that reported at the end of fiscal year 1994. The Company's revolving line of
credit for working capital provides for advances up to $1,500,000. Borrowing
availability under the line of credit is restricted to the borrowing base of
qualifying receivables, less $3,150,000. Borrowings on the line are at the
prime rate of interest plus 2.5%, or 11% at December 31, 1994. The Company
uses the line of credit for short-term working capital needs, and at December
31, 1994 and June 30, 1994, the Company had no borrowing under the line of
credit. The line of credit is due upon demand, or September 30, 1995.
Management believes that cash generated by operations and borrowings available
from its line of credit will be adequate to meet the working capital needs for
fiscal year 1995, provided the Company is successful in maintaining its
profitability. At December 31, 1994, the Company was in compliance with the
covenants of the line of credit. However, the bank is not required to make
working capital advances if Versar is in non-compliance with the covenants of
the Credit Facility, therefore, the Company cannot predict the bank's decision
in advance of an actual default.
One of the buildings in Springfield, Virginia, formerly held by the
Company and spun-off to Sarnia, was refinanced on June 22, 1994 by a reducing
term loan and is being amortized over a three-year period. The reducing term
loan provides for sixty equal installments and certain quarterly installments
over the term of the loan. This agreement has been renegotiated as part of the
spin-off of Versar's real estate operations to its shareholders. At June 30,
1994, the total bank debt was approximately $13,450,000 of which Versar assumed
$1,000,000 and the balance was retained by the real estate entity, Sarnia
Corporation. At December 31, 1994, the balance of $480,700 of principal
payments of the debt directly assumed by Versar is due in monthly installments
during the remaining six months of fiscal year 1995, which will be paid out of
current working capital. Versar may elect from time to time, in its sole
discretion, to loan funds to Sarnia if needed by Sarnia to make its debt
service payments on a timely basis, in order to avoid call of Versar's
guaranty. Versar will continue to act as guarantor of the total debt should an
event of default occur. Principal payments due under Sarnia's reducing
revolving loan and term loan are approximately $1,406,000 and $1,342,000 in
fiscal years 1996 and 1997, respectively. The remaining outstanding balance of
$9,291,502 is due in May 1997. In fiscal years 1996 and 1997, Sarnia will have
the capability to pay between $300,000 to $400,000 in principal payments.
Therefore, Versar and Sarnia are currently seeking alternatives to refinance
the existing debt in fiscal year 1995 in order to reduce the amount of
principal payments and minimize Versar's guarantee of Sarnia's debt.
The Company's auditors recently advised the Company that its accounting
and financial treatment of the divestiture of the Company's real estate
holdings to Sarnia Corporation on June 30, 1994, which was approved by the
Company's auditors, is under review. The issue is whether the Company's
current financial and business involvement with Sarnia permits accounting for
the transaction as a divestiture. This issue has no effect on the operations
of the Company. The Company is optimistic, although there can be no assurance
to that effect, that the issue will be resolved promptly so that the Company
can continue using the existing accounting treatment.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 28, 1990, Gary R. Windolph, a former officer and director
of Versar Architects & Engineers, Inc. ("VA&E", formerly ARIX Corporation,a
former subsidiary of Versar which was merged into the parent in July 1993) and
a former officer of Versar, Inc. (the "Company"), filed an action in the
District Court for the City and County of Denver, State of Colorado, entitled
Gary R. Windolph v. ARIX Corporation, Versar, Inc., et al., Case NO.
90-CV-7155. On October 21, 1991, the jury returned verdicts for Mr. Windolph
on two defamation claims against the Company, and awarded him damages in the
amount of $200,000. The jury also returned verdicts for Mr. Windolph on
certain of his statutory and common law securities claims and awarded damages
in the amount of $1.00 on all such claims. On January 6, 1992, the Court ruled
that, based upon the evidence presented at trial, the $200,000 awarded to Mr.
Windolph by the jury was excessive as a matter of law, and ordered a new damage
trial on those claims. The retrial of damages on these claims ended on October
21, 1992 with the jury returning a verdict against Versar in the total amount
of $1,000,001 including $500,000 for damages to Mr. Windolph's reputation and
$500,001 for personal humiliation, mental anguish and suffering.
Versar promptly filed appropriate post-trial motions seeking either a new
trial or the entry of judgment in an amount less than the jury's verdict. On
January 10, 1993, the Court granted Versar's motion, in part, and gave the
plaintiff the choice of accepting the entry of judgment in the amount of
$75,000, or retrying for a third time the amount of damages for the defamation
claim. The Court also decided, as a matter of law, that the maximum amount Mr.
Windolph could recover was $250,000 due to a statutory limit on non- economic
damages. At the same time, the Court ordered the parties to participate in
good faith in a mandatory settlement conference to try to settle this matter.
The parties were unable to reach a settlement as a result of the settlement
conference held in April, 1993, and the plaintiff has rejected the opportunity
to have judgement entered for $75,000 or proceed with a new trial. On June 16,
1993, the trial court entered final judgement on all outstanding issues. The
matter is now on appeal to the Colorado Court of Appeals by both parties. Both
parties have filed briefs and oral argument will take place on March 21, 1995.
Versar's management believes that the possibility of a material adverse outcome
in this case is unlikely.
On June 24, 1992, William Levy, a real estate developer, on behalf of
himself and Harper Realty, Inc., a company he controls filed an action in
Illinois state court which was removed to federal court and is entitled
William Levy and Harper Realty Trust v. Versar, Inc. Civil Action No. 92
C4836 the lawsuit alleges breach of contract and negligent misrepresentation as
a result for failure to advise plaintiffs to test for certain contamination at
a former commercial laundry site. Pursuant to motion by Versar the Court
dismissed the breach of contract claim but refused to dismiss the claim for
negligent misrepresentation on the pleadings alone. In a separate lawsuit in
federal court, plaintiffs sued the prior owner under federal superfund law and
state common law theories. In November 1993 in the second lawsuit, the court
held the prior owner responsible for the contamination and all response and
clean-up costs. In July 1994, Versar filed a motion for partial summary
judgment on liability for future response costs in the Levy case. The parties
have recently engaged in settlement negotiations but because of settlement of
other claims by the Company there may not be sufficient insurance coverage to
pay all of any settlement or judgement. However, based upon opinion of outside
counsel, Versar's management believes it has meritorious defenses to this
lawsuit and it will not have a material adverse impact on the Company's
consolidated financial position and results of operations.
Versar and its subsidiaries are parties to various legal actions arising
in the normal course of business. The Company believes that the ultimate
resolution of these legal actions will not have a material adverse effect on
its consolidated financial condition.
11
<PAGE> 12
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
The Company's Annual Meeting of Stockholders was held on November 17,
1994. The matters voted on at the Annual meeting were as follows:
(1) The Election of Directors
The nomination of Rawls, Markels, Durfee, Halpin, Rice,
Horton, Judkins and Gray to serve as directors of the Company
was approved as indicated below:
<TABLE>
<CAPTION>
Vote Withheld
for Authority
------------- ---------
<S> <C> <C>
Benjamin M. Rawls 3,429,409 230,673
Michael Markels, Jr. 3,422,164 237,918
Robert L. Durfee 3,430,034 230,048
Gerald T. Halpin 3,430,224 229,858
M. Lee Rice 3,428,890 231,192
John P. Horton 3,429,890 230,192
Charles I. Judkins 3,430,106 229,976
John E. Gray 3,429,302 230,780
</TABLE>
(2) Ratification of the appointment of Price Waterhouse as independent
accountants for fiscal 1995.
Price Waterhouse was ratified as the Company's independent
accountants as follows:
<TABLE>
<CAPTION>
For Against Abstain
---------- ------- -------
<S> <C> <C>
3,623,502 24,408 12,172
</TABLE>
(3) Approval of issuance of additional shares for Emplolyee Savings and
Stock Ownership Plan.
<TABLE>
<CAPTION>
For Against Abstain
---------- ------- -------
<S> <C> <C>
2,527,272 300,237 14,881
</TABLE>
12
<PAGE> 13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT 27 -- Financial Data Schedule
(b) Reports on Form 8-K
None
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERSAR, INC.
--------------------------
(Registrant)
By: /s/ BENJAMIN M. RAWLS
--------------------------------
Benjamin M. Rawls, Chairman and
Chief Executive Officer
By: /s/ LAWRENCE W. SINNOTT
--------------------------------
Lawrence W. Sinnott
Vice President, Chief Financial
Officer, and Treasurer
Date: February 14, 1995
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
EX-27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
VSR FY95 Q2 10Q FDS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 56
<SECURITIES> 0
<RECEIVABLES> 12,574
<ALLOWANCES> 1,093
<INVENTORY> 0
<CURRENT-ASSETS> 12,412
<PP&E> 9,032
<DEPRECIATION> 7,591
<TOTAL-ASSETS> 13,891
<CURRENT-LIABILITIES> 6,064
<BONDS> 0
<COMMON> 47
0
0
<OTHER-SE> 6,751
<TOTAL-LIABILITY-AND-EQUITY> 13,891
<SALES> 0
<TOTAL-REVENUES> 18,783
<CGS> 0
<TOTAL-COSTS> 18,452
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 285
<INCOME-TAX> 23
<INCOME-CONTINUING> 262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
