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 March 31, 1997 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 April 30, 1997
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$ .01 par value 5,131,964 shares
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
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<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of
March 31, 1997 and June 30, 1996. 3
Consolidated Statements of Operations for the
Three-Month and Nine-Month Periods Ended
March 31, 1997 and 1996. 4
Consolidated Statements of Cash Flows
for the Nine-Month Periods Ended
March 31, 1997 and 1996. 5
Notes to Consolidated Financial Statements 6-7
ITEM 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 8-11
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 12-13
ITEM 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT 11 - Computation of Per Share Earnings 15
</TABLE>
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash . . . . . . . . . . . . . . . . . $ 1,166 $ 83
Accounts receivable, net . . . . . . . 11,957 12,376
Prepaid expenses and other current
assets. . . . . . . . . . . . . . . . 1,307 1,365
Deferred income taxes. . . . . . . . . 690 473
Total current assets. . . . . . . 15,120 14,297
--------- ---------
Property and equipment, net. . . . . . 1,922 2,038
Deferred income taxes. . . . . . . . . 441 300
Other assets . . . . . . . . . . . . . 329 344
--------- ---------
Total assets $ 17,812 $ 16,979
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable. . . . . . . . . . . $ 2,283 $ 2,098
Bank line of credit . . . . . . . . . --- 492
Accrued salaries and vacation . . . . 1,685 1,619
Income tax payable. . . . . . . . . . 102 ---
Other liabilities . . . . . . . . . . 2,166 2,459
--------- ---------
Total current liabilities . . . . 6,236 6,668
Other long-term liabilities. . . . . . 1,001 1,035
Reserve on guarantee of real
estate debt . . . . . . . . . . . . . 1,500 1,500
--------- ---------
Total liabilities. . . . . . . . 8,737 9,203
Commitments and Contingencies
Stockholders' equity
Common stock, $.01 par value; 30,000,000
shares authorized; 5,131,964 shares and
4,994,693 shares issued and outstanding
at March 31, 1997 and June 30, 1996,
respectively. . . . . . . . . . . . . 51 50
Capital in excess of par value. . . . . 13,724 13,299
Accumulated deficit . . . . . . . . . . (4,700) (5,573)
--------- ---------
Total stockholders' equity . . . . 9,075 7,776
Total liabilities and
stockholders' equity . . . . . . . $ 17,812 $ 16,979
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited - in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three-Month For the Nine-Month
Periods Ended March 31, Periods Ended March 31,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
GROSS REVENUE . . . . . . . . . . . $10,727 $11,389 $32,934 $33,686
Purchased services and
materials, at costs . . . . . . . 3,022 3,165 9,614 9,718
-------- -------- -------- --------
NET SERVICE REVENUE . . . . . . . . 7,705 8,224 23,320 23,968
Direct costs of services
and overhead. . . . . . . . . . . 6,345 6,883 19,047 19,669
Selling, general and
administrative expenses . . . . . 998 1,103 3,398 3,427
Other (income). . . . . . . . . . . (11) (7) (32) (21)
Losses on Sarnia operations . . . . --- --- --- 142
-------- -------- -------- --------
OPERATING INCOME. . . . . . . . . . 373 245 907 751
OTHER EXPENSE
Interest expense. . . . . . . . . . 11 22 48 95
Income tax expense (benefit). . . . 146 10 (14) 38
-------- -------- -------- --------
NET INCOME. . . . . . . . . . . . . $ 216 $ 213 $ 873 $ 618
======== ======== ======== ========
NET INCOME PER SHARE. . . . . . . . $ .04 $ .04 $ .17 $ .12
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING. . . . . . . . . 5,240 5,058 5,230 5,160
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited - in thousands)
<TABLE>
<CAPTION>
For the Nine-Month
Periods Ended March 31,
-----------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities
Net income. . . . . . . . . . . . . . . . . . $ 873 $ 618
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization. . . . . . 524 491
Provision for doubtful accounts
receivable. . . . . . . . . . . . . . . (72) 52
Common stock issued to ESSOP . . . . . . 399 114
Deferred tax benefit . . . . . . . . . . (358) ---
-------- --------
Subtotal. . . . . . . . . . . . . . . 1,366 1,275
Changes in assets and liabilities,
net of asset dispositions
Decrease (increase) in accounts
receivable. . . . . . . . . . . . . . . 491 (1,291)
Decrease (increase) in prepaids
and other assets. . . . . . . . . . . . 117 (342)
Increase in accounts payable. . . . . . . . 185 649
Increase in accrued salaries and
vacation. . . . . . . . . . . . . . . . 66 146
Increase in income tax payable. . . . . . . 102 ---
(Decrease) increase in other liabilities. . (327) 836
Net change in assets and liabilities
of Sarnia . . . . . . . . . . . . . . . --- 142
-------- --------
Net cash from continuing
operations . . . . . . . . . . . . . . 2,000 1,415
Changes in net liabilities of
discontinued operations. . . . . . . . . . --- (615)
-------- --------
Net cash provided by operating
activities. . . . . . . . . . . . . . . 2,000 800
-------- --------
Cash flows from investing activities
Purchase of property and equipment. . . . . . (452) (808)
-------- --------
Cash flows from financing activities
Net payments on bank line of credit . . . . . (492) (217)
Proceeds from issuance of the Company's
common stock. . . . . . . . . . . . . . . . 27 225
-------- --------
Net cash (used in) provided by
financing activities. . . . . . . (465) 8
-------- --------
Net increase in cash. . . . . . . . . . . . . . 1,083 ---
Cash at the beginning of the year . . . . . . . 83 58
-------- --------
Cash at the end of the period . . . . . . . . . $ 1,166 $ 58
======== ========
Supplementary disclosure of cash flow information:
Cash paid during the period for
Interest. . . . . . . . . . . . . . . . . . $ 53 $ 78
Income taxes. . . . . . . . . . . . . . . . 250 5
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
<PAGE>
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, 1996
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 reflects all adjustments necessary for a fair presentation of the
Company's consolidated financial position as of March 31, 1997, and the
results of operations for the nine-month periods ended March 31, 1997 and
1996. The results of operations for such periods, however, are not
necessarily indicative of the results to be expected for a full fiscal year.
(B) Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
(C) Contract Accounting
Contracts in process are stated at the lower of actual cost incurred
plus accrued profits or net estimated realizable value of incurred costs,
reduced by progress billings. The Company records income from major fixed-
price contracts, extending over more than one accounting period, using the
percentage-of-completion method. During performance of such contracts,
estimated final contract prices and costs are periodically reviewed and
revisions are made as required. The effects of these revisions are included
in the periods in which the revisions are made. On cost-plus-fee contracts,
revenue is recognized to the extent of costs incurred plus a proportionate
amount of fee earned, and on time-and-material contracts, revenue is
recognized to the extent of billable rates times hours delivered plus material
and other reimbursable costs incurred. Losses on contracts are recognized in
the period in which they become known. Disputes arise in the normal course of
the Company's business on projects where the Company is contesting with
customers for collection of funds because of events such as delays, changes in
contract specifications and questions of cost allowability or collectibility.
Such disputes, whether claims or unapproved change orders in the process of
negotiation, are recorded at the lesser of their estimated net realizable
value or actual costs incurred and only when realization is probable and can
be reliably estimated. Claims against the Company are recognized where loss
is considered probable and is reasonably determinable in amount.
It is the Company's policy to provide reserves for the collectibility of
accounts receivable when it is determined that it is probable that the Company
will not collect all amounts due and the amount of reserve requirements can be
reasonably estimated.
6
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(D) Income Taxes
At June 30, 1996, the Company had a net deferred tax asset of
approximately $1.5 million, which was offset by a valuation allowance of
approximately $.7 million. During the first six months of fiscal year 1997,
the valuation allowance was reduced by $358,000 due to the increasing
likelihood that the Company will realize the remainder of its deferred tax
assets.
(E) Contingencies
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 and results of operations.
(F) Net Income Per Share
Net income per share is computed by dividing net income by the fully
diluted weighted average number of common shares outstanding during the
applicable period being reported.
(G) Common Stock
For the nine month period ending March 31, 1997, Versar has issued
approximately 112,973 shares to various employee benefit plans as part of the
Company's contribution to employee benefits for fiscal year 1996. In fiscal
year 1996, Versar issued approximately 32,348 shares to various employee
benefit plans as part of the Company's contribution to employee benefits for
fiscal year 1995.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share" in February 1997.
SFAS 128 requires a company to present basic and diluted earnings per share
amounts for net income on the face of the consolidated statement of
operations. Basic earnings per share is calculated by dividing net income by
the weighted average number of common shares outstanding during this period.
Diluted earnings per share takes into consideration the effect of all
potential dilutive common shares that were outstanding during the period. The
statement is effective for period ending after December 15, 1997; earlier
application is not permitted.
(H) Subsequent Event
Effective April 30, 1997, Versar acquired 53% of the outstanding common
stock and all outstanding preferred stock of Science Management Corporation
("SMC") for aggregate consideration of $2,870,000 in cash. Versar intends to
propose a merger pursuant to which Versar will obtain the remaining SMC common
stock for newly issued shares of Versar common stock, subject to SMC
stockholder approval. The transaction will be accounted for under the
purchase method of accounting. The results of SMC will be included with those
of the company from the closing date of April 30, 1997.
7
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Cautionary Statement Regarding Forward Looking Statements
- ---------------------------------------------------------
The statements in this report that are forward-looking are based on current
expectations, and actual results may differ materially. The forward-looking
statements include those regarding costs controls and reductions, the
expected resolution of delays in billing of certain projects, the possible
impact of current and future claims against the Company based upon negligence
and other theories of liability, and the possibility of the Company making
acquisitions during the next 12 to 18 months. Forward-looking statements
involve numerous risks and uncertainties that could cause actual results to
differ materially, including, but not limited to, the possibilities that the
demand for the Company's services may decline as a result of possible changes
in general and industry specific economic conditions and the effects of
competitive services and pricing; one or more current or future claims made
against the Company may result in substantial liabilities; and such other
risks and uncertainties as are described in reports and other documents filed
by the Company from time to time with the Securities and Exchange Commission.
Results of Operations
- ---------------------
Third Quarter Comparison of Fiscal Years 1997 and 1996
- ------------------------------------------------------
Versar's gross revenue for fiscal quarter ended March 31, 1997 totaled
$10,727,000 a decrease of $662,000 (6%) compared to gross revenue of
$11,389,000 for the third quarter of the prior fiscal year. The decrease is
due to the completion of the Presidio asbestos survey contract and the winding
down of the San Francisco Airport contract in the Company's Pacific region.
Purchased services and materials for the third quarter of fiscal year
1997 decreased by $143,000 (5%) compared to costs for the comparable period of
the previous fiscal year. The decrease is primarily due to the decrease in
gross revenue as mentioned above.
Net service revenue is derived by deducting the costs of purchased
services from 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 third quarter of fiscal year 1996.
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 decreased to 82.3% in the third quarter of
1997 compared to 83.7% in the third quarter of fiscal year 1996. The decrease
is due to higher labor utilization during the third quarter of fiscal year
1997.
Selling, general and administrative expenses were 13.0% of net service
revenue in the third quarter of fiscal year 1997, compared to 13.4% in the
third quarter of fiscal year 1996. The decrease is due the reduction in legal
reserves and other expenses of approximately $200,000 as a result of resolving
the Windolph suit and other legal matters.
Other income include the revenues that are not attributable to
contracts. For the third quarter of fiscal year 1997, the Company recognized
non-compete income for the sale of its majority-owned subsidiary, Gammaflux,
Inc. of $11,000 compared to $7,000 recognized in the third quarter of fiscal
year 1996.
8
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Operating income for the third quarter of fiscal year 1997 was $373,000,
an increase of $128,000 compared to the third quarter of fiscal year 1996.
The increase is the result of the lower selling, general and administrative
expenses as mentioned above.
Interest expense during the third quarter of fiscal year 1997 decreased
by $11,000 compared to costs for the comparable period of the previous fiscal
year. The decrease is due to lower usage of the Company's line of credit
during the third quarter of fiscal year 1997.
Income tax expense during the third quarter of fiscal year 1997
increased by $136,000 compared to costs for the comparable period of the
previous fiscal year. The increase in income tax expense reflects an
effective tax rate to 40% for the third quarter of fiscal year 1997 as
compared to 5% for the comparable period in fiscal year 1996. The lower rate
in 1996 is due to the reversal of the Company's valuation allowance on
deferred tax assets.
Versar had a net income of $216,000 in the third quarter of fiscal year
1997 compared to net income of $213,000 in the third quarter of fiscal year
1996. The increase is primarily due to lower selling, general and
administrative expenses, which were offset by higher income tax expenses as
mentioned above.
Nine Month Comparison of Fiscal Years 1997 and 1996
- ---------------------------------------------------
Versar's gross revenue for the nine months ended March 31, 1997 totaled
$32,934,000 a decrease of $752,000 (2%) compared to the gross revenue of
$33,686,000 for the nine months of the prior fiscal year. The decrease was
primarily due to the winding down of the Presidio contract in the Company's
Pacific region, which was offset by higher gross revenues in the Company's
Rocky Mountain and Midwest regions in support of the Air Force Center for
Environmental Excellence contract.
Purchased services and materials for the first nine months of fiscal
year 1997 decreased $104,000 (1%) compared to costs for the comparable period
of the previous year. The decrease is principally due to the changes in gross
revenue as mentioned above.
Net service revenue decreased by 3% compared to the first nine months of
fiscal year 1996. The decrease is due to the lower gross revenues as
mentioned above.
The percentage of direct costs and services and overhead to net service
revenue decreased slightly to 81.7% in the first nine months of 1997 compared
to 82.1% in the first nine months of fiscal year 1996. The decrease is due to
higher direct labor utilization in the first nine months of fiscal year 1997.
Selling, general and administrative expenses approximated 14.6% of net
service revenue in the first nine months of fiscal year 1997, compared to
14.3% in the first nine months of fiscal year 1996.
Other income include the revenues that are not directly attributable to
contracts. For the first nine months of fiscal year 1997, the Company
recognized non-compete income from the sale of its majority-owned subsidiary,
Gammaflux, Inc. of $32,000 compared to $21,000 recognized in the first nine
months of fiscal year 1996.
9
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Versar no longer includes the results of operations and financial
position of Sarnia Corporation ("Sarnia") in the Company's consolidated
financial statements. In January 1996, Sarnia obtained new financing which
reduced Versar's guarantee of Sarnia's indebtedness from $12,400,000 to
$1,500,000. Versar has a reserve of $1,500,000 against the guarantee.
Operating income for the first nine months of fiscal year 1997 was
$907,000 an increase of $156,000 over the first nine months of fiscal year
1996. The increase is primarily the result of the exclusion of Sarnia losses
in the first half of fiscal year 1997.
Interest expense during the first nine months of fiscal year 1997
decreased by $47,000 (49%) compared to costs for the comparable period of the
previous fiscal year. The decrease is due to the lower usage of the Company's
line of credit during the first nine months of fiscal year 1997.
Income tax expense during the first nine months of fiscal year 1997
decreased by $52,000 compared to costs for the comparable period of the
previous fiscal year. Income tax expense is affected by the reduction of the
Company's valuation allowance against its deferred tax assets. (See Note D on
page 7)
Versar had net income of $873,000 for the first nine months of fiscal
year 1997 compared to net income of $618,000 for the first nine months of
fiscal year 1996. The increase is primarily the result of the reductions of
the Company's valuation against its deferred tax assets and the exclusion of
Sarnia losses.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital at March 31, 1997 approximated $8,884,000
or $1,255,000 (16%) higher than at June 30, 1996. In addition, the Company's
current ratio at March 31, 1997 was 2.42 to 1, 13% higher than that reported
at the end of fiscal year 1996.
As of March 31, 1997, Versar maintained a line of credit for working
capital purposes with Riggs National Bank ("Riggs"), which provided for
advances up to $3,000,000. Borrowings on the line were at the prime rate of
interest plus 1/2% (9% at March 31, 1997). A fee of 1/4% was charged on the
unused portion of the line of credit. The line was guaranteed by the Company
and each of the Company's subsidiaries individually and was collectively
secured by accounts receivable, equipment and intangibles, plus all insurance
policies on property constituting collateral.
Borrowing availability under the bank line of credit was restricted to
the borrowing base of qualifying receivables less $1,500,000. Unused
borrowing availability at March 31, 1996 was $3,000,000. Additionally, the
loan has certain covenants related to the maintenance of financial ratios.
The Company was in compliance with the financial covenants at March 31, 1997.
Effective April 30, 1997, the Company has moved it's line of credit
facility to NationsBank, N.A.. The new line of credit is restricted to the
borrowing base of qualifying receivables less $1,500,000, with a maximum of
$3,000,000 available. Borrowings on the line are at the lower of the 30 day
libor plus 250 or the prime rate. A fee of 1/4% on the unused portion of the
line of credit is also charged. The line is guaranteed by the Company and
each of the Company's subsidiaries individually and is collectively secured by
accounts receivable, equipment and intangibles, plus all insurance policies on
property constituting collateral. Advances on the line are due November 30,
1998. Management believes that cash generated by operations and borrowings
available under the line of credit will be adequate to meet the working
capital needs for fiscal year 1997.
10
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Approximately $150,000 will be required for capital expenditures during
the remainder of fiscal year 1997 and will be funded from current working
capital.
Impact of Inflation
- -------------------
Versar seeks to protect itself from the effects of inflation. The
majority of contracts the Company performs are for a period of one year or
less or are cost plus fixed-fee type contracts and, accordingly, are less
susceptible to the effects of inflation. Multi-year contracts provide for
projected increases in labor and other costs.
Subsequent Events
- -----------------
Effective April 30, 1997, Versar acquired 53% of the outstanding common
stock and all outstanding preferred stock of SMC for aggregate consideration
of $2,870,000 paid in cash. Versar intends to propose a merger pursuant to
which Versar will obtain the remaining SMC common stock for newly issued
shares of Versar common stock. This acquisition is the first step in Versar's
expansion and diversification program and is anticipated to result in an
increase in revenues.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
11
<PAGE>
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 Versar in July 1993) and a
former officer of Versar, 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 each 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 rejected
the opportunity to have judgment entered for $75,000 or proceed with a new
trial. On June 16, 1993, the trial court entered final judgment on all
outstanding issues.
Both parties appealed to the Colorado Court of Appeals. On May 25, 1995
the Court issued its decision affirming in part, reversing in part and
remanding a part of the case to the trial court. The Court of Appeals
reversed the trial court's dismissal of Windolph's promissory estoppel claim,
and remanded with directions for a new trial on that matter only. The Court
of Appeals affirmed the trial court as to all other matters, including the
trial court's refusal to enter judgment in Windolph's favor on the two jury
verdicts relating to the defamation claim. Both parties filed motions for
rehearing with the Court of Appeals, which were denied on August 10, 1995.
In September 1995, Windolph sought review of this case by the Colorado
Supreme Court which was denied on February 20, 1996. The case proceeded to
trial on the promissory estoppel claim only. A bench trial without jury was
held on January 27, 1997. On April 3, 1997, the Court entered judgment for
Versar on the promissory estoppel claim rejecting Windolph arguments on the
basis of Delaware and Colorado law. Alternatively, the Court held that even
if its judgment is overturned on appeal, the maximum liability to Windolph
would be $11,000. Based upon the Court's decision and consultation with
outside counsel, management believes an adverse outcome of this lawsuit will
not have a material impact on Versar's consolidated financial condition and
results of operations.
As part of the agreement to sell its laboratory assets and operations to
Kemron Environmental Services, Inc. (Kemron) in July 1994, Versar agreed to
refer its analytical laboratory work for a period of 48 months after the
closing date to Kemron subject to certain limitations and exclusions including
federal procurement requirements and the ability of Kemron to perform the
required services. On July 31, 1996, Kemron filed an action in the Circuit
Court of Fairfax County, Commonwealth of Virginia, entitled Kemron
Environmental Services, Inc. vs. Versar Laboratories, Inc. and Versar, Inc.,
Law No. L154205. Kemron alleged the
12
<PAGE>
Item 1. Legal Proceedings (continued)
defendants breached certain covenants that Versar would refer laboratory work
to Kemron in the Asset Acquisition Agreement and alleged damages in the amount
of not less than $3,000,000.
Versar responded by denying the allegations and filed a counterclaim
alleging various material breaches of the Asset Acquisition Agreement by
Kemron and seeking a declaratory judgment that Kemron's breaches have
terminated Versar's obligations under the Agreement. Discovery between the
parties is ongoing. A trial date is scheduled for July 7, 1997.
Based upon an evaluation of the Company's defense and potential exposure
and discussions with outside counsel, management believes that an adverse
outcome of this lawsuit will not have a material impact on Versar's
consolidated financial condition and results of operations.
Versar and its subsidiaries are parties to various other legal actions
arising in the normal course of business. The Company believes that an
ultimate unfavorable resolution of these other legal actions will not have a
material adverse effect on its consolidated financial condition and results of
operations.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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, Treasurer, and Principal
Accounting Officer
Date: May 7, 1997
14
<PAGE>
Exhibit 11
VERSAR, INC.
Statement Re: Computation of Per Share Earnings
(Unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three-Month For the Nine-Month
Periods Ended March 31, Periods Ended March 31,
----------------------- -----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET INCOME . . . . . . . . . $ 216 $ 213 $ 873 $ 618
========= ========= ========= =========
Weighted average common shares
outstanding . . . . . . . 5,019,585 4,927,784 5,009,960 4,879,230
========= ========= ========= =========
NET INCOME PER SHARE -
PRIMARY . . . . . . . . . $ .04 $ .04 $ .17 $ .12
========= ========= ========= =========
Common shares from above . . 5,019,585 4,927,784 5,009,960 4,879,230
Assumed exercise of options
(treasury stock method). . 188,961 130,559 90,957 281,216
--------- --------- --------- ---------
5,208,546 5,058,343 5,100,917 5,160,446
========= ========== ========= =========
NET INCOME PER SHARE - FULLY
DILUTED . . . . . . . . . $ .04 $ .04 $ .17 $ .12
========= ========= ========= =========
Common shares from above . . 5,019,585 4,927,784 5,009,960 4,879,230
Assumed exercise of options
(treasury stock method). . 220,485 130,559 220,485 281,216
--------- --------- --------- ---------
5,240,070 5,058,343 5,230,445 5,160,446
========= ========= ========= =========
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,166
<SECURITIES> 0
<RECEIVABLES> 12,518
<ALLOWANCES> 561
<INVENTORY> 0
<CURRENT-ASSETS> 15,120
<PP&E> 9,043
<DEPRECIATION> 7,121
<TOTAL-ASSETS> 17,812
<CURRENT-LIABILITIES> 6,236
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 9,024
<TOTAL-LIABILITY-AND-EQUITY> 17,812
<SALES> 0
<TOTAL-REVENUES> 32,934
<CGS> 0
<TOTAL-COSTS> 32,059
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> 859
<INCOME-TAX> (14)
<INCOME-CONTINUING> 873
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 873
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
