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, 1997 Commission File Number 1-9309
__________________ ______
VERSAR, INC.
_______________________________________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 54-0852979
________________________________________ ____________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6850 Versar Center
Springfield, Virginia 22151
________________________________________ ____________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 750-3000
_____________________________
Not Applicable
_______________________________________________________________________________
(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, 1998
_____________________ _______________________________
$ .01 par value 6,014,062 shares
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
____
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1997. 3
Consolidated Statements of Operations for the
Three-Month and Six-Month Periods Ended
December 31, 1997 and 1996. 4
Consolidated Statements of Cash Flows
for the Six-Month Periods Ended
December 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
ITEM 4 - Submission of Matters to a Vote of Stockholders 12
ITEM 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT 11 - Computation of Per Share Earnings 15
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
December 31, June 30,
1997 1997
____________ ____________
(unaudited)
ASSETS
Current assets
Cash. . . . . . . . . . . . . . . . . . . $ 259 $ 437
Accounts receivable, net. . . . . . . . . 17,409 17,525
Prepaid expenses and other current
assets. . . . . . . . . . . . . . . . . 988 1,489
Deferred income taxes . . . . . . . . . . 652 652
____________ ____________
Total current assets. . . . . . . . 19,308 20,103
Property and equipment, net . . . . . . . . 2,271 2,275
Deferred income taxes . . . . . . . . . . . 557 257
Goodwill. . . . . . . . . . . . . . . . . . 5,073 2,501
Other assets. . . . . . . . . . . . . . . . 277 312
____________ ____________
Total assets $ 27,486 $ 25,448
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable. . . . . . . . . . . . . $ 4,714 $ 4,959
Bank line of credit . . . . . . . . . . . 1,810 274
Current portion of long-term debt . . . . 648 819
Accrued salaries and vacation . . . . . . 1,686 1,627
Other liabilities . . . . . . . . . . . . 1,604 3,283
____________ ____________
Total current liabilities . . . . . 10,462 10,962
Long-term debt. . . . . . . . . . . . . . . 1,063 1,437
Other long-term liabilities . . . . . . . . 2,017 2,026
Reserve on guarantee of real estate debt. . 1,350 1,500
____________ ____________
Total liabilities . . . . . . . . . 14,892 15,925
____________ ____________
Commitments and Contingencies
Stockholders' equity
Common stock, $.01 par value;
30,000,000 shares authorized;
5,785,490 shares and 5,151,792
shares issued and outstanding
at September 30 and June 30, 1997,
respectively . . . . . . . . . . . . . 58 52
Capital in excess of par value. . . . . 16,150 13,788
Accumulated deficit . . . . . . . . . . (3,614) (4,317)
____________ ____________
Total stockholders' equity. . . . . 12,594 9,523
Total liabilities and
stockholders' equity. . . . . . . $ 27,486 25,448
============ ============
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)
For the Three-Month For the Six-Month
Periods Ended December 31, Periods Ended December 31,
__________________________ __________________________
1997 1996 1997 1996
_________ _________ _________ _________
GROSS REVENUE . . . . . . . $ 18,704 $ 10,749 $ 35,676 $ 22,207
Purchased services and
materials, at costs. . . . 7,466 3,009 13,506 6,593
_________ _________ _________ _________
NET SERVICE REVENUE . . . . 11,238 7,740 22,170 15,614
Direct costs of services
and overhead . . . . . . . 9,927 6,300 19,246 12,702
Selling, general and
administrative
expenses . . . . . . . . . 1,159 1,229 2,372 2,400
Other (income). . . . . . . --- (11) --- (21)
_________ _________ _________ _________
OPERATING INCOME. . . . . . 152 222 552 533
OTHER EXPENSE
Interest expense. . . . . . 68 18 131 37
Income tax (benefit)
expense . . . . . . . . . (266) (187) (132) (160)
_________ _________ _________ _________
NET INCOME. . . . . . . . . $ 350 $ 391 $ 553 $ 656
========= ========= ========= =========
NET INCOME PER SHARE -
DILUTED . . . . . . . . . . $ .06 $ .08 $ .10 $ .13
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING. . . . . 6,109 5,068 5,781 5,078
========= ========= ========= =========
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)
For the Six-Month
Periods Ended December 31,
______________________________________
1997 1996
_______________ _______________
Cash flows from operating activities
Net income . . . . . . . . . . . . . . $ 553 $ 656
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization . . . 649 355
Provision for doubtful accounts
receivable . . . . . . . . . . . . 443 (78)
Common stock issued to ESSOP. . . . 140 26
Deferred tax benefit (300) (358)
_______________ _______________
Subtotal. . . . . . . . . . . 1,485 601
Changes in assets and liabilities,
net of asset dispositions
(Increase) decrease in accounts
receivable . . . . . . . . . . . . (327) 135
Decrease in prepaids and other
assets . . . . . . . . . . . . . . 536 408
Decrease in accounts payable. . . . (245) (54)
Increase in accrued salaries and
vacation . . . . . . . . . . . . . 59 205
Decrease in other liabilities . . . (1,784) (716)
_______________ _______________
Net cash (used in) provided
by operating activities. . . (276) 579
Cash flows from investing activities
Purchase of property and equipment. . (538) (391)
Acquisition of business . . . . . . . (585) ---
_______________ _______________
Net cash used in investment
activities . . . . . . . . . (1,123) (391)
Cash flows from financing activities
Net (payments) borrowings on bank
line of credit . . . . . . . . . . . 1,537 (204)
Principal payments on long-term
debt . . . . . . . . . . . . . . . . (566) ---
Proceeds from issuance of the
Company's common stock . . . . . . . 230 27
_______________ _______________
Net cash provided by
(used in) financing
activities . . . . . . . . . 1,221 (177)
_______________ _______________
Net (decrease) increase in cash . . . . (178) 11
Cash at the beginning of the year . . . 437 83
_______________ _______________
Cash at the end of the period . . . . . $ 259 $ 94
=============== ===============
Supplementary disclosure of cash flow information:
Cash paid during the period for
Interest. . . . . . . . . . . . . . $ 127 $ 41
Income taxes. . . . . . . . . . . . 200 200
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, 1997
for additional information.
The statements in this report, including statements under the headings
of Legal Proceedings and Management's Discussion and Analysis of Financial
Condition and Results of Operations, and the attached financial statements,
reflect the business lines and financial results of Science Management
Corporation ("SMC") all of the outstanding stock of which was acquired by
Versar by merger on October 23, 1997. On May 2, 1997, Versar purchased a
majority of the outstanding common stock and all of the outstanding preferred
stock of SMC. As a result, for the first quarter and a portion of the second
quarter ending October 23, 1997 of fiscal 1998, SMC was included in Versar's
financial statements as a majority owned subsidiary. In addition, because SMC
had negative retained earnings, the entire net income of SMC for the period
July 1, 1997 through October 23, 1997 was included in Versar's results.
Subsequent to the consummation of the merger on October 23, 1997, SMC has been
included in Versar's financial statements as a wholly owned subsidiary.
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 December 31, 1997, and the
results of operations for the first six months ended December 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. Actual results could differ from those estimates.
(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 fixed-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.
6
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
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.
(D) Income Taxes
At June 30, 1997, the Company had $1.242 million net deferred tax assets
which primarily relate to net operating loss and tax credit carryforwards.
Due to the Company's history of operating losses, a valuation allowance had
been established. Approximately $0.3 million of the valuation allowance was
reversed into income during the second quarter of fiscal year 1998.
(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 weighted
average number of common shares outstanding during the applicable period being
reported.
The Financial Accounting Standards Board issued SFAS 128, "Earnings per
Share" in February 1997. SFAS 128 requires a company to present basic and
diluted earnings per share amounts on the face of the Consolidated Statements
of Operations. The Company was required to adopt the provisions of the
standard during the second quarter of 1998, and as required restatement of
prior years' earnings per share.
(G) Common Stock
In the fiscal year 1997, Versar issued approximately 226,242 shares to
various employee benefit plans as part of the Company's contribution to
employee benefits for fiscal years 1996 and 1997. Approximately 54,728 shares
were issued to the employee benefit plans in the first six months of fiscal
year 1998 for fiscal years 1998 and 1997.
(H) Completion of SMC Merger
On October 22, 1997, the shareholders of SMC approved the Agreement and
Plan of Merger between Versar and SMC, and SMC was merged into a wholly owned
subsidiary of Versar effective October 23, 1997. In connection with the
merger, Versar issued approximately 533,433 shares of Versar's common stock to
SMC stockholders other than Versar and SMC became a wholly-owned subsidiary of
Versar. The issuance of the 533,433 shares increased goodwill and equity of
Versar during the second quarter of fiscal year 1998 by $2,000,374.
7
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Second Quarter Comparison of Fiscal Years 1997 and 1996
- -------------------------------------------------------
This report contains certain forward-looking statements which are based
on current expectations. Actual results may differ materially. The forward-
looking statements include those regarding cost 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, the integration of the recent or ongoing
acquisitions, 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 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.
Versar's gross revenue for the fiscal quarter ended December 31, 1997
totaled $18,704,000, an increase of $7,955,000 (74%) compared to gross revenue
of $10,749,000 for the second quarter of the prior fiscal year. The increase
is due to the inclusion of the revenues of Science Management Corporation
("SMC") as a result of its acquisition as described in Note A on page 6.
Purchased services and materials for the second quarter of fiscal year
1998 increased by $4,457,000 (148%) compared to costs for the comparable
period of the previous fiscal year. The increase is primarily due to the
increase in purchased services and materials from the SMC McEver design
construction subsidiary of SMC.
Net service revenue is derived by deducting the costs of purchased
services and materials from gross revenue. Versar considers it appropriate to
analyze operating margins and other ratios in relation to net service revenue
because such revenues reflects the actual work performed by the Company. Net
service revenue increased by 45% compared to the second quarter of fiscal year
1997. The increase is due to the higher 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 88.3% in the second quarter of
fiscal year 1998 compared to 81.4% in the second quarter of fiscal year 1997.
The increase is due to the lower overhead markup of the newly acquired SMC,
project reserves in SMC of approximately $443,000, goodwill expense associated
with the acquisition of SMC of approximately $60,000, lower labor utilization
in Versar, and the winding down of the Company's EIMS software business of
$132,000.
Selling, general and administrative expenses were 10.3% of net service
revenue in the second quarter of fiscal year 1998, compared to 15.9% in the
second quarter of fiscal year 1997. The decrease is primarily due to the
higher net service revenue, while the Company maintained expenditure levels at
6% below the second quarter fiscal year 1997 levels.
Other costs include costs and revenues that are not attributable to
contracts. For the second quarter of fiscal year 1997, the Company recognized
non-compete income for the sale of its majority-owned subsidiary, Gammaflux,
Inc. of $11,000.
8
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Operating income for the second quarter of fiscal year 1998 was
$152,000, a decrease of $70,000 compared to the second quarter of fiscal year
1997. The decrease is the result of the increased direct costs of services
and overhead as mentioned above.
Interest expense during the second quarter of fiscal 1998 increased by
$50,000 compared to interest expense for the comparable period for the
previous fiscal year. The increase is due to the financing of the acquisition
of SMC and the increased usage of the Company's working capital line of credit
in the second quarter of fiscal year 1998.
Income tax expense during the second quarter of fiscal year 1998
decreased by $79,000 compared to such costs for the comparable period of the
previous fiscal year. The decrease in income tax expense is due to the
reduction of the Company's valuation allowance against deferred tax assets
during the quarter and lower taxable income as compared to the second quarter
of fiscal year 1997. (See Note D on page 7)
Versar had a net income of $350,000 in the second quarter of fiscal year
1998 compared to a net income of $391,000 in the second quarter of fiscal year
1997. The decrease is primarily due to the higher direct costs of services
and overhead and higher interest expense as mentioned above.
Six Month Comparison of Fiscal Years 1998 and 1997
- --------------------------------------------------
Versar's gross revenue for the six months ended December 31, 1997
totaled $35,676,000, an increase of $13,469,000 (61%) compared to gross
revenue of $22,207,000 for the first six months of the prior fiscal year. The
increase is due to the inclusion of the revenues of SMC.
Purchased services and materials for the first six months of fiscal year
1998 increased by $6,913,000 (105%) compared to such costs for the comparable
period of the previous fiscal year. The increase is primarily due to the
increase on purchased services and materials from the SMC McEver design and
construction subsidiary of Science Management Corporation.
Net service revenue is derived by deducting the costs of purchased
services from gross revenue. Net service revenue increased by 42% compared to
the first six months of fiscal year 1997. The increase is due to the higher
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 86.8% in the first six months of
fiscal year 1998 compared to 81.4% the first six months of fiscal year 1997.
The increase is due to the lower overhead markup of the newly acquired SMC,
project reserves in SMC, goodwill expense associated with the acquisition of
SMC, lower labor utilization in Versar, and the winding down of the Company's
EIMS software business.
Selling, general and administrative expenses were 10.7% of net service
revenue in the first six months of fiscal year 1998, compared to 15.4% in the
first six months of fiscal year 1997. The decrease is primarily due to the
higher net service revenue, while the Company maintained expenditure levels at
fiscal year 1997 levels.
Other costs include costs and revenues that are not attributable to
contracts. For the first six months of fiscal year 1997, the Company
recognized non-compete income for the sale of its majority-owned subsidiary,
Gammaflux, Inc. of $21,000.
9
<PAGE>
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 1998 was
$552,000, an increase of $19,000 compared to the first six months of fiscal
year 1997. The increase is the result of the higher gross revenue as
mentioned above.
Interest expense during the first six months of fiscal 1998 increased by
$94,000 compared to such costs for the comparable period for the previous
fiscal year. The increase is due to the financing of the acquisition of SMC
and the increased usage of the Company's working capital line of credit in the
first six months of fiscal year 1998.
Income tax expense during the first six months of fiscal year 1998
decreased by $28,000 compared to costs for the comparable period of the
previous fiscal year. The decrease in income tax expense is due to the
reduction of the Company's valuation allowance against deferred tax assets
during the quarter and lower taxable income as compared to the first six
months of fiscal year 1997. (See Note D on page 7)
Versar had a net income of $553,000 in the first six months of fiscal
year 1998 compared to a net income of $656,000 in the first six months of
fiscal year 1997. The decrease is primarily due to the higher direct costs of
services and overhead during the second quarter of fiscal year 1998 and higher
interest expense as mentioned above.
Liquidity and Capital Resources
- -------------------------------
The Company's current working capital at December 31, 1997 approximated
$8,846,000 or $295,000 (3%) lower than at June 30, 1997. In addition, the
Company's current ratio at December 31, 1997 was 1.85 to 1, slightly higher
than that reported at the end of fiscal year 1997. The decreased working
capital is primarily the result of the payment of long-term debt during the
first six months of fiscal year 1998.
The Company maintains a line of credit with NationsBank, N.A. The line
of credit is restricted to the borrowing base of qualifying receivables less
the $1,350,000 reserve for the guarantee of debt of Sarnia and outstanding
loan balances (approximately $1,810,000 at December 31, 1997). Borrowings on
the line of credit are at the lower of the 30 day London Interbank Offered
Rate ("LIBOR") plus 250 or the prime rate (8.25% at December 31, 1997.) A
fee of 1/4% on the unused portion of the line of credit is also charged. This
line of credit is guaranteed by the Company and each of the Company's wholly-
owned subsidiaries individually and is collectively secured by accounts
receivable, equipment and intangibles, plus all insurance policies on property
constituting collateral. Unused borrowing availability at December 31, 1997
was approximately $1,190,000. Advances on the line of credit are due on
November 30, 1998. The Company was in compliance with the financial covenants
at December 31, 1997. Management believes that cash generated by operations
and borrowings available under the line of credit will be adequate to meet its
working capital needs for fiscal year 1998.
Approximately $150,000 will be required for capital expenditures during
the remainder of fiscal year 1998 and will be funded out of current working
capital.
10
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Completion of Acquisition of Science Management Corporation
- -----------------------------------------------------------
On May 2, 1997, Versar acquired 53.5% of the outstanding common stock
and all outstanding preferred stock of SMC for aggregate consideration of
$2,870,000 paid in cash. The acquisition was financed by a three year
$2,000,000 term note at a prime rate of interest plus 1/2% (9% at June 30,
1997) from NationsBank, N.A. The remaining portion of $870,000 was paid with
current working capital. Principal payments on the term note of $520,833,
$750,000, and $687,500 are due in fiscal years 1998, 1999, and 2000,
respectively. On July 29, 1997, Versar and SMC entered into an Agreement and
Plan of Merger pursuant to which Versar obtained the remaining SMC common
stock for newly issued shares of Versar common stock via a merger of SMC with
a newly formed wholly owned subsidiary of Versar. The merger was completed on
October 23, 1997 for the remaining 46.5% of SMC, which was accounted for in
the second quarter of fiscal year 1998. The transaction costs associated with
the merger are expected to be approximately $600,000.
Subsequent Event
- ----------------
On January 30, 1998, Versar completed the acquisition of Greenwood
Partnership ("Greenwood"). As a part of the acquisition, the company
increased its current line of credit by $2,000,000 and retired existing debt
of Greenwood of $671,791, paid $300,000 in cash, recorded a four year note
payable to Greenwood stockholders of $450,000 payable over 4 years, and issued
228,572 shares of common stock. The assets of Greenwood are now included as
collateral as part of the company's line of credit.
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.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In June 1996, Flintlock Ltd, a client of SMC McEver, an indirect
subsidiary of Versar, filed an action in the 165th Judicial District Court of
Harris County, Texas, entitled Flintlock Ltd. v. SMC McEver, Inc., Case No.
96-002700. Flintlock alleged that SMC McEver negligently failed to manage the
construction of a citronella candle project and negligently misrepresented the
project's cost. Flintlock asserts that it incurred over $700,000 in damages.
SMC McEver has counterclaimed for over $244,000 which it claims is due under
the contract between the parties. The parties have taken certain discovery
which remains ongoing. The parties have agreed to submit the claims to third
party mediation after several depositions are completed. SMC McEver has
retained counsel and is defending this matter vigorously. The Company does
not expect the outcome of this litigation to have a material adverse effect on
its financial condition or its 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 4. Submission of Matters to a Vote of Stockholders
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was
held on November 12, 1997. The matters voted on at the Annual meeting were as
follows:
(1) The Election of Directors
The nomination of Rawls, Markels, Durfee, Shields, Rice, Moore,
Judkins, Skidmore, Caras, and Gladstone to serve as directors of
the Company was approved as indicated below:
Vote Withheld
for Authority
--------- ---------
Benjamin M. Rawls 3,782,080 33,507
Michael Markels, Jr. 3,790,671 24,916
Robert L. Durfee 3,794,735 20,852
Thomas J. Shields 3,798,742 16,845
M. Lee Rice 3,798,742 16,845
Pat H. Moore 3,789,593 25,994
Charles I. Judkins 3,798,242 17,345
James A. Skidmore, Jr. 3,797,592 17,995
Constantine G. Caras 3,791,901 23,686
David Gladstone 3,798,742 16,845
12
<PAGE>
Item 4. Submission of Matters to a Vote of Stockholders (continued)
(2) Ratification of the appointment of Arthur Andersen LLP as
independent accountants for fiscal year 1998. The appointment
of Arthur Andersen LLP was ratified as the Company's independent
accountants as follows:
For Against Abstain
--------- --------- ---------
3,788,546 19,984 7,057
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
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: February 10, 1998
14
<PAGE>
<PAGE>
Exhibit 11
VERSAR, INC.
Statement Re: Computation of Per Share Earnings
(Unaudited - in thousands, except per share data)
For the Three-Month For the Six-Month
Periods Ended December 31, Periods Ended December 31,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
NET INCOME. . . . . . $ 350 $ 391 $ 553 $ 656
========== ========== ========== ==========
Weighted average
common shares
outstanding. . . . . 5,614,256 5,012,073 5,390,831 5,005,094
========== ========== ========== ==========
NET INCOME PER SHARE -
BASIC. . . . . . . $ .06 $ .08 $ .10 $ .13
========== ========== ========== ==========
Common shares from
above. . . . . . . . 5,614,256 5,012,073 5,390,831 5,005,094
Assumed exercise of
options (treasury
stock method). . . . 495,054 56,148 390,389 72,754
---------- ---------- ---------- ----------
6,109,310 5,068,221 5,781,220 5,077,848
========== ========== ========== ==========
NET INCOME PER SHARE -
DILUTED. . . . . . $ .06 $ .08 $ .10 $ .13
========== ========== ========== ==========
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 259
<SECURITIES> 0
<RECEIVABLES> 18,628
<ALLOWANCES> 1,219
<INVENTORY> 0
<CURRENT-ASSETS> 19,308
<PP&E> 11,563
<DEPRECIATION> 9,292
<TOTAL-ASSETS> 27,486
<CURRENT-LIABILITIES> 10,462
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 12,536
<TOTAL-LIABILITY-AND-EQUITY> 27,486
<SALES> 0
<TOTAL-REVENUES> 35,676
<CGS> 0
<TOTAL-COSTS> 35,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131
<INCOME-PRETAX> 685
<INCOME-TAX> (132)
<INCOME-CONTINUING> 553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 553
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
