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 September 30, 1998 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 October 31, 1998
- - ------------------------------------- ------------------------------------
$ .01 par value 6,108,349 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
September 30, 1998 and June 30, 1998. 3
Consolidated Statements of Operations for the
Three-Month Periods Ended September 30, 1998 and 1997. 4
Consolidated Statements of Cash Flows
for the Three-Month Periods Ended
September 30, 1998 and 1997. 5
Notes to Consolidated Financial Statements 6-8
ITEM 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 8-11
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 11
ITEM 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
September 30, June 30,
1998 1998
------------- -------------
ASSETS (unaudited)
Current assets
Cash and cash equivalents . . . . . . . . $ 66 $ 72
Accounts receivable, net. . . . . . . . . 16,445 14,631
Prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . 768 1,378
Deferred income taxes . . . . . . . . . . 784 784
------------- -------------
Total current assets. . . . . . . . . . 18,063 16,865
Property and equipment, net . . . . . . . . 2,711 2,779
Deferred income taxes . . . . . . . . . . . 502 502
Goodwill. . . . . . . . . . . . . . . . . . 1,051 1,069
Other assets. . . . . . . . . . . . . . . . 274 273
------------- -------------
Total assets. . . . . . . . . . . . . . $ 22,601 $ 21,488
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable. . . . . . . . . . . . . $ 3,956 $ 3,303
Bank line of credit . . . . . . . . . . . 5,029 3,664
Current portion of long-term debt . . . . 897 1,114
Accrued salaries and vacation . . . . . . 2,108 1,495
Other liabilities . . . . . . . . . . . . 2,028 2,645
Liabilities of discontinued
operations, net. . . . . . . . . . . . . 283 824
------------- -------------
Total current liabilities . . . . . . . 14,301 13,045
Long-term debt. . . . . . . . . . . . . . . 500 688
Other long-term liabilities . . . . . . . . 2,000 2,084
Liabilities of discontinued
operations, net. . . . . . . . . . . . . . 33 380
Reserve on guarantee of real
estate debt. . . . . . . . . . . . . . . . 1,125 1,200
------------- -------------
Total liabilities . . . . . . . . . . . 17,959 17,397
------------- -------------
Commitments and Contingencies
Stockholders' equity
Common stock, $.01 par value;
30,000,000 shares authorized;
6,108,349 shares and 6,071,887
shares issued and outstanding
at September 30 and June 30, 1998,
respectively. . . . . . . . . . . . . . . 61 61
Capital in excess of par value . . . . . . 17,594 17,458
Accumulated deficit. . . . . . . . . . . . (13,013) (13,428)
------------- -------------
Total stockholders' equity. . . . . . . 4,642 4,091
------------- -------------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . . $ 22,601 $ 21,488
============= =============
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
Periods Ended September 30,
----------------------------
1998 1997
------------- -------------
GROSS REVENUE . . . . . . . . . . . . . . . . $ 14,799 $ 10,838
Purchased services and materials, at costs. . 4,757 2,992
------------- -------------
NET SERVICE REVENUE . . . . . . . . . . . . . 10,042 7,846
Direct costs of services and overhead . . . . 8,121 6,352
Selling, general and administrative expenses. 1,265 1,213
------------- -------------
OPERATING INCOME. . . . . . . . . . . . . . . 656 281
OTHER EXPENSE
Interest expense. . . . . . . . . . . . . . . 87 63
Income tax expense. . . . . . . . . . . . . . 229 134
------------- -------------
INCOME FROM CONTINUING
OPERATIONS . . . . . . . . . . . . . . . . . 340 84
INCOME FROM DISCONTINUED
OPERATIONS . . . . . . . . . . . . . . . . . --- 119
------------- -------------
NET INCOME. . . . . . . . . . . . . . . . . . $ 340 $ 203
============= =============
NET INCOME PER SHARE - BASIC
AND DILUTED. . . . . . . . . . . . . . . . . $ .06 $ .04
============= =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC . . . . . . . . . 6,097 5,168
============= =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED . . . . . . . . 6,097 5,447
============= =============
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 Three-Month
Periods Ended September 30,
----------------------------
1998 1997
------------- -------------
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . $ 340 $ 84
Adjustments to reconcile net income to
net cash (used in) provided by operating
activities
Income from discontinued operations. . . . . --- 119
Depreciation and amortization. . . . . . . . 181 189
Provision for doubtful accounts receivable . 31 (8)
Loss on property retirements . . . . . . . . 3 ---
Common stock issued to ESSOP . . . . . . . . 123 ---
------------- -------------
Subtotal . . . . . . . . . . . . . . . . 678 384
Changes in assets and liabilities
(Increase) decrease in accounts receivable . (1,845) 1,535
Decrease in prepaids and other assets. . . . 608 175
Decrease (increase) in accounts payable. . . 653 (983)
Increase in accrued salaries
and vacation. . . . . . . . . . . . . . . . 613 195
Decrease in other liabilities. . . . . . . . (701) (550)
------------- -------------
Net cash provided by continuing
operations. . . . . . . . . . . . . . . 6 756
Changes in net assets/liabilities of
discontinued operations . . . . . . . . . . . (887) (858)
Net cash (used in) provided by
continuing operations . . . . . . . . . (881) (102)
------------- -------------
Cash flows used in investing activities
Purchase of property and equipment . . . . . . (98) (154)
------------- -------------
Cash flows from financing activities
Net borrowings on bank line of credit. . . . . 1,365 392
Principal payments on long-term debt . . . . . (405) (301)
Proceeds from issuance of the Company's
common stock. . . . . . . . . . . . . . . . . 13 93
------------- -------------
Net cash provided by financing
activities. . . . . . . . . . . . . . . 973 184
------------- -------------
Net (decrease) in cash . . . . . . . . . . . . . (6) (72)
Cash at the beginning of the year. . . . . . . . 72 96
------------- -------------
Cash at the end of the period. . . . . . . . . . $ 66 $ 24
============= =============
Supplementary disclosure of cash flow
information:
Cash paid during the period for
Interest . . . . . . . . . . . . . . . . . . $ 138 $ 65
Income taxes . . . . . . . . . . . . . . . . 16 47
The accompanying notes are an integral
part of these 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, 1998
for additional information. Further, after June 30, 1998, Versar discovered
certain errors in its June 30, 1998, financial statements at one of the
division of SMC. The Audit Committee of the Board of Directors has instituted
an investigation of the circumstances surrounding the creation of the errors
which is expects to be completed in the next several weeks. The effect of the
errors is currently believed to be material and the Company has elected to
restate its June 30, 1998, financial statements by reducing its net worth by a
current estimate of $900,000. The restatement will be filed pursuant to an
amendment of the Company's form 10-K for the year ended June 30, 1998 upon
completion of the investigation. Pending such completion, the June 30, 1998
financials included herein have been restated to reflect the Company's current
estimate of the impact of such errors.
The accompanying consolidated financial statements include the accounts
of Versar, Inc. and its majority-owned subsidiaries ("Versar" or the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation. In September 1998, the Company decided to
discontinue its management services and engineering, design and construction
services businesses which are classified as discontinued operations. Both of
these businesses came from the acquisition of Science Management Corporation
("SMC") in May 1997. The Company's remaining business segments are
environmental services, energy conservation services and facility
infrastructure services. The energy conservation and facility infrastructure
segments are collectively less than 10% of consolidated revenues, operating
profit and identifiable assets. Both segments are expected to grow and may
become separate reportable segments in fiscal year 1999.
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 September 30, 1998, and the
results of operations for the three-month periods ended September 30, 1998 and
1997. 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 may 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-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
6
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
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.
(D) Intangible Assets
On January 30, 1998, Versar completed the acquisition of The Greenwood
Partnership, P.C. ("Greenwood" or "TGP"). 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 approximately $672,000, paid $300,000 in cash,
recorded additional notes payable to Greenwood stockholders of $450,000
payable over 4 years, and issued 228,572 shares of common stock. The
transaction was accounted for as a purchase. Goodwill recorded as part of the
transaction was approximately $1.1 million. Versar is amortizing the goodwill
related to the acquisition over 15 years, which was determined to be
reasonable based on the mature business of Greenwood. The assets of Greenwood
are now included as collateral as part of the Company's line of credit.
(E) Discontinued Operations
As a result of poor performance following its acquisition of SMC, the
Company determined to discontinue operations of its management services and
engineering, design and construction services segments (acquired from SMC),
which provide services to the commercial and the petrochemical industries.
The engineering, design and construction services segment was severely
impacted by the recent downturn in the petrochemical industry and the winding
down of a $20 million construction project, which reduced its sales volume by
over 80%. Such a downturn could not be reasonably anticipated as several
pending projects were put on hold or cancelled because the reduced oil prices
did not make it economically feasible for the customers to complete such
projects. The management services segment of SMC also suffered from loss of
three large contracts which represented 75% of the sales volume. The Company
has completed the sale of these two business segments for consideration
consisting mainly of assumption of certain liabilities, release of other
liabilities and potential payments based upon gross revenue in the next two
years.
In conjunction with the decision for discontinuance of these businesses,
the Company in the fourth quarter of fiscal year 1998, recorded a loss from
discontinued operations of $8,829,000 net of $90,000 tax benefit due to the
write-off of goodwill associated with its acquisition of SMC and operating
losses of $5,776,000 (net of tax) and accrued reserves of $3,053,000 to
finalize the disposition. As part of the accrued reserves, the Company
reserved approximately $1,700,000 for operating losses in the period prior to
the sale or shut down.
As stated in footnote A, after June 30, 1998, Versar discovered certain
errors in its June 30, 1998 financial statements at one of the divisions
of SMC. The Company has elected to restate its June 30, 1998 financial
statements by reducing its net worth by a current estimate of $900,000.
Such restatement would increase the loss from discontinued operations to
$9,729,000, which consists of $3,053,000 accrued reserves and $6,676,000
(net of tax) of operating losses for fiscal year 1998.
7
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(F) Income Taxes
At June 30, 1998, the Company had $4.4 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 of
approximately $3.1 million has been established. With stable profitability,
such net operating loss and tax credit carryforwards would be utilized and the
valuation allowance would be adjusted accordingly.
(G) 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.
(H) Net Income Per Share
The Company adopted Statement of financial Accounting Standards (SFAS)
No. 128 "Earnings Per Share," which requires companies to present basic
earnings per share and diluted earnings per share. The Standard requires
additional informational disclosures along with the restatement of earnings
per share for all prior periods reported.
Basic income per share applicable to common stock is computed by
dividing net income applicable to common stock by the weighted average number
of shares outstanding during the applicable period being reported upon.
Diluted net income per share is computed by dividing net income applicable to
common stock by the weighted average number of shares outstanding plus the
effect of assumed exercise of stock options using the Treasury Stock Method.
(I) Common Stock
In the fiscal year 1998, Versar issued approximately 147,423 shares to
various employee benefit plans as part of the Company's contribution to
employee benefits for fiscal years 1997 and 1998. In the first quarter of
fiscal year 1999, 36,462 shares were issued to the employee benefit plans for
contributions owed for the fourth quarter of fiscal year 1998.
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- - ---------------------
First Quarter 1999 Compared to First Quarter 1998
- - -------------------------------------------------
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 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; the possibility that acquired entities may
not perform as well as expected; and such other risks and uncertainties as are
8
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
described in reports and other documents filed by the Company from time to
time with the Securities and Exchange Commission.
Versar's results of operations include the financial results that are
part of the continuing operations of the Company. In September 1998, Versar's
Board of Directors authorized management to discontinue the operations of
Science Management Corporation ("SMC") constituting the engineering, design
and construction services and management services segments of Versar.
Therefore, the results of operations of SMC's two segments have been netted
together and presented on one line, as income (loss) from discontinued
operations. Further, after June 30, 1998, Versar discovered certain errors in
its June 30, 1998, financial statements at one of the division of SMC. The
Audit Committee of the Board of Directors has instituted an investigation of
the circumstances surrounding the creation of the errors which is expects to
be completed in the next several weeks. The effect of the errors is currently
believed to be material and the Company has elected to restate its June 30,
1998, financial statements by reducing its net worth by a current estimate of
$900,000. The restatement will be filed pursuant to an amendment of the
Company's form 10-K for the year ended June 30, 1998 upon completion of the
investigation. Pending such completion, the June 30, 1998 financials included
herein have been restated to reflect the Company's current estimate of the
impact of such errors. The following discussion relates to continuing
operations only, unless specifically noted.
Versar's gross revenue for the first quarter of fiscal year 1999
increased by $3,961,000 (37%) compared to gross revenue for the comparable
period of fiscal year 1998. The increase is predominately due to the increase
in revenues from Versar's base business of $2,720,000 and the balance of
$1,241,000 is from the revenues from The Greenwood Partnership ("TGP") acquired
by Versar in the third quarter of fiscal year 1998. Versar's base business
increased by 25% in the first quarter of fiscal year 1999. The increase was
across the board in all operating units with all operating units showing
increases in excess of 14%. The Rocky Mountain Region increased by
approximately $1,049,000 driven primarily by new project work under the
Company's Air Force Armstrong contract.
Purchased services and materials for the first quarter of fiscal year
1999 increased by $1,765,000 (59%) compared to costs for the comparable period
of fiscal year 1998. The increase is due to higher revenues generated by
subcontracted efforts primarily in the Rocky Mountain, Pacific, Geomet, and
Northeast operating units.
Net service revenue is derived by deducting the cost 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 increased by 28% compared to the first quarter of fiscal year 1998.
The increase is due to the higher volume in gross revenue as mentioned above.
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 these costs to net service revenue decreased slightly to 80.9% in the first
quarter of fiscal year 1999 compared to 81.0% in the first quarter of fiscal
year 1998. The increase is due to improved labor utilization during the
quarter.
Selling, general and administrative expenses approximated 12.6% of net
service revenue in the first quarter of fiscal year 1999 compared to 15.5% in
the first quarter of fiscal year 1998. The reduction is due to the 28%
increase in net service revenue as previously mentioned and cost reductions
put in place and the reduced administrative costs resulting from the
discontinuation of SMC in fiscal year 1998.
Operating income for the first quarter of fiscal year 1999 was $656,000,
an increase of $375,000 compared to the first quarter of fiscal year 1998.
The increase is the result of the higher net service revenue, improved labor
utilization and cost reductions as mentioned above.
9
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Interest expense during the first quarter of fiscal year 1999 increased
by $24,000 compared to costs for the comparable period of the previous year.
The increase is due to cost of financing the acquisition of SMC and TGP and
higher utilization of the company's line of credit. The Company anticipates
that interest expenses will continue to increase for the next six months as it
winds down the discontinued operations of SMC.
Income tax expense during the first quarter increased by $95,000
compared to costs for the comparable period of the previous year. The
increase is primarily due to the increase in Versar's pretax income as
compared to the first quarter of fiscal year 1998. The Company continues to
carry a tax valuation allowance of approximately $2.7 million against the
Company's deferred tax assets. The Company has established the valuation
allowance until the probability of realization of these amounts becomes more
certain.
Income from discontinued operations was $119,000 in the first quarter of
fiscal year 1998 for the consolidated results of the discontinued operations
of SMC. While results were positive in the first quarter of fiscal year 1998,
significant business downturns occurred in the third and fourth quarters of
fiscal year 1998 causing the Company to discontinue the majority of SMC's
operations in the fourth quarter of fiscal year 1998.
Versar's net income for the first quarter of fiscal year 1999 was
$340,000 compared to $203,000 in the first quarter of fiscal year 1998. The
increase is due to the improved results in Versar's base business as mentioned
above.
Liquidity and Capital Resources
- - -------------------------------
The Company's working capital at September 30, 1998 approximated
$3,762,000 or $58,000 (2%) lower than June 30, 1998. The decrease is
primarily due to the increased usage of line of credit. In addition, the
Company's current ratio at September 30, 1998 was 1.26 to 1, slightly less
than the June 30, 1998 current ratio as a result of the increased gross
revenues, which translated into higher receivables and utilization of the
Company's line of credit.
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 $1,125,000 reserve for a guarantee of debt of Sarnia and outstanding
acquisition loan balances (approximately $1,367,000 at September 30, 1998).
Borrowings on the line of credit are at the lower of the 30 day London
Interbank Rate ("LIBOR") plus 280 basis points or the prime rate ( 8.16% at
September 30, 1998). 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 wholly owned subsidiaries individually and is collectively secured
by accounts receivables, equipment and intangibles, plus all insurance
policies on property constituting collateral. In July 1998, the Company
increased the line to $6,500,000, which included an increase to the interest
rate of 30 basis points. In October 1998, the Company further modified its
existing line of credit to include unbilled receivables in its borrowing base.
As a part of this amendment, the interest rate was increased by an additional
30 basis points and a $40,000 fee was charged. Additional monthly fees will
be charged during the month where the Company borrows against the unbilled
receivables. Unused borrowing availability at September 30, 1997 was
approximately $1,471,000. Advances on the line of credit are due on November
30, 1998. The Company was in compliance with the financial covenants at
September 30, 1998. Management believes that cash generated by operations and
borrowings available under the extension of the existing line of credit will
be adequate to meet the working capital needs for fiscal year 1999.
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)
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In December 1994, SMC Environmental Services Group, Inc. ("SMC"), an
indirect subsidiary of Versar, a former employee of SMC, and two other
entities were sued by Edward A. Long, an employee of an operator of a
municipal waste transfer station. Mr. Long alleges that in October 1992,
while transferring leachate from a holding tank to a tanker truck, he blacked-
out and suffered serious personal injuries. The lawsuit, entitled Edward A.
Long v. Lehigh Valley Recycling, Inc. et al., No. 94-20222, was filed in the
Court of Common Pleas of Montgomery County, Pennsylvania, Civil Division. SMC
and its employee, who had been retained by the owner of the municipal waste
transfer station to help finalize a permit application with the Pennsylvania
Department of Environmental Protection in 1988, filed an answer denying the
allegations. The parties have undertaken certain discovery which remains
ongoing. Because this claim arose prior to the acquisition of SMC and its
subsidiaries by Versar, the Company is reviewing the insurance coverage
available to the Company. Based upon consultation with outside counsel,
management does not believe the ultimate outcome of this lawsuit will have a
material impact on Versar's consolidated 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 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.
11
<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: November 16, 1998
Exhibit 11
VERSAR, INC.
Statement Re: Computation of Per Share Earnings
(Unaudited - in thousands, except per share data)
For the Three-Month
Periods Ended September 30,
----------------------------
1998 1997
------------- -------------
NET INCOME. . . . . . . . . . . . . . . . . . $ 340 $ 203
============= =============
Weighted average common shares outstanding -
Basic . . . . . . . . . . . . . . . . . . . 6,096,645 5,168,048
============= =============
NET INCOME PER SHARE - BASIC. . . . . . . . . $ 0.06 $ 0.04
============= =============
Common shares from above. . . . . . . . . . . 6,096,645 5,168,048
Assumed exercise of options (treasury stock
method) . . . . . . . . . . . . . . . . . . --- 278,646
------------- -------------
6,096,645 5,446,694
============= =============
NET INCOME PER SHARE - DILUTED. . . . . . . . $ 0.06 $ 0.04
============= =============
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 66
<SECURITIES> 0
<RECEIVABLES> 17,085
<ALLOWANCES> 640
<INVENTORY> 0
<CURRENT-ASSETS> 18,063
<PP&E> 11,290
<DEPRECIATION> 8,579
<TOTAL-ASSETS> 22,601
<CURRENT-LIABILITIES> 14,301
<BONDS> 0
0
0
<COMMON> 61
<OTHER-SE> 4,581
<TOTAL-LIABILITY-AND-EQUITY> 22,601
<SALES> 0
<TOTAL-REVENUES> 14,799
<CGS> 0
<TOTAL-COSTS> 14,143
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 569
<INCOME-TAX> 229
<INCOME-CONTINUING> 340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 340
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
