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, 1999 Commission File Number 1-9309
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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 (Zip Code)
offices)
Registrant's telephone number, including area code (703) 750-3000
-----------------------------
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Class of Common Stock Outstanding at January 31, 2000
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$ .01 par value 6,402,048 shares
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VERSAR, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of
December 31, 1999 and June 30, 1999. 3
Consolidated Statements of Operations for the
Three-Month and Six-Month Periods Ended
December 31, 1999 and 1998. 4
Consolidated Statements of Cash Flows
for the Six-Month Periods Ended
December 31, 1999 and 1998. 5
Notes to Consolidated Financial Statements 6-8
ITEM 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 8-12
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 12
ITEM 4 - Submission of Matters to a Vote of Stockholders 13
ITEM 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
December 31, June 30,
1999 1999
------------ ------------
ASSETS (Unaudited)
Current assets
Cash and cash equivalents . . . . . . . $ 53 $ 58
Accounts receivable, net. . . . . . . . 13,642 15,939
Prepaid expenses and other current
assets. . . . . . . . . . . . . . . . 952 1,125
Deferred income taxes . . . . . . . . . 599 599
------------ ------------
Total current assets . . . . . . . . 15,246 17,721
Property and equipment, net . . . . . . . 2,526 2,466
Deferred income taxes . . . . . . . . . . 1,003 973
Goodwill. . . . . . . . . . . . . . . . . 959 996
Other assets. . . . . . . . . . . . . . . 301 224
------------ ------------
Total assets . . . . . . . . . . . . $ 20,035 $ 22,380
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable. . . . . . . . . . . . $ 3,113 $ 4,290
Current portion of long-term debt . . . 472 1,135
Accrued salaries and vacation . . . . . 2,320 2,180
Liabilities of discontinued
operations, net . . . . . . . . . . . 107 98
Other liabilities . . . . . . . . . . . 1,278 1,615
------------ ------------
Total current liabilities. . . . . . 7,290 9,318
Bank line of credit . . . . . . . . . . . 3,600 4,108
Other long-term liabilities . . . . . . . 1,571 1,931
Reserve on guarantee of real
estate debt . . . . . . . . . . . . . . 750 900
------------ ------------
Total liabilities. . . . . . . . . . 13,211 16,257
------------ ------------
Commitments and Contingencies
Stockholders' equity
Common stock, $.01 par value;
30,000,000 shares authorized;
6,402,048 shares and 6,336,758
shares issued and outstanding at
September 30 and June 30, 1999,
respectively. . . . . . . . . . . . . 64 63
Capital in excess of par value. . . . . 18,202 18,051
Accumulated deficit . . . . . . . . . . (11,387) (11,991)
------------ ------------
6,879 6,123
Less treasury stock, at cost
(25,000 shares at December 31,
1999) . . . . . . . . . . . . . . . . (55) ---
------------ ------------
Total stockholders' equity. . . . . . 6,824 6,123
------------ ------------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . . $ 20,035 $ 22,380
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
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VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited - in thousands, except per share amounts)
For the Three-Month For the Six-Month
Periods Ended December 31, Periods Ended December 31,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
GROSS REVENUE . . . . . $ 13,758 $ 15,479 $ 27,734 $ 30,278
Purchased services and
materials, at costs. . 4,613 6,065 9,223 10,822
------------ ------------ ------------ ------------
NET SERVICE REVENUE . . 9,145 9,414 18,511 19,456
Direct costs of services
and overhead . . . . . 7,437 7,525 14,716 15,646
Selling, general and
administrative
expenses . . . . . . . 1,483 1,403 3,090 2,668
------------ ------------ ------------ ------------
OPERATING INCOME. . . . 225 486 705 1,142
OTHER EXPENSE
Interest expense. . . . 101 149 281 236
Income tax benefit. . . (150) (264) (30) (35)
------------ ------------ ------------ ------------
NET INCOME. . . . . . . $ 274 $ 601 $ 454 $ 941
============ ============ ============ ============
NET INCOME PER SHARE -
BASIC AND DILUTED. . . $ .04 $ 0.10 $ .07 $ 0.15
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING -
BASIC. . . . . . . . . 6,402 6,117 6,391 6,107
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING -
DILUTED. . . . . . . . 6.471 6,117 6,500 6,118
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
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VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited - in thousands)
For the Six-Month
Periods Ended December 31,
--------------------------
1999 1998
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Cash flows from operating activities
Net income from continuing operations . . . . . $ 454 $ 941
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization . . . . . . . . 370 357
Provision for doubtful accounts receivable. . (35) (18)
Common stock issued to ESSOP. . . . . . . . . 147 278
Deferred tax benefit. . . . . . . . . . . . . (30) (35)
------------ ------------
Subtotal. . . . . . . . . . . . . . . . 906 1,523
Changes in assets and liabilities
Decrease (increase) in accounts receivable. . 2,332 (1,777)
Decrease in prepaids and other assets . . . . 88 964
(Decrease) increase in accounts payable . . . (1,177) 1,497
Increase in accrued salaries and vacation . . 140 497
Decrease in other liabilities . . . . . . . . (698) (1,465)
------------ ------------
Net cash provided by continuing
operations . . . . . . . . . . . . . . 1,591 1,239
Changes in net assets/liabilities of
discontinued operations. . . . . . . . . . . . 9 (1,282)
------------ ------------
Net cash provided by (used in)
operating activities . . . . . . . . . 1,600 (43)
------------ ------------
Cash flows used in investing activities
Purchase of property and equipment. . . . . . . (384) (188)
------------ ------------
Cash flows from financing activities
Net (payments) borrowings on bank line of
credit . . . . . . . . . . . . . . . . . . . . (508) 1,005
Principal payments on long-term debt. . . . . . (663) (740)
Proceeds from issuance of the Company's
common stock . . . . . . . . . . . . . . . . . 5 13
Purchase of treasury stock. . . . . . . . . . . (55) ---
------------ ------------
Net cash (used in) provided by
financing activities . . . . . . . . . (1,221) 278
------------ ------------
Net (decrease) increase in cash . . . . . . . . . (5) 47
Cash at the beginning of the period . . . . . . . 58 72
------------ ------------
Cash at the end of the period . . . . . . . . . . $ 53 $ 119
============ ============
Supplementary disclosure of cash flow information:
Cash paid during the period for
Interest. . . . . . . . . . . . . . . . . . . $ 226 $ 234
Income taxes. . . . . . . . . . . . . . . . . 48 40
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 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, 1999 for additional information.
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. The Company's 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 and therefore separate segment reporting is not
required. Both segments are expected to grow and may become separate
reportable segments in fiscal year 2000.
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, 1999, and the
results of operations for the six- month periods ended December 31, 1999 and
1998. 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 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
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VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(D) Intangible Assets
On January 30, 1998, Versar completed the acquisition of The Greenwood
Partnership, P.C. ("Greenwood" or "TGP"). 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.
(E) Income Taxes
At June 30, 1999, the Company had $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 $2.5 million was carried at June 30, 1999. With stable
profitability, such net operating loss and tax credit carryforwards would be
utilized and the valuation allowance would be adjusted accordingly. In the
second quarter of fiscal year 2000, the Company reversed $200,000 of the
valuation allowance. Net income will accrue income tax expense at an
estimated effective rate of 40%.
(F) 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.
(G) Net Income Per Share
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.
The following is a reconciliation of the weighted average number of shares
outstanding for basic earnings per share to the weighted average number of
shares outstanding for diluted earnings per share.
For the Three-Month For the Six-Month
Periods Ended December 31, Periods Ended December 31,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Weighted average
common shares
outstanding - basic . . 6,402,048 6,116,803 6,391,003 6,106,770
Assumed exercise of
options (treasury
stock method) . . . . . 68,794 --- 108,621 11,081
--------- --------- --------- ---------
6,470,842 6,116,803 6,499,624 6,117,851
========= ========= ========= =========
7
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VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(H) Common Stock
In fiscal year 1999, Versar issued approximately 259,871 shares to various
employee benefit plans as part of the Company's contribution to employee
benefits for fiscal years 1998 and 1999. In the first quarter of fiscal year
2000, 62,690 shares were issued to the employee benefit plans for contributions
for the fourth quarter of fiscal year 1999.
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Second Quarter Comparison of Fiscal Year 2000 and 1999
- ------------------------------------------------------
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 the continued award of future work
or task orders from government and private clients, 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, 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; the ability to perform work within budget
or contractual limitations; 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; the ability to attract
and retain key professional employees; 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 second quarter of fiscal year 2000 totaled
$13,758,000, a decrease of $1,721,000 (11%) compared to gross revenue of
$15,479,000 for the second quarter of fiscal year 1999. Gross revenues
decreased primarily as a result of lower volume in the Rocky Mountain operations
due to delays in contract funding on the Air Force Armstrong contract and the
winding down of a commercial remediation construction contract in the
Northeast operations.
Purchased services and materials for the second quarter of fiscal year
2000 decreased by $1,452,000 (24%) compared to such costs for the comparable
period of fiscal year 1999. The decrease is due to the lower volume as
mentioned above which resulted in lower subcontracted efforts.
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
decreased by 3% during the second quarter of fiscal year 2000 compared to the
second quarter of fiscal year 1999. The decrease is due reduced markup on
purchased services and materials as a result of the gross revenue and project
overruns.
Direct costs of services and overhead include the cost to Versar of direct
and overhead staff, including recoverable overhead and unallowable costs that
are directly attributable to contracts. The percentage of these costs to net
service revenue increased to 81.3% in the second quarter of fiscal year 2000
compared to 79.9% in the second quarter of fiscal year 1999. The increase is
due to lower direct labor utilization during the quarter.
8
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Selling, general and administrative expenses approximated 16.2% of net
service revenue in the second quarter of fiscal year 2000 compared to 14.9% in
the second quarter of fiscal year 1999. The increase is due to the lower
net service revenue in the second quarter of fiscal year 2000 and 6% higher
selling, general and administrative expenses from last fiscal year.
Operating income for the second quarter of fiscal year 2000 was $225,000,
a decrease of $261,000 compared to the second quarter of fiscal year 1999.
The decrease is the result of the lower gross revenues and higher direct
costs of services and selling, general and administrative expenses during the
quarter.
Interest expense during the second quarter of fiscal year 2000 decreased
by $48,000 compared to such costs for the comparable period of the previous
year. The decrease is due to the reduction of term debt of $663,000 compared
to last fiscal year and reduced borrowings on the Company's line of credit.
Income tax benefit during the second quarter of fiscal year 2000 decreased
by $114,000 compared to the comparable period of the previous year. The
decrease in benefit is the result of a lower reversal of the Company's tax
valuation allowance. The Company decreased its valuation allowance during the
second quarter of fiscal year 2000 by $200,000 compared to the reversal of
$400,000 in the second quarter of fiscal year 1999. The lower reduction in
the valuation allowance is the result of a decrease in earnings during the
quarter.
Versar's net income for the second quarter of fiscal year 2000 was
$274,000 compared to $601,000 for the second quarter of fiscal year 1999. The
decrease is due to the lower gross revenue, and higher direct costs of
services and selling, general and administrative expenses.
Six Month Comparison of Fiscal Years 2000 and 1999
- --------------------------------------------------
Versar's gross revenue for the first six months of fiscal year 2000
totaled $27,734,000, a decrease of $2,544,000 (8%) compared to gross revenue
for the comparable period of the previous year. Fifty percent of the decrease
is due to the winding down of a remedial construction project in the Company's
Northeast operations. The balance of the decrease came from lower commercial
volume in the Company's Midwest and Pacific operations as well as lower
revenues in the first quarter of fiscal year 2000 due to the delayed startup of
a follow-on contract with the EPA.
Purchased services and materials for the first six months of fiscal year
2000 decreased by $1,599,000 (15%) compared to such costs for the comparable
period of fiscal year 1999. Sixty-seven percent of the decrease is
attributable to a reduction in subcontractor costs associated with the winding
down of a remedial construction contract in the Company's Northeast operations.
The balance is primarily due to lower commercial subcontracted efforts as
mentioned above.
Net service revenue for the first six months of fiscal year 2000 decreased
by 5% compared to the first six months of fiscal year 1999. The decrease is
due to a 2% decrease in overall labor utilization in fiscal year 2000 and
reduced markup associated with the decrease in purchased services and
materials.
Direct costs of services and overhead as a percentage of net service
revenue decreased to 79.5% in the first six months of fiscal year 2000
compared to 80.4% in the previous year. The decrease is attributable to
efforts to reduce overhead costs in the operating units to balance out the
decrease in volume.
9
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Selling, general and administrative expenses approximated 16.7% of net
service revenue for the first six months of fiscal year 2000 compared to 13.7%
in the first six months of fiscal year 1999. The increase occurred primarily
in the first quarter of fiscal year 2000. Thirty-five percent of the increase
was in the Company's GEOMET subsidiary. The balance was due to higher
marketing activities in fiscal year 2000 and costs reductions that were put
in place in the first six months of fiscal year 1999.
Operating income for the first six months of fiscal year 2000 decreased
by $437,000 compared to costs for the comparable period of the previous year.
The decrease is due to the lower net service revenue and higher selling,
general and administrative expenses as mentioned above.
Interest expense during the first six months of fiscal year 2000 increased
by $45,000 compared to costs for the comparable period of the previous year.
The increase is due to higher utilization of the Company's line of credit
during the first quarter of fiscal year 2000 and higher interest rates
associated with the increase in the prime rate of interest compared to last
fiscal year.
Income tax benefit decreased by $5,000 for the first six months of fiscal
year 2000 due to lower income for the six month period. The Company reduced
the valuation allowance against deferred tax assets by $200,000 and $400,000
in the first six months of fiscal year 2000 and 1999, respectively.
Versar's net income for the first six months of fiscal year 2000 was
$454,000 compared to $941,000 for the first six months of fiscal year 1999.
The decrease is due to the lower net service revenue and higher selling,
general and administrative expenses as mentioned above.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital at December 31, 1999 approximated $7,956,000
or $447,000 (5%) lower than at June 30, 1999. The decrease is primarily due to
the payments on the Company's long term line of credit. In additon, the
Company's current ratio at December 31, 1999 was 2.09 to 1, which was 19 points
higher than June 30, 1999 due to improved receivables collections and reduced
current liabilities.
Versar's line of credit provides for advances up to $6,500,000 based on
qualifying receivables less the $750,000 guarantee of Sarnia's term loan by
Versar and the outstanding acquisition loan balance described below. Interest
on the borrowings is based on the lower of the 30 day London Interbank Offered
Rate (LIBOR) plus two hundred and eighty basis points (9.27% at December 31,
1999) or the prime rate. A commitment fee of one quarter of one percent
(.25%) on the unused portion of the line of credit is also charged. The line
is guaranteed by the Company and each subsidiary 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, 1999 was approximately $1.3 million. Advances
under the line are due upon demand or on November 30, 2001. The loan has
certain covenants related to maintenance of financial ratios. The Company was
in compliance with these covenants as of December 31, 1999. Because the line
of credit has a term of greater than one year, it has been classified as
long-term on the balance sheet. Management believes that cash generated by
operations and borrowings available from the bank line of credit will be
adequate to meet the working capital needs for fiscal year 2000.
10
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Versar obtained a $2,000,000 promissory note from NationsBank on April 30,
1997 for the acquisition of SMC. The interest on the note is based on prime
rate plus one half of one percent (.50%) per annum (9% at December 31, 1999).
Principal payment commenced on May 31, 1997 and it is scheduled to be paid in
full on April 30, 2000. At December 31, 1999, approximately $312,500 was the
remaining balance due on this loan.
Versar guarantees certain debt of Sarnia Corporation. Sarnia's balance
due on the term loan was $750,000 at December 31, 1999 and, accordingly, Versar
reduced its reserve to $750,000 as of December 31, 1999. As the term loan is
repaid, the reserve will be reduced and added to Versar's equity.
Approximately $300,000 will be required for capital expenditures during
the remainder of fiscal year 2000 for the Company to upgrade and enhance it's
project management and financial reporting system. The Company's decision to
upgrade to Deltek's Costpoint relational database project management software
will greatly enhance the financial reporting capabilities of the Company. The
Company intends to complete the implementation by the end of fiscal year 2000.
The Company plans to utilize funds generated from operations and third party
financing for the conversion of the financial reporting system.
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 a 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.
Business Segment
- ----------------
Versar currently has three business segments: environmental services,
energy conservation services, and industrial and public infrastructure
services. Currently, the energy conservation and facility infrastructure
services segments do not meet the segment reporting requirements. The energy
conservation and facility infrastructure services segments are collectively
less than 10% of consolidated revenues, operating profit and identifiable
assets. During fiscal year 2000, the growth in these segments may require the
Company to provide financial disclosure.
Year 2000
- ---------
Certain computer programs have been written using two digits rather than
four to define the applicable year, which could result in the computer
recognizing a date using "00" as the year 1900 rather than the year 2000.
This, in turn, could result in major system failures and in miscalculations,
and is generally referred to as the "Year 2000" problem. On August 4, 1998,
the Company's Board of Directors adopted a comprehensive strategy for achieving
Year 2000 readiness program for Versar and its subsidiaries. The Versar Year
2000 program was designed to (a) identify computer systems (hardware and
software) and other equipment (telecommunications equipment and technical
field equipment) that may fail to recognize or properly process data on or
after January 1, 2000; (b) upgrade or replace all non-compliant systems,
components, and software; and (c) evaluate the Year 2000 readiness of key
clients and critical vendors and service providers.
Management has implemented an eight-step program to identify both
internally and externally the extent of any Year 2000 problem, the cost to the
Company to mitigate any Year 2000 effects and identify any significant client
or subcontractor compliance issues. These actions included a comprehensive
survey of internal equipment, systems and software to identify potential Year
2000 failures, including a physical inventory of such equipment and products.
We surveyed suppliers of such equipment, systems and software on their Year
2000 readiness and any requirements for change or upgrade. The Company then
implemented a company-wide program to replace, modify, upgrade and test such
equipment, systems and software.
11
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
In the third and fourth quarters of fiscal year 1999, the Company and its
subsidiaries modified its financial reporting and project management software,
and computer systems to be Year 2000 ready. The estimated total costs
incurred for the Year 2000 program for hardware, software and internal costs
is approximately $175,000. To the best of management's knowledge, the Company
did not experience any Year 2000 related failures nor did any of its major
customers or vendors experience a Year 2000 failure that had any impact on the
Company, its operations or financial performance.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
At the end of December 1998, the Company was served with a complaint
entitled Servi-Sure Corporation v. Versar, Inc., No. 98L14567, filed in the
Circuit Court of Cook County, Illinois. In the complaint, Plaintiff alleges
damages from a property investigation conducted in December 1988 based upon
breach of contract and negligence. The Company has moved to dismiss the
lawsuit on the basis of the Illinois statute of limitations and other grounds.
The Company has conducted additional site investigations. Based on the
results, the parties continue to discuss settlement. Based upon an evaluation
of the facts and discussions with outside counsel, management does not believe
this lawsuit will have a material adverse effect on the Company'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.
12
<PAGE>
Item 4 - Submission of Matters to a Vote of Stockholders
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was
held on December 1, 1999. The matters voted on at the Annual Meeting were as
follows:
(1) The Election of Directors
The nomination of the following persons to serve as directors
of the Company was approved as indicated below:
Vote Withheld
for Authority
--------- ---------
Benjamin M. Rawls 3,952,638 43,717
Michael Markels, Jr. 3,963,041 33,314
Robert L. Durfee 3,963,994 32,361
M. Lee Rice 3,967,810 28,454
Charles I. Judkins, Jr. 3,968,182 28,173
Thomas J. Shields 3,971,610 24,745
Constantine G. Caras 3,974,110 22,245
Pat H. Moore 3,891,533 104,822
Theodore M. Prociv 3,891,533 104,822
(2) Ratification of the appointment of Arthur Andersen LLP as independent
accountants for fiscal year 2000. The appointment of Arthur Andersen
LLP as the Company's independent accountants was ratified as follows:
For Against Abstain
----------- --------- -------
3,896,740 93,622 5,993
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
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
Senior Vice President,
Chief Financial Officer,
Treasurer, and Principal Accounting
Officer
Date: February 11, 2000
14
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 53
<SECURITIES> 0
<RECEIVABLES> 14,113
<ALLOWANCES> 471
<INVENTORY> 0
<CURRENT-ASSETS> 15,246
<PP&E> 9,498
<DEPRECIATION> 6,972
<TOTAL-ASSETS> 20,035
<CURRENT-LIABILITIES> 7,290
<BONDS> 3,600
0
0
<COMMON> 64
<OTHER-SE> 6,760
<TOTAL-LIABILITY-AND-EQUITY> 20,035
<SALES> 0
<TOTAL-REVENUES> 27,734
<CGS> 0
<TOTAL-COSTS> 27,029
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 281
<INCOME-PRETAX> 424
<INCOME-TAX> (30)
<INCOME-CONTINUING> 454
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 454
<EPS-BASIC> 0.07
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