UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
(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, 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
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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
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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 29, 1999
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$ .01 par value 6,402,048 shares
<PAGE>
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
September 30, 1999 and June 30, 1999. 3
Consolidated Statements of Operations for the
Three-Month Periods Ended September 30, 1999 and 1998. 4
Consolidated Statements of Cash Flows
for the Three-Month Periods Ended
September 30, 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 9-12
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 12
ITEM 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
September 30, June 30,
ASSETS 1999 1999
------------- -------------
Current assets
Cash and cash equivalents . . . . . . . . . $ 55 $ 58
Accounts receivable, net. . . . . . . . . . 15,209 15,939
Prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . . 931 1,125
Deferred income taxes . . . . . . . . . . . 599 599
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Total current assets. . . . . . . . . 16,794 17,721
Property and equipment, net . . . . . . . . . 2,413 2,466
Deferred income taxes . . . . . . . . . . . . 1,160 1,280
Goodwill. . . . . . . . . . . . . . . . . . . 977 996
Other assets. . . . . . . . . . . . . . . . . 387 224
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Total assets. . . . . . . . . . . . . $ 21,731 $ 22,687
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable. . . . . . . . . . . . . . $ 3,147 $ 4,290
Current portion of long-term debt . . . . . 774 1,135
Accrued salaries and vacation . . . . . . . 2,552 2,180
Liabilities of discontinued operations,
net. . . . . . . . . . . . . . . . . . . . 92 98
Other liabilities . . . . . . . . . . . . . 1,017 1,615
------------- -------------
Total current liabilities . . . . . . 7,582 9,318
Bank line of credit . . . . . . . . . . . . . 4,894 4,108
Other long-term liabilities . . . . . . . . . 1,593 1,931
Liabilities of discontinued operations,
net. . . . . . . . . . . . . . . . . . . . . 807 807
Reserve on guarantee of real estate debt. . . 825 900
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Total liabilities . . . . . . . . . . 15,701 17,064
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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 . . . . . . . . . . . . (12,236) (12,491)
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Total stockholders' equity. . . . . . 6,030 5,623
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Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . $ 21,731 22,687
============= =============
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,
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1999 1998
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GROSS REVENUE . . . . . . . . . . . . . . . . . $ 13,976 $ 14,799
Purchased services and materials, at costs. . . 4,610 4,757
------------ ------------
NET SERVICE REVENUE . . . . . . . . . . . . . . 9,366 10,042
Direct costs of services and overhead . . . . . 7,279 8,121
Selling, general and administrative expenses. . 1,607 1,265
------------ ------------
OPERATING INCOME. . . . . . . . . . . . . . . . 480 656
OTHER EXPENSE
Interest expense. . . . . . . . . . . . . . . . 180 87
Income tax expense. . . . . . . . . . . . . . . 120 229
------------ ------------
NET INCOME. . . . . . . . . . . . . . . . . . . $ 180 $ 340
============ ============
NET INCOME PER SHARE - BASIC AND DILUTED. . . . $ .03 $ .06
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC. . . . . . . . . . . . . . 6,380 6,097
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - DILUTED. . . . . . . . . . . . . 6,511 6,097
============ ============
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,
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1999 1998
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Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . $ 180 $ 340
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization . . . . . . . . 182 181
Provision for doubtful accounts receivable. . (71) 31
Loss on property retirements. . . . . . . . . --- 3
Common stock issued to ESSOP. . . . . . . . . 147 123
Deferred tax. . . . . . . . . . . . . . . . . 120 ---
------------ ------------
Subtotal . . . . . . . . . . . . . . . . 558 678
Changes in assets and liabilities
Decrease (increase) in accounts receivable. . 801 (1,845)
Decrease in prepaids and other assets . . . . 31 608
(Decrease) increase in accounts payable . . . (1,143) 653
Increase in accrued salaries and vacation . . 372 613
Decrease in other liabilities . . . . . . . . (936) (701)
------------ ------------
Net cash provided by (used in)
continuing operations . . . . . . . . . (317) 6
Changes in net assets/liabilities of
discontinued operations . . . . . . . . . . . . (6) (887)
Net cash used in operations (323) (881)
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Cash flows used in investing activities
Purchase of property and equipment . . . . . . . (110) (98)
------------ ------------
Cash flows from financing activities
Net borrowings on bank line of credit. . . . . . 786 1,365
Principal payments on long-term debt . . . . . . (361) (405)
Proceeds from issuance of the Company's
common stock. . . . . . . . . . . . . . . . . . 5 13
------------ ------------
Net cash provided by financing
activities. . . . . . . . . . . . . . . 430 973
------------ ------------
Net (decrease) in cash . . . . . . . . . . . . . . (3) (6)
Cash at the beginning of the year. . . . . . . . . 58 72
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Cash at the end of the period. . . . . . . . . . . $ 55 $ 66
============ ============
Supplementary disclosure of cash flow information:
Cash paid during the period for
Interest. . . . . . . . . . . . . . . . . . . . $ 117 $ 138
Income taxes. . . . . . . . . . . . . . . . . . 9 16
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/A or the year ended June 30, 1999 for additional information.
Restatement of Fiscal Year 1998 Discontinued Operations
-------------------------------------------------------
During fiscal year 2000, the Company had several audits and inquiries
into the discontinued operations of SMC McEver, Inc. ("McEver"). The audits
and inquiries, which were recently completed, revealed that the former
principals of McEver had not paid certain payroll and state sales tax
obligations. These obligations were neither recorded nor disclosed in
McEver's financial records. The financial and business affairs of this
subsidiary were managed separately from those of Versar, and as such, Versar
had no knowledge of these tax obligations until these audits and inquiries.
The estimated obligations are approximately $807,000. The effect on net
income, after consideration of the related Federal income tax is $500,000.
The Company is reviewing different alternatives to protect itself from the tax
obligations of McEver, including possibly placing McEver into Chapter 7
bankruptcy proceedings. Until such time as the obligation has been settled or
adjudicated by the bankruptcy court, the Company must accrue the liability in
the consolidated financial statements. Therefore, the Company has restated
the fiscal year 1998 financial statements to reflect the obligation of
approximately $807,000 (and the related income tax effect of $307,000) in the
period when the obligation was incurred. As a result, the Company increased
the operating losses from discontinued operations by $500,000 ($807,000 net of
tax of $307,000) in fiscal year 1998.
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 September 30, 1999, and the
results of operations for the three-month periods ended September 30, 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.
7
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(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.
(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 $4.3 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 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.
(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
7
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VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
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
Periods Ended September 30,
---------------------------
1999 1998
------------ ------------
Weighted average common shares
outstanding - basic . . . . . . . . . . . . 6,379,959 6,096,645
Assumed exercise of options (treasury
stock method) . . . . . . . . . . . . . . . 131,109 ---
------------ ------------
6,511,068 6,096,645
============ ============
(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.
8
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
---------------------
First Quarter 2000 Compared to First Quarter 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.
During fiscal year 2000, the Company had several audits and inquiries
into the discontinued operations of SMC McEver, Inc. ("McEver"). The audits
and inquiries, which were recently completed, revealed that the former
principals of McEver had not paid certain payroll and state sales tax
obligations. These obligations were neither recorded nor disclosed in
McEver's financial records. The financial and business affairs of this
subsidiary were managed separately from those of Versar, and as such, Versar
had no knowledge of these tax obligations until these audits and inquiries.
The estimated obligations are approximately $807,000. The effect on net
income, after consideration of the related Federal income tax is $500,000.
The Company is reviewing different alternatives to protect itself from the tax
obligations of McEver, including possibly placing McEver into Chapter 7
bankruptcy proceedings. Until such time as the obligation has been settled or
adjudicated by the bankruptcy court, the Company must accrue the liability in
the consolidated financial statements. Therefore, the Company has restated
the fiscal year 1998 financial statements to reflect the obligation of
approximately $807,000 (and the related income tax effect of $307,000) in the
period when the obligation was incurred. As a result, the Company increased
the operating losses from discontinued operations by $500,000 ($807,000 net of
tax of $307,000) in fiscal year 1998.
Versar's gross revenue for the first quarter of fiscal year 2000
decreased by $823,000 (6%) compared to gross revenue for the comparable period
of fiscal year 1999. The decrease is due to lower purchased services and
materials pass through costs in the Company's Midwest and Pacific operations.
In addition, the Company's Environmental operations revenues declined by 16%
due to the delayed startup of a follow-on contract with the EPA.
Purchased services and materials for the first quarter of fiscal year
2000 decreased by $147,000 (3%) compared to costs for the comparable period of
fiscal year 1999. The decrease is due to the reduced purchased services and
materials in the Midwest and Pacific operations as mentioned above offset by
an increase in GEOMET and the Company's Rocky Mountain region in support of
the Air Force Armstrong contract.
Net service revenue is derived by deducting the cost of purchased
services from gross revenue. Versar considers it appropriate to analyze
operating margins and other ratios in relation to net service revenue because
such revenues reflect the actual work performed by the Company. Net service
revenue decreased by 7% compared to the first quarter of fiscal year 1999.
The decrease is due to the lower volume in gross revenue as mentioned above.
9
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
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 to 78% in the first quarter of
fiscal year 2000 compared to 81% in the first quarter of fiscal year 1999.
The decrease is primarily due to improved labor utilization in order to offset
the lower margins as a result of competitive pricing.
Selling, general and administrative expenses approximated 17% of net
service revenue in the first quarter of fiscal year 2000 compared to 13% in
the first quarter of fiscal year 1999. Forty percent of the increase was in
the Company's GEOMET subsidiary. The balance was due to higher marketing
activities in the first quarter of fiscal year 2000 and costs reductions that
were put in place in the first quarter of fiscal year 1999.
Operating income for the first quarter of fiscal year 2000 was $480,000,
a decrease of $176,000 compared to the first quarter of fiscal year 1999. The
decrease is the result of the lower net service revenues and higher selling,
general and administrative expenses as mentioned above.
Interest expense during the first quarter of fiscal year 2000 increased
by $93,000 compared to costs for the comparable period of the previous fiscal
year. The increase is due to the cost of financing the winding down of the
Company's discontinued operations, which has resulted in higher utilization of
the Company's line of credit. The Company anticipates that the utilization of
the line of credit will begin to decrease over the next quarter as the Company
expects to increase collections of its current outstanding receivables.
Income tax expense during the first quarter of fiscal year 2000
decreased by $109,000 compared to costs for the comparable period of the
previous year. The decrease is primarily the result of the lower operating
income and higher interest expense as mentioned above. The Company continues
to carry a tax valuation allowance of approximately $2.5 million against the
deferred tax assets. The Company has established the valuation allowance
until the probability of the realization of these amounts becomes more
certain.
Versar's net income for the first quarter of fiscal year 2000 was
$180,000 compared to $340,000 in the first quarter of fiscal year 2000. The
decrease is due to the lower operating income and higher interest expense as
mentioned above.
Liquidity and Capital Resources
-------------------------------
The Company's working capital at September 30, 1999 approximated
$9,212,000 or $809,000 (10%) higher than June 30, 1999. The increase is
primarily due to the reduction of accounts payable and other liabilities
during the quarter. In addition, the Company's current ratio at September 30,
1999 was 2.22, compared to the 1.90 reported for the year ended June 30, 1999.
Versar's line of credit provides for advances up to $6,500,000 based on
qualifying receivables less the $825,000 guarantee of Sarnia's term loan by
Versar and the outstanding acquisition loan balance. 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 (8.14% at September 30, 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 September 30, 1999 was approximately $1.6 million. Advances
under the line are due upon demand or on November 30, 2000. The loan has
certain covenants related to maintenance of financial ratios. The Company was
in compliance with the covenants as of September 30, 1999. As such, since the
line of credit is greater than one year, it has been classified as long-term
10
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
on the balance sheet. Management anticipates that by November 1999 the line
of credit will be extended to November 2001. Management believes that cash
generated by operations and borrowings available from the bank line of credit
and the extension of the line will be adequate to meet the working capital
needs for fiscal year 2000.
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 (8.75% at September
30, 1999). Principal payment commenced on May 31, 1997 and it is scheduled to
be paid in full on April 30, 2000. At September 30, 1999, approximately
$500,000 was the remaining balance due on this loan.
Versar guarantees certain debt of Sarnia Corporation. Sarnia's balance
due on the term loan was $825,000 at September 30, 1999 and, accordingly,
Versar reduced its reserve to $825,000 as of September 30, 1999. As the term
loan is repaid, the reserve will be reduced and added to Versar's equity.
Approximately $500,000 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. 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 is 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.
Subsequently, 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
11
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
a comprehensive survey of internal equipment, systems and software to identify
potential Year 2000 failures. This included 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.
Presently, Versar does not believe that the Year 2000 program will
result in any additional material investments, nor does Versar have any
information that the Year 2000 problem will have material adverse effects on
the business, operations or financial performance of Versar. 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.
The Company expects any additional Year 2000 related costs to be minimal.
In addition, after completing a survey of significant customers and
suppliers, Versar is not aware of any Year 2000 problems of its customers,
suppliers or network affiliates that will have a material adverse effect on
the business, operations or financial performance of Versar. Based on the
above survey and the work completed on Versar's company-wide computers and
software, the Company does not anticipate any significant risks and,
therefore, has not developed a Year 2000 contingency plan.
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.
Edward Long, a 26 year old laborer, filed suit against an indirect,
wholly-owned subsidiary of the Company and other defendants, in an action
entitled Edward Long v. SMC Environmental Services Group, Inc., et. al., in
the Court of Common Pleas, Montgomery County, Pennsylvania. This action was
for personal injuries allegedly occurring at a municipal waste transfer
station during the transfer of leachate from a tanker truck to the facility.
SMC has responded by denying liability. Discovery is ongoing. Based upon a
review 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 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
None.
13
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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.
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(Registrant)
By: /S/ Benjamin M. Rawls
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Benjamin M. Rawls
Chairman and Chief Executive Officer
By: /S/ Lawrence W. Sinnott
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Lawrence W. Sinnott
Vice President, Chief
Financial Officer,
Treasurer, and Principal
Accounting Officer
Date: September 1, 2000
14
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