<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
-----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-21682
---------------------
SPARTA, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0775889
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization)
23041 Avenida de la Carlota, Suite 325, Laguna Hills, CA 92653-1595
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 768-8161
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(Registrant's telephone number, including area code)
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 or 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 [ ]
As of July 4, 1997, the registrant had 5,809,052 shares of common stock, $.01
par value per share, issued and outstanding.
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SPARTA, Inc.
QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 1997
INDEX
<TABLE>
<S> <C>
PART I FINANCIAL STATEMENTS
ITEM 1 Quarterly Financial Statements
Statements of Income for the Six Months Ended June 30, 1997 and June
30, 1996 (Unaudited)
Balance Sheets as of June 30, 1997 and December 31, 1996 (Unaudited)
Statement of Cash Flows for the Six Months Ended June 30, 1997 and June
30, 1996 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company has no investigations, claims, and lawsuits arising out of
its business, nor any known to be pending.
ITEM 2 CHANGES IN SECURITIES
Not Applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting was held on May 9, 1997 at which time
proxies and shareholders present voted on and approved a continuation
of the current Directors and the continuation of Price Waterhouse as
auditor.
ITEM 5 OTHER MATERIALLY IMPORTANT EVENTS
Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
No report(s) on Form 8-K were filed by the Company during the fiscal
quarter for which this report is filed.
EXHIBIT 11 Computations of Earnings per Share
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
<PAGE> 4
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS `
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $21,277,000 $18,237,000 $40,111,000 $33,164,000
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Labor costs and related benefits 10,850,000 8,346,000 21,026,000 16,635,000
Subcontractor & other costs 5,624,000 5,365,000 10,150,000 8,272,000
Facility costs 1,665,000 1,788,000 3,537,000 3,470,000
Travel and other 938,000 1,111,000 1,740,000 1,951,000
Loss on sale of ACT -- -- -- --
Interest expense, net 73,000 11,000 108,000 40,000
----------- ----------- ----------- -----------
19,150,000 16,621,000 36,561,000 30,368,000
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR
TAXES ON INCOME 2,127,000 1,616,000 3,550,000 2,796,000
PROVISION FOR TAXES ON INCOME 893,000 679,000 1,491,000 1,174,000
----------- ----------- ----------- -----------
NET INCOME $ 1,234,000 $ 937,000 $ 2,059,000 $ 1,622,000
=========== =========== =========== ===========
EARNINGS PER SHARE(1) $ 0.17 $ 0.17 $ 0.26 $ 0.25
=========== =========== =========== ===========
</TABLE>
(1) Earnings per shares adjusted for interest and accretion - See Exhibit 11
The accompanying notes are an integral part of the financial statements
<PAGE> 5
CONSOLIDATED BALANCE STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
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<S> <C> <C>
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 182,000 $ 151,000
Accounts receivable 19,120,000 21,160,000
Prepaid expenses 398,000 306,000
------------- -------------
TOTAL CURRENT ASSETS 19,700,000 21,617,000
Equipment and improvements, net 6,443,000 6,028,000
Other assets 1,683,000 1,409,000
------------- -------------
$ 27,826,000 $ 29,054,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued compensation $ 3,729,000 $ 3,871,000
Accounts payable and other accrued expenses 2,176,000 3,320,000
Current portion of notes payable 233,000 461,000
Current portion of subordinated debt 539,000 640,000
Income tax payable 0 466,000
Deferred income taxes 2,557,000 2,849,000
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TOTAL CURRENT LIABILITIES 9,234,000 11,607,000
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NOTES PAYABLE
SUBORDINATED NOTES PAYABLE 1,242,000 1,090,000
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DEFERRED INCOME TAXES 2,262,000 2,828,000
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Commitments and contingencies
REDEEMABLE PREFERRED STOCK
Preferred stock, $.01 par value; 2,000,000 shares authorized;
569,039 and 569,039 shares issued and outstanding 3,619,000 3,044,000
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 25,000,000 shares authorized;
12,577,404 and 12,376,781 shares issued and outstanding 128,000 124,000
Additional paid-in capital 24,522,000 22,229,000
Retained earnings 22,414,000 20,929,000
Treasury stock (35,595,000) (32,797,000)
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TOTAL STOCKHOLDERS' EQUITY 11,469,000 10,485,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,826,000 $ 29,054,000
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> 6
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,059,000 $ 1,622,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 787,000 795,000
Loss on sale of equipment 105,000 103,000
Employee compensation paid in stock 1,283,000 987,000
Changes in assets and liabilities:
Accounts receivable 2,040,000 556,000
Prepaid expenses (92,000) (130,000)
Other assets (274,000) 923,000
Accrued compensation (142,000) (155,000)
Accounts payable and other accrued expense (1,144,000) 768,000
Income taxes payable (758,000) 797,000
Deferred income taxes (564,000) (566,000)
Tax benefit relating to stock plan 59,000 1,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,359,000 5,701,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,308,000) (676,000)
Cost of acquisition, net of cash acquired 0 0
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,308,000) (676,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of redeemable preferred stock 0 600,000
Proceeds from issuance of stock 955,000 84,000
Cash purchases of treasury stock (2,387,000) (1,119,000)
Net (repayments) proceeds line-of-credit agreement (228,000) (942,000)
Principal payments on debt (360,000) (769,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,020,000) (2,146,000)
----------- -----------
NET INCREASE IN CASH 31,000 2,879,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 151,000 222,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 182,000 $ 3,101,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 108,000 $ 40,000
=========== ===========
Income taxes $ 2,762,000 $ 943,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> 7
SPARTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying financial information has been prepared in accordance with the
instructions to Form 10-Q and therefore does not necessarily include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The Company's fiscal year is the 52 or 53 week period ending on the Friday
closest to December 31. The Company's last fiscal year ended on January 3, 1996;
and, its second quarter ended July 4, 1997 and corresponding second quarter last
year on June 30, 1996. To aid the reader of the financial statements, the year
end has been presented as December 31, 1996 and the quarters and six months
ended June 30, 1996 and June 30, 1997.
In the opinion of management, the unaudited financial information for the
six-month period ended June 30, 1997 and June 30, 1996 reflects all adjustments
(which include only normal, recurring adjustments) necessary for a fair
presentation thereof.
NOTE B - RECEIVABLES
Unbilled accounts receivable include $1,563,587 of costs incurred on projects
for which the Company has been requested by the customer to begin work under a
new contract or extend work under a present contract, but for which final
contract negotiations or formal contracts or contract modifications have not
been executed at June 30, 1997.
NOTE C - INCOME TAXES
Income taxes for interim periods are computed using the estimated annual
effective rate method.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Management Discussion and Analysis of Financial Condition and Results of
Operation may contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from
projections contained in forward-looking statements. For a more complete
discussion of the factors which could cause such a difference, the Company's
Form 10-K for the year ended December 31, 1996, should be consulted.
The following table sets forth, for the periods indicated, selected financial
results from the Company's continuing operations and audited Financial
Statements.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For three months ended June 30, For six months ended June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales 21,277,000 18,247,000 40,111,000 33,164,000
Gross profit (1) 2,416,000 1,863,000 3,952,000 3,210,000
Gross profit as a % of costs 12.81% 11.37% 10.93% 10.72%
Net income (2) 1,234,000 937,000 2,059,000 1,622,000
Number of staff 575 460 575 460
</TABLE>
<TABLE>
<CAPTION>
Balance at
-----------------------------------------------------------
June 30, 1997 Dec. 31, 1996 June 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Funded 12 month backlog 41,000,000 36,200,000 23,700,000
Total 12 month contract backlog 86,800,000 76,100,000 62,200,000
Stockholders equity 11,469,000 10,722,000 10,844,000
Equity per common share 1.80 1.67 1.64
Stock repurchase notes 1,781,000 1,730,000 2,191,000
Line of credit 233,000 476,000 0
Number in days sales in receivables 81 109 90
Current ratio 2.0 1.8 2.1
</TABLE>
(1) The company defines gross profits as sales less costs and expenses excluding
interest costs and certain expenses which cannot be billed to its government
customers.
(2) Prior to adjustments for interest and accretion on stock - See Exhibit 1
REVENUES
The Company's contract revenues for the 2nd quarter were up 16.6% from the
corresponding three month period in 1996. Second quarter sales of $21,400,000
were the highest quarterly total in the Company's history. Profitability for the
three month period ended June 30, 1997 was up 29.7% when compared to the
corresponding period in 1996. Profitability as a percent of costs increased to
12.8% from 11.4% for the corresponding period in 1996, and continues to
represent historical levels of profitability. Borrowings against the Company's
line of credit totaled $233,000 as of the end of the 2nd quarter compared to a
borrowing level of zero at the end of the corresponding period in 1996. The
Company has been successful in reducing its days sales from 88 days at March 31,
1997 to 81 days at June 30, 1997. The Company believes the improvement in days
sales will contribute to a reduction in borrowing requirements.
ANNUALIZED BACKLOG
During the 2nd quarter, the Company had one major competitive win--the Javelin
Launch Tube Assembly, a $16,500,000 program over two years. This contract was
won by the Company's AMP Operation in La Jolla, CA. The Company also won two
sizable sole source awards in its C4I Operation in McLean, VA. The Company had
two significant
<PAGE> 9
competitive losses in the quarter. These were a $7,500,000 three year program as
a subcontracter to Hughes for the SBIRS EMD program and an AMPO bid for
Composite Enclosures of $1,500,000 over 2 years.
Annualized contract backlog increased in the 2nd quarter by 6.5% from
$81,500,000 to $86,800,000. Most of the increase came from contract funding on
existing contracts as opposed to new contract funding. The Company improved its
proposal backlog during the quarter by 4.0% and opportunity backlog by 24%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are funds provided by operations and
the bank line of credit. The line of credit provides for borrowings up to
$10,000,000 with all borrowing due December 1, 1997. Borrowings under the line
of credit at June 30, 1997 totaled $233,000. The Company has negotiated its bank
line of credit requirements for 1998 and 1999, and expects to have the agreement
in place by the end of the 3rd quarter.
STOCKHOLDER EQUITY
The Company increased stockholder's equity 7.0% year to date from $10,722,000 at
December 31, 1996 to $11,469,000 at June 30, 1997. Equity increased 5.6% in the
2nd quarter from $10,860,000 at March 31, 1997 to $11,469,000 at June 30, 1997.
STOCK PURCHASE AGREEMENT
In November, 1994, the Company entered into a Stock Purchase Agreement (the
"Agreement") with Science Applications International Corporation ("SAIC"), under
which SAIC agreed to purchase, during the first year of the Agreement, Preferred
Stock of the Company with an aggregate price of $1,200,000. Under the Agreement,
SAIC also has the option, but not the obligation, to buy additional shares of
Preferred Stock. The Agreement also grants SAIC the option to require the
Company to repurchase all of the Preferred Stock held by SAIC at the Formula
Price at time of option exercise. In the event the option is exercised, the
Company may issue SAIC a subordinated note bearing an interest rate equal to the
lesser of prime or 10%. SAIC suspended its purchase of Company Preferred Stock
in the 4th quarter of 1996. The total purchase to June 30, 1997 of $2,400,000 of
Company Preferred Stock represents 8.92% of the Company's outstanding stock.
Through June 30, 1997 accretion of Preferred Stock was $1,219,000.
STOCK REPURCHASE PROGRAM
The Company continues to conduct its stock repurchase program, under which the
Company repurchases shares of the Company's stock desired to be sold by the
Company's existing stockholders. All such stock repurchases (whether from
terminating employees or others) are subject to quarterly restrictions which are
designed to insure that the Company's liquidity and equity are not materially
impaired. The Company's stock price is determined by a formula. Under the
current Formula Price for pricing stock, liquidity is not a factor in the
equation. However, during any extended period of non-liquidity, the Board of
Directors may make a change in the stock price formula to factor in the lack of
liquidity. The Formula Price is reviewed periodically by an independent stock
appraiser to assure the Board of Directors that the stock price formula is
calculating a price within a reasonable fair market price range. All appraisals
to date have shown the stock price calculated by the current formula to fall
within a fair and reasonable price range as compared with publicly held
companies of similar size and in similar business areas.
EFFECTS OF FEDERAL FUNDING FOR DEFENSE PROGRAMS
The Company continues to have over 85% of its contracts with the Department of
Defense. Although the Defense budget has not yet been authorized for GFY98, the
Company does not project any significant reductions in the funding on any of its
major programs. Further, the results of the Quadrennial Defense Review (QDR)
would appear to be positive for the Company's long-term business prospects.
However, such projections are always subject to the impact unanticipated events
in the international arena may have on the defense budget priorities of the
United States.
<PAGE> 10
SIGNATURE
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.
SPARTA, INC.
/s/ B. WARREN KNUDSON
--------------------------------------
Date: August 7, 1997 B. Warren Knudson
Vice President and Chief
Financial Officer
(Principal financial and chief
accounting officer)
<PAGE> 11
EXHIBIT INDEX
SPARTA, INC.
QUARTER ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description of Exhibits Page No.
- ------- ----------------------- ---------
<S> <C> <C>
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
SPARTA, INC.
EXHIBIT TO CONSOLIDATED FINANCIAL STATEMENTS
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY
Net income from Operations $ 1,234,000 $ 937,000 $ 2,059,000 $ 1,622,000
Interest and accretion (245,000) 79,000 (575,000) (140,000)
----------- ----------- ----------- -----------
Net income (Note 1) $ 989,000 $ 1,016,000 $ 1,484,000 $ 1,482,000
=========== ============ =========== ===========
Average shares outstanding 5,690,000 6,008,000 5,677,000 5,994,000
Dilutive stock options - based on the treasury stock
method using the average established price
----------- ----------- ----------- -----------
Total 5,690,000 6,008,000 5,677,000 5,994,000
----------- ----------- ----------- -----------
Per share amounts $ 0.17 $ 0.17 $ 0.26 $ 0.25
=========== ============ =========== ===========
FULLY DILUTED
Net income from Operations $ 1,234,000 $ 937,000 $ 2,059,000 $ 1,622,000
Interest and accretion (245,000) 79,000 (575,000) (140,000)
----------- ----------- ----------- -----------
Net income (Note 1) $ 989,000 $ 1,016,000 $ 1,484,000 $ 1,482,000
=========== ============ =========== ===========
Average shares outstanding 5,690,000 6,008,000 5,677,000 5,994,000
Dilutive stock options - based on the treasury stock
method using the quarter end or exercise date
established price if higher than the average
established price
----------- ----------- ----------- -----------
Total 5,690,000 6,008,000 5,677,000 5,994,000
----------- ----------- ----------- -----------
Per share amounts $ 0.17 $ 0.17 $ 0.26 $ 0.25
=========== ============ =========== ===========
</TABLE>
Note 1 - Net income has been adjusted for (1) interest expense (net of tax)
resulting from the assumption that a portion of the proceeds received
under option exercise has been used to retire debt and (2) accretion on
Preferred Stock.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 182
<SECURITIES> 0
<RECEIVABLES> 19,775
<ALLOWANCES> 655
<INVENTORY> 0
<CURRENT-ASSETS> 19,700
<PP&E> 17,374
<DEPRECIATION> 10,930
<TOTAL-ASSETS> 27,826
<CURRENT-LIABILITIES> 9,234
<BONDS> 0
3,619
0
<COMMON> 24,650
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,826
<SALES> 40,111
<TOTAL-REVENUES> 40,111
<CGS> 36,154
<TOTAL-COSTS> 36,154
<OTHER-EXPENSES> 299
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 3,550
<INCOME-TAX> 1,491
<INCOME-CONTINUING> 2,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,059
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
