<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 March 31, 2000
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.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 63-0775889
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(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization)
</TABLE>
23041 Avenida de la Carlota, Suite 325, Laguna Hills, CA 92653-1595
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(Address of principal executive offices)
(Zip Code)
(949) 768-8161
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(Registrant's telephone number, including area code)
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 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 April 2, 2000, the registrant had 5,763,238 shares of common stock, $.01
par value per share, issued and outstanding.
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SPARTA, Inc.
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2000
INDEX
PART I FINANCIAL INFORMATION
ITEM 1 Quarterly Financial Statements
Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and March 31, 1999 (Unaudited)
Consolidated Balance Sheets as of March 31, 2000 and December
31, 1999 (Unaudited)
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 2000 and March 31, 1999 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
ITEM 3 Qualitative and Quantitative Disclosures About Market Risk
PART II OTHER INFORMATION
SIGNATURE
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PART I
FINANCIAL INFORMATION
<PAGE> 4
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
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2000 1999
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<S> <C> <C>
Sales $ 27,986,000 $ 25,518,000
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COSTS AND EXPENSES:
Labor costs and related benefits 16,224,000 15,008,000
Subcontractor & other costs 5,757,000 5,788,000
Facility costs 2,141,000 1,827,000
Travel and other 1,395,000 399,000
Interest expense, net 36,000 84,000
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25,553,000 23,106,000
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INCOME BEFORE PROVISION FOR
TAXES ON INCOME 2,433,000 2,412,000
PROVISION FOR TAXES ON INCOME 973,000 965,000
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NET INCOME $ 1,460,000 $ 1,447,000
============ ============
BASIC EARNINGS PER SHARE $ 0.25 $ 0.20
============ ============
DILUTED EARNINGS PER SHARE $ 0.22 $ 0.19
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
CONSOLIDATED BALANCE STATEMENT
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,371,000 $ 319,000
Accounts receivable 24,251,000 30,410,000
Prepaid expenses 852,000 545,000
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TOTAL CURRENT ASSETS 27,474,000 31,274,000
Equipment and improvements, net 9,975,000 10,007,000
Other assets 2,009,000 1,904,000
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TOTAL ASSETS $ 39,458,000 $ 43,185,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued compensation $ 4,572,000 $ 6,486,000
Accounts payable and other accrued expenses 4,279,000 7,746,000
Current portion of notes payable 925,000 972,000
Income taxes payable 1,111,000 470,000
Deferred income taxes 1,773,000 1,773,000
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TOTAL CURRENT LIABILITIES 12,660,000 17,447,000
NOTES PAYABLE - 951,000
SUBORDINATED NOTES PAYABLE 220,000 260,000
DEFERRED INCOME TAXES 614,000 614,000
REDEEMABLE PREFERRED STOCK
Preferred stock, $.01 par value; 2,000,000 shares authorized;
422,358 and 447,378 shares issued and outstanding 5,301,000 5,364,000
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 25,000,000 shares authorized;
5,906,865 and 5,610,805 shares issued 59,000 56,000
Additional paid-in capital 21,105,000 18,439,000
Retained earnings 1,277,000 54,000
Treasury stock (1,778,000) -
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TOTAL STOCKHOLDERS' EQUITY 20,663,000 18,549,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 39,458,000 $ 43,185,000
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,460,000 $ 1,447,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 509,000 406,000
Loss on sale of equipment - -
Employee compensation paid in stock 1,559,000 1,405,000
Changes in assets and liabilities:
Accounts receivable 6,159,000 1,435,000
Prepaid expenses (307,000) (140,000)
Other assets (105,000) (173,000)
Accrued compensation (1,914,000) (2,060,000)
Accounts payable and other accrued expense (3,467,000) (3,196,000)
Income taxes payable/receivable 641,000 928,000
Deferred income taxes - (281,000)
Tax benefit relating to stock plan 456,000 289,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES 4,991,000 60,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (477,000) (650,000)
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NET CASH USED IN INVESTING ACTIVITIES (477,000) (650,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 654,000 713,000
Redemption of preferred stock (300,000) -
Cash purchases of treasury stock (1,628,000) (1,411,000)
Net (payments on) proceeds from line-of-credit agreement (951,000) 1,570,000
Principal payments on debt (237,000) (142,000)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,462,000) 730,000
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NET INCREASE (DECREASE) IN CASH 2,052,000 140,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 319,000 174,000
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,371,000 $ 314,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 40,000 $ 93,000
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Income taxes $ 175,000 $ 30,000
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</TABLE>
The accompanying notes are an integral part of the financial statements.
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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 Sunday
closest to December 31. The Company's last fiscal year ended on January 2, 2000
and its first quarter ended April 2, 2000 and corresponding first quarter last
year on April 4, 1999. To aid the reader of the financial statements, the
year-end has been presented as December 31, 1999 and the quarters and three
months ended March 31, 2000 and March 31, 1999.
In the opinion of management, the unaudited financial information for the
three-month periods ended March 31, 2000 and March 31, 1999 reflects all
adjustments (which include only normal, recurring adjustments) necessary for a
fair presentation thereof.
NOTE B - RECEIVABLES
Unbilled accounts receivable include $2,384,000 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 March 31, 2000.
NOTE C - INCOME TAXES
Income taxes for interim periods are computed using the estimated annual
effective rate method.
NOTE D - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 30,
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2000 1999
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<S> <C> <C>
Basic EPS
Net income $ 1,640,000 $ 1,447,000
Accretion adjustment (237,000) (319,000)
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$ 1,403,000 $ 1,128,000
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Shares outstanding 5,636,726 5,702,710
Per share amounts $ 0.25 $ 0.20
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DILUTIVE EFFECT
Net income $ 1,640,000 $ 1,447,000
Accretion adjustment (237,000) (319,000)
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$ 1,403,000 $ 1,128,000
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Shares outstanding 5,636,726 5,702,710
Stock options 568,594 128,351
Deferred Stock 114,347 87,395
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6,319,667 5,918,456
Per share amounts $ 0.22 $ 0.19
============ ============
</TABLE>
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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 contains 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, 1999, 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>
2000 1999
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<S> <C> <C>
Sales 27,986,000 25,518,000
Gross profit(1) 2,924,000 2,270,000
Gross profit as a % of costs 11.67% 9.76%
Net income(2) 1,460,000 1,447,000
Number of staff 762 716
</TABLE>
<TABLE>
<CAPTION>
Balance at
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March 31, December 31, March 31,
2000 1999 1999
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<S> <C> <C> <C>
Funded 12 month backlog 50,000,000 41,900,000 47,600,000
Total 12 month contract backlog 121,800,000 116,200,000 115,200,000
Stockholders equity 20,663,000 18,549,000 17,764,000
Equity per share(3) 3.59 3.30 2.79
Stock repurchase notes 1,144,000 1,232,000 889,000
Line of credit - 951,000 2,836,000
Number in days sales in receivables 76 80 88
Current ratio 2.2 1.8 3.0
</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 Note D.
(3) Equity per share based on outstanding shares of common stock.
REVENUES
The Company's contract revenues for the first quarter were up 9.7% from the
corresponding three-month period in 1999 due to increased project billings
including the effect of new work as described below. Gross profit for the
three-month period ended March 31, 2000 was up 28.8% when compared to the
corresponding period of 1999. Gross profit as a percent of costs increased to
11.67% from 9.76% for the corresponding period in 1999. The profit rate for the
quarter was one of the highest the company has ever achieved and was due
primarily to increased contracting efficiencies across all operations. However,
there is no guarantee that this profit rate can be sustained for subsequent
quarters or the year.
NEW CONTRACTS AND ANNUALIZED BACKLOG
The Company had three major competitive wins during the quarter. The Command,
Control, Communications, Computers and Intelligence Operation (C4IO) won the
Total Engineering and Integration Services (TEIS) effort as a subcontractor to
Lockheed-Martin for the Army. This contract is estimated to be worth $20M over
five years. The Integrated Data Systems
<PAGE> 9
Operation (IDSO) won the Omnibus 2000 Logistics contract for the Army Missile
Command (AMCOM) as the lead partner in the Advanced Logistics Solutions Joint
Venture. This contract is estimated to be worth $25M over five years. The
Distributed Software and Simulation Operation (DSSO) won the Distributed Mission
Training contract for the Air Force as a subcontractor to TRW. This contract is
estimated to be worth $15M over fifteen years.
The Company lost two major bids. The Technical Services Operation (TSO) lost a
competitive bid for Systems Engineering and Technical Assistance (SETA) support
for the Air Force Flight Test Center (AFFTC). This was a $90M bid over a five
year period. The Composites Products Operation (CPO) lost a competitive bid for
an Electromagnetic Gun program for the Army Material Laboratory. This was a $4M
bid over three years.
Annualized contract backlog increased 4.8% in the first quarter over backlog at
the beginning of the year. Backlog went from $116,200,000 to $121,800,000 at the
end of the first quarter. The Company plans to submit many proposals in the next
two quarters as the opportunity backlog is still very strong.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are funds provided by operations and
the bank line of credit. The Company's line of credit limit is $12,000,000.
There were no borrowings against the Company's line of credit as of the end of
the 1st quarter compared to a borrowing level of $2,836,000 at the end of the
corresponding period in 1999. The reduction in borrowings is largely due to the
Company's concerted effort to control expenditures for independent research and
development as well as a planned reduction of investment in product initiatives.
Days sales outstanding decreased to 76 days at March 31, 2000 from 80 days at
December 31, 1999. In comparison with the corresponding period of 1999, the days
sales outstanding experienced a significant decrease dropping 12 days from the
88 days reported at March 31, 1999. The Company continues to actively monitor
receivables with emphasis placed on collection activities. The Company's
debt-to-equity ratio, as defined by the bank, was 0.4 at March 31, 2000 versus
0.5 at December 31, 1999 and 0.5 at March 31, 1999. All capital expenditures
were financed through operating funds and the revolving line of credit. The
Company's cash flow from operations plus borrowing under its line of credit are
expected to provide sufficient funds for the Company's operations, common stock
repurchases, capital expenditures, and future long-term debt requirements.
STOCKHOLDERS' EQUITY
The Company increased stockholders' equity from $18,549,000 at the end of 1999
to $20,663,000 at March 31, 2000. The Company's strong earnings and net proceeds
from the sale and repurchase of stock have accounted for this increase.
STOCK PURCHASE AGREEMENT
Under the Stock Purchase Agreement (the "Agreement"), which the Company entered
into with Science Applications International Corporation ("SAIC") in November,
1994, SAIC purchased a total of $2,400,000 of Company Preferred Stock in 1994,
1995 and 1996. By agreement with SAIC, the Company began quarterly repurchase of
SAIC Preferred Stock starting with the May 21, 1999 quarterly trade with funds
available within the stock repurchase limitation. During 1999, the Company
redeemed a total of 121,661 preferred shares from SAIC for $1,302,000. An
additional 25,020 shares of preferred stock were redeemed from SAIC during the
first quarter of 2000 for $300,000 bringing the total stock repurchased to
$1,602,000. Preferred stock held by SAIC as of March 31, 2000 totaled $1,706,000
(422,358 shares) and represents 6.8% of the Company's total outstanding stock.
Through March 31, 2000 accretion of preferred stock was $3,595,000. It is the
Company's intent to continue to repurchase SAIC stock within the Company's
quarterly stock repurchase limitation.
EFFECTS OF FEDERAL FUNDING FOR DEFENSE PROGRAMS
The Company continues to have approximately 84% of its contracts with the
Department of Defense. The Company's government contracts may be terminated, in
whole or in part, at the convenience of the customer (as well as in the event of
default). In the event of a termination for convenience, the customer is
generally obligated to pay the costs incurred by the Company under the contract
plus a fee based upon work completed. There were no contracts terminated in the
first quarter of 2000. The Company does not anticipate any termination of
programs and contracts in 2000. However, no assurances can be given that such
events will not occur.
In addition to the right of the U.S. government to terminate contracts for
convenience, U.S. government contracts are conditioned upon the continuing
availability of congressional appropriations. These appropriations are subject
to unforeseen
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changes in the allocation of the overall Department of Defense budget for
government fiscal year (GFY) 2001. It can also be affected by the 2000 national
elections resulting from changes in the Administration or leadership in
Congress.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to item 7A in the Company's Annual Report on Form 10-K for the year ended
January 2, 2000.
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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 will be held on June 2, 2000 at which time proxies
and shareholders present will vote on the Directors and the continuation of
PricewaterhouseCoopers as the Company's independent accountant to examine the
consolidated financial statements for the year ending January 2, 2001.
ITEM 5 OTHER MATERIALLY IMPORTANT EVENTS
Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits -- 27 Financial Data Schedule
No report(s) on Form 8-K were filed by the Company during the fiscal quarter for
which this report is filed.
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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
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Date: May 15, 2000 B. Warren Knudson
Vice President and Chief
Financial Officer
(Principal Finance and
Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,371
<SECURITIES> 0
<RECEIVABLES> 25,135
<ALLOWANCES> 884
<INVENTORY> 0
<CURRENT-ASSETS> 27,474
<PP&E> 21,707
<DEPRECIATION> 11,732
<TOTAL-ASSETS> 39,458
<CURRENT-LIABILITIES> 12,660
<BONDS> 0
5,301
0
<COMMON> 21,164
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,458
<SALES> 27,986
<TOTAL-REVENUES> 27,986
<CGS> 21,981
<TOTAL-COSTS> 25,062
<OTHER-EXPENSES> 455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 2,433
<INCOME-TAX> 973
<INCOME-CONTINUING> 1,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,460
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.22
</TABLE>
