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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 Commission File Number
September 30, 2003 1-9309
- ------------------------------ ----------------------
Versar Inc.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 54-0852979
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
6850 Versar Center
Springfield, Virginia 22151
- ------------------------------- --------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (703) 750-3000
---------------
Not Applicable
- -----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate by the check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
------ ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Class of Common Stock Outstanding at October 31, 2003
--------------------- -------------------------------
$.01 par value 7,260,266
VERSAR, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of
September 30, 2003 and June 30, 2003. 3
Consolidated Statements of Operations
for the Three-Month Periods Ended
September 30, 2003 and 2002. 4
Consolidated Statements of Cash Flows
for the Three-Month Periods Ended
September 30, 2003 and 2002. 5
Notes to Consolidated Financial Statements 6-10
ITEM 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11-12
ITEM 3 - Quantitative and Qualitative Disclosures
About Market Risk 13
ITEM 4 - Procedures and Controls 13
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 13
ITEM 6 - Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBITS 16-19
2
VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
September 30, June 30,
2003 2003
----------- -----------
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $ 84 $ 81
Accounts receivable, net 12,926 13,864
Prepaid expenses and other
current assets 839 1,231
Deferred income taxes 184 184
----------- -----------
Total current assets 14,033 15,360
Property and equipment, net 2,138 2,164
Deferred income taxes 418 418
Goodwill 776 776
Other assets 595 618
----------- -----------
Total assets $ 17,960 $ 19,336
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Accounts payable $ 3,161 $ 3,160
Billing in excess of revenue 70 379
Accrued salaries and vacation 1,556 2,009
Other liabilities 2,273 2,747
----------- -----------
Total current liabilities 7,060 8,295
Bank line of credit 1,652 2,125
Other long-term liabilities 1,185 1,201
Liabilities of discontinued operations 319 319
----------- -----------
Total liabilities 10,216 11,940
----------- -----------
Stockholders' equity
Common stock, $0.1 par value;
30,000,000 shares authorized;
7,260,746 shares and 7,258,346
shares issued at September 30,
2003 and June 30, 2003,
respectively; 7,248,106 and
7,245,706 shares outstanding at
September 30, and June 30, 2003
respectively 73 73
Capital in excess of par value 20,354 20,349
Accumulated deficit (12,624) (12,967)
Treasury stock (59) (59)
----------- -----------
Total stockholders' equity 7,744 7,396
----------- -----------
Total liabilities and
stockholders' equity $ 17,960 $ 19,336
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
3
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited - in thousands, except per share amounts)
For the Three-Month
Periods Ended September 30,
---------------------------
2003 2002
--------- ---------
GROSS REVENUE $ 13,605 $ 13,884
Purchased services and
materials, at cost 5,376 5,860
--------- ---------
NET SERVICE REVENUE 8,229 8,024
Direct costs of services
and overhead 6,452 6,725
Selling, general and administrative
expenses 1,380 1,468
Non-recurring charge --- 800
--------- ---------
OPERATING INCOME (LOSS) 397 (969)
OTHER EXPENSE
Interest expense 54 32
--------- ---------
INCOME BEFORE TAX 343 (1,001)
--------- ---------
Income tax expense --- 400
--------- ---------
NET INCOME (LOSS) $ 343 $ (1,401)
========= =========
NET INCOME (LOSS) PER SHARE
- BASIC AND DILUTED $ 0.05 $ (0.19)
========= =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC 7,260 7,227
========= =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED 7,518 7,227
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
4
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited - in thousands)
For the Three-Month
Periods Ended September 30,
---------------------------
2003 2002
--------- ---------
Cash flows from operating activities
Net income (loss) $ 343 $ (1,401)
Adjustments to reconcile net income
(loss)to net cash provided by
operating activities
Depreciation and amortization 164 168
Provision for doubtful accounts
receivable 10 (9)
Loss on disposal of property and
equipment --- 16
Increase to tax valuation
allowance --- 400
Changes in assets and liabilities
Decrease in accounts receivable 928 510
Decrease in prepaids and other
assets 415 35
Increase (decrease) in accounts
payable 1 (915)
Decrease in accrued salaries and
vacation (453) (557)
(Decrease) increase in other
liabilities (799) 682
--------- ---------
Net cash provided (used) by
continuing operating activities 609 (1,071)
--------- ---------
Changes in net liabilities of
discontinued operations --- (2)
--------- ---------
Net cash provided (used) by
operating activities 609 (1,073)
--------- ---------
Cash flows used in investing activities
Purchase of property and equipment (138) (41)
--------- ---------
Cash flows from financing activities
Net (payment) borrowings on bank
line of credit (473) 1,189
Principal payments on long-term debt --- (80)
Proceeds from issuance of common stock 5 ---
--------- ---------
Net cash (used in) provided by
financing activities (468) 1,109
--------- ---------
Net increase (decrease) in cash and
cash equivalents 3 (5)
Cash and cash equivalents at the
beginning of the period 81 113
--------- ---------
Cash and cash equivalents at the
end of the period $ 84 $ 108
========= =========
Supplementary disclosure of cash flow
information:
Cash paid during the period for
Interest $ 50 $ 29
Income taxes 12 73
The accompanying notes are an integral part of
these consolidated financial statements.
5
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, 2003
for additional information.
The accompanying consolidated financial statements include
the accounts of Versar, Inc. and its wholly-owned subsidiaries
("Versar" or the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
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, 2003, and the results of operations
for the three-month periods ended September 30, 2003 and 2002.
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
accounting principles generally accepted in the United States of
America 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 costs
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 when 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 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) Income Taxes
At September 30, 2003, the Company had approximately $4.6
million 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 $4.0 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.
6
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(E) Debt
In September, 2003, Versar entered into a new line of credit
facility with United Bank (Bank) that provides for advances up to
$5,000,000 based upon qualifying receivables. Interest on the
borrowings is based on prime plus one and a half percent (5.5% as
of September 30, 2003). 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, 2003 was approximately
$3,249,000. Advances under the line are due in November 2005.
The loan has certain covenants related to the maintenance of
financial ratios. At September 30, 2003, the Company met the
financial covenants. Management believes that cash generated
from operations and borrowings available from the line of credit
will be adequate to meet its working capital needs for fiscal
year 2004.
(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) Warranty Estimates
The Company has certain warranty obligations relating to the
sale of personal protective equipment. As such, the Company
accrues for such costs based upon volume outstanding, historical
performance and time remaining under the warranty. Such costs
are either increased or decreased based upon the above factors
and current year performance.
(H) Goodwill and Other Intangible Assets
The Company adopted the Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets"
in fiscal year 2003. The adoption of SFAS No. 142 eliminated the
amortization of goodwill and intangible assets expenses by
approximately $73,000 per year. Currently, the Company has a
carrying value of approximately $776,000 for the 1998 acquisition
of The Greenwood Partnership, P.C., subsequently renamed Versar
Global Solutions, Inc. (VGSI), which is now part of the
Architecture and Engineering reporting unit. The Company
obtained an independent appraisal in accordance with SFAS No.
142. The appraisal, based upon the market value analysis,
indicated that there was no impairment of the goodwill of the
Architecture and Engineering reporting unit, as the net carrying
value of the assets and liabilities was $871,000 compared to the
goodwill of $776,000.
(I) Net Income (Loss) Per Share
Basic net income (loss) per common share is computed by
dividing net income (loss) by the weighted average number of
common shares outstanding during the period. Diluted net income
per common share also includes common equivalent shares
outstanding during the period if dilutive. The Company's common
equivalent shares consist of stock options. For the three-month
periods ended September 30, 2002, the assumed
7
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
exercise of the Company's outstanding stock options of 103,461
shares using the Treasury Stock Method are not included in the
following calculation as the effect would be anti-dilutive.
For the Three-Month
Periods Ended September 30,
---------------------------
2003 2002
--------- ---------
Weighted average common shares
outstanding - basic 7,259,770 7,226,546
Assumed exercise of options
(treasury stock method) 257,871 ---
--------- ---------
Weighted average common shares
outstanding - diluted 7,517,641 7,226,546
========= =========
(J) Common Stock
The Company issued 2,400 shares of common stock pursuant to
the exercise of stock options during the first quarter of fiscal
year 2004.
(K) Non-recurring Charge
In the first quarter of fiscal year 2003, management and the
Board of Directors approved a restructuring plan to reduce the
Company's overall cost structure and reduce costs in non-
performing divisions, which resulted in a non-recurring charge of
$800,000. Approximately $450,000 of this charge comprises
severance payments relating to the elimination of two senior
management positions. Such severance payments have begun to be
paid out during the next two years starting in the third quarter
of fiscal year 2003. The remainder of the charge consists of
costs expected to be incurred in connection with management's
plan to reduce occupancy expense. Such costs include lease
penalties, relocation, and other associated fees. In the first
quarter of fiscal year 2004, the Company had made payments of
approximately $74,000 and $24,000 related to severance and
occupancy expenses, respectively. Currently, there is
approximately $471,000 remaining in the reserve.
(L) Recently Issued Accounting Standards
In May 2003, the FASB issued FAS 150, "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity." FAS 150 changes the classification in
the statement of financial position of certain common financial
instruments from either equity or mezzanine presentation to
liabilities and requires an issuer of those financial statements
to recognize changes in fair value or redemption amount, as
applicable, in earnings. FAS 150 requires an issuer to classify
the following financial instruments as liabilities: a)
mandatorily redeemable preferred and common stock; b) forward
purchase contracts that obligate the issuer to repurchase shares
of its stock by transferring assets; c) freestanding put options
that may obligate the issuer to repurchase shares of its stock by
transferring assets; and d) freestanding financial instruments
that require or permit the issuer to settle an obligation by
issuing a variable number of its shares if, at inception, the
monetary value of the obligation is based solely or predominantly
on a fixed monetary amount known at inception, variations in
something other than the issuer's shares, such as the price of
gold multiplied by a fixed notional amount, or variations
inversely related to changes in the value of the issuer's shares,
such as a written put option that can be net share settled. The
effect of adopting FAS 150 will be recognized as a cumulative
effect of an accounting change as of the beginning of the period
of adoption. Restatement of prior periods is not permitted. FAS
150 is effective for financial instruments entered into or
modified after May 31, 2003 and, with one exception, is effective
at the beginning of the first interim period beginning after June
15, 2003 (July 1, 2003 for calendar year companies). The Company
does not believe there will be a material effect on its financial
condition from the adoption of this standard.
8
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(M) Stock Based Compensation
The Company accounts for employee stock option grants using
the intrinsic method in accordance with Accounting Principles
Board (APB) Opinion No. 25 "Accounting for Stock Issued to
Employees" and accordingly associated compensation expense, if
any, is measured as the excess of the underlying stock price over
the exercise price on the date of grant. The Company complies
with the disclosure option of Statement of Financial Accounting
Standards (SFAS) No. 123 "Accounting for Stock-Based
Compensation", as amended by SFAS No. 148 "Accounting for Stock-
Based Compensation - Transition and Disclosure" which requires
pro-forma disclosure of compensation expense associated with
stock options under the fair value method.
The Company's pro forma information follows (in thousands,
except per share data):
For the Three-Month Periods
Ended September 30,
---------------------------
2003 2002
--------- ---------
Net income (loss), as reported $ 343 $ (1,401)
Less: Total Stock-Based
Compensation determined
under the fair-value based
method (75) (40)
Pro-forma net income (loss) 268 (1,441)
Net income (loss) per share
- basic, as reported $ 0.05 $ (0.19)
Pro-forma net income (loss)
per share - basic 0.04 (0.20)
Net income (loss) per share
- diluted, as reported $ 0.05 $ (0.19)
Pro-forma net income (loss)
per share 0.04 (0.20)
(N) Business Segments
The Company's business segments are Environmental Services,
Architecture/Engineering and Defense Systems. The Environmental
Services segment provides a full range of services including
remediation/corrective actions, site investigations, remedial
designs, and construction, operation and maintenance of remedial
systems. The Architecture/Engineering segment provides
engineering, design and construction management to industrial and
commercial facilities. The Defense Systems segment provides
expertise in developing, testing and providing personal
protection equipment, and detecting and destroying biological and
chemical agents.
9
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The Company evaluates and measures the performance of its
business segments based on net service revenue and operating
income. As such, selling, general and administrative expenses,
interest and income taxes have not been allocated to the
Company's business segments.
Summary financial information for each of the Company's
segments follows:
For the Three-Month
Periods Ended September 30,
---------------------------
2003 2002
--------- ---------
NET SERVICE REVENUE
- -------------------
Environmental Services $ 5,311 $ 4,758
Architecture/Engineering 1,518 1,957
Defense Systems 1,400 1,309
--------- ---------
$ 8,229 $ 8,024
========= =========
OPERATING INCOME (LOSS)(A)
- --------------------------
Environmental Services $ 1,155 $ 689
Architecture/Engineering 295 340
Defense Systems 327 270
--------- ---------
1,777 1,299
Selling, general and
administrative expenses 1,380 1,468
Non-recurring charge --- 800
--------- ---------
$ 397 $ (969)
========= =========
(A)Operating income (loss) is defined as net service revenue
less direct costs of services and overhead.
IDENTIFIABLE ASSETS September 30, June 30,
- ------------------- 2003 2003
------------- -------------
Environmental Services $ 8,655 $ 8,388
Architecture/Engineering 4,927 5,735
Defense Systems 2,444 3,019
Corporate and Other 1,934 2,194
------------- -------------
$ 17,960 $ 19,336
============= =============
10
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
First Quarter Comparison of Fiscal Year 2004 and 2003
- -----------------------------------------------------
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, and
the possible impact of current and future claims against the
Company based upon negligence and other theories of liability,
and changes to or failure of the Federal government to fund
certain programs in which the Company participates. 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 possibility the Company
will not be able 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 possibility the Company will not be able 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 first quarter of fiscal year
2004 decreased by $279,000 (2%) compared to gross revenue for the
comparable period in fiscal year 2003. The decrease was
primarily due to a reduction of subcontracted construction work
of $1,709,000 in the Company's Architecture and Engineering
segment and the winding down of the Company's STEPO contract of
$726,000 in the Defense segment. Such decreases were offset
substantially by increased gross revenue of $2,129,000 in the
Company's Environmental segment in support of its expanding work
in mold remediation.
Purchased services and materials for the first quarter of
fiscal year 2004 decreased by $484,000 (8%) compared to
comparable costs for the first quarter of fiscal year 2003. The
decrease was primarily the result of the decrease in
subcontracted work mentioned above.
Net service revenue is derived by deducting the costs 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
increased by 3% compared to the first quarter of fiscal year
2003. The increase is primarily due to the higher gross revenues
in the Company's Environmental segment without a proportional
increase in purchased services and materials.
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
decreased to 78% in the first quarter of fiscal year 2004
compared to 84% in the first quarter of fiscal year 2003. The
decrease is due to the Company's cost reduction efforts in fiscal
year 2003 and increased labor utilization during the first
quarter of fiscal year 2004.
Selling, general and administrative expenses approximated
17% of net service revenue in the first quarter of fiscal year
2004 compared to 18% in the first quarter of fiscal year 2003.
The decrease is primarily due to the cost reduction efforts
implemented during fiscal year 2003.
In the first quarter of fiscal year 2003, the Company
recorded an $800,000 non-recurring charge to reduce the Company's
overall cost structure and reduce costs in non-performing
divisions.
11
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Operating income for the first quarter of fiscal year 2004
was $397,000, an increase of $1,366,000 compared to the first
quarter of fiscal year 2003. The increase is primarily due to
improved financial performance and the absence of the non-
recurring charge recorded in the first quarter of fiscal year
2003.
Income tax expense for the first quarter of fiscal year 2004
decreased by $400,000 compared to the first quarter of fiscal
year 2003. In the first quarter of fiscal year 2003, the Company
increased the tax valuation allowance by $400,000 due to the
lower financial performance in the first quarter of fiscal year
2003. The Company has approximately $4.6 million in tax assets
of which a $4.0 million valuation allowance has been reserved
against these assets. The Company will maintain the valuation
allowance until the probability of the realization of these
amounts becomes more certain. The valuation allowance will be
increased or decreased depending on the financial performance of
the Company going forward, which will directly impact the
Company's Consolidated Statement of Operations.
Versar's net income for the first quarter of fiscal year
2004 was $343,000 compared to a net loss of $1,401,000 in the
first quarter of fiscal year 2003. The increase is the result of
improved financial performance, the absence of non-recurring
charges and reduced tax expense.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital at September 30, 2003
approximated $6,973,000, a decrease of $92,000 (1%) from June 30,
2003. The decrease was due to improved collections of accounts
receivable, which funds were used to pay down the Company's long
term line of credit. The Company's current ratio at September
30, 2003 was 1.99, which was higher than the 1.85 reported on
June 30, 2003.
In September 2003, Versar entered into a new line of credit
facility with United Bank (Bank) that provides for advances up to
$5,000,000 based upon qualifying receivables. Interest on the
borrowings is based on prime plus one and a half percent (5.5% as
of September 30, 2003). 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, 2003 was approximately
$3,249,000. Advances under the line are due in November 2005.
The loan has certain covenants related to the maintenance of
financial ratios. At September 30, 2003, the Company met the
financial covenants. Management believes that cash generated
from operations and borrowings available from the line of credit
will be adequate to meet its working capital needs for fiscal
year 2004.
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.
12
Item 3 - Quantitative and Qualitative Disclosures About Market
Risk
There have been no material changes regarding the Company's
market risk position from the information provided on Form 10-K
for the fiscal year end June 30, 2003.
Item 4 - Procedures and Controls
As of the last day of the period covered by this report, the
Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the
Company's Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule
13a-15. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective, as of such
date, to ensure that required information will be disclosed on a
timely basis in its reports under the Exchange Act.
There were no changes in the Company's internal control over
financial reporting during the last quarter that have materially
affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In August 1997, Versar entered into a contract with the
Trustees for the Enviro-Chem Superfund Site (the "Superfund
Site"), which provided that, based upon an existing performance
specification, Versar would refine the design, and construct and
operate a soil vapor extraction system. During the performance
of the contract, disputes arose between Versar and the Trustees
regarding the scope of work. Eventually, Versar was terminated
by the Trustees for convenience. The Trustees then failed to pay
certain invoices and retainages due Versar.
On March 19, 2001, Versar instituted a lawsuit against the
Trustees and three environmental consulting companies in the U.S.
District Court of the Eastern District of Pennsylvania, entitled
Versar, Inc. v. Roy O. Ball, Trustee, URS Corporation,
Environmental Resources Management and Environ Corp., No.
01CV1302. Versar, in seeking to recover amounts due under the
remediation contract from the Trustees of the Superfund Site,
claimed breach of contract, interference with contractual
relationships, negligent misrepresentations, breach of good faith
and fair dealing, unjust enrichment and implied contract. Mr.
Ball and several defendants moved to dismiss the action or, in
the alternative, transfer the action to the U.S. District Court
for the Southern District of Indiana, where, on April 20, 2001,
the two Trustees had filed suit against Versar in the U.S.
District Court for the Southern District of Indiana, entitled,
Roy O. Ball and Norman W. Bernstein, Trustees v. Versar, Inc.,
Case No. IPO1-0531 C H/G. The Trustees alleged breach of
contract and breach of warranty with respect to the remediation
contract and asked for a declaratory judgment on a number of the
previously stated claims.
On July 12, 2001, the Federal District Court in Pennsylvania
granted defendants= motion to transfer the Pennsylvania lawsuit
and consolidate the two legal actions in Indiana. The Company
filed an answer and counterclaim to the Indiana lawsuit. The
plaintiffs and third-party defendants filed Motions to Dismiss
the Company's counterclaim. The court granted the motions in
part and denied them in part. Versar amended its answer and
counterclaim. In the meantime, plaintiffs filed a Motion for
Partial Summary Judgment which the Judge granted in part and
denied in part. The Judge held that certain agreements entered
into by the parties prevented Versar from recovering certain
amounts under its counterclaim but that Versar could pursue its
claim for fraud in other areas. Written and oral discovery has
commenced and is expected to be completed by the end of 2003.
Trial is scheduled for September 2004. Based upon discussions
with outside counsel, management does not believe that the
ultimate resolution under the Trustees' lawsuit will have a
materially adverse effect on the Company's consolidated financial
condition and results of operations.
13
Versar and its subsidiaries are parties from time to time to
various other legal actions arising in the normal course of
business. The Company believes that any ultimate unfavorable
resolution of these legal actions will not have a material
adverse effect on its consolidated financial condition and
results of operations.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 and 31.2 - Certification pursuant to Securities
Exchange Act Section 13a-14.
32.1 and 32.2 - Certification under Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
Pursuant to the Securities Exchange Release No. 33-
8216, Form 8-K, which reported the Company's annual
Results of Operations and Financial Condition, was
furnished to, but not filed with the Securities and
Exchange Commission on September 18, 2003.
14
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/ Theodore M. Prociv
________________________
Theodore M. Prociv
Chief Executive Officer,
President, and Director
By: /S/ Lawrence W. Sinnott
________________________
Lawrence W. Sinnott
Senior Vice President,
Chief Financial Officer,
Treasurer, and Principal
Accounting Officer
Date: November 7, 2003
15
Exhibit 31.1
CERTIFICATION BY THEODORE M. PROCIV PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Theodore M. Prociv, Chief Executive Officer of Versar, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Versar, Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the Registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
Date: November 7, 2003
/S/ Theodore M. Prociv
______________________________
Theodore M. Prociv
President and Chief Executive Officer
16
Exhibit 31.2
CERTIFICATION BY LAWRENCE W. SINNOTT PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Lawrence W. Sinnott, Senior Vice President and Chief Financial
Officer of Versar, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Versar, Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the Registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
Date: November 7, 2003
/S/ Lawrence W. Sinnott
______________________________
Lawrence W. Sinnott
Senior Vice President and Chief
Financial Officer
17
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Versar, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2003
as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Theodore M. Prociv, Chief Executive
Officer and President of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) the information contained in the Report fairly
presents, in all material aspects, the financial
condition and results of operations of the Company.
/S/ Theodore M. Prociv
__________________________
Theodore M. Prociv
President and CEO
November 7, 2003
18
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Versar, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2003
as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Lawrence W. Sinnott, Senior Vice
President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(3) the Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(4) the information contained in the Report fairly
presents, in all material aspects, the financial
condition and results of operations of the Company.
/S/ Lawrence W. Sinnott
__________________________
Lawrence W. Sinnott
Senior Vice President and
Chief Financial Officer
November 7, 2003
19