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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE
JUNE 30, 1995 NO. 1-9309
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[VERSAR INC. LOGO]
(Exact name of registrant as specified in its charter)
DELAWARE 54-0852979
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
6850 VERSAR CENTER, SPRINGFIELD, VIRGINIA 22151
(Address of principal executive offices) (Zip code)
(703) 750-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
AMERICAN STOCK EXCHANGE
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of Act: NONE
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 check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 1, 1995 was approximately $11,567,565.
The number of shares of Common Stock outstanding as of September 1, 1995 was
4,850,169.
The Exhibit Index required by 17 CFR Part 240.0-3(c) is located on Pages 25
through 31 hereof.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission with respect to the 1995 Annual Meeting of Stockholders
scheduled to be held on November 16, 1995 are incorporated by reference into
Part III thereof.
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PART I
ITEM 1. BUSINESS
BACKGROUND & PERSPECTIVE
Versar, Inc. ("Versar" or "the Company"), founded in 1969, is a nationally
recognized full-service environmental engineering and consulting firm. From a
network of 16 facilities located throughout the United States, Versar
specializes in providing environmental risk management services to industry,
government, and commercial clients.
For the past four years, management has focused on rebuilding and
restructuring Versar by establishing a focus and direction for the Company,
increasing sales volume, reducing the overhead cost structure, disposing of
highly leveraged real estate, divesting of unprofitable laboratory operations,
reducing high legal fees, and increasing cash flow.
BUILDING THE BUSINESS BASE FOR FUTURE GROWTH
Selling Versar Laboratories, Inc., debt retirement, and growing sales
profitably are the three major challenges Versar has had to solve to rebuild
shareholder value. Two of the three major challenges were finally resolved in
late fiscal year 1994. By eliminating approximately $800,000 of laboratory
pre-tax losses from operations, we had taken a major step toward the final
challenge of growing sales profitably.
This year, we have successfully stabilized operations and are in the
process of completing our restructuring. Also we have focused Versar to be
profitable although Versar's sales volume decreased by 9% compared to fiscal
year 1994. When we began fiscal year 1995, we had improved cash flow,
extensive tax benefits, lower debt, no major legal issues, a more competitive
cost structure, and improved contract backlog. The outlook for Versar was much
brighter. The key issue was how to turnaround new orders and backlog so that
we could grow sales volume.
In fiscal year 1995, we made good progress in expanding our DOD business
and rebuilding our backlog. Revenues from the government sector, which
contributed 64% of total revenue, gained 2% over last year. Rapid growth in
this sector reflects spending by DOD agencies to clean up environmental
problems at military bases, many of which are scheduled for closing. However,
demand in the commercial market continued to be soft.
During the last six months of fiscal year 1995, Versar had won 15 large
federal, state and commercial contracts, which has boosted the Company's total
backlog to $306 million. Of such backlog, approximately $23.5 million is
funded, with the remaining $282.5 million of the backlog in unfunded contract
capacity. Our challenge going forward is to fully develop these new contracts
and enhance the value of our services by focusing on economic incentives and
the application of new technologies to provide new services. For a further
description regarding the Company's total backlog, see "BACKLOG" below. The
Company believes that its total backlog helps to solidify its business base and
sets forth a framework for possible future growth. Below is a summarization of
the major new contracts that were awarded in fiscal year 1995:
Armstrong Laboratory - this is a five-year Indefinite Delivery / Indefinite
Quanity (ID/IQ) support contract for a variety of health, safety, and
environmental services with a potential value of $50 million. Contract work
will involve support to Air Force facilities worldwide in areas of health risk
assessment, industrial hygiene, radiological support, pollution prevention,
environmental impact, clean air, clean water, and environmental compliance.
Wright Patterson AFB/ASC - this is a five-year ID/IQ contract with a potential
value of $49 million. The contract is to provide support for environmental
compliance, pollution prevention, environmental and land use planning, and
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environmental engineering for Wright-Patterson AFB and for eleven
government-owned, contractor-operated (GOCO) aeorspace manufacturing facilities
located across the United States.
Air Force Air Education and Training Command - this is a five-year ID/IQ
contract with a potential value of $35 million. The contract is to provide
pollution prevention, environmental compliance, program management support,
installation restoration work, and other general environmental compliance
support to AETC bases and units throughout the United States.
Norfolk COE - this is a five-year ID/IQ contract with a potential value of $40
million. The contract is to provide air compliance to assist the Department of
Defense and other federal agencies in complying with the requirements of the
Clean Air Act Amendments (CAAA) of 1990. This work includes the
identification, monitoring, and installation of control technologies for a
variety of air pollution emissions sources at federal installations. The
contract also includes work on air toxins and assistance in complying with the
Title V Operating Permit Program under the CAAA.
NASA Goddard Space Flight Center - this is a four-year ID/IQ with a potential
value of $5 million. The contract is to perform a wide range of environmental
services, including environmental NEPA assessments, environmental compliance
support, as well as engineering, remedial design, construction oversight and
emergency response support services.
Army Chemical Material Destruction Agency - GEOMET Technologies, Inc., a
wholly-owned subsidiary of Versar, in conjuction with prime contractor Teledyne
Brown Engineering, was awarded a contract with an estimated value of $5.4
million. The contract calls for the team to assemble the equipment and
prove-out technologies necessary to safely clean up and dispose of hazardous
chemical munitions at various Army sites.
Baltimore COE - this is a five-year ID/IQ contract with a potential value of $4
million. The contract will support the district's NEPA compliance,
environmental review of the Corps projects, and design and evaluation of the
Corps restoration activities.
Philadelphia COE - this is a four-year ID/IQ contract with a potential value of
$3.5 million. The contract will support the district's civil works activities
by providing biological/environmental services, primarily within the Delaware
River basin and the upper Chesapeake Bay.
Natick ITAP - GEOMET Technologies, Inc., a wholly-owned subsidiary of Versar,
was awarded for the design, development and initial production of an Improved
Toxicological Agent Protective suit (ITAP). The contract has an estimated
value of approximately $2.4 million.
Navy NFESC - This is a ID/IQ contract with a potential value of $30 million
over 3 years to help the Navy to implement pollution prevention technology at
Navy facilities worldwide. This procurement is in response to the Executive
Order 12856 which requires that each of the services achieve a 50 percent
reduction in the release of toxic chemicals or pollutants by 1999. Versar is a
subcontractor to Parsons Engineering Sciences, and our share is 25 percent.
In addition, Versar has won recompete contracts for the U.S. EPA valued at
$3.4 million, and the State of Maryland Biological Integrator contract with an
approximate value of $5 million.
By having these contracts in place, the key to Versar's future revenue
growth will be to develop these contracts by obtaining task orders to fully
utilize the contracts capacities. While funding of these contracts is not
assured due to federal budgetary cutbacks and changes in government priorities,
management is taking steps to market these contracts in order to realize the
maximum revenues from these contracts.
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DIVESTITURE OF LABORATORY AND SPIN-OFF OF REAL ESTATE OPERATIONS
Spin-off of Real Estate and Sale of Laboratory Operations
On May 4, 1994, the Board of Directors of Versar approved the spin-off
of the real estate office park (owned and operated by Sarnia Corporation
(Sarnia)) in Springfield, Virginia to the Versar stockholders and the
divestiture of the laboratory operations of Versar Laboratories, Inc. The
Board of Directors of Versar initially concluded, after consultation with its
accounting and legal advisors, that these transactions were in the best
interests of Versar and the Versar stockholders for a number of reasons,
including: (i) that it would permit management of Versar and Sarnia to focus
on its core business without regard to the corporate objectives and policies of
the other company and (ii) it would permit investors to evaluate Versar more
effectively. In addition, at the time the Board of Directors approved the
spin-off of Sarnia, it was expected that the spin-off would provide Versar with
greater access to capital than would be available to the Company prior to the
spin-off because it was anticipated that Sarnia's performance would no longer
negatively impact the Company's financial condition. On June 30, 1994, Sarnia
was spun-off to shareholders. Subsequently, the assets of the laboratory
operations were sold to a third party on August 1, 1994. However, these
initial objectives have not yet been obtained since the divestiture of Sarnia
cannot be accounted for as a divestiture, as discussed below.
Inclusion of Sarnia's Results of Operations and Financial Position
The spin-off of Sarnia was initially accounted for as discontinued
operations. Sarnia was spun-off on a legal and tax basis. Yet from an
accounting standpoint, the spin-off did not relieve Versar of the risks of
ownership due to Versar's guaranty of Sarnia's $12.5 million of debt at June
30, 1994. Therefore, the fiscal year 1994 financial statements of the Company
were restated to include Sarnia's results of operations and financial position.
The Company is evaluating a number of alternatives to resolve this issue,
including obtaining additional equity for Sarnia or the refinancing of certain
of Sarnia's outstanding debt to lessen the Company's guaranty of Sarnia's debt
so the Company can, at a later date, account for the spin-off of the real
estate operations as a divestiture. No assurances can be given that the
Company will be successful in these attempts. Refer to Notes B and D in the
Consolidated Financial Statements for futher information.
Tax Impact of Spin-off of Real Estate Operations
The spin-off of the real estate operations triggered a taxable event in
1994 through an "Excess Loss Account" (losses recorded for tax purposes in
excess of the investment due to accelerated depreciation). The excess loss
account had a balance of approximately $5 million, which was offset by debt
forgiveness by Versar of approximately $2.4 million, leaving $2.6 million of
taxable income. At March 31, 1994, Versar had $9.5 million of future tax
deductions including tax credits, which were reduced by approximately $2.4
million and applied to the remaining taxable income of $2.6 million as a result
of the spin-off. This left Versar with approximately $6.8 million of future
tax deductions at June 30, 1994, which the Company now believes it has a higher
probability of utilizing due to the completion of the spin-off of Sarnia and
the divestiture of the Company's laboratory business.
DEBT RETIREMENT
Just over four years ago, Versar had approximately $27 million in debt.
Through aggressive working capital management and the sale of non-core
businesses the Company's total debt has been reduced to $12.8 million.
The sale of Versar's manufacturing operations in 1991 represented an
initial step in its strategy to retire long-term debt through selective
divestitures. Consistent with this strategy, the Company also divested its
interest in the Perland partnership in November 1991 and utilized the amounts
received from that sale and amounts received in May 1992 from the early payout
in the Gammaflux asset sale to reduce its long-term debt.
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In June 1994, the Company spun-off its real estate operations to its
shareholders on a legal and tax basis. Sarnia Corporation (formerly Versar
Virginia, Inc.) owns and manages the 18 acre site in Springfield, Virginia,
along with the two office buildings that comprise approximately 229,000 square
feet. As a part of the spin-off, Sarnia assumed approximately $12,450,000 of
the building debt. Versar remained solely liable for the balance of
$1,000,000, which was paid in fiscal year 1995, and continues to act as
guarantor of Sarnia's debt, all of which becomes due in May 1997. As of June
30, 1995, the remaining Sarnia debt was $12.1 million. All of Sarnia's
indebtedness is reflected on the Company's balance sheet contained in the
financial statements included in this report.
LITIGATION
Over the past three years, management has successfully resolved the
Sterling lawsuit, the VA&E bankruptcy, and several other significant law suits.
Due to resolution of these lawsuits, legal costs have been reduced from
$748,000 in 1991 to $268,000 in 1995.
COST REDUCTIONS
Other overhead cost reductions include the change in computer hardware and
software. This lowered the Company's computer cost from approximately $2.4
million in 1992 to approximately $1 million in 1995. Versar's administrative
staff has been reduced from 13.8% of total staff in fiscal year 1990 to 8.5% in
fiscal year 1995. By consolidating into one building in Springfield, the
Company was able to reduce occupancy expense and increase space leased to
others. From fiscal year 1992 to fiscal year 1995, Versar has been able to
reduce its rent expenses by $767,000 in its headquarters location in
Springfield, Virginia.
CONSULTING CORE BUSINESS
The following section is a review of the Company's consulting business.
Versar works in partnership with government and industry to protect our
common environment in a way that balances the need for economic growth with
sustainable development of our natural resources. Versar responds to its
partnerships by recognizing the uniqueness of each client . . . by becoming an
involved member of its clients' organizations . . . a client-centered approach
that builds client relationships, sets priorities, ensures proper allocation
and control of resources, supports and encourages synergistic activities among
the various elements of the organization, and monitors results. Our goal is to
help our clients build environmental performance into each aspect of their
organizational activities to enhance both their environmental performance and
improve their bottom line. Versar achieves this goal by helping clients to be
more active in preventing pollution, better manage the spectrum of
environmental compliance, and apply innovative and cost-effective approaches to
remediation or corrective action of past problems in our environment.
Versar has a commitment to people and results, teamwork, technical
excellence, total quality control, and cost-effective solutions for its
clients' compliance and liability issues. Today's environmental challenges
require an integrated multidisciplinary team actively assisting clients in
making informed decisions and implementing them at the least cost. These
challenges are driven by:
- Complex and changing environmental regulations and the need for a
more strategic approach to meet national and international
environmental challenges in a way that allows industry to be
profitable and competitive in a world market.
- Increased emphasis on compliance management and recognition that
pollution prevention and waste minimization are a necessary part
of the long-term solution to local and national environmental
challenges.
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- Competition for limited resources and a need for new and better
technology to achieve pollution prevention and remediation goals
more cost effectively.
Versar helps its clients meet these challenges through its distinction as a
full-service firm that emphasizes:
- STRATEGIC PLANNING AND POLLUTION PREVENTION. These are Versar's
trademark services capitalizing on its combined strengths in
regulatory policy, information management, pollution control and
treatment technology that emphasize pollution prevention.
- TOTAL COMPLIANCE MANAGEMENT. A strategic approach and process of
continuous improvement that permits senior management to view
environmental compliance expenditures as business investments--an
"Environmental Balance Sheet." Versar consults at the highest
levels of industry and government where policy decisions are made.
- CORRECTIVE/REMEDIAL ACTION. Program management and integration
services for corrective/remedial action are necessary to assist
our clients in getting better results at lower costs. Versar is
forging long-term strategic relationships with architect and
engineering and construction firms to provide a fully-integrated
consulting/engineering/construction capability.
STRATEGIC PLANNING AND POLLUTION PREVENTION
The Pollution Prevention Act of 1990 states that the prevention of
pollution should occur at the source, and if generation of waste is
unavoidable, then pollutants should be recycled in an environmentally safe
manner. Provisions of the Resource Conservation and Recovery Act (RCRA), the
Clean Water Act, and the Clean Air Act Amendments of 1990 also emphasize
pollution prevention. Pollution prevention planning is emerging as a new
environmental ethic as regulators strive to develop better incentives for
voluntary reduction of emissions and industries struggle to find better ways to
meet environmental challenges in today's world economy.
In 1991, the Environmental Protection Agency (EPA) issued a Pollution
Prevention Strategy that has led to several nationwide programs, such as the
33/50 Program, the Green Lights Program, and revisions to Emergency Planning
and Community Right-To-Know Act (EPCRA) including the Toxic Release Inventory
(TRI) Form R's, for reporting by industry on pollution prevention plans and
progress. Also, on August 3, 1993, President Clinton signed Executive Order
12856, which requires all federal facilities to reduce their emissions by 50
percent by 1999. The order further requires agencies to comply with EPCRA,
including annual submissions of TRI Form R reports.
The EPA has also established several pollution prevention research programs
in which Versar has played a key role. These are the Waste Reduction
Innovative Technology Evaluation (WRITE) Program, Waste Reduction Assessment
Program (WRAP), Emerging Technologies Program, and Waste Reduction Evaluation
At Federal Sites (WREAFS) Program.
The WREAFS program is best described as a series of assessments (performed
by Versar, among others) to find ways to reduce or prevent pollution at a
federal facility. About two-thirds of all WREAFS assessments have been
performed at Department of Defense (DOD) sites. Also, Versar has supported the
Defense Logistics Agency in its efforts to address a major problem, namely
substituting nonhazardous solvents for the hazardous materials currently
required in military specifications. Versar is also under contract with the
U.S. Army Construction Engineering Research Laboratory (CERL) to support the
Army's pollution prevention research efforts.
State legislation and local ordinances have been adopted to encourage
pollution prevention. In the past five years, about half the states have
enacted some form of pollution prevention legislation that affects the way some
industries operate. In the last few years, several Versar projects were
conducted as the direct result of such
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legislation and the ensuing regulations. For example, Versar conducted a study
for the petroleum industry, which initiated a program to evaluate methods of
measuring pollution prevention in that industry's various operations. In a
separate study, Versar assessed changes in waste generation for the waste
treatment industry.
Versar has been actively involved in pollution prevention since 1985.
Versar has the experience, personnel, test facilities, first-hand knowledge,
and proven approach to address pollution prevention program needs successfully
in both the public and private sectors. Versar has developed a core department
of senior process and environmental engineers who specialize in waste reduction
engineering and design. Versar was instrumental in developing the original
Waste Minimization Opportunity Assessment Manual for the EPA. This manual was
subsequently adopted by many industrial firms as the standard for pollution
prevention audits.
In 1988, Versar initiated a service to develop corporate pollution
prevention programs. Versar provides training to plant managers and engineers
on how to focus on pollution problems and identify effective pollution
prevention activities. Versar works with the managers on methods to audit
their operations and identify the problem areas. Versar has conducted several
training workshops for industry and DOD, resulting in several significant
process changes made by participating managers at their facilities. The DOD is
increasing its emphasis in the area of pollution prevention as a way to deal
with increasing pressures on the Federal budget and deficit reduction as the
military downsizes and realigns its mission. Several of Versar's new contracts
are specifically focused on pollution prevention and compliance management.
These include Wright-Patterson Air Force Base (AFB) Aeronautical Systems Center
(ASC), Air Force Education and Training Command, and the Navy NFESC in Port
Huenume.
TOTAL COMPLIANCE MANAGEMENT
Versar applies its strong regulatory background and information management
capabilities to assist its clients in managing their environmental risks to
prevent pollution, avoid problems, and help their bottom line. In effect,
Versar is helping many of its clients make the change to an incentive approach
to compliance, limiting their liabilities to protect their assets, while at the
same time helping them remain competitive and improve their profitability.
Understanding the environmental consequences of industrial processes starts
with having the capability to monitor environmental emissions and performance
of all process elements.
Versar has developed specialized products to help its clients monitor their
operations, meet regulatory reporting requirements, and make more informed
decisions on investments that will enhance performance while reducing
environmental costs over the long term:
- Environmental Compliance Management System (ECMS) -- Versar's
commercially available software, ECMS, is a comprehensive, integrated
information management system. ECMS assists Versar's clients in
managing environmental data and generating regulatory reports, such as
the Form R, Discharge Monitoring Report, and Hazardous Waste Manifest.
ECMS stores monitoring data from environmental compliance programs,
provides reports for state and federal agencies, projects potential
compliance problems, tracks environmental permits, and provides an
automated calendar of activities. Several Fortune 100 companies use
ECMS to manage their environmental data. Versar also has used the
system to manage compliance monitoring and reporting at federal
facilities.
- SARA Corporate System (SCS) -- This Versar software product allows
the collection, management, and analysis of corporate SARA Title III
Form R data. The system aggregates all Form R information for all
chemical releases, which allows prioritization of business decisions.
Form R data is used by industry for emergency planning and
demonstrating progress in emissions reductions to regulatory agencies
and the public.
Versar has entered into a "strategic alliance" with Honeywell Industrial
Automative and Control Group, aimed at supporting clients in integrating
environmental performance monitoring into plant operations by linking Versar's
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ECMS with Honeywell's "Total Plant" TC 3000X master controller. Our goal is to
use this alliance to demonstrate that improved economy and environmental
performance can be achieved via pollution prevention and risk reduction
strategies through better plant control.
Thus far, Versar has successfully linked its ECMS system to Honeywell's TDC
3000X process controller so that plant operators can monitor environmental
performance in real time. We made our first major sale this past year through
Honeywell. We have also recently completed two small pilot contracts.
Honeywell is preparing to formally roll out to its clients its new TCD 3000X
with an Environmental Module, this fall. We expect the demand for this kind of
product integration to grow as the EPA moves forward with its Enhanced
Monitoring Regulations.
COMPLIANCE ASSESSMENTS -- A key element in helping a client manage its
environmental health and safety risk is to establish a plan for and to conduct
comprehensive site/facilities assessments. Versar conducts a wide range of
assessments and audits of industrial and government facilities. We also have
initiated efforts to assist our clients in implementing the Standard ISO 9000
and pending ISO 14000 series requirements both to position the firm to provide
technical consulting services worldwide and to assist our clients in developing
and expanding overseas markets. We also now offer a turnkey "total compliance
environmental management" service to our customers with the goal of serving as
their environmental manager as they downsize and outsource more of their
environmental work.
Versar uses ECMS to help its clients make informed decisions to limit their
liabilities and protect their assets so that they can be both environmentally
responsible and profitable. Versar offers its clients health-risk-based
decision-making, coupled with the ability to use the information to provide
insightful means to solve environmental, health, and safety problems in a
balanced fashion. We also have the expertise to communicate the problems and
their solutions effectively to staff, regulators, and the public.
Manufacturers want to make useful products without injuring workers or causing
harm to third parties or the environment. Distributors and retailers want
customers to enjoy products without undue fear of being injured. Each business
sector wants to comply with regulations, but at a cost that achieves
corresponding benefit.
Companies need to know what risks they may be assuming before an
acquisition. They also need to recognize what liabilities can impact the value
of properties in divestitures. Specifically, they need to guard against
liabilities for pollution that occurred prior to an acquisition, and they need
to consider the costs associated with any corrective actions required for the
sale of properties. In conducting transactional due diligence assessments,
Versar evaluates the liabilities of companies that are the subject of merger
and acquisition efforts by Versar's clients. Versar also assists clients in
developing and implementing plans for corrective actions. Versar also helps
clients in developing and implementing strategies for obtaining stop loss
insurance, financing, and tax deference in implementing cleanup of contaminated
properties. Both onsite and offsite properties are evaluated. Onsite business
activities, past and present, are evaluated to determine whether contamination
of the site has already occurred and to assess the probability that
contamination might occur in the future, given the present operating
conditions. Likewise, offsite disposal practices, both past and present, are
evaluated to determine the extent of any liabilities incurred because of
offsite disposal practices. Versar assesses overall regulatory compliance,
both for existing regulations and the potential impact of pending legislation.
Versar conducts nearly a thousand transactional environmental audits
annually for commercial and government clients. Many are performed at multiple
sites nationwide under urgent deadlines. Versar also conducts large-scale
environmental compliance assessments of major operating facilities for
government and industry. Versar has for many years provided compliance
management support to the DOD. As an example, for the Aeronautical Systems
Center (ASC) of the U.S. Air Force, Versar has routinely performed
environmental assessments at 11 government-owned, contractor-operated
facilities to monitor and improve environmental compliance and management. The
assessments followed the guidelines of the Air Force's Environmental Compliance
and Management Program (ECAMP), which is an intensive multimedia assessment
protocol for evaluating a facility's environmental management activities and
compliance status. Versar will continue to provide compliance, as well as
pollution
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prevention and engineering support, to ASC under our new $49 million contract
at Wright-Patterson AFB. We also expect to provide similar services to the Air
Force Education and Training Command as well as other DOD facilities worldwide
under our new $50 million Air Force Armstrong Laboratories contract.
AIR QUALITY SERVICES -- Versar offers the following air services:
emissions inventories and inventory tracking, air toxics/risk assessments,
dispersion modeling, permitting/compliance status, and control technology.
Versar has worked with over 100 industrial clients on air quality matters,
including mining, electric utilities, chemical manufacturing, food processing,
steel manufacturing, oil refineries, and other industries. We have worked with
industry groups in evaluating the impact of regulations and helped them
identify cost-effective strategies for complying with regulations. Versar has
developed practical, innovative approaches for estimating emissions, performing
urban-scale dispersion modeling analyses, and evaluating emerging control
strategies for effectiveness and cost efficiency.
Versar supported the DOD in determining the optimum strategy for complying
with the 1990 Clean Air Act Amendments (CAAA) for Army, Navy, and Air Force
bases. We have subsequently conducted emission inventories at over 40
installations and are in the process of supporting Title V permits for DOD
installations worldwide under our new $40 million contract with the Norfolk
District of the Army Corps of Engineers and the $50 million contract with the
Air Force's Armstrong Laboratory. Representing industry, Versar participated
in EPA roundtable discussions that helped focus the development of new
regulations implementing the new amendments. For the State of Maryland, Versar
prepared a regional assessment of the benefits of the amended CAAA with respect
to nitrate deposition in the Chesapeake Bay. As in the past, Versar continues
to provide permitting and compliance support to various commercial, industry,
and utility clients across the nation.
INDOOR ENVIRONMENTAL AND ENERGY SERVICES -- Indoor air quality and human
comfort are two of the most important characteristics of the indoor environment
affecting human health as well as worker productivity. Research indicates that
pollutant levels in the air inside our homes and offices may be two to five
times higher than the air outside. Because people generally spend 75 to 90
percent of their time indoors, the quality of indoor air has become a serious
concern.
Versar's subsidiary, GEOMET Technologies, Inc., is one of the pioneering
firms in the area of indoor air quality, providing research and technical
services to government, industry, and private clients since the early 1970s.
In support of its research programs, GEOMET has developed a wide range of
measurement and analysis capabilities that include radon, volatile organic
compounds (VOCs), biological aerosols, carbon monoxide, nitrogen dioxide,
particles, formaldehyde, inorganics, energy consumption, comfort factors, air
infiltration, and pressured differentials. Indoor air quality, comfort, and
energy studies have been performed in various types of environments, including
single-family homes, apartments, mobile homes, public access buildings,
laboratories, trains, and airline cabins.
GEOMET also provides energy conservation, audit, and support services.
Clients include the utility industries and the federal government. GEOMET is
currently under contract with the United States Postal Service to conduct
energy audits of its facilities in the eastern U.S.
CORRECTIVE/REMEDIAL ACTION
Versar applies both its strong regulatory foundation and its experience
base in compliance management to help clients take appropriate corrective or
remedial action in dealing with contamination and pollution problems. Versar
offers a strategic approach to accelerate cleanup and to reduce costs and
liability. For example, we are currently supporting the Air Force in a pilot
demonstration at Langley, AFB, in a partnering process whereby the regulations,
the Base, and other stakeholders agree on issues, the approach to their
resolution, and the use of alternative means of providing project oversight to
reduce both the time and cost of cleanup. Versar's project teams combine the
best of its regulatory, technology, design, and construction management
expertise for each project to ensure that the most
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cost-effective solutions are developed to meet regulatory requirements. One
integrated field team can support a project from characterization of the site
or problem through implementation of corrective action or cleanup.
Versar emphasizes a turnkey approach to the investigation, design, and
remedial action process as much as practicable, whether it is a Resource
Conservation and Recovery Act; Comprehensive Environmental Response,
Compensation, and Liability Act; Clean Water Act; or other response action.
Examples of Versar's corrective/remedial action activities include remedial
planning and implementation, comprehensive tank management services, and
civil/infrastructure services.
REMEDIAL PLANNING AND IMPLEMENTATION -- Versar has extensive experience in
conducting multimedia investigations to characterize environmental
contamination. It has performed subsurface contaminant investigations at
multiple sites under contracts to the U.S. Army, Air Force, Navy, Coast Guard,
Department of Energy, several states, and numerous private corporations.
Versar's personnel have broad experience in sampling, analysis, and monitoring
of multimedia pollutants. Versar is intimately familiar with the stringent
EPA-directed sample collection and documentation protocols.
Versar is in its second year of a 5-year, $50 million national contract for
the Air Force Center of Environmental Excellence (AFCEE), performing
environmental support services from preliminary assessment and site
investigations through design and construction oversight. The Company
currently has assignments at Lowry AFB in Colorado; Brooks AFB in Texas;
Wurtsmith AFB in Michigan; Grissom AFB in Indiana; and Homestead AFB in
Florida. Versar is also a prime contractor for environmental remedial action
support work for the Army Environmental Center, the San Francisco Airport
Authority, and the Army Corps of Engineers.
COMPREHENSIVE TANK MANAGEMENT SERVICES -- In 1983, Versar began providing
the full range of tank services required by tank owners. The heart of Versar's
approach is an innovative risk rating and prioritization procedure that is used
to cost-effectively schedule tank upgrading and replacement programs for
clients with tanks at multiple locations. Versar has successfully applied the
tank action planning process for clients with up to hundreds of tanks each.
Versar prepares construction bid packages for tank replacements tailored to
individual clients' needs and preferences. The Company also provides
construction management services to verify to our clients that tank
installations conform to the bid package requirements. To better meet its
clients' needs, Versar has augmented its traditional strengths in geotechnical
investigations/remediation services with 1) preparation of plans and
specifications for new tank installations and 2) construction oversight to
ensure that these specifications are achieved.
Versar is now in its seventh year of a multi-year tank upgrading program
for a major telecommunications company, involving 600 Underground Storage Tanks
(USTs) at more than 100 locations across a multi-state region. Versar is
providing comprehensive tank services including: 1) scheduling and cost
estimating; 2) design; 3) construction management; 4) release
investigations/remediation and 5) all permitting and regulatory coordination.
CIVIL/INFRASTRUCTURE SERVICES -- Versar continues to provide traditional
design services for commercial, state, DOD, and DOE clients. One of Versar's
Rocky Mountain Region principal clients is the State of Utah Department of
Transportation, for which Versar has several major design projects for
expressway upgrades, new interchanges, and environmental support work.
MARKETS AND CUSTOMERS
Versar markets its services and technologies to governmental and industrial
customers throughout the United States. Versar also services customers in
Canada, the Pacific Trust Territories, and the Caribbean and will pursue
international projects on a case-by-case basis, e.g., plant facilities or
overseas operations of our U.S. clients. Versar's sales are technical in
nature and involve senior technical and management professionals, supported by
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Versar's marketing group. The Company uses a coordinated system of in-house
sales staff and marketing managers, organized regionally. In fiscal year 1995,
sales of approximately 36% of Versar's services and technologies were to
private sector customers and 64% to governmental customers. Of the
governmental customers, 53% was for the Department of Defense and 21% was for
the EPA, through various contracts. Versar serves governmental customers both
as a prime contractor and as a subcontractor.
Versar has experienced no difficulty in obtaining supplies and materials
used in its operations and relies on a broad range of suppliers, the loss of
any of which would not have an adverse effect on the Company.
BACKLOG
As of June 30, 1995, total backlog for Versar, including unfunded tasks and
orders, was approximately $306 million, as compared to approximately $100
million as of June 30, 1994. Funded backlog for Versar was approximately $23.5
million, an increase of 18 percent compared to approximately $20.0 million as
of June 30, 1994. Funded backlog is the incremental funding authorization of
contracts and task orders based on firm contractual obligations. Unfunded
backlog includes contracts and contract vehicles, including option periods, in
which specific work tasks and funding have not been authorized and for which
Versar and the client are contractually obligated to perform. Funded backlog
amounts have historically resulted in revenues; however, no assurance can be
given that all amounts included in funded backlog will ultimately be realized
as revenue.
COMPETITION
Versar faces substantial competition in each market in which it operates.
Versar competes primarily on its scientific, technological, and engineering
expertise. To the extent that non-proprietary or conventional technologies are
used, Versar also relies upon its experience and the experience of its
subsidiary, GEOMET, as a basis for competition. Many companies, some of which
have greater resources than Versar, participate in Versar's markets, and no
assurance can be given that other companies, some of which may also have
greater resources than Versar, will not enter its markets.
Almost all contracts for Versar's services and technologies are obtained
through competitive bidding. Industrial customers typically purchase these
services and technologies after a thorough evaluation of price, service,
experience, and quality. Although price is an important factor, it is not
necessarily the determining factor, because contracts are often awarded in part
on the basis of the efficiency of products and services.
Government entities typically award contracts on the basis of technical
qualifications and price. For technical services contracts, the majority of
which are cost-plus-fixed-fee arrangements, technical qualifications are the
primary factor followed by price competitiveness. In many of its technical
service markets, Versar competes with many local, regional, and national firms
on the basis of experience, reputation, and price.
EMPLOYEES
At June 30, 1995, Versar had approximately 378 full-time employees, of
which approximately 303 were engineers, scientists, and other professionals.
Eighty-six percent of the Company's professional employees have a bachelors
degree, 32% have a masters degree, and 5% have doctorate degrees.
MARKET DRIVING FORCES
The likelihood of environmental noncompliance is increasing as legislation
and implementing regulations become more stringent and greater emphasis is
being placed on pollution prevention. The costs of noncompliance, including
fines and cleanup, can be substantial. Because of this increased risk,
environmental risk management has become a critical and complex process.
Environmental laws and regulations affect nearly every industrial activity, as
well
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as the agencies of the federal government and state and local governments
charged with their enforcement. Versar believes that the current trend of
increasingly restrictive legislative and regulatory requirements and
enforcement will continue as a major driving force in its business,
perpetuated, in part, by increasing public awareness. Versar also believes the
1990s mark the beginning of a cultural change by both government and industry
in recognizing that pollution prevention and active compliance management are a
necessary part of the long-term solution to the cleanup of our common
environment, the protection of the public health and safety, and the
preservation of our natural resources. The primary federal environmental
programs affecting the demand for Versar's products and services in the future
are as follows:
- The Clean Air Act (CAA)
- The Pollution Prevention Act
- Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (CERCLA or Superfund); Superfund Amendments and Re-
authorization Act of 1986 (SARA)
- Resource Conservation and Recovery Act of 1976 (RCRA)
- Toxic Substances Control Act of 1976 (TSCA)
- Clean Water Act (CWA)
- The National Environmental Policy Act (NEPA)
- Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)
- Federal Facilities Compliance Act (FFCA)
THE CLEAN AIR ACT (CAA) -- The Clean Air Act was significantly amended in
1970, 1977, and 1990. More than 20 times longer than the original CAA, the
1990 Amendments contained some of the most complex environmental legislation
ever passed, both in the level of detail and the range of facilities affected.
Work involving the CAA is expected to shift increasingly from a study-based
phase to promulgation of control technology requirements. The 1990 Amendments
significantly revamped the earlier legislation by adding new requirements and
strengthening others to: 1) reduce smog and other pollutants in urban areas;
2) control motor vehicle emissions; 3) reduce emissions of hazardous air
pollutants and the accompanying risks; 4) impose an entirely new system for
permitting operational air pollution sources; 5) reduce or eliminate emissions
of air pollutants that damage the stratospheric ozone layer; and 6) expand
substantially the power of the EPA and the states to enforce air pollution
regulations via significant fines or jail sentences.
Meeting the ambitious implementation schedule of the CAA is a challenge for
both government and industry because of unparalleled requirements to control
and reduce a wide variety of air emissions. With an emphasis on prevention and
improved pollution control technology, expenditures to meet the new
requirements are projected in ranges that average $25 billion per year for at
least the next 10 years.
The total impact of the 1990 CAA legislation on a business may not be
determined for many years. One fact, however, is becoming increasingly clear
- -- good facility emissions inventory data and proper interpretation of data are
critical to businesses. Versar's expertise and experience in regulatory
interpretation, data management, emission inventory development, pollutant
monitoring, and control technology allow it to assist clients in addressing
these critical elements. Versar promotes the development of an integrated air
strategy to CAA-related issues.
THE POLLUTION PREVENTION ACT -- The Pollution Prevention Act of 1990
established as national policy that pollution be prevented or reduced at the
source. The act set up a hierarchy for prioritizing pollution prevention
actions that puts source reduction and closed-loop recycling as most desirable,
and recycle/reuse/reclamation of wastes as second priority, followed by waste
treatment, and lastly, waste disposal. The Act required EPA to establish a
source reduction program that collects and disseminates information, to provide
funding for states, and to create a Pollution Prevention Office. Several
states also have passed pollution prevention legislation. For example, the New
Jersey Department of Environmental Protection has enacted programs that
encourage or require pollution prevention, and numerous additional states can
be expected to follow suit in the next few years, as the
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regulatory emphasis moves away from treating and disposing of hazardous wastes
and toward reducing wastes at the source.
Though encouraging pollution prevention, the Pollution Prevention Act, and
certain provisions of the CAA Amendments, are nonregulatory in nature. In
1991, the EPA issued a Pollution Prevention Strategy with two objectives: 1) to
provide guidance and direction for incorporating pollution prevention into EPA
programs and 2) to develop a program that achieved short-term progress in
preventing pollution. The latter objective led to several nationwide programs,
such as the 33/50 Program, the Green Lights Program, and the revisions to
Section 313, Form R, for reporting by industry on pollution prevention plans
and progress.
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF
1980 (CERCLA OR SUPERFUND); SUPERFUND AMENDMENTS AND REAUTHORIZATION ACT OF
1986 (SARA) -- The Superfund, the nation's hazardous waste cleanup program, was
created by CERCLA. The program was enlarged and reauthorized by SARA. The
appropriations for Superfund have averaged about $1.5 billion annually in
recent years, although congressional proposals for 1996 may result in this
level being decreased to $1 billion per year. CERCLA addresses problems
created by past waste disposal practices by providing a means for identifying
and cleaning up hazardous waste sites. Through CERCLA, EPA is authorized to
compel responsible parties to clean up abandoned hazardous waste sites. Where
responsible parties cannot be identified, funds for cleanup are authorized
through the Superfund Trust Fund.
Versar has provided oversight at over 100 CERCLA sites and has also
performed numerous work assignments for potentially responsible parties (PRPs)
at CERCLA sites. These assignments have included several quick-response
actions. Typical activities for Versar under CERCLA include preparation of
remedial investigation/feasibility studies (RI/FS); review of RI/FS work plans,
health and safety plans, and sampling plans prepared by PRPs; remediation;
oversight of all onsite sampling activities; oversight of cleanup activities,
and progress reporting to the EPA and PRPs.
RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 (RCRA) -- RCRA, the nation's
basic statute for regulating the management of hazardous and solid wastes,
defined solid and hazardous waste, authorized the EPA to set standards for
facilities that generate or manage hazardous waste and established a permit
program for hazardous waste treatment, storage, and disposal facilities.
Generators of hazardous waste frequently rely on firms with technical
qualifications and expertise to treat hazardous waste and ensure compliance
with the complex regulations.
Additionally, RCRA also established a program to regulate USTs. This
requires most industrial companies to obtain broad expertise from outside
consulting services in design and construction management of tank replacements
and remediation of releases. It is estimated that the tank services market
represents approximately $38 billion over the next five years. The primary
force fueling this market is the 1988 federal regulation requiring that at
least 1.5 million USTs be upgraded or replaced by 1998.
FEDERAL FACILITY COMPLIANCE ACT - A major set of amendments to RCRA was the
Federal Facility Compliance Act (FFCA) of 1992, which resolves the legal
question of whether federal facilities are subject to enforcement actions under
RCRA by unequivocally waiving the government's sovereign immunity from
prosecution. As a result, states, EPA, and the Department of Justice can
enforce the provisions of RCRA against federal facilities, and federal
departments and agencies can be subjected to injunctions, administrative
orders, or penalties for noncompliance. Furthermore, federal employees may be
subject to criminal sanctions, including both fines and imprisonment, under any
federal or state solid or hazardous waste law. The FFCA is a key driver
supporting the Company's pollution prevention and compliance management
marketing thrust in the government sector.
TOXIC SUBSTANCES CONTROL ACT OF 1976 (TSCA) -- TSCA authorizes the EPA to
gather information about the toxicity of particular chemicals, to require
testing, if needed, to assess the extent to which humans and the environment
are at risk from these chemicals, and to regulate the manufacturing,
processing, storing, disposing, and cleanup of these chemicals. Examples of
regulated chemicals are polychlorinated byphenyls (PCBs),
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chlorofluorocarbons (CFCs), and asbestos in schools. Versar has supported the
EPA in information gathering on chemical risks from manufacturing and
processing of chemicals and assisted in assessing the need for toxicity and
exposure testing for both new and existing chemicals. Versar has provided
technical support in assessing exposure and risk from numerous existing
chemicals, including PCBs, CFCs, asbestos, lead, and many others. Versar's
support has included database development, methods development, computer model
development, and integrated exposure/risk assessments.
CLEAN WATER ACT (CWA) -- The CWA, originally the Federal Water Pollution
Control Act of 1972, as amended, establishes a system of standards, permits,
and enforcement procedures for the discharge of pollutants from industrial and
municipal wastewater sources. The law establishes the EPA's authority to set
treatment standards for industries and wastewater treatment plants and provides
federal grants to assist municipalities in complying with the new standards.
Since 1977, Versar has supported the EPA's Office of Water in assessing the
environmental impact of proposed regulations and provided support during the
gathering and analysis of information as well as developing and maintaining the
related database. The EPA also developed a contaminated sediment management
strategy that includes a Versar-developed inventory of point-source contaminant
releases. The reauthorization of the CWA is under consideration by Congress,
the outcome is likely to involve a heavier emphasis on control of toxic
substances and ecosystems, as well as sludge management. On October 30, 1990,
EPA promulgated rules regulating the discharge of stormwater under the
authority of the Clean Water Act, as amended by the Water Quality Act of 1987.
Stormwater is defined as water discharged from a point source such as a pipe or
a ditch, not water running off property in sheet flow. The EPA faces two
separate deadlines for permitting of stormwater: two years for discharges
associated with industrial activity or discharges from municipal separate storm
sewer systems serving 250,000 or more, and four years for discharges from
municipal separate storm sewer systems serving 100,000 or more. Meeting these
deadlines has increased the demand for stormwater permitting. Versar entered
this market by providing four major companies with support in obtaining permits
for their facilities.
THE NATIONAL ENVIRONMENTAL POLICY ACT (NEPA) -- NEPA requires that a
detailed statement be prepared for each major federal action (including
municipal private projects requiring federal funding or action) significantly
affecting the quality of the human environment. This statement must address
the environmental impact of the proposed action, unavoidable environmental
concerns, alternatives, the relationship between short-term uses and long-term
productivity, and irreversible commitments of resources involved in the
proposed action. All federal agencies are subject to NEPA, with very few
exceptions.
Versar has over 20 years of experience in conducting environmental impact
assessments and ecological studies for a wide range of projects, activities,
and regulatory actions. Versar has provided environmental assessments to both
public and private clients, including DOD, the Department of Interior, Federal
Energy Regulatory Commission, the U.S. Postal Service, state highway
departments, mining companies, oil companies, and public utilities.
FEDERAL INSECTICIDE, FUNGICIDE, AND RODENTICIDE ACT (FIFRA) -- FIFRA, first
passed in 1972, was later amended in 1975 and 1988. It covers the
registration, use, and recordkeeping of chemicals and other products used as
pesticides. The 1988 amendments covered re-registration fees, indemnification
by the EPA of the owners of unused stocks of banned pesticides, and storage and
disposal of banned pesticides.
Under FIFRA, Versar assists the EPA with regulatory issues, including
re-registration of new pesticides. Critical to each risk benefit analysis is
the evaluation of the human potential for exposure to pesticides and
occupational and residential settings. Versar is the EPA's prime support
contractor for this effort. As part of this effort, Versar routinely evaluates
data submitted to the EPA by manufacturers under pesticide assessment
guidelines. Additionally, Versar recently released the Pesticide Handlers
Exposure Data Base, which is the result of a joint effort among the EPA, Health
and Welfare Canada, and the National Agricultural Chemical Association. Versar
also assisted the EPA in a revision of the technical guidelines for determining
post-application human exposure in commercial and residential settings.
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ITEM 2. PROPERTIES
The Company's executive office is located in a building in Springfield,
Virginia, a suburb of Washington, D.C., leased from Sarnia Corporation, which
was spun-off by the Company to its shareholders in June 1994 but, as previously
discussed, continues to be consolidated in the Company's financial statements.
On June 29, 1994, Versar initially rented 99,588 and 8,918 square feet of space
from Sarnia at a rate of $13.49 and $8.00 per foot, respectively. Both spaces
were subject to 2% annual rent escalators. In June of 1995, Versar reduced the
99,588 square foot space to 73,371 square feet and increased the related
escalation to 4%. The leases now occupy 36% of Sarnia's total space. Both
lease streams are subject to adjustment on June 1, 1999 and 2004. In these
years, the lease streams will be adjusted to the current fair value. This
value will set the base rate of the lease streams in the year of adjustment.
The adjusted lease stream is subject to the contracted escalation in future
years.
As of September 1, 1995, the Company had under lease approximately 190,000
square feet (including Sarnia) of office and laboratory space in the following
locations: Springfield, VA; Tempe, AZ; Alameda and Fair Oaks, CA; Northglenn,
CO; Miami, FL; Lombard, IL; Eden Prairie, MN; Columbia, Gaithersburg, and
Germantown, MD; Cincinnati, OH; Bristol, PA; San Antonio, TX, and American
Fork, UT. These leases are generally for terms of five years or less.
Versar believes that its facilities are suitable and adequate for its
current and foreseeable operational and administrative needs.
ITEM 3. LEGAL PROCEEDINGS
On June 28, 1990, Gary R. Windolph, a former officer and director of Versar
Architects & Engineers, Inc. ("VA&E", formerly ARIX Corporation, a former
subsidiary of Versar, which was merged into the parent in July 1993) and a
former officer of Versar, filed an action in the District Court for the City
and County of Denver, State of Colorado, entitled Gary R. Windolph v. ARIX
Corporation, Versar, Inc., et al., Case NO. 90-CV-7155. On October 21, 1991,
jury returned verdicts for Mr. Windolph on two defamation claims against the
Company and awarded him damages in the amount of $200,000. The jury also
returned verdicts for Mr. Windolph on certain of his statutory and common law
securities claims and awarded damages in the amount of $1.00 each on all such
claims. On January 6, 1992, the Court ruled that, based upon the evidence
presented at trial, the $200,000 awarded to Mr. Windolph by the jury was
excessive as a matter of law and ordered a new damage trial on those claims.
The retrial of damages on these claims ended on October 21, 1992 with the jury
returning a verdict against Versar in the total amount of $1,000,001 including
$500,000 for damages to Mr. Windolph's reputation and $500,001 for personal
humiliation, mental anguish and suffering.
Versar promptly filed appropriate post-trial motions seeking either a new
trial or the entry of judgment in an amount less than the jury's verdict. On
January 10, 1993, the Court granted Versar's motion, in part, and gave the
plaintiff the choice of accepting the entry of judgment in the amount of
$75,000, or retrying for a third time the amount of damages for the defamation
claim. The Court also decided, as a matter of law, that the maximum amount Mr.
Windolph could recover was $250,000 due to a statutory limit on non-economic
damages. At the same time, the Court ordered the parties to participate in
good faith in a mandatory settlement conference to try to settle this matter.
The parties were unable to reach a settlement as a result of the settlement
conference held in April, 1993, and the plaintiff rejected the opportunity to
have judgment entered for $75,000 or proceed with a new trial. On June 16,
1993, the trial court entered final judgment on all outstanding issues.
Both parties appealed to the Colorado Court of Appeals. On May 25, 1995
the Court issued its decision affirming in part, reversing in part and
remanding a part of the case to the trial court. The Court of Appeals reversed
the trial court's dismissal of Windolph's promissory estoppel claim, and
remanded with directions for a new trial on that matter only. The Court of
Appeals affirmed the trial court as to all other matters, including the
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trial court's refusal to enter judgment in Windolph's favor on the two jury
verdicts relating to the defamation claim. Both parties filed motions for
rehearing with the Court of Appeals, which were denied on August 10, 1995.
In September 1995, Windolph sought review of this case by the Colorado
Supreme Court. It is impossible to predict whether the Colorado Supreme Court
will elect to hear some or all of the issues Windolph would seek to raise.
However, based on the Court of Appeals' decision and consultation with counsel,
Versar's management believes the outcome of this lawsuit will not have a
material impact on Versar's consolidated financial position or results of
operations.
On June 24, 1992, William Levy, a real estate developer, on behalf of
himself and Harper Realty, Inc., a company he controls, filed an action in
Illinois state court which was removed to federal court and is entitled William
Levy and Harper Realty Trust v. Versar, Inc. Civil Action No. 92 C4836. The
lawsuit alleges breach of contract and negligent misrepresentation as a result
of Versar's alleged failure to advise plaintiffs to test for certain
contamination at a former commercial laundry site. The parties settled this
matter in August 1995, and the results of the settlement did not have a
material adverse impact on the Company's consolidated financial position and
results of operations.
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of fiscal year 1995.
EXECUTIVE OFFICERS
The current executive officers of Versar, and their ages as of September 1,
1995, their current offices or positions and their business experience for the
past five years are set forth below.
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
Benjamin M. Rawls 54 Chairman, Chief Executive
Officer and President
Thomas S. Rooney 61 Executive Vice President and
Chief Operating Officer
Robert L. Durfee 59 Executive Vice President,
President, GEOMET Technologies, Inc.
Lawrence A. White 52 Executive Vice President
Lawrence W. Sinnott 33 Vice President,
Chief Financial Officer and Treasurer
James C. Dobbs 50 Vice President, General Counsel and
Secretary
Gayaneh Contos 59 Senior Vice President
BENJAMIN M. RAWLS, M.B.A., joined Versar as President and Chief
Executive Officer in April 1991. He became Chairman of the Board in November
1993. From 1988 to April 1991, Mr. Rawls was President and Chief Executive
Officer of Rawls Associates, Inc., a management consulting firm. Mr. Rawls was
President and Chief Executive Officer of R-C Holding, Inc. (now Air & Water
Technologies Corporation) from 1987 to 1988 and was Chairman of Metcalf & Eddy,
Inc., a subsidiary of Research-Cottrell, Inc., from 1984 to 1988.
THOMAS S. ROONEY, P.E., B.S.C.E., joined Versar in 1991 as Executive
Vice President and Chief Operating Officer. From 1989 to 1991, Mr. Rooney was
the President of Rooney Consulting, Inc., an environmental engineering company
in Haddonfield, New York. Between 1987 and 1989, he was President of Orfa
Corporation, a company that built and operated plants that recycle municipal
solid waste into useful end products.
ROBERT L. DURFEE, Ph.D., is a co-founder of Versar and has been
President of GEOMET Technologies, Inc., a subsidiary of the Company, since
1991. Prior to that, Dr. Durfee managed all environmental services provided by
Versar, Inc.
LAWRENCE A. WHITE, P.E., M.E.A., joined Versar in 1992 as Executive
Vice President, Corporate Development. From 1990 to 1992, Mr. White was the
Senior Vice President, Corporate Development for Dynamac Corporation in the
firm's marketing, sales, proposals, and client development areas and Group Vice
President of Roy F. Weston, Inc. between 1983 and 1990, where he managed major
programs and served as principal consultant to numerous government and
industrial clients.
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LAWRENCE W. SINNOTT, CPA, B.S., joined Versar in 1991 as Assistant
Controller. In 1992, he became Corporate Controller. In 1993, he was elected
Treasurer and Corporate Controller. In 1994, he became Vice President, Chief
Financial Officer and Treasurer. From 1989 to 1991, he was Controller of a
venture capital company, Defense Group, Inc.
JAMES C. DOBBS, L.L.M., joined Versar in 1992 as Vice President,
General Counsel, and Secretary. From 1984 to 1992, Mr. Dobbs was employed by
Metcalf & Eddy, Inc. as Vice President and General Counsel where he was
responsible for providing legal and regulatory advice to senior management.
GAYANEH CONTOS, B.S., joined Versar in 1974, was elected Vice President
in 1985 and a Senior Vice President in 1989. Since 1980, she has been
responsible for supervising the majority of the Company's contracts with EPA.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
The Company's common stock is traded on the American Stock Exchange,
under the symbol VSR. At June 30, 1995, the Company had 826 stockholders of
record, excluding stockholders whose shares were held in nominee name. The
quarterly high and low closing prices as reported during fiscal years 1995 and
1994 are presented below.
Fiscal Year High Low
- ----------------------------- -------- --------
1995 4th Quarter . . . . . . . . . . . $ 3.438 $ 2.625
3rd Quarter . . . . . . . . . . . 3.125 2.000
2nd Quarter . . . . . . . . . . . 4.000 2.563
1st Quarter . . . . . . . . . . . 3.938 2.875
Fiscal Year High Low
- ----------------------------- -------- --------
1994 4th Quarter . . . . . . . . . . . $ 4.000 $ 2.938
3rd Quarter . . . . . . . . . . . 3.875 3.000
2nd Quarter . . . . . . . . . . . 4.063 3.000
1st Quarter . . . . . . . . . . . 3.313 2.313
No cash dividends have been paid by Versar since it began public
trading of its stock in 1986. The Board of Directors intends to retain any
future earnings for use in the Company's business and does not anticipate
paying cash dividends in the foreseeable future. Under the terms of the
Company's revolving line of credit, approval would be required from the
Company's primary bank for the payment of any dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should be
read in conjunction with Versar's Consolidated Financial Statements and notes
thereto beginning on page F-2 of this report. The financial data is as
follows:
For the years ended June 30,
------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ----------- ----------- ----------- -----------
(In thousands, except per share data)
Consolidated Statement of Operations
related data:
Gross Revenue . . . . . . . . . . . . . . . $ 39,090 $ 42,764 $ 43,012 $ 48,519 $ 51,864
Net Service Revenue . . . . . . . . . . . . 29,347 31,032 32,980 35,325 38,777
Operating Income (Loss) . . . . . . . . . . 560 (1,269) 853 1,663 (1,720)
Income (Loss) from continuing
operations . . . . . . . . . . . . . . . 458 (2,658) (590) (262) (3,076)
Net Income (Loss) . . . . . . . . . . . . . 458 (4,367) (1,093) (996) (2,615)
Income (Loss) per share from continuing
operations . . . . . . . . . . . . . . . $ .10 $ (.59) $ (.14) $ (.06) $ (.78)
Net Income (Loss) per share . . . . . . . . $ .10 $ (.97) $ (.27) $ (.25) $ (.67)
Weighted average shares outstanding . . . . 4,794 4,481 4,093 3,945 3,921
Consolidated Balance Sheet related data:
Working Capital . . . . . . . . . . . . . . $ 5,425 $ 5,261 $ 7,627 $ 8,513 $ 4,140
Current Ratio . . . . . . . . . . . . . . . 1.64 1.68 1.98 1.76 1.18
Total assets . . . . . . . . . . . . . . . 28,195 27,782 31,922 37,733 48,857
Current Portion of Long-term Debt . . . . . 335 1,201 1,198 2,072 13,298
Long-Term Debt . . . . . . . . . . . . . . 4 17 13,494 15,518 13,475
Mortgage Debt of Sarnia . . . . . . . . . . 12,062 12,403 --- --- ---
---------- ---------- ---------- ---------- -----------
Total Debt . . . . . . . . . . . . . . . . 12,401 13,621 14,692 17,590 26,773
Stockholders' equity . . . . . . . . . . . $ 6,290 $ 5,261 $ 8,690 $ 8,951 $ 9,917
Certain amounts in years prior to fiscal year 1994 have been
reclassified to reflect Versar Laboratories, Inc. and Gammaflux, Inc. as
discontinued operations for comparative purposes. In addition, Versar has
included the results of operations and financial position of Sarnia, which was
spun-off to shareholders in fiscal year 1994. See Notes B and D of the Notes
to Consolidated Financial Statements for further information.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Versar's gross revenue from continuing operations for fiscal year 1995
totalled $39,090,000, or $3,674,000 (9%) below fiscal year 1994 gross revenue
of $42,764,000. Gross revenue for fiscal year 1994 was $248,000 (1%) below
that reported in fiscal year 1993. Due to the Sarnia spin-off in June 1994,
real estate revenues are excluded for fiscal years 1995 and 1994. For fiscal
year 1993, real estate revenues from unrelated third parties were $879,000 and
are included in the Company's gross revenues. Discontinued subsidiaries Versar
Laboratories, Inc. and Gammaflux, Inc. have been presented as discontinued
operations in Versar's Consolidated Financial Statements.
19
20
The reduction in Versar's revenue in the 1995 fiscal year was primarily due to
the winding down of the Company's USATHAMA and Metropolitan Washington Airport
Authority contracts in the Company's Atlantic division and the completion of
the Company's EPA OMMSQA contract in the fourth quarter of fiscal year 1995.
These reductions were partially offset through increased revenues through the
Company's Air Force and Presideo contracts. As reflected in the table on page
21, government revenue represented 64% of the total revenue in 1995, compared
to 62% in 1994 and 60% in 1993. This is the result of a continued soft demand
in the commercial market and increased task orders on the Company's Air Force
contract.
Purchased services and materials for fiscal year 1995 totalled
$9,743,000 or $1,989,000 (17%) lower than fiscal year 1994 purchased services
and materials. Purchased services and materials for fiscal year 1994 were
$1,700,000 (17%) higher than that reported for fiscal year 1993. The decrease
in 1995 was principally due to the decrease in gross revenue as mentioned
above. The increase in 1994 was contributed to by higher subcontractor efforts
on USATHAMA contract.
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 overhead. The percentage of these
costs to net service revenue decreased to 81% in 1995 compared to 82.2% in 1994
and 82.5% in 1993. The decrease in the percentage of costs in 1995 compared to
1994 is attributable to improved labor utilization primarily in the Company's
Rocky Mountain and Pacific regions. The decrease in 1994 compared to 1993 is
attributed to the reversal of certain accrued contract costs which ultimately
were not incurred.
Selling, general and administrative expenses approximated 17.0% of net
service revenue in 1995, compared to 16.6% in 1994 and 17.7% in 1993. The
slight increase is due to the reduced gross revenue as mentioned above. The
decrease in 1994 was primarily related to the consolidation of Versar
Architects & Engineers, Inc. into Versar and the elimination of duplicate
administrative functions.
Other (income) costs include costs and revenues that are not directly
attributable to contracts. In fiscal year 1995, the Company recognized
non-compete income from the sale of its majority-owned subsidiary Gammaflux,
Inc. of $47,000, compared to $78,000 in fiscal year 1994. The remaining
$214,000 was due to the reversal of $174,000 of accruals of anticipated costs
that were ultimately not incurred as a result of winning new contracts and the
reduction of other non-operating reserves of $40,000. In fiscal year 1994, the
remaining $1,161,000 of other costs is for $400,000 of other real estate
losses, $305,000 of transaction costs associated with the spin-off of Sarnia,
and $456,000 for software and service contracts which were determined to be of
limited future value. In fiscal year 1993, $132,000 was recognized in
Gammaflux non-compete income, and the balance of $791,000 of other costs
represent the reversal of a bankruptcy reserve when Versar Architects &
Engineers, Inc. emerged out of Chapter 11 proceedings thus resolving the
collectability of a receivable from VA&E to Versar.
Losses on Sarnia operations of $270,000 were recorded in fiscal year
1995, compared to losses of $544,000 in fiscal year 1994. The losses were
recorded as a separate line item due to the spin-off of Versar's real estate
entity to shareholders at June 30, 1994. Fiscal year 1993 results for Sarnia
are fully consolidated in the Company's Statements of Operations. For fiscal
years 1995 and 1994, Versar included rental expenses of $1,415,000 and
$1,451,000, respectively, while such income is reflected in Sarnia's losses.
Operating income for 1995 was $560,000, an increase of $1,829,00 over
fiscal year 1994. The increase is primarily due to decreased other costs and
direct costs of services and overhead as discussed above. Operating loss for
fiscal year 1994 increased by $2,122,000 from 1993, which was primarily
attributable to the increase in other costs and losses from Sarnia operations.
Interest expense (excluding Sarnia) in 1995 was $158,000, an increase
of $101,000 from 1994. The increase is due to Versar's assumption of
$1,000,000 of debt from Sarnia, which was paid off in full in fiscal year 1995.
Interest expense in 1994 was $57,000, a decrease of $1,363,000 from 1993.
Sarnia's interest expense related to its mortgages of $1,154,000 has been
included in the losses on Sarnia operations in fiscal year 1994.
20
21
Versar's benefit for income taxes for fiscal year 1995 was $56,000,
compared to a provision of $1,332,000 in 1994. In fiscal year 1994, the
Company recorded $1,309,000 in tax expense as a result of the spin-off of
Sarnia. A valuation allowance was provided for Versar's deferred tax assets
which could no longer be offset with Sarnia's deferred tax liabilities. Refer
to Note J of the Notes to Financial Statements.
Losses from discontinued operations for 1994 were $2,265,000, compared
to $801,000 in 1993, an increase of $1,464,000. The increase in the loss was
attributable to the provision of $1,600,000 recorded by the Company during the
third quarter of fiscal year 1994 to discontinue the laboratory operations.
In fiscal year 1993, the Company recognized $298,000 of extraordinary
income due to the forgiveness of debt related to VA&E's emergence from Chapter
11 bankruptcy proceedings in February 1993.
In the first quarter of 1994, the Company recognized $556,000 of
income with the adoption of SFAS 109, "Accounting for Income Taxes," which
required the Company to compute deferred taxes using the liability method.
In summary, Versar experienced a net income of $458,000 in fiscal year
1995, compared to a net loss of $4,367,000 in fiscal year 1994 and a net loss
of $1,093,000 in fiscal year 1993.
REVENUE
Versar provides environmental risk management services to various
industries, government and commercial clients. A summary of revenue generated
from the Company's client base is as follows:
Years ended June 30,
------------------------------------------------------------------------
1995 1994 1993
---------------- ---------------------- ---------------------
(In thousands, except for percentages)
Government
EPA $ 5,375 14% $ 6,151 15% $ 6,400 15%
State & Local 4,607 12% 7,797 18% 7,062 16%
Department
of Defense 13,194 34% 11,260 26% 11,051 26%
Other 1,707 4% 1,312 3% 1,471 3%
Commercial 14,207 36% 16,244 38% 17,028 40%
--------- ---- -------- ----- -------- -----
Environmental Revenue $ 39,090 100% $ 42,764 100% $ 43,012 100%
========= ==== ======== ==== ======== ====
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided $730,000 of cash in 1995,
which is comprised primarily of non-cash expenses of $700,000 for depreciation
and amortization which were offset by reduced liabilities.
Accounts receivable increased in fiscal year 1995 from fiscal year
1994 by 9%. This is primarily due to delayed contract modifications at year
end which prolonged the invoicing of the contract to fiscal year 1996.
The Company utilizes short-term bank financing to supplement its
ability to meet day-to-day operating cash requirements. At June 30, 1995, the
Company had $5,425,000 of working capital, compared to $5,261,000 in 1994.
Working capital in fiscal year 1995 increased primarily due to the profits
incurred during the fiscal year.
The Company's revolving line of credit for working capital provided
for advances up to $1,500,000 at June 30, 1995. The Company had $438,000
outstanding as of June 30, 1995. Borrowings on the line are at prime rate of
interest plus 2.5%, or 11.5% at June 30, 1995. The line is guaranteed by the
Company and each subsidiary
21
22
individually and collectively, secured by accounts receivable, equipment and
intangibles, plus all insurance policies on property constituting collateral.
Advances under the line are due upon demand, or on September 30, 1996.
Borrowing availability under the bank line of credit is restricted to the
borrowing base of qualifying receivables less $3,150,000. Borrowing
availability at June 30, 1995 was $1,062,000. The line of credit is due upon
demand, or September 30, 1996. The Company was in default with the covenants
of its line of credit at June 30, 1994, after the restatement of its financial
statements to include results and financial positions of Sarnia. The Company
obtained a waiver through March 31, 1995 and modified the covenants to include
the results and financial position of Sarnia. The Company was in compliance
with the modified covenants at June 30, 1995. Management believes that cash
generated by operations and available from its line of credit will be adequate
to meet the working capital needs for fiscal year 1996, provided the Company is
successful in maintaining profitability. However, the bank is not required to
make working capital advances under the line of credit if Versar were to be in
default with the covenants of the line of credit; therefore, the Company cannot
predict the bank's decision in advance of an actual default.
One of the office buildings in Springfield, Virginia owned by Sarnia,
which was spun-off to shareholders, was refinanced on June 22, 1994 by a
reducing revolving loan which is being amortized over a two-year period. The
reducing revolving loan provides equal installments and certain quarterly
installments over the term of the loan. This agreement was renegotiated as
part of the spin-off of Versar's real estate operations to its shareholders.
At June 30, 1994, the total bank debt was approximately $13,445,000, of which
Versar assumed $1,000,000 and the balance was retained by the real estate
entity, Sarnia. Versar will continue to act as guarantor of the total debt
should an event of default occur. During fiscal year 1995, the remaining
balance of Versar's portion of the principal was due and was paid out of
current working capital. In fiscal year 1995, Versar loaned $265,000 to Sarnia
for payments for leasehold improvements. Principal payments due under Sarnia's
reducing revolving loan and term loan are approximately $1,405,000 and
$1,428,000 in fiscal years 1996 and 1997, respectively. The remaining
outstanding balance of $9,228,502 is due in May of fiscal year 1997. In fiscal
year 1996, Sarnia expects to be able to pay approximately $400,000 in principal
payments. In fiscal year 1997, Sarnia expects to have the capability to pay
between $400,000 to $500,000 in principal payments. If Sarnia is unable to
meet its debt requirements, Versar will finance Sarnia's principal payments
with current profits, depreciation, and its current line of credit. Therefore,
Versar and Sarnia are currently seeking alternatives to refinance the existing
debt in fiscal year 1996 in order to reduce the amount of principal payments
and minimize Versar's guaranty of Sarnia's debt.
Spin-off of Sarnia Corporation
The Company originally reported the spin-off of its real estate
holdings in Sarnia as a divestiture on June 30, 1994. The Company's
independent accountants advised the Company to change its original financial
reporting to include the results of operations and financial position of Sarnia
in the Company's audited financial statements for the fiscal year ended June
30, 1994. Accordingly, the Company has adopted the change and has restated its
June 30, 1994 financial statements included in this report (refer to Note B for
further information).
For fiscal years 1995 and 1994, Sarnia's results of operations are
presented as a single line item in the Company's Consolidated Statement of
Operations, and Sarnia's assets and liabilities as separate line items in the
Company's Consolidated Balance Sheet. For fiscal year 1993, Sarnia's results
of operations and financial position have been fully consolidated with the
Company's operation and financial position. See Note D of the Notes to the
Consolidated Financial Statements.
The Company is evaluating a number of alternatives to resolve this
issue, including the refinancing of certain of Sarnia's outstanding debt to
lessen the Company's guaranty with respect to such debt so that the Company
can, at a later date, account for the spin-off of the real estate operations as
a divestiture. No assurances can be given that the Company's efforts will be
successful.
22
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IMPACT OF ACCOUNTING STANDARD NOT YET EFFECTIVE
In March 1995, the Financial Accounting Standard Board issued a
statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS 121). SFAS 121 is effective for fiscal year 1997, and requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS 121 will not have a material effect on the
financial position of the Company.
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 one 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data begin on
page F-2 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item with respect to directors of the
Company is to be contained in the Company's Proxy Statement for its 1995 Annual
Meeting of Stockholders, which is expected to be filed with the Commission not
later than 120 days after the end of the Company's 1995 fiscal year and is
incorporated herein by reference.
Information required by this item with respect to executive officers
of the Company is included in Part I of this report and is incorporated herein
by reference.
For the purpose of calculating the aggregate market value of the
voting stock of Versar held by non-affiliates as shown on the cover page of
this report, it has been assumed that the directors and executive officers of
the Company and the Company's Employee Savings and Stock Ownership Plan are the
only affiliates of the Company. However, this is not an admission that all
such persons are, in fact, affiliates of the Company.
The information called for in Part III by:
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by these items is incorporated herein by
reference to the Company's Proxy Statement for its 1995 Annual Meeting of
Stockholders which is expected to be filed with the Commission not later than
120 days after the end of the Company's 1995 fiscal year.
23
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) Financial Statements:
The consolidated financial statements and financial statement
schedules of Versar Inc. and Subsidiaries are filed as part of this report
and begin on page F-1.
a) Report of Independent Accountants
b) Consolidated Balance Sheets as of June 30, 1995 and 1994
c) Consolidated Statements of Operations for the Years Ended June
30, 1995, 1994, and 1993
d) Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended June 30, 1995, 1994, and 1993
e) Consolidated Statements of Cash Flows for the Years Ended June
30, 1995, 1994, and 1993
f) Notes to Consolidated Financial
Statements
(2) Financial Statement Schedules:
a) Report of Independent Accountants on Financial Statement
Schedules
b) Schedule V - Property, Plant and Equipment for the years ended
June 30, 1995, 1994, and 1993
c) Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment for years ended
June 30, 1995, 1994, and 1993
d) Schedule VII - Valuation and Qualifying Accounts for the years
ended June 30, 1995, 1994, and 1993
All other schedules, except those listed above, are omitted
because they are not applicable or the required information is
shown in the consolidated financial statements or notes thereto.
(3) Exhibits:
The exhibits to this Form 10-K are set forth in a separate Exhibit
Index which is included on pages 26 through 31 of this report.
(B) Reports on Form 8-K
The following report was filed on Form 8-K during the fourth
quarter of the Company's fiscal year 1995.
Form 8-K filed on May 23, 1995 reported under Item 5, Other
Events, the restatement of Versar's Fiscal Year 1994 10-K to
include the results of operation and financial position of Sarnia
Corporation (Versar's former real estate holdings).
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25
Exhibit Index
Page Number/
Item No. Description Reference
- -------- ----------- ------------
3.1 Restated Articles of Incorporation of Versar, Inc. filed as an exhibit to the
Registrant's Registration Statement on Form S-1 effective November 20, 1986
(File No. 33-9391) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A)
3.2 Bylaws of Versar, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A)
4 Specimen of Certificate of Common Stock of Versar, Inc, . . . . . . . . . . . . (A)
10.3 Agreement dated July 31, 1990 between the Registrant and the U.S.
Army Natick RD&E Center and as modified through May 23,1991 . . . . . . . . . (G)
10.5 Stock Purchase Agreement dated as of June 30, 1988 between World
Resources Company ("WRC") and the Registrant. . . . . . . . . . . . . . . . . . (C)
10.6 Promissory Note dated June 30, 1988 from WRC to the Registrant, due
June 30, 1991, and related letter of credit. . . . . . . . . . . . . . . . . . (C)
10.10 Incentive Stock Option Plan *. . . . . . . . . . . . . . . . . . . . . . . . . (B)
10.11 Executive Tax and Investment Counseling Program. . . . . . . . . . . . . . . . (A)
10.12 Nonqualified Stock Option Plan *. . . . . . . . . . . . . . . . . . . . . . . . (B)
10.13 Employee Incentive Plan, as amended *. . . . . . . . . . . . . . . . . . . . . (E)
10.14 Incentive Stock Option Plan of Gammaflux, Inc., a subsidiary of the Registrant (D)
10.15 Letter agreement dated June 28, 1991 among the Registrant,
Geomet Technologies, Inc., and Charles I. Judkins, Jr. . . . . . . . . . . . . (G)
10.16 Guaranty Agreement dated as of November 1, 1983 among several guarantors,
including ARIX Corporation and The Greeley National Bank. . . . . . . . . . . . (D)
10.17 Deferred Compensation Agreements dated as follows:
July 1, 1987 between the Registrant and the following persons:
Charles I. Judkins, Jr., Michael Markels, Jr. . . . . . . . . . . . . . . . . . (C)
July 1, 1988 between the Registrant and Gayaneh Contos . . . . . . . . . . . . (F)
July 1, 1990 between the Registrant and Michael Markels, Jr. . . . . . . . . . (G)
25
26
Page Number/
Item No. Description Reference
- -------- ----------- ------------
10.18 Revolving Loan and Security Agreement dated April 9, 1991 between the
Registrant and certain of the Registrant's subsidiaries and The Riggs
National Bank of Washington, D.C. . . . . . . . . . . . . . . . . . . . . . . . (G)
10.19 Pledge and Security Agreement dated April 9, 1991 between the
Registrant and The Riggs National Bank of Washington, D.C. . . . . . . . . . . (G)
10.20 Revolving Note dated April 9, 1991 between the Registrant and
certain of the Registrant's subsidiaries and The Riggs National
Bank of Washington, D.C. . . . . . . . . . . . . . . . . . . . . . . . . . . . (G)
10.21 Promissory Note dated May 21, 1987 from Versar Virginia, Inc.
to The Riggs National Bank of Washington, D.C. . . . . . . . . . . . . . . . . (B)
10.22 Deed of Trust dated May 21, 1987 among Versar Virginia, Inc.
and Robert C. Roane and Robert E. Pickeral . . . . . . . . . . . . . . . . . . (B)
10.23 Unconditional Continuing Guaranty dated May 21, 1987 by the Registrant . . . . (B)
10.24 Security Agreement and Financial Statement dated May 21,1987 between
Versar Virginia, Inc. and The Riggs National Bank of Washington, D.C. . . . . . (B)
10.25 Assignment of Leases and Rents dated May 21, 1987 by Versar Virginia, Inc. . . (B)
10.26 Executive Medical Plan dated August 21, 1991, effective July 1, 1991 . . . . . (G)
10.27 Deed of Trust dated April 9, 1991 between Versar Virginia, Inc., a wholly-owned
subsidiary of the Registrant, and Joel L. Dahnke and Christopher Giragosian
as trustees for the benefit of The Riggs National Bank of Washington, D.C . . . . (G)
10.28 The Riggs National Bank of Washington, D.C.'s consent dated June 4, 1991 to the
sale of substantially all of the assets of Gammaflux, Inc., a partially owned
subsidiary of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . (G)
10.29 The Riggs National Bank of Washington, D.C.'s letter dated July 3, 1991 waiving
and modifying certain provisions of the Revolving Loan and Security Agreement
dated April 9, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (G)
10.30 The Riggs National Bank of Washington, D.C.'s letter dated September 26, 1991
waiving and modifying certain provisions of the Revolving Loan and Security
Agreement dated April 9, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . (G)
10.31 Judgment against Versar Architects Engineers Inc. (formally Arix Corp.),
dated February 19, 1991 with regards to City of Sterling, Colorado, Arix Corp,
Utility Control Equipment Corporation and Ralston Properties . . . . . . . . . (G)
26
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Page Number/
Item No. Description Reference
- -------- ----------- ------------
10.32 Versar Architects and Engineers, Inc. voluntary petition for protection
under Chapter 11 of the Bankruptcy Code dated June 19, 1991 . . . . . . . . . . (G)
10.33 Structure and Agreement for use of Cash Collateral and Adequate Protection
dated August 2, 1991 between Versar Architects and Engineers, Inc. and the
Riggs National Bank of Washington, D.C. . . . . . . . . . . . . . . . . . . . . (G)
10.34 Asset Purchase Agreement dated June 5, 1991 related to the sale of substantially
all of the assets of Gammaflux, Inc., a majority owned subsidiary of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (G)
10.35 Promissory Note dated June 5, 1991 between Gammaflux, Inc., a majority owned
subsidiary of the Registrant and CHC Acquisition Partners, L.P. . . . . . . . . (G)
10.36 Noncompetition Agreement dated June 5, 1991 between the Registrant and
CHC Acquisition Partners, L.P. . . . . . . . . . . . . . . . . . . . . . . . . (G)
10.38 Agreement dated September 24, 1990 between Geomet Technologies Inc., a
subsidiary of the Registrant and the U.S. Army Troop Support Command as
modified through March 25, 1992 . . . . . . . . . . . . . . . . . . . . . . . . (G), (H)
10.39 Agreement dated September 30, 1988 between Geomet Technologies Inc., a
subsidiary of the Registrant and the U.S. Army Troop Support Command
Natick Research, Development and Engineering Center as modified (H),(I)
through April 26, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.40 Option Exchange Offer dated April 16, 1991 between the Registrant and
participants of the Incentive Stock Option Plan and the Nonqualified
Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (G)
10.41 Securities and Exchange Commission response dated September 23, 1991
to certain question regarding the Registrant's Option Exchange Offer . . . . . (G)
10.44 Agreement dated March 30, 1990 between the Registrant, the Department
of the Army, U.S. Army Toxic and Hazardous Materials Agency, as modified
through March 29, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . (H),(I)
10.45 The Riggs National Bank of Washington, D.C.'s letter dated March 27,
1992 modifying certain provisions of the revolving loan and Security
Agreement dated April 9, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . (H)
10.46 The Riggs National Bank of Washington, D.C.'s letter dated September 18,
1992 modifying certain provisions of the revolving loan and Security
Agreement dated April 9, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . (H)
10.47 Bankruptcy Court-approved Settlement Agreement and Mutual Release
between Versar Architects and Engineers, Inc. and the City of
Sterling, Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (H)
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Page Number/
Item No. Description Reference
- -------- ----------- ------------
10.48 Versar Architects and Engineers, Inc. Plan of Reorganization and
Disclosure Statement filed with the United States Bankruptcy Court
on August 25, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (H)
10.49 Agreement dated March 27, 1992 among Versar, Inc., Fluxagamm, Inc.,
Maurice I. Stein and Gammaflux, L.P. accelerating payment of certain
notes, non-competition, and stock repurchase agreements . . . . . . . . . . . . (H)
10.50 Perland Environmental Technologies, Inc. letter dated August 14,
1991 accepting the Registrant's offer to sell its ownership in Perland
Environmental Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . . (H)
10.51 The Riggs National Bank of Washington, D.C.'s letter dated September 7, 1993
modifying certain provisions of the revolving loan and security agreement dated
April 9, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (I)
10.52 Incentive Stock Option Plan of Versar, Inc. dated December 1, 1992 * . . . . . (I)
10.53 Loan Agreement dated July 16, 1993 between Registrant and Michael Markels, Jr. (I)
10.54 Versar Architects & Engineers, Inc. Order Confirming First Amended Plan
of Reorganization dated March 2, 1993 . . . . . . . . . . . . . . . . . . . . . (I)
10.55 Consulting Agreement dated June 1, 1993 between Registrant and Charles I.
Judkins, Jr *. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (I)
10.56 Employment Agreement revised May 1, 1994 between the Registrant and
Thomas S. Rooney * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (I),(K)
10.58 Agreement dated March 10, 1993 between the Registrant and the Environmental
Protection Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (I)
10.59 Agreement dated February 8, 1993 between the Registrant and Radian
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (I)
10.60 Employment Agreement dated May 1, 1994 between the Registrant and Benjamin
M. Rawls * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
10.61 The Riggs National Bank of Washington D.C.'s letter dated July 16, 1994, modifying
certain provisions of the revolving loan and security agreement dated April
9, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
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29
Page Number/
Item No. Description Reference
- -------- ----------- ------------
10.62 The Riggs National Bank of Washington, D.C.'s letter dated July 16, 1994, modifying
certain provisions of the revolving loan and security agreement dated April
9, 1991. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
10.63 Lease and Purchase Agreement between Registrant and Charles I. Judkins of
certain properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
10.64 Asset Purchase Agreement between Registrant and Kemron Environmental Services,
Inc. of certain assets of the registrants wholly-owned subsidiary Versar
Laboraties, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
10.65 Information Statement for the Distribution to Shareholders of Versar, Inc., the
Outstanding Shares of its Wholly-owned Subsidiary, Sarnia Corporation,
dated June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (J)
10.66 Agreement dated January 13, 1994 between the Registrant and the Department of
the Air Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
10.67 Agreement dated January 18, 1994 between the Registrant and OHM Services
Remediation Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
10.68 The Riggs National Bank of Washington D.C.'s letter dated September 15, 1994
Modifying Certain Provisions of the Revolving Loan and Security Agreement
dated April 9, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
10.69 The Riggs National Bank of Washington D.C.'s letter dated May 25, 1995
modifying certain provisions of the Revolving Loan and Security Agreement
dated April 9, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (L)
10.70 Agreement dated July 18, 1995 between the Registrant and the U.S. Air Force
Human Systems Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (P)
10.71 Agreement dated March 29, 1995 between the Registrant and the U.S. Army Norfolk
Corps of Engineers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (P)
10.72 Agreement dated March 16, 1995 between the Registrant and the U.S. Army Baltimore
Corps of Engineers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (P)
10.73 Agreement dated April 25, 1995 between the Registrant and the U.S. Army Philadelphia
Corps of Engineers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (P)
10.74 Agreement dated August 10, 1995 between the Registrant and the Environmental
Protection Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (P)
10.75 Agreement dated January 31, 1995 between Geomet Technologies, Inc., a subsidiary
of the Registrant and the U.S. Army Soldier Systems Command . . . . . . . . . . (P)
29
30
Page Number/
Item No. Description Reference
- -------- ----------- ------------
10.76 Agreement dated July 13, 1995 between Geomet Technologies, Inc., a subsidiary of
the Registrant and the U.S. General Services Administration . . . . . . . . . . (P)
10.77 The Riggs National Bank of Washington D.C.'s letter dated, September 15, 1995
modifying certain provisions of the Revolving Loan and Security Agreement, dated
April 9, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (P)
22 Subsidiaries of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 887
23 Consent of Price Waterhouse LLP . . . . . . . . . . . . . . . . . . . . . . . . 888
27 Financial Data Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . .
- -------------------------------------------------------------------------------
* Indicates management contract or compensatory plan or arrangement
30
31
(A) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form S-1 Registration Statement ("Registration
Statement") effective November 20, 1986 (File No. 33-9391).
(B) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for the Fiscal Year Ended
June 30, 1987 ("FY 1987 Form 10-K") filed with the Commission on
September 28, 1987.
(C) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for the Fiscal Year Ended
June 30, 1988 ("FY 1988 Form 10-K") filed with the Commission on
September 28, 1988.
(D) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for the Fiscal Year Ended
June 30, 1989 ("FY 1989 Form 10-K") filed with the Commission on
September 28, 1989.
(E) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for the Fiscal Year Ended
June 30, 1990 ("FY 1990 Form 10-K") filed with the Commission on
September 28, 1990.
(F) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-Q for the quarter ended September 30, 1989
("1st Quarter FY 1990 Form 10-Q").
(G) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for the Fiscal Year Ended
June 30, 1991 ("FY 1991 Form 10-K") filed with the Commission on
October 15, 1991.
(H) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June
30, 1992 ("FY 1992 Form 10-K") filed with the Commission on
September 28, 1992.
(I) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June
30, 1993 ("FY 1993 Form 10-K") filed with the Commission on
September 22, 1993.
(J) Incorporated by reference Sarnia Corporation Information Statement
for distribution to shareholders of Versar, Inc. of the
outstanding shares of its wholly-owned subsidiary, Sarnia
Corporation, dated June 30, 1994.
(K) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June
30, 1994 ("FY 1994 Form 10-K") filed with the Commission on
September 27, 1994.
(L) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K/A Annual Report for Fiscal Year Ended June
30, 1994 ("FY 1994 Form 10-K/A") filed with the Commission on May
31, 1995.
(P) Exhibits are filed in paper pursuant to a continuing hardship
exemption granted in accordance with Rule 202 of Regulation S-T.
Exhibit item numbers are as outlined by item 601 of Regulation S-K.
31
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Date: September 15, 1995 /s/ BENJAMIN M. RAWLS
---------------------------------------------------------
Benjamin M. Rawls
Chairman, Chief Executive Officer,
President, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ BENJAMIN M. RAWLS
- -------------------------- Chairman, Chief Executive Officer, September 15, 1995
Benjamin M. Rawls President, and Director
/s/ ROBERT L. DURFEE
- -------------------------- Executive Vice President and September 15, 1995
Robert L. Durfee Director
/s/ LAWRENCE W. SINNOTT
- -------------------------- Vice President, Chief Financial September 15, 1995
Lawrence W. Sinnott Officer, Treasurer, and
Principal Accounting Officer
/s/ MICHAEL MARKELS, JR.
- -------------------------- Chairman Emeritus and Director September 15, 1995
Michael Markels, Jr.
/s/ JOHN P. HORTON
- -------------------------- Director September 15, 1995
John P. Horton
/s/ GERALD T. HALPIN
- -------------------------- Director September 15, 1995
Gerald T. Halpin
/s/ JOHN E. GRAY
- -------------------------- Director September 15, 1995
John E. Gray
32
33
/s/ CHARLES I. JUDKINS, JR.
- ---------------------------- Director September 15, 1995
Charles I. Judkins, Jr.
/s/ M. LEE RICE
- ---------------------------- Director September 15, 1995
M. Lee Rice
33
34
Report of Independent Accountants
To the Board of Directors and Stockholders
of Versar, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Versar, Inc. and its subsidiaries at June 30, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
- ----------------------------
Price Waterhouse LLP
Washington, D.C.
September 15, 1995
F-1
35
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30,
-------------------------------------
1995 1994
------------ -------------
ASSETS
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 58 $ 72
Accounts receivable, net . . . . . . . . . . . . . 11,723 10,693
Prepaid expenses and other current assets . . . . 1,099 1,374
Assets of Sarnia transferred . . . . . . . . . . . 434 357
Deferred income taxes . . . . . . . . . . . . . . 536 536
----------- ------------
Total current assets . . . . . . . . . . . . . 13,850 13,032
Property and equipment, net . . . . . . . . . . . . 1,457 1,686
Assets of Sarnia transferred . . . . . . . . . . . . 12,871 13,005
Other assets . . . . . . . . . . . . . . . . . . . . 17 59
----------- -----------
Total assets . . . . . . . . . . . . . . . . . $ 28,195 $ 27,782
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Liabilities of Sarnia transferred . . . . . . . . $ 2,133 $ 648
Accounts payable . . . . . . . . . . . . . . . . . 1,950 1,476
Bank line of credit . . . . . . . . . . . . . . . 438 ---
Current portion of long-term debt . . . . . . . . 335 1,201
Income taxes payable . . . . . . . . . . . . . . . --- 95
Accrued salaries and vacation . . . . . . . . . . 1,390 1,269
Other liabilities . . . . . . . . . . . . . . . . 1,564 2,291
Liabilities of discontinued operations, net . . . 615 791
------------ ------------
Total current liabilities . . . . . . . . . . . 8,425 7,771
Long-term debt . . . . . . . . . . . . . . . . . . . 4 17
Liabilities of Sarnia transferred . . . . . . . . . 12,450 13,722
Other long-term liabilities . . . . . . . . . . . . 1,026 1,011
----------- -----------
Total liabilities . . . . . . . . . . . . . . . 21,905 22,521
----------- -----------
Commitments and contingencies (Note L)
Stockholders' equity
Common stock, $.01 par value; 10,000,000 shares
authorized; 4,813,236 shares and 4,609,213
shares issued and outstanding at June 30, 1995
and 1994, respectively . . . . . . . . . . . . . . 48 46
Capital in excess of par value . . . . . . . . . . . 12,816 12,238
Accumulated deficit . . . . . . . . . . . . . . . . (6,565) (7,023)
----------- -----------
6,299 5,261
Less treasury stock, at cost (3,327 shares at
June 30, 1995) . . . . . . . . . . . . . . . . . . (9) ---
------------ ------------
Total stockholders' equity . . . . . . . . . . 6,290 5,261
------------ -----------
Total liabilities and stockholders' equity . . $ 28,195 $ 27,782
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
36
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Years Ended June 30,
----------------------------------------------
1995 1994 1993
---------- ---------- ----------
GROSS REVENUE . . . . . . . . . . . . . . . . . . $ 39,090 $ 42,764 $ 43,012
Purchased services and materials, at cost . . 9,743 11,732 10,032
--------- --------- ---------
NET SERVICE REVENUE . . . . . . . . . . . . . . . 29,347 31,032 32,980
Direct costs of services and overhead . . . . 23,785 25,516 27,217
Selling, general, and administrative expenses 4,993 5,158 5,833
Other (income) costs . . . . . . . . . . . . . (261) 1,083 (923)
Losses on Sarnia operations . . . . . . . . . 270 544 ---
--------- --------- ---------
OPERATING INCOME (LOSS) . . . . . . . . . . . . 560 (1,269) 853
OTHER EXPENSE
Interest expense . . . . . . . . . . . . . . . 158 57 1,420
Income tax (benefit) expense . . . . . . . . . (56) 1,332 23
---------- --------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS . . . . . . . . . . . . . . 458 (2,658) (590)
LOSS FROM DISCONTINUED OPERATIONS . . . . . . . . --- (2,265) (801)
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE . . . . . . . . . 458 (4,923) (1,391)
EXTRAORDINARY INCOME . . . . . . . . . . . . . . --- --- 298
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . . . . . . . . --- 556 ---
--------- --------- ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . $ 458 $ (4,367) $ (1,093)
========= ========= =========
INCOME (LOSS) PER SHARE FROM
CONTINUING OPERATIONS . . . . . . . . . . . . . . $ .10 $ (.59) $ (.14)
========= ========= =========
LOSS PER SHARE FROM
DISCONTINUED OPERATIONS . . . . . . . . . . . . . $ --- $ (.51) $ (.20)
========= ========= =========
INCOME (LOSS) PER SHARE BEFORE
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE . . . . . . . . . . . . . . . . . . . . $ .10 $ (1.10) $ (.34)
========= ========= =========
INCOME PER SHARE FROM
EXTRAORDINARY ITEM . . . . . . . . . . . . . . . $ --- $ --- $ .07
========= ========= =========
INCOME PER SHARE FROM
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . . . . . . . . $ --- $ .13 $ ---
========= ========= =========
NET INCOME (LOSS) PER SHARE . . . . . . . . . . . $ .10 $ (.97) $ (.27)
========= ========= =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING . . . . . . . . . . . . . . . 4,794 4,481 4,093
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
37
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Retained Total
Number Capital in Earnings Stock-
of Common Excess of (Accumulated Treasury holders'
Shares Stock Par Value Deficit) Stock Equity
------ ----- --------- -------- ----- ------
Years Ended June 30, 1995, 1994, and 1993
----------------------------------------------------------------------
(In thousands)
Balance, June 30, 1992 . . . . . . . 3,953 $ 40 $10,474 $ (1,563) $ - - $ 8,951
Exercise of incentive stock options . 1 - - 3 - - - - 3
Common stock issued to ESSOP . . . . 316 3 826 - - - - 829
Net loss . . . . . . . . . . . . . . - - - - - - (1,093) - - (1,093)
--------- -------- -------- --------- --------- ---------
Balance, June 30, 1993 . . . . . . . 4,270 43 11,303 (2,656) - - 8,690
--------- -------- -------- --------- --------- ---------
Exercise of incentive stock options . 35 - - 88 - - - - 88
Common stock issued to ESSOP . . . . 304 3 847 - - - - 850
Net loss . . . . . . . . . . . . . . - - - - - - (4,367) - - (4,367)
--------- -------- -------- --------- --------- ---------
Balance, June 30, 1994 . . . . . . . 4,609 46 12,238 (7,023) - - 5,261
--------- -------- -------- --------- --------- ---------
Exercise of incentive stock options . 58 1 136 - - - - 137
Common stock issued to ESSOP . . . . 146 1 442 - - - - 443
Purchase of common stock
for treasury . . . . . . . . . . (26) - - - - - - (76) (76)
Issuance of treasury stock for stock
awards . . . . . . . . . . . . . 23 - - - - - - 67 67
Net income . . . . . . . . . . . . . - - - - - - 458 - - 458
--------- -------- -------- --------- --------- ---------
Balance, June 30, 1995 . . . . . . . 4,810 $ 48 $12,816 $ (6,565) $ (9) $ 6,290
========= ======== ======== ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
38
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
---------------------------------------------
1995 1994 1993
------------ --------- ----------
(In thousands)
Cash flows from operating activities
Income (loss) from continuing operations . . . . . . . $ 458 $ (2,658) $ (590)
Loss from discontinued operations . . . . . . . . . . --- (2,265) (801)
Cumulative effect of change in accounting principle . --- 556 ---
Income from extraordinary item . . . . . . . . . . . . --- --- 298
Adjustments to reconcile income (net loss) to
net cash provided by (used in) operating activities
Depreciation and amortization . . . . . . . . . . 699 956 1,904
Provision for doubtful accounts receivable . . . 1 (12) 725
Common stock issued to ESSOP and stock bonus . . 434 850 829
Deferred tax (benefit) expense . . . . . . . . . --- (556) ---
Forgiveness of debt . . . . . . . . . . . . . . . --- --- (298)
Changes in assets and liabilities, net of asset dispositions
(Increase) decrease in accounts receivable . . . (1,031) 1,767 1,448
Decrease in prepaids and other assets . . . . . . 287 271 765
Increase (decrease) in accounts payable . . . . . 474 (850) (515)
Increase (decrease) in accrued salaries and vacation 121 (252) (50)
Decrease in other liabilities . . . . . . . . . . (807) (201) (1,948)
Net change in assets and liabilities of Sarnia . 270 1,614 ---
----------- ---------- -----------
Net cash from continuing operations . . . . 906 (780) 1,767
Changes in net liabilities of
discontinued operations . . . . . . . . . . . (176) 921 ---
----------- ---------- -----------
Net cash provided by (used in)
operating activities . . . . . . . . . . 730 141 1,767
----------- ---------- -----------
Cash flows from investing activities
Purchases of property and equipment . . . . . . . . . (440) (674) (747)
----------- ---------- -----------
Net cash used in investing activities . . . (440) (674) (747)
----------- ---------- -----------
Cash flows from financing activities
Net borrowings on line of credit . . . . . . . . . . . 438 --- ---
Principal payments on long-term debt . . . . . . . . . (879) (184) (2,554)
Proceeds from issuance of the Company's
common stock . . . . . . . . . . . . . . . . . . . . 137 89 3
----------- ---------- -----------
Net cash used in financing
activities . . . . . . . . . . . . . . . (304) (95) (2,551)
----------- ---------- -----------
Net decrease in cash . . . . . . . . . . . . . . . . . . (14) (628) (1,531)
Cash at the beginning of the year . . . . . . . . . . . . 72 700 2,231
----------- ---------- -----------
Cash at the end of the year . . . . . . . . . . . . . . . $ 58 $ 72 $ 700
=========== ========== ===========
Supplementary disclosure of non-cash transactions
Issuance of treasury stock, net . . . . . . . . . . . $ 9 $ --- $ ---
=========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
39
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The accompanying consolidated financial
statements include the accounts of Versar, Inc. and its subsidiaries ("Versar"
or "the Company"). All significant intercompany balances and transactions have
been eliminated in consolidation. The assets, liabilities, and results of
operations of Sarnia Corporation have been reflected in the Company's financial
statements. See notes B and D for further information.
Revenue recognition: Revenue under cost-reimbursable contracts is recorded as
related costs are incurred. Applicable estimated fees are included in revenue
at a percentage of incurred costs. Revenue on fixed-price contracts is
recognized based on Versar's estimate of each contract's percentage of
completion. Percentage of completion on a contract is based on cost after
giving due consideration to the level of performance completed, compared to
total performance required by the contract. Revenue is recognized on
time-and-material contracts to the extent of billable rates times hours
delivered plus materials purchased and other reimbursable costs incurred.
Provisions for any anticipated contract losses are made in the period that such
losses become evident.
Depreciation and amortization: Depreciation and amortization are computed on a
straight-line basis over the estimated useful lives of the assets.
Excess cost over net assets of subsidiaries acquired: The cost of the
acquisition of GEOMET Technologies, Inc., a wholly-owned subsidiary, over the
fair value of net assets acquired is being amortized over ten years.
Direct costs of services and overhead: These expenses represent the cost to
Versar of direct and overhead staff, including recoverable overhead costs and
unallowable costs that are directly attributable to overhead.
Net income (loss) per share: Per share amounts are computed by dividing the
related captions in the Consolidated Statement of Operations by the weighted
average number of common shares outstanding during the applicable period being
reported upon.
Income taxes: As of July 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) 109, "Accounting for Income Taxes," which requires
the use of the liability method of accounting for deferred income taxes.
Statements of cash flows: For statements of cash flows purposes, all
investments with an original maturity of three months or less are considered to
be cash equivalents.
Impact of Accounting Standard not yet Effective: In March 1995, the Financial
Accounting Standard Board issued a statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS 121). SFAS 121 is effective for fiscal year
1997, and requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The adoption of SFAS 121 will not have a material effect on the
financial position of the Company.
F-6
40
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE B INCLUSION OF RESULTS OF OPERATIONS AND FINANCIAL POSITION OF
SARNIA CORPORATION (SARNIA)
On June 30, 1994, Sarnia was spun-off to Versar shareholders. The spin-off
was initially accounted for as a discontinuation of operations. However, the
spin-off did not relieve Versar of the risks of ownership due to Versar's
guaranty of Sarnia's $12.5 million debt at June 30, 1994. Therefore, the
fiscal year 1994 consolidated financial statements of the Company were restated
in a 10K/A filing dated May 31, 1995 to include Sarnia's results of operations
and financial position.
The adjustments to the consolidated financial statements included $1,614,000
to income for items previously charged directly to equity. The components of
the adjustment included a tax expense of $1,309,000 (see Note J) as a result of
the spin-off of Sarnia as Versar's tax assets could no longer be offset by
Sarnia's tax liability and $305,000 of spin-off costs. In addition, $544,000
of Sarnia's losses initially included as discontinued operations were moved to
continuing operations for the fiscal year ended June 30, 1994. Sarnia's losses
for fiscal year 1993 were $664,000 and were fully consolidated into continuing
operations.
NOTE C ASSET DISPOSITIONS
GAMMAFLUX, INC.: Gammaflux, Inc. (Gammaflux), a majority-owned manufacturing
subsidiary of the Company, sold substantially all of its assets to CHC
Acquisition Partners, L.P., an Illinois limited partnership (CHC), pursuant to
an Asset Purchase Agreement, dated June 5, 1991 (effective May 1, 1991), among
Gammaflux, the Company, CHC, the minority shareholder of Gammaflux, the general
partner of CHC, and the principals of CHC. As a part of the transaction, CHC
agreed to assume certain liabilities of Gammaflux.
At closing, Gammaflux received $1,989,000 in cash and an interest-bearing
promissory note from CHC for $1,400,000 payable in quarterly installments over
six years. In addition, the Company and the minority shareholder of Gammaflux
each executed non-competition agreements with CHC. Under its non-competition
agreement with CHC, the Company agreed not to compete with CHC for five years
from the closing date in return for $1,224,000 payable in quarterly
installments over five years without interest. CHC paid Gammaflux an
additional $64,000 on August 1, 1991 pursuant to the Asset Purchase Agreement,
to reflect post-closing adjustments. The sale of the assets resulted in a gain
after income taxes and minority interest of $691,000, excluding the
non-competition agreement which will be recorded over the five year period. In
conjunction with the sale, Gammaflux changed its name to Fluxagamm, Inc.
On May 1, 1992, Versar agreed to the early payout for the note receivable
and the non-competition agreements. The net cash generated from the early
payout was approximately $1,727,000 and was used to reduce debt. Versar and
the previous minority shareholder are still bound by the terms of the
non-compete agreement, and therefore, the Company has deferred certain income
to be recognized over the life of the agreement.
This disposition completed the sale of all of the Company's manufacturing
operations and has been recorded as a disposal of a segment of the Company's
business. Accordingly, the operating results of Gammaflux have been classified
as discontinued operations for all periods presented in the consolidated
financial statements.
VERSAR LABORATORIES: In the third quarter of fiscal year 1994, management
announced that Versar was going to discontinue further operations of Versar
Laboratories, Inc. (VLI). VLI had lost approximately $800,000 per year from
fiscal years 1991 through 1994. Subsequent to this decision, Kemron
Environmental, Inc. purchased the fixed assets of VLI for $250,000 on August 1,
1994. The Company established a reserve of $1,409,000 for anticipated
F-7
41
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
shut down costs in March 1994. With the purchase of assets and the assumption
of certain lease obligations, the Company was able to reverse $300,000 of the
reserve in the fourth quarter of fiscal year 1994. On June 30, 1995, the
reserve balance was $682,000.
VLI's assets and liabilities are presented as net liabilities of
discontinued operations in the consolidated balance sheets. At June 30, 1995,
current assets of $74,000 were offset by current liabilities of $7,000 and a
shut-down reserve of $682,000, resulting in net liabilities of $615,000.
The operating results of Versar Laboratories, Inc. have been classified as
discontinued operations for all periods presented in the consolidated financial
statements.
NOTE D SARNIA CORPORATION
Sarnia, formerly Versar Virginia, Inc., a former wholly-owned real estate
subsidiary of Versar, continues to be included in the Company's consolidated
financial statements. Sarnia was established in 1982 to own and operate the
6850 Building and the 6800 Building in Versar Center, the headquarters
buildings of Versar. On June 30, 1994, Versar distributed to the holders of
its Common Stock substantially all of the Common Stock of Sarnia (the
Distribution). The Distribution provided Versar stockholders one share of
Sarnia common stock for every outstanding share of Versar common stock.
For fiscal years 1995 and 1994, Sarnia's results of operations are presented
as single line items in the Consolidated Statement of Operations, and its
assets and liabilities are presented as separate line items in the Consolidated
Balance Sheet. For fiscal year 1993, Sarnia's results of operations and
financial position have been fully consolidated with the Company's results of
operations and financial position.
The following relates to certain financial information for Sarnia. Refer to
Sarnia's fiscal year 1995 10K for Sarnia's results of operations, financial
position and other financial disclosures.
Property and Equipment
Sarnia's property and equipment are carried at historical cost until a
decline which is other than temporary occurs. At such time, the property will
be reduced by a direct write-down for any impairment in value if it is probable
that the carrying amount of the property cannot be fully recovered.
Estimated
Useful Life
in Years June 30,
----------- ---------------------------
1995 1994
----------- ----------
(In thousands)
Land . . . . . . . . . . . . . . . . . . . . --- $ 650 $ 650
Buildings . . . . . . . . . . . . . . . . . 40 15,732 15,732
Equipment . . . . . . . . . . . . . . . . . 5 122 115
Leasehold improvements . . . . . . . . . . . Life of lease 1,037 681
---------- ----------
17,541 17,178
Accumulated depreciation
and amortization . . . . . . . . . . . . (4,670) (4,173)
---------- ----------
$ 12,871 $ 13,005
========== ==========
F-8
42
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Depreciation and amortization of Sarnia's property and equipment was
$506,000, $510,000, and $494,000 for the years ended June 30, 1995, 1994, and
1993, respectively.
Maintenance and repair expenses approximated $242,000, $236,000, and
$271,000 for the years ended June 30, 1995, 1994, and 1993, respectively.
Mortgages
During fiscal year 1994, as part of the Distribution, Sarnia
renegotiated its reducing revolving loan (revolver) and assumed primary
responsibility from Versar for its term loan with Riggs National Bank (Riggs).
Additionally, Versar assumed $1,000,000 of the outstanding principal balance of
the revolver loan. Both loans continue to be guaranteed by Versar.
Outstanding balances are as follows:
June 30,
----------------------------
1995 1994
----------- -----------
(In thousands)
Reducing revolving loan, dated June 24, 1994 . . . . . . . . $ 2,031 $ 2,031
Term loan, dated May 21, 1987 . . . . . . . . . . . . . . . 10,031 10,372
---------- ----------
Total debt . . . . . . . . . . . . . . . . . . . . . . $ 12,062 $ 12,403
========== ==========
Maturity of the loans is as follows:
Years Ending June 30, Amount
------------------------ ------------
(In thousands)
1996 . . . . . . . . . $ 1,405
1997 . . . . . . . . . 10,657
----------
$ 12,062
==========
The revolver bears an interest rate of prime plus 2.5% (11.5% at June
30, 1995) and is secured by a first deed of trust on the 6850 Building.
Principal payments are scheduled over twenty-five months commencing in June of
1995. The term loan bears an interest rate of 8.27% and is secured by a first
deed of trust on the 6800 Building and a second deed of trust on the 6850
Building. The term loan has an original payment schedule of ten years with a
thirty-year amortization.
Interest payments were approximately $979,000, $1,192,000 and
$1,246,000 for the years ended June 30, 1995, 1994 and 1993, respectively.
Sarnia is required to obtain Riggs' approval before paying dividends.
Both loans are subject to a debt service financial ratio covenant which is
based on the combined financial positions of Sarnia and Versar. Other
covenants apply to Versar only. In the event of default by Versar on any of
its debt instruments with Riggs, both loans become due and payable immediately.
As of June 30, 1995, Sarnia and Versar were in compliance with these covenants.
F-9
43
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Sarnia is in the process of renegotiating its loans in fiscal year
1996. If the loans are not renegotiated, Sarnia will be unable to meet its
debt service requirements. Therefore, Versar has agreed with Sarnia to fund
all cash shortfalls, including debt service requirements, for fiscal year 1996.
Rental Under Operating Leases
Sarnia leases the 6800 Building and the 6850 Building to Versar as
well as several unrelated third parties. These lease terms expire from 1997 to
2009. During the years ended June 30, 1995, 1994 and 1993, rentals to major
tenants were as follows:
Years ended June 30,
--------------------------------------------
1995 1994 1993
---------- ---------- ----------
(In thousands)
Versar . . . . . . . . . . . . . . . . . $ 1,415 $ 1,451 $ 1,462
General Services Administration . . . . . 208 230 232
RGE Engineering . . . . . . . . . . . . . 286 254 249
C-Cubed . . . . . . . . . . . . . . . . . 210 162 ---
On June 29, 1994, Versar initially rented 99,588 and 8,918 square feet
of space from Sarnia at a rate of $13.49 and $8.00 per foot, respectively.
Both spaces were subject to 2% annual rent escalations. In June of 1995,
Versar reduced the 99,588 square feet space to 73,371 square feet and increased
the related escalation to 4%. The leases cover 36% of Sarnia's total space.
Both leases are subject to adjustment on June 1, 1999 and 2004. At these
dates, the lease payments will be adjusted to the current fair value at that
time. The adjusted lease payments are then subject to the contracted
escalation in the following years.
Noncancellable leases of the Versar Center provide for approximate
minimum rental payments during each of the next five years as set forth below.
As to the Versar leases, it is assumed that the payments for the second and
third five-year periods (the actual amounts of which will depend upon fair
values at the adjustment dates) will be the same as the payments for the first
five years. Certain of the other rentals may increase in future years based on
changes in the Consumer Price Index and other rental increase factors.
Years ending June 30, Versar Total
--------------------- ------------ -----------
(In thousands)
1996 $ 1,102 $ 2,643
1997 1,145 2,634
1998 1,189 2,294
1999 1,235 1,976
2000 1,061 1,569
Beyond 2000 10,404 10,404
--------- ---------
$ 16,136 $ 21,520
========= =========
During fiscal years 1995, 1994, and 1993, Sarnia recognized
approximately $1,261,000, $995,000, and $879,000 in revenue from unrelated
third party tenants for rent and buildout.
Due To/From Versar
F-10
44
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In 1987, Versar used the 6800 Building as collateral to finance the
acquisition of one of its operations. The entire loan was borne by Sarnia, and
an intercompany receivable due from Versar was recorded. Sarnia recognized
interest income from Versar for this loan of $163,000 for fiscal year 1993. No
interest income was recognized in fiscal year 1994 or 1995 because the loan was
completely repaid.
Sarnia and Versar maintained certain intercompany balances in fiscal
years 1993 and 1994. These intercompany balances were comprised of loans made
from each party to the other. At the end of fiscal year 1993, Versar owed
Sarnia $122,000 and, at the end of fiscal year 1994, Sarnia owed Versar
$1,445,000. The $1,445,000 was forgiven when Sarnia was spun-off from Versar
in June 1994. In fiscal year 1995, Versar loaned $265,000 to Sarnia primarily
for payments of leasehold improvements. The loan of $265,000 is interest free
and is anticipated to be repaid in fiscal year 1996.
Expense Allocation
Certain general and administrative functions, including general
management, treasury, financial services, legal, benefits and human resources
administration, investor and public relations and information management are
provided by Versar on a fixed fee basis. Telephone expenses charged from
Versar based on the number of extensions used by the Company and its tenants
are included in the real estate expenses. Management believes that these
charges are made on a reasonable basis; however, they do not necessarily
indicate the costs that would have been incurred by Sarnia on a stand-alone
basis.
The following expenses were allocated to Sarnia from Versar:
Year ended June 30,
---------------------------------------------
1995 1994 1993
--------- ---------- ----------
(In thousands)
Real estate expenses . . . . . . . . . . $ 33 $ 52 $ 57
General and administrative expenses . . . 36 75 65
NOTE E ACCOUNTS RECEIVABLE
June 30,
----------------------------
1995 1994
----------- -----------
(In thousands)
Billed receivables
U.S. Government . . . . . . . . . . . . . . . . . . $ 5,239 $ 3,906
Commercial . . . . . . . . . . . . . . . . . . . . . 3,131 3,486
Unbilled receivables
U.S. Government . . . . . . . . . . . . . . . . . . 3,107 3,133
Commercial . . . . . . . . . . . . . . . . . . . . . 1,203 1,520
---------- ----------
12,680 12,045
Allowance for doubtful accounts . . . . . . . . . . . . . . (957) (1,352)
---------- ----------
$ 11,723 $ 10,693
========== ==========
Unbilled receivables represent amounts earned which have not yet been
billed and other amounts which can be invoiced upon completion of fixed-price
contracts, attainment of certain contract objectives, or
F-11
45
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
completion of federal and state governments' incurred cost audits. Management
anticipates that the June 30, 1995 unbilled receivables will be substantially
billed and collected in fiscal year 1996.
NOTE F PROPERTY AND EQUIPMENT
Estimated
Useful Life
in Years June 30,
----------- -------------------------------
1995 1994
-------------- --------------
(In thousands)
Furniture and fixtures . . . . . . . . . . . 5 $ 1,935 $ 1,900
Equipment . . . . . . . . . . . . . . . . . 3 to 10 6,177 6,474
Leasehold improvements . . . . . . . . . . . Life of lease 581 561
---------- ----------
8,693 8,935
Accumulated depreciation
and amortization . . . . . . . . . . . . (7,236) (7,249)
---------- ----------
$ 1,457 $ 1,686
========== ==========
Depreciation and amortization of property and equipment included as
expense in the accompanying Consolidated Statements of Operations was $668,000
(excluding Sarnia), $925,000 (excluding Sarnia), and $1,871,000 (including
Sarnia) for the years ended June 30, 1995, 1994, and 1993, respectively.
Maintenance and repair expenses approximated $219,000 (excluding
Sarnia), $354,000 (excluding Sarnia) and $711,000 (including Sarnia) for the
years ended June 30, 1995, 1994, and 1993, respectively.
NOTE G DEBT
June 30,
-----------------------------
1995 1994
----------- ------------
(In thousands)
Bank line of credit, dated April 9, 1991 . . . . . . . . . . $ 438 $ ---
Reducing revolving loan, dated June 24, 1994 . . . . . . . . --- 950
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 268
---------- ----------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . 777 1,218
Current portion of long-term debt . . . . . . . . . . . . . (773) (1,201)
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . $ 4 $ 17
========== ==========
Maturities of long-term debt are as follows:
Years Ending June 30, Amount
--------------------------- ------------
(In thousands)
1996 . . . . . . . . . . . . . $ 773
1997 . . . . . . . . . . . . . 4
----------
$ 777
==========
Versar maintains a bank line of credit for working capital purposes
with Riggs which provides for advances up to $1,500,000. Borrowings on the
line are at the prime rate of interest plus 2.5% (11.5% at June 30, 1995).
F-12
46
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The line is guaranteed by the Company and each subsidiary individually and
collectively, secured by accounts receivable, equipment and intangibles, plus
all insurance policies on property constituting collateral. Advances under the
line are due upon demand or on September 30, 1996. Borrowing availability
under the bank line of credit is restricted to the borrowing base of qualifying
receivables less $3,150,000. Borrowing availability at June 30, 1995 was
$1,062,000. The Company must also obtain Riggs' approval prior to paying
dividends. Additionally, the loan has certain covenants related to maintenance
of financial ratios. The Company obtained a waiver of the financial covenants
through March 31, 1995 due to the Company's restatement to include the results
of operations and financial position of Sarnia (see Note B). The Company was
in compliance with the covenants at June 30, 1995. Management believes that
cash generated by operations and borrowings available from the line of credit
will be adequate to meet working capital needs for fiscal year 1996.
The average revolving bank line of credit amount outstanding based on
month-end balances for the years ended June 30, 1995, 1994, and 1993,
approximated $544,000, $292,000, and $225,000, respectively, and the weighted
average interest rates for such periods were 10.92%, 8.79%, and 8.5%,
respectively. The maximum amount outstanding approximated $1,375,000 during
fiscal year 1995, $1,120,000 during fiscal year 1994, and $1,015,000 during
fiscal year 1993. Weighted average interest rates are computed by relating the
interest expense to the average month-end balance.
Interest payments (excluding Sarnia) were $157,000, $62,000, and
$134,000 for the years ended June 30, 1995, 1994, and 1993, respectively.
See Note B for the debt information relating to Sarnia.
NOTE H VERSAR ARCHITECTS & ENGINEERS, INC. ("VA&E") BANKRUPTCY
On June 19, 1991, VA&E (formerly ARIX Corporation) filed a voluntary
petition for relief in accordance with Chapter 11 of Title 11, United States
Code in the United States Bankruptcy Court for the District of Colorado. This
action was taken to protect the assets of VA&E pending the appeal of a
judgement for $1,800,000 rendered against VA&E in February 1991 in City of
Sterling, Colorado vs. ARIX Corp., Utility Control Equipment Corporation and
Ralston Properties, No. 88CV124, Logan County District Court. In May 1992,
with the approval of the United States Bankruptcy Court for the District of
Colorado, VA&E reached a settlement agreement and mutual release covering all
matters in dispute between the City of Sterling and VA&E. VA&E's insurance
carrier paid $650,000 in full satisfaction of all obligations owed to the City
as a result of the judgement.
As part of the bankruptcy proceedings, VA&E submitted on August 25,
1992 a plan of reorganization with the bankruptcy court. On March 2, 1993,
VA&E's reorganization plan was confirmed, resulting in VA&E emerging from
Chapter 11 bankruptcy. As a result of the reorganization, the prepetition
liabilities were liquidated and VA&E recognized $298,000 of extraordinary
income due to forgiveness of debt. In July 1993, VA&E was merged into Versar.
NOTE I COMMON STOCK
During fiscal year 1995, the Company acquired a net of 3,327 shares of
Treasury stock for future distribution to the Employee Savings and Stock
Ownership Plan.
The Versar 1992 Stock Option Plan provides employees of the Company
and certain other persons an incentive to remain in the employ of the Company
and encourages superior performance for the Company's benefit.
F-13
47
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Options are also outstanding from the Incentive Stock Option Plan adopted in
1982 and a Non-Qualified Option Plan adopted in 1987. Options are granted from
these plans to purchase the Company's common stock.
At June 30, 1995, options to purchase an aggregate of 942,290 shares
of common stock were outstanding under the 1992 and 1982 Incentive Stock Option
Plans at per share exercise prices ranging from $2.00 to $3.94 and options to
purchase an aggregate of 150,000 shares were outstanding under the
Non-Qualified Stock Option Plan at per share exercise prices ranging from
$2.375 to $2.50.
Under the Plan, options have been granted and may be granted to key
employees at the fair market value on the date of grant and become exercisable
during the five-year period from the date of the grant at 20% per year.
Unexercised options are cancelled on the fifth anniversary of the grant under
the 1982 Plan and on the tenth anniversary of the grant under the 1992 Plan.
Options under the Plan are as follows:
Optioned Option Price
Shares Per Share Total
--------- ----------------------- ---------
(In thousands, except per share price)
Outstanding at June 30, 1992 . . . . 759 $ 2.063 to $ 8.182 $ 2,206
Issued . . . . . . . . . . . 323 2.250 to 3.250 792
Exercised . . . . . . . . . (1) 2.063 to 2.063 (3)
Cancelled . . . . . . . . . (110) 2.063 to 8.182 (420)
------- ---------
Outstanding at June 30, 1993 . . . . 971 2.063 to 3.940 2,575
Issued . . . . . . . . . . . 88 2.563 to 3.938 282
Exercised . . . . . . . . . (35) 2.063 to 3.000 (88)
Cancelled . . . . . . . . . (72) 2.063 to 3.940 (187)
------- ---------
Outstanding at June 30, 1994 . . . . 952 2.063 to 3.940 2,582
Issued . . . . . . . . . . . 62 2.000 to 3.375 184
Exercised . . . . . . . . . (30) 2.063 to 2.437 (67)
Cancelled . . . . . . . . . (42) 2.063 to 3.940 (108)
------- ---------
Outstanding at June 30, 1995 . . . . 942 $ 2.000 to $ 3.940 $ 2,591
======= =========
At June 30, 1995, 1994, and 1993, options of 667,035, 507,789, and
343,835 shares were exercisable.
On April 30, 1987, the Board of Directors adopted a Non-Qualified
Stock Option plan. Participants in the plan include employees, independent
contractors, and, in certain circumstances, Directors of the Company. Options
are granted by the Board of Directors at a price not less than 50% of the fair
market value at the date of grant and for a period not to exceed 10 years. All
options issued under this plan have been issued at 100% of the market value at
the date of grant.
F-14
48
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Options under the plan are as follows:
Optioned Option Price
Shares Per Share Total
--------- ----------------------- ---------
(In thousands, except per share price)
Outstanding at June 30, 1992 . . . . 149 $ 2.437 to $ 2.500 $ 372
Issued . . . . . . . . . . . 59 2.375 to 2.375 140
Cancelled . . . . . . . . . (30) 2.437 to 2.500 (75)
------- ---------
Outstanding at June 30, 1993 . . . . 178 $ 2.375 to $ 2.500 $ 437
Issued . . . . . . . . . . . 0 --- to --- 0
Cancelled . . . . . . . . . 0 --- to --- 0
------- ---------
Outstanding at June 30, 1994 . . . . 178 $ 2.375 to $ 2.500 $ 437
Issued . . . . . . . . . . . 0 --- to --- 0
Cancelled . . . . . . . . . 0 --- to --- 0
Exercised . . . . . . . . . (28) $ 2.500 to $ 2.500 (70)
------- ---------
Outstanding at June 30, 1995 . . . . 150 $ 2.375 to $ 2.500 $ 367
======= =========
Non-Qualified stock options of 150,000, 161,200, and 144,400 shares
were exercisable at June 30, 1995, 1994, and 1993, respectively.
NOTE J INCOME TAXES
Effective July 1, 1993, the Company adopted SFAS 109, "Accounting for
Income Taxes." The adoption of the standard changed the Company's method of
accounting for income taxes from the deferred method (APB 11) to the liability
method. Previously, the Company deferred the past tax effects of timing
differences between financial reporting and taxable income. The liability
method requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of other assets and liabilities. The cumulative
effect of adopting the new standard as of July 1, 1993 was a $556,000 credit to
the Consolidated Statement of Operations.
At June 30, 1995, the Company had, for tax reporting purposes,
approximately $250,000 of tax credit carryforwards available to offset future
taxes payable through 2002, $182,000 of minimum tax credit to be carried
forward indefinitely, and $233,000 of net operating losses to be carried
forward through 2010.
F-15
49
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The provision (benefit) for income taxes consists of the following:
Years ended June 30,
---------------------------------------------
1995 1994 1993
------- ------ -------
(In thousands)
Currently payable
Federal . . . . . . . . . . . . . $ (67) $ 95 $ ---
State . . . . . . . . . . . . . . 11 23 23
Deferred
Federal . . . . . . . . . . . . . --- (536) ---
State . . . . . . . . . . . . . . --- --- ---
Federal tax charge due to Sarnia
spin-off . . . . . . . . . . . --- 1,750 ---
--------- --------- ---------
$ (56) $ 1,332 $ 23
========= ========= =========
Deferred tax assets are comprised of the following:
June 30, June 30,
1995 1994
----------- -----------
Deferred Tax Assets:
Employee benefits . . . . . . . . $ 430 $ 325
Bad debt reserve . . . . . . . . 318 458
All other reserves . . . . . . . 501 922
Depreciation . . . . . . . . . . 65 105
Alternative minimum tax credits . 182 182
Other business tax credits . . . 250 316
Net operating loss carryforwards 233 ---
--------- ----------
1,979 2,308
Valuation Allowance . . . . . . . . (1,443) (1,772)
--------- ----------
Net Deferred Tax Asset . . . . . . . $ 536 $ 536
========= ==========
At June 30, 1995, Versar had approximately $5.8 million of future tax
deductions to utilize against future taxable income. Due to Versar's losses in
previous years, the Company was unable to record a tax benefit of $1,443,000
until the profitability of the Company improves. Thus, the likelihood of the
utilization of the future tax deductions would become higher as profitability
increases.
F-16
50
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The tax (benefit) provision was composed of the following:
Years Ended June 30,
--------------------------------------------
1995 1994 1993
---------- ---------- ----------
(In thousands)
Expected provision (benefit) at federal
statutory rate . . . . . . . . . . . $ 137 $ (162) $ 62
Change in valuation allowance . . . . . . . (329) -- --
Increase in valuation allowance due to spin-off -- 1,309 --
State income tax net of federal benefit . . 11 23 23
Other . . . . . . . . . . . . . . . . . . 125 162 (62)
------- ------- -------
$ (56) $1,332 $ 23
======= ======= =======
Income taxes paid for the years ended June 30, 1995, 1994, and 1993
were $140,000 (excluding Sarnia), $34,000 (excluding Sarnia), and $22,000
(including Sarnia), respectively.
The net change in the valuation allowance for deferred tax assets was
a decrease of $329,000 since June 30, 1994. This change results from a
significant decrease in net tax assets resulting from the reduction of several
operating reserves.
The net change in the valuation allowance for deferred tax assets was
an increase of $827,000 for the period July 1, 1993 to June 30, 1994. This
change results from a decrease in tax assets resulting from the spin-off of
Sarnia. The Sarnia deferred tax liability, included in these consolidated
financial statements in Liability of Sarnia Transferred, can no longer offset
the Versar deferred tax assets. The effect at the date of spin-off was an
increase in the valuation allowance of $1,309,000.
Tax Impact of Spin-off
The spin-off of Sarnia triggered a taxable event in 1994 through the
recapture of an "Excess Loss Account" (loss recorded for tax purposes in excess
of the investment due to accelerated depreciation). The excess loss account
had a balance of approximately $5 million, which was offset by debt forgiveness
by Versar of approximately $2.4 million, leaving $2.6 million of taxable
income. At March 31, 1994, Versar had $9.5 million of future tax deductions,
which were reduced by approximately $2.4 million and applied to the remaining
taxable income of $2.6 million as a result of the spin-off. In addition,
approximately $141,000 of general business credits were utilized in fiscal year
1994.
NOTE K EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Company has established an Employee Savings and Stock Ownership
Plan (ESSOP) for the benefit of its employees and those of its subsidiaries.
To be eligible to participate in the plan, an employee must have been employed
for one year with at least 1,000 hours of service. The plan includes an
Employee Stock Ownership Plan (ESOP) and an Employee Savings Plan (401(k)).
F-17
51
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Contributions to the ESOP are made at the discretion of the Company in
the form of the Company's stock or cash, which is invested by the plan's
trustee in the Company's stock. Versar made contributions of $346,000 for
1993. No contributions were made in fiscal years 1995 and 1994.
The Employee Savings Plan was adopted in accordance with Section
401(k) of the Internal Revenue Code. Under the plan, participants may elect to
defer up to 15% of salary through contributions to the plan, which are invested
in selected mutual funds or used to buy insurance. The Company will match
qualified contributions with a contribution of 100% of the employees'
contribution up to 4% of the employee's salary. This contribution may be in the
Company's stock or cash, which will be invested by the plan's trustees in the
Company's stock. Company matching contributions approximated $434,000,
$425,000, and $250,000 for fiscal years 1995, 1994, and 1993, respectively.
All contributions to the 401(k) Plan vest immediately. Contributions
to the ESOP vest ratably with years of service such that full vesting occurs
after five years of credited service.
GEOMET Technologies, Inc. (Geomet), a wholly-owned subsidiary, has a
profit-sharing retirement plan for the benefit of its employees. Contributions
are made at the discretion of Geomet's Board of Directors. Geomet contributed
$29,000, $19,000 and $62,000 in fiscal years 1995, 1994 and 1993, respectively.
Vesting occurs over time, such that an employee is 100% vested after seven
years of participation.
VA&E had a trusteed employee stock ownership plan for all qualified
employees. Employees generally are eligible for participation after attaining
age 21 and completing 1,000 or more hours of service within a plan year.
Benefits vest at the rate of 10% per year of service for the first two years
and 20% per year of service thereafter. With the acquisition of VA&E by the
Company, the plan received 45,042 shares of the Company's stock in exchange for
VA&E shares held. Since VA&E employees are now eligible for participation in
the Company's ESSOP, the VA&E plan has been terminated and the assets merged
with the Company's ESSOP in fiscal year 1995.
NOTE L COMMITMENTS AND CONTINGENCIES
Versar has a substantial number of U.S. government contracts, the
costs of which are subject to audit by the Defense Contract Audit Agency. All
fiscal years through 1990 have been audited and closed. Management believes
that the effect of disallowed costs, if any, for the periods not yet audited
will not have a material adverse effect on the consolidated financial position
and results of operations.
The Company leased certain property from a director of the Company.
On July 18, 1994, the Company and the director agreed to sell the leased
properties to outside parties. Should the sale of such properties go below
$372,000, Versar will fund the difference over the next 18 months. Versar
estimates that the payments due the director will be approximately $96,000. In
consideration for modification of the purchase agreement which reduced the
price to be paid for the property, Versar cancelled a note in the amount of
$28,000 owed by the director to Versar.
The Company leases approximately 190,000 square feet of office space,
including space leased from Sarnia, (Note D), as well as data processing and
other equipment under agreements expiring through 2009. Minimum future
obligations under operating leases, including amounts payable to Sarnia (Note
D), are as follows:
F-18
52
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Total
Years Ending June 30, Amount
--------------------- -------
(In thousands)
1996 . . . . . . . . . . . . . . . . $ 3,349
1997 . . . . . . . . . . . . . . . . 3,063
1998 . . . . . . . . . . . . . . . . 2,558
1999 . . . . . . . . . . . . . . . . 2,024
2000 . . . . . . . . . . . . . . . . 1,644
2001 and thereafter . . . . . . . . 10,497
---------
$ 23,135
=========
Certain of the lease payments are subject to adjustment for increases
in utility costs and real estate taxes. Total rental expense approximated
$2,938,000, $2,843,000, and $2,855,000 for 1995, 1994, and 1993, respectively.
Versar is a defendant in lawsuits that have arisen in the ordinary
course of its business. Such lawsuits include actions brought by a former
officer of the Company and certain customers and are currently in various
stages of litigation. Management does not believe that the outcome of these
lawsuits will have a material adverse effect on the Company's consolidated
financial position and results of operations.
NOTE M SEGMENT INFORMATION
A substantial portion of the Company's consulting revenue is derived
from contracts with the U.S. Government as follows:
Years Ended June 30,
------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
(In thousands)
U.S. Department of Defense $ 13,194 $ 11,260 $ 11,051
U.S. Environmental Protection Agency 5,375 6,151 6,400
Other U. S. Government Agencies 6,314 1,312 1,471
---------- ---------- ----------
Total U.S. Government $ 24,883 $ 18,723 $ 18,922
========== ========== ==========
F-19
53
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE N QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for fiscal years 1995 and 1994 is as
follows (in thousands, except per share amounts):
Fiscal Year 1995 Fiscal Year 1994
------------------------------------------------- --------------------------------------------
Quarter ending Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30
- ------------------------------ ------------ ---------- ---------- -------- -------- -------- --------- ----------
Gross Revenue . . . . . . . . . . $ 10,254 $ 10,054 $ 9,364 $ 9,418 $10,080 $ 10,253 $ 10,935 $11,496
Net Service Revenue . . . . . . . 7,505 7,414 7,279 7,149 7,581 7,731 7,724 7,996
Operating income (loss) . . . . . 176 190 148 46 (116) (1,349) (34) 230
Income (loss) from continuing
operations . . . . . . . . . . 205 152 101 0 (1,413) (1,397) (61) 213
Income (loss) from
discontinued operations . . . . --- --- --- --- 301 (2,260) (177) (129)
Net income (loss) . . . . . . . . $ 205 $ 152 $ 101 $ 0 $(1,112) $ (3,657) $ (238) $ 640
=========== =========== ========== ========= ======== ========= ======== ========
Income (loss) per share from
continuing operations . . . . . $ .05 $ .03 $ .02 $ .00 $ (.30) $ (.31) $ (.01) $ .05
Income (loss) per share
from discontinued
operations . . . . . . . . . . $ --- $ --- $ --- $ --- $ .06 $ (.50) $ (.04) $ (.03)
Net income (loss)
per share . . . . . . . . . . . $ .05 $ .03 $ .02 $ .00 $ (.24) $ (.81) $ (.05) $ .15
=========== =========== ========== ========= ======== ========= ======== ========
Weighted average number of
shares outstanding . . . . . . 4,837 4,853 4,878 4,824 4,712 4,533 4,592 4,376
=========== =========== ========== ========= ======== ========= ======== ========
F-20
54
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors and Stockholders
of Versar, Inc.
Our audits of the consolidated financial statements referred to in our report
dated September 15, 1995, appearing on page F-1 of this Form 10-K, also
included an audit of the Financial Statement Schedules listed in Item 14A of
this Form 10-K. In our opinion, these Financial Statement Schedules present
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
/S/ PRICE WATERHOUSE LLP
- ----------------------------
Price Waterhouse LLP
Washington, D.C.
September 15, 1995
F-21
55
SCHEDULE V
VERSAR, INC.
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
Beginning Additions Other Ending
1993 Balance At Cost Retirements Changes Balance
- ---------------- ----------- ---------- ----------- ----------- ----------
Land $ 793 $ 0 $ (143) $ 0 $ 650
Buildings 16,419 48 (125) 0 16,342
Furn. & Fixtures 2,607 145 (284) 0 2,468
Equipment 7,656 542 (226) (144) 7,828
Leasehold
Improvements 1,027 12 0 0 1,039
------------ ------------ ------------ ------------ ------------
$ 28,502 $ 747 $ (778) $ (144) $ 28,327
============ ============ ============ ============ ============
Beginning Additions Other Ending
1994 Balance At Cost Retirements Changes Balance
- ---------------- ----------- ---------- ----------- ----------- ----------
Land $ 650 $ 0 $ 0 $ (650)* $ 0
Buildings 16,342 0 0 (16,342)* 0
Furn. & Fixtures 2,468 2 (4) (566)* 1,900
Equipment 7,828 663 (130) (1,887)* 6,474
Leasehold
Improvements 1,039 10 0 (488)* 561
------------ ------------ ------------ ------------ ------------
$ 28,327 $ 675 $ (134) $ (19,933) $ 8,935
============ ============ ============ ============ ============
Beginning Additions Other Ending
1995 Balance At Cost Retirements Changes Balance
- ---------------- ----------- ---------- ----------- ----------- ----------
Land $ 0 $ 0 $ 0 $ 0 $ 0
Buildings 0 0 0 0 0
Furn. & Fixtures 1,900 37 (2) 0 1,935
Equipment 6,474 392 (705) 16 6,177
Leasehold
Improvements 561 11 0 9 581
------------ ------------ ------------ ------------ ------------
$ 8,935 $ 440 $ (707) $ 25 $ 8,693
============ ============ ============ ============ ============
* Assets of Sarnia transferred
F-22
56
SCHEDULE VI
VERSAR, INC.
ACCUMULATED DEPRECIATION AND AMORTIZATION
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
Beginning Additions Other Ending
1993 Balance At Cost Retirements Changes Balance
- ---------------- ----------- ---------- ----------- ----------- ----------
Land $ 0 $ 0 $ 0 $ 0 $ 0
Buildings 3,153 493 (83) 0 3,563
Furn. & Fixtures 1,788 243 (280) 0 1,751
Equipment 5,129 1,049 (215) 0 5,963
Leasehold
Improvements 685 86 0 0 771
------------ ------------ ------------ ------------ ------------
$ 10,755 $ 1,871 $ (578) $ 0 $ 12,048
============ ============ ============ ============ ============
Beginning Additions Other Ending
1994 Balance At Cost Retirements Changes Balance
- ---------------- ----------- ---------- ----------- ----------- ----------
Land $ 0 $ 0 $ 0 $ 0 $ 0
Buildings 3,563 0 0 (3,563)* 0
Furn. & Fixtures 1,751 139 (4) (392)* 1,494
Equipment 5,963 741 (560) (752)* 5,392
Leasehold
Improvements 771 45 0 (453)* 363
------------ ------------ ------------ ------------ ------------
$ 12,048 $ 925 $ (564) $ (5,160) $ 7,249
============ ============ ============ ============ ============
Beginning Additions Other Ending
1995 Balance At Cost Retirements Changes Balance
- ---------------- ----------- ---------- ----------- ----------- ----------
Land $ 0 $ 0 $ 0 $ 0 $ 0
Buildings 0 0 0 0 0
Furn. & Fixtures 1,494 137 (2) 0 1,629
Equipment 5,392 487 (704) 23 5,198
Leasehold
Improvements 363 44 0 2 409
------------ ------------ ------------ ------------ ------------
$ 7,249 $ 668 $ (706) $ 25 $ 7,236
============ ============ ============ ============ ============
* Assets of Sarnia transferred
F-23
57
SCHEDULE VII
VERSAR, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
YEAR EXPENSES CHARGE OFF YEAR
------------- ---------- ---------- -------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
1993 $ 1,171,043 $ 725,288 $ (135,618) $ 1,760,713
1994 1,760,713 (12,167) (396,937) 1,351,609
1995 1,351,609 770 (395,180) 957,199
F-24