UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the Quarterly Period Ended April 3, 2005

OR

For the transition period from                      to                     

Commission file number 0-21682

SPARTA, Inc.

25531 Commercentre Drive, Suite 120, Lake Forest, CA 92630-8873

(949) 768-8161

Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act or 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ

As of April 3, 2005 the registrant had 5,129,134 shares of common stock, $.01 par value per share, issued and outstanding.

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SPARTA, Inc.

QUARTERLY REPORT FOR THE PERIOD ENDED APRIL 3, 2005

INDEX

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PART I

Item 1 Financial Statements (Unaudited)

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SPARTA, Inc.
CONSOLIDATED BALANCE SHEET
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

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SPARTA, Inc.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

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SPARTA, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

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SPARTA, INC.
Notes to Consolidated Financial Statements
(Unaudited)

Note A - Basis of Presentation

     The accompanying financial information has been prepared in accordance with the instructions to Form 10-Q and therefore does not necessarily include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles.

     The Company’s fiscal year is the 52 or 53-week period ending on the Sunday closest to December 31. Fiscal year 2005 comprises the 52-week period ending January 1, 2006, whereas fiscal year 2004 comprised the 53-week period ended January 2, 2005. The first quarter of fiscal 2005 comprised the 13 weeks ended April 3, 2004 whereas the corresponding first quarter in fiscal 2004 comprised the 14 weeks ended April 4, 2004. To aid the reader of the financial statements, the year-end has been presented as December 31, 2004 and the three-month period ends have been presented as March 31, 2005 and March 31, 2004.

     In the opinion of management, the unaudited financial information for the three-month periods ended March 31, 2005 and March 31, 2004 reflects all adjustments (which include only normal, recurring adjustments) necessary for a fair statement of the results for such periods.

Note B - Income Taxes

     Income taxes for interim periods are computed using the estimated annual effective rate method.

Note C – Computation of Earnings Per Share

Note D – Accounting for Stock-Based Compensation

     The Company accounts for employee stock-based compensation in accordance with the intrinsic value method described in Accounting Principles Board Opinion No. 25 (APB 25) and related

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SPARTA, INC.
Notes to Consolidated Financial Statements
(Unaudited)

interpretations. Had compensation expense for these plans been determined in accordance with the fair value method described in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), the Company’s net income and net income per share would have been reduced to the pro forma amounts in the following table.

Note E – Stockholders’ Equity

     For the three months ended March 31, 2005, proceeds from the issuance of common stock, primarily as the result of exercises of stock options, totaled $2.2 million. In addition, the Company repurchased a total of 215,908 common shares at their current fair value totaling approximately $7.8 million. Of this total, the Company repurchased $6.7 million for cash, and $1.1 million by delivery of promissory notes. The promissory notes provide for principal payments over periods ranging from two to five years, plus interest at the lesser of the prime rate, the Federal Reserve discount rate (3.75% at March 31, 2005) or 10%.

     Treasury stock is shown at cost, and consisted of 2,560,313 shares and 2,344,405 shares of common stock at March 31, 2005 and December 31, 2004, respectively. Repurchase of outstanding stock by the Company in exercise of its right of repurchase upon termination of employment (as defined) are made at estimated fair value. In connection with its right to repurchase the stockholdings of individuals who terminate their association with the Company, the Company recognized stock compensation expense of $368,000 and 0 for the quarters ended March 31, 2005 and 2004, respectively. The stock price is calculated quarterly by the Company using a formula approved by the Board of Directors (which the Company believes estimates fair value). The stock price formula is evaluated annually by reference to discounted cash flow analysis, market multiple analysis, comparable transaction analysis and other financial valuation techniques.

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SPARTA, INC.
Notes to Consolidated Financial Statements
(Unaudited)

     Certain employees are eligible to participate in a program whereby they may exercise certain stock options by delivery of a note payable to the Company. The notes are full recourse, are secured by the underlying shares of common stock, bear interest at prime plus 0.5%, and are repaid through payroll deductions over a period of less than one year. At March 31, 2005 and December 31, 2004, the outstanding principal balances of these notes were $358,000 and $618,000, respectively, and are included as a reduction of additional paid-in capital.

Note F — Commitments and Contingencies

     The Company has no material investigations, claims, or lawsuits arising out of its business, nor any known to be pending. The Company is subject to certain legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the ultimate outcome of such matters will not have a material impact on the Company’s financial position, results of operations or cash flows.

     During 2004, the U.S. government terminated for its convenience several task orders on one contract. The contract value of the terminated task orders totaled approximately $22 million; however, approximately $9 million of the total termination amount was incurred prior to the effective date of the termination and has been, or is expected to be, paid to the Company. As of March 31, 2005, the Company had accounts receivable totaling approximately $1.9 million for costs incurred on the terminated task orders. These costs were incurred prior to the effective date of the termination. During the first quarter of 2005, the government agreed to reimburse the Company for substantially all of these costs, and in April, 2005, the Company received a partial reimbursement of $1.5 million for costs incurred on the terminated task orders. The Company is continuing to negotiate with the government regarding settlement of the remaining costs and believes that this termination will not have a material effect on the Company’s financial condition or results of operations.

Note G — Recent Accounting Pronouncements

     In December, 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R) [SFAS 123(R)], Share Based Payments. SFAS 123(R) replaces SFAS 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 123(R) requires that the compensation cost related to all share-based payment transactions (including employee stock options) be recognized in the financial statements. Share-based compensation costs must be measured based on the fair value of the equity or liability instruments issued. The Company anticipates adopting SFAS 123(R) at the beginning of the first annual reporting period beginning after December 15, 2005. The Company has not determined the transition method that will be selected to implement this statement or the impact that adopting this statement will have on the Company’s financial position and/or results of operations.

Note H — Subsequent Event

     On April 8, 2005, the Company acquired the assets of McAfee Research, a division of McAfee, Inc., for $1.5 million in cash. McAfee Research conducts advanced computer and network security research focused on a variety of different technologies; such business is complementary to the Company’s existing information assurance business. The acquisition will be accounted for by the purchase method. The Company has not completed allocating the purchase price to the assets acquired or determined the impact of the acquisition on the Company’s financial position and/or results of operations.

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     Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

     The Company’s fiscal year is the 52 or 53-week period ending on the Sunday closest to December 31. Fiscal year 2005 comprises the 52-week period ending January 1, 2006, whereas fiscal year 2004 comprised the 53 week period ended January 2, 2005. The first quarter of fiscal 2005 comprised 13 weeks, whereas the corresponding first quarter in 2004 comprised 14 weeks.

     The following tables present certain key operating data for the periods indicated:

     The Company’s sales for the three-month period ended March 31, 2005 increased 19%, from $54.8 million for the first quarter of 2004 to $65.1 million for the first quarter of 2005. The most significant contributor to the Company’s revenue growth was BMD programs, where revenues increased 20%, from $24.9 million for the three-month period ended March 31, 2004 to $29.7 million for the corresponding period in 2005. In addition to continuing its work on BMD systems engineering and technical analysis, the Company has generated growth in its BMD business base through penetration of other BMD program elements. Revenue on other DoD programs increased 16% from $28.4 million for the first quarter of 2004 to $32.9 million for the first quarter of 2005. The increase in other DoD

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revenues was primarily due to revenue growth on training and range management programs for the U.S. Army, on engineering support programs for the U.S. Army and U.S. Air Force, and on a variety of defense-related composite production programs. In addition, other DoD revenues increased due to increased revenue on programs for a variety of intelligence agencies as a result of the government’s increased focus on intelligence in response to the terrorist attacks of September 11. Non-DoD revenues increased 58% from $1.6 million in 2004 to $2.5 million in 2005 as the result of an increase in revenues on a commercial composite manufacturing program.

     The gross profit rate (gross profit as a percentage of contract costs) increased from 12.1% in the first quarter of 2004 to 13.4% in the first quarter of 2005. The increase in the gross profit rate is primarily attributable to the mix of contract types, as the Company has continued to experience a decline in the percentage of revenues derived from cost reimbursable contracts. During the first quarter of 2005, time and material and fixed price contracts comprised 54% of total sales, compared with 47% of total sales in the corresponding period in 2004. The Company generally earns higher profit rates on time and material and fixed price contracts than it does on cost reimbursable contracts, due to the greater risk associated with such contract types.

     The Company earned net interest income during the first quarters of 2005 and 2004. The increase in net interest income during the first quarter resulted from higher cash and investment balances. Both the Company’s investments in cash equivalents and the Company’s long-term debt are at floating rates. Accordingly, the change in average short- and medium-term interest rates from 2004 to 2005 had a minimal effect on net interest.

     The Company’s effective income tax rate was 41% during the first quarters of both 2005 and 2004.

Backlog

     Annualized funded contract backlog represents all current contracts on which the Company expects to perform during the next 12 months and for which the customer has appropriated funds for payment of goods and services. Annualized unfunded contract backlog includes the expected value during the next 12 months of future incremental funding on existing contracts. Multi-year contract backlog represents the total funded and unfunded contract backlog, without regard to when the relevant contract work will be performed. As a result of U.S. Government funding practices, the Company expects that most of its funded backlog will be performed within the next 12 months.

     The Company has historically used an additional metric for assessing expected future business performance. In addition to funded and unfunded contract backlog, as defined above, the Company has historically included the expected value of future incremental funding on certain proposals where the Company expects a high probability of winning the procurement. The Company believes that this metric, denoted “Company-defined backlog” in the following table, is more indicative of its expected future revenues. For example, as of December 31, 2003, 2002 and 2001, annualized Company-defined backlog comprised 81%, 86% and 88% of sales for fiscal 2004, 2003 and 2002, respectively.

     Although the annualized Company-defined backlog has historically been indicative of its future revenues, there can be no assurance that this will continue. The Company’s backlog is typically subject to variations from year to year as contracts are completed, major existing contracts are renewed, or major new contracts are awarded. Additionally, all U.S. Government contracts included in backlog, whether or not funded, may be terminated at the convenience of the U.S. Government. Moreover, U.S. Government contracts are conditioned upon the continuing availability of Congressional appropriations. New

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Presidential Administrations, changes in the composition of Congress, and disagreement or significant delay between Congress and the Administration in reaching a defense budget accord can all significantly affect the timing of funding on the Company’s contract backlog. Delays in contract funding resulting from these factors may have a significant adverse effect on the Company’s financial position and/or results of operations.

     The following table compares the Company’s contract backlog and Company defined backlog at the dates indicated:

     The annualized Company-defined contract backlog increased from $227.3 million at the end of 2004 to $245.9 million as of March 31, 2005, an increase of 8%. Other DoD annualized contract backlog increased $18.9 million, or 16%, during the first quarter of 2005, primarily in intelligence programs for the national and military intelligence communities and in modeling and simulation support for the U.S. Army’s Future Combat System (FCS) program. In addition, other DoD company-defined backlog includes $8.3 million in backlog arising from the acquisition of McAfee Research division. BMD annualized contract backlog decreased $0.7 million or 1% during the first quarter of 2005. Two of the Company’s contracts under the Missile Defense Agency’s (MDA) Scientific Engineering and Technical

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Assistance (SETA) program are approaching completion. As noted in the following paragraph, the Company has received extensions of these contracts for periods ranging from three to six months, however, the Company expects that these contracts will be subject to recompete during 2005. Non-DoD annualized contract backlog increased $0.4 million, or 6% during the first quarter of 2005.

     In the first quarter of 2005, the Company had five significant competitive contract/task-order wins, five significant sole-source contract add-ons or extensions, and two significant competitive contract/task-order losses. In the Missile Defense Sector, the Technical and Acquisition Support Operation (TASO) won a competitive contract from U.S. Army Aviation Missile Research, Development and Engineering Center for the Science and Technology Enterprise Management System. This is a $1 million, two-year contract. The Advanced Systems Technology Operation (ASTO) won two sole-source contract extensions for the Ballistic Missile Defense System SETA program with the MDA. One was for $12.8 million over six months for the MDA Systems Engineering Office. The other was an increase of $3.2 million over three months for the MDA Battle Control Office. In addition, the Systems Acquisition Support Operation (SASO) was notified that MDA had exercised a contract option for the Force Structure Integration and Deployment program. This option has a value of $12.9 million over a period of one year.

     In the National Systems Security Sector, the Military Systems Operation (MSO) and the Applied Communication Technology Operation (ACTO) won a competitive contract from the Office of Naval Intelligence for their Command, Control, Communications and Computers Intelligence Surveillance, Reconnaissance and Information Operations program. This contract has a value of $18 million over a period of five years. The Information Systems Security Operation (ISSO) won a competitive contract from the U.S. Air Force for their Telemetry, Tracking and Control Information Assurance program. This contract has a value of $2.6 million over a period of one year. As a subcontractor to Harris Corporation, ISSO won a competitive contract for the National Security Agency’s Rebuilding Analysis Development and Integration program. This subcontract has a value of $1 million over an 18-month period. ISSO also won a sole-source add-on for the National Security Agency’s KG-30 Family Replacement System Engineering and Simulator Development Support program. The value of this add-on is $1.2 million over four years. MSO won a sole-source add-on for the Army Space and Missile Defense Command’s Laser Neutralization Systems Hunter-Killer Assessment Support program. This program is to prepare the Company’s ZEUSÔ system for deployment and to provide maintenance support in the theater. This contract add-on has a value of $1.3 million over a period of six months.

     In support to the Boeing and Science Applications International Corporation Lead System Integrator team for the Army’s FCS program, SPARTA won a competitive $4.9 million task order for six months to initiate the building of an End-To-End Simulation Model for the FCS Network. This task order is currently supported by six Operations including the Space and Missile Defense Operation (SMDO), the Defense Programs Operation (DPO), the Defense Systems and Technology Operation (DSTO), TASO, ASTO, and ISSO. This simulation project is expected to continue into the next government fiscal year that begins on October 1, 2005.

     In the Missile Defense Systems Sector, SASO, as a subcontractor to APARIQ, Inc., lost a competitive contract for the Defense Advanced Research Project Agency’s Automated Attack Center Demonstration program. This was a $2.9 million contract over a period of four years.

     In the Hardware Systems Sector, the Composite Products Operation (CPO), as a subcontractor to AeroViroment, lost a competitive contract to manufacture composite wing sets for the Air Force Raven Unmanned Air Vehicle program. This was a six-month $1.5 million contract.

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Liquidity and Capital Resources

     The following tables sets forth, for the periods indicated, selected financial information:

Overview

     The Company’s principal sources of capital for funding its operations are funds generated by ongoing business activities and proceeds from the exercise of stock options and the issuance of common stock. These sources may be augmented, if necessary, by borrowings under the Company’s bank line of credit. The principal uses of capital are for the repurchase of common stock, repayments of amounts borrowed under the bank line of credit, principal payments on subordinated promissory notes, and capital expenditures.

     U.S. Government contracts are conditioned upon the continuing availability of congressional appropriations. Congress usually appropriates funds on a fiscal year basis, even though contract performance may take several years. Consequently, at the outset of a major program, the contract is usually partially funded and additional monies are normally committed to the contract by the procuring agency only as Congress makes appropriations for future years. These appropriations are therefore subject to changes as a result of increases or decreases in the overall budget. New presidential administrations, change in the composition of Congress, and disagreement or significant delay between Congress and the Administration in reaching a defense budget accord can all significantly affect the timing of funding on the Company’s contract backlog. Delays in contract funding resulting from these factors may have a significant adverse effect on the Company’s liquidity and days sales outstanding (DSO).

     The Company’s bank line of credit provides for borrowings of up to $6.0 million, and matures July 2, 2007. Borrowings under the line of credit agreement are secured by accounts receivable and certain equipment and improvements, and bear interest at the prime rate. The line of credit agreement prohibits the payment of dividends by the Company without the bank’s prior consent and requires the Company to maintain certain financial ratios. The Company was in compliance with all such requirements at March 31, 2005. The Company believes that, as in the past, it will be able to renew its banking agreement under similar terms. There were no amounts outstanding under the bank line of credit at March 31, 2005.

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     Generally, the Company limits its stockholders to current employees and directors of the Company. Accordingly, the Company’s Amended and Restated Certificate of Incorporation places restrictions on the transferability of the Company’s common stock and grants the Company the right, but not the obligation, to repurchase the shares held by any stockholder whose association with the Company terminates. Although not obligated to do so, the Company generally exercises its right to repurchase the stockholdings of all individuals terminating their association with the Company, so as to retain all stockholdings among active employees and directors. As of March 31, 2005, the percentage of the Company’s outstanding common stock held by former employees totaled approximately 3.5%.

     In addition to repurchasing the stockholdings of terminated employees, the Company has established and maintains a program that periodically permits the Company’s stockholders to offer shares for sale to the Company. The Company’s repurchase program, which is conducted on a quarterly basis, is a voluntary program on the part of the Company, and the Company’s stockholders therefore have no right to compel the Company to repurchase any of the stockholders’ shares. There can be no assurance that the Company will continue its voluntary repurchase program. Moreover, the number of shares that the Company may repurchase is subject to legal restrictions imposed by applicable corporate law affecting the ability of corporations generally to repurchase shares of their capital stock. In addition, the number of shares which the Company may repurchase is subject to a self-imposed quarterly repurchase limitation which is designed to ensure that the Company’s repurchase of its shares does not materially impair the Company’s liquidity or financial condition. The Board of Directors may approve waivers to the self-imposed quarterly repurchase limitation.

Cash Flow Information

     During the first quarter of 2005 the Company’s cash balances declined $1.9 million compared with the prior year end.

     Operating activities generated $4.0 million in cash during the first quarter of 2005. The Company generated $4.3 million in net income during the quarter. Non-cash expenses totaled $4.6 million, of which $3.9 million related to the Company’s practice of issuing shares of common stock in connection with certain compensation and benefit plans. The Company expects to continue to follow this practice for the foreseeable future. The Company also generated cash flow (in the form of a reduction in its income tax liabilities) of $0.5 million as a result of the income tax benefit relating to its stock compensation plans. However, offsetting these increases to cash flow, the Company used $5.4 million in cash for working capital during the first quarter of 2005, principally to reduce accrued compensation.

     Although first quarter sales increased 19% in comparison with the corresponding period in 2004, accounts receivable declined slightly from $48.2 million at December 31, 2004 to $48.0 million at March 31, 2005. Average year-to-date DSO of 62 days as of March 31, 2005 is an increase of 2 days from 60 days as of December 31, 2004, but a decrease from 65 days as of March 31, 2004. The Company continues to emphasize rapid billing and collection of its receivables, however, there can be no assurance that the Company will be able to reduce, or maintain, its average DSO.

     Through the three months ended March 31, 2005 the Company’s capital expenditures totaled approximately $0.7 million. The Company currently does not expect a significant change in its level of capital expenditures.

     In connection with the aforementioned stock repurchase policies; during the three months ended March 31, 2005, the Company repurchased a total of 215,908 common shares totaling approximately $7.8 million. Of the year-to-date total, $1.1 million was repurchased in exchange for promissory notes

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and $6.7 million was repurchased for cash. Year-to-date principal payments on promissory notes as of the end of the first quarter of 2005 totaled $0.7 million. Proceeds from the issuance of common stock, primarily as the result of exercises of stock options, totaled $2.2 million.

     The Company anticipates that its existing capital resources and access to its line of credit will be sufficient to fund planned operations for the next year and for the foreseeable future.

     The Company’s significant contractual obligations relate to subordinated promissory notes and operating lease commitments. As of March 31, 2005 the Company has no significant commercial commitments, nor significant commitments for capital expenditures. As of March 31, 2005 contractual obligations are payable as follows:

Recent Accounting Pronouncements

     In December, 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R) [SFAS 123(R)], Share Based Payments. SFAS 123(R) replaces SFAS 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 123(R) requires that the compensation cost related to all share-based payment transactions (including employee stock options) be recognized in the financial statements. Share-based compensation costs must be measured based on the fair value of the equity or liability instruments issued. The Company anticipates adopting SFAS 123(R) at the beginning of the first annual reporting period beginning after December 15, 2005. The Company has not determined the transition method that will be selected to implement this statement or the impact that adopting this statement will have on the Company’s financial position and/or results of operations.

Effects of Federal Funding for Defense Programs

     The Company continues to derive over 90% of its revenues from contracts with U.S. government agencies. The Company’s government contracts may be terminated, in whole or in part, at the convenience of the customer (as well as in the event of default). In the event of a termination for convenience, the customer is generally obligated to pay the costs incurred by the Company under the contract plus a fee based upon work completed. During 2004, the U.S. government terminated for its convenience several task orders on one contract. The contract value of the terminated task orders totaled approximately $22 million; however, approximately $9 million of the total termination amount was incurred prior to the effective date of the termination and has been, or is expected to be, paid to the Company. As of March 31, 2005, the Company had accounts receivable totaling approximately $1.9 million for costs incurred on the terminated task orders. These costs were incurred prior to the effective date of the termination. During the first quarter of 2005, the government agreed to reimburse the Company for substantially all of these costs, and in April, 2005, the Company received a partial reimbursement of $1.5 million for costs incurred on the terminated task orders. The Company is

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continuing to negotiate with the government regarding settlement of the remaining costs and believes that this termination will not have a material effect on the Company’s financial condition or results of operations. The Company does not anticipate any additional termination of programs or contracts in 2005. However, no assurances can be given that such events will not occur.

     In addition to the right of the U.S. government to terminate contracts for convenience, U.S. government contracts are conditioned upon the continuing availability of congressional appropriations. These appropriations are therefore subject to changes as a result of increases or decreases in the overall budget. New presidential administrations, change in the composition of Congress, and disagreement or significant delay between Congress and the Administration in reaching a defense budget accord can all significantly affect the timing of funding on the Company’s contract backlog. Delays in contract funding resulting from these factors may have a significant adverse effect on the Company’s revenue recognition, liquidity, and DSO.

Forward-Looking Statements

     All statements in this report that do not directly and exclusively relate to historical facts constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent the Company’s intentions, plans, expectations and beliefs, and are subject to risks, uncertainties and other factors, many of which are outside the Company’s control. These factors could cause our actual results, performance, achievements or industry results to differ materially from the results, performance or achievements expressed or implied by such forward-looking statements. These factors are described in more detail in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2005, and such other filings that the Company makes with the SEC from time to time. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof.

Item 3 Quantitative and Qualitative Disclosures about Market Risk

Refer to item 7A in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2005.

Item 4 Controls and Procedures

(a)	Evaluation of Disclosure Controls and Procedures

     Management has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of April 3, 2005. Exchange Act Rule 13a-15(e) defines “disclosure controls and procedures” to mean controls and procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The definition further states that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on the results of this evaluation, management believes that such controls and procedures are operating effectively.

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(b)	Changes in Internal Controls

     There has been no change in the Company’s internal control over financial reporting that occurred in the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting.

Part II OTHER INFORMATION

Item 1 Legal Proceedings

     The Company has no material investigations, claims, or lawsuits arising out of its business, nor any known to be pending. The Company is subject to certain legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the ultimate outcome of such matters will not have a material impact on the Company’s financial position, results of operations or cash flows.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

     (a) and (b) Not Applicable

     (c) Issuer Purchases of Equity Securities

     As previously discussed, the Company maintains a voluntary stock repurchase program which enables its stockholders to offer shares for sale to the Company on designated dates, usually February 21, May 21, August 21 and November 21. Such repurchase programs are generally announced approximately 30 days prior to the designated date, in conjunction with the calculation of the stock price. See “Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities — Lack of Public Market; Internal Repurchase Program” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2005.

     The Company has a self-imposed limit on the number of shares that the Company will repurchase in connection with each stock repurchase date. In addition, repurchases may also be limited by applicable legal restrictions. Accordingly, upon expiration of the repurchase program, there is typically a delay in finalizing the repurchase due to the time necessary to perform the required calculations, notify stockholders of the number of shares that the

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Company will accept for repurchase, collect stock certificates, and prepare payment documentation. The stock repurchases for January in the above table represent the final stock repurchases from the November 21, 2004 stock repurchase date.

     During the first quarter of 2005, the Company announced a voluntary stock repurchase program with an expiration date of February 21, 2005. Total funds committed to this repurchase program aggregated $3,370,000, of which $728,000 were expended in February 2005, with the balance expended in April 2005.

     Stock repurchases, other than those related to the voluntary stock repurchase program, result primarily from the Company’s exercise of its right of first refusal upon the termination of a stockholder’s employment with the Company. See “Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities — Repurchase Rights of the Company, Restrictions on Transferability” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2005.

Item 3 Defaults Upon Senior Securities

     Not Applicable

Item 4 Submission of Matters to a Vote of Security Holders

     Not Applicable

Item 5 Other Information

     Not Applicable

Item 6 Exhibits

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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EXHIBIT INDEX

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