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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, 1997 No. 1-9309
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Versar INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-0852979
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
6850 Versar Center, Springfield, Virginia 22151
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(Address of principal executive offices) (Zip code)
(703) 750-3000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
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(Title of Class)
American Stock Exchange
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(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 2, 1997 was approximately $10,209,341.
The number of shares of Common Stock outstanding as of September 2, 1997
was 5,171,459.
The Exhibit Index required by 17 CFR Part 240.0-3(c) is located on Pages 19
through 23 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 1997 Annual Meeting of
Stockholders scheduled to be held on November 12, 1997 are incorporated by
reference into Part III hereof.
PART I
Item 1. Business
Forward Looking Statements
This report contains certain forward-looking statements which are based on
current expectations. Actual results may differ materially. The forward-looking
statements include those regarding cost controls and reductions, the expected
resolution of delays in billing of certain projects, the possible impact of
current and future claims against the Company based upon negligence and other
theories of liability, the integration of the recent or ongoing acquisitions,
and the possibility of the Company making acquisitions during the next 12 to 18
months. Forward-looking statements involve numerous risks and uncertainties that
could cause actual results to differ materially, including, but not limited to,
the possibilities that the demand for the Company's services may decline as a
result of possible changes in general and industry specific economic conditions
and the effects of competitive services and pricing; one or more current or
future claims made against the Company may result in substantial liabilities;
and such other risks and uncertainties as are described in reports and other
documents filed by the Company from time to time with the Securities and
Exchange Commission.
The statements in this report, including statements under the headings of
Business, Legal Proceedings, and Management's Discussion and Analysis and the
attached financial statements, reflect the business lines and two month's
financial results of Science Management Corporation ("SMC"). On May 2, 1997,
Versar, Inc. ("Versar" or the "Company") purchased a majority of the common
shares and all of the outstanding preferred shares of SMC as more fully
described below. As a result, the SMC revenue for the last two months of
Versar's fiscal year is included in Versar's financial statements as a majority
owned subsidiary. In addition, because SMC has negative retained earnings, the
entire net income of SMC for May and June of 1997 is also included in Versar's
results. This inclusion will continue until the negative retained earnings are
eliminated and then, until the closing of the merger described below, Versar
will account for SMC's earnings on an equity basis of its 53.5% ownership
interest in SMC's common stock. On July 27, 1997, SMC and Versar entered into an
Agreement and Plan of Merger which is subject to SMC stockholder approval.
Versar believes that the merger and, thus, the acquisition of the remaining SMC
outstanding common stock, will occur during the second quarter of fiscal year
1998.
Versar is a diversified international professional services firm, helping
clients in the private and public sectors enhance their performance while
reducing costs and achieving environmental excellence. Versar combines science,
technology, and people with specialized skills to design and implement programs.
In addition, we design systems, facilities, and equipment to improve operating
performance, conserve resources, reduce emissions and waste generation, which
ultimately increase productivity and profitability, protects worker health and
safety and our environment.
On May 2, 1997, pursuant to a Stock Purchase Agreement dated April 30,
1997, Versar purchased from Imperial Capital Worldwide Partners, L.P., a
Delaware limited partnership ("Imperial") 1,070,000 shares common stock of SMC
(representing 53.5% of the issued and outstanding common stock of SMC), 100% of
the issued and outstanding preferred stock of SMC and certain options to
purchase 350,000 additional shares of SMC common stock for a purchase price of
$2,790,000 paid in cash. As additional consideration for such stock purchases,
the Company paid certain legal fees incurred by Imperial and its affiliates in
connection with the stock purchase and other matters related to SMC in an
aggregate amount of $80,000. The purchase price paid by the Company was
determined by the Company's bid exceeding another competitive bid.
Versar's four major business areas are: (1) environmental services; (2)
management services; (3) facilities and information management services; and (4)
engineering, design, and construction services to the process industries. As is
indicated below, certain of these business areas have developed as a result of
the integration of
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SMC into the Versar corporate group and represent a combination of traditional
services of SMC with Versar's traditional services offerings.
Environmental Services include the full range of scientific, engineering,
and construction services to address the prevention, detection, management,
control, and cleanup of toxic substances and hazardous waste in the environment
and constituted the primary business line of Versar prior to the acquisition of
SMC. Versar emphasizes innovation in process and technology application to
achieve better results more quickly and at less cost in today's highly
competitive market. Versar's Environmental Services Group works in partnership
with government and industry by becoming an involved member of our clients'
organization. We focus on a client-centered approach that builds 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 become 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.
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:
o A Complex and changing environmental regulations and the need for a
more strategic approach to meet national and international
environmental requirements in a way that allows industry to be
profitable and competitive in a global market.
o A Increased emphasis on compliance management and recognition that
pollution prevention and waste minimization are necessary parts of the
long-term sollution to local and national environmental challenges.
o A 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 as a full-service firm that
emphasizes:
Strategic Planning and Pollution Prevention. These are Versar's trademark
environmental services, capitalizing on its combined strengths in regulatory
policy, risk assessment, information management, pollution control, and
treatment technology, which emphasize pollution prevention. This service is also
fully integrated with and is part of Versar's Management Services. Versar also
provides nationally recognized services in the area of natural resources
management and ecological studies.
Total Compliance Management (TCM). TCM is a strategic approach and process of
continuous improvement that permits senior management to view environmental
compliance expenditures as a business investment thus creating an "Environmental
Balance Sheet." Versar consults at the highest levels of industry and government
where policy decisions are made. Versar supports its clients in implementing new
programs and approaches as well as managing current programs on-site and
outsourcing through its Facilities and Information Services. Versar has also
positioned itself to be a leader in marketing services related to the
environmental standards by the International Organization for Standards, ISO
14000. A further enhancement to the ISO 9000 quality standards promulgated and
widely adopted several years ago, ISO 14000 will establish voluntary
environmental compliance standards for the international business community.
Corrective/Remedial Action. Versar provides the full range of services in
remedial/corrective action from site investigation, remedial design,
construction, and operation and maintenance (O&M) of remedial systems. More and
more clients are asking how their project can be accomplished more efficiently.
Versar emphasizes innovative solutions to such problems as groundwater
remediation. For example, Versar successfully demonstrated the
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effectiveness of a passive reactive wall consisting of iron fillings placed in a
trench to remove halogenated organic compounds from groundwater at Lowry Air
Force Base. Versar also brings to its clients a new alternative to conventional
remedial technologies, known as Bio-Injection. This method of remediation allows
the concurrent treatment of soils and groundwater with a mixture of bacteria and
nutrients. This process typically requires a one-time treatment, with positive
results achieved within months instead of years at less cost than conventional
treatment methods.
Versar is applying these and other technologies as it focuses more and more
on emerging opportunities in the redevelopment of industrial properties under
EPA and States' Brownfields programs. Versar has established alliances with real
estate and investment firms to help clients bring new life to abandoned,
contaminated sites in prime real estate areas.
Versar's Environmental Services address management, compliance, and
remedial/corrective needs of clients in a wide range of technical areas
including:
o Environmental Policy
o Air Quality
o Water/Groundwater Quality
o Waste Management
o Risk Assessment
o Ecological Studies
o Technology Evaluations
o Natural Resources Management
o Industrial Hygiene
o Asbestos and Lead Paint
o Tank Management
Personal Protection Equipment (PPE)/ChemDemil. A specialty area for the
Company is our Chemical Surety Laboratory and our related expertise in personal
protection equipment. Versar's support to the U.S. Army's Chemical Weapons
Demilitarization program is an important business area for Versar. Versar's
subsidiary, GEOMET Technologies, Inc., is involved in the disposal of residual
chemical weapons material at sites throughout the United States. GEOMET's
program, now in its third year, includes outfitting and operating the mobile
laboratory, which will support the disposal operations, design of air monitoring
and warning systems, specification of the PPE to be used, and other assignments
dealing with environmental compliance, development of operational procedures,
and program management. GEOMET is also in the business of developing and testing
PPE. Current projects include development of two PPE ensembles for use in the
depots where chemical weapons are stockpiled and in activities where exposure to
chemical agents is likely, such as laboratory work and emergency response. The
ensembles include a protective suit, clean air source, radio communications, and
an individual cooling system for the worker. GEOMET is also a commercial
supplier to remedial action contractors and others of PPE specially qualified
for chemical protection. Driven in part by the Sarin attack on the Tokyo subway
in 1995, Versar has significantly expanded offering its services to local,
State, and foreign governments in support of counter-terrorism. Management
believes the opportunities for commercial application will continue to grow.
GEOMET also has an energy services practice, which involves energy auditing and
energy conservation services to a variety of clients. This service is fully
integrated with and part of utility support services.
Management Services include strategic planning and the development and
implementation of comprehensive programs to help clients optimize resource
utilization to enhance operating performance, improve the quality of products
and services, achieve sustainable environmental compliance as well as maintain a
competitive advantage and return on investment goals. Versar's Management
Services Group assists its clients in identifying areas requiring improvement,
provides specific recommendations, develops programs, and actively participates
in their implementation. Using a "Total Enterprise" approach to productivity,
the Management Services Group helps clients
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improve profitability by more effectively employing all their resources
(personnel, materials, equipment, facilities, organization, science, and
technology) in day-to-day operations and adapting to ever changing business
conditions. A key focus is helping clients integrate environmental, health, and
safety performance into facility operation in a way that reduces operating and
overhead costs, emissions and waste generation, and the need for expensive
"end-of-pipe" control technology. Key service areas of the Management Services
include:
o Profit Improvement and Sustainability
o Team Building and Improved Management Effectiveness
o Organizational Optimization
o Quality Improvement/Management
o Resources Management and Conservation
o Technology Management
o Risk Management
o Strategic Environmental Management
o Business Process Reengineering
o Logistics Support
o Documentation Reduction
o Facility O&M Performance Benchmarking and Improvement
Versar has provided management consulting and program support services to
both government and industry. Versar has significantly expanded this service
offering with the acquisition of SMC, one of whose core businesses is providing
senior level strategic planning and management consulting services. The
Management Services Group which employs a variety of proprietary analytical
techniques including the Work-Factor(R) System, a widely recognized,
predetermined elemental time system developed by SMC and used to measure the
human work component of highly-repetitive manufacturing processes. SMC has also
developed other systems and techniques designed to improve the productivity of
administrative, support, and professional personnel in a wide range of
functions.
Facilities and Information Management Services include a full range of
utility infrastructure (energy, water, wastewater) support services,
environmental compliance management functions, information management, and
business recovery services. Versar provides consulting services and on-site
support with dedicated personnel, and takes responsibility for and provides
specific services on an outsourcing basis.
Versar provides utility infrastructure support services in three areas:
o A Consulting and management support in evaluating, procuring, and
implementing alternative options for the optimization of utility
operations and maintenance services. A key focus is improving
compliance and the quality of utility services, while reducing the
costs of these services through better use of available technology,
training, and development of operating personnel and innovative
approaches to project financing.
o A Contract operations or outsourcing where Versar takes over the
operations and maintenance of our clients' utility infrastructure.
o A Privatization initiatives where Versar designs, builds, operates,
and maintains a client's utility infrastructure needs.
Versar also offers services to take over existing utility assets on a purchase
or lease basis. Versar will deliver the required services on a contract basis
and will assume responsibility for permitting and ensuring regulatory compliance
for all systems it manages whether performed on a outsourcing basis or under a
privatization initiative.
5
Versar provides environmental compliance management services both on-site
and on an outsourcing basis to meet our clients' needs as they continue to
restructure, reduce their overhead costs, and improve productivity. Industry and
government are using new technology to improve environmental performance and
bolster profits. In doing so, companies are turning to solutions that address
pollution prevention as an integral part of plant operations and control. Versar
brings its clients knowledge and experience in the application of such
technology. An integral part of Versar's services is the application of
environmental health and safety management information systems in helping
clients make more informed decisions. Having long recognized the limitations of
regulatory driven environmental, health, and safety programs, Versar has focused
on the economic benefits of an alternative approach to environmental management.
This approach places the customer's business objectives at the center of the
decision-making process, and then addresses the environmental, health and safety
issues in such a way that they complement those objectives while complying with
the regulations. Beyond regulatory compliance, this approach challenges Versar's
expertise to develop and implement alternatives that enhance the client's
productivity and reduce the unit costs of operations. Versar will tailor a
program to suite a client's needs as part of its management services and then
implement it through on-site support or on an outsourcing basis, as required.
Versar's Business Information Systems ("BIS") services, operated through
SMC, include systems support in Facilities Management, Business Recovery, and
Professional Support Services. Versar offers clients the full range of services
in managing, staffing, and operating data processing centers, operations, or
specific functions in accordance with client specifications. Services performed
and functions managed include data entry, tape handling, library management,
maintenance, and systems development. Under multi-year subcontracts from IBM,
Versar's BIS group currently manages data centers in Connecticut and Tennessee,
performing a variety of activities for clients in several industries. With low
overhead and highly skilled management, Versar's BIS group offers outsourcing
services at significantly lower costs than larger competitors. The facilities
management operations of BIS have built an excellent service record,
consistently achieving performance reliability targets well in excess of
contract requirements.
In the business recovery area, Versar's BIS group offers a complete menu of
services covering all aspects of business continuation and recovery services.
Through its highly qualified staff and consultants, the BIS professionally and
cost effectively evaluates a client's business continuation and recovery needs,
creates specific disaster recovery plans and programs, and audits, updates or
tests existing client plans for data backup and disaster response. Unlike many
of its competitors, however, BIS can also perform as a full solution provider,
offering clients online backup facilities and access to state of the art
alternate EDP operating sites in its capacity as a business partner to IBM and
other well known vendors. In this role, the BIS professionals assist clients in
identifying and specifying their needs, arrange for backup or "hot sites" with
their business partners, and support implementation, testing, and periodic
update of the total business continuation or disaster recovery program.
The professional services support group included in the BIS group supports
all of its services and also offers clients support in a variety of systems
needs, including network and internet anti-virus protection programs and
products.
Engineering, Design, and Construction Services operate through SMC McEver,
Inc. ("SMC McEver"), a wholly owned subsidiary of SMC and a Houston-based
engineering and construction company. SMC McEver provides design, engineering,
and construction services to the process industries. Typical clients include
refinery and petrochemical plants, materials handling projects, specialty
chemical plants, bulk storage terminals, pipelines, and other manufacturing
facilities. SMC McEver also provides consulting services for a variety of
projects with unique engineering and construction demands. Environmental,
health, and safety support services, including site assessment, permitting, and
cleanup required of past contamination problems, are provided through the
Environmental Services.
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With specialized expertise in the engineering and construction of refinery
and petrochemical plants, SMC McEver focuses its resources and experience on
providing services that encompass all relevant disciplines from concept through
completion and startup. This includes:
o Site Assessment
o Detailed design and documentation
o Engineering specifications
o Equipment and materials procurement
o Cost analysis
o The preparation of bid packages
o Environmental impact statements
o Permitting and site preparation
o Construction and construction management
SMC McEver's team of certified professionals are experts in all the
necessary disciplines. Assisted by a force of highly-skilled engineers, they
prepare and supervise every phase of each project. Although providing a
comprehensive set of services from a single source, SMC McEver offers clients
the choice of using any individual service, or combination of services it
provides, including services available from other Versar operating units. SMC
McEver was recently awarded a $15M contract for the design and construction of a
specialty chemical plant.
Markets
Versar's markets are evolving in response to our clients' changing needs,
and market opportunities are being driven by the availability of technology
aimed at productivity improvement. Versar has significantly diversified its
business over the last year, primarily through the acquisition of SMC, with a
much greater emphasis on (1) environmental services with particular emphasis on
redevelopment of industry properties and conversion of military bases for
alternative uses, (2) facilities and information management support services to
respond to our clients' increasing need to make more informed decisions and to
outsource non-core functions, (3) services to design, build, finance, and
operate utility infrastructure and facilities for the process industries, and
(4) management services to help industry and government restructure and improve
their operating performance.
Versar is on the cutting edge of a number of growth markets. These include:
o A Industry's continued focus on productivity improvement, in
particular opportunities internationally and with Versar's (SMC)
multinational clients.
o A Deregulation of the energy industry presents opportunities for
Versar (GEOMET) as a certified energy service provider contractor.
o A Continued growth in consumption of fossil fuel and demand for
improved process technologies that prevent pollution will increase
worldwide opportunities for Versar (SMC McEver) in process facility
design and construction.
o A Government /commercial interest in expanding capability to respond
to potential terrorism worldwide will provide continued growth
opportunities for Versar (GEOMET) services in personnel protection
equipment.
o Brownsfield legislation and tax incentives will provide opportunities
for growth of Versar's environmental cleanup services.
o A Continued demand to reduce environmental management cost will
provide opportunities for Versar to grow its business in pollution
prevention, risk management, and resources management.
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Versar's current client base, including clients of SMC, is well balanced
with 41 percent industrial/commercial and 59 percent government. Approximately
50 percent of Versar's industrial/commercial clients are in the petrochemical,
specialty chemical, and manufacturing industry. A major part of Versar's support
services to this client base includes the design and construction of process
facilities through SMC McEver, management services to multinationals and fortune
100 companies, and environmental management services. Versar also provides a
wide range of services to the financial/real estate/insurance business sector,
transportation and communications sector, services industries and others.
The U.S. Department of Defense (DOD) is Versar's largest government client,
making up 33 percent of our business base. DOD is going through many of the same
issues as are faced in private industry with restructuring and cost reduction in
response to increasing budget limitations. DOD also has an aggressive
environmental program to cleanup, realign, and close bases worldwide as it
continues to restructure to a smaller force. Versar is a major support
contractor to DOD, offering the same range of services as in the private sector.
The U.S. Environmental Protection Agency (EPA) makes up 7 percent of Versar's
business and is growing in new areas such as water quality, risk assessment, and
natural resources management. Versar thus maintains cutting edge knowledge of
regulatory trends and their impacts. Other Federal clients make up 6 percent of
our business and include the Departments of Energy and the Interior, Federal
Housing Authority, and Intelligence Agencies. State and local governments make
up 13 percent of Versar's business.
Competition
Versar traditionally has faced substantial competition in each market in
which it operates and expects to continue to face substantial competition as it
diversifies its business. Many times, our competitors are larger and have more
financial resources. Versar has historically competed primarily on its
scientific, technological, and engineering expertise as well as costs. As
Versar's business mix shifts more toward providing turnkey infrastructure
support services, Versar will compete with more facility O&M and
engineering/construction contractors on projects that lend themselves more to
innovation in approach, technology application, and project financing -- areas
where Versar's senior management are skilled in packaging responses to new and
different opportunities. In essence, the market is changing rapidly, and Versar
is taking advantage of these changes to position itself for substantial growth
in new and emerging markets by providing much needed infrastructure support to
industry and government as we enter the 21st century. However, no assurances can
be given that Versar will be able to achieve such growth or successfully compete
in such new areas.
Backlog
As of June 30, 1997, total backlog for Versar, including unfunded tasks and
orders, was approximately $340 million, as compared to approximately $325
million as of June 30, 1996. Funded backlog for Versar was approximately $41
million, an increase of 28 percent compared to approximately $32 million as of
June 30, 1996. 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.
Employees
At June 30, 1997, Versar had approximately 554 full-time employees, of
which approximately 369 were engineers, scientists, and other professionals.
Sixty percent of the Company's professional employees have a bachelors degree,
24% have a masters degree, and 3% have doctorate degrees.
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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. In June 1995, Versar leased 73,371 square
feet from Sarnia Corporation. In June 1996, Versar reduced this leased space to
68,239 square feet. The rent is subject to a 4% escalation per year. 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, 1997, the Company had under lease an aggregate of
approximately 227,000 square feet of office and laboratory space in the
following locations: Springfield, VA; Tempe, AZ; Alameda and Fair Oaks, CA;
Northglenn, CO; Miami, FL; Lombard, IL; North Andover and Burlington, MA;
Hopkins, MN; Columbia, Gaithersburg and Germantown, MD; Bridgewater, NJ;
Cincinnati, OH; Bristol and King of Prussia, PA; San Antonio and Houston, TX;
American Fork, UT; France and England. 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 Versar 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, the 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 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.
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In September 1995, Windolph sought review of this case by the Colorado
Supreme Court which was denied on February 20, 1996. The case proceeded to trial
on the promissory estoppel claim only. A bench trial without jury was held on
January 27, 1997. On April 3, 1997, the Court entered judgment for Versar on the
promissory estoppel claim rejecting Windolph arguments on the basis of Delaware
and Colorado law. Alternatively, the Court held that even if its judgment is
overturned on appeal, the maximum liability to Windolph would be $11,000. On May
23, 1997, the parties entered into a Stipulation of Dismissal pursuant to which
Versar agreed to withdraw its demand for court costs and Windolph agreed to
waive his right to appeal the trial court's decision, thereby fully terminating
this litigation without any payment to Windolph.
As part of the agreement to sell its laboratory assets and operations to
Kemron Environmental Services, Inc. (Kemron) in July 1994, Versar agreed to
refer its analytical laboratory work for a period of 48 months after the closing
date to Kemron subject to certain limitations and exclusions including federal
procurement requirements and the ability of Kemron to perform the required
services. On July 31, 1996, Kemron filed an action in the Circuit Court of
Fairfax County, Commonwealth of Virginia, entitled Kemron Environmental
Services, Inc. vs. Versar Laboratories, Inc. and Versar, Inc., Law No. L154205.
Kemron alleged the defendants breached certain covenants that Versar would refer
laboratory work to Kemron in the Asset Acquisition Agreement and alleged damages
in the amount of not less than $3,000,000.
Versar responded by denying the allegations and filed a counterclaim
alleging various material breaches of the Asset Acquisition Agreement by Kemron
and seeking a declaratory judgment that Kemron's breaches have terminated
Versar's obligations under the Agreement. On June 16, 1997, the parties entered
into a settlement agreement extending and amending the right of Kemron to the
referral of analytical services from Versar.
In June 1996, Flintlock Ltd, a client of SMC McEver, (a subsidiary of SMC
which is a majority owned subsidiary of Versar), filed an action in the 165th
Judicial District Court of Harris County, Texas, entitled Flintlock Ltd. v. SMC
McEver, Inc., Case No. 96-002700. Flintlock alleged that SMC McEver negligently
failed to manage the construction of a citronella candle project and negligently
misrepresented the project's cost. Flintlock asserts that it incurred over
$700,000 in damages. SMC McEver has counterclaimed for over $244,000 which it
claims is due under the contract between the parties. The parties have taken
certain discovery which remains ongoing. The parties have also engaged in
discussions regarding possible mediation. SMC McEver has retained counsel and is
defending this matter vigorously. The Company does not expect the outcome of
this litigation to have a material adverse effect on its financial condition or
its results of operations.
Versar and its subsidiaries are parties to various other legal actions
arising in the normal course of business. The Company believes that an ultimate
unfavorable resolution of these other legal actions will not have a material
adverse effect on its consolidated financial condition and results of
operations.
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 1997.
10
EXECUTIVE OFFICERS
The current executive officers of Versar, and their ages as of September 2,
1997, 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 56 Chairman, Chief Executive
Officer and President
Thomas S. Rooney 63 Executive Vice President and
Chief Operating Officer
Robert L. Durfee 61 Executive Vice President,
President, GEOMET Technologies, Inc.
Lawrence A. White 54 Executive Vice President,
Corporate Development
Lawrence W. Sinnott 35 Vice President,
Chief Financial Officer and Treasurer
James C. Dobbs 52 Vice President, General Counsel and
Secretary
Gayaneh Contos 61 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.
11
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, J.D.,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 (the
"AMEX"), under the symbol VSR. At June 30, 1997, the Company had 746
stockholders of record, excluding stockholders whose shares were held in nominee
name. The quarterly high and low sales prices as reported on the AMEX during
fiscal years 1997 and 1996 are presented below.
Fiscal Year High Low
----------- ---- ---
1997 4th Quarter........................... $4.000 $3.188
3rd Quarter........................... 4.188 3.000
2nd Quarter........................... 3.250 2.563
1st Quarter........................... 3.938 2.563
Fiscal Year High Low
----------- ---- ---
1996 4th Quarter........................... $4.688 $2.625
3rd Quarter........................... 3.563 2.750
2nd Quarter........................... 4.063 3.125
1st Quarter........................... 4.813 3.000
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.
12
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,
-----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share data)
Consolidated Statement of Operations related data:
Gross Revenue................................... $48,517 $44,283 $39,090 $42,764 $43,012
Net Service Revenue............................. 33,570 31,919 29,347 31,032 32,980
Operating Income (Loss)......................... 1,503 872 560 (1,269) 853
Income (Loss) from Continuing
Operations.................................... 1,256 992 458 (2,658) (590)
Net Income (Loss)............................... 1,256 992 458 (4,367) (1,093)
Income (Loss) per Share from Continuing
Operations.................................... $ .24 $ .19 $ .09 $ (.59) $ (.14)
Net Income (Loss) per Share..................... $ .24 $ .19 $ .09 $ (.97) $ (.27)
Weighted Average Shares Outstanding............. 5,286 5,248 4,834 4,481 4,093
Consolidated Balance Sheet related data:
Working Capital................................. $ 9,141 $ 7,629 $ 5,425 $ 5,261 $ 7,627
Current Ratio................................... 1.83 2.14 1.64 1.68 1.98
Total Assets.................................... 25,448 16,979 28,195 27,782 31,922
Current Portion of Long-Term Debt............... 819 323 335 1,201 1,198
Long-Term Debt ................................. 1,437 2 4 17 13,494
Mortgage Debt of Sarnia......................... -- -- 12,062 12,403 --
------- ------- ------- ------- -------
Total Debt, excluding bank line of credit....... 2,256 325 12,401 13,621 14,692
Stockholders' Equity............................ $ 9,523 $ 7,776 $ 6,290 $ 5,261 $ 8,690
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 through January 1, 1996.
Sarnia was spun-off to stockholders in fiscal year 1994, but continued to be
reflected in Versar's financial statements due to the guarantee of all of
Sarnia's debt by Versar. After the completion of Sarnia's refinancing of its
debt, Versar's guarantee was reduced from $12.4 million to $1.5 million and the
divestiture was considered complete for accounting purposes. Fiscal year 1997's
data includes the financial position of Science Management Corporation (SMC) in
which a majority interest was acquired by Versar on May 2, 1997. As a result,
the SMC revenue and income for the two months ended June 30, 1997 are included
in Versar's income statement. See Notes B, C and F of the Notes to Consolidated
Financial Statements for further information.
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains certain forward-looking statements which are based on
current expectations. Actual results may differ materially. The forward-looking
statements include those regarding cost controls and reductions, the expected
resolution of delays in billing of certain projects, the possible impact of
current and future claims against the Company based upon negligence and other
theories of liability, the integration of the recent or ongoing acquisitions,
and the possibility of the Company making acquisitions during the next 12 to 18
months. Forward-looking statements involve numerous risks and uncertainties that
could cause actual results to differ materially, including, but not limited to,
the possibilities that the demand for the Company's services may decline as a
result of possible changes in general and industry specific economic conditions
and the effects of competitive services and pricing; one or more current or
future claims made against the Company may result in substantial liabilities;
and such other risks and uncertainties as are described in reports and other
documents filed by the Company from time to time with the Securities and
Exchange Commission.
Versar's gross revenues for fiscal year 1997 totalled $48,517,000, or
$4,234,000 (10%) above fiscal year 1996 gross revenue of $44,283,000. Gross
revenue for fiscal year 1996 was $5,193,000 (13%) above that reported in 1995.
The increase in Versar's revenue in the last fiscal year was primarily due to
the acquisition of a majority interest in Science Management Corporation ("SMC")
on May 2, 1997. Gross revenues of $3,854,000 of SMC are included in fiscal year
1997 from the date of acquisition of SMC. The increase in gross revenues in
fiscal year 1996 was due to task orders being performed in the Company's Rocky
Mountain and Midwest regions in support of the Air Force Center for
Environmental Excellence contract. As reflected in the table on page 15,
government revenue represented 59% of the total revenue in 1997, compared to 66%
in 1996 and 64% in 1995. The reduction is attributable to the addition of SMC
revenues, which are predominately commercial.
Purchased services and materials for fiscal year 1997 totalled $14,947,000
or $2,583,000 (21%) higher than fiscal year 1996 purchased services. Purchased
services for fiscal year 1996 were $2,621,000 (27%) higher than reported in
fiscal year 1995. The increase in fiscal years 1996 and 1997 was primarily due
to the increase in gross revenue as mentioned above.
Net service revenue is derived by deducting the costs of purchased services
from gross revenue. Versar considers it appropriate to analyze operating margins
and other ratios in relation to net service revenue because such revenues
reflect the actual work performed by the Company.
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 80.5% in
1997 compared to 81.4% in 1996 and 81.0% in 1995. The decreases in fiscal years
1997 and 1996 are attributable to improved labor utilization and reduced fixed
operating costs.
Selling, general and administrative expenses approximated 15.1% of net
service revenue in 1997, compared to 15.5% in 1996 and 17.0% in 1995. The
decrease is primarily due to the higher volume of net service revenue, while
selling, general and administrative expenses increased by only 3% in fiscal year
1997.
Other income includes the costs and revenues that are not directly
attributable to contracts. In 1997, the Company recognized the remainder of the
non-compete income from the sale of its majority-owned subsidiary Gammaflux,
Inc. of $42,000 compared to $28,000 in fiscal year 1996, and $47,000 in fiscal
year 1995. In 1995,
14
the remaining $214,000 of other income was due to the reversal of $174,000 of
anticipated costs that were ultimately not incurred as a result of winning new
contracts and the reduction of other operating reserves of $40,000.
Losses on Sarnia Corporation ("Sarnia") in fiscal year 1996 of $142,000
were recorded in the first six months of fiscal year 1996 compared to losses of
$270,000 in fiscal year 1995. See Note C in the consolidated financial
statements. The Sarnia losses were recorded as a separate line item due to the
spin-off of Versar's real estate entity to shareholders on June 30, 1994, which
was completed as of January 25, 1996 for accounting purposes.
Operating income for 1997 was $1,503,000, an increase of $631,000 over
fiscal year 1996. The increase is primarily due to a combination of lower direct
costs of services and selling, general and administrative expenses as a
percentage of net service revenue as discussed above. Fiscal year 1996 operating
income increased by $312,000 due to decreased selling, general and
administrative expenses as a percentage of net service revenue.
Interest expense in 1997 was $97,000, an increase of $1,000 from 1996. The
increase is due to interest cost of $46,000 incurred during the fourth quarter
associated with financing the acquisition of SMC. Interest expense in 1996 was
$96,000, a decrease of $62,000 from 1995. The decrease is due to the reduced
debt in fiscal year 1996.
Versar's income tax expense for fiscal year 1997 was $150,000 compared to a
tax benefit of $216,000 and $56,000 in fiscal years 1996 and 1995, respectively.
The Company reduced the valuation against the deferred tax assets in each of the
fiscal years due to the assessment of future earnings potential. Refer to Note H
of the Notes to Financial Statements.
In summary, Versar's net income was $1,256,000 in fiscal year 1997,
compared to net income of $992,000 in fiscal year 1996 and net income of
$458,000 in fiscal year 1995.
REVENUE
Versar provides professional services to various industries, government and
commercial clients. A summary of revenue generated from the Company's client
base is as follows:
For the Years Ended June 30,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
(In thousands, except for percentages)
Government
EPA $ 3,339 7% $ 3,787 9% $ 5,375 14%
State & Local 6,339 13% 6,733 15% 4,607 12%
Department of Defense 15,952 33% 16,479 37% 13,194 34%
Other 2,972 6% 2,035 5% 1,707 4%
Commercial 19,915 41% 15,249 34% 14,207 36%
------- ---- ------- ---- ------- ----
Gross Revenue $48,517 100% $44,283 100% $39,090 100%
======= ==== ======= ==== ======= ====
Liquidity and Capital Resources
The Company's operating activities provided $2,184,000 of cash in 1997
primarily from operations. Non-cash expenses included $722,000 for depreciation
and amortization and stock issued to the ESSOP of $446,000.
15
The Company utilized short-term bank financing to supplement its ability to
meet day-to-day operating cash requirements. At June 30, 1997, the Company had
$9,141,000 of working capital, compared to $7,629,000 in 1996. Working capital
increased by 20% primarily due to the earnings in fiscal year 1997.
The Company's accounts receivable balance increased by $5,149,000 due to
the acquisition of SMC.
In April 1997, the Company moved its line of credit facility to
NationsBank, N.A. The new line of credit is restricted to the borrowing base of
qualifying receivables less the $1,500,000 reserve for a guarantee of debt of
Sarnia and outstanding acquisition loan balances (approximately $1,958,000 at
June 30, 1997). Borrowings on the line of credit are at the lower of the 30 day
London Interbank Offered Rate ("LIBOR") plus 250 or the prime rate (8.22% at
June 30, 1997). A fee of 1/4% on the unused portion of the line of credit is
also charged. The line is guaranteed by the Company and each of the Company's
wholly owned subsidiaries individually and is collectively secured by accounts
receivable, equipment and intangibles, plus all insurance policies on property
constituting collateral. Unused borrowing availability at June 30, 1997 was
$2,688,000. Advances on the line are due on November 30, 1998. The Company was
in compliance with the financial covenants at June 30, 1997. Management believes
that cash generated by operations and borrowings available under the line of
credit will be adequate to meet the working capital needs for fiscal year 1998.
As previously reported, Versar has guaranteed a five year term loan of
$1,500,000 for Sarnia. Versar has established a reserve of $1,500,000 against
the loan. As the term loan is repaid, the reserve will be reduced and added to
Versar's equity. In fiscal year 1998, principal payments of $300,000 are due and
will be added back to Versar's equity as they are paid.
Acquisition of Science Management Corporation
On May 2, 1997, Versar acquired 53.5% of the outstanding common stock and
all outstanding preferred stock of SMC for aggregate consideration of $2,870,000
paid in cash. The acquisition was financed by a three year $2,000,000 term note
at a prime rate of interest plus 1/2% (9% at June 30, 1997) from NationsBank,
N.A. The remaining portion of $870,000 was paid with current working capital.
Principal payments on the term note of $520,833, $750,000, and $687,500 are due
in fiscal years 1998, 1999 and 2000, respectively. On July 29, 1997, Versar and
SMC entered into an Agreement and Plan of Merger pursuant to which Versar will
obtain the remaining SMC common stock for newly issued shares of Versar common
stock via a merger of SMC with a newly formed wholly owned subsidiary of Versar.
The merger is expected to occur in the second quarter of fiscal year 1998. The
transactions costs associated with the merger are projected to be approximately
$400,000.
New Accounting Standards
In March 1995, the Financial Accounting Standard Board issued 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
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 had no material effect on the financial position or results of
operations of the Company.
SFAS 123, "Accounting for Stock-Based Compensation" was issued in October,
1995 and is effective for fiscal year 1997. The Statement encourages, but does
not require, adoption of the fair value based method of accounting for employee
stock options and other stock compensation plans. The Company has opted to
account for its stock option plan in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has made certain pro
forma disclosures of net income and per share information as if the fair value
based method for accounting defined in SFAS 123 had been applied.
16
The Financial Accounting Standards Board issued SFAS 128, "Earnings per
Share" in February 1997. SFAS 128 requires a company to present basic and
diluted earnings per share amounts on the face of the Consolidated Statements of
Operations. The Company is required to adopt the provisions of the standard
during the second quarter of 1998, and when adopted, will require restatement of
prior years' earnings per share. The standard will not have a material impact on
historical earnings per share reported by 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 a year or less or are cost
plus fixed-fee type contracts and, accordingly, are less susceptible to the
effects of inflation. Multi-year contracts provide for projected increases in
labor and other costs.
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 1997 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 1997 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.
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 1997 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 1997 fiscal year.
17
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 Public Accountants
b) Consolidated Balance Sheets as of June 30, 1997 and 1996
c) Consolidated Statements of Operations for the Years Ended June 30,
1997, 1996, and 1995
d) Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended June 30, 1997, 1996, and 1995
e) Consolidated Statements of Cash Flows for the Years Ended June 30,
1997, 1996, and 1995
f) Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
a) Schedule II - Valuation and Qualifying Accounts for the years ended
June 30, 1997, 1996, and 1995
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 19 through 23 of this report.
(B) Reports on Form 8-K
Form 8-K and Form 8-K/A which provided details on the acquisition of SMC
and the pro forma combined financial statements of such transaction were
filed on May 16 and July 15, 1997, respectively.
18
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)
10.10 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)
10.17 Deferred Compensation Agreements dated as follows:
July 1, 1987 between the Registrant and the following persons:
Charles I. Judkins, Jr...................................... (C)
July 1, 1988 between the Registrant and Gayaneh Contos...... (F)
10.26 Executive Medical Plan dated August 21, 1991, effective
July 1, 1991................................................ (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)
10.34 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)
19
Page Number/
Item No. Description Reference
- -------- ----------- ---------
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 through April 26, 1993... (H),(I)
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)
10.47 Bankruptcy Court-approved Settlement Agreement and Mutual
Release between Versar Architects and Engineers, Inc. and
the City of Sterling, Colorado.............................. (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)
10.52 Incentive Stock Option Plan of Versar, Inc. dated December
1, 1992*.................................................... (I)
10.58 Agreement dated March 10, 1993 between the Registrant and
the Environmental Protection Agency......................... (I)
10.64 Asset Purchase Agreement dated July 29, 1994 between
Registrant and Kemron Environmental Services, Inc. of
certain assets of the registrants wholly-owned subsidiary
Versar Laboratories, 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)
20
Page Number/
Item No. Description Reference
- -------- ----------- ---------
10.67 Agreement dated January 18, 1994 between the Registrant and
OHM Services Remediation Corporation........................ (K)
10.70 Agreement dated July 18, 1995 between the Registrant and the
U.S. Air Force Human Systems Center......................... (M)
10.71 Agreement dated March 29, 1995 between the Registrant and
the U.S. Army Norfolk Corps of Engineers.................... (M)
10.72 Agreement dated March 16, 1995 between the Registrant and
the U.S. Army Baltimore Corps of Engineers.................. (M)
10.73 Agreement dated April 25, 1995 between the Registrant and
the U.S. Army Philadelphia Corps of Engineers............... (M)
10.74 Agreement dated August 10, 1995 between the Registrant and
the Environmental Protection Agency......................... (M)
10.75 Agreement dated January 31, 1995 between Geomet
Technologies, Inc., a subsidiary of the Registrant and the
U.S. Army Soldier Systems Command........................... (M)
10.76 Agreement dated July 13, 1995 between Geomet Technologies,
Inc., a subsidiary of the Registrant and the U.S. General
Services Administration..................................... (M)
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.. (M)
10.78 Loan and Security Agreement between the Registrant and the
Riggs National Bank of Washington, D.C dated January 25,
1996........................................................ (N)
10.79 Employment Agreement dated September 1, 1996 between the
Registrant and Benjamin M. Rawls*........................... (N)
10.80 Employment Agreement dated September 1, 1996 between the
Registrant and Thomas S. Rooney*............................ (N)
10.81 Change of Control Severance Agreement dated September 1,
1996 between the Registrant and Lawrence W. Sinnott*........ (N)
10.82 Change of Control Severance Agreement dated September 1,
1996 between the Registrant and James C. Dobbs*............. (N)
10.83 Agreement and Plan of Merger dated July 29, 1997 between the
Registrant and Science Management Corporation............... (O)
10.84 Acquisition Promissory Note, dated April 30, 1997, between
the Registrant and NationsBank, N.A......................... 26
21
Page Number/
Item No. Description Reference
- -------- ----------- ---------
10.85 Revolving Promissory Note, dated March 27, 1997, between the
Registrant and NationsBank, N.A............................. 37
10.86 Financing and Security Agreement, dated March 27, 1997,
between the Registrant and NationsBank, N.A................. 48
10.87 Amendment to Financing and Security Agreement, dated April
30, 1997, between the Registrant and NationsBank, N.A....... 93
11 Statement Re: Computation of Per Share Earnings............. 100
22 Subsidiaries of the Registrant.............................. 101
23 Consent of Arthur Andersen LLP.............................. 102
27 Financial Data Schedules....................................
* Indicates management contract or compensatory plan or arrangement
(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.
22
(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.
(M) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June 30, 1995
("FY 1995 Form 10-K") filed with the Commission on September 28, 1995.
(N) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June 30, 1996
("FY 1996 Form 10-K") filed with the Commission on September 24, 1996.
(O) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form S-4 registration number 333-33167.
Exhibit item numbers are as outlined by item 601 of Regulation S-K.
23
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 29, 1997 /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 September 29, 1997
- --------------------------- Officer, President, and
Benjamin M. Rawls Director
/s/ James A. Skidmore, Jr. Vice Chairman and Director September 29, 1997
- ---------------------------
James A. Skidmore, Jr.
/s/ Robert L. Durfee Executive Vice President September 29, 1997
- --------------------------- and Director
Robert L. Durfee
/s/ Lawrence W. Sinnott Vice President, Chief September 29, 1997
- --------------------------- Financial Officer, Treasurer,
Lawrence W. Sinnott and Principal Accounting Officer
/s/ Michael Markels, Jr. Chairman Emeritus and September 29, 1997
- --------------------------- Director
Michael Markels, Jr.
/s/ Thomas J. Shields Director September 29, 1997
- ---------------------------
Thomas J. Shields
/s/ John E. Gray Director September 29, 1997
- ---------------------------
John E. Gray
/s/ Charles I. Judkins, Jr. Director September 29, 1997
- ---------------------------
Charles I. Judkins, Jr.
/s/ M. Lee Rice Director September 29, 1997
- ---------------------------
M. Lee Rice
24
Report of Independent Public Accountants
To the Board of Directors and Stockholders of Versar, Inc.:
We have audited the accompanying consolidated balance sheets of Versar, Inc. and
its subsidiaries (a Delaware corporation) as of June 30, 1997 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended June 30, 1997.
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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Versar, Inc. and its
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
----------------------------
Arthur Andersen LLP
Washington, D.C.
September 29, 1997
F-1
VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
June 30,
-------------------
1997 1996
---- ----
ASSETS
Current assets
Cash............................................... $ 437 $ 83
Accounts receivable, net........................... 17,525 12,376
Prepaid expenses and other current assets.......... 1,489 1,365
Deferred income taxes.............................. 652 473
------- -------
Total current assets............................. 20,103 14,297
Property and equipment, net........................... 2,275 2,038
Deferred income taxes................................. 257 300
Goodwill.............................................. 2,501 94
Other assets.......................................... 312 250
------- -------
Total assets..................................... $25,448 $16,979
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................... $ 4,959 $ 2,098
Bank line of credit................................ 274 492
Current portion of long-term debt.................. 819 323
Accrued salaries and vacation...................... 1,627 1,619
Other liabilities.................................. 3,283 2,136
------- -------
Total current liabilities........................ 10,962 6,668
Long-term debt........................................ 1,437 2
Other long-term liabilities........................... 2,026 1,033
Reserve on guarantee of real estate debt.............. 1,500 1,500
------- -------
Total liabilities................................ 15,925 9,203
------- -------
Commitments and contingencies (Note J)
Stockholders' equity
Common stock, $.01 par value; 30,000,000 shares
authorized; 5,151,792 shares and 4,994,693 shares
issued and outstanding at June 30, 1997 and 1996,
respectively...................................... 52 50
Capital in excess of par value..................... 13,788 13,299
Accumulated deficit................................ (4,317) (5,573)
------- -------
Total stockholders' equity....................... 9,523 7,776
------- -------
Total liabilities and stockholders' equity....... $25,448 $16,979
======= =======
The accompanying notes are an integral part of
these consolidated financial statements.
F-2
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
Years Ended June 30,
----------------------------
1997 1996 1995
---- ---- ----
GROSS REVENUE.................................... $48,517 $44,283 $39,090
Purchased services and materials, at cost..... 14,947 12,364 9,743
------- ------- -------
NET SERVICE REVENUE.............................. 33,570 31,919 29,347
Direct costs of services and overhead......... 27,024 25,973 23,785
Selling, general, and administrative expenses. 5,085 4,960 4,993
Other income, net............................. (42) (28) (261)
Losses on Sarnia operations................... -- 142 270
------- ------- -------
OPERATING INCOME................................. 1,503 872 560
OTHER EXPENSE
Interest expense.............................. 97 96 158
Income tax expense (benefit).................. 150 (216) (56)
------- ------- -------
NET INCOME....................................... $ 1,256 $ 992 $ 458
======= ======= =======
NET INCOME PER SHARE............................. $ .24 $ .19 $ .09
======= ======= =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING............................... 5,286 5,248 4,834
======= ======= =======
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
Total
Number Capital in Stock-
of Common Excess of Accumulated Treasury holders'
Shares Stock Par Value Deficit Stock Equity
------ ----- --------- ------- ----- ------
Years Ended June 30, 1997, 1996, and 1995
-----------------------------------------
Balance, June 30, 1994.................. 4,609 $ 46 $12,238 $(7,023) $ -- $5,261
Exercise of 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
----- ---- ------- ------- ----- ------
Exercise of stock options............... 119 1 278 -- -- 279
Common stock issued for Valu Add........ 30 -- 97 -- -- 97
Common stock issued to ESSOP............ 32 1 108 -- -- 109
Purchase of common stock for treasury... (18) -- -- -- (63) (63)
Issuance of treasury stock for stock
awards................................ 7 -- -- -- 22 22
Issuance of treasury stock for ESSOP.... 15 -- -- -- 50 50
Net income.............................. -- -- -- 992 -- 992
------ ---- ------- ------- ----- ------
Balance, June 30, 1996.................. 4,995 50 13,299 (5,573) -- 7,776
------ ---- ------- ------- ----- ------
Exercise of stock options............... 18 -- 45 -- -- 45
Common stock issued to ESSOP............ 139 2 444 -- -- 446
Purchase of common stock for treasury... (40) -- -- -- (140) (140)
Issuance of treasury stock for ESSOP.... 40 -- -- -- 140 140
Net income.............................. -- -- -- 1,256 -- 1,256
------ ---- ------- ------- ----- ------
Balance, June 30, 1997.................. 5,152 $ 52 $13,788 $(4,317) $ -- $9,523
====== ==== ======= ======= ===== ======
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Years Ended June 30,
----------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities
Net income............................................... $ 1,256 $ 992 $ 458
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization........................ 722 684 699
Loss on sale of property and equipment............... 36 14 --
Provision for doubtful accounts receivable........... (4) (37) 1
Common stock issued to ESSOP......................... 586 181 510
Deferred tax benefit................................. (358) (250) --
------- ------- -------
Subtotal........................................... 2,238 1,584 1,668
------- ------- -------
Changes in assets and liabilities
Decrease (increase) in accounts receivable............. 135 (616) (1,031)
Decrease (increase) in prepaids and other assets....... 105 (500) 287
Increase in accounts payable........................... 453 148 474
(Decrease) increase in accrued salaries and vacation... (156) 228 121
(Decrease) increase in other liabilities............... (591) 659 (807)
Net change in assets and liabilities of Sarnia......... -- 142 270
------- ------- -------
Net cash from continuing operations.................. 2,184 1,645 982
Changes in net liabilities of discontinued operations.. -- (615) (176)
------- ------- -------
Net cash provided by operating activities............ 2,184 1,030 806
------- ------- -------
Cash flows from investing activities
Purchases of property and equipment...................... (638) (1,261) (440)
Proceeds from sale of fixed assets....................... 60 -- --
Acquisition of business.................................. (2,870) -- --
------- ------- -------
Net cash used in investing activities................ (3,448) (1,261) (440)
------- ------- -------
Cash flows from financing activities
Net (payment) borrowings on bank line of credit.......... (218) 54 438
Principal payments on long-term debt..................... (69) (14) (879)
Borrowing for acquisition of SMC......................... 2,000 -- --
Purchase of treasury stock............................... (140) (63) (76)
Proceeds from issuance of the Company's common stock..... 45 279 137
------- ------- -------
Net cash provided by (used in) financing activities.. 1,618 256 (380)
------- ------- -------
Net increase (decrease) in cash............................ 354 25 (14)
Cash at the beginning of the year.......................... 83 58 72
------- ------- -------
Cash at the end of the year................................ $ 437 $ 83 $ 58
======= ======= =======
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
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 majority-owned
subsidiaries ("Versar" or the "Company"). All significant intercompany balances
and transactions have been eliminated in consolidation. The results of
operations of Sarnia Corporation ("Sarnia") were included in the Company's
financial statements through January 1, 1996.
Accounting estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.
Contract accounting: Contracts in process are stated at the lower of actual
cost incurred plus accrued profits or net estimated realizable value of incurred
costs, reduced by progress billings. The Company records income from major
fixed-price contracts, extending over more than one accounting period, using the
percentage-of-completion method. During performance of such contracts, estimated
final contract prices and costs are periodically reviewed and revisions are made
as required. The effects of these revisions are included in the periods in which
the revisions are made. On cost-plus-fee contracts, revenue is recognized to the
extent of costs incurred plus a proportionate amount of fee earned, and on
time-and-material contracts, revenue is recognized to the extent of billable
rates times hours delivered plus material and other reimbursable costs incurred.
Losses on contracts are recognized when they become known. Disputes arise in the
normal course of the Company's business on projects where the Company is
contesting with customers for collection of funds because of events such as
delays, changes in contract specifications and questions of cost allowability or
collectibility. Such disputes, whether claims or unapproved change orders in the
process of negotiation, are recorded at the lesser of their estimated net
realizable value or actual costs incurred and only when realization is probable
and can be reliably estimated. Claims against the Company are recognized where
loss is considered probable and reasonably determinable in amount.
It is the Company's policy to provide reserves for the collectibility of
accounts receivable when it is determined that it is probable that the Company
will not collect all amounts due and the amount of reserve requirements can be
reasonably estimated.
Depreciation and amortization: Depreciation and amortization are computed
on a straight-line basis over the estimated useful lives of the assets.
Intangible assets: On April 29, 1996, Versar purchased for 30,000 common
shares the assets of Valu Add, which was primarily contract vehicles. The
purchase resulted in the Company recording goodwill of $97,500, which will be
amortized over a five year period. On May 2, 1997, Versar acquired 53.5% of the
outstanding common stock and all outstanding preferred stock of Science
Management Corporation ("SMC"). The Company recorded goodwill of $2,452,000 to
be amortized over fifteen years. Versar believes the customer relationships and
the value of SMC's business reputation were and continue to be long-term
intangible assets with an almost infinite life. Versar has selected a period of
15 years for amortization of the goodwill, which is reasonable based on the
mature businesses of SMC and the compatibility of these businesses with Versar's
business. Amortization expense was $46,000 and $19,000 for 1997 and 1996,
respectively. Refer to Note B for further information.
F-6
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 per share: Per share amounts are computed by dividing the net
income by the fully diluted weighted average number of common shares outstanding
during the applicable period being reported upon.
Income taxes: The Company follows Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The standard
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.
Deferred compensation: The Company permitted employees to defer a portion
of their compensation, during fiscal years 1988 through 1991, providing for
future annual payments, including interest. Interest is accrued on a monthly
basis at the amount stated in each employee's agreement. The Company has
liabilities for deferred compensation of $990,000 and $965,000 at June 30, 1997
and 1996, respectively. Versar purchased key-man life insurance policies to fund
the amounts due under the deferred compensation agreements. The Company borrows
against the cash surrender value of the policies to pay premiums. The cash
surrender value of the policies, net of loans, was $215,000 and $236,000 at June
30, 1997 and 1996, respectively.
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 standards: SFAS 123, "Accounting for Stock-Based
Compensation" was issued in October, 1995 and is effective for fiscal year 1997.
The Statement encourages, but does not require, adoption of the fair value based
method of accounting for employee stock options and other stock compensation
plans. The Company has opted to account for its stock option plan in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
has made certain pro forma disclosures of net income and per share information
as if the fair value based method for accounting defined in SFAS 123 had been
applied.
The Financial Accounting Standards Board issued SFAS 128, "Earnings per
Share" in February 1997. SFAS 128 requires a company to present basic and
diluted earnings per share amounts on the face of the Consolidated Statements of
Operations. The Company is required to adopt the provisions of the standard
during the second quarter of 1998, and when adopted, will require restatement of
prior years' earnings per share. The standard will not have a material impact on
historical earnings per share reported by the Company.
NOTE B ACQUISITION
On May 2, 1997, Versar acquired 53.5% of the outstanding common stock and
all outstanding preferred stock of SMC for aggregate consideration of $2,870,000
paid in cash. The acquisition was financed by a three year $2,000,000 term note
at a prime rate of interest plus 1/2% (9% at June 30, 1997) from NationsBank,
N.A. The remaining portion of $870,000 was paid with current working capital.
Principal payments of $520,833, $750,000, and $687,500 on the term loan are due
in fiscal years 1998, 1999 and 2000, respectively. Versar and SMC have entered
into an Agreement and Plan of Merger pursuant to which Versar will obtain the
remaining SMC common stock for newly issued shares of Versar common stock
subject to the approval of SMC's shareholders. The transactions costs associated
with the merger are projected to be approximately $400,000.
This transaction has been accounted for under the purchase method of
accounting. Operating results of SMC have been included with those of the
Company since the closing date of May 2, 1997.
F-7
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following pro forma combined financial information presents the
historical results of operations of the Company and SMC for the years ended June
30, 1997 and 1996 with pro forma adjustments as if SMC had been acquired as of
the beginning of the periods presented. SMC was in bankruptcy proceedings until
July 1996 and lacked working capital to enhance operating performance. The pro
forma information is not necessarily indicative of what the results of
operations actually would have been if the transaction had occurred on the date
indicated, or of future results of operations.
Years Ended June 30,
---------------------
1997 1996
---- ----
(Unaudited) (In thousands, except per share amount)
Gross revenue...................... $70,403 $72,901
Net income (loss).................. $ 585 $ (611)
Net income (loss) per share........ $ 0.11 $ (0.11)
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.
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.
Sarnia Corporation: Sarnia, formerly Versar Virginia, Inc., a former
wholly-owned real estate subsidiary of Versar, was spun-off to Versar
stockholders on June 30, 1994. Sarnia was established in 1982 to own and operate
Versar Center, the headquarters buildings of Versar in Springfield, Virginia. 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. The spin-off, although a
divestiture for legal and tax purposes, was not accounted for as a divestiture
for accounting purposes until January 1996, because the spin-off did not relieve
Versar of the risks of ownership due to Versar's guaranty of Sarnia's $12.4
million debt at June 30, 1994.
On January 25, 1996, Sarnia obtained new financing which reduced Versar's
guarantee of Sarnia's indebtedness from $12,400,000 to $1,500,000. Versar has
taken a reserve of $1,500,000 against the guarantee. Therefore, after the second
quarter of fiscal year 1996, Versar no longer includes the results of operations
and financial position of Sarnia in the consolidated financial statements.
Sarnia's results of operations through January 1, 1996 are presented as single
line items in the Consolidated Statements of Operations.
F-8
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE D ACCOUNTS RECEIVABLE
June 30,
---------------------
1997 1996
---- ----
(In thousands)
Billed receivables
U.S. Government......................... $ 5,683 $ 6,143
Commercial.............................. 7,367 2,716
Unbilled receivables
U.S. Government......................... 3,197 3,029
Commercial.............................. 2,073 1,191
------- -------
18,320 13,079
Allowance for doubtful accounts........... (795) (703)
------- -------
$17,525 $12,376
======= =======
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 completion of federal
and state governments' incurred cost audits. Management anticipates that the
June 30, 1997 unbilled receivables will be substantially billed and collected in
fiscal year 1998. Of the $17,525,000 accounts receivable, $5,280,000 represent
receivables of SMC.
NOTE E PROPERTY AND EQUIPMENT
Estimated June 30,
Useful Life --------------------
in Years 1997 1996
-------- ---- ----
(In thousands)
Furniture and fixtures......... 5 $ 1,655 $ 1,987
Equipment...................... 3 to 10 6,345 6,505
Leasehold improvements......... Life of lease 1,433 1,408
------- -------
9,433 9,900
Accumulated depreciation
and amortization............ (7,158) (7,862)
------- -------
$ 2,275 $ 2,038
======= =======
Depreciation and amortization of property and equipment included as expense
in the accompanying Consolidated Statements of Operations was $676,000,
$665,000, and $668,000 for the years ended June 30, 1997, 1996, and 1995,
respectively.
Maintenance and repair expenses approximated $248,000, $301,000, and
$246,000 for the years ended June 30, 1997, 1996, and 1995, respectively.
F-9
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE F DEBT
June 30,
-----------------
1997 1996
---- ----
(In thousands)
Bank line of credit, Riggs National Bank.......... $ -- $ 492
Bank line of credit, NationsBank, N.A............. 274 --
Acquisition promissory note....................... 1,958 --
Other............................................. 298 325
------- -----
Total debt................................... 2,530 817
Current portion of long-term debt................. (1,093) (815)
------- -----
Long-term debt.................................... $ 1,437 $ 2
======= =====
Until April 1997, Versar maintained a bank line of credit for working
capital purposes with Riggs National Bank. Prior to January 25, 1996, the line
provided for advances up to $1,500,000. On January 25, 1996, Versar obtained a
new line of credit with Riggs National Bank which provides for advances up to
$3,000,000. Borrowings on the line were at the prime rate of interest plus 1/2%.
In April 1997, Versar changed its line of credit facility from the Riggs
National Bank to NationsBank, N.A. The new line of credit provides for advances
up to $3,000,000 based on qualifying receivables less the $1,500,000 guarantee
of Sarnia's term loan by Versar and the outstanding acquisition loan balance.
Interest on the borrowings is based on the lower of the 30 day London Interbank
Offered Rate (LIBOR) plus two hundred and fifty basis points (8.22% at June 30,
1997). A commitment fee of 1/4% on the unused portion of the line of credit is
also charged. The line is guaranteed by the Company and each subsidiary
individually and is collectively secured by accounts receivable, equipment and
intangibles, plus all insurance policies on property constituting collateral.
Unused borrowing availability at June 30, 1997 was $2,688,000. Advances under
the line are due upon demand or on November 30, 1998. The loan has certain
covenants related to maintenance of financial ratios. The Company was in
compliance with the financial covenants at June 30, 1997. Management believes
that cash generated by operations and borrowings available from the bank line of
credit will be adequate to meet the working capital needs for fiscal year 1998.
Versar obtained a $2,000,000 promissory note from NationsBank on April 30,
1997 for the acquisition of Science Management Corporation (See Note B). The
interest on the note is based on prime rate plus one half of one percent (.50%)
per annum (9% at June 30, 1997). Principal payment commenced on May 31, 1997 and
is scheduled to be paid in full on April 30, 2000.
Versar has guaranteed certain debt of Sarnia Corporation (formerly Versar
Virginia, Inc., which was spun-off to Versar shareholders on June 30, 1994). On
January 25, 1996, Sarnia refinanced its outstanding debt. As a result of the
refinancing, Versar's guarantee of Sarnia's debt has decreased from
approximately $12,400,000 to $1,500,000. The $1,500,000 note matures in five
years with $300,000 principal payment per year starting July 1, 1997. Versar has
established a reserve of $1,500,000 against the loan. As the term loan is
repaid, the reserve will be reduced and added to Versar's equity.
The revolving bank line of credit amount outstanding based on average daily
balances for the years ended June 30, 1997, 1996, and 1995, approximated
$306,000, $673,000, and $544,000, respectively, and the weighted average
interest rates for such periods were 8.78%, 10.82%, and 10.79%, respectively.
The maximum amount outstanding approximated $1,146,000, $1,500,000, and
$1,375,000 during fiscal years 1997, 1996, and 1995, respectively. Weighted
average interest rates are computed by relating the interest expense to the
average month-end balance.
F-10
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Interest payments were $62,000, $89,000, and $157,000 for the fiscal years
ended June 30, 1997, 1996, and 1995, respectively.
NOTE G STOCK OPTIONS
In November 1996, the stockholders approved the Versar 1996 Stock Option
Plan to provide employees and directors of the Company and certain other persons
an incentive to remain as employees of the Company and encourages superior
performance for the Company's benefit. At June 30, 1997, 91,750 shares were
granted under the 1996 Plan to SMC employees in connection with the acquisition.
The Company also maintains the Versar 1992 Stock Option Plan, the 1982 Incentive
Stock Option Plan, and a Non-Qualified Option Plan adopted in 1987. Options have
been granted from these plans to purchase the Company's common stock.
At June 30, 1997, options to purchase an aggregate of 924,280 shares of
common stock were outstanding under the 1996, 1992 and 1982 Incentive Stock
Option Plans at per share exercise prices ranging from $2.375 to $3.940 and
options to purchase an aggregate of 368,835 shares were outstanding under the
Non-Qualified Stock Option Plan at per share exercise prices ranging from $2.375
to $3.563.
Under the 1992 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 four-year period from the date of the grant at 20% per year.
Unexercised options are cancelled on the fifth anniversary of certain grants
under the 1982 Plan and on the tenth anniversary of the grant under the
remainder of the 1982 and 1992 Plans. Under the 1996 Stock Option Plan, options
may be granted at the fair market value on the date of grant. The vesting of
each option will be determined by the Administrator of the Plan. Each Option
expires on the earlier of the last day of the tenth year after the date of grant
or the date the optionee ceases to be affiliated with the Company or its
subsidiaries.
Options under the Incentive Stock Option 1982, 1992 and 1996 Plans are as
follows:
Optioned Option Price
Shares Per Share Total
------ --------- -----
(In thousands, except per share price)
Outstanding at June 30, 1994..... 952 $2.063 to $3.940 $2,582
Issued......................... 62 2.000 to 3.375 184
Exercised...................... (30) 2.000 to 2.437 (67)
Cancelled...................... (42) 2.000 to 3.940 (108)
----- ------
Outstanding at June 30, 1995..... 942 2.063 to 3.940 2,591
Issued......................... 389 2.813 to 3.625 1,178
Exercised...................... (80) 2.063 to 2.563 (185)
Cancelled...................... (35) 2.063 to 3.940 (96)
----- ------
Outstanding at June 30, 1996..... 1,216 2.125 to 3.940 3,488
Issued......................... 99 2.719 to 3.563 349
Exercised...................... (14) 2.125 to 2.688 (35)
Cancelled...................... (377) 2.125 to 3.940 (949)
----- ------
Outstanding at June 30, 1997..... 924 $2.375 to $3.940 $2,853
===== ======
F-11
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At June 30, 1997, 1996, and 1995, options of 560,731, 807,408, and 667,515
shares were exercisable under the 1982, 1992 and 1996 Plans.
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.
Generally, options are issued at 100% of the market value at the date of grant.
Options under the 1987 Non-Qualified Plan are as follows:
Optioned Option Price
Shares Per Share Total
------ --------- -----
(In thousands, except per share price)
Outstanding at June 30, 1994..... 178 $2.375 to $2.500 $ 437
Issued......................... -- -- to -- --
Cancelled...................... -- -- to -- --
Exercised...................... (28) 2.500 to 2.500 (70)
---- ------
Outstanding at June 30, 1995..... 150 2.375 to 2.500 367
Issued......................... 264 3.000 to 3.563 804
Cancelled...................... (2) 2.437 to 2.437 (5)
Exercised...................... (39) 2.375 to 2.437 (93)
---- ------
Outstanding at June 30, 1996..... 373 2.375 to 3.563 1,073
Issued......................... -- -- to -- --
Cancelled...................... -- -- to -- --
Exercised...................... (4) 2.500 to 2.500 (10)
---- ------
Outstanding at June 30, 1997..... 369 $2.375 to $3.563 $1,063
==== ======
Non-Qualified stock options of 212,134, 163,367, and 150,000 shares were
exercisable at June 30, 1997, 1996, and 1995, respectively.
F-12
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company applies APB 25 and related interpretations in accounting for
its plan. Accordingly, no compensation cost has been recognized for stock
options. Had compensation cost for stock options been determined based on the
fair value at the grant dates for awards under this plan consistent with the
method of SFAS 123, the Company's net income and net income per share would have
been reduced to the pro forma amounts indicated as follows:
1997 1996
---- ----
(In thousands, except
per share data)
Net Income: As Reported $1,256 $ 992
Pro Forma 1,073 840
Net Income Per Share: As Reported $ 0.24 $ 0.19
Pro Forma 0.20 0.16
In accordance with SFAS 123, the fair value approach to valuing stock
options used for pro forma presentation has not been applied to stock options
granted prior to July 1, 1995. The compensation cost calculated under the fair
value approach is recognized over the vesting period of the stock options.
The weighted average fair value of options granted was $1.56 and $1.35
during 1997 and 1996, respectively. The fair value is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1997 and 1996: expected volatility of
40.5% for both years; risk-free interest rate of 6%; and expected lives of five
years after the grant date.
NOTE H INCOME TAXES
At June 30, 1997, the Company had $74,000 of alternative minimum tax credit
carryforwards which can be carried forward indefinitely. The alternative minimum
tax credit carryforward may be used to offset regular tax liability in future
years to the extent it exceeds the alternative minimum tax liability. These
carryforwards are reflected as deferred tax assets.
F-13
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The provision (benefit) for income taxes consists of the following:
Years Ended June 30,
--------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Currently payable
Federal.............................. $ 208 $ 2 $ (67)
State................................ 77 32 11
Deferred
Federal.............................. (135) (250) --
State................................ -- -- --
----- ----- -----
$ 150 $(216) $ (56)
===== ===== =====
Deferred tax assets are comprised of the following (in thousands):
June 30, June 30,
1997 1996
---- ----
Deferred Tax Assets:
Employee benefits.................... $ 627 $ 564
Bad debt reserve..................... 175 239
All other reserves................... 384 332
Alternative minimum tax credits...... 74 182
Other business tax credits........... -- 230
------ ------
Total Deferred Tax Assets........ 1,260 1,547
Deferred Tax Liabilities:
Depreciation......................... (17) (65)
Other................................ (1) (1)
------ ------
Total Deferred Tax Liabilities... (18) (66)
Net Deferred Tax Assets................ 1,242 1,481
Valuation Allowance.................... (333) (708)
------ ------
Net Deferred Tax Asset................. $ 909 $ 773
====== ======
Due to Versar's losses in previous years, the Company was unable to record
a tax benefit of $333,000 until the probability of realization of these amounts
becomes more certain.
F-14
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The tax (benefit) provision was composed of the following:
Years Ended June 30,
----------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Expected provision at federal statutory rate... $ 478 $ 264 $ 137
Change in valuation allowance.................. (375) (552) (512)
State income tax, net of federal benefit....... 77 32 11
Losses on Sarnia operations not deductible..... -- 48 92
Other ........................................ (30) (8) 216
----- ----- -----
$ 150 $(216) $ (56)
===== ===== =====
Income taxes paid for the years ended June 30, 1997, 1996, and 1995 were
$307,000, $7,000, and $140,000, respectively.
Science Management Corporation has net operating loss carryforwards of
approximately $9,500,000 for federal income tax purposes, which will expire in
the years 1997 through 2011. Due to the substantial changes in SMC's ownership,
there are annual limitations on the amount of the carryforwards that can be
utilized which limits the recoverable amount to approximately $4,500,000. SMC
also has net operating loss carryforwards available for use in the United
Kingdom of approximately $1,000,000, which are available indefinitely, as well
as minor amounts available for use in other jurisdictions. In conjunction with
the proposed Agreement and Plan of Merger (see Note B), the Company is analyzing
its alternatives with respect to treatment of the acquisition for tax purposes.
Versar will file consolidated tax returns including SMC after it acquires the
remaining 46.5% of SMC common stock. Due to the annual limitations and questions
surrounding the Company's ability to utilize these carryforwards, the Company
has not recorded any benefit or valuation allowances, effectively reserving the
full amount of the net operating loss carryforwards. The Company will finalize
the tax treatment in fiscal year 1998, as the second phase of the merger is
finalized.
NOTE I 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)).
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 trustees in
the Company's stock. No contributions were made in fiscal years 1997, 1996, and
1995, respectively.
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 each employee's 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
F-15
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
matching contributions approximated $492,000, $473,000, and $434,000, for fiscal
years 1997, 1996, and 1995, 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. There were no
contributions in fiscal years 1997 and 1996, but $29,000 for fiscal year 1995.
Vesting occurs over time, such that an employee is 100% vested after seven years
of participation.
NOTE J 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 1993 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 leases approximately 227,000 square feet of office space,
including space leased from Sarnia, as well as data processing and other
equipment under agreements expiring through 2009. Minimum future obligations
under operating leases are as follows:
Total
Years Ending June 30, Amount
--------------------- ------
(In thousands)
1998...................................... $ 3,320
1999...................................... 2,450
2000...................................... 1,964
2001...................................... 1,460
2002...................................... 1,234
2003 and thereafter....................... 7,586
-------
$18,014
=======
Certain of the lease payments are subject to adjustment for increases in
utility costs and real estate taxes. Total rental expense approximated
$2,658,000, $2,467,000, and $2,938,000 for 1997, 1996, and 1995, respectively.
Versar is a defendant in lawsuits that have arisen in the ordinary course
of its business. 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.
F-16
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE K CUSTOMER 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,
-----------------------------
1997 1996 1995
---- ---- ----
(In thousands)
U.S. Department of Defense $15,952 $16,479 $13,194
U.S. Environmental Protection Agency 3,339 3,787 5,375
Other U.S. Government Agencies 2,972 2,035 1,707
------- ------- -------
Total U.S. Government $22,263 $22,301 $20,276
======= ======= =======
The Company's largest contract generated revenues of approximately
$10,768,000 and $7,951,000 in fiscal years 1997 and 1996, respectively. No
contracts individually exceeded 10% of total revenues in fiscal year 1995.
NOTE L QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for fiscal years 1997 and 1996 is as
follows (in thousands, except per share amounts):
Fiscal Year 1997 Fiscal Year 1996
------------------------------------- ------------------------------------
Quarter ending Jun 30 Mar 31 Dec 31 Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
- ---------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Gross Revenue............... $15,583 $10,727 $10,749 $11,458 $10,597 $11,389 $11,807 $10,490
Net Service Revenue......... 10,251 7,705 7,740 7,874 7,951 8,224 8,130 7,614
Operating income............ 597 373 222 311 121 245 293 213
Net income.................. $ 384 $ 216 $ 391 $ 265 $ 374 $ 213 $ 230 $ 175
======= ======= ======= ======= ======= ======= ======= =======
Net income per share........ $ .07 $ .04 $ .08 $ .05 $ .07 $ .04 $ .04 $ .03
======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of
shares outstanding........ 5,380 5,240 5,073 5,127 5,276 5,216 5,170 5,178
======= ======= ======= ======= ======= ======= ======= =======
Quarterly financial data may not equal annual totals due to rounding. Quarterly
earnings per share data will not equal annual total due to fluctuations in
common shares outstanding.
F-17
Schedule II
VERSAR, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
YEAR EXPENSES CHARGE OFF YEAR
---- -------- ---------- ----
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
1995 $1,351,609 $ 770 $(395,180) $957,199
1996 957,199 (36,710) (217,262) 703,227
1997 703,227 (3,862) (183,585) 515,780
F-18