e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the Quarterly Period Ended December 25, 2009
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number 1-9309
(Exact name of registrant as specified in its charter)
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DELAWARE
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54-0852979 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.) |
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6850 Versar Center
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22151 |
Springfield, Virginia |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code (703) 750-3000
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of
the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practical date.
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Class of Common Stock |
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Outstanding at February 1, 2010 |
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$.01 par value
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9,244,027 |
VERSAR, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
2
VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands, except share amounts)
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December 25, |
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June 26, |
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2009 |
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2009 |
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(Unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
8,463 |
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$ |
8,400 |
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Accounts receivable, net |
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23,546 |
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27,695 |
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Notes receivable |
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1,214 |
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200 |
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Prepaid expenses and other current assets |
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1,649 |
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1,007 |
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Deferred income taxes |
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934 |
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720 |
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Total current assets |
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35,806 |
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38,022 |
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Property and equipment, net |
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2,664 |
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2,348 |
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Deferred income taxes |
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596 |
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765 |
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Goodwill |
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776 |
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776 |
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Other assets |
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794 |
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683 |
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Total assets |
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$ |
40,636 |
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$ |
42,594 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
6,438 |
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$ |
7,405 |
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Accrued salaries and vacation |
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1,918 |
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1,959 |
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Accrued bonus |
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444 |
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1,358 |
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Other liabilities |
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2,126 |
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1,787 |
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Total current liabilities |
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10,926 |
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12,509 |
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Other long-term liabilities |
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878 |
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1,431 |
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Total liabilities |
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11,804 |
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13,940 |
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Commitments and contingencies |
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Stockholders equity |
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Common stock, $.01 par value; 30,000,000 shares
authorized; 9,319,635 shares and 9,193,635 shares issued;
9,134,969 shares and 9,074,300 shares outstanding |
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93 |
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92 |
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Capital in excess of par value |
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28,198 |
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27,734 |
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Retained earnings |
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1,552 |
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1,615 |
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Treasury stock (184,666 and 119,335 shares, respectively) |
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(948 |
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(706 |
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Accumulated other comprehensive loss |
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(63 |
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(81 |
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Total stockholders equity |
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28,832 |
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28,654 |
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Total liabilities and stockholders equity |
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$ |
40,636 |
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$ |
42,594 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited in thousands, except per share amounts)
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For the Three-Month |
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For the Six-Month |
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Periods Ended |
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Periods Ended |
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December 25, |
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December 26, |
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December 25, |
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December 26, |
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2009 |
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2008 |
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2009 |
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2008 |
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GROSS REVENUE |
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$ |
24,387 |
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$ |
27,967 |
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$ |
49,101 |
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$ |
52,965 |
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Purchased services and materials, at
cost |
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13,350 |
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15,651 |
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26,120 |
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29,200 |
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Direct costs of services and overhead |
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9,309 |
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9,111 |
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18,900 |
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17,382 |
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GROSS PROFIT |
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1,728 |
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3,205 |
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4,081 |
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6,383 |
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Selling, general and administrative
expenses |
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2,238 |
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2,198 |
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4,213 |
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4,234 |
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OPERATING (LOSS) INCOME |
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(510 |
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1,007 |
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(132 |
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2,149 |
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OTHER EXPENSE |
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(Gain) loss on marketable securities |
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(7 |
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346 |
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Interest (income) |
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(33 |
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(65 |
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(2 |
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Interest expense |
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9 |
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74 |
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22 |
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21 |
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(LOSS) INCOME BEFORE INCOME TAXES |
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(486 |
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940 |
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(89 |
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1,784 |
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Income tax (benefit) expense |
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(186 |
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375 |
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(26 |
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695 |
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NET (LOSS) INCOME |
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$ |
(300 |
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$ |
565 |
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$ |
(63 |
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$ |
1,089 |
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NET (LOSS) INCOME PER SHARE BASIC |
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$ |
(0.03 |
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$ |
0.06 |
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$ |
(0.01 |
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$ |
0.12 |
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NET (LOSS) INCOME PER SHARE DILUTED |
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$ |
(0.03 |
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$ |
0.06 |
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$ |
(0.01 |
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$ |
0.12 |
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WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING BASIC |
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9,121 |
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9,068 |
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9,065 |
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9,064 |
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WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING DILUTED |
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9,121 |
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9,112 |
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9,065 |
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9,134 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited in thousands)
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For the Six-Month Periods Ended |
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December 25, |
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December 26, |
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2009 |
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2008 |
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Cash flows from operating activities |
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Net (loss) income |
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$ |
(63 |
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$ |
1,089 |
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Adjustments to reconcile net income to net cash used in
operating activities |
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Depreciation and amortization |
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509 |
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496 |
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Provision for doubtful accounts receivable |
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2 |
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Loss on marketable securities |
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346 |
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(Gain) loss on life insurance policy cash surrender value |
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(56 |
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143 |
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Share based compensation |
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206 |
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514 |
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Deferred taxes |
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(45 |
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178 |
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Excess tax benefits on share based compensation |
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(20 |
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Changes in assets and liabilities |
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Decrease (increase) in accounts receivable |
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4,151 |
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(3,067 |
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Increase in prepaids and other assets |
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(717 |
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(303 |
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Decrease in accounts payable |
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(956 |
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(461 |
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(Decrease) increase in accrued salaries and vacation |
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(41 |
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149 |
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Decrease in other liabilities |
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(1,121 |
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(2,079 |
) |
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Net cash provided by (used in) operating activities |
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1,849 |
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(2,995 |
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Cash flows used in investing activities |
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Purchase of property and equipment |
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(823 |
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(848 |
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Purchase of marketable securities |
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(3,000 |
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Proceeds from sale of marketable securities |
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2,654 |
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Premium paid on life insurance policies |
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(22 |
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(37 |
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Investment in notes receivable |
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(950 |
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Net cash used in investing activities |
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(1,795 |
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(1,231 |
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Cash flows from financing activities |
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Proceeds from issuance of common stock |
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1 |
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8 |
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Purchase of treasury stock |
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(4 |
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(3 |
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Tax benefit on exercise of stock options |
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20 |
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Net cash provided by financing activities |
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17 |
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5 |
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Effect of exchange rate changes |
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(8 |
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6 |
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Net increase (decrease) in cash and cash equivalents |
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63 |
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(4,215 |
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Cash and cash equivalents at the beginning of the period |
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8,400 |
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11,938 |
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Cash and cash equivalents at the end of the period |
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$ |
8,463 |
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$ |
7,723 |
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Supplementary disclosure of cash flow information: |
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Cash paid during the period for |
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Interest |
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$ |
22 |
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$ |
22 |
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Income taxes |
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1,111 |
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1,469 |
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Supplemental disclosures of non-cash financing activities: |
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Exercise of stock options |
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238 |
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Acquisition of treasury stock |
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(238 |
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The accompanying notes are an integral part of these consolidated financial statements.
5
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(A) Basis of Presentation
The accompanying consolidated condensed financial statements are presented in accordance with
the requirements of Form 10-Q and consequently do not include all of the disclosures normally
required by accounting principles generally accepted in the United States of America or those
normally made in Versar, Inc.s Annual Report on Form 10-K filed with the United States Securities
and Exchange Commission. These financial statements should be read in conjunction with the
Companys Annual Report filed on Form 10-K for the fiscal year ended June 26, 2009 for additional
information.
The accompanying consolidated financial statements include the accounts of Versar, Inc. and
its wholly-owned subsidiaries (Versar or the Company). All significant intercompany balances
and transactions have been eliminated in consolidation. The financial information has been
prepared in accordance with the Companys customary accounting practices. Certain adjustments to
the financial statements are necessary for fair presentation and are of a normal recurring nature
as part of the operations of the business. In the opinion of management, the information reflects
all adjustments necessary for a fair presentation of the Companys consolidated financial position
as of December 25, 2009, and the results of operations for the six-month and three-month periods
ended December 25, 2009 and December 26, 2008. The results of operations for such periods,
however, are not necessarily indicative of the results to be expected for a full fiscal year.
The Company has evaluated subsequent events through February 8, 2010, the date on which the
financial statements were issued. Details on subsequent events are included in
Note N of the financial statements.
(B) Accounting Estimates
The financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results may differ from those estimates.
(C) Contract Accounting
Receivables related to contracts in process are stated at the lower of actual cost incurred
plus accrued profits or 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 type
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 Companys 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 realized 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.
Management reviews outstanding receivables on a regular basis and assesses the need for reserves
taking into consideration past collection history and other events that bear on the collectibility
of such receivables.
(D) Income Taxes
At December 25, 2009, the Company had approximately $1.5 million in deferred tax assets, which
primarily relate to temporary differences between financial statement and income tax reporting.
Such differences include depreciation, deferred compensation, accruals and reserves.
6
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(E) Debt
The Company has a line of credit facility with United Bank (the Bank) that provides for
advances up to $7.5 million based upon qualifying receivables. The line of credit is subject to
certain covenants related to the maintenance of financial ratios. These covenants require a
minimum tangible net worth of $22.5 million; a maximum total liabilities to tangible net worth
ratio not exceed 2.5 to 1; and a minimum current ratio of at least 1.25 to 1. Interest accrues on
borrowings under the line of credit at the prime rate of interest less 1/2% with a floor interest
rate of 3.5%. Failure to meet the covenant requirements gives the Bank the right to demand
outstanding amounts due under the line of credit, which may impact the Companys ability to finance
its working capital requirements. As of December 25, 2009, the Company had no outstanding
borrowings and was in compliance with the financial covenants. The Company has a letter of credit
of approximately $455,147 outstanding under the line of credit facility which serves as collateral
for surety bond coverage provided by the Companys insurance carrier against project construction
work. The letter of credit reduces the Companys availability on the line of credit. Availability
under the line of credit at December 25, 2009 was approximately $7 million. Obligations under the
credit facility are guaranteed by Versar and each subsidiary individually and are secured by
accounts receivable, equipment and intangibles, plus all insurance policies on property
constituting collateral of Versar and its subsidiaries. The line of credit matures September 30,
2010.
(F) Notes Receivable
In June and July 2009, the Company provided interim debt financing of $400,000 to
General Power Green Energy, LLC (GPC) to cover project start up costs. The project involves the
construction of a green 25 mega watt co-generation plant that burns landfill gas in turbine engines
equipped with a steam generation unit. The note carries an annual interest rate of 10% and is due
on March 31, 2010 or upon completion of project financing, if earlier. In addition, Versar will
provide the program management and construct the facility. Versar also received a 7.5% ownership
interest in GPC in connection with providing the loan. The Company has not assigned a value to
the 7.5% ownership interest due to the fact that GPC is in its developmental stage, and no value
can be placed on the ownership interest at this time.
In July 2009, the Company provided $750,000 of short term debt financing to Lemko Corporation
to enable them to buy long lead telecommunication equipment for several upcoming projects. Lemko
and Versar had earlier announced a joint initiative to pursue the rural broadband
telecommunications market. The note bears an annual interest rate of 12% and is due on May 31,
2010. The note is secured by the equipment inventory purchased. The
note also has a conversion
feature to a senior convertible debenture,
which was not exercised by December 2009, therefore, the original terms of
the note continue to be in effect.
The Company accounts for these debt security
investments under the guidance of ASC 320 Investments Debt and Equity Securities. These
notes are classified as held-to-maturity debt securities due to their short term nature
and the fact that the Company has the intent and ability to hold to maturity.
Therefore, these securities are recorded at amortized cost and presented as current assets in the interim
consolidated balance sheet.
(G) Net Income Per Share
Basic net income per common share is computed by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted net income per common share also
includes common stock equivalents outstanding during the period, if dilutive. The Companys common
stock equivalent shares consist of shares to be issued under outstanding stock options and unvested
shares of restricted stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Periods Ended |
|
For the Six-Month Periods Ended |
|
|
December 25, |
|
December 26, |
|
December 25, |
|
December 26, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Weighted average common shares
outstanding basic |
|
|
9,120,634 |
|
|
|
9,068,212 |
|
|
|
9,065,351 |
|
|
|
9,064,080 |
|
Effect of assumed exercise of
options and vesting of restricted
stock awards (treasury stock
method) |
|
|
|
|
|
|
44,221 |
|
|
|
|
|
|
|
69,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding diluted |
|
|
9,120,634 |
|
|
|
9,112,433 |
|
|
|
9,065,351 |
|
|
|
9,133,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
For the six months ended December 25, 2009 and December 26, 2008, options to purchase
approximately 291,000 and 64,000 shares of common stock were not included in the computation of
diluted earnings per share because the effect would be anti-dilutive. For the three months ended
December 25, 2009 and December 26, 2008, options to purchase approximately 286,000 shares and
64,000 shares of common stock were not included in the computation of diluted earnings per share
because the effect would be anti-dilutive.
(H) Common Stock
The Company has implemented an Employee Stock Purchase Plan (ESPP) to allow eligible employees
of Versar the opportunity to acquire an ownership interest in the Companys common stock. As
amended, the ESPP permits employees to purchase shares of Versar common stock from the open market
at 95% of its fair market value. The ESPP qualifies as an employee stock purchase plan under
Section 423 of the Internal Revenue Code.
(I) Stock-Based Compensation
In the first six months of fiscal year 2010, the Company awarded 67,000 shares of restricted
stock to board members, executive officers and employees as part of the Companys incentive plans
for fiscal year 2009 performances. The awards vest over a period of one year to three years.
Stock based compensation expense relating to all outstanding restricted stock and option awards
totaled $206,000 and $514,000 for the six months ended December 25, 2009 and December 26, 2008,
respectively. Stock based compensation expense for the three month periods ended December 25, 2009
and December 26, 2008 was $124,000 and $301,000, respectively. These expenses were included in the
direct costs of services and overhead lines of the Consolidated Statements of Income.
In November 2005, the stockholders approved the Versar, Inc. 2005 Stock Incentive Plan (the
2005 Plan). The 2005 Plan provides for grants of incentive awards, including stock options,
SARS, restricted stock, restricted stock units and performance based awards, to directors, officers
and employees of the Company and its affiliates as approved from time to time by the Companys
Compensation Committee. Only employees may receive stock options classified as incentive stock
options, also known as ISOs. The per share exercise price for options and SARS granted under
the 2005 Plan may not be less than the fair market value of the common stock on the date of grant.
A maximum of 400,000 shares of common stock may be awarded under the 2005 Plan. No single
director, officer, or employee may receive awards of more than 100,000 shares of common stock
during the term of the 2005 Plan. The ability to make awards under the 2005 Plan will terminate in
November 2015. As of December 25, 2009, approximately 69,000 shares are available for future grant
under the 2005 Plan.
The Company also maintains the Versar 2002 Stock Incentive Plan (the 2002 Plan), the Versar
1996 Stock Option Plan (the 1996 Plan) and the Versar 1992 Stock Option Plan (the 1992 Plan).
Under the 2002 Plan, restricted stock and other types of stock-based awards may be granted to
any employee, service provider or director to whom a grant is approved from time to time by the
Companys Compensation Committee. A
service provider is defined for purposes of the 2002 Plan as an individual who is neither an
employee nor a director of the Company or any of its affiliates but who provides the Company or one
of its affiliates substantial and important services. The ability to make awards under the 2002
Plan will terminate in September 2012. As of December 25, 2009, approximately 37,500 shares are
available for future grant.
Under the 1996 Plan, options were granted to key employees, directors and service providers at
the fair market value on the date of grant. Each option expires on the earlier of the last day of
the tenth year after the date of grant or after expiration of a period designated in the option
agreement. The 1996 Plan has expired and no additional options may be granted under this plan.
The Company will continue to maintain the plan until all previously granted options have been
exercised, forfeited or expire. As of December 25, 2009, there were vested stock options to
purchase 50,761 shares of common stock outstanding under the 1996 Plan.
Under the 1992 Plan, options were granted to key employees at the fair market value on the
date of grant and became exercisable during the five-year period from the date of the grant at 20%
per year. Options were granted with a ten year term and expire if not exercised by the tenth
anniversary of the grant date. The 1992 Plan has expired and no
8
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
additional options may be granted under this plan. The Company will continue to maintain the plan
until all previously granted options have been exercised, forfeited or expire. As of December 25,
2009, there were vested stock options to purchase 83,500 shares of common stock outstanding under
the 1992 Plan.
A summary of activity under the Companys stock incentive plans for both ISOs and un-qualified
options as of December 25, 2009, and changes during the first six months of fiscal year 2010 are
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
Options |
|
(in thousands) |
|
|
Price |
|
|
Term |
|
|
($000) |
|
Outstanding at June 26, 2009 |
|
|
542 |
|
|
$ |
3.11 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(100 |
) |
|
|
2.38 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
(3 |
) |
|
|
2.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 25, 2009 |
|
|
439 |
|
|
$ |
3.27 |
|
|
4.35 yrs. |
|
$ |
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 25, 2009 |
|
|
429 |
|
|
$ |
3.16 |
|
|
4.22 yrs. |
|
$ |
262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of the 100,000 shares of option exercised during the first six months of
fiscal year 2010 was approximately $131,500. As of December 25, 2009, there were unvested options
to purchase approximately 10,000 shares outstanding under the plans. Vesting of these options is
conditioned on the Companys stock price reaching certain thresholds over a fixed period. The
Company expects to recognize estimated compensation costs of $42,000 immediately when the pricing
and service conditions of these options are met in the future.
(J) New Accounting Pronouncements
In June 2009, the FASB issued the FASB Accounting Standards Codification TM and the Hierarchy
of Generally Accepted Accounting Principles (Codification). The Codification is now the source
for authoritative United States generally accepted accounting principles (GAAP) recognized by the
FASB to be applied by nongovernmental entities. The codification is effective for financial
statements issued for interim and annual periods ending after September 15, 2009. The Codification
has superseded all then-existing non-SEC accounting and reporting standards. References to legacy
GAAP on this report have been replaced by references to the Codification, where appropriate.
In August 2009, the FASB amended guidance in FASB Accounting Standards
CodificationTM (ASC) 820, Fair Value Measurements and Disclosures, to clarify how
entities should estimate the fair value of liabilities. The amendments provide clarification that
in circumstances in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or more of the following
valuation techniques: (1) a valuation technique that uses (a) the quoted price of the identical
liability when traded as an asset or (b) quoted prices for similar liabilities or similar
liabilities when traded as assets and/or (2) another valuation technique that is consistent with
fair value principles such as an income or market approach. The amendments also clarify that when
estimating the fair value of a liability, a reporting entity is not required to consider the
existence of transfer restrictions on that liability. The Company adopted the amended guidance
effective October 1, 2009. The adoption did not have a material impact on the Companys financial
condition and results of operations.
In September 2009, the FASB ratified the final consensus on Emerging Issues Task Force
(EITF) Issue 08-1, Revenue Arrangements With multiple Deliverables, (Issue 08-1) which will
supersede ASC 605-25 (formerly EITF Issue 00-21, Revenue Arrangements With Multiple Deliverables).
Issue 08-1 addresses how arrangement consideration should be allocated to separate units of
accounting, when applicable. Although Issue 08-1 retains the criteria from ASC 605-25 for when
delivered items in a multiple deliverable arrangement should be considered separate units of
accounting, it removes the previous separation criterion under ASC 605-25 that objective and
reliable evidence of the fair value of any undelivered
9
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
items must exist for the delivered items to be considered a separate unit or separate units of
accounting. The final consensus is effective for fiscal years beginning on or after June 15, 2010.
Entities can elect to apply Issue 08-1 prospectively to new or materially modified arrangements
after the effective date or restrospectively for all periods presented. Issue 08-1 was issued as
Accounting Standards Update (ASU) 2009-13 in October 2009 and amended ASC 605-25. The Company
does not anticipate that ASU 2009-13 will have any impact on the Companys financial position or
results of operations.
In September 2009, the FASB ratified the final consensus on EITF Issue 09-3, Software Revenue
Recognition, (Issue 09-3) which will amend ASC 985-605 (formerly EITF Issue 03-5, Applicability
of AICPA Statement of Position 97-2 to Certain Arrangements That Contain Software Elements). Issue
09-3 excludes from the scope of Issue 09-3 all tangible products containing both software and
non-software components that function together to deliver the products essential functionality.
As such, the entire product would be outside the scope of ASC 985-605 and would be accounted for
under other accounting literature (e.g., ASC 605-25 (as amended by Issue 08-1)). The final
consensus is effective for fiscal years beginning on or after June 15, 2010. Entities can elect to
apply Issue 09-3 prospectively to new or materially modified arrangements after the effective date
or retrospectively for all periods presented. Issue 09-3 was issued as ASU 2009-14 in October
2009. The Company does not anticipate that ASU 2009-14 will have any impact on the Companys
financial position or results of operations.
In August 2009, the FASB issued ASU 2009-05 to provide guidance on measuring fair value of
liabilities under ASC 820 (formerly FSP FAS 157-f). The guidance clarifies how entities should
estimate the fair value of liabilities. ASC 820, as amended, includes clarifying guidance for
circumstances in which a quoted price in an active market is not available, the effect of the
existence of liability transfer restrictions, and the effect of quoted prices for the identical
liability, including when the identical liability is traded as an asset. ASU 2009-05 is effective
for the first interim or annual reporting period beginning after August 29, 2008. The Company
adopted this guidance during the second quarter of fiscal year 2010. The adoption of the amended
guidance in ASC 820 did not have a material effect on its consolidated financial statements.
In April 2009, the FASB issued authoritative guidance for fair value measurements and
disclosures. The guidance provides companies with guidelines on how to determine fair value
measurements when the volume and level of activity for an asset or liability have significantly
decreased and how to identify transactions that are not orderly. This guidance is effective for
interim reporting periods ending after June 15, 2009. We adopted this guidance during the first
quarter of fiscal year 2010, which did not have any impact on its consolidated financial
statements.
In April 2009, the FASB issued authoritative guidance for interim disclosures for financial
instruments. This guidance amends prior authoritative guidance by requiring disclosures of the fair
value of financial instruments included within the scope of the prior guidance whenever a public
company issues summarized financial information for interim reporting periods. This guidance is
effective for interim reporting periods ending after June 15, 2009, with early adoption permitted
for periods ending after March 15, 2009 under certain circumstances. The Company adopted this
guidance for the quarter ended September 25, 2009, but it did not have an impact on its unaudited
condensed consolidated financial statements. The carrying amounts of Versars cash and cash
equivalents, accounts receivable, accounts payable and amounts included in notes receivable, other current assets and
current liabilities that meet the definition of a financial instrument approximate fair value
because of the short-term nature of these amounts.
Effective June 27, 2009, the Company adopted new accounting guidance related to the reporting
of subsequent events. This guidance establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before financial statements are issued or are
available to be issued. In particular, this guidance sets forth the
period after the balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in the financial
statements; the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and the disclosures that an
entity should make about events or transactions that occurred after the balance sheet date. The
Company evaluated events occurring subsequent to the balance sheet date through February 8, 2010,
the date these financial statements were issued. Details on subsequent events are included in Note
N of the financial statements.
In December 2007, the FASB issued ASC 805, Business Combinations (formerly SFAS No. 141 (revised 2007), Business
Combinations). ASC 805 establishes principles and requirements for how companies recognize and
measure identifiable assets acquired, liabilities assumed, and any non-controlling interest in connection with a
business combination, recognize and measure the goodwill acquired in a business combination or a gain from a bargain purchase, and
determine what information to disclose
to enable users of the financial statements to evaluate the nature and financial effects of the business combination. ASC 805 is effective for business
combinations completed on or after June 27, 2009. The adoption of ASC 805 did not affect the Companys financial position or its results
of operations during the first six months of 2010.
10
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(K) Fair Value Measures
Financial assets and liabilities
We analyze our financial assets and liabilities measured at fair value and categorize them
within the fair value hierarchy based on the level of judgment associated with the inputs used to
measure their fair value in accordance with the authoritative guidance for fair value instruments
and the fair value option for financial assets and financial liabilities.
The levels as defined by the fair value hierarchy are as follows:
Level 1 Inputs are unadjusted, quoted prices in active markets for identical
assets or liabilities at the measurement date.
Level 2 Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly at the
measurement date.
Level 3 Inputs are unobservable for the asset or liability and usually reflect the
reporting entitys best estimate of what market participants would use in pricing the
asset or liability at the measurement date.
Non financial assets and liabilities
The Company applies fair value techniques on a non-recurring basis associated with (1) valuing
potential impairment losses related to goodwill which are accounted for pursuant to the
authoritative guidance for intangibles goodwill and other, (2) valuing potential impairment
losses related to long-lived assets which are accounted for pursuant to the authoritative guidance
for property, plant and equipment, and (3) valuing an asset retirement liability initially measured
at fair value under the authoritative guidance for asset retirement obligations.
The Company currently has four separate reporting units. Goodwill impairment is tested at the
reporting unit level. All of the goodwill is associated with the Program Management business
segment, and the Company determines the fair value of this reporting unit based on a combination of
inputs including the market capitalization of the Company as well as Level 3 inputs such as
discounted cash flows which are not observable from the market, directly or indirectly. The Company
conducts the goodwill impairment analysis annually during the fourth quarter of the fiscal year, or
upon the occurrence of certain triggering events. No such triggering events occurred during the
six months ended December 25, 2009. Historically, the fair value of the Program Management segment
has significantly exceeded its carrying value.
The Company tests for the impairment of long-lived assets when triggering events occur and
such impairment, if any, is measured at fair value. The inputs for fair value of the long lived
assets would be based on Level 3 inputs as data used for such fair value calculations would be
based on discounted cash flows which are not observable from the market, directly or indirectly.
During the six months ended December 25, 2009, there have been no triggering events associated with
long lived assets and thus no impairment analysis was conducted during the period.
11
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The Company recorded an asset retirement liability for the clean up of its chemical laboratory
facility of $610,000 at fair value per the authoritative guidance for asset retirement obligations.
The inputs for fair value of the asset retirement obligation were based on Level 3 inputs as data
used for such fair value calculations are based on discounted cash flows which are not observable
from the market, directly or indirectly.
(L) Other Current Liabilities
Other current liabilities include the asset retirement obligation described above, accrued
401k benefits, accrued tax withholdings, lease liabilities, and miscellaneous accruals.
(M) Business Segments
The Company evaluates and measures the performance of its business segments based on gross
revenue, gross profit and operating income. As such, selling, general and administrative expenses,
interest and income taxes have not been allocated to the Companys business segments.
The Companys business is currently operated through four business segments as follows:
Program Management, Compliance and Environmental Programs, Professional Services, and National
Security.
These segments were segregated based on the nature of the work, business processes, customer
base and the business environment in which each of the segments operates.
The Program Management business segment manages larger more complex projects with business
processes and management unique to the rest of the Company. The Compliance and Environmental
Programs business segment provides regulatory and environmental consulting support to several
federal government and municipal agencies. The Professional Services business segment provides
outsourced personnel to various government agencies providing our clients with cost-effective
resources. The National Security business segment provides unique solutions to the federal
government including testing and evaluation and personal protective solutions.
Summary of financial information for each of the Companys segments follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Periods Ended |
|
|
For the Six-Month Periods Ended |
|
|
|
December 25, |
|
|
December 26, |
|
|
December 25, |
|
|
December 26, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Program Management |
|
$ |
15,462 |
|
|
$ |
17,373 |
|
|
$ |
31,865 |
|
|
$ |
33,222 |
|
Compliance and Environmental
Programs |
|
|
3,407 |
|
|
|
5,411 |
|
|
|
6,932 |
|
|
|
9,972 |
|
Professional Services |
|
|
3,130 |
|
|
|
2,784 |
|
|
|
5,868 |
|
|
|
4,962 |
|
National Security |
|
|
2,388 |
|
|
|
2,399 |
|
|
|
4,436 |
|
|
|
4,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,387 |
|
|
$ |
27,967 |
|
|
$ |
49,101 |
|
|
$ |
52,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT(LOSS)(A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Program Management |
|
$ |
1,308 |
|
|
$ |
2,098 |
|
|
$ |
3,180 |
|
|
$ |
4,384 |
|
Compliance and Environmental
Programs |
|
|
(108 |
) |
|
|
369 |
|
|
|
(160 |
) |
|
|
622 |
|
Professional Services |
|
|
485 |
|
|
|
388 |
|
|
|
929 |
|
|
|
809 |
|
National Security |
|
|
43 |
|
|
|
350 |
|
|
|
132 |
|
|
|
568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,728 |
|
|
$ |
3,205 |
|
|
$ |
4,081 |
|
|
$ |
6,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses |
|
|
(2,238 |
) |
|
|
(2,198 |
) |
|
|
(4,213 |
) |
|
|
(4,234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING (LOSS) INCOME |
|
$ |
(510 |
) |
|
$ |
1,007 |
|
|
$ |
(132 |
) |
|
$ |
2,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Gross profit is defined as gross revenue less purchased services and materials and direct costs of services and overhead. |
12
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
Periods Ended |
|
|
|
December 25, |
|
|
June 26, |
|
|
|
2009 |
|
|
2009 |
|
|
|
(In thousands) |
|
IDENTIFIABLE ASSETS |
|
|
|
|
|
|
|
|
Program Management |
|
$ |
16,877 |
|
|
$ |
19,531 |
|
Compliance and Environmental Programs |
|
|
4,715 |
|
|
|
5,910 |
|
Professional Services |
|
|
2,083 |
|
|
|
2,561 |
|
National Security |
|
|
2,771 |
|
|
|
2,447 |
|
Corporate and Other |
|
|
14,190 |
|
|
|
12,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
40,636 |
|
|
$ |
42,594 |
|
|
|
|
|
|
|
|
(N) Subsequent Events
Acquisition of PPS: On January 5, 2010, the Company acquired all of the outstanding share
capital of Professional Protection Systems, Ltd. (PPS), located in Milton Keynes, United Kingdom.
PPS manufactures and sells proprietary personal protective equipment to the nuclear industry,
including protective suites, decontamination showers and emergency shelters. The outstanding share
capital of PPS was acquired by Versars newly formed subsidiary, GEOI 1, Ltd. The Company paid a
purchase price for the outstanding share capital of PPS comprised of: (i) cash of $5.1 million,
(ii) issuance to the selling shareholders of seller notes with an aggregate principal amount of
$940,000, payable over two years with an interest rate of 5% per annum, and (iii) issuance to one
selling shareholder of 78,689 shares of common stock of Versar with a value as of the date of
closing of $240,000. Certain of the selling shareholders are also entitled to contingent
consideration through an earn-out provision calculated based on earnings before interest, taxes,
depreciation or amortization of PPS for the 12-month period ending January 1, 2011. The purchase
price is subject to certain post-closing adjustments based on certain target balance sheet items of
PPS as of December 31, 2009.
The following table summarized the estimated fair values of the assets acquired and
liabilities assumed at the date of the acquisition. The purchase price allocation herein is based
on managements preliminary assessment of the fair value of both the assets acquired and the
liabilities assumed. The Company is in the process of finalizing the valuation of certain
intangible assets, thus, the allocation of the purchase price is subject to further adjustment.
|
|
|
|
|
Current assets |
|
$ |
2,591,000 |
|
Property, plant, and equipment |
|
|
750,000 |
|
Identifiable intangible assets |
|
|
950,000 |
|
Goodwill |
|
|
3,218,000 |
|
|
|
|
|
Total assets acquired |
|
$ |
7,509,000 |
|
|
|
|
|
|
Current liabilities |
|
$ |
679,000 |
|
Other noncurrent liabilities |
|
|
|
|
Long term debt |
|
|
|
|
Total liabilities assumed |
|
$ |
679,000 |
|
|
|
|
|
Net assets acquired |
|
$ |
6,830,000 |
|
Of the $950,000 of acquired identifiable intangible assets, $400,000 was assigned to customer
relationships (estimated useful life of 5 years) $450,000 was assigned to product approvals
(estimated life of 3 years) and $100,000 was assigned to trade names (estimated life of 3 years).
The valuation of these intangibles is
not completed and these are preliminary estimates of the fair value of the intangible assets acquired.
Third Quarter Fiscal Year 2010 Restructuring Charge: Due to the reduced business volume in
Iraq, the continued delay of federal funding and severe budget shortfalls in our municipal markets
across the country, the Company has experienced poor operating results in the first half of fiscal
year 2010. As a result, the Company has taken significant steps to restructure its business and
reduce the Companys overall cost structure basis to balance its costs with the current and
13
VERSAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
anticipated business volume. It is anticipated that the cost reduction plan will reduce the
Companys overall cost structure by over $3.3 million on an annualized basis. The Company will
record a one-time charge of approximately $650,000 in the third quarter of fiscal year 2010
primarily for personnel severance costs and the cost of select office closures.
14
ITEM 2 Managements 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,
without limitation, those regarding the continued award of future work or task orders from
government and private clients, cost controls and reductions, the expected resolution of delays in
billing of certain projects, and the possible impact of current and future claims against the
Company based upon negligence and other theories of liability. Forward-looking statements involve
numerous risks and uncertainties that could cause actual results to differ materially, including,
but not limited to, the possibility that the demand for the Companys services may decline as a
result of possible changes in general and industry specific economic conditions and the effects of
competitive services and pricing; the possibility that the Company will not be able to perform work
within budget or contractual limitations; one or more current or future claims made against the
Company may result in substantial liabilities; the possibility that the Company will not be able to
attract and retain key professional employees; changes to or failure of the Federal government to
fund certain programs in which the Company participates; delays in project funding; and such other
risks and uncertainties, described in our Form 10-K for fiscal year ended June 26, 2009 and in
other reports and other documents filed by the Company from time to time with the Securities and
Exchange Commission.
Financial Trends
During fiscal year 2009, continued government emphasis on funding of a number of international
programs within the companys core business, resulted in increases in gross revenues and gross
profit in all of Versars business segments, except for the Companys Compliance and Environmental
business segment, which has been most significantly impacted by the declining U.S. economy.
However, in the first half of fiscal year 2010, a number of the Companys business segments
experienced a decline in revenue and gross profit as a result of shifts in government spending and
the continued impact of the weak economy on funding of projects in certain of the Companys
business segments. The negative impact of these funding shifts and continued delays in project
funding accelerated during the second quarter of fiscal year 2010. Further, since fiscal year
2008, the Company has experienced a significant decline in work for the Air Force in Iraq. During
fiscal year 2008, approximately 53% of the Companys business volume related to reconstruction
efforts in Iraq. The volume of this work began to decline during fiscal year 2009 and this decline
accelerated during the first half of fiscal year 2010. As a result, this work comprised 51% and
30%, respectively, of the Companys business volume in fiscal year 2009 and the first half of
fiscal year 2010, respectively. The Company expects that the reconstruction efforts in Iraq will
be significantly reduced during the remainder of fiscal year 2010 because of the reduced Air Force
role in reconstruction work in Iraq. We currently anticipate a decrease in revenues related to
work in Iraq during fiscal year 2010 of approximately $25 million compared to the Companys
revenues from Iraq in fiscal year 2009. To offset, in part, the loss of work in Iraq, the Company
continues to follow funding shifts to Afghanistan attempting to maintain and expand its business
there, which will help offset but not completely replace the expected reduction in revenues from
Iraq.
The Company experienced poor operating performance in the Compliance and Environmental
business segment during the second quarter of fiscal year 2010 due to reduced municipal spending
and delayed project work. Management expects to continue to face challenges in the Compliance and
Environmental business segment for the rest of fiscal year 2010 as municipalities continue to face
funding shortfalls due to current economic conditions. Therefore, the Company continues to take
steps to further diversify its business to replace reduced or eliminated opportunities in Iraq and
reduced municipality work in this business segment. The Company is focusing on U.S. based Base
Realignment and Closure (BRAC) efforts, funding for which had been delayed as a result of the war
in Iraq, as well as the expanded U.S. efforts in Afghanistan. Funding for BRAC work began to
increase in fiscal year 2009 and we expect that funding of BRAC work worldwide will continue to
increase during the remainder of fiscal year 2010. Versar is also focused on new initiatives in
the rural broadband market, in the U.S., green energy development projects and programs providing
engineering, design and construction support, and on further expanding our professional services,
UXO capabilities, energy conservation and national security efforts to address cost constraints
while effectively providing business solutions to meet our clients changing needs.
Further, after the end of the second quarter, the Company implemented a cost reduction plan
that is anticipated to reduce the companys overall cost structure by over $3.3 million on an
annualized basis. The cost reduction plan was designed to balance the Companys costs with current
and anticipated business volume.
15
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
There are a number of risk factors or uncertainties that could significantly impact our future
financial performance, including the following:
|
|
|
General economic or political conditions; |
|
|
|
|
Threatened or pending litigation; |
|
|
|
|
The timing of expenses incurred for corporate initiatives; |
|
|
|
|
Employee hiring, utilization, and turnover rates; |
|
|
|
|
The seasonality of spending in the federal government and for commercial clients; |
|
|
|
|
Delays in project contracted engagements; |
|
|
|
|
Unanticipated contract changes impacting profitability; |
|
|
|
|
Reductions in prices by our competitors; |
|
|
|
|
The ability to obtain follow-on work; |
|
|
|
|
Failure to properly manage projects resulting in additional costs; |
|
|
|
|
The cost of compliance for the Companys laboratories; |
|
|
|
|
The results of a negative government audit potentially impacting our costs, reputation and
ability |
|
|
|
|
to work with the federal government; |
|
|
|
|
Loss of key personnel; |
|
|
|
|
The ability to compete in a highly competitive environment; and |
|
|
|
|
Federal funding delays due to wars in Iraq and Afghanistan. |
Results of Operations
Second Quarter Comparison of Fiscal Year 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Periods Ended |
|
|
|
December 25, |
|
|
December 26, |
|
|
|
2009 |
|
|
2008 |
|
GROSS REVENUE |
|
|
|
|
|
|
|
|
Program Management |
|
$ |
15,462 |
|
|
$ |
17,373 |
|
Compliance and Environmental Programs |
|
|
3,407 |
|
|
|
5,411 |
|
Professional Services |
|
|
3,130 |
|
|
|
2,784 |
|
National Security |
|
|
2,388 |
|
|
|
2,399 |
|
|
|
|
|
|
|
|
|
|
$ |
24,387 |
|
|
$ |
27,967 |
|
|
|
|
|
|
|
|
Gross revenue for the second quarter of fiscal year 2010 was $24,387,000, a decrease of
$3,580,000 (13%) from the second quarter of fiscal year 2009. Gross revenue in the Program
Management business segment for the second quarter of fiscal year 2010 was $15,462,000, a decrease
of $1,911,000 (11%) from that reported in the second quarter of fiscal year 2009. The decrease is
due to reduced work in support of Iraq reconstruction efforts offset, in part, by $4,013,000
increase in construction and engineering work in the United States. Gross revenue in the
Compliance and Environmental Programs business segment for the second quarter was $3,407,000, a
decrease of $2,004,000 (37%) from the second quarter of fiscal year 2009. The decrease is due to
budget shortfalls of state and municipal agencies resulting in a delay and deferral of projects and
resulting decline in revenue in the Compliance and Environmental Programs business segments. Gross
revenue in the Professional Services business segment for the second quarter of fiscal year 2010
was $3,130,000, an increase of $346,000 (12%) from the second quarter of fiscal year 2009. The
increase is attributable to continuing work on larger professional services outsourcing awards
received during fiscal year 2009. Gross revenue for the National Security business segment for the
second quarter of fiscal year 2010 was $2,388,000, a decrease of $11,000 from the second quarter of
fiscal year 2009. This slight decrease is attributable to delays in personal protective suit sales
orders and laboratory sales as a result of the delayed authorization of the Defense departments
appropriation until late in December 2009.
16
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Purchased services and materials decreased by $2,301,000 (15%) in the second quarter of fiscal
year 2010 compared to the second quarter of fiscal year 2009. The decrease is attributable to
lower subcontractor costs as a result of decreased business volume in the Program Management and
National Security business segments as mentioned above.
Direct costs of services and overhead include the cost to Versar of direct and overhead staff,
including recoverable and unallowable costs that are directly attributable to contracts. Direct
costs of services and overhead increased by $198,000 (2%) in the second quarter of fiscal year 2010
compared to the second quarter of 2009. The increase is primarily due to additional costs
required to support business growth initiatives in the Program Management business segment relating
to the United States based telecommunications and construction activity.
Gross profit for the second quarter of fiscal year 2010 was $1,728,000, a decrease of
$1,477,000 (46%) from the second quarter of fiscal year 2009. The decrease is primarily due to
reduced revenue and profit margins in the Program Management, Compliance and Environmental Programs
and National Security segments, as shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Periods Ended |
|
|
Gross Profit (Loss) Margin (%) |
|
|
|
December 25, |
|
|
December 26, |
|
|
December 25, |
|
|
December 26, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
GROSS PROFIT (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Program Management |
|
$ |
1,308 |
|
|
$ |
2,098 |
|
|
|
8.5 |
% |
|
|
12.1 |
% |
Compliance and Environmental
Programs |
|
|
(108 |
) |
|
|
369 |
|
|
|
(3.2 |
%) |
|
|
6.8 |
% |
Professional Services |
|
|
485 |
|
|
|
388 |
|
|
|
15.5 |
% |
|
|
13.9 |
% |
National Security |
|
|
43 |
|
|
|
350 |
|
|
|
1.8 |
% |
|
|
14.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,728 |
|
|
$ |
3,205 |
|
|
|
7.17 |
% |
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin for the Program Management business segment for the second quarter of
fiscal year 2010 was 8.5% compared to 12.1% for the same period of last fiscal year. The decrease
was due to declining revenues in our Iraq work. The Compliance and Environmental Programs business
segment suffered an operating loss during the second quarter of fiscal year 2010. This segments
revenue was significantly impacted by the economic downturn of the domestic market resulting in
labor utilization that was lower than anticipated. Gross profit margin for the Professional
Services business segment improved to 15.5% for the second quarter of fiscal year 2010, compared to
13.9% for the second quarter of the prior fiscal year. Margins in the Professional Services
business segment improved with the increase in gross revenues and less incremental costs. Gross
profit margin for the National Security business segment in the second quarter of fiscal year 2010
was only 1.8% compared to 14.6% for the second quarter of the last fiscal year. This substantial
decrease was attributable to the delay in personal protective suit sales and reduced chemical
laboratory work. Approximately, $200,000 of the gross profit shortfall is attributable to the
delayed suit orders and the balance with the reduced laboratory work.
Selling, general and administrative expenses increased by $40,000 (2%) during the second
quarter of fiscal year 2010 compared to the second quarter of fiscal year 2009. The increase is
primarily due to increased business development activities related to efforts to further diversify
our business base.
Operating loss for the second quarter of fiscal year 2010 was $510,000, compared to operating
income of $1,007,000 in the second quarter of fiscal year 2009. The decrease in operating income
is attributable to lower gross revenue and gross profit as mentioned above.
Interest income for the second quarter of fiscal year 2010 was $33,000 due to the accrued
interest on the debt financing provided to General Power Green Energy and Lemko Corporation as
discussed in footnote F. Interest expense for the second quarter of fiscal year 2010 was $9,000.
The interest expense is attributable to the cost of financing the Companys various insurance
policies.
Income tax benefit for the second quarter of fiscal year 2010 was $186,000 compared to income
tax expense of $375,000 in the second quarter of fiscal year 2009. The income tax benefit for the
second quarter of fiscal year 2010 was the result of the loss incurred. The effective tax rates for the second quarter of
fiscal years 2010 and 2009 were 38% and 40%, respectively.
17
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Versars net loss for the second quarter of fiscal year 2010 was $300,000 compared to a net
income of $565,000 in the second quarter of fiscal year 2009.
Six Month Comparison of Fiscal Year 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
For the Six-Month Periods Ended |
|
|
|
December 25, |
|
|
December 26, |
|
|
|
2009 |
|
|
2008 |
|
GROSS REVENUE |
|
|
|
|
|
|
|
|
Program Management |
|
$ |
31,865 |
|
|
$ |
33,222 |
|
Compliance and Environmental Programs |
|
|
6,932 |
|
|
|
9,972 |
|
Professional Services |
|
|
5,868 |
|
|
|
4,962 |
|
National Security |
|
|
4,436 |
|
|
|
4,809 |
|
|
|
|
|
|
|
|
|
|
$ |
49,101 |
|
|
$ |
52,965 |
|
|
|
|
|
|
|
|
Gross revenue for the first six months of fiscal year 2010 was $49,101,000, a decrease of
$3,864,000 (7%) from the first six months of fiscal year 2009. Gross revenue in the Program
Management business segment for the first six months of fiscal year 2010 was $31,865,000, a
decrease of $1,357,000 (4%) from the first six months of fiscal year 2009. The decrease is due to
decreased international work in support of the United States reconstruction efforts in Iraq offset
in part by an increase in domestic construction management and engineering work. Gross revenue in
the Compliance and Environmental Programs business segment for the first six months was $6,932,000,
a decrease of $3,040,000 (30%) from the first six months of fiscal year 2009. The decrease is due
to the weak environmental markets in the mid-west and west coast regions that negatively impacted
our contract awards and gross revenue. Gross revenue in the Professional Services business segment
for the first six months of fiscal year 2010 was $5,868,000, an increase of $906,000 (18%) from the
first six months of fiscal year 2009. The increase is attributable to continuing work on larger
professional services outsourcing awards that were received in the prior fiscal year. Gross
revenue for the National Security business segment for the first six months of fiscal year 2010 was
$4,436,000, a decrease of $373,000 (8%) from the first six months of fiscal year 2009. The
decrease is attributable to lower chemical laboratory work and delays in personal protective suit
sales.
Purchased services and materials decreased by $3,080,000 (11%) in the first six months of
fiscal year 2010 compared to the first six months of fiscal year 2009. The decrease is
attributable to the decrease in the Program Management business segment and in personal protective
suit sales in the National Security business segment as mentioned above.
Direct costs of services and overhead include the cost to Versar of direct and overhead staff,
including recoverable and unallowable costs that are directly attributable to contracts. Direct
costs of services and overhead increased by $1,518,000 (9%) in the first six months of fiscal year
2010 compared to the first six months of fiscal year 2009. The increase is primarily due to
additional costs required to support business growth efforts in the Program Management and
Professional Services business segments.
18
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Gross profit for the first six months of fiscal year 2010 was $4,081,000, a decrease of
$2,302,000 (36%) from the first six months of fiscal year 2009. The decrease is primarily
attributable to reduced gross revenues and gross profit in the Program Management business segment,
Compliance and Environmental Programs business segment and National Security business segments as
shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six-Month Periods Ended |
|
|
Gross Profit (Loss) Margin (%) |
|
|
|
December 25, |
|
|
December 26, |
|
|
December 25, |
|
|
December 26, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
GROSS PROFIT (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Program Management |
|
$ |
3,180 |
|
|
$ |
4,384 |
|
|
|
10.0 |
% |
|
|
13.2 |
% |
Compliance and Environmental
Programs |
|
|
(160 |
) |
|
|
622 |
|
|
|
(2.3 |
%) |
|
|
6.2 |
% |
Professional Services |
|
|
929 |
|
|
|
809 |
|
|
|
15.8 |
% |
|
|
16.3 |
% |
National Security |
|
|
132 |
|
|
|
568 |
|
|
|
3.0 |
% |
|
|
11.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,081 |
|
|
$ |
6,383 |
|
|
|
8.3 |
% |
|
|
12.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin for the Program Management business segment for the first six months of
fiscal year 2010 was 10% compared to 13.2% for the first six months of fiscal year 2009. The
decrease is attributable to the lower profitability in our reduced Iraq work and the lower gross
revenue. The Compliance and Environmental Programs business segment suffered a loss of $160,000
for the first six months of fiscal year 2010 compared to the gross profit in the first six months
of fiscal year 2009. The loss is due to the reduced gross revenues as mentioned above resulting
from poor economic conditions and the lack of contract awards in the mid-west and west coast
regions. Gross profit in the Professional Services business segment for the first six months of
fiscal year 2010 was 15.8% compared to 16.3% for the first six months of fiscal year 2009. Gross
profit margin in the National Security business segment for the first six months of fiscal year
2010 was 3% compared to 11.8% for the first six months of fiscal year 2009. The decrease is
directly attributable to the reduced chemical laboratory work and personal protective suit sales.
Approximately $300,000 of the shortfall was from anticipated margins from expected suit sales and
the balance from the chemical laboratory shortfalls.
Selling, general and administrative expenses decreased by $21,000 during the first six months
of fiscal year 2010 compared to that reported in the first six months of fiscal year 2009.
Operating loss for the first six months of fiscal year 2010 was $132,000, compared to the
operating income of $2,149,000 in the first six months of fiscal year 2009. The poor performance
is primarily attributable to the decreased gross revenue and gross profit as mentioned above.
During the first quarter of fiscal year 2009, the Company recorded a $346,000 loss on
marketable securities the Company was holding in the FISCO Income Plus Funds. The FISCO fund
received an immediate demand margin call from its broker, UBS. Rather than allow the fund the
customary time to satisfy the margin call at the end of the day, UBS demanded the fund cover all
calls and puts at high premiums immediately or indicated it would take control of the fund and
start liquidating the fund itself. The fund has terminated its relationship with UBS and
transferred the assets to a new custodian. The fund has indicated it will seek legal action
against UBS to cover its losses. The Company will participate in any recovery from any such
action.
Interest income for the first six months of fiscal year 2010 was $65,000 due to the accrued
interest on debt financing provided to General Power Green Energy and Lemko Corporation as
discussed in footnote F. Interest expense for the first six months of fiscal year 2010 was
$22,000. The interest expense is attributable to the cost of financing the Companys various
insurance policies.
19
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Income tax benefit for the first six months of fiscal year 2010 was $26,000 compared to income
tax expense of $695,000 in the first six months of fiscal year 2009. The tax benefit recorded in
fiscal year 2010 was due to loss incurred in the first six months of fiscal year 2010. The
effective tax rates for the first six months of fiscal years 2010 and 2009 were 29% and 39%, respectively.
Versars net loss for the second quarter of fiscal year 2010 was $63,000 compared to net
income of $1,089,000 in the second quarter of fiscal year 2009. The unfavorable result is
primarily attributable to the poor operating performance in the Program Management, Compliance and
Environmental and National Security business segments during the first six months of fiscal year
2010.
Liquidity and Capital Resources
The Companys working capital as of December 25, 2009 was approximately $24,880,000, a
decrease of $633,000 from the working capital of $25,513,000 at June 26, 2009. The decrease in
working capital was due to the classification as current of a former long-term obligation that is
now due within the next twelve months period. The Companys current ratio at December 25, 2009 was
3.27, compared to 3.04 reported on June 26, 2009. The Companys financial ratios have continued to
improve during the first six months of fiscal year 2010. Accounts receivable decreased by
approximately $4 million primarily due to improved cash flow due to the decreased working capital
requirements as a result of the reduced business volume during the first half of fiscal year 2010.
The Company has a line of credit facility with United Bank (the Bank) that provides for
advances up to $7.5 million based upon qualifying receivables. The line of credit is subject to
certain covenants related to the maintenance of financial ratios. These covenants require a
minimum tangible net worth of $22.5 million; a maximum total liabilities to tangible net worth
ratio not exceed 2.5 to 1; and a minimum current ratio of at least 1.25 to 1. Interest accrues on
borrowings under the line of credit at the prime rate of interest less 1/2% with a floor interest
rate of 3.5%. Failure to meet the covenant requirements gives the Bank the right to demand
outstanding amounts due under the line of credit, which may impact the Companys ability to finance
its working capital requirements. As of December 25, 2009, the Company had no outstanding
borrowings and was in compliance with the financial covenants. The Company has a letter of credit
of approximately $455,147 outstanding under the line of credit facility which serves as collateral
for surety bond coverage provided by the Companys insurance carrier against project construction
work. The letter of credit reduces the Companys availability on the line of credit. Availability
under the line of credit at December 25, 2009 was approximately $7 million. Obligations under the
credit facility are guaranteed by Versar and each subsidiary individually and are secured by
accounts receivable, equipment and intangibles, plus all insurance policies on property
constituting collateral of Versar and its subsidiaries. The line of credit matures in September
30, 2010.
The Company believes that its current cash balance of over $8.5 million along with anticipated
cash flows from operations and availability under its line of credit will be sufficient to meet the
Companys liquidity needs for the remainder of the fiscal year. Expected capital requirements for
fiscal year 2010 are approximately $1,000,000, primarily for upgrades to maintain the Companys
existing information technology systems. Such capital requirements and other funding needs will be
funded through existing working capital and the line of credit.
Critical Accounting Policies and Related Estimates That Have a Material Effect on Versars
Consolidated Financial Statements
Below is a discussion of the accounting policies and related estimates that we believe are the
most critical to understanding the Companys consolidated financial position and results of
operations which require management judgments and estimates, or involve uncertainties. Information
regarding our other accounting policies is included in the notes to our consolidated financial
statements included elsewhere in this report on Form 10-Q and in our annual report on Form 10-K
filed for fiscal year 2009.
Revenue recognition: Contracts in process are stated at the lower of actual costs
incurred plus accrued profits or incurred costs reduced by progress billings. 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. The Company records
income from major fixed-price contracts, extending over more than one accounting period, using the
percentage-of-completion
20
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
method. During the performance of such contracts, estimated final contract prices and costs are
periodically reviewed and revisions are made as required. Fixed price contracts can be
significantly impacted by changes in contract performance, contract delays, liquidated damages and
penalty provisions, and contract change orders, which may affect the revenue recognition on a
project. Revisions to such estimates are made when they become known. Detailed quarterly project
reviews are conducted with project managers to review all project progress accruals and revenue
recognition.
There is the possibility that there will be future and currently unforeseeable adjustments to
our estimated contract revenues, costs and margins for fixed price contracts, particularly in the
later stages of these contracts. Such adjustments are common in the construction industry given
the nature of the contracts. These adjustments could either positively or negatively impact our
estimates due to the circumstances surrounding the negotiations of change orders, the impact of
schedule slippage, subcontractor claims and contract disputes which are normally resolved at the
end of the contract.
Allowance for doubtful accounts: Disputes arise in the normal course of the Companys
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 and
collectibility. Such disputes, whether claims or unapproved change orders in 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.
Management reviews outstanding receivables on a quarterly basis and assesses the need for
reserves, taking into consideration past collection history and other events that bear on the
collectibility of such receivables. All receivables over 60 days old are reviewed as part of this
process.
Asset retirement obligation: The Company recorded an asset retirement obligation
associated with the estimated clean-up costs for its chemical laboratory in its National Security
business segment. In accordance with ASC-410-20-05 (formerly SFAS 143, Accounting for Asset
Retirement Obligation), the Company estimated the costs to clean up the laboratory and return it to
its original state at a present value of approximately $497,000. The Company currently estimates
the amortization and accreation expense to be approximately $190,000 to $200,000 per year over the
next year. The current liability as of December 25, 2009 was $610,000. The Company is rigorously
pursuing reimbursement for such costs and other costs from the U.S. Army as a significant portion
of the chemical agent that was used in the chemical laboratory was government owned. If the
Company determines that the estimated clean up cost is larger than expected or the likelihood of
recovery from the U.S. Army is remote, such adjustments will be reflected when they become known.
Goodwill and other intangible assets: The carrying value of goodwill is approximately
$776,000 relating to the acquisition of Versar Global Solutions, Inc., which is now part of the
Program Management business segment. In performing its goodwill impairment analysis, management
has utilized a market-based valuation approach to determine the estimated fair value of the Program
Management business segment. Management engages outside professionals and valuation experts
annually, as necessary, to assist in performing this analysis and will test more often if events
and circumstances warranted it. Should the Program Management business segments financial
performance not meet estimates, then impairment of goodwill would have to be further assessed to
determine whether a write down of goodwill value would be warranted. If such a write down were to
occur, it would negatively impact the Companys financial position and results of operations. As
disclosed in the Subsequent Events note to the financial statements included in this report,
following the end of the second quarter of fiscal year 2010, the Company completed the PPS
acquisition, using approximately $5.1 million of its existing working capital in payment of the
purchase price. The Company is currently in the process of negotiating a second acquisition, which
if terms are resolved to the Companys satisfaction, is likely to close shortly after filing of
this report. If the Company is able to complete this additional acquisition, it will require cash
of approximately $2.1 million at closing. There can be no assurance that the company will be
successful in negotiating this additional acquisition and that it will close on a timely basis, or
at all.
Share-based compensation: The Company records stock based compensation in accordance
with the fair value provisions of ASC 718-10-1 (formerly SFAS No. 123R, Share-Based Payment).
This statement requires companies to recognize the cost of employee services received in exchange
for awards of equity instruments based on the grant-date fair value of those awards (the
fair-value-based method).
21
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
There was no share-based compensation expense recorded related to stock options during the
first half of fiscal years 2009 and 2010 as all previously granted stock options were fully vested
except 10,000 shares of non-qualified stock options. These options will vest based on the
achievement of certain stated conditions, and the Company will record the related expense at that
time.
The Company awarded 125,000 shares of restricted stock to directors and employees in fiscal
year 2009. During the first half of fiscal year 2010, the Company awarded 67,000 shares of
restricted stock to key employees in recognition of their outstanding performance in the prior
year, and recorded compensation expense of $206,000 for the first six months of fiscal year 2010.
New accounting pronouncements: In June 2009, the FASB issued the FASB Accounting
Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles
(Codification). The Codification is now the source for authoritative United States generally
accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental
entities. The Codification is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The Codification has superseded all then-existing non-SEC
accounting and reporting standards. References to legacy GAAP in this report have been replaced by
references to the Codification, where appropriate.
In August 2009, the FASB amended guidance in FASB Accounting Standards
CodificationTM (ASC) 820, FairValue Measurements and Disclosures, to clarify how
entities should estimate the fair value of liabilities. The amendments provide clarification that
in circumstances in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or more of the following
valuation techniques: (1) a valuation technique that uses (a) the quoted price of the identical
liability when traded as an asset or (b) quoted prices for similar liabilities or similar
liabilities when traded as assets and/ or (2) another valuation technique that is consistent with
fair value principles such as an income or market approach. The amendments also clarify that when
estimating the fair value of a liability, a reporting entity is not required to consider the
existence of transfer restrictions on that liability. The Company adopted the amended guidance
effective October 1, 2009. The adoption did not have a material impact on the Companys financial
condition and results of operations.
In September 2009, the FASB ratified the final consensus on Emerging Issues Task Force
(EITF) Issue 08-1, Revenue Arrangements With multiple Deliverables, (Issue 08-1) which will
supersede ASC 605-25 (formerly EITF Issue 00-21, Revenue Arrangements With Multiple Deliverables).
Issue 08-1 addresses how arrangement consideration should be allocated to separate units of
accounting, when applicable. Although Issue 08-1 retains the criteria from ASC 605-25 for when
delivered items in a multiple deliverable arrangement should be considered separate units of
accounting, it removes the previous separation criterion under ASC 605-25 that objective and
reliable evidence of the fair value of any undelivered items must exist for the delivered items to
be considered a separate unit or separate units of accounting. The final consensus is effective
for fiscal years beginning on or after June 15, 2010. Entities can elect to apply Issue 08-1
prospectively to new or materially modified arrangements after the effective date or
retrospectively for all periods
presented. Issue 08-1 was issued as Accounting Standards Update (ASU) 2009-13 in October 2009
and amended ASC 605-25. The Company does not anticipate that ASU 2009-13 will have any impact on
the Companys financial position or results of operations.
In September 2009, the FASB ratified the final consensus on EITF Issue 09-3, Software Revenue
Recognition, (Issue 09-3) which will amend ASC 985-605 (formerly EITF Issue 03-5, Applicability
of AICPA Statement of Position 97-2 to Certain Arrangements That Contain Software Elements). Issue
09-3 excludes from the scope of Issue 09-3 all tangible products containing both software and
non-software components that function together to deliver the products essential functionality.
As such, the entire product would be outside the scope of ASC 985-605 and would be accounted for
under other accounting literature (e.g., ASC 605-25 (as amended by Issue 08-1)). The final
consensus is effective for fiscal years beginning on or after June 15, 2010. Entities can elect to
apply Issue 09-3 prospectively to new or materially modified arrangements after the effective date
or retrospectively for all periods presented. Issue 09-3 was issued as ASU 2009-14 in October
2009. The Company does not anticipate that ASU 2009-14 will have any impact on the Companys
financial position or results of operations.
22
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
In August 2009, the FASB issued ASU 2009-05 to provide guidance on measuring fair value of
liabilities under ASC 820 (formerly FSP FAS 157-f). The guidance clarifies how entities should
estimate the fair value of liabilities. ASC 820, as amended, includes clarifying guidance for
circumstances in which a quoted price in an active market is not
available, the effect of the existence of liability transfer restrictions, and the effect of quoted
prices for the identical liability, including when the identical liability is traded as an asset.
ASU 2009-05 is effective for the first interim or annual reporting period beginning after August
29, 2008. The Company adopted this guidance during the second quarter of fiscal year 2010, the
adoption of the amended guidance in ASC 820 did not have a material effect on its consolidated
financial statements.
In April 2009, the FASB issued authoritative guidance for fair value measurements and
disclosures. The guidance provides companies with guidelines on how to determine fair value
measurements when the volume and level of activity for an asset or liability have significantly
decreased and how to identify transactions that are not orderly. This guidance is effective for
interim reporting periods ending after June 15, 2009. The Company adopted this guidance during the
first quarter of fiscal year 2010, which did not have any impact on its consolidated financial
statements.
In April 2009, the FASB issued authoritative guidance for interim disclosures for financial
instruments. This guidance amends prior authoritative guidance by requiring disclosures of the fair
value of financial instruments included within the scope of the prior guidance whenever a public
company issues summarized financial information for interim reporting periods. This guidance is
effective for interim reporting periods ending after June 15, 2009, with early adoption permitted
for periods ending after March 15, 2009 under certain circumstances. The Company adopted this
guidance for the
quarter ended September 25, 2009, but it did not have an impact on its unaudited condensed
consolidated financial statements. The carrying amounts of Versars cash and cash equivalents,
accounts receivable, accounts payable and amounts included in other current assets and current
liabilities that meet the definition of a financial instrument approximate fair value because of
the short-term nature of these amounts.
Effective June 27, 2009, the Company adopted new accounting guidance related to the reporting
of subsequent events. This guidance establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before financial statements are issued or are
available to be issued. In particular, this guidance sets forth the period after the balance sheet
date during which management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; the circumstances under
which an entity should recognize events or transactions occurring after the balance sheet date in
its financial statements; and the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. The Company evaluated events occurring
subsequent to the balance sheet date through February 8, 2010 for purposes of this report. See
footnote N regarding disclosure of subsequent events.
In December 2007, the FASB
issued ASC 805, Business Combinations (formerly SFAS
No. 141 (revised 2007), Business Combinations). ASC 805 establishes principles and requirements for
how companies recognize and measure identifiable assets acquired, liabilities assumed, and
any non-controlling interest in connection with a business combination, recognize and measure
the goodwill acquired in a business combination or a gain from a bargain purchase, and determine
what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. ASC 805 is effective for business combinations
completed on or after June 27, 2009. The adoption of ASC
805 did not affect the Companys financial position or its results
of operations during the first six months of 2010.
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 include
provisions for projected increases in labor and other costs.
Contingencies
Versar and its subsidiaries are parties to various legal actions arising in the normal course
of business. The Company believes that the ultimate resolution of these legal actions will not
have a material adverse effect on its consolidated financial position and results of operations.
(See Part II, Item 1 Legal Proceedings).
Business Segments
Versar currently has four business segments: Program Management, Compliance and Environmental
Programs, Professional Services, and National Security.
23
Item 3 Quantitative and Qualitative Disclosures About Market Risk
The Company has not entered into any transactions using derivative financial instruments or
derivative commodity instruments and believes that its exposure to interest rate risk and other
relevant market risk is not material.
Item 4 Controls and Procedures
As of the last day of the period covered by this report, the Company carried out an
evaluation, under the supervision of the Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures
are effective, as of such date, to ensure that required information will be disclosed on a timely
basis in its reports under the Exchange Act.
Further, our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures have been designed to ensure that information required to be
disclosed in reports filed by us under the Exchange Act is accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer, in a manner to allow
timely decisions regarding the required disclosure.
There were no changes in the Companys internal control over financial reporting during the
last quarter that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Versar and its subsidiaries are parties from time to time to various legal actions arising in
the normal course of business. The Company believes that any ultimate unfavorable resolution of
these legal actions will not have a material adverse effect on its consolidated financial condition
and results of operations.
Item 1A Risk Factors
The risk factors discussed in Part 1, Item 1A. Risk Factors, in our Annual Report on Form
10-K for the year ended June 26, 2009, should be considered in conjunction with the other
information set forth in this quarterly report on Form 10-Q.
We recently completed the acquisition of PPS and are currently negotiating the acquisition of
a second company. We intend to use reasonable efforts to identify other acquisition opportunities
that would be of benefit to our Company and our stockholders. Such combinations will be
accompanied by risks commonly encountered in acquisitions, such as risks related to the successful
integration of the acquired business with existing businesses, the ability to realize any cost
savings or synergies expected from the combination and the discovery post-closing of costs and
liabilities not adequately covered by indemnification or other rights against the sellers. Failure
to manage and successfully integrate acquisitions we make could have a material adverse effect on
our business, our ability to pursue our strategy and our operating results.
24
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
During the second quarter of fiscal year 2010, employees of the Company surrendered shares of
common stock to the Company to pay taxes on vesting of restricted stock. The purchase price of the
stock was based on the closing price of the Companys common stock on the NYSE Amex on the date of
surrender.
Purchases of Equity Securities
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Maximum Number (or |
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|
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Total Number of |
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Approximate Dollar |
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|
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|
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Shares Purchased as |
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Value) of Shares |
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Total Number of |
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Part of Publicly |
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that May Yet Be |
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Shares |
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Average Price Paid |
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Announced Plans or |
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Purchased Under the |
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Period |
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Purchased |
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Per Share |
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Programs |
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Plans or Programs |
|
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|
|
|
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|
|
|
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|
|
|
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|
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October 1-30, 2009 |
|
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968 |
|
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$ |
3.92 |
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Total |
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968 |
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$ |
3.92 |
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Item 4 Submission of Matters to a Vote of Stockholders
The Companys Annual Meeting of Stockholders (the Annual Meeting) was held on November 18,
2009. The matters voted on at the Annual Meeting were as follows:
(1) The Election of Directors
The election of seven nominees to serve as directors of the Company was approved as indicated
below:
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For |
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Withheld |
Robert L. Durfee |
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6,349,707 |
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777,605 |
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James L. Gallagher |
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6,960,090 |
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167,222 |
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Amoretta M. Hoeber |
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6,962,198 |
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165,114 |
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Paul J. Hoeper |
|
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6,958,917 |
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168,395 |
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Amir A. Metry |
|
|
6,966,037 |
|
|
|
161,275 |
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Anthony L. Otten |
|
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6,965,869 |
|
|
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161,443 |
|
Theodore M. Prociv |
|
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6,960,417 |
|
|
|
166,895 |
|
(2) The appointment of Grant Thornton LLP as independent accountants for fiscal year 2010 was
ratified as indicated below:
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For |
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Against |
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Abstain |
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6,816,166 |
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89,969 |
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221,177 |
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Item 6 Exhibits
(a) Exhibits
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Exhibit No. |
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Description |
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31.1 and 31.2
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Certification pursuant to Securities Exchange Act Section 13a-14. |
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32.1 and 32.2
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Certification under Section 906 of the Sarbanes-Oxley Act of 2002. |
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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VERSAR, INC.
(Registrant)
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By: |
/S/ Theodore M. Prociv
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Theodore M. Prociv |
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Chief Executive Officer, President, and Director |
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By: |
/S/ Lawrence W. Sinnott
|
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Lawrence W. Sinnott |
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Executive Vice President, Chief Operating Officer, Chief
Financial Officer, Treasurer, and Principal Accounting Officer |
|
|
Date: February 8, 2010
26