##### 



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended
    
    Commission FileJuly 1, 2005
    
    No. 1-9309
 
 
  DELAWARE
    
    54-0852979(I.R.S. employer identification no.)
    
    (State or other jurisdiction ofincorporation or organization)
 6850 Versar Center, Springfield, Virginia
    
    22151(Address of principal executive offices)
    
    (Zip code)
 (703) 750-3000
  Common Stock, $.01 par value
 American Stock Exchange
  þ o
   o þ
  o þ
   
 DOCUMENTS INCORPORATED BY REFERENCE




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##### 



PART I
 Item 1. Business
 Forward-Looking Statements
 This report contains certain forward-looking statements which are based on current
expectations. Actual results may differ materially. The forward-looking statements include those
regarding 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
possibilities that the demand for the Companys services may decline as a result of possible
changes in general and industry specific economic conditions and the effects of competitive
services and pricing; the possibility the Company will not be able to perform work within budget or
contractual limitations; one or more current or future claims made against the Company may result
in substantial liabilities; the possibility 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; and such other risks and uncertainties as are described in reports
and other documents filed by the Company from time to time with the Securities and Exchange
Commission.
 Business Overview
      2




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##### 



Infrastructure and Management Services
  Compliance:
  Environmental Restoration:
   3




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##### 



Pollution Prevention:
  Conservation of Natural and Cultural Resources:
   Engineering and Design:
  4




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##### 



Construction Management:
    National Security
  Personal Protection Equipment ® Standard on Protective Ensembles for Chemical/Biological
Terrorism Incidents ®
  5




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##### 



Chemical Surety Laboratory
   Versar/GEOMET Collaboration Programs
 Navy Systems Engineering Support:
 GSA IT:
 6




---



##### 



Vulnerability Assessments: TM TM TM
 USAF Vulnerability Assessments:
 DoD Contract Support:
 Markets
       7




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##### 



Competition
     Backlog
   8




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##### 



Employees
  Item 2. Properties
   Item 3. Legal Proceedings
  Versar, Inc. v. Roy O. Ball, Trustee, URS Corporation, Environmental Resources Management and
Environ Corp., Roy O. Ball and Norman
W. Bernstein, Trustees v. Versar, Inc.,
  9




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##### 



Item 4. Submission of Matters to a Vote of Security Holders
  10




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##### 



EXECUTIVE OFFICERS
  NAME
    
    AGE
    
    POSITION WITH THE COMPANYTheodore M. Prociv
    
    
    57
    
    
    President and Chief Executive OfficerLawrence W. Sinnott
    
    
    43
    
    
    Executive Vice President, Chief Operating Officer, Chief Financial Officer and TreasurerJerome B. Strauss
    
    
    56
    
    
    Senior Vice President, Infrastructure and Management Services Business SegmentPaul W. Kendall
    
    
    52
    
    
    Senior Vice President, National Security Business SegmentJames C. Dobbs
    
    
    60
    
    
    Senior Vice President, General Counsel and Secretary
 Theodore M. Prociv,
 Lawrence W. Sinnott
 Jerome B. Strauss,
 Paul W. Kendall,
 James C. Dobbs
 11




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##### 



PART II
 Item 5. Market for Registrants Common Stock and Related Stockholder Matters
 Common Stock
  Fiscal Year 2005
    
    High
    
    
    Low4th Quarter
    
    $
    3.80
    
    
    $
    3.003rd Quarter
    
    
    4.45
    
    
    
    3.592nd Quarter
    
    
    4.70
    
    
    
    3.901st Quarter
    
    
    4.88
    
    
    
    3.70
 Fiscal Year 2004
    
    High
    
    
    Low4th Quarter
    
    $
    5.40
    
    
    $
    3.213rd Quarter
    
    
    3.84
    
    
    
    3.202nd Quarter
    
    
    3.80
    
    
    
    2.561st Quarter
    
    
    3.29
    
    
    
    2.55
   12




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##### 



Item 6. Selected Financial Data (unaudited)
  For the Years EndedJuly 1,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2005
    
    

2004
    
    

2003
    
    

2002
    
    

2001(In thousands, except per share data)Consolidated Statement of Operations related data:Gross Revenue
    
    $
    67,678
    
    
    $
    60,067
    
    
    $
    56,646
    
    
    $
    67,988
    
    
    $
    65,816Net Service Revenue
    
    
    35,638
    
    
    
    33,656
    
    
    
    34,747
    
    
    
    38,189
    
    
    
    39,481Operating Income (Loss)
    
    
    1,427
    
    
    
    1,913
    
    
    
    612
    
    
    
    619
    
    
    
    (352
    )Income (Loss) from Continuing Operations
    
    
    1,361
    
    
    
    1,827
    
    
    
    (658
    )
    
    
    159
    
    
    
    (1,030
    )(Loss) Income from Discontinued
Operations
    
    
    (1,159
    )
    
    
    (636
    )
    
    
    (350
    )
    
    
    (80
    )
    
    
    243Net Income (Loss)
    
    
    202
    
    
    
    1,191
    
    
    
    (1,008
    )
    
    
    79
    
    
    
    (787
    )Income (Loss) per share from Continuing
Operations  Diluted
    
    $
    .16
    
    
    $
    .24
    
    
    $
    (.09
    )
    
    $
    .02
    
    
    $
    (.16
    )(Loss) income per share from Discontinued
Operations  Diluted
    
    $
    (.14
    )
    
    $
    (.09
    )
    
    $
    (.05
    )
    
    $
    ( .01
    )
    
    $
    . 04Net Income (Loss) per share  Diluted
    
    $
    .02
    
    
    $
    .16
    
    
    $
    (.14
    )
    
    $
    .01
    
    
    $
    (.12
    )Weighted Average Shares Outstanding -
Diluted
    
    
    8,263
    
    
    
    7,675
    
    
    
    7,231
    
    
    
    6,998
    
    
    
    6,470Consolidated Balance Sheet related data:Working Capital
    
    $
    7,887
    
    
    $
    7,494
    
    
    $
    4,940
    
    
    $
    6,600
    
    
    $
    7,073Current Ratio
    
    
    1.86
    
    
    
    1.87
    
    
    
    1.47
    
    
    
    1.70
    
    
    
    1.86Total Assets
    
    
    20,912
    
    
    
    20,085
    
    
    
    19,336
    
    
    
    21,273
    
    
    
    20,117Current Portion of Long-Term Debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170Long-Term Debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Debt, excluding bank line of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170Stockholders Equity
    
    $
    10,552
    
    
    $
    10,065
    
    
    $
    7,396
    
    
    $
    8,324
    
    
    $
    6,013
 13




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##### 



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Financial trends
      
    
    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 project work;
    
    Failure to properly manage projects resulting in additional costs;
    
    The cost of compliance for the Companys laboratories;

- The impact 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 war in Iraq.
 14




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##### 



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
 Results of Operations
 This report contains certain forward-looking statements which are based on current
expectations. Actual results may differ materially. The forward-looking statements include those
regarding 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
possibilities that the demand for the Companys services may decline as a result of possible
changes in general and industry specific economic conditions and the effects of competitive
services and pricing; the possibility the Company will not be able to perform work within budget or
contractual limitations; one or more current or future claims made against the Company may result
in substantial liabilities; the possibility 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; and such other risks and uncertainties as are described in reports
and other documents filed by the Company from time to time with the Securities and Exchange
Commission.
     15




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##### 



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
         16




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##### 



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
 REVENUE
  For the Years EndedJuly 1,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2003(In thousands, except for percentages)GovernmentEPA
    
    $
    3,972
    
    
    
    6
    %
    
    $
    4,315
    
    
    
    7
    %
    
    $
    3,312
    
    
    
    6
    %State & Local
    
    
    8,620
    
    
    
    13
    %
    
    
    7,785
    
    
    
    13
    %
    
    
    8,865
    
    
    
    16
    %Department of Defense
    
    
    31,182
    
    
    
    46
    %
    
    
    22,921
    
    
    
    38
    %
    
    
    24,343
    
    
    
    43
    %Other
    
    
    14,786
    
    
    
    22
    %
    
    
    8,558
    
    
    
    14
    %
    
    
    7,644
    
    
    
    13
    %Commercial
    
    
    9,118
    
    
    
    13
    %
    
    
    16,488
    
    
    
    28
    %
    
    
    12,482
    
    
    
    22
    %Gross Revenue
    
    $
    67,678
    
    
    
    100
    %
    
    $
    60,067
    
    
    
    100
    %
    
    $
    56,646
    
    
    
    100
    %
  Liquidity and Capital Resources
    17




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##### 



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
 Liquidity Requirements
  Contractual
    
    Total
    
    
    Less than
    
    
    1-3
    
    
    4-5
    
    
    After 5Obligations
    
    Cost
    
    
    1 year
    
    
    years
    
    
    years
    
    
    years(In thousands)Operating leases
    
    $
    10,977
    
    
    $
    2,809
    
    
    $
    4,653
    
    
    $
    2,889
    
    
    $
    626Capital lease
    
    
    1,007
    
    
    
    46
    
    
    
    99
    
    
    
    109
    
    
    
    753Notes payable
    
    
    529
    
    
    
    506
    
    
    
    23
    
    
    
    00
    
    
    
    00Total contractual cash
obligations
    
    $
    12,513
    
    
    $
    3,361
    
    
    $
    4,775
    
    
    $
    2,998
    
    
    $
    1,379
 Critical Accounting Policies and Related Estimates That Have a Material Effect on Versars
Consolidated Financial Statements
     18




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##### 



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
      19




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##### 



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
 New accounting pronouncements:
 Impact of Inflation
  Business Segments
  Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  Item 8. Financial Statements and Supplementary Data
  Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  20




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##### 



Changes in Internal Controls
  PART III
 Item 9B. Other Information
 Item 10. Directors and Executive Officers of the Registrant
    Item 11. Executive Compensation
  Item 12. Security Ownership of Certain Beneficial Owners and Management
  Item 13. Certain Relationships and Related Transactions
  Item 14. Principal Accountant Fees and Services
  21




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##### 



PART IV
 Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
   a)
    
    Report of Independent Registered Public Accounting Firmb)
    
    Consolidated Balance Sheets as of July 1, 2005 and June 30, 2004c)
    
    Consolidated Statements of Operations for the Years Ended July 1, 2005, June 30,
2004 and June 30, 2003d)
    
    Consolidated Statements of Changes in Stockholders Equity for the Years Ended July
1, 2005, June 30, 2004 and June 30, 2003e)
    
    Consolidated Statements of Cash Flows for the Years Ended July 1, 2005, June 30,
2004 and June 30, 2003f)
    
    Notes to Consolidated Financial Statements
  a)
    
    Schedule II  Valuation and Qualifying Accounts for the Years Ended July 1, 2005,
June 30, 2004 and June 30, 2003
       22




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##### 



Exhibit Index
 Page Number/Item No.
    
    Description
    
    Reference3.1
    
    Restated Articles of Incorporation of Versar, Inc. filed as an exhibit to the
Registrants Registration Statement on Form S-1 effective November 20, 1986
(File No. 33-9391)
    
    
    (A
    )3.2
    
    Bylaws of Versar, Inc.
    
    
    (A
    )3.3
    
    Amendment to the Bylaws of Versar, Inc.
    
    
    (W
    )4
    
    Specimen of Certificate of Common Stock of Versar, Inc.
    
    
    (A
    )10.10
    
    Incentive Stock Option Plan *.
    
    
    (B
    )10.11
    
    Executive Tax and Investment Counseling Program.
    
    
    (A
    )10.12
    
    Nonqualified Stock Option Plan *.
    
    
    (B
    )10.13
    
    Employee Incentive Plan, as amended *.
    
    
    (E
    )10.52
    
    Incentive Stock Option Plan of Versar, Inc. dated December 1, 1992 *
    
    
    (I
    )10.66
    
    Agreement dated January 13, 1994 between the Registrant and the Department of
the Air Force
    
    
    (K
    )10.90
    
    AFCEE RAC Contract
    
    
    (Q
    )10.100
    
    AFCEE ENRAC Contract
    
    
    (U
    )10.103
    
    Securities Purchase Agreement, dated June 14, 2002 between Registrant and
Radyr Investments Limited
    
    
    (V
    )10.105
    
    4P Architect-Engineering Contract dated March 14, 2003
    
    
    (W
    )10.108
    
    Employment Agreement dated December 1, 2003 between Versar, Inc. and
Theodore M. Prociv*
    
    
    (X
    )10.109
    
    Change of Control Severance Agreement dated March 1, 2004 between
the Registrant and Lawrence W. Sinnott*
    
    
    (X
    )10.110
    
    Change of Control Severance Agreement dated March 1, 2004 between
the Registrant and James C. Dobbs*
    
    
    (X
    )10.111
    
    Modification Agreement of the Revolving Commercial Note dated May 12, 2004
between Registrant and United Bank
    
    
    (X
    )10.112
    
    AFCEE WERC Contract dated December 5, 2003
    
    
    (X
    )10.113
    
    2002 Stock Incentive Plan
    
    
    (Y
    )
 23




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##### 



Page Number/Item No.
    
    Description
    
    Reference10.114
    
    Employment Agreement dated February 8, 2005 between Versar, Inc. and Theodore
M. Prociv*
    
    
    28-4210.115
    
    Form of Stock Option Agreement
    
    
    43-4610.116
    
    Air National Guard Contract dated July 6, 2005
    
    
    47-12222
    
    Subsidiaries of the Registrant
    
    
    (Q
    )23
    
    Consent of Independent Certified Public Accountants, Grant Thornton LLP to register
shares under the Companys Option Plans under Form S-8 dated September 7, 2004
    
    
    (X
    )31.1
    
    Certifications by Theodore M. Prociv, CEO and President pursuant to Securities
Exchange Rule 13a-14
    
    
    12331.2
    
    Certifications by Lawrence W. Sinnott, Exec. Vice President and CFO pursuant to Securities
Exchange Rule 13a-14
    
    
    12432.1
    
    Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, for the period ending July 1, 2005 by Theodore
M. Prociv, CEO and President
    
    
    12532.2
    
    Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, for the period ending July 1, 2005 by Lawrence W.
Sinnott, Exec. Vice President and CFO
    
    
    126
 
 *
    
    Indicates management contract or compensatory plan or arrangement (A)
    
    Incorporated by reference to the similarly numbered exhibit to the Registrants Form S-1
Registration Statement (Registration Statement) effective November 20, 1986 (File No.
33-9391).(B)
    
    Incorporated by reference to the similarly numbered exhibit to the Registrants Form 10-K
Annual Report for the Fiscal Year Ended June 30, 1987 (FY 1987 Form 10-K) filed with the
Commission on September 28, 1987.(C)
    
    Incorporated by reference to the similarly numbered exhibit to the Registrants Form 10-K
Annual Report for the Fiscal Year Ended June 30, 1988 (FY 1988 Form 10-K) filed with the
Commission on September 28, 1988.(D)
    
    Incorporated by reference to the similarly numbered exhibit to the Registrants Form 10-K
Annual Report for the Fiscal Year Ended June 30, 1989 (FY 1989 Form 10-K) filed with the
Commission on September 28, 1989.(E)
    
    Incorporated by reference to the similarly numbered exhibit to the Registrants Form 10-K
Annual Report for the Fiscal Year Ended June 30, 1990 (FY 1990 Form 10-K) filed with the
Commission on September 28, 1990.
 24




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##### 



(K)
    
    Incorporated by reference to the similarly numbered exhibit to the Registrants Form
10-K Annual Report for Fiscal Year Ended June 30, 1994 (FY 1994 Form 10-K) filed with
the Commission on September 27, 1994.(O)
    
    Incorporated by reference to the similarly numbered exhibit to the Registrants Form S-4
registration number 333-33167.(Q)
    
    Incorporated by reference to similarly numbered exhibit to the Registrant=s Form 10-K
Annual Report for Fiscal Year Ended June 30, 1998 (AFY1998 Form 10-K@) filed with
the Commission on September 28, 1998.(R)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K
Annual Report for Fiscal Year Ended June 30, 1999 (FY1999 Form 10-K) filed with the
Commission on September 17, 1999.(S)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K/A
Annual Report for Fiscal Year Ended June 30, 1999 (FY1999 Form 10K/A) filed with the
Commission on September 1, 2000.(T)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K
Annual Report for Fiscal Year Ended June 30, 2000 (FY2000 Form 10-K) filed with the
Commission on September 26, 2000.(U)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K
Annual Report for Fiscal Year Ended June 30, 2001 (FY2001 Form 10-K) filed with the
Commission on September 28, 2001.(V)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K
Annual Report for Fiscal Year Ended June 30, 2002 (FY2002 Form 10K) filed with the
Commission on September 16, 2002.(W)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K
Annual Report for Fiscal Year Ended June 30, 2003 (FY2003 Form 10K) filed with the
Commission on September 26, 2003.(X)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K
Annual Report for Fiscal Year Ended June 30, 2004 (FY2004 Form 10K) filed with the
Commission on September 27, 2004.(Y)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Definitive
Proxy Statement filed with the Commission on October 11, 2002.
 25




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##### 



VERSAR, INC.(Registrant)
 /S/ Paul J. HoeperDate: September 6, 2005Paul J. HoeperChairman and Director
  SIGNATURES
    
    TITLE
    
    DATE/S/ Paul J. Hoeper
    
    Chairman and Director
    
    September 6, 2005Paul J. Hoeper/S/ Theodore M. Prociv

Theodore M. Prociv
    
    Chief Executive Officer, President, and
Director
    
    September 6, 2005/S/ Lawrence W. Sinnott

Lawrence W. Sinnott
    
    Executive Vice President, Chief
Operating Officer, Chief Financial
Officer, Treasurer, and Principal
Accounting Officer
    
    September 6, 2005/S/ Michael Markels, Jr.

Michael Markels, Jr.
    
    Chairman Emeritus and Director
    
    September 6, 2005/S/ Robert L. Durfee

Robert L. Durfee
    
    Director
    
    September 6, 2005/S/ James L. Gallagher

James L. Gallagher
    
    Director
    
    September 6, 2005/S/ Fernando V. Galaviz

Fernando V. Galaviz
    
    Director
    
    September 6, 2005
 26




---



##### 



SIGNATURES
    
    TITLE
    
    DATE/S/ James V. Hansen

James V. Hansen
    
    Director
    
    September 6, 2005/S/ Amoretta M. Hoeber

Amoretta M. Hoeber
    
    Director
    
    September 6, 2005/S/ Amir A. Metry

Amir A. Metry
    
    Director
    
    September 6, 2005
 27




---



##### 



Report of Independent Registered Public Accounting Firm
 
      
 F-1




---



##### 



VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 July 1,
    
    
    June 30,2005
    
    
    2004ASSETSCurrent assetsCash and cash equivalents
    
    $
    132
    
    
    $
    817Accounts receivable, net
    
    
    14,577
    
    
    
    14,144Prepaid expenses and other current assets
    
    
    2,017
    
    
    
    1,013Deferred income taxes
    
    
    308
    
    
    
    168Total current assets
    
    
    17,034
    
    
    
    16,142Property and equipment, net
    
    
    1,855
    
    
    
    2,108Deferred income taxes
    
    
    457
    
    
    
    501Goodwill
    
    
    776
    
    
    
    776Other assets
    
    
    790
    
    
    
    558Total assets
    
    $
    20,912
    
    
    $
    20,085LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesBank line of credit
    
    $
    777
    
    
    $
    Accounts payable
    
    
    3,958
    
    
    
    4,520Billing in excess of revenue
    
    
    92
    
    
    
    433Accrued salaries and vacation
    
    
    1,490
    
    
    
    1,967Other liabilities
    
    
    2,550
    
    
    
    1,728Liabilities of discontinued operations, net
    
    
    280
    
    
    
    Total current liabilities
    
    
    9,147
    
    
    
    8,648Other long-term liabilities
    
    
    1,041
    
    
    
    1,163Liabilities of discontinued operations, net
    
    
    172
    
    
    
    209Total liabilities
    
    
    10,360
    
    
    
    10,020Commitments and contingenciesStockholders equityCommon stock, $.01 par value; 30,000,000 shares
authorized; 7,924,116 shares and 7,837,033
shares issued July 1, 2005 and June 30, 2004,
respectively; 7,908,611 shares and 7,821,528
shares outstanding at July 1, 2005 and June 30, 2004,
respectively
    
    
    79
    
    
    
    78Capital in excess of par value
    
    
    22,119
    
    
    
    21,835Accumulated deficit
    
    
    (11,574
    )
    
    
    (11,776
    )Treasury stock
    
    
    (72
    )
    
    
    (72
    )Total stockholders equity
    
    
    10,552
    
    
    
    10,065Total liabilities and stockholders equity
    
    $
    20,912
    
    
    $
    20,085
  F-2




---



##### 



VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
 Years EndedJuly 1,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2003GROSS REVENUE
    
    $
    67,678
    
    
    $
    60,067
    
    
    $
    56,646Purchased services and materials, at cost
    
    
    32,040
    
    
    
    26,411
    
    
    
    21,899NET SERVICE REVENUE
    
    
    35,638
    
    
    
    33,656
    
    
    
    34,747Direct costs of services and overhead
    
    
    27,871
    
    
    
    26,279
    
    
    
    27,566Selling, general and administrative expenses
    
    
    6,123
    
    
    
    5,464
    
    
    
    5,769Restructuring charge
    
    
    217
    
    
    
    
    
    
    
    800OPERATING INCOME
    
    
    1,427
    
    
    
    1,913
    
    
    
    612OTHER EXPENSEInterest expense
    
    
    66
    
    
    
    153
    
    
    
    166Income tax (benefit) expense
    
    
    
    
    
    
    (67
    )
    
    
    1,104INCOME (LOSS) FROM CONTINUING
OPERATIONS
    
    
    1,361
    
    
    
    1,827
    
    
    
    (658
    )DISCONTINUED OPERATIONSLoss from discontinued operations
    
    
    (556
    )
    
    
    (636
    )
    
    
    (350
    )Loss on disposal of discontinued operations
    
    
    (603
    )
    
    
    
    
    
    
    LOSS FROM DISCONTINUED OPERATIONS
    
    
    (1,159
    )
    
    
    (636
    )
    
    
    (350
    )NET INCOME (LOSS)
    
    $
    202
    
    
    $
    1,191
    
    
    $
    (1,008
    )INCOME (LOSS) PER SHARE FROM
CONTINUING OPERATIONS  BASIC
    
    $
    0.17
    
    
    $
    0.25
    
    
    $
    (0.09
    )INCOME (LOSS) PER SHARE FROM
CONTINUING OPERATIONS  DILUTED
    
    $
    0.16
    
    
    $
    0.24
    
    
    $
    (0.09
    )LOSS FROM
DISCONTINUED OPERATION 
BASIC AND DILUTED
    
    $
    (0.07
    )
    
    $
    (0.09
    )
    
    $
    (0.05
    )LOSS ON DISPOSAL OF DISCONTINUED
OPERATION  BASIC AND DILUTED
    
    $
    (0.07
    )
    
    $
    
    
    
    $
    NET INCOME (LOSS) PER SHARE  BASIC
    
    $
    0.03
    
    
    $
    0.16
    
    
    $
    (0.14
    )NET INCOME (LOSS) PER SHARE  DILUTED
    
    $
    0.02
    
    
    $
    0.16
    
    
    $
    (0.14
    )WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING  BASIC
    
    
    7,890
    
    
    
    7,360
    
    
    
    7,231WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING  DILUTED
    
    
    8,263
    
    
    
    7,675
    
    
    
    7,231
  F-3




---



##### 



VERSAR, INC.
Consolidated Statements of Changes in Stockholders Equity
 TotalCapital in
    
    
    Accumu-
    
    
    
    
    
    
    
    
    
    
    Stock-Common
    
    
    Stock
    
    
    Excess of
    
    
    lated
    
    
    Treasury
    
    
    Treasury
    
    
    holdersShares
    
    
    Amount
    
    
    Par Value
    
    
    Deficit
    
    
    Shares
    
    
    Stock
    
    
    EquityBalance, June 30, 2002
    
    
    7,226
    
    
    $
    72
    
    
    $
    20,270
    
    
    $
    (11,959
    )
    
    
    (13
    )
    
    $
    (59
    )
    
    $
    8,324Exercise of stock options
    
    
    32
    
    
    
    1
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78Tax benefit from exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,008
    )
    
    
    
    
    
    
    
    
    
    
    (1,008
    )Balance, June 30, 2003
    
    
    7,258
    
    
    
    73
    
    
    
    20,349
    
    
    
    (12,967
    )
    
    
    (13
    )
    
    
    (59
    )
    
    
    7,396Exercise of stock options
    
    
    579
    
    
    
    5
    
    
    
    1,486
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,491Purchase of Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (13
    )
    
    
    (13
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,191
    
    
    
    
    
    
    
    
    
    
    
    1,191Balance, June 30, 2004
    
    
    7,837
    
    
    
    78
    
    
    
    21,835
    
    
    
    (11,776
    )
    
    
    (16
    )
    
    
    (72
    )
    
    
    10,065Exercise of stock options
    
    
    87
    
    
    
    1
    
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196Share-based
compensation
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33Tax benefit from exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    202Balance, July 1, 2005
    
    
    7,924
    
    
    $
    79
    
    
    $
    22,119
    
    
    $
    (11,574
    )
    
    
    (16
    )
    
    $
    (72
    )
    
    $
    10,552
  F-4




---



##### 



VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
 Years EndedJuly 1,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2003Cash flows from operating activitiesIncome (loss) from continuing operations
    
    $
    1,361
    
    
    $
    1,827
    
    
    $
    (658
    )Loss from discontinued operations
    
    
    (1,159
    )
    
    
    (636
    )
    
    
    (350
    )Net income (loss)
    
    
    202
    
    
    
    1,191
    
    
    
    (1,008
    )Adjustments to reconcile net income (loss) to
net cash (used in) provided by continuing operationsDepreciation and amortization
    
    
    740
    
    
    
    670
    
    
    
    699Loss on sale of property and equipment
    
    
    183
    
    
    
    1
    
    
    
    26Provision for doubtful accounts receivable
    
    
    100
    
    
    
    191
    
    
    
    300Non-qualified stock option
    
    
    33
    
    
    
    
    
    
    
    (Decrease) increase in deferred tax asset
    
    
    (96
    )
    
    
    (67
    )
    
    
    1,097Tax benefit on exercise of non-qualified stock
options
    
    
    56
    
    
    
    
    
    
    
    2Changes in assets and liabilities(Increase) decrease in accounts receivable
    
    
    (533
    )
    
    
    (471
    )
    
    
    356(Increase) decrease in prepaid expenses
and other assets
    
    
    (1,174
    )
    
    
    333
    
    
    
    (169
    )(Decrease) increase in accounts payable
    
    
    (562
    )
    
    
    1,360
    
    
    
    (1,266
    )Decrease in accrued salaries and vacation
    
    
    (477
    )
    
    
    (42
    )
    
    
    (186
    )Increase (decrease) in other liabilities
    
    
    359
    
    
    
    (1,003
    )
    
    
    219Net cash (used in) provided by continuing
operations
    
    
    (1,169
    )
    
    
    2,163
    
    
    
    70Changes in net assets/liabilities of discontinued
operations
    
    
    243
    
    
    
    (110
    )
    
    
    (42
    )Net cash (used in) provided by operating
activities
    
    
    (926
    )
    
    
    2,053
    
    
    
    28Cash flows used in investing activitiesPurchases of property and equipment
    
    
    (670
    )
    
    
    (615
    )
    
    
    (415
    )(Increase) decrease in life insurance cash surrender
value
    
    
    (61
    )
    
    
    (55
    )
    
    
    11Net cash used in investing activities
    
    
    (731
    )
    
    
    (670
    )
    
    
    (404
    )Cash flows from financing activitiesNet borrowing (payment) on bank line of credit
    
    
    777
    
    
    
    (2,125
    )
    
    
    266Purchase of treasury stock
    
    
    
    
    
    
    (13
    )
    
    
    Proceeds from issuance of common stock
    
    
    195
    
    
    
    1,491
    
    
    
    78Net cash provided by (used in) financing
activities
    
    
    972
    
    
    
    (647
    )
    
    
    344Net (decrease) increase in cash and cash equivalents
    
    
    (685
    )
    
    
    736
    
    
    
    (32
    )Cash and cash equivalents at the beginning of
the year
    
    
    817
    
    
    
    81
    
    
    
    113Cash and cash equivalents at the end of
the year
    
    $
    132
    
    
    $
    817
    
    
    $
    81Supplementary disclosure of cash flow information:Cash paid during the period forInterest
    
    $
    69
    
    
    $
    134
    
    
    $
    156Income Taxes
    
    $
    39
    
    
    $
    41
    
    
    $
    78
  F-5




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A SIGNIFICANT ACCOUNTING POLICIES
 Principles of consolidation
 Accounting estimates
 Contract accounting
 Depreciation and amortization
 Goodwill and other intangible assets:
 F-6




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
    Direct costs of services and overhead:
 Income taxes:
 Discontinued operations:
  Stock-based compensation:
 F-7




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
   Years EndedJuly 1,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2003(In thousands)Net income
    
    $
    202
    
    
    $
    1,191
    
    
    $
    (1,008
    )Add:  Share-based
compensation expense included in reported net income
    
    
    33
    
    
    
    
    
    
    
    Deduct:
Total share-based compensation expense
determined under fair value based method
    
    
    (232
    )
    
    
    (87
    )
    
    
    (125
    )Pro forma net (loss) income
    
    $
    3
    
    
    $
    1,104
    
    
    $
    (1,133
    )Earnings (loss) per share:Basic  as reported
    
    $
    0.03
    
    
    $
    0.16
    
    
    $
    (0.14
    )Diluted  as reported
    
    $
    0.02
    
    
    $
    0.16
    
    
    $
    (0.14
    )Basic  pro forma
    
    $
    
    
    
    $
    0.15
    
    
    $
    (0.16
    )Diluted  pro forma
    
    $
    
    
    
    $
    0.14
    
    
    $
    (0.16
    )Weighted average shares:Weighted average common shares
outstanding  basic
    
    
    7,890
    
    
    
    7,360
    
    
    
    7,231Weighted average common
shares outstanding  diluted
    
    
    8,263
    
    
    
    7,675
    
    
    
    7,231
   Net income (loss) per share:
 F-8




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  Years EndedJuly 1,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2003(In thousands)Weighted average number of shares outstanding
 basic
    
    
    7,890
    
    
    
    7,360
    
    
    
    7,231Effect of assumed exercise of options
    
    
    373
    
    
    
    315
    
    
    
    Weighted average number of shares outstanding
 diluted
    
    
    8,263
    
    
    
    7,675
    
    
    
    7,231
 Deferred compensation
 Cash and cash equivalents
 Classification:
 NOTE B BUSINESS SEGMENTS
   F-9




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
   Years EndedJuly 1,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2003(In thousands)NET SERVICE REVENUEInfrastructure and Management Services
    
    $
    29,745
    
    
    $
    28,454
    
    
    $
    28,984National Security
    
    
    5,893
    
    
    
    5,202
    
    
    
    5,763$
    35,638
    
    
    $
    33,656
    
    
    $
    34,747OPERATING INCOME(A)Infrastructure and Management Services
    
    $
    6,655
    
    
    $
    5,999
    
    
    $
    5,193National Security
    
    
    1,112
    
    
    
    1,378
    
    
    
    1,988$
    7,767
    
    
    $
    7,377
    
    
    $
    7,181Selling, general and administrative expenses
    
    
    (6,123
    )
    
    
    (5,464
    )
    
    
    (5,769
    )Restructuring charge
    
    
    (217
    )
    
    
    
    
    
    
    (800
    )OPERATING INCOME
    
    $
    1,427
    
    
    $
    1,913
    
    
    $
    612
 
 (A)
    
    Operating income is defined as net service revenue less direct costs of services and
overhead. Years EndedJuly 1,
    
    
    June 30,2005
    
    
    2004(In thousands)IDENTIFIABLE ASSETSInfrastructure and Management Services
    
    $
    15,270
    
    
    $
    14,618National Security
    
    
    1,770
    
    
    
    2,997Corporate and Other
    
    
    3,872
    
    
    
    2,470Total Assets
    
    $
    20,912
    
    
    $
    20,085
 F-10




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 NOTE C ACCOUNTS RECEIVABLE
 Years EndedJuly 1,
    
    
    June 30,2005
    
    
    2004(In thousands)Billed receivablesU.S. Government
    
    $
    6,410
    
    
    $
    4,189Commercial
    
    
    2,783
    
    
    
    4,487Unbilled receivablesU.S. Government
    
    
    5,600
    
    
    
    5,422Commercial
    
    
    246
    
    
    
    1,03915,039
    
    
    
    15,137Allowance for doubtful accounts
    
    
    (462
    )
    
    
    (993
    )$
    14,577
    
    
    $
    14,144
  NOTE D PROPERTY AND EQUIPMENT
 Years EndedEstimated
    
    
    July 1,
    
    
    June 30,Useful Life
    
    
    2005
    
    
    2004in Years
    
    
    (In thousands)Furniture and fixtures
    
    
    10
    
    
    $
    755
    
    
    $
    760Equipment
    
    
    3 to 10
    
    
    
    6,030
    
    
    
    5,493Capital leases
    
    Life of lease
    
    
    712
    
    
    
    712Leasehold improvements
    
    Life of lease
    
    
    1,329
    
    
    
    1,5708,826
    
    
    
    8,535Accumulated depreciation
and amortization
    
    
    
    
    
    
    (6,971
    )
    
    
    (6,427
    )$
    1,855
    
    
    $
    2,108
   F-11




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 NOTE E DEBT
   NOTE F STOCK OPTIONS
     F-12




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
   Weighted-Average OptionOptioned Shares
    
    Price Per Share
    
    Total(In thousands, except per share price)Outstanding at June 30, 2002
    
    
    970
    
    
    $
    2.94
    
    
    $
    2,855Granted
    
    
    492
    
    
    
    2.09
    
    
    
    1,028Exercised
    
    
    (8
    )
    
    
    2.25
    
    
    
    (18
    )Cancelled
    
    
    (50
    )
    
    
    2.48
    
    
    
    (124
    )Reclassified to non-qualified
    
    
    (157
    )
    
    
    2.98
    
    
    
    (468
    )Outstanding at June 30, 2003
    
    
    1,247
    
    
    $
    2.62
    
    
    $
    3,273Granted
    
    
    395
    
    
    
    3.16
    
    
    
    1,247Exercised
    
    
    (210
    )
    
    
    2.20
    
    
    
    (463
    )Cancelled
    
    
    (34
    )
    
    
    2.47
    
    
    
    (84
    )Reclassified to non-qualified
    
    
    (277
    )
    
    
    2.92
    
    
    
    (809
    )Outstanding at June 30, 2004
    
    
    1,121
    
    
    $
    2.82
    
    
    $
    3,164Granted
    
    
    293
    
    
    
    4.10
    
    
    
    1,200Exercised
    
    
    (42
    )
    
    
    2.17
    
    
    
    (91
    )Cancelled
    
    
    (71
    )
    
    
    3.38
    
    
    
    (240
    )Reclassified to non-qualified
    
    
    (19
    )
    
    
    2.71
    
    
    
    (52
    )Outstanding at July 1, 2005
    
    
    1,282
    
    
    $
    3.10
    
    
    $
    3,981
  F-13




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  Number ofNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    SharesShares
    
    
    
    
    
    Weighted-
    
    Weighted-
    
    UnderlyingUnderlying
    
    Range of Option
    
    Average
    
    Average
    
    ExercisableOptions
    
    Price
    
    Option Price
    
    Remaining Life
    
    Options(In thousands, except as noted)148
    
    
    $1.75  to  $1.94
    
    
    $
    1.80
    
    
    6.4  years
    
    
    87556
    
    
    $2.05  to  $2.92
    
    
    
    2.50
    
    
    6.9  years
    
    
    362301
    
    
    $3.00  to  $3.82
    
    
    
    3.62
    
    
    8.0  years
    
    
    299277
    
    
    $4.00  to  $4.95
    
    
    
    4.43
    
    
    6.7  years
    
    
    2771,282
    
    
    
    
    
    
    $
    3.10
    
    
    7.1  years
    
    
    1,025
  Weighted-Optioned
    
    
    Average OptionShares
    
    
    Price Per Share
    
    
    Total(In thousands, except per share price)Outstanding at June 30, 2002
    
    
    252
    
    
    $
    3.42
    
    
    $
    862Granted
    
    
    129
    
    
    
    1.82
    
    
    
    235Exercised
    
    
    (24
    )
    
    
    2.50
    
    
    
    (60
    )Cancelled
    
    
    (16
    )
    
    
    3.13
    
    
    
    (50
    )Reclassified from ISO
    
    
    157
    
    
    
    2.98
    
    
    
    468Outstanding at June 30, 2003
    
    
    498
    
    
    $
    2.92
    
    
    $
    1,455Granted
    
    
    44
    
    
    
    3.00
    
    
    
    132Exercised
    
    
    (370
    )
    
    
    2.79
    
    
    
    (1,029
    )Reclassified from ISO
    
    
    277
    
    
    
    2.93
    
    
    
    809Outstanding at June 30, 2004
    
    
    449
    
    
    $
    3.05
    
    
    $
    1,367Granted
    
    
    25
    
    
    
    4.66
    
    
    
    116Exercised
    
    
    (46
    )
    
    
    2.32
    
    
    
    (105
    )Cancelled
    
    
    (40
    )
    
    
    2.70
    
    
    
    (108
    )Reclassified from ISO
    
    
    19
    
    
    
    2.71
    
    
    
    52Outstanding at July 1, 2005
    
    
    407
    
    
    
    
    
    
    $
    1,322
  F-14




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  Number ofNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SharesShares
    
    
    
    
    
    
    Weighted-
    
    
    Weighted-
    
    
    UnderlyingUnderlying
    
    
    Range of Option
    
    
    Average Option
    
    
    Average
    
    
    ExercisableOptions
    
    
    Price
    
    
    Price
    
    
    Remaining Life
    
    
    Options(In thousands, except as noted)87
    
    
    $
    1.75 to $1.88
    
    
    $
    1.81
    
    
    6.4  years
    
    
    
    7054
    
    
    $
    2.06 to $2.80
    
    
    
    2.56
    
    
    7.7  years
    
    
    
    24152
    
    
    $
    3.00 to $3.65
    
    
    
    3.08
    
    
    2.4  years
    
    
    
    15284
    
    
    $
    4.14 to $4.65
    
    
    
    4.45
    
    
    5.2  years
    
    
    
    7615
    
    
    $
    5.75
    
    
    
    5.75
    
    
    6.6  years
    
    
    
    15
    
    
    $
    6.50
    
    
    
    6.50
    
    
    6.6  years
    
    
    
    407
    
    
    
    
    
    
    $
    3.24
    
    
    4.8  years
    
    
    
    322
  NOTE G INCOME TAXES
  Years EndedJuly 1,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2003(In thousands)CurrentFederal
    
    $
    (7
    )
    
    $
    
    
    
    $
    State
    
    
    47
    
    
    
    
    
    
    
    7DeferredFederal
    
    
    197
    
    
    
    221
    
    
    
    119State
    
    
    15
    
    
    
    42
    
    
    
    22Valuation Allowance
    
    
    (252
    )
    
    
    (330
    )
    
    
    956$
    
    
    
    $
    (67
    )
    
    $
    1,104
 F-15




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  July 1,
    
    
    June 30,2005
    
    
    2004Deferred Tax Assets:Employee benefits
    
    $
    550
    
    
    $
    587Accrued warranty costs
    
    
    
    
    
    
    76Bad debt reserves
    
    
    175
    
    
    
    394All other reserves
    
    
    391
    
    
    
    300Discontinued operations reserves
    
    
    
    
    
    
    111Alternative minimum tax credits
    
    
    125
    
    
    
    117Net operating losses
    
    
    1,401
    
    
    
    1,244Net operating losses of purchased
business
    
    
    915
    
    
    
    915State tax net operating losses
    
    
    436
    
    
    
    436Depreciation
    
    
    354
    
    
    
    256Other
    
    
    31
    
    
    
    15Total Deferred Tax Assets
    
    
    4,378
    
    
    
    4,451Valuation Allowance
    
    
    (3,530
    )
    
    
    (3,782
    )Deferred Tax Liabilities:Goodwill
    
    
    (83
    )
    
    
    Net Deferred Tax Assets
    
    $
    765
    
    
    $
    669
    Years EndedJuly 1,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2003(In thousands)Expected provision at federal
statutory rate
    
    $
    69
    
    
    $
    382
    
    
    $
    51Change in valuation allowance
    
    
    (252
    )
    
    
    (330
    )
    
    
    956State income tax expense
    
    
    60
    
    
    
    51
    
    
    
    5Permanent items
    
    
    41
    
    
    
    30
    
    
    
    44Tax effect of non-qualified stock
option exercised
    
    
    
    
    
    
    
    
    
    
    2NOL adjustments and other
    
    
    82
    
    
    
    (200
    )
    
    
    46$
    
    
    
    $
    (67
    )
    
    $
    1,104
  F-16




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 NOTE H EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
      NOTE I COMMITMENTS AND CONTINGENCIES
  F-17




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  TotalYears Ending June 30,
    
    Amount(In thousands)2006
    
    $
    2,8552007
    
    
    2,4782008
    
    
    2,2742009
    
    
    2,1822010
    
    
    8162011 and thereafter
    
    
    1,379$
    11,984
   Legal Proceedings
  Versar, Inc. v. Roy O. Ball, Trustee, URS Corporation, Environmental Resources Management and
Environ Corp., Roy O. Ball and Norman
W. Bernstein, Trustees v. Versar, Inc.,
 =
 F-18




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 =
  NOTE J CUSTOMER INFORMATION
  Years EndedJuly 1,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2003(In thousands)U.S. Department of Defense
    
    $
    31,182
    
    
    $
    22,921
    
    
    $
    24,343U.S. Environmental Protection Agency
    
    
    3,972
    
    
    
    4,315
    
    
    
    3,312Other U.S. Government agencies
    
    
    14,786
    
    
    
    8,558
    
    
    
    7,644Total U.S. Government
    
    $
    49,940
    
    
    $
    35,794
    
    
    $
    35,299
 F-19




---



##### 



NOTE K QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  Fiscal Year 2005
    
    
    Fiscal Year 2004Quarter ending
    
    Jul 1
    
    
    Apr 1
    
    
    Dec 31
    
    
    Oct 1
    
    
    Jun 30
    
    
    Mar 31
    
    
    Dec 31
    
    
    Sept 30Gross Revenue
    
    $
    14,845
    
    
    $
    14,922
    
    
    $
    18,956
    
    
    $
    18,958
    
    
    $
    17,356
    
    
    $
    15,019
    
    
    $
    14,182
    
    
    $
    13,510Net Service Revenue
    
    
    8,980
    
    
    
    8,822
    
    
    
    8,792
    
    
    
    9,044
    
    
    
    8,970
    
    
    
    8,342
    
    
    
    8,168
    
    
    
    8,176Operating (loss) income
    
    
    62
    
    
    
    307
    
    
    
    542
    
    
    
    516
    
    
    
    575
    
    
    
    200
    
    
    
    561
    
    
    
    577Income from continuing
operations
    
    
    43
    
    
    
    283
    
    
    
    532
    
    
    
    503
    
    
    
    619
    
    
    
    157
    
    
    
    528
    
    
    
    523Loss from discontinued
operations
    
    
    (699
    )
    
    
    (111
    )
    
    
    (185
    )
    
    
    (164
    )
    
    
    (158
    )
    
    
    (136
    )
    
    
    (162
    )
    
    
    (180
    )Net (loss) income
    
    $
    (724
    )
    
    $
    98
    
    
    $
    421
    
    
    $
    407
    
    
    $
    461
    
    
    $
    21
    
    
    $
    366
    
    
    $
    343Income per share from continuing
operations  diluted
    
    $
    
    
    
    $
    0.03
    
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.07
    
    
    $
    0.02
    
    
    $
    0.07
    
    
    $
    0.07Loss per share from discontinued
operations  diluted
    
    $
    (0.09
    )
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )Net (loss) income per
share  diluted
    
    $
    (0.09
    )
    
    $
    0.01
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    
    
    
    $
    0.05
    
    
    $
    0.05Weighted average number of
shares outstanding 
diluted
    
    
    7,924
    
    
    
    8,302
    
    
    
    8,345
    
    
    
    8,312
    
    
    
    8,105
    
    
    
    7,737
    
    
    
    7,569
    
    
    
    7,518
  F-20




---



##### 



Schedule II
 VERSAR, INC. AND SUBSIDIARIES
 Valuation and Qualifying Accounts
 ADDITIONSBALANCE AT
    
    
    CHARGED TO
    
    
    
    
    
    
    BALANCE ATBEGINNING OF
    
    
    COSTS AND
    
    
    
    
    
    END OFYEAR
    
    
    EXPENSES
    
    
    CHARGE OFF
    
    
    YEARALLOWANCE FOR DOUBTFUL
ACCOUNTS2003
    
    
    868,251
    
    
    
    300,137
    
    
    
    (267,996
    )
    
    
    900,3922004
    
    
    900,392
    
    
    
    190,916
    
    
    
    (97,931
    )
    
    
    993,3772005
    
    
    993,377
    
    
    
    99,578
    
    
    
    (631,464
    )
    
    
    461,491DEFERRED TAX VALUATION
ALLOWANCE2003
    
    
    3,156,000
    
    
    
    1,097,000
    
    
    
    (141,000
    )
    
    
    4,112,0002004
    
    
    4,112,000
    
    
    
    
    
    
    
    (330,000
    )
    
    
    3,782,0002005
    
    
    3,782,000
    
    
    
    
    
    
    
    (252,000
    )
    
    
    3,530,000
 F-21