##### Table of Contents



UNITED STATES
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 FileJune 25, 2010

    
    No. 1-9309
 (VERSAR INC LOGO)
  DELAWARE
    
    54-0852979(State or other jurisdiction of Incorporation or organization)
    
    (I.R.S. employer identification no.)6850 Versar Center, Springfield, Virginia
    
    22151(Address of principal executive offices)
    
    (Zip code)
 (703) 750-3000
 Common Stock, $.01 par value
 NYSE Amex
  X
  X
  X
  X
   Large
accelerated filer [  ]
    
    Accelerated filter [  ]
    

Non-accelerated
filer [  ]
(Do not check if a smaller reporting company)
    

Smaller reporting company [X]
  X
   DOCUMENTS INCORPORATED BY REFERENCE




---



TABLE OF CONTENTS  PART IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsPART IIItem 5. Market for Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial Data (unaudited)ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of OperationsITEM 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9B. Other InformationPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibits and Financial Statement SchedulesExhibit IndexSIGNATURESEX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 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,
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 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 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 or municipal
governments to fund certain programs in which the Company participates; delays in project funding;
loss of anticipated new contract vehicles either due to funding changes or competitive factors, and
such other risks and uncertainties set forth in this report and in other reports and other
documents filed by the Company from time to time with the Securities and Exchange Commission.
 Business Overview
      2




---



##### Table of Contents



Program Management Business Segment :
     3




---



##### Table of Contents



Compliance and Environmental Programs Business Segment:
   Professional Services Business Segment:
 National Security Business Segment:
 Personal Protection Equipment: ® Standard on
Protective Ensembles for Chemical/Biological Terrorism Incidents
 Chemical Testing Laboratory:
 4




---



##### Table of Contents



Markets
     5




---



##### Table of Contents



Competition
     Backlog
    6




---



##### Table of Contents



Employees
  
 Item 1A. Risk Factors
 We are dependent on government contracts for the majority of our revenue, and a reduction or delay
in spending by government agencies could adversely affect our business and operating results.
  
    
    a competitive procurement process with no guaranty of being awarded contracts;
    
    dependence on congressional and state appropriations and administrative allotment of
funds;
    
    policies and regulations that can be changed at any time by Congress or a
presidential administration;
    
    competing political priorities and changes in the political climate regarding
funding and operations of the services;
 7




---



##### Table of Contents




    
    changes in and delays or cancellations of government programs or requirements;
    
    government contracts that are usually awarded for relatively short periods of time
and are subject to renewal options in favor of the government; and
    
    many contracts with Federal government agencies require annual funding and may be
terminated at the agencys discretion.
   Our government contracts are subject to audit and potential reduction of costs and fees.
  As a government contractor, we are subject to a number of procurement laws and regulations; a
violation of any such law or regulation could result in sanctions, contract termination, forfeiture
of profit, harm to our reputation or loss of our status as an eligible government contractor.
  Since we depend on federal, state and local governments for a significant portion of our revenue,
our inability to win or renew government contracts could harm our operations and financial
condition.
  Robust enforcement of regulations is important to our financial success.
  8




---



##### Table of Contents



A large portion of our backlog is subject to cancellation and adjustments which makes backlog an
uncertain indicator of future operating results.
    We could face potential liability for failure to properly design remediation.
  Our failure to properly manage projects may result in additional costs or claims.
  Our services expose us to significant risks of liability and it may be difficult to obtain or
maintain adequate insurance coverage.
  9




---



##### Table of Contents



Economic downturn.
  If our partners fail to perform their contractual obligations on a project, we could be exposed to
legal liability, loss of reputation or reduced profits.
  Loss of our status as a small business may adversely affect our ability to compete for certain
federal government contracts.
  We operate in highly competitive industries.
  Our quarterly and annual revenue, expenses and operating results may fluctuate significantly, which
could have a negative effect on the price of our common stock.
 10




---



##### Table of Contents




    
    the seasonality of the spending cycle of our public sector clients, notably the Federal
government,
and the spending patterns of our private sector clients;
    
    employee hiring and utilization rates in the United States and internationally;
    
    the number and significance of client engagements commenced and completed during the period;
    
    delays incurred in connection with an engagement because of weather or other factors;
    
    ability to work within foreign countries regulations, tax requirements and obligations;
    
    business and financial risk working in foreign countries;
    
    the ability of clients to terminate engagements without penalties;
    
    the creditworthiness and solvency of clients;
    
    the size and scope of engagements;
    
    the ability to perform contracts within budget or contractual limitations;
    
    the timing of expenses incurred for corporate initiatives;
    
    threatened or pending litigation matters;
    
    reductions in the prices of services offered by our competitors;
    
    winning re-bids of our existing large government contracts;
    
    general economic and political conditions; and
    
    volatility of currencies in foreign countries.
  We are highly dependent on key personnel.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  11




---



##### Table of Contents



Item 3. Legal Proceedings
  12




---



##### Table of Contents



EXECUTIVE OFFICERS OF THE REGISTRANT
  NAME
    
    

AGE
    

POSITION
WITH THE COMPANYAnthony L. Otten
    
    
    54
    
    
    Chief Executive OfficerJeffrey A.
Wagonhurst
    
    
    62
    
    
    PresidentLawrence W. Sinnott
    
    
    48
    
    
    Executive Vice President, Chief Financial 

Officer and TreasurerJ. Joseph Tyler
    
    
    61
    
    
    Senior Vice President, Director of
Corporate
 Initiatives & Integration
(CI2)James C. Dobbs
    
    
    65
    
    
    Senior Vice President, General Counsel and 
SecretaryGina L. Foringer
    
    
    42
    
    
    Senior Vice President, Professional Services

Business SegmentMichael J. Abram
    
    
    54
    
    
    Senior Vice President and Chief 

Administrative OfficerLee A. Staab
    
    
    53
    
    
    Senior Vice President and President, Versar 

International, Inc.Jeffrey M. Moran
    
    
    47
    
    
    Senior Vice President, Compliance and 

Environmental Programs SegmentPeter J. Cooper
    
    
    61
    
    
    Senior Vice President, National
Security 

Business SegmentDaniel J. Cummings
    
    
    48
    
    
    Senior Vice President, CONUS Based
Program 

Management Business Segment
 Anthony L. Otten
 Jeffrey A. Wagonhurst
 Lawrence W. Sinnott
 13




---



##### Table of Contents



J. Joseph Tyler,
 James C. Dobbs
 Gina L. Foringer
 Michael J. Abram
 Lee A. Staab, th
 Jeffrey M. Moran
 14




---



##### Table of Contents



Peter J. Cooper
 Daniel J. Cummings th
 15




---



##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Common Stock
  Fiscal Year 2010
    
    High
    
    
    Low4th Quarter
    
    $
    4.74
    
    
    $
    2.903rd Quarter
    
    
    3.90
    
    
    
    2.532nd Quarter
    
    
    4.71
    
    
    
    2.901st Quarter
    
    
    5.70
    
    
    
    3.50
 Fiscal Year 2009
    
    High
    
    
    Low4th Quarter
    
    $
    5.20
    
    
    $
    2.253rd Quarter
    
    
    4.62
    
    
    
    2.072nd Quarter
    
    
    4.35
    
    
    
    2.261st Quarter
    
    
    6.00
    
    
    
    4.20
   Equity Compensation Plan Information
 Plan Category
    
    Number of Securities 
to be issued upon 
exercise of 
outstanding options, 
warrants and rights
    
    
    Weighted-average 
exercise price of 
outstanding options, 
warrants and rights
    
    
    Number of securities 
remaining available for 
future issuance under 
equity compensation 
plans (excluding 
securities reflected in 
column (a))(b)
    
    
    (c)(a)Equity compensation
plans approved by
security holders
    
    
    419,000
    
    
    
    $3.27
    
    
    
    46,700
 16




---



##### Table of Contents



Purchase of Equity Securities
 Total Number of
    
    
    Maximum Number (orShares Purchased
    
    
    Approximate Dollaras Part of
    
    
    Value) of Shares thatTotal Number
    
    
    Average
    
    
    Publicly
    
    
    May Yet be Purchasedof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    Per Share
    
    
    or Programs
    
    
    ProgramsApril 1-30, 2010
    
    
    3,278
    
     
    $
    3.40
    
    
    
    
    
    
    
    May 1-31, 2010
    
    
    779
    
     
    $
    3.25
    
    
    
    
    
    
    
    June 1-30, 2010
    
    
    581
    
     
    $
    3.00
    
    
    
    
    
    
    
    Total
    
    
    4,638
    
     
    $
    3.22
    
    
    
    
    
    
    
    
 17




---



##### Table of Contents



6/05
    
    
    6/06
    
    
    6/07
    
    
    6/08
    
    
    6/09
    
    
    6/10Versar, Inc.
    
    
    100.00
    
    
    
    128.75
    
    
    
    262.88
    
    
    
    150.00
    
    
    
    124.06
    
    
    
    100.00S&P 500
    
    
    100.00
    
    
    
    108.63
    
    
    
    131.00
    
    
    
    113.81
    
    
    
    83.98
    
    
    
    96.09Peer Group
    
    
    100.00
    
    
    
    183.56
    
    
    
    348.89
    
    
    
    285.92
    
    
    
    228.46
    
    
    
    226.00
  18




---



##### Table of Contents



Item 6. Selected Financial Data (unaudited)
  For the Years EndedJune 25,
    
    
    June 26,
    
    
    June 27,
    
    
    June 29,
    
    
    June 30,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(In thousands, except per share data)Consolidated Statements of (Loss) income
Related data:Gross Revenue
    
    $
    100,763
    
    
    $
    112,196
    
    
    $
    115,602
    
    
    $
    102,726
    
    
    $
    60,888Gross Profit
    
    
    6,011
    
    
    
    14,480
    
    
    
    13,788
    
    
    
    10,822
    
    
    
    6,354Operating (Loss) income
    
    
    (3,652
    )
    
    
    5,604
    
    
    
    5,491
    
    
    
    4,153
    
    
    
    681(Loss) income from Continuing Operations
    
    
    (2,294
    )
    
    
    3,169
    
    
    
    3,391
    
    
    
    5,282
    
    
    
    1,637Loss from Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (290
    )Net (Loss) income
    
    
    (2,294
    )
    
    
    3,169
    
    
    
    3,391
    
    
    
    5,282
    
    
    
    1,347(Loss) income per share from Continuing
Operations  Diluted
    
    $
    (.25
    )
    
    $
    .35
    
    
    $
    .36
    
    
    $
    .62
    
    
    $
    .20Loss per share from Discontinued
Operations  Diluted
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (.04
    )Net (Loss) income per share  Diluted
    
    $
    (.25
    )
    
    $
    .35
    
    
    $
    .36
    
    
    $
    .62
    
    
    $
    .16Weighted Average Shares Outstanding 
Diluted
    
    
    9,141
    
    
    
    9,150
    
    
    
    9,331
    
    
    
    8,466
    
    
    
    8,347Consolidated Balance Sheet related data:Working Capital
    
    $
    15,330
    
    
    $
    25,513
    
    
    $
    22,271
    
    
    $
    16,176
    
    
    $
    9,119Current Ratio
    
    
    1.72
    
    
    
    3.04
    
    
    
    2.67
    
    
    
    2.01
    
    
    
    1.99Total Assets
    
    
    49,864
    
    
    
    42,594
    
    
    
    39,828
    
    
    
    36,817
    
    
    
    22,802Stockholders Equity
    
    $
    26,417
    
    
    $
    28,654
    
    
    $
    25,053
    
    
    $
    19,422
    
    
    $
    12,572
 19




---



##### Table of Contents



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 work;
    
    Failure to properly manage projects resulting in additional costs;
    
    The cost of compliance for the Companys laboratories;
    
    The results of a negative government audit potentially impacting our costs, reputation and
ability to work with the federal government;
 20




---



##### Table of Contents



ITEM 7
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations (continued)
 
    
    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
  Years EndedJune 25,
    
    
    June 26,
    
    
    June 27,2010
    
    
    2009
    
    
    2008(In thousands)GROSS
REVENUEProgram Management
    $
     
    57,826
    
    $
     
    71,526
    
    $
     
    68,896Compliance and Environmental
Programs
    
    
    17,271
    
    
    
    19,649
    
    
    
    30,429Professional Services
    
    
    12,637
    
    
    
    11,476
    
    
    
    8,101National Security
    
    
    13,029
    
    
    
    9,545
    
    
    
    8,176$
     
    100,763
    
    $
     
    112,196
    
    $
     
    115,602
   21




---



##### Table of Contents



ITEM 7
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations (continued)
    Years EndedJune 25,
    
    
    June 26,
    
    
    June 27,2010
    
    
    2009
    
    
    2008(In thousands)GROSS
PROFIT (LOSS)Program Management
    $
     
    4,002
    
    $
     
    10,467
    
    $
     
    9,398Compliance and Environmental
Programs
    
    
    (375
    )
    
    
    884
    
    
    
    2,390Professional Services
    
    
    2,018
    
    
    
    1,734
    
    
    
    1,290National Security
    
    
    366
    
    
    
    1,395
    
    
    
    710$
     
    6,011
    
    $
     
    14,480
    
    $
     
    13,788
  22




---



##### Table of Contents



ITEM 7
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations (continued)
          23




---



##### Table of Contents



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
   For the Years EndedJune 25, 2010
    
    
    June 26, 2009
    
    
    June 27, 2008(In thousands)GovernmentEPA
    
    $
    1,725
    
    
    
    2
    %
    
    $
    1,891
    
    
    
    2
    %
    
    $
    2,399
    
    
    
    2
    %State & Local
    
    
    4,928
    
    
    
    5
    %
    
    
    8,589
    
    
    
    7
    %
    
    
    16,236
    
    
    
    14
    %Department of Defense
    
    
    78,022
    
    
    
    77
    %
    
    
    92,583
    
    
    
    83
    %
    
    
    88,245
    
    
    
    76
    %Other
    
    
    6,180
    
    
    
    6
    %
    
    
    2,576
    
    
    
    2
    %
    
    
    3,657
    
    
    
    3
    %Commercial
    
    
    9,908
    
    
    
    10
    %
    
    
    6,557
    
    
    
    6
    %
    
    
    5,065
    
    
    
    5
    %Gross Revenue
    
    $
    100,763
    
    
    
    100
    %
    
    $
    112,196
    
    
    
    100
    %
    
    $
    115,602
    
    
    
    100
    %
 Liquidity and Capital Resources
  1 2
   24




---



##### Table of Contents



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
   Contractual Obligations
  Contractual
    
    
    
    
    
    Less than
    
    
    1-3
    
    
    4-5
    
    
    After 5Obligations
    
    Total Cost
    
    
    1 year
    
    
    Years
    
    
    Years
    
    
    Years(In thousands)Operating
lease obligations
    $
     
    10,853
    
    $
     
    2,491
    
    $
     
    4,503
    
    $
     
    3,341
    
    $
     
    518Capital lease obligations
    
    
    753
    
    
    
    59
    
    
    
    126
    
    
    
    139
    
    
    
    429Notes payable to sellers
    
    
    2,471
    
    
    
    1,412
    
    
    
    1,059
    
    
    
    
    
    
    
    Notes
payable 
insurance premium
    
    
    944
    
    
    
    944
    
    
    
    
    
    
    
    
    
    
    
    Estimated interest obligations
    
    
    330
    
    
    
    143
    
    
    
    79
    
    
    
    46
    
    
    
    62Total contractual cash
Obligations
    $
     
    15,351
    
    $
     
    5,049
    
    $
     
    5,767
    
    $
     
    3,526
    
    $
     
    1,009
 Critical Accounting Policies and Related Estimates That Have a Material Effect on Versars
Consolidated Financial Statements
  Revenue recognition:
  25




---



##### Table of Contents



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
  Allowance for doubtful accounts
 Net deferred tax asset
 Long-lived assets:
 Asset retirement obligation
 Goodwill and other intangible assets
  26




---



##### Table of Contents



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
  Share-based compensation
   New accounting pronouncements FASB
Accounting Standards Codification TM Fair Value Measurements and Disclosures
 Revenue Arrangements With Multiple Deliverables, Revenue Arrangements With Multiple Deliverables
  27




---



##### Table of Contents



ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
   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
  28




---



##### Table of Contents



Controls and Procedures
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
  
 
 
     29




---



##### Table of Contents



Attestation Report of the Independent Registered Public Accounting Firm
  Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant
    
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management
  30




---



##### Table of Contents



Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
   a)
    
    Report of Independent Registered Public Accounting Firmb)
    
    Consolidated Balance Sheets as of June 25, 2010 and June 26, 2009c)
    
    Consolidated Statements of Operations for the Years Ended June 25, 2010, June 26, 2009,
and June 27, 2008d)
    
    Consolidated Statements of Changes in Stockholders Equity for the Years Ended June 25,
2010, June 26, 2009 and June 27, 2008e)
    
    Consolidated Statements of Cash Flows for the Years Ended June 25, 2010, June 26, 2009,
and June 27, 2008f)
    
    Notes to Consolidated Financial Statements
      31




---



##### Table of Contents



Exhibit Index
 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
    
    Second Amended and Restated By-laws of Versar, Inc.
    

    (AG)4
    
    Specimen of Certificate of Common Stock of Versar, Inc.
    

    (A)10.11
    
    Executive Tax and Investment Counseling Program
    

    (A)10.105
    
    4P Architect-Engineering Contract dated March 14, 2003
    

    (W)10.107
    
    Line of Credit Commitment Letter, dated September 16, 2003 between
the Registrant and United Bank
    

    (W)10.113
    
    2002 Stock Incentive Plan*
    

    (Y)10.114
    
    Employment Agreement dated February 8, 2005 between Versar, Inc. and Theodore
M. Prociv*
    

    (Z)10.115
    
    Form of Stock Option Agreement*
    

    (Z)10.116
    
    Air National Guard Contract dated July 6, 2005
    

    (Z)10.117
    
    2005 Stock Incentive Plan
    

    (AA)10.123
    
    Modification Agreement of the Revolving Commercial Note, dated September 24,
2007, between Registrant and United Bank
    

    (AB)10.124
    
    Amendment to Employment Agreement dated February 8, 2005 between Versar, Inc.
and Theodore M. Prociv, September 25, 2007*
    

    (AB)10.125
    
    Amended and Restated Change of Control Severance Agreements dated March 17,
2008 between the Registrant and each of Lawrence W. Sinnott, James C. Dobbs,
Paul W. Kendall, Michael Abram and Jeffrey A. Wagonhurst (In reliance on
instruction 2 to Item 601 of Regulation S-K, the Registrant has filed the form of
Change of Control Severance Agreement entered into with each of the individuals
listed above).*
    

    (AC)10.128
    
    Form of Indemnification Agreement*
    

    (AE)10.129
    
    Share Purchase Agreement dated as of January 5, 2010 by and among Versar,
Inc., GEOI 1 Ltd., Professional Protection Systems, Ltd., Stephen Nobbs,
Mark Whitcher, Stephen Kimbell, Peter Holden, Timothy Clark, Jonathan
Hambleton, Richard Brown, Simon Cuthbertson, Oliver Wright, Ingrid Sladden
and the executors of the estate of Neil Bruce Cobb.
    

    (AH)
 32




---



##### Table of Contents



Item No.
    
    Description
    
    Reference10.130
    
    Eighth Modification Agreement effective as of the 17th day of March 2010 by
and between United Bank, Versar, Inc., Geomet Technologies, LLC, Versar
Global Solutions, Inc., VEC Corp., Versar International, Inc., and Advent
Environmental, Inc.
    
    
    (AI)10.131
    
    Stock Purchase Agreement dated as of March 17, 2010 by and among Versar, Inc.,
Advent Environmental, Inc., Jeffrey C. Smoak, Kenna E. Sellers, the Mark A.
Sellers Revocable Life Insurance Trust, through Margaret Mitchum Spicher,
Trustee and the Mark A. Sellers Revocable Life Insurance Trust, through Kenna
A. Sellers, Trustee.
    
    
    (AI)10.132
    
    Separation and General Release Agreement between Theodore M. Prociv, PhD
and Versar, Inc. effective March 29, 2010.
    
    
    (AJ)21
    
    Subsidiaries of the Registrant**
    
    
    4023
    
    Consent of Independent Registered Public Accounting Firm, Grant Thornton LLP
    
    
    4131.1
    
    Certifications by Anthony L. Otten, Chief Executive Officer Pursuant to
Securities Exchange Rule 13a-14**
    
    
    4231.2
    
    Certifications by Lawrence W. Sinnott, Exec. Vice President, Chief
Financial Officer and Treasurer pursuant to Securities Exchange Rule 13a-14**
    
    
    4332.1
    
    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 June 25, 2010 by Anthony
L. Otten, Chief Executive Officer**
    
    
    4432.2
    
    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 June 25, 2010 by Lawrence
W. Sinnott, Exec. Vice President, Chief Financial Officer and Treasurer**
    
    
    45
 
 *
    
    Indicates management contract or compensatory plan or arrangement.**
    
    Filed with this Form 10-K. All other exhibits were previously filed. 33




---



##### Table of Contents



(A)
    
    Incorporated by reference to the similarly numbered exhibit to the Registrants Form S-1
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 filed with the Commission on September 28, 1987.(W)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K
Annual Report for Fiscal Year Ended June 30, 2003 filed with the Commission on September 26, 2003.(Y)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form S-8
Registration Statement filed with the Commission on November 4, 2005 (File No. 333-129489).(Z)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K
Annual Report for Fiscal Year Ended July 1, 2005 filed with the Commission on October 4, 2005.(AA)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K
Annual Report for Fiscal Year Ended June 30, 2006 filed with the Commission on September 19, 2006.(AB)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K
Annual Report for Fiscal Year Ended June 29, 2007 filed with the Commission on September 27, 2007.(AC)
    
    Incorporated by reference to the exhibit to the Registrants Form 8-K Current Report
dated April 2, 2008 filed with the Commission on April 4, 2008.(AD)
    
    Incorporated by reference to the exhibit to the Registrants Form 8-K Current Report dated February 2,
2009 filed with the Commission on February 6, 2009.(AE)
    
    Incorporated by reference to the exhibit to the Registrants Form 8-K Current Report dated May 6, 2009
filed with the Commission on May 11, 2009.(AF)
    
    Incorporated by reference to the exhibit to the Registrants Form 10-K/A Annual Report for Fiscal Year
Ended June 26, 2009 filed with the Commission on September 24, 2009.(AG)
    
    Incorporated by reference to the exhibit to the Registrants Form 8-K Current Report filed with the
Commission on February 17, 2010.(AH)
    
    Incorporated by reference to the exhibit to the Registrants Form 8-K filed with the
Commission on January 8, 2010.(AI)
    
    Incorporated by reference to the exhibit to the Registrants Form 8-K filed with the
Commission on March 22, 2010.(AJ)
    
    Incorporated by reference to the exhibit to the Registrants Form 8-K filed with the
Commission on April 1, 2010. 34




---



##### Table of Contents



VERSAR, INC.(Registrant)Date:  September 23, 2010
    /S/ Paul J. HoeperPaul J. HoeperChairman and Director  SIGNATURES
    
    TITLE
    
    DATE/S/ Paul J. Hoeper

Paul J. Hoeper
    
    Chairman and Director
    
    September 23, 2010/S/ Anthony L. Otten

Anthony L. Otten
    
    Chief Executive Officer
    
    September 23, 2010/S/ Lawrence W. Sinnott

Lawrence W. Sinnott
    
    Executive Vice President, 

Chief Financial Officer,
 Treasurer, 
and Principal Accounting Officer
    
    September 23, 2010/S/ Theodore M. Prociv

Theodore M. Prociv
    
    Director
    
    September 23, 2010/S/ Robert L. Durfee

Robert L. Durfee
    
    Director
    
    September 23, 2010/S/ James L. Gallagher

James L. Gallagher
    
    Director
    
    September 23, 2010/S/ Amoretta M. Hoeber

Amoretta M. Hoeber
    
    Director
    
    September 23, 2010/S/ Amir A. Metry

Amir A. Metry
    
    Director
    
    September 23, 2010
 35




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    McLean, Virginia
September 23, 2010
    
    /S/ Grant Thornton
 F-1




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 June 25,
    
    
    June 26,2010
    
    
    2009ASSETSCurrent assetsCash and cash equivalents
    $
     
    1,593
    
    $
     
    8,400Accounts receivable, net
    
    
    26,807
    
    
    
    27,695Inventory
    
    
    1,293
    
    
    
    133Notes receivable, current
    
    
    1,146
    
    
    
    200Prepaid expenses and other current assets
    
    
    2,449
    
    
    
    874Deferred income taxes
    
    
    904
    
    
    
    720Income tax receivable
    
    
    2,339
    
    
    
    Total current assets
    
    
    36,531
    
    
    
    38,022Notes receivable, non-current
    
    
    187
    
    
    
    Property and equipment, net
    
    
    3,970
    
    
    
    2,348Deferred income taxes
    
    
    619
    
    
    
    765Goodwill
    
    
    5,758
    
    
    
    776Intangible assets, net
    
    
    1,885
    
    
    
    Other assets
    
    
    914
    
    
    
    683Total assets
    $
     
    49,864
    
    $
     
    42,594LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    $
     
    12,422
    
    $
     
    7,405Accrued salaries and vacation
    
    
    2,091
    
    
    
    1,959Accrued bonus
    
    
    424
    
    
    
    1,358Other current liabilities
    
    
    3,877
    
    
    
    1,334Notes payable current
    
    
    2,387
    
    
    
    453Total current liabilities
    
    
    21,201
    
    
    
    12,509Notes payable, non-current
    
    
    1,059
    
    
    
    Other long-term liabilities
    
    
    1,187
    
    
    
    1,431Total liabilities
    
    
    23,447
    
    
    
    13,940Commitments and contingenciesStockholders equityCommon
stock, $.01 par value; 30,000,000 shares authorized; 9,467,324 shares and 9,193,635 shares
issued; 9,258,617 shares and 9,074,300 shares outstanding
    
    
    95
    
    
    
    92Capital in excess of par value
    
    
    28,474
    
    
    
    27,734(Accumulated deficit) retained earnings
    
    
    (679
    )
    
    
    1,615Treasury stock, at cost (208,707 and 119,335 shares,
respectively)
    
    
    (1,021
    )
    
    
    (706
    )Accumulated other comprehensive loss
    
    
    (452
    )
    
    
    (81
    )Total stockholders equity
    
    
    26,417
    
    
    
    28,654Total liabilities and stockholders equity
    $
     
    49,864
    
    $
     
    42,594
  F-2




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
 Years EndedJune 25,
    
    
    June 26,
    
    
    June 27,2010
    
    
    2009
    
    
    2008GROSS REVENUE
    $
     
    100,763
    
    $
     
    112,196
    
    $
     
    115,602Purchased services and materials, at cost
    
    
    55,378
    
    
    
    60,583
    
    
    
    68,507Direct costs of services and overhead
    
    
    39,374
    
    
    
    37,133
    
    
    
    33,307GROSS PROFIT
    
    
    6,011
    
    
    
    14,480
    
    
    
    13,788Selling, general and administrative expenses
    
    
    8,651
    
    
    
    8,876
    
    
    
    8,297Other expense
    
    
    1,012
    
    
    
    
    
    
    
    OPERATING (LOSS) INCOME
    
    
    (3,652
    )
    
    
    5,604
    
    
    
    5,491OTHER EXPENSE/(INCOME)Loss on marketable securities
    
    
    
    
    
    
    328
    
    
    
    Interest income
    
    
    (143
    )
    
    
    
    
    
    
    (173
    )Interest expense
    
    
    104
    
    
    
    36
    
    
    
    (LOSS) INCOME BEFORE INCOME TAXES
    
    
    (3,613
    )
    
    
    5,240
    
    
    
    5,664Income tax (benefit) expense
    
    
    (1,319
    )
    
    
    2,071
    
    
    
    2,273NET (LOSS) INCOME

    $
    
    (2,294
    )
    $
     
    3,169
    
    $
     
    3,391NET (LOSS) INCOME PER SHARE  BASIC

    $

    
    (0.25
    )
    $
     
    0.35
    
    $
     
    0.38NET (LOSS) INCOME PER SHARE  DILUTED

    $
    
    (0.25
    )
    $
     
    0.35
    
    $
     
    0.36WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING  BASIC
    
    
    9,141
    
    
    
    9,123
    
    
    
    8,932WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING  DILUTED
    
    
    9,141
    
    
    
    9,150
    
    
    
    9,331
  F-3




---



##### Table of Contents



VERSAR, INC.
Consolidated Statements of Changes in Stockholders Equity
  Accumu-lated(Accumu-
    
    
    
    
    
    
    
    
    
    
    OtherCapital in
    
    
    Lated
    
    
    
    
    
    
    
    
    
    
    Compre-
    
    
    TotalExcess
    
    
    Deficit)
    
    
    
    
    
    
    
    
    
    
    hensive
    
    
    Stock-Common Stock
    
    
    of Par
    
    
    Retained
    
    
    Treasury
    
    
    Income
    
    
    holdersShares
    
    
    Amount
    
    
    Value
    
    
    Earnings
    
    
    Shares
    
    
    Stock
    
    
    (Loss)
    
    
    EquityBalance, June 29, 2007
    
    
    8,706
    
    $
     
    87
    
    $
     
    24,679
    

    $
    
    (4,945
    )
    
    
    (54
    )

    $
    

    (399
    )
    $
     
    
    
    $


     
    19,422Exercise of stock options
    
    
    275
    
    
    
    3
    
    
    
    1,052
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,055Issuance of restricted stock
    
    
    78
    
    
    
    1
    
    
    
    507
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    508Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    (179
    )
    
    
    
    
    
    
    (179
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    303
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    303Tax benefit from
exercise of stock options
    
    
    
    
    
    
    
    
    
    
    574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    574Comprehensive IncomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,391Other Comprehensive IncomeForeign currency translations
Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,370Balance, June 27, 2008
    
    
    9,059
    
    
    
    91
    
    
    
    27,115
    
    
    
    (1,554
    )
    
    
    (84
    )
    
    
    (578
    )
    
    
    (21
    )
    
    
    25,053Exercise of stock options
    
    
    26
    
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Issuance of restricted stock
    
    
    109
    
    
    
    1
    
    
    
    691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    692Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )
    
    
    (128
    )
    
    
    
    
    
    
    (128
    )Tax shortfall in exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )Comprehensive IncomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,169
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,169Other comprehensive incomeForeign currency translations
Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (60
    )
    
    
    (60
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,109Balance, June 26, 2009
    
    
    9,194
    
    
    
    92
    
    
    
    27,734
    
    
    
    1,615
    
    
    
    (119
    )
    
    
    (706
    )
    
    
    (81
    )
    
    
    28,654Exercise of stock options
    
    
    100
    
    
    
    1
    
    
    
    237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    238Issuance of restricted stock
    
    
    95
    
    
    
    1
    
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212Issuance of stock for acquisition
    
    
    78
    
    
    
    1
    
    
    
    239
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    240Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (89
    )
    
    
    (315
    )
    
    
    
    
    
    
    (315
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106Tax shortfall in exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    (53
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )Comprehensive LossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,294
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,294
    )Other comprehensive incomeForeign currency translations
Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (371
    )
    
    
    (371
    )Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (371
    )
    
    
    (2,665
    )Balance, June 25, 2010
    
    
    9,467
    
    $
     
    95
    
    $
     
    28,474
    

    $
    
    (679
    )
    
    
    (208
    )

    $
    
    (1,021
    )
    $
    
    (452
    )
    $
     
    26,417
  F-4




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
 Years EndedJune 25,
    
    
    June 26,
    
    
    June 27,2010
    
    
    2009
    
    
    2008Cash flows from operating activitiesNet (loss) income
    
    $
    (2,294
    )
    $
     
    3,169
    
    $
     
    3,391Adjustments to reconcile net income to net cash provided
by (used in) continuing operations:Depreciation and amortization
    
    
    1,303
    
    
    
    958
    
    
    
    876Loss on sale of property and equipment
    
    
    
    
    
    
    1
    
    
    
    Provision for doubtful accounts receivable
    
    
    107
    
    
    
    155
    
    
    
    1Loss on marketable securities
    
    
    
    
    
    
    328
    
    
    
    Loss on life insurance policy cash surrender value
    
    
    34
    
    
    
    116
    
    
    
    29Deferred tax (benefit) expense
    
    
    (220
    )
    
    
    (114
    )
    
    
    1,952Share-based compensation
    
    
    318
    
    
    
    692
    
    
    
    811Excess tax benefits on share-based compensation
    
    
    
    
    
    
    
    
    
    
    (574
    )Changes in assets and liabilitiesDecrease (increase) in accounts receivable
    
    
    1,382
    
    
    
    (6,256
    )
    
    
    909Increase in income tax receivables
    
    
    (2,339
    )
    
    
    
    
    
    
    (Increase) decrease in prepaid expenses and other assets
    
    
    (3,767
    )
    
    
    193
    
    
    
    199Increase in inventory
    
    
    (1,160
    )
    
    
    (133
    )
    
    
    Increase (decrease) in accounts payable
    
    
    4,357
    
    
    
    (260
    )
    
    
    (2,723
    )Increase in accrued salaries and vacation
    
    
    132
    
    
    
    240
    
    
    
    115Increase (decrease) in other liabilities
    
    
    3,762
    
    
    
    (823
    )
    
    
    (12
    )Net cash provided by (used in) operating activities
    
    
    1,615
    
    
    
    (1,734
    )
    
    
    4,974Cash flows from investing activitiesPurchase of property and equipment
    
    
    (2,356
    )
    
    
    (1,172
    )
    
    
    (722
    )Payment for Advent, net of cash acquired
    
    
    (498
    )
    
    
    
    
    
    
    Payment for PPS, net of cash acquired
    
    
    (4,330
    )
    
    
    
    
    
    
    Purchase of marketable securities
    
    
    
    
    
    
    (3,000
    )
    
    
    Proceeds from sale of marketable securities
    
    
    
    
    
    
    2,672
    
    
    
    Premium paid on life insurance policies
    
    
    (36
    )
    
    
    (38
    )
    
    
    (39
    )Investment in notes receivable
    
    
    (1,070
    )
    
    
    (200
    )
    
    
    Net cash used in investing activities
    
    
    (8,290
    )
    
    
    (1,738
    )
    
    
    (761
    )Cash flows from financing activitiesPurchase of treasury stock
    
    
    (77
    )
    
    
    (128
    )
    
    
    (179
    )Proceeds from exercise of options and warrants
    
    
    
    
    
    
    48
    
    
    
    1,055Tax benefit on exercise of share-based compensation
    
    
    
    
    
    
    
    
    
    
    574Net cash (used in) provided by financing activities
    
    
    (77
    )
    
    
    (80
    )
    
    
    1,450Effect of exchange rate changes
    
    
    (55
    )
    
    
    14
    
    
    
    (21
    )Net (decrease) increase in cash and cash equivalents
    
    
    (6,807
    )
    
    
    (3,538
    )
    
    
    5,642Cash and cash equivalents at the beginning of the year
    
    
    8,400
    
    
    
    11,938
    
    
    
    6,296Cash and cash equivalents at the end of the year
    $
     
    1,593
    
    $
     
    8,400
    
    $
     
    11,938Supplementary disclosure of cash flow information:Cash paid during the period forInterest
    $
     
    58
    
    $
     
    60
    
    $
     
    57Income Taxes
    $
     
    1,392
    
    $
     
    1,762
    
    $
     
    199Supplemental disclosures of non-cash financing activities:Exercise of stock options
    $
     
    238
    
    $
     
    
    
    $
     
    Acquisition of treasury stock for restricted shares

    $
    
    (238
    )
    $
     
    
    
    $
     
    Supplemental disclosures of non-cash investing activities:Issuance of notes payable for acquisition
    $
     
    2,690
    
    $
     
    
    
    $
     
    Issuance of stock for PPS acquisition
    $
     
    240
    
    $
     
    
    
    $
     
    
  F-5




---



##### Table of Contents



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




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  Notes receivable:
 Inventory
 Direct costs of services and overhead:
 Income taxes:
 Asset retirement obligation:
 Treasury stock:
 Share-based compensation:
   F-7




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Long-lived assets:
 Net income per share:
  Years EndedJune 25,
    
    
    June 26,
    
    
    June 27,2010
    
    
    2009
    
    
    2008(In thousands)Weighted average number of shares
outstanding  basic
    
    
    9,141
    
    
    
    9,123
    
    
    
    8,932Effect of assumed exercise of stock options
and vesting of restricted stock
    
    
    
    
    
    
    27
    
    
    
    399Weighted average number of shares
outstanding  diluted
    
    
    9,141
    
    
    
    9,150
    
    
    
    9,331
  Deferred compensation:
 Cash and cash equivalents:
 Foreign Currency Translation:
 F-8




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  Fair value of financial instruments:
 Commitments and contingencies:
 Classification:
 New accounting pronouncements: FASB Accounting
Standards Codification TM Fair Value Measurements and Disclosures
 Revenue Arrangements With Multiple
Deliverables , Revenue Arrangements With Multiple Deliverables
   F-9




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
   NOTE B BUSINESS SEGMENTS
     F-10




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  Years EndedJune 25,
    
    
    June 26,
    
    
    June 27,2010
    
    
    2009
    
    
    2008(In thousands)GROSS REVENUEProgram Management
    $
     
    57,826
    
    $
     
    71,526
    
    $
     
    68,896Compliance and Environmental
Programs
    
    
    17,271
    
    
    
    19,649
    
    
    
    30,429Professional Services
    
    
    12,637
    
    
    
    11,476
    
    
    
    8,101National Security
    
    
    13,029
    
    
    
    9,545
    
    
    
    8,176$
     
    100,763
    
    $
     
    112,196
    
    $
     
    115,602GROSS PROFIT (LOSS) (A)Program Management
    $
     
    4,002
    
    $
     
    10,467
    
    $
     
    9,398Compliance and Environmental
Programs
    
    
    (375
    )
    
    
    884
    
    
    
    2,390Professional Services
    
    
    2,018
    
    
    
    1,734
    
    
    
    1,290National Security
    
    
    366
    
    
    
    1,395
    
    
    
    710$
     
    6,011
    
    $
     
    14,480
    
    $
     
    13,788Selling, general and administrative
Expenses
    
    
    (8,651
    )
    
    
    (8,876
    )
    
    
    (8,297
    )Other expenses
    
    
    (1,012
    )
    
    
    
    
    
    
    OPERATING (LOSS) INCOME
    
    $
    (3,652
    )
    $
     
    5,604
    
    $
     
    5,491
 
 (A)
    
    Gross Profit is defined as gross revenue less purchased services and
materials and direct costs of services and overhead. Years EndedJune 25,
    
    
    June 26,2010
    
    
    2009(In thousands)IDENTIFIABLE ASSETSProgram Management
    $
     
    13,072
    
    $
     
    19,531Compliance and Environmental Programs
    
    
    9,386
    
    
    
    5,910Professional Services
    
    
    3,349
    
    
    
    2,561National Security
    
    
    13,271
    
    
    
    2,447Corporate and Other
    
    
    10,786
    
    
    
    12,145Total Assets
    $
     
    49,864
    
    $
     
    42,594
 NOTE C RESTRUCTURING CHARGE
  F-11




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  NOTE D ACQUISITIONS
    F-12




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  th
 Professional Protection Systems, Ltd.
    
    
    Advent Environmental, Inc.(In Thousands)
    
    
    (In Thousands)Cash
    
    $
    770
    
    
    Cash
    
    $
    652Accounts receivable
    
    
    634
    
    
    Accounts receivable
    
    
    1,313Inventory
    
    
    1,397
    
    
    Prepaid and other assets
    
    
    565Property and equipment
    
    
    493
    
    
    Goodwill
    
    
    1,968Goodwill
    
    
    3,014
    
    
    Intangibles
    
    
    677Intangibles
    
    
    1,312
    
    
    Total assets acquired
    
    
    5,175Total assets acquired
    
    
    7,620
    
    
    Accounts payable
    
    
    1,596Accounts payable
    
    
    707
    
    
    Other liabilities
    
    
    137Other liabilities
    
    
    428
    
    
    Total liabilities assumed
    
    
    1,733Total liabilities assumed
    
    
    1,135
    
    
    Purchase price
    
    $
    3,442Purchase price
    
    $
    6,485
 NOTE E FAIR VALUE MEASURES
 Financial assets and liabilities
      Non financial assets and liabilities
   F-13




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
    NOTE F INVENTORY
   F-14




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 NOTE G CUSTOMER INFORMATION
  Years EndedJune 25,
    
    
    June 26,
    
    
    June 27,2010
    
    
    2009
    
    
    2008(In Thousands)U.S. Department of Defense
    
    $
    78,022
    
    
    $
    92,583
    
    
    $
    88,245U.S. Environmental Protection Agency
    
    
    1,725
    
    
    
    1,891
    
    
    
    2,399Other U.S. Government Agencies
    
    
    6,180
    
    
    
    2,576
    
    
    
    3,657Total U.S. Federal Government
    
    $
    85,927
    
    
    $
    97,050
    
    
    $
    94,301
  NOTE H GOODWILL AND INTANGIBLE ASSETS
   6/26/09
    
    
    
    
    
    
    
    
    
    6/25/10Balance
    
    
    PPS
    
    
    Advent
    
    
    BalanceGoodwill (In thousands)Goodwill
    
    $
    776
    
    
    $
    3,014
    
    
    $
    1,968
    
    
    $
    5,758Intangible Assets (In thousands)Customer Related Intangibles
    
    $
    
    
    
    $
    329
    
    
    $
    511
    
    
    $
    840Marketing Related Intangibles
    
    $
    
    
    
    $
    142
    
    
    $
    166
    
    
    $
    308Technology Related Intangibles
    
    $
    
    
    
    $
    841
    
    
    $
    
    
    
    $
    841Total Intangible Assets
    
    $
    
    
    
    $
    1,312
    
    
    $
    677
    
    
    $
    1,989Accumulated Amortization
    
    $
    
    
    
    $
    (75
    )
    
    $
    (29
    )
    
    $
    (104
    )Net Intangible Assets
    
    $
    
    
    
    $
    1,237
    
    
    $
    648
    
    
    $
    1,885
 F-15




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  Years
    
    Total Amount2011
    
    3222012
    
    3222013
    
    3222014
    
    3222015
    
    295Thereafter
    
    302Total
    
    1,885
 NOTE I NOTES RECEIVABLE
   NOTE J PREPAID EXPENSES AND OTHER CURRENT ASSETS
  Years EndedJune 25,
    
    
    June 26,2010
    
    
    2009(In thousands)Prepaid insurance
    $
     
    1,349
    
    $
     
    607Prepaid rent
    
    
    282
    
    
    
    157VAT input tax
    
    
    121
    
    
    
    110Other prepaid expenses
    
    
    367
    
    
    
    Miscellaneous receivables
    
    
    330
    
    
    
    Total
    $
     
    2,449
    
    $
     
    874
  F-16




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 NOTE K OTHER CURRENT LIABILITIES
  Years EndedJune 25,
    
    
    June 26,2010
    
    
    2009(In thousands)Earn-out liabilities
    
    $
    543
    
    
    $
    Payroll related withholdings
    
    
    1,168
    
    
    
    715Accrued others
    
    
    401
    
    
    
    101Deferred rent
    
    
    413
    
    
    
    409Severance accrual
    
    
    178
    
    
    
    Asset retirement obligation
    
    
    636
    
    
    
    Other miscellaneous liabilities
    
    
    538
    
    
    
    562Total
    
    $
    3,877
    
    
    $
    1787
  NOTE L ACCOUNTS RECEIVABLE
 Years EndedJune 25,
    
    
    June 26,2010
    
    
    2009(In thousands)Billed receivablesU.S. Government
    
    $
    12,817
    
    
    $
    9,516Commercial
    
    
    3,411
    
    
    
    8,483Unbilled receivablesU.S. Government
    
    
    10,387
    
    
    
    9,742Commercial
    
    
    717
    
    
    
    42327,322
    
    
    
    28,164Allowance for doubtful accounts
    
    
    (525
    )
    
    
    (469
    )$
    26,807
    
    
    $
    27,695
  F-17




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 NOTE M PROPERTY AND EQUIPMENT
 EstimatedUseful Life
    
    Years EndedIn Years
    
    June 25,
    
    
    June 26,2010
    
    
    2009(In thousands)Furniture and fixtures
    
    10
    
    $
    828
    
    
    $
    824Equipment
    
    3 to 10
    
    
    8,458
    
    
    
    7,762Capital leases
    
    Life of lease
    
    
    739
    
    
    
    568Leasehold improvements
    
    Shorter of lease term or asset life.
    
    
    3,107
    
    
    
    2,18413,132
    
    
    
    11,338Accumulated depreciation
And amortization
    
    
    
    
    (9,162
    )
    
    
    (8,990
    )$
    3,970
    
    
    $
    2,348
   NOTE N MARKETABLE SECURITIES
  NOTE O DEBT
 1 2
 F-18




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
    NOTE P STOCK BASED COMPENSATION
     F-19




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
    Weighted-Optioned
    
    
    Average OptionShares

    
    
    Price Per Share
    
    

    Total(In thousands, except per share price)Outstanding at June 29, 2007
    
    
    656
    
    
    $
    3.23
    
    
    $
    2,117Exercised
    
    
    (219
    )
    
    
    3.58
    
    
    
    (784
    )Cancelled
    
    
    (7
    )
    
    
    4.10
    
    
    
    (27
    )Outstanding at June 27, 2008
    
    
    430
    
    
    $
    3.03
    
    
    $
    1,306Exercised
    
    
    (6
    )
    
    
    2.19
    
    
    
    (13
    )Cancelled
    
    
    (3
    )
    
    
    3.45
    
    
    
    (10
    )Outstanding at June 26, 2009
    
    
    421
    
    
    $
    3.05
    
    
    $
    1,283Exercised
    
    
    (100
    )
    
    
    2.38
    
    
    
    (238
    )Cancelled
    
    
    (5
    )
    
    
    2.48
    
    
    
    (13
    )Outstanding at June 25, 2010
    
    
    316
    
    
    $
    3.26
    
    
    $
    1,032
   Number ofNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SharesShares
    
    
    
    
    
    
    Weighted-
    
    
    Weighted-
    
    
    UnderlyingUnderlying
    
    
    Range of
    
    
    Average
    
    
    Average
    
    
    ExercisableOptions
    
    
    Option Price
    
    
    Option Price
    
    
    Remaining Life
    
    
    Options(In thousands, except as noted)156
    
    
    $
    1.81 to $2.80
    
    
    $
    2.58
    
    
    3.1-years
    
    
    156113
    
    
    $
    3.40 to $3.82
    
    
    
    3.73
    
    
    4.1-years
    
    
    11347
    
    
    $
    4.00 to $4.45
    
    
    
    4.38
    
    
    4.5-years
    
    
    47316
    
    
    
    
    
    
    $
    3.26
    
    
    3.8-years
    
    
    316
 F-20




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
   Weighted-Optioned
    
    
    Average OptionShares
    
    
    Price Per Share
    
    
    Total(In thousands, except per share price)Outstanding at June 29, 2007
    
    
    182
    
    
    $
    3.32
    
    
    $
    605Granted
    
    
    10
    
    
    
    7.77
    
    
    
    78Exercised
    
    
    (51
    )
    
    
    4.87
    
    
    
    (248
    )Outstanding at June 27, 2008
    
    
    141
    
    
    $
    3.07
    
    
    $
    435Exercised
    
    
    (20
    )
    
    
    1.75
    
    
    
    (35
    )Outstanding at June 26, 2009
    
    
    121
    
    
    $
    3.31
    
    
    $
    400Cancelled
    
    
    (18
    )
    
    
    3.40
    
    
    
    (63
    )Outstanding at June 25, 2010
    
    
    103
    
    
    $
    3.27
    
    
    $
    337
   Number ofNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SharesShares
    
    
    
    
    
    
    Weighted-
    
    
    Weighted-
    
    
    UnderlyingUnderlying
    
    
    Range of
    
    
    Average
    
    
    Average
    
    
    ExercisableOptions
    
    
    Option Price
    
    
    Option Price
    
    
    Remaining Life
    
    
    Options(In thousands, except as noted)51
    
    
    $
    1.81 to $2.80
    
    
    
    1.92
    
    
    2.5-years
    
    
    5119
    
    
    $
    3.10 to $3.65
    
    
    
    3.31
    
    
    2.6-years
    
    
    1923
    
    
    $
    4.14 to $4.58
    
    
    
    4.29
    
    
    4.6-years
    
    
    2310
    
    
    $
    7.77
    
    
    
    7.77
    
    
    7.4-years
    
    
    103
    
    
    
    
    
    
    $
    3.27
    
    
    4.2-years
    
    
    93
   F-21




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 NOTE Q INCOME TAXES
  Years EndedJune 25,
   
    
    June 26,
    
    
    June 27,2010
    
    
    2009
    
    
    2008(In thousands)CurrentFederal
    
    $
    (1,274
    )
    
    $
    1,945
    
    
    $
    274State
    
    
    (102
    )
    
    
    198
    
    
    
    47Foreign
    
    
    277
    
    
    
    42
    
    
    
    DeferredFederal
    
    
    (182
    )
    
    
    (225
    )
    
    
    1,528State
    
    
    (23
    )
    
    
    115
    
    
    
    421Foreign
    
    
    (15
    )
    
    
    (4
    )
    
    
    3Valuation Allowance
    
    
    
    
    
    
    
    
    
    
    $
    (1,319
    )
    
    $
    2,071
    
    
    $
    2,273
  June 25,
    
    
    June 26,2010
    
    
    2009Deferred Tax Assets:Employee benefits
    
    $
    499
    
    
    $
    392Bad debt reserves
    
    
    180
    
    
    
    173All other reserves
    
    
    336
    
    
    
    296Net operating losses & tax credit
    
    
    168
    
    
    
    86Capital loss carryforward
    
    
    122
    
    
    
    121Depreciation & amortization
    
    
    332
    
    
    
    335Accrued expenses
    
    
    421
    
    
    
    367Other
    
    
    134
    
    
    
    82Total Deferred Tax Assets
    
    
    2,192
    
    
    
    1,852Valuation Allowance
    
    
    (51
    )
    
    
    (48
    )Deferred Tax Liabilities:Goodwill & intangibles
    
    
    (550
    )
    
    
    (189
    )Asset retirement obligation
    
    
    (26
    )
    
    
    (79
    )Other
    
    
    (42
    )
    
    
    (51
    )Net Deferred Tax Assets
    
    $
    1,523
    
    
    $
    1,485
  F-22




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
      Years EndedJune 25,
    
    
    June 26,
    
    
    June 27,2010
    
    
    2009
    
    
    2008(In thousands)Expected provision at federal
Statutory rate
    
    $
    (1,230
    )
    
    $
    1,782
    
    
    $
    1,923Change in valuation allowance
    
    
    3
    
    
    
    1
    
    
    
    47State income tax expense
    
    
    (120
    )
    
    
    204
    
    
    
    221Permanent items
    
    
    25
    
    
    
    35
    
    
    
    27Change in tax rates
    
    
    3
    
    
    
    42
    
    
    
    Other
    
    
    
    
    
    
    7
    
    
    
    55$
    (1,319
    )
    
    $
    2,071
    
    
    $
    2,273
 NOTE R EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
   F-23




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
    NOTE S COMMITMENTS AND CONTINGENCIES
   TotalYears Ending June 30,
    
    Amount(In thousands)2011

    $
    
    2,5502012
    
    
    2,3342013
    
    
    2,2952014
    
    
    1,9232015
    
    
    1,5572016 and thereafter
    
    
    947$
    
    11,606
  F-24




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Legal Proceedings
  NOTE T QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  Fiscal Year 2010
    
    
    Fiscal Year 2009Quarter Ending
    
    June 25
    
    
    Mar 26
    
    
    Dec 25
    
    
    Sep 25
    
    
    June 26
    
    
    Mar 27
    
    
    Dec 26
    
    
    Sep 26Gross Revenue
    
    $
    27,307
    
    
    $
    24,355
    
    
    $
    24,387
    
    
    $
    24,714
    
    
    $
    27,380
    
    
    $
    31,851
    
    
    $
    27,967
    
    
    $
    24,998Gross Profit
    
    
    671
    
    
    
    1,259
    
    
    
    1,728
    
    
    
    2,353
    
    
    
    3,742
    
    
    
    4,355
    
    
    
    3,205
    
    
    
    3,178Operating income
    
    
    (1,254
    )
    
    
    (2,266
    )
    
    
    (510
    )
    
    
    378
    
    
    
    1,625
    
    
    
    1,830
    
    
    
    1,007
    
    
    
    1,142Net income
    
    $
    (714
    )
    
    $
    (1,517
    )
    
    $
    (300
    )
    
    $
    237
    
    
    $
    954
    
    
    $
    1,125
    
    
    $
    565
    
    
    $
    525Net income per
share  diluted
    
    $
    (0.08
    )
    
    $
    (0.16
    )
    
    $
    (0.03
    )
    
    $
    0.03
    
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.06
    
    
    $
    0.06Weighted average
number of shares
outstanding  diluted
    
    
    9,257
    
    
    
    9,224
    
    
    
    9,121
    
    
    
    9,146
    
    
    
    9,307
    
    
    
    9,199
    
    
    
    9,112
    
    
    
    9,198
  F-25




---



##### Table of Contents



Schedule II
 VERSAR, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
 ADDITIONSBALANCE
    
    
    CHARGEDAT
    
    
    TO COSTS
    
    
    
    
    
    BALANCEBEGINNING
    
    
    AND
    
    
    
    
    
    
    AT END OFOF YEAR

    
    
    EXPENSES
    
    
    CHARGE OFF

    
    
    YEARALLOWANCE FOR DOUBTFUL ACCOUNTS2008
    
    $
    373,976
    
    
    $
    1,479
    
    
    $
    (32,492
    )
    
    $
    342,9632009
    
    $
    342,963
    
    
    $
    154,477
    
    
    $
    (28,297
    )
    
    $
    469,1432010
    
    $
    469,143
    
    
    $
    106,633
    
    
    $
    (50,715
    )
    
    $
    525,061DEFERRED TAX VALUATION
ALLOWANCE2008
    
    
    
    
    
    $
    47,000
    
    
    
    
    
    
    $
    47,0002009
    
    $
    47,000
    
    
    $
    1,000
    
    
    
    
    
    
    $
    48,0002010
    
    $
    48,000
    
    
    $
    3,000
    
    
    
    
    
    
    $
    51,000
 F-26