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 27, 2008
    
    No. 1-9309
 
 DELAWARE
    
    54-0852979(State or other jurisdiction of
    
    (I.R.S. employer identification no.)Incorporation 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
   o þ
  o þ
  þ o
 o
  o þ
  Large
accelerated
filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company 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,
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 government
to fund certain programs in which the Company participates; delays in project funding; 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
    Program Management Business Segment :
 2




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Compliance and Environmental Programs Business Segment:
   3




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




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Competition
     Backlog
  5




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Employees
  6




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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 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;
    
    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.
  7




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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.
  A large portion of our backlog is subject to cancellation and adjustments which makes backlog an
uncertain indicator of future operating results.
    8




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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.
   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.
  
    
    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;
 9




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
    
    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
    10




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Item 3. Legal Proceedings
  Item 4. Submission of Matters to a Vote of Security Holders
  EXECUTIVE OFFICERS OF THE REGISTRANT
  NAME
    
    AGE
    
    POSITION WITH THE COMPANYTheodore M. Prociv
    
    
    60
    
    
    President and Chief Executive OfficerLawrence W. Sinnott
    
    
    46
    
    
    Executive Vice President, Chief Operating Officer,
Chief Financial Officer and TreasurerJeffrey A. Wagonhurst
    
    
    60
    
    
    Senior Vice President, Program Management Business SegmentPaul W. Kendall
    
    
    55
    
    
    Senior Vice President, National Security Business
SegmentJames C. Dobbs
    
    
    63
    
    
    Senior Vice President, General Counsel and
SecretaryGina Foringer
    
    
    39
    
    
    Senior Vice President, Professional Services Business SegmentMichael Abram
    
    
    52
    
    
    Senior Vice President, Compliance and
Environmental Programs Business Segment
 Theodore M. Prociv
 Lawrence W. Sinnott
 Jeffrey A. Wagonhurst
 11




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Paul W. Kendall
 James C. Dobbs
 Gina Foringer
 Michael Abram
 12




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PART II
 Item 5. Market for Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Common Stock
  Fiscal Year 2008
    
    High
    
    Low4th Quarter
    
    $
    6.44
    
    
    $
    4.703rd Quarter
    
    
    7.00
    
    
    
    5.362nd Quarter
    
    
    9.25
    
    
    
    5.421st Quarter
    
    
    15.35
    
    
    
    6.80
 Fiscal Year 2007
    
    High
    
    Low4th Quarter
    
    $
    9.15
    
    
    $
    4.753rd Quarter
    
    
    5.40
    
    
    
    3.982nd Quarter
    
    
    4.48
    
    
    
    3.461st Quarter
    
    
    4.45
    
    
    
    3.56
   Equity Compensation Plan Information
(In thousands, except share price)
 Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    for future issuanceSecurities to be
    
    
    
    
    
    under equityissued upon
    
    Weighted-average
    
    compensation plansexercise of
    
    exercise price of
    
    (excludingoutstanding
    
    outstanding
    
    securitiesoptions, warrants
    
    options, warrants
    
    reflected in columnand rights
    
    and rights
    
    (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    572
    
    
    $
    3.04
    
    
    
    681
 13




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6/03
    
    6/04
    
    6/05
    
    6/06
    
    6/07
    
    6/08Versar, Inc.
    
    
    100.00
    
    
    
    189.66
    
    
    
    122.61
    
    
    
    157.85
    
    
    
    322.30
    
    
    
    183.91S&P 500
    
    
    100.00
    
    
    
    119.11
    
    
    
    126.64
    
    
    
    137.57
    
    
    
    165.90
    
    
    
    144.13Peer Group
    
    
    100.00
    
    
    
    126.37
    
    
    
    160.73
    
    
    
    295.18
    
    
    
    559.28
    
    
    
    458.88
 The stock price performance included in this graph is not necessarily indicative of future stock
price performance.
 14




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Item 6. Selected Financial Data (unaudited)
  For the Years EndedJune 27,
    
    June 29,
    
    June 30,
    
    July 1,
    
    June 30,2008
    
    2007
    
    2006
    
    2005
    
    2004(In thousands, except per share data)Consolidated Statement of Operations
related data:Gross Revenue
    
    $
    115,602
    
    
    $
    102,726
    
    
    $
    60,888
    
    
    $
    67,678
    
    
    $
    60,067Gross Profit
    
    
    13,788
    
    
    
    10,822
    
    
    
    6,354
    
    
    
    7,759
    
    
    
    7,377Operating Income
    
    
    5,491
    
    
    
    4,153
    
    
    
    681
    
    
    
    1,419
    
    
    
    1,913Income from Continuing Operations
    
    
    3,391
    
    
    
    5,282
    
    
    
    1,637
    
    
    
    1,361
    
    
    
    1,827Loss from Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    (290
    )
    
    
    (1,159
    )
    
    
    (636
    )Net Income
    
    
    3,391
    
    
    
    5,282
    
    
    
    1,347
    
    
    
    202
    
    
    
    1,191Income per share from Continuing
Operations  Diluted
    
    $
    .36
    
    
    $
    .62
    
    
    $
    .20
    
    
    $
    .16
    
    
    $
    .24Loss per share from Discontinued
Operations  Diluted
    
    $
    
    
    
    $
    
    
    
    $
    (.04
    )
    
    $
    (.14
    )
    
    $
    (.09
    )Net Income per share  Diluted
    
    $
    .36
    
    
    $
    .62
    
    
    $
    .16
    
    
    $
    .02
    
    
    $
    .16Weighted Average Shares Outstanding 
Diluted
    
    
    9,331
    
    
    
    8,466
    
    
    
    8,347
    
    
    
    8,263
    
    
    
    7,675Consolidated Balance Sheet related data:Working Capital
    
    $
    22,271
    
    
    $
    16,176
    
    
    $
    9,119
    
    
    $
    7,887
    
    
    $
    7,494Current Ratio
    
    
    2.67
    
    
    
    2.01
    
    
    
    1.99
    
    
    
    1.86
    
    
    
    1.87Total Assets
    
    
    39,828
    
    
    
    36,817
    
    
    
    22,802
    
    
    
    20,912
    
    
    
    20,085Stockholders Equity
    
    $
    25,053
    
    
    $
    19,422
    
    
    $
    12,572
    
    
    $
    10,552
    
    
    $
    10,065
 15




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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 results of a negative government audit potentially impacting our costs, reputation and
ability
to work with the federal government;
    
    Loss of key personnel;
    
    The ability to compete in a highly competitive environment; and
    
    Federal funding delays due to war in Iraq.
 16




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ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
 Results of Operations
  Years EndedJune 27,
    
    
    June 29,
    
    
    June 30,2008
    
    
    2007
    
    
    2006(In thousands)GROSS REVENUEProgram Management
    
    $
    68,896
    
    
    $
    58,765
    
    
    $
    19,507Compliance and Environmental
Programs
    
    
    30,429
    
    
    
    29,839
    
    
    
    26,958Professional Services
    
    
    8,101
    
    
    
    7,318
    
    
    
    7,010National Security
    
    
    8,176
    
    
    
    6,804
    
    
    
    7,413$
    115,602
    
    
    $
    102,726
    
    
    $
    60,888
    17




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ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
  Years EndedJune 27,
    
    
    June 29,
    
    
    June 30,2008
    
    
    2007
    
    
    2006(In thousands)GROSS PROFITProgram Management
    
    $
    9,398
    
    
    $
    7,037
    
    
    $
    815Compliance and Environmental
Programs
    
    
    2,390
    
    
    
    2,313
    
    
    
    2,985Professional Services
    
    
    1,290
    
    
    
    1,257
    
    
    
    1,379National Security
    
    
    710
    
    
    
    215
    
    
    
    1,175$
    13,788
    
    
    $
    10,822
    
    
    $
    6,354
    18




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ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
    REVENUE CLIENT BASE
  For the Years EndedJune 27, 2008
    
    
    June 29, 2007
    
    
    June 30, 2006(In thousands)GovernmentEPA
    
    $
    2,399
    
    
    
    2
    %
    
    $
    2,753
    
    
    
    3
    %
    
    $
    3,909
    
    
    
    6
    %State & Local
    
    
    16,236
    
    
    
    14
    %
    
    
    13,936
    
    
    
    14
    %
    
    
    7,880
    
    
    
    13
    %Department of Defense
    
    
    88,245
    
    
    
    76
    %
    
    
    65,997
    
    
    
    64
    %
    
    
    32,012
    
    
    
    53
    %Other
    
    
    3,657
    
    
    
    3
    %
    
    
    16,512
    
    
    
    16
    %
    
    
    11,933
    
    
    
    20
    %Commercial
    
    
    5,065
    
    
    
    5
    %
    
    
    3,528
    
    
    
    3
    %
    
    
    5,154
    
    
    
    8
    %Gross Revenue
    
    $
    115,602
    
    
    
    100
    %
    
    $
    102,726
    
    
    
    100
    %
    
    $
    60,888
    
    
    
    100
    %
 Liquidity and Capital Resources
   19




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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
    
    $
    11,202
    
    
    $
    2,448
    
    
    $
    3,447
    
    
    $
    2,437
    
    
    $
    2,870Capital lease obligations
    
    
    908
    
    
    
    73
    
    
    
    141
    
    
    
    126
    
    
    
    568Notes payable
    
    
    263
    
    
    
    263
    
    
    
    
    
    
    
    
    
    
    
    Estimated interest
obligations
    
    
    249
    
    
    
    32
    
    
    
    58
    
    
    
    52
    
    
    
    107Total contractual cash
Obligations
    
    $
    12,622
    
    
    $
    2,816
    
    
    $
    3,646
    
    
    $
    2,615
    
    
    $
    3,545
 Critical Accounting Policies and Related Estimates That Have a Material Effect on Versars
Consolidated Financial Statements
  Revenue recognition:
 20




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ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
  Allowance for doubtful accounts
 Net deferred tax asset
 Asset retirement obligation 1 2
 Goodwill and other intangible assets
 21




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ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
 Share-based compensation
   New accounting pronouncements
  The Fair
Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB
Statement No. 115
 Business Combinations
 Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51
 22




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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
  Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
  23




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
    
    Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the company;
    
    Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
    
    Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect on the
financial statements.
     Attestation Report of the Independent Registered Public Accounting Firm
  Changes in Internal Control Over Financial Reporting
  Item 9B. Other Information
  24




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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
  Item 13. Certain Relationships and Related Transactions
  Item 14. Principal Accountant Fees and Services
  PART IV
 Item 15. Exhibits, Financial Statement Schedules
      25




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26




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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)10.100
    
    AFCEE ENRAC Contract
    
    (U)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)10.111
    
    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)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 and definitions as approved by the Board of Directors
on September 7, 2005 and by the stockholders on November 16, 2005
    
    (AA)10.118
    
    Modification Agreement of the Revolving Commercial Note, dated November 30,
2005, between Registrant and United Bank
    
    (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)
 27




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Page Number/Item No.
    
    Description
    
    Reference10.125
    
    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)21
    
    Subsidiaries of the Registrant23.1
    
    Consent of Independent Registered Public Accounting Firm, 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, President and Chief Executive Officer
Pursuant to Securities Exchange Rule 13a-1431.2
    
    Certifications by Lawrence W. Sinnott, Exec. Vice President, Chief Operating
Officer and Chief Financial Officer pursuant to Securities Exchange Rule 13a-1432.1
    
    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 27, 2008 by
Theodore M. Prociv, President and Chief Executive Officer32.2
    
    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 27, 2008 by
Lawrence W. Sinnott, Exec. Vice President, Chief Operating Officer and Chief
Financial Officer
 
 *
    
    Indicates management contract or compensatory plan or arrangement 28




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(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.(U)
    
    Incorporated by reference to similarly numbered exhibits to the Registrants Form 10-K
Annual Report for
Fiscal Year Ended June 30, 2001, filed with the Commission on September 28, 2001.(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.(X)
    
    Incorporated by reference to similarly numbered exhibit to the Registrants Form 10-K
Annual Report for
Fiscal Year Ended June 30, 2004 filed with the Commission on September 27, 2004.(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.
 29




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VERSAR, INC.
(Registrant)Date: September 23, 2008
    /S/ Paul J. HoeperPaul J. HoeperChairman and Director  SIGNATURES
    
    TITLE
    
    DATE/S/ Paul J. Hoeper

Paul J. Hoeper
    
    Chairman and Director
    
    September 23, 2008/S/ Theodore M. Prociv

Theodore M. Prociv
    
    Chief Executive Officer, President, and
Director
    
    September 23, 2008/S/ Lawrence W. Sinnott

Lawrence W. Sinnott
    
    Executive Vice President, Chief
Operating Officer, Chief Financial
Officer, Treasurer, and Principal
Accounting Officer
    
    September 23, 2008/S/ Michael Markels, Jr.

Michael Markels, Jr.
    
    Chairman Emeritus and Director
    
    September 23, 2008/S/ Robert L. Durfee

Robert L. Durfee
    
    Director
    
    September 23, 2008/S/ James L. Gallagher

James L. Gallagher
    
    Director
    
    September 23, 2008/S/ Fernando V. Galaviz

Fernando V. Galaviz
    
    Director
    
    September 23, 2008
 30




---



##### 



SIGNATURES
    
    TITLE
    
    DATE/S/ James V. Hansen

James V. Hansen
    
    Director
    
    September 23, 2008/S/ Amoretta M. Hoeber

Amoretta M. Hoeber
    
    Director
    
    September 23, 2008/S/ Amir A. Metry

Amir A. Metry
    
    Director
    
    September 23, 2008
 31




---



##### 



Report of Independent Registered Public Accounting Firm
 
     
 F-1




---



##### 



VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 June 27,
    
    
    June 29,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    11,938
    
    
    $
    6,296Accounts receivable, net
    
    
    21,596
    
    
    
    22,507Prepaid expenses and other current assets
    
    
    1,080
    
    
    
    1,250Deferred income taxes
    
    
    1,015
    
    
    
    2,107Total current assets
    
    
    35,629
    
    
    
    32,160Property and equipment, net
    
    
    2,152
    
    
    
    2,306Deferred income taxes
    
    
    517
    
    
    
    802Goodwill
    
    
    776
    
    
    
    776Other assets
    
    
    754
    
    
    
    773Total assets
    
    $
    39,828
    
    
    $
    36,817LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    7,731
    
    
    $
    10,454Billings in excess of revenue
    
    
    156
    
    
    
    594Accrued salaries and vacation
    
    
    1,719
    
    
    
    1,604Accrued bonus
    
    
    2,066
    
    
    
    1,793Other liabilities
    
    
    1,686
    
    
    
    1,539Total current liabilities
    
    
    13,358
    
    
    
    15,984Other long-term liabilities
    
    
    1,417
    
    
    
    1,411Total liabilities
    
    
    14,775
    
    
    
    17,395Commitments and contingencies
    
    
    
    
    
    
    Stockholders equityCommon stock, $.01 par value; 30,000,000 shares
authorized; 9,059,135 shares and 8,705,733 shares
issued; 8,975,101 shares and 8,651,742 shares outstanding
    
    
    91
    
    
    
    87Capital in excess of par value
    
    
    27,115
    
    
    
    24,679Accumulated deficit
    
    
    (1,554
    )
    
    
    (4,945
    )Treasury stock
    
    
    (578
    )
    
    
    (399
    )Accumulated other comprehensive loss
    
    
    (21
    )
    
    
    Total stockholders equity
    
    
    25,053
    
    
    
    19,422Total liabilities and stockholders equity
    
    $
    39,828
    
    
    $
    36,817
  F-2




---



##### 



VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Income
 Years EndedJune 27,
    
    
    June 29,
    
    
    June 30,2008
    
    
    2007
    
    
    2006GROSS REVENUE
    
    $
    115,602
    
    
    $
    102,726
    
    
    $
    60,888Purchased services and materials, at cost
    
    
    68,507
    
    
    
    62,750
    
    
    
    26,598Direct costs of services and overhead
    
    
    33,307
    
    
    
    29,154
    
    
    
    27,936GROSS PROFIT
    
    
    13,788
    
    
    
    10,822
    
    
    
    6,354Selling, general and administrative expenses
    
    
    8,297
    
    
    
    6,669
    
    
    
    5,673OPERATING INCOME
    
    
    5,491
    
    
    
    4,153
    
    
    
    681OTHER EXPENSEInterest income, net
    
    
    (173
    )
    
    
    (24
    )
    
    
    (11
    )Income tax expense (benefit), net
    
    
    2,273
    
    
    
    (1,105
    )
    
    
    (945
    )INCOME FROM CONTINUING OPERATIONS
    
    
    3,391
    
    
    
    5,282
    
    
    
    1,637DISCONTINUED OPERATIONSLoss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (290
    )LOSS FROM DISCONTINUED OPERATIONS
    
    
    
    
    
    
    
    
    
    
    (290
    )NET INCOME
    
    $
    3,391
    
    
    $
    5,282
    
    
    $
    1,347NET INCOME FROM CONTINUING OPERATIONS PER
SHARE  BASIC
    
    $
    0.38
    
    
    $
    0.64
    
    
    $
    0.20NET INCOME FROM CONTINUING OPERATIONS PER
SHARE  DILUTED
    
    $
    0.36
    
    
    $
    0.62
    
    
    $
    0.20LOSS FROM DISCONTINUED OPERATIONS 
BASIC AND DILUTED
    
    $
    
    
    
    $
    
    
    
    $
    (0.04
    )NET INCOME PER SHARE  BASIC
    
    $
    0.38
    
    
    $
    0.64
    
    
    $
    0.17NET INCOME PER SHARE  DILUTED
    
    $
    0.36
    
    
    $
    0.62
    
    
    $
    0.16WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING  BASIC
    
    
    8,932
    
    
    
    8,201
    
    
    
    8,057WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING  DILUTED
    
    
    9,331
    
    
    
    8,466
    
    
    
    8,347
  F-3




---



##### 



VERSAR, INC.
Consolidated Statements of Changes in Stockholders Equity
  Accumu-latedOtherCapital in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compre-
    
    
    TotalExcess
    
    
    Accumu-
    
    
    
    
    
    
    
    
    
    
    hensive
    
    
    Stock-Common Stock
    
    
    of Par
    
    
    lated
    
    
    Treasury
    
    
    Income
    
    
    holders'Shares
    
    
    Amount
    
    
    Value
    
    
    Deficit
    
    
    Shares
    
    
    Stock
    
    
    (Loss)
    
    
    EquityBalance, July 1, 2005
    
    
    7,924
    
    
    $
    79
    
    
    $
    22,119
    
    
    $
    (11,574
    )
    
    
    (16
    )
    
    $
    (72
    )
    
    $
    
    
    
    $
    10,552Exercise of stock options
    
    
    221
    
    
    
    2
    
    
    
    604
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    606Share-based compensation
    
    
    
    
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,347Balance, June 30, 2006
    
    
    8,145
    
    
    
    81
    
    
    
    22,790
    
    
    
    (10,227
    )
    
    
    (16
    )
    
    
    (72
    )
    
    
    
    
    
    
    12,572Exercise of stock options
    
    
    231
    
    
    
    2
    
    
    
    713
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    715Issuance of restricted stock
    
    
    21
    
    
    
    1
    
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85Exercise of stock warrants
    
    
    180
    
    
    
    2
    
    
    
    717
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    719Stock exchange
    
    
    129
    
    
    
    1
    
    
    
    327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    (327
    )
    
    
    
    
    
    
    (327
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,282
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,282Balance, 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
Income
Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,391Other
Comprehensive Income
Foreign currency translations
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,370Balance, June 27, 2008
    
    
    9,059
    
    
    $
    91
    
    
    $
    27,115
    
    
    $
    (1,554
    )
    
    
    (84
    )
    
    $
    (578
    )
    
    $
    (21
    )
    
    $
    25,053
  F-4




---



##### 



VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
 Years EndedJune 27,
    
    
    June 29,
    
    
    Jun 30,2008
    
    
    2007
    
    
    2006Cash flows from operating activitiesIncome from continuing operations
    
    $
    3,391
    
    
    $
    5,282
    
    
    $
    1,637Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (290
    )Net income
    
    
    3,391
    
    
    
    5,282
    
    
    
    1,347Adjustments to reconcile net income to net cash
provided by (used in) continuing operationsDepreciation and amortization
    
    
    876
    
    
    
    687
    
    
    
    755Loss on sale of property and equipment
    
    
    
    
    
    
    19
    
    
    
    52Provision for doubtful accounts receivable
    
    
    1
    
    
    
    336
    
    
    
    (34
    )Decrease (increase) in deferred tax assets
    
    
    1,378
    
    
    
    (1,200
    )
    
    
    (945
    )Share-based compensation
    
    
    811
    
    
    
    132
    
    
    
    67Changes in assets and liabilitiesDecrease (increase) in accounts receivable
    
    
    909
    
    
    
    (6,616
    )
    
    
    (1,616
    )Decrease in prepaid expenses
and other assets
    
    
    199
    
    
    
    187
    
    
    
    561(Decrease) increase in accounts payable
    
    
    (2,723
    )
    
    
    4,504
    
    
    
    733Increase (decrease) in accrued salaries and
vacation
    
    
    115
    
    
    
    130
    
    
    
    (16
    )(Decrease) increase in other liabilities
    
    
    (12
    )
    
    
    2,320
    
    
    
    98Net cash provided by continuing operations
    
    
    4,945
    
    
    
    5,781
    
    
    
    1,002Changes in net assets/liabilities of discontinued
operations
    
    
    
    
    
    
    (285
    )
    
    
    (167
    )Net cash provided by operating activities
    
    
    4,945
    
    
    
    5,496
    
    
    
    835Cash flows used in investing activitiesPurchase of property and equipment
    
    
    (722
    )
    
    
    (693
    )
    
    
    (613
    )Increase in life insurance cash surrender value
    
    
    (10
    )
    
    
    (82
    )
    
    
    (43
    )Net cash used in investing activities
    
    
    (732
    )
    
    
    (775
    )
    
    
    (656
    )Cash flows from financing activitiesNet payments on bank line of credit
    
    
    
    
    
    
    
    
    
    
    (777
    )Purchase of treasury stock
    
    
    (179
    )
    
    
    (327
    )
    
    
    Proceeds from exercise of options and warrants
    
    
    1,055
    
    
    
    1,762
    
    
    
    606Tax benefit on exercise of stock options
    
    
    574
    
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    1,450
    
    
    
    1,435
    
    
    
    (171
    )Effect of exchange rate changes
    
    
    (21
    )
    
    
    
    
    
    
    Net increase in cash and cash equivalents
    
    
    5,642
    
    
    
    6,156
    
    
    
    8Cash and cash equivalents at the beginning of the year
    
    
    6,296
    
    
    
    140
    
    
    
    132Cash and cash equivalents at the end of the year
    
    $
    11,938
    
    
    $
    6,296
    
    
    $
    140Supplementary disclosure of cash flow information:Cash paid during the period forInterest
    
    $
    57
    
    
    $
    70
    
    
    $
    96Income Taxes
    
    $
    199
    
    
    $
    55
    
    
    $
    44
  F-5




---



##### 



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




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Asset retirement obligation: 1 2
 Discontinued operations:
 Share-based compensation:
   Restricted Stock Grants:
 Net income per share:
 F-7




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  Years EndedJune 27,
    
    
    June 29,
    
    
    June 30,2008
    
    
    2007
    
    
    2006(In thousands)Weighted average number of shares
outstanding  basic
    
    
    8,932
    
    
    
    8,201
    
    
    
    8,057Effect of assumed exercise of stock options and vesting of restricted stock
    
    
    399
    
    
    
    265
    
    
    
    290Weighted average number of shares
outstanding  diluted
    
    
    9,331
    
    
    
    8,466
    
    
    
    8,347
  Deferred compensation:
 Cash and cash equivalents:
 Foreign Currency Translation:
 Fair value of financial instruments:
 Classification:
 New accounting pronouncements:
 F-8




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  The Fair
Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB
Statement No. 115
 Business Combinations
 Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51
 NOTE B BUSINESS SEGMENTS
     F-9




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  Years EndedJune 27,
    
    
    June 29,
    
    
    June 30,2008
    
    
    2007
    
    
    2006(In thousands)GROSS REVENUEProgram Management
    
    $
    68,896
    
    
    $
    58,765
    
    
    $
    19,507Compliance and Environmental
Programs
    
    
    30,429
    
    
    
    29,839
    
    
    
    26,958Professional Services
    
    
    8,101
    
    
    
    7,318
    
    
    
    7,010National Security
    
    
    8,176
    
    
    
    6,804
    
    
    
    7,413$
    115,602
    
    
    $
    102,726
    
    
    $
    60,888GROSS PROFIT (A)Program Management
    
    $
    9,398
    
    
    $
    7,037
    
    
    $
    815Compliance and Environmental
Programs
    
    
    2,390
    
    
    
    2,313
    
    
    
    2,985Professional Services
    
    
    1,290
    
    
    
    1,257
    
    
    
    1,379National Security
    
    
    710
    
    
    
    215
    
    
    
    1,175$
    13,788
    
    
    $
    10,822
    
    
    $
    6,354Selling, general and administrative
expenses
    
    
    (8,297
    )
    
    
    (6,669
    )
    
    
    (5,673
    )OPERATING INCOME
    
    $
    5,491
    
    
    $
    4,153
    
    
    $
    681
  Years EndedJune 27,
    
    
    June 29,2008
    
    
    2007(In thousands)IDENTIFIABLE ASSETSProgram Management
    
    $
    11,405
    
    
    $
    11,497Compliance and Environmental Programs
    
    
    8,762
    
    
    
    10,042Professional Services
    
    
    1,554
    
    
    
    1,651National Security
    
    
    2,693
    
    
    
    1,985Corporate and Other
    
    
    15,414
    
    
    
    11,642Total Assets
    
    $
    39,828
    
    
    $
    36,817
 F-10




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 NOTES C ACCOUNTS RECEIVABLE
 Years EndedJune 27,
    
    
    June 29,2008
    
    
    2007(In thousands)Billed receivablesU.S. Government
    
    $
    10,312
    
    
    $
    6,492Commercial
    
    
    2,063
    
    
    
    3,468Unbilled receivablesU.S. Government
    
    
    9,282
    
    
    
    12,827Commercial
    
    
    282
    
    
    
    9421,939
    
    
    
    22,881Allowance for doubtful accounts
    
    
    (343
    )
    
    
    (374
    )$
    21,596
    
    
    $
    22,507
  NOTE D PROPERTY AND EQUIPMENT
 Estimated
    
    Years EndedUseful Life
    
    June 27,
    
    
    June 29,in Years
    
    2008
    
    
    2007(In thousands)Furniture and fixtures
    
    10
    
    $
    827
    
    
    $
    773Equipment
    
    3 to 10
    
    
    7,029
    
    
    
    6,502Capital leases
    
    Life of lease
    
    
    568
    
    
    
    568Leasehold improvements
    
    Life of lease
    
    
    2,115
    
    
    
    2,02210,539
    
    
    
    9,865Accumulated depreciation
and amortization
    
    
    
    
    (8,387
    )
    
    
    (7,559
    )$
    2,152
    
    
    $
    2,306
   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-Optioned
    
    
    Average OptionShares
    
    
    Price Per Share
    
    
    Total(In thousands, except per share price)Outstanding at July 1, 2005
    
    
    1,282
    
    
    $
    3.10
    
    
    $
    3,981Granted
    
    
    5
    
    
    
    3.20
    
    
    
    16Exercised
    
    
    (81
    )
    
    
    2.51
    
    
    
    (203
    )Cancelled
    
    
    (180
    )
    
    
    3.24
    
    
    
    (584
    )Outstanding at June 30, 2006
    
    
    1,026
    
    
    $
    3.13
    
    
    $
    3,210Exercised
    
    
    (332
    )
    
    
    2.87
    
    
    
    (952
    )Cancelled
    
    
    (27
    )
    
    
    3.72
    
    
    
    (99
    )Reclassified to non-qualified
    
    
    (12
    )
    
    
    3.50
    
    
    
    (42
    )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
    
    
    $
    1,306
 F-13




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of SharesShares
    
    
    
    
    
    Weighted-
    
    
    Weighted-
    
    
    UnderlyingUnderlying
    
    Range of
    
    
    Average
    
    
    Average
    
    
    ExercisableOptions
    
    Option Price
    
    
    Option Price
    
    
    Remaining Life
    
    
    Options(In thousands, except as noted)28
    
    $
    1.75 to $1.81
    
    
    $
    1.80
    
    
    3.9-years
    
    
    28239
    
    $
    2.05 to $2.80
    
    
    
    2.57
    
    
    3.6-years
    
    
    239116
    
    $
    3.00 to $3.82
    
    
    
    3.73
    
    
    6.1-years
    
    
    11647
    
    $
    4.00 to $4.95
    
    
    
    4.38
    
    
    6.5-years
    
    
    47430
    
    
    
    
    
    $
    3.03
    
    
    4.9-years
    
    
    430
  Weighted-Optioned
    
    
    Average OptionShares
    
    
    Price Per Share
    
    
    Total(In thousands, except per share price)Outstanding at July 1, 2005
    
    
    407
    
    
    $
    3.25
    
    
    $
    1,322Exercised
    
    
    (140
    )
    
    
    2.89
    
    
    
    (403
    )Cancelled
    
    
    (64
    )
    
    
    4.03
    
    
    
    (260
    )Outstanding at June 30, 2006
    
    
    203
    
    
    $
    3.24
    
    
    $
    659Exercised
    
    
    (29
    )
    
    
    3.16
    
    
    
    (92
    )Cancelled
    
    
    (14
    )
    
    
    2.77
    
    
    
    (37
    )Reinstated
    
    
    10
    
    
    
    3.49
    
    
    
    33Reclassified from ISO
    
    
    12
    
    
    
    3.50
    
    
    
    42Outstanding at June 29, 2007
    
    
    182
    
    
    $
    3.32
    
    
    $
    605Granted
    
    
    10
    
    
    
    7.77
    
    
    
    78Exercised
    
    
    (51
    )
    
    
    4.87
    
    
    
    (248
    )Outstanding at June 27, 2008
    
    
    141
    
    
    $
    3.07
    
    
    $
    435
 F-14




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of SharesShares
    
    
    
    
    
    Weighted-
    
    
    Weighted-
    
    
    UnderlyingUnderlying
    
    Range of
    
    
    Average
    
    
    Average
    
    
    ExercisableOptions
    
    Option Price
    
    
    Option Price
    
    
    Remaining Life
    
    
    Options(In thousands, except as noted)71
    
    $
    1.75 to $1.88
    
    
    $
    1.80
    
    
    3.3-years
    
    
    715
    
    $
    2.06 to $2.80
    
    
    
    2.80
    
    
    5.3-years
    
    
    527
    
    $
    3.10 to $3.65
    
    
    
    3.35
    
    
    4.4-years
    
    
    2729
    
    $
    4.00 to $4.58
    
    
    
    4.35
    
    
    6.5-years
    
    
    2910
    
    $
    7.77
    
    
    
    5.75
    
    
    9.4-years
    
    
    142
    
    
    
    
    
    $
    3.07
    
    
    4.6-years
    
    
    132
   NOTE G INCOME TAXES
  Years EndedJune 27,
    
    
    June 29,
    
    
    June 30,2008
    
    
    2007
    
    
    2006(In thousands)CurrentFederal
    
    $
    274
    
    
    $
    85
    
    
    $
    State
    
    
    47
    
    
    
    10
    
    
    
    DeferredFederal
    
    
    1,528
    
    
    
    1,404
    
    
    
    (276
    )State
    
    
    421
    
    
    
    350
    
    
    
    (93
    )Foreign
    
    
    3
    
    
    
    
    
    
    
    Valuation Allowance
    
    
    
    
    
    
    (2,954
    )
    
    
    (576
    )$
    2,273
    
    
    $
    (1,105
    )
    
    $
    (945
    )
 F-15




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
  June 27
    
    
    June 29,2008
    
    
    2007Deferred Tax Assets:Employee benefits
    
    $
    295
    
    
    $
    301Bad debt reserves
    
    
    130
    
    
    
    142All other reserves
    
    
    86
    
    
    
    97Alternative minimum tax credits
    
    
    134
    
    
    
    200Net operating losses
    
    
    196
    
    
    
    1,317State tax net operating losses
    
    
    112
    
    
    
    267Depreciation
    
    
    432
    
    
    
    372Other
    
    
    374
    
    
    
    353Total Deferred Tax Assets
    
    
    1,759
    
    
    
    3,049Valuation Allowance
    
    
    (47
    )
    
    
    Deferred Tax Liabilities:Goodwill
    
    
    (177
    )
    
    
    (140
    )Foreign
    
    
    (3
    )
    
    
    Net Deferred Tax Assets
    
    $
    1,532
    
    
    $
    2,909
    Years EndedJune 27,
    
    
    June 29,
    
    
    June 30,2008
    
    
    2007
    
    
    2006(In thousands)Expected provision at federal
statutory rate
    
    $
    1,923
    
    
    $
    1,447
    
    
    $
    133Change in valuation allowance
    
    
    47
    
    
    
    (2,954
    )
    
    
    (1,140
    )State income tax expense
    
    
    221
    
    
    
    183
    
    
    
    20Permanent items
    
    
    27
    
    
    
    40
    
    
    
    42NOL adjustments and other
    
    
    55
    
    
    
    179
    
    
    
    $
    2,273
    
    
    $
    (1,105
    )
    
    $
    (945
    )
 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
   TotalYears Ending June 30,
    
    Amount(In thousands)2009
    
    $
    2,5212010
    
    
    2,1222011
    
    
    1,4662012
    
    
    1,2782013
    
    
    1,2852014 and thereafter
    
    
    3,438$
    12,110
 F-17




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
   Legal Proceedings
  NOTE J CUSTOMER INFORMATION
  Years EndedJune 27,
    
    
    June 29,
    
    
    June 30,2008
    
    
    2007
    
    
    2006(In Thousands)U.S. Department of Defense
    
    $
    88,245
    
    
    $
    65,997
    
    
    $
    32,012U.S. Environmental Protection Agency
    
    
    2,399
    
    
    
    2,753
    
    
    
    3,909Other U.S. Government Agencies
    
    
    3,657
    
    
    
    16,512
    
    
    
    11,933Total U.S. Federal Government
    
    $
    94,301
    
    
    $
    85,262
    
    
    $
    47,854
 F-18




---



##### 



VERSAR, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 NOTE K QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  Fiscal Year 2008
    
    
    Fiscal Year 2007Quarter Ending
    
    June 27
    
    
    Mar 28
    
    
    Dec 28
    
    
    Sep 28
    
    
    Jun 29
    
    
    Mar 30
    
    
    Dec 29
    
    
    Sep 29Gross Revenue
    
    $
    28,491
    
    
    $
    28,874
    
    
    $
    29,355
    
    
    $
    28,882
    
    
    $
    30,190
    
    
    $
    28,313
    
    
    $
    21,938
    
    
    $
    22,285Gross Profit
    
    
    3,426
    
    
    
    3,796
    
    
    
    3,067
    
    
    
    3,499
    
    
    
    3,346
    
    
    
    2,860
    
    
    
    2,468
    
    
    
    2,148Operating income
    
    
    1,011
    
    
    
    1,546
    
    
    
    1,211
    
    
    
    1,723
    
    
    
    1,599
    
    
    
    1,126
    
    
    
    777
    
    
    
    651Net income
    
    $
    716
    
    
    $
    913
    
    
    $
    745
    
    
    $
    1,017
    
    
    $
    830
    
    
    $
    3,097
    
    
    $
    749
    
    
    $
    606Net income per
share  diluted
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.11
    
    
    $
    0.10
    
    
    $
    0.36
    
    
    $
    0.09
    
    
    $
    0.07Weighted average
number of shares
outstanding  diluted
    
    
    9,406
    
    
    
    9,257
    
    
    
    9,231
    
    
    
    9,268
    
    
    
    8,736
    
    
    
    8,564
    
    
    
    8,392
    
    
    
    8,429
  F-19




---



##### 



Schedule II
 VERSAR, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
 BALANCE
    
    ADDITIONS
    
    
    
    
    
    BALANCEAT BEGINNING
    
    CHARGED TO COSTS
    
    CHARGE
    
    AT END OFOF YEAR
    
    AND EXPENSES
    
    OFF
    
    YEARALLOWANCE FOR
DOUBTFUL ACCOUNTS2006
    
    
    461,491
    
    
    
    (33,696
    )
    
    
    (79,294
    )
    
    
    348,5012007
    
    
    348,501
    
    
    
    335,518
    
    
    
    (310,043
    )
    
    
    373,9762008
    
    
    373,976
    
    
    
    1,479
    
    
    
    (32,492
    )
    
    
    342,963DEFERRED TAX
VALUATION ALLOWANCE2006
    
    
    3,530,000
    
    
    
    
    
    
    
    (576,000
    )
    
    
    2,954,0002007
    
    
    2,954,000
    
    
    
    
    
    
    
    (2,954,000
    )
    
    
    2008
    
    
    
    
    
    
    47,000
    
    
    
    
    
    
    
    47,000
 F-20