##### 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 
July 1, 2011
    
    Commission File
No. 1-9309
 
  DELAWARE
(State or other jurisdiction of Incorporation or organization)
    
    54-0852979
(I.R.S. employer identification no.)6850 Versar Center, Springfield, Virginia
(Address of principal executive offices)
    
    22151
(Zip code)
 (703) 750-3000
 Common Stock, $.01 par value
 NYSE Amex
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   DOCUMENTS INCORPORATED BY REFERENCE




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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 DataConsolidated Balance SheetsConsolidated Statements of OperationsConsolidated Statements of Changes in Stockholders EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial StatementsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 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 SchedulesSIGNATURESExhibit 21Exhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents  
 PART I
 
 Item 1.
    
    Business
  Cautionary Statement Regarding Forward-Looking Statements
 This report contains certain forward-looking statements that 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
  
    
    Construction Management
 
    
    Environmental Services and Sustainability
 
    
    Munitions Response
 
    
    Telecommunication and Technology Integration
  
    
    Program Management
 
    
    Compliance and Environmental Programs
 
    
    Professional Services
 
    
    National Security
 .
   2




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
    
    In January 2010, we acquired Professional Protection Systems, Ltd. (PPS), which is
located in Milton Keynes, United Kingdom. PPS manufactures and sells personal protective
equipment primarily to the nuclear industry, including protective suits, decontamination
showers, and emergency shelters. The operations of PPS added approximately $4.9 million to
our fiscal year 2011 revenue. Acquiring PPS enabled us to cross sell Versars existing
personal protective offerings along with PPS offerings internationally, an example being
shelter sales to Scotland. PPS has been integrated into our National Security business
segments existing line of personal protective equipment for chemical and biological
warfare protection.
 
    
    In March 2010, we acquired ADVENT Environmental, Inc. (ADVENT), which is headquartered
in Charleston, South Carolina. ADVENT is a full service environmental contractor and has
significant capabilities in Military Munitions Response Plans (MMRP) and Unexploded
Ordinance (UXO) clean-up. The operations of ADVENT added approximately $15.7 million to
our fiscal year 2011 revenue. ADVENT provides us with access to several additional
contract vehicles within the Department of Defense (DoD).
  Business Segments
  Program Management Business Segment
     3




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Compliance and Environmental Programs Business Segment
  
    
    We have supported the US Environmental Protection Agency (EPA) for the past 25 years
providing a wide-range of mandated services involving exposure assessment and regulatory
review. Furthermore, we provide support to the U.S. Army Corps of Engineers and many local
municipal entities assisting with environmental compliance, biological assessments, and
natural resource management.
 
    
    For more than 30 years, Versar has supported the states of Virginia, Maryland, New York,
Pennsylvania and Delaware on a variety of different projects. For example, we have
supported the State of Maryland in the assessment of the ecological health and natural
resources risk of the Chesapeake Bay. Versar continues to assess the Delaware River (PA,
NJ, and DE) and how it is affected by dredging programs. We assist several counties in
Maryland and Virginia with their watershed programs identifying impaired watersheds and
providing cost-effective solutions for their restoration programs. We provide energy
feasibility review, measurement and verification to the State of New York.
  Professional Services Business Segment
  
    
    Net Zero (energy secure and energy efficient DoD bases), sustainability and mission
program support
 
    
    Restoration and reuse of military bases
 
    
    Base realignment and closure (BRAC) support
 
    
    Pollution prevention (P2) and waste management
 
    
    Natural and cultural resources management services
 
    
    Facility services
 
    
    Public outreach and training services
 
    
    Biological and physical sciences support.
  National Security Business Segment
  
    
    Onsite range support services
 
    
    Unexploded ordnance cleanup (called UXO)
 
    
    Chemical agent testing, equipment and related services.
  4




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®
 Revenue Earned by Geographic Location
  Our Strategy
   
    
    Pursuit of larger contract opportunities. Our move to a large-business, coincident with
development of a strong internal infrastructure and associated technologies, is allowing us
to focus on pursuing larger prime contract opportunities. Strategic partnering,
joint-ventures, and long-lead positioning coupled with Versar branding should provide
increased growth and services.
 
    
    Leveraging of our services.This will allow us to work efficiently in the new economic
environment whether that is selling of sustainability risk management utilizing our energy
and environmental skill-sets, or via effective use of our construction management skills in
relation to complex project oversight. Our existing core capabilities coupled with new and
emerging capabilities provides us with the understanding and insight necessary to reduce
client risk.
 
    
    Expanding our international footprint.While strong internationally in the construction
management business, incorporation of our non-construction services into our overseas
client-base will allow for replication of our proven domestic skills into the international
market and will help us meet growing overseas client needs.
 Competition
   5




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Backlog
   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;
  6




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
    
    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.
   7




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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.
    We could face potential liability for failure to properly design remediation.
  Our failure to properly manage projects may result in additional costs or claims.
   8




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Our services expose us to significant risks of liability and it may be difficult to obtain or
maintain adequate insurance coverage.
   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.
  Future acquisitions may require us to incur costs and liabilities or have other unexpected
consequences which may adversely affect our operating results and financial condition.
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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;
 
    
    ability to work within foreign countries regulations, tax requirements and obligations;
 
    
    business, financial, and security risks related to 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;
 
    
    volatility of currencies in foreign countries; and
 
    
    the integration of any acquisition or the ability of an acquisition to continue
to perform as in the past.
  10




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We are highly dependent on key personnel.
  
 Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Properties
    
 Item 3.
    
    Legal Proceedings
   11




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EXECUTIVE OFFICERS OF THE REGISTRANT
  NAME
    
    AGE
    
    POSITION WITH THE COMPANYAnthony L. Otten
    
    
    55
    
    
    Chief Executive OfficerJeffrey A. Wagonhurst
    
    
    63
    
    
    PresidentCynthia A. Downes
    
    
    50
    
    
    Executive Vice President, Chief Financial
Officer and TreasurerJ. Joseph Tyler
    
    
    62
    
    
    Senior Vice President, Director of Corporate
Initiatives & Integration (CI2)James C. Dobbs
    
    
    66
    
    
    Senior Vice President, General Counsel and
SecretaryMichael J. Abram
    
    
    55
    
    
    Senior Vice President and Chief Administrative
OfficerGina L. Foringer
    
    
    43
    
    
    Senior Vice President, Professional Services Business SegmentLee A. Staab
    
    
    54
    
    
    Senior Vice President and President, Versar
International, Inc.Jeffrey M. Moran
    
    
    48
    
    
    Senior Vice President, Compliance and
Environmental Programs Business SegmentPeter J. Cooper
    
    
    62
    
    
    Senior Vice President, National Security
Business SegmentDaniel J. Cummings
    
    
    49
    
    
    Senior Vice President, Telecommunications and
Technology Group
 Anthony L. Otten
 Jeffrey A. Wagonhurst
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Cynthia A. Downes
 J. Joseph Tyler,
 James C. Dobbs
 Michael J. Abram
 Gina L. Foringer
 Lee
A. Staab th
 Jeffrey M. Moran
 Peter J. Cooper
  13




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Daniel J. Cummings th
 
 PART II
 
 Item 5.
    
    Market for Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Common Stock
  Fiscal Year 2011
    
    High
    
    
    Low4th Quarter
    
    $
    3.45
    
    
    $
    2.903rd Quarter
    
    
    3.94
    
    
    
    3.162nd Quarter
    
    
    3.86
    
    
    
    2.751st Quarter
    
    
    3.34
    
    
    
    1.98
 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
    14




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Equity Compensation Plan Information
 Number of securitiesremaining available forNumber of Securities
    
    
    
    
    
    
    future issuance underto be issued upon
    
    
    Weighted-average
    
    
    equity compensationexercise of
    
    
    exercise price of
    
    
    plans [excludingoutstanding options,
    
    
    outstanding options,
    
    
    securities reflected inwarrants and rights
    
    
    warrants and rights
    
    
    column (a)]Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    249,000
    
    
    $
    3.30
    
    
    
    731,000
  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, 2011
    
    
    2,957
    
    
    $
    3.16
    
    
    
    
    
    
    
    May 1-31, 2011
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    June 1-30, 2011
    
    
    2,342
    
    
    $
    3.32
    
    
    
    
    
    
    
    Total
    
    
    5,299
    
    
    $
    3.23
    
    
    
    
    
    
    
    
  15




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6/06
    
    
    6/07
    
    
    6/08
    
    
    6/09
    
    
    6/10
    
    
    6/11Versar, Inc.
    
    
    100.00
    
    
    
    204.17
    
    
    
    116.50
    
    
    
    96.36
    
    
    
    77.67
    
    
    
    77.86S&P 500
    
    
    100.00
    
    
    
    120.59
    
    
    
    104.77
    
    
    
    77.30
    
    
    
    88.46
    
    
    
    115.61Peer Group
    
    
    100.00
    
    
    
    190.07
    
    
    
    155.76
    
    
    
    124.46
    
    
    
    123.12
    
    
    
    154.13
   16




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Item 6.
    
    Selected Financial Data (unaudited)
  For the Years EndedJuly 1,
    
    
    June 25,
    
    
    June 26,
    
    
    June 27,
    
    
    June 29,2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007(In thousands, except per share and ratio data)Consolidated Statements of Operations
Related Data:Gross revenue
    
    $
    137,599
    
    
    
    100,763
    
    
    $
    112,196
    
    
    $
    115,602
    
    
    $
    102,726Gross profit
    
    
    14,333
    
    
    
    6,011
    
    
    
    14,480
    
    
    
    13,788
    
    
    
    10,822Operating income (loss)
    
    
    5,885
    
    
    
    (3,652
    )
    
    
    5,604
    
    
    
    5,491
    
    
    
    4,153Net income (loss)
    
    
    3,447
    
    
    
    (2,294
    )
    
    
    3,169
    
    
    
    3,391
    
    
    
    5,282Income
(loss) per share from continuing operations  diluted
    
    $
    .37
    
    
    
    (.25
    )
    
    $
    .35
    
    
    $
    .36
    
    
    $
    .62Net income (loss) per share  diluted
    
    $
    .37
    
    
    
    (.25
    )
    
    $
    .35
    
    
    $
    .36
    
    
    $
    .62Weighted average shares outstanding 
diluted
    
    
    9,283
    
    
    
    9,141
    
    
    
    9,150
    
    
    
    9,331
    
    
    
    8,466Consolidated Balance Sheets Related
Data:Working capital
    
    $
    19,591
    
    
    
    15,330
    
    
    $
    25,513
    
    
    $
    22,271
    
    
    $
    16,176Current ratio
    
    
    1.90
    
    
    
    1.72
    
    
    
    3.04
    
    
    
    2.67
    
    
    
    2.01Total assets
    
    
    53,376
    
    
    
    49,864
    
    
    
    42,594
    
    
    
    39,828
    
    
    
    36,817Stockholders equity
    
    $
    30,226
    
    
    
    26,417
    
    
    $
    28,654
    
    
    $
    25,053
    
    
    $
    19,422
  17




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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 work;
    
    Failure to properly manage projects resulting in additional costs;
    
    The cost of compliance for our 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;
    
    Federal funding delays due to wars in Iraq and Afghanistan; and
    
    Integration of acquisitions and their ability to perform as expected
  18




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Consolidated Results of Operations
 
 For the Years EndedJuly 1, 2011
    
    
    June 25, 2010
    
    
    June 26, 2009GROSS REVENUE
    
    $
    137,599
    
    
    $
    100,763
    
    
    $
    112,196Purchased services and materials, at cost
    
    
    71,417
    
    
    
    55,378
    
    
    
    60,583Direct costs of services and overhead
    
    
    51,849
    
    
    
    39,374
    
    
    
    37,133GROSS PROFIT
    
    $
    14,333
    
    
    $
    6,011
    
    
    $
    14,480Gross profit percentage
    
    
    10
    %
    
    
    6
    %
    
    
    13
    %Selling, general and administrative expenses
    
    
    8,025
    
    
    
    8,651
    
    
    
    8,876Other expense
    
    
    423
    
    
    
    1,012
    
    
    
    OPERATING INCOME (LOSS)
    
    
    5,885
    
    
    
    (3,652
    )
    
    
    5,604OTHER EXPENSE (INCOME)Loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    328Interest income
    
    
    (182
    )
    
    
    (143
    )
    
    
    Interest expense
    
    
    175
    
    
    
    104
    
    
    
    36INCOME (LOSS) BEFORE INCOME TAXES
    
    $
    5,892
    
    
    $
    (3,613
    )
    
    $
    5,240
 Fiscal Year 2011 Compared to Fiscal Year 2010
 
       19




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Fiscal Year 2010 Compared to Fiscal Year 2009
         20




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Results of Operations by Reportable Segment
 
 Program Management
 For the Years EndedJuly 1, 2011
    
    
    June 25, 2010
    
    
    June 26, 2009GROSS REVENUE
    
    $
    56,889
    
    
    $
    57,826
    
    
    $
    71,526Purchased services and materials, at cost
    
    
    32,757
    
    
    
    31,458
    
    
    
    37,856Direct costs of services and overhead
    
    
    20,470
    
    
    
    22,366
    
    
    
    23,203GROSS PROFIT
    
    $
    3,662
    
    
    $
    4,002
    
    
    $
    10,467Gross profit percentage
    
    
    6
    %
    
    
    7
    %
    
    
    15
    %
 Fiscal Year 2011 Compared to Fiscal Year 2010
  Fiscal Year 2010 Compared to Fiscal Year 2009
   Compliance and Environmental Programs
 For the Years EndedJuly 1, 2011
    
    
    June 25, 2010
    
    
    June 26, 2009GROSS REVENUE
    
    $
    33,139
    
    
    $
    17,271
    
    
    $
    19,649Purchased services and materials, at cost
    
    
    15,369
    
    
    
    10,313
    
    
    
    11,634Direct costs of services and overhead
    
    
    12,201
    
    
    
    7,333
    
    
    
    7,131GROSS PROFIT
    
    $
    5,569
    
    
    $
    (375
    )
    
    $
    884Gross profit percentage
    
    
    17
    %
    
    
    (2
    )%
    
    
    4
    %
  21




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Fiscal Year 2011 Compared to Fiscal Year 2010
   Fiscal Year 2010 Compared to Fiscal Year 2009
   Professional Services
 For the Years EndedJuly 1, 2011
    
    
    June 25, 2010
    
    
    June 26, 2009GROSS REVENUE
    
    $
    13,930
    
    
    $
    12,637
    
    
    $
    11,476Purchased services and materials, at cost
    
    
    3,242
    
    
    
    5,206
    
    
    
    5,040Direct costs of services and overhead
    
    
    7,846
    
    
    
    5,413
    
    
    
    4,702GROSS PROFIT
    
    $
    2,842
    
    
    $
    2,018
    
    
    $
    1,734Gross profit percentage
    
    
    20
    %
    
    
    16
    %
    
    
    15
    %
 Fiscal Year 2011 Compared to Fiscal Year 2010
   Fiscal Year 2010 Compared to Fiscal Year 2009
 
 
  22




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National Security
 For the Years EndedJuly 1, 2011
    
    
    June 25, 2010
    
    
    June 26, 2009GROSS REVENUE
    
    $
    33,641
    
    
    $
    13,029
    
    
    $
    9,545Purchased services and materials, at cost
    
    
    20,049
    
    
    
    8,401
    
    
    
    6,053Direct costs of services and overhead
    
    
    11,332
    
    
    
    4,262
    
    
    
    2,097GROSS PROFIT
    
    $
    2,260
    
    
    $
    366
    
    
    $
    1,395Gross profit percentage
    
    
    7
    %
    
    
    3
    %
    
    
    15
    %
 Fiscal Year 2011 Compared to Fiscal Year 2010
  Fiscal Year 2010 Compared to Fiscal Year 2009
   Gross Revenue By Client Base
  For the Years EndedJuly 1, 2011
    
    
    June 25, 2010
    
    
    June 26, 2009(In thousands)GovernmentEPA
    
    $
    3,662
    
    
    
    3
    %
    
    $
    1,725
    
    
    
    2
    %
    
    $
    1,891
    
    
    
    2
    %State & Local
    
    
    7,331
    
    
    
    5
    %
    
    
    4,928
    
    
    
    5
    %
    
    
    8,589
    
    
    
    7
    %Department of Defense
    
    
    110,000
    
    
    
    80
    %
    
    
    78,022
    
    
    
    77
    %
    
    
    92,583
    
    
    
    83
    %Other
    
    
    11,043
    
    
    
    8
    %
    
    
    6,180
    
    
    
    6
    %
    
    
    2,576
    
    
    
    2
    %Commercial
    
    
    5,563
    
    
    
    4
    %
    
    
    9,908
    
    
    
    10
    %
    
    
    6,557
    
    
    
    6
    %Gross Revenue
    
    $
    137,599
    
    
    
    100
    %
    
    $
    100,763
    
    
    
    100
    %
    
    $
    112,196
    
    
    
    100
    %
 Liquidity and Capital Resources
   23




---



##### Table of Contents



Contractual Obligations
  Less than
    
    
    1-3
    
    
    4-5
    
    
    After 5Contractual Obligations
    
    Total
    
    
    1 year
    
    
    Years
    
    
    Years
    
    
    Years(in thousands)Operating lease obligations
    
    $
    9,820
    
    
    $
    3,051
    
    
    $
    4,265
    
    
    $
    2,150
    
    
    $
    354Notes payable to sellers
    
    
    1,417
    
    
    
    1,417
    
    
    
    
    
    
    
    
    
    
    
    Estimated interest obligations
    
    
    26
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    11,263
    
    
    $
    4,494
    
    
    $
    4,265
    
    
    $
    2,150
    
    
    $
    354
  24




---



##### Table of Contents



Critical Accounting Policies and Related Estimates That Could Have a Material Effect on Our
Consolidated Financial Statements
 Critical Accounting Policies and Estimates
  Revenue recognition:
  Allowance for doubtful accounts:
 Share-based compensation:
 Net deferred tax asset:
 Long-lived assets:
  25




---



##### Table of Contents



Goodwill:
 Other intangible assets:
 Asset retirement obligation:
 New Accounting Pronouncements
 Recently Adopted Accounting Guidance during Fiscal Year 2011
  Recently Issued Accounting Guidance
    26




---



##### Table of Contents



Impact of Inflation
  Business Segments
  
 Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
   27




---



##### Table of Contents



Item 8.
    
    Financial Statements and Supplementary Data
 Report of Independent Registered Public Accounting Firm
 
     
  28




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
  As ofJuly 1,
    
    
    June 25,2011
    
    
    2010ASSETSCurrent assetsCash and cash equivalents
    
    $
    6,017
    
    
    $
    1,593Accounts receivable, net
    
    
    29,500
    
    
    
    26,807Inventory
    
    
    1,386
    
    
    
    1,293Notes receivable, current
    
    
    1,040
    
    
    
    1,146Prepaid expenses and other current assets
    
    
    1,511
    
    
    
    2,449Deferred income taxes
    
    
    1,554
    
    
    
    904Income tax receivable, net
    
    
    424
    
    
    
    2,339Total current assets
    
    
    41,432
    
    
    
    36,531Notes receivable, non-current
    
    
    
    
    
    
    187Property and equipment, net
    
    
    3,828
    
    
    
    3,970Deferred income taxes, non-current
    
    
    
    
    
    
    619Goodwill
    
    
    5,758
    
    
    
    5,758Intangible assets, net
    
    
    1,539
    
    
    
    1,885Other assets
    
    
    819
    
    
    
    914Total assets
    
    $
    53,376
    
    
    $
    49,864LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    10,022
    
    
    $
    12,422Accrued salaries and vacation
    
    
    3,039
    
    
    
    2,091Other current liabilities
    
    
    7,363
    
    
    
    4,301Notes payable, current
    
    
    1,417
    
    
    
    2,387Total current liabilities
    
    
    21,841
    
    
    
    21,201Notes payable, non-current
    
    
    
    
    
    
    1,059Deferred income taxes
    
    
    332
    
    
    
    Other long-term liabilities
    
    
    977
    
    
    
    1,187Total liabilities
    
    
    23,150
    
    
    
    23,447Commitments and contingenciesStockholders equityCommon stock, $.01 par value; 30,000,000 shares
authorized; 9,585,474 shares and 9,467,324 shares
issued; 9,340,280 shares and 9,258,617 shares outstanding
    
    
    95
    
    
    
    95Capital in excess of par value
    
    
    28,806
    
    
    
    28,474Retained earnings (deficit)
    
    
    2,768
    
    
    
    (679
    )Treasury stock, at cost (245,194 and 208,707 shares, respectively)
    
    
    (1,142
    )
    
    
    (1,021
    )Accumulated other comprehensive loss, foreign currency translation
    
    
    (301
    )
    
    
    (452
    )Total stockholders equity
    
    
    30,226
    
    
    
    26,417Total liabilities and stockholders equity
    
    $
    53,376
    
    
    $
    49,864
   29




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations
  Years EndedJuly 1,
    
    
    June 25,
    
    
    June 26,2011
    
    
    2010
    
    
    2009GROSS REVENUE
    
    $
    137,599
    
    
    $
    100,763
    
    
    $
    112,196Purchased services and materials, at cost
    
    
    71,417
    
    
    
    55,378
    
    
    
    60,583Direct costs of services and overhead
    
    
    51,849
    
    
    
    39,374
    
    
    
    37,133GROSS PROFIT
    
    
    14,333
    
    
    
    6,011
    
    
    
    14,480Selling, general and administrative expenses
    
    
    8,025
    
    
    
    8,651
    
    
    
    8,876Other expense
    
    
    423
    
    
    
    1,012
    
    
    
    OPERATING INCOME (LOSS)
    
    
    5,885
    
    
    
    (3,652
    )
    
    
    5,604OTHER EXPENSE/(INCOME)Loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    328Interest income
    
    
    (182
    )
    
    
    (143
    )
    
    
    Interest expense
    
    
    175
    
    
    
    104
    
    
    
    36INCOME (LOSS) BEFORE INCOME TAXES
    
    
    5,892
    
    
    
    (3,613
    )
    
    
    5,240Income tax expense (benefit)
    
    
    2,445
    
    
    
    (1,319
    )
    
    
    2,071NET INCOME (LOSS)
    
    $
    3,447
    
    
    $
    (2,294
    )
    
    $
    3,169NET INCOME (LOSS) PER SHARE  BASIC
    
    $
    0.37
    
    
    $
    (0.25
    )
    
    $
    0.35NET INCOME (LOSS) PER SHARE  DILUTED
    
    $
    0.37
    
    
    $
    (0.25
    )
    
    $
    0.35WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING  BASIC
    
    
    9,261
    
    
    
    9,141
    
    
    
    9,123WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING  DILUTED
    
    
    9,283
    
    
    
    9,141
    
    
    
    9,150
   30




---



##### 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
    
    
    Amount
    
    
    (Loss)
    
    
    EquityBalance, June 27, 2008
    
    
    9,059
    
    
    
    91
    
    
    
    27,115
    
    
    
    (1,554
    )
    
    
    (84
    )
    
    
    (578
    )
    
    
    (21
    )
    
    
    25,053Exercise of stock options
    
    
    26
    
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Issuance of restricted stock units
    
    
    109
    
    
    
    1
    
    
    
    691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    692Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )
    
    
    (128
    )
    
    
    
    
    
    
    (128
    )Tax shortfall in exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,169
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,169Other comprehensive loss:Foreign currency translation
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 units
    
    
    95
    
    
    
    1
    
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212Issuance of stock for acquisition
    
    
    78
    
    
    
    1
    
    
    
    239
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    240Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90
    )
    
    
    (315
    )
    
    
    
    
    
    
    (315
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106Tax shortfall in exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    (53
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,294
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,294
    )Other comprehensive loss:Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (371
    )
    
    
    (371
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,665
    )Balance, June 25, 2010
    
    
    9,467
    
    
    $
    95
    
    
    $
    28,474
    
    
    $
    (679
    )
    
    
    (209
    )
    
    $
    (1,021
    )
    
    $
    (452
    )
    
    $
    26,417Exercise of stock options
    
    
    65
    
    
    
    
    
    
    
    157
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157Issuance of restricted stock units
    
    
    53
    
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    (121
    )
    
    
    
    
    
    
    (121
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93Tax shortfall in exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,447
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,447Other comprehensive income:Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    151Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,598Balance, July 1, 2011
    
    
    9,585
    
    
    $
    95
    
    
    $
    28,806
    
    
    $
    2,768
    
    
    
    (245
    )
    
    $
    (1,142
    )
    
    $
    (301
    )
    
    $
    30,226
   31




---



##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Years EndedJuly 1,
    
    
    June 25,
    
    
    June 26,2011
    
    
    2010
    
    
    2009Cash flows from operating activitiesNet income (loss)
    
    $
    3,447
    
    
    $
    (2,294
    )
    
    $
    3,169Adjustments to reconcile net income to net cash provided
by (used in) continuing operations:Depreciation and amortization
    
    
    1,553
    
    
    
    1,303
    
    
    
    958Loss on sale of property and equipment
    
    
    79
    
    
    
    
    
    
    
    1Provision for doubtful accounts receivable
    
    
    595
    
    
    
    107
    
    
    
    155Loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    328(Gain) loss on life insurance policy cash surrender value
    
    
    (76
    )
    
    
    34
    
    
    
    116Deferred tax expense (benefit)
    
    
    274
    
    
    
    (220
    )
    
    
    (114
    )Share-based compensation
    
    
    187
    
    
    
    318
    
    
    
    692Changes in assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (4,160
    )
    
    
    1,382
    
    
    
    (6,256
    )Decrease (increase) in income tax receivables
    
    
    1,915
    
    
    
    (2,339
    )
    
    
    Decrease (increase) in prepaid expenses and other assets
    
    
    1,264
    
    
    
    (3,767
    )
    
    
    193Increase in inventory
    
    
    (12
    )
    
    
    (1,160
    )
    
    
    (133
    )(Decrease) increase in accounts payable
    
    
    (1,703
    )
    
    
    4,357
    
    
    
    (260
    )Increase in accrued salaries and vacation
    
    
    947
    
    
    
    132
    
    
    
    240Increase (decrease) in other liabilities
    
    
    2,442
    
    
    
    3,762
    
    
    
    (823
    )Net cash provided by (used in) operating activities
    
    
    6,752
    
    
    
    1,615
    
    
    
    (1,734
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (1,213
    )
    
    
    (2,356
    )
    
    
    (1,172
    )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
    
    
    
    
    
    
    
    
    
    
    2,672Premium paid on life insurance policies
    
    
    (35
    )
    
    
    (36
    )
    
    
    (38
    )Proceeds from (investment in) notes receivable
    
    
    293
    
    
    
    (1,070
    )
    
    
    (200
    )Net cash used in investing activities
    
    
    (955
    )
    
    
    (8,290
    )
    
    
    (1,738
    )Cash flows from financing activitiesPurchase of treasury stock
    
    
    (20
    )
    
    
    (77
    )
    
    
    (128
    )Borrowings on line of credit
    
    
    27,189
    
    
    
    10,755
    
    
    
    Repayments on line of credit
    
    
    (27,189
    )
    
    
    (10,755
    )
    
    
    Repayment of notes payable
    
    
    (1,458
    )
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    56
    
    
    
    
    
    
    
    48Net cash used in financing activities
    
    
    (1,422
    )
    
    
    (77
    )
    
    
    (80
    )Effect of exchange rate changes
    
    
    49
    
    
    
    (55
    )
    
    
    14Net increase (decrease) in cash and cash equivalents
    
    
    4,424
    
    
    
    (6,807
    )
    
    
    (3,538
    )Cash and cash equivalents at the beginning of the year
    
    
    1,593
    
    
    
    8,400
    
    
    
    11,938Cash and cash equivalents at the end of the year
    
    $
    6,017
    
    
    $
    1,593
    
    
    $
    8,400Supplementary disclosure of cash flow information:Cash paid during the year for:Interest
    
    $
    175
    
    
    $
    58
    
    
    $
    60Income taxes
    
    $
    2,495
    
    
    $
    1,392
    
    
    $
    1,762Supplemental disclosures of non-cash financing activities:Exercise of stock options
    
    $
    101
    
    
    $
    238
    
    
    $
    Acquisition of treasury stock for restricted stock units
    
    $
    (101
    )
    
    $
    (238
    )
    
    $
    Supplemental disclosures of non-cash investing activities:Issuance of notes payable for acquisition
    
    $
    
    
    
    $
    2,690
    
    
    $
    Issuance of stock for PPS acquisition
    
    $
    
    
    
    $
    240
    
    
    $
    
   32




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##### Table of Contents



VERSAR, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  SIGNIFICANT ACCOUNTING POLICIES
 Significant Accounting Policies
 Principles of consolidation and business operations:
 Accounting estimates:
 Contract accounting and revenue recognition:
 Direct costs of services and overhead:
 Pre-contract costs:
 Depreciation and amortization:
 Allowance for doubtful accounts:
 Share-based compensation
  33




---



##### Table of Contents



Net income per share:
  Years EndedJuly 1,
    
    
    June 25,
    
    
    June 26,2011
    
    
    2010
    
    
    2009(In thousands)Weighted average number of shares
outstanding  basic
    
    
    9,261
    
    
    
    9,141
    
    
    
    9,123Effect of assumed exercise of stock options
and vesting of restricted stock units
    
    
    22
    
    
    
    
    
    
    
    27Weighted average number of shares
outstanding  diluted
    
    
    9,283
    
    
    
    9,141
    
    
    
    9,150
  Cash and cash equivalents:
 Inventory
 Notes receivable:
 Long-lived assets:
 Income taxes:
  34




---



##### Table of Contents



Goodwill:
 Other intangible assets
 Asset retirement obligation:
 Treasury stock:
 Foreign Currency Translation:
 Fair value of financial and non-financial assets and liabilities:
 Commitments and contingencies:
 Prior Year Reclassification:
  35




---



##### Table of Contents



New Accounting Pronouncements
 Recently Adopted Accounting Guidance during Fiscal Year 2011
  Recently Issued Accounting Guidance
     NOTE B  BUSINESS SEGMENTS
   36




---



##### Table of Contents



Years EndedJuly 1, 2011
    
    
    June 25, 2010
    
    
    June 26, 2009(In thousands)GROSS REVENUEProgram Management
    
    $
    56,889
    
    
    $
    57,826
    
    
    $
    71,526Compliance and Environmental Programs
    
    
    33,139
    
    
    
    17,271
    
    
    
    19,649Professional Services
    
    
    13,930
    
    
    
    12,637
    
    
    
    11,476National Security
    
    
    33,641
    
    
    
    13,029
    
    
    
    9,545$
    137,599
    
    
    $
    100,763
    
    
    $
    112,196GROSS PROFIT (LOSS) (a)Program Management
    
    $
    3,662
    
    
    $
    4,002
    
    
    $
    10,467Compliance and Environmental Programs
    
    
    5,569
    
    
    
    (375
    )
    
    
    884Professional Services
    
    
    2,842
    
    
    
    2,018
    
    
    
    1,734National Security
    
    
    2,260
    
    
    
    366
    
    
    
    1,395$
    14,333
    
    
    $
    6,011
    
    
    $
    14,480Selling, general and administrative
Expenses
    
    
    8,025
    
    
    
    8,651
    
    
    
    8,876Other expenses
    
    
    423
    
    
    
    1,012
    
    
    
    OPERATING INCOME (LOSS)
    
    $
    5,885
    
    
    $
    (3,652
    )
    
    $
    5,604
 (a)
    
    Gross Profit is defined as gross revenue less purchased services and
materials, at cost and direct costs of services and overhead. As ofJuly 1, 2011
    
    
    June 25, 2010(In thousands)IDENTIFIABLE ASSETSProgram Management
    
    $
    8,220
    
    
    $
    13,072Compliance and Environmental Programs
    
    
    7,971
    
    
    
    9,386Professional Services
    
    
    3,149
    
    
    
    3,349National Security
    
    
    20,671
    
    
    
    13,271Corporate and Other
    
    
    13,365
    
    
    
    10,786Total Assets
    
    $
    53,376
    
    
    $
    49,864
  37




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##### Table of Contents



As ofJuly 1, 2011
    
    
    June 25, 2010(In thousands)GOODWILLProgram Management
    
    $
    776
    
    
    $
    776Compliance and Environmental Programs
    
    
    1,967
    
    
    
    1,967Professional Services
    
    
    
    
    
    
    National Security
    
    
    3,015
    
    
    
    3,015Corporate and Other
    
    
    
    
    
    
    Total Goodwill
    
    $
    5,758
    
    
    $
    5,758
 NOTE C  RESTRUCTURING CHARGES
   NOTE D  ACQUISITIONS
    38




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##### Table of Contents



PPSCash
    
    $
    770Accounts receivable
    
    
    634Inventory
    
    
    1,397Property and equipment
    
    
    493Goodwill
    
    
    3,014Intangibles
    
    
    1,312Total assets acquired
    
    
    7,620Accounts payable
    
    
    707Other liabilities
    
    
    428Total liabilities assumed
    
    
    1,135Purchase price
    
    $
    6,485
 ADVENTCash
    
    $
    652Accounts receivable
    
    
    1,313Prepaid and other assets
    
    
    565Goodwill
    
    
    1,968Intangibles
    
    
    677Total assets acquired
    
    
    5,175Accounts payable
    
    
    1,596Other liabilities
    
    
    137Total liabilities assumed
    
    
    1,733Purchase price
    
    $
    3,442
 NOTE E  GOODWILL AND INTANGIBLE ASSETS
    39




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##### Table of Contents



FY 2011FY 2010 to FY 2011
    
    June 25, 2010
    
    
    Activity
    
    
    July 1, 2011GOODWILL
    
    $
    5,758
    
    
    $
    
    
    
    $
    5,758INTANGIBLE ASSETS:Customer related intangibles
    
    $
    840
    
    
    
    
    
    
    $
    840Marketing related intangibles
    
    
    308
    
    
    
    
    
    
    
    308Technology related intangibles
    
    
    841
    
    
    
    
    
    
    
    841Total intangible assets
    
    
    1,989
    
    
    
    
    
    
    
    1,989Accumulated amortization
    
    
    (104
    )
    
    
    (346
    )
    
    
    (450
    )Net intangible assets
    
    $
    1,885
    
    
    $
    (346
    )
    
    $
    1,539
 PPS
    
    
    ADVENTFY 2009 to FY 2010
    
    June 26, 2009
    
    
    Acquisition
    
    
    Acquisition
    
    
    June 25, 2010GOODWILL
    
    $
    776
    
    
    $
    3,014
    
    
    $
    1,968
    
    
    $
    5,758INTANGIBLE ASSETS: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
  40




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##### Table of Contents



Years
    
    Amount2012
    
    $
    3232013
    
    
    3232014
    
    
    3232015
    
    
    2892016
    
    
    281Thereafter
    
    
    Total
    
    $
    1,539
 NOTE F  FAIR VALUE MEASURES
  Level 1 Inputs
 Level 2 Inputs
 Level 3 Inputs
     NOTE G  INVENTORY
   41




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##### Table of Contents



NOTE H  CUSTOMER INFORMATION
  Years EndedJuly 1,
    
    
    June 25,
    
    
    June 26,2011
    
    
    2010
    
    
    2009(In Thousands)DoD
    
    $
    110,000
    
    
    $
    78,022
    
    
    $
    92,583U.S. Environmental Protection Agency
    
    
    3,662
    
    
    
    1,725
    
    
    
    1,891Other U.S. Government Agencies
    
    
    11,043
    
    
    
    6,180
    
    
    
    2,576Total U.S. Federal Government
    
    $
    124,705
    
    
    $
    85,927
    
    
    $
    97,050
  NOTE I  NOTES RECEIVABLE
     42




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##### Table of Contents



NOTE J  PREPAID EXPENSES AND OTHER CURRENT ASSETS
  Years EndedJuly 1,
    
    
    June 25,2011
    
    
    2010(In thousands)Prepaid insurance
    
    $
    862
    
    
    $
    1,349Prepaid rent
    
    
    78
    
    
    
    282VAT input tax
    
    
    12
    
    
    
    121Other prepaid expenses
    
    
    441
    
    
    
    367Miscellaneous receivables
    
    
    118
    
    
    
    330Total
    
    $
    1,511
    
    
    $
    2,449
  NOTE K  OTHER CURRENT LIABILITIES
  Years EndedJuly 1,
    
    
    June 25,2011
    
    
    2010(In thousands)Earn-out liabilities
    
    $
    1,261
    
    
    $
    543Payroll related
    
    
    2,872
    
    
    
    1,168Deferred rent
    
    
    393
    
    
    
    413Severance accrual
    
    
    162
    
    
    
    178Asset retirement obligation
    
    
    663
    
    
    
    636Other accrued and miscellaneous liabilities
    
    
    2,012
    
    
    
    1,363Total
    
    $
    7,363
    
    
    $
    4,301
  NOTE L  ACCOUNTS RECEIVABLE
 Years EndedJuly 1,
    
    
    June 25,2011
    
    
    2010(In thousands)Billed receivablesU.S. Government
    
    $
    12,058
    
    
    $
    12,817Commercial
    
    
    7,589
    
    
    
    3,411Unbilled receivablesU.S. Government
    
    
    10,267
    
    
    
    10,387Commercial
    
    
    426
    
    
    
    71730,340
    
    
    
    27,332Allowance for doubtful accounts
    
    
    (840
    )
    
    
    (525
    )Total
    
    $
    29,500
    
    
    $
    26,807
  43




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##### Table of Contents



NOTE M  PROPERTY AND EQUIPMENT
 Estimated
    
    Years EndedUseful Life
    
    July 1,
    
    
    June 25,In Years
    
    2011
    
    
    2010(In thousands)Furniture and fixtures
    
    10
    
    $
    802
    
    
    $
    828Equipment
    
    3 to 10
    
    
    10,086
    
    
    
    8,458Capital leases
    
    Life of lease
    
    
    234
    
    
    
    739Leasehold improvements
    
    Shorter of lease term or asset life
    
    
    3,023
    
    
    
    3,10714,145
    
    
    
    13,132Accumulated depreciation
and amortization
    
    
    
    
    (10,317
    )
    
    
    (9,162
    )Total
    
    
    
    $
    3,828
    
    
    $
    3,970
   NOTE N  MARKETABLE SECURITIES
  NOTE O  DEBT
    44




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##### Table of Contents



NOTE
P  SHARE-BASED COMPENSATION
     Weighted-Option
    
    
    Average OptionShares
    
    
    Price Per Share
    
    
    Total(In thousands, except per share price)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
    
    
    $
    1,032Exercised
    
    
    (65
    )
    
    
    2.42
    
    
    
    (157
    )Cancelled
    
    
    (75
    )
    
    
    3.15
    
    
    
    (236
    )Outstanding at July 1, 2011
    
    
    176
    
    
    $
    3.63
    
    
    $
    639
  45




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##### Table of Contents



Number ofNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SharesShares
    
    
    
    
    
    
    Weighted-
    
    
    Weighted-
    
    
    UnderlyingUnderlying
    
    
    Range of
    
    
    Average
    
    
    Average
    
    
    ExercisableOptions
    
    
    Option Price
    
    
    Option Price
    
    
    Remaining Life
    
    
    Options(In thousands, except as noted)41
    
    
    $1.81 to $2.80
    
    
    $
    2.58
    
    
    1.9 years
    
    
    
    4188
    
    
    $3.40 to $3.82
    
    
    
    3.71
    
    
    3.0 years
    
    
    
    8847
    
    
    $4.00 to $4.45
    
    
    
    4.38
    
    
    3.4 years
    
    
    
    47176
    
    
    
    
    
    
    $
    3.63
    
    
    2.9 years
    
    
    
    176
  Weighted-Optioned
    
    
    Average OptionShares
    
    
    Price Per Share
    
    
    Total(In thousands, except per share price)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
    
    
    $
    337Cancelled
    
    
    (30
    )
    
    
    5.13
    
    
    
    (154
    )Outstanding at July 1, 2011
    
    
    73
    
    
    $
    2.51
    
    
    
    183
   Number ofNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SharesShares
    
    
    
    
    
    
    Weighted-
    
    
    Weighted-
    
    
    UnderlyingUnderlying
    
    
    Range of
    
    
    Average
    
    
    Average
    
    
    ExercisableOptions
    
    
    Option Price
    
    
    Option Price
    
    
    Remaining Life
    
    
    Options(In thousands, except as noted)46
    
    
    $1.81 to $2.80
    
    
    $
    1.82
    
    
    1.3 years
    
    
    
    4619
    
    
    $3.10 to $3.65
    
    
    
    3.31
    
    
    1.7 years
    
    
    
    198
    
    
    $4.14 to $4.58
    
    
    
    4.58
    
    
    3.4 years
    
    
    
    873
    
    
    
    
    
    
    $
    2.51
    
    
    1.6 years
    
    
    
    73
  46




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##### Table of Contents



NOTE Q  INCOME TAXES
  Years EndedJuly 1,
    
    
    June 25,
    
    
    June 26,2011
    
    
    2010
    
    
    2009(In thousands)U.S. Entities
    
    $
    6,630
    
    
    $
    (3,253
    )
    
    $
    6,041Foreign Entities
    
    
    (738
    )
    
    
    (360
    )
    
    
    (801
    )Total pretax income (loss)
    
    $
    5,892
    
    
    $
    (3,613
    )
    
    $
    5,240
   Years EndedJuly 1,
    
    
    June 25,
    
    
    June 26,2011
    
    
    2010
    
    
    2009(In thousands)Current:Federal
    
    $
    1,437
    
    
    $
    (1,274
    )
    
    $
    1,945State
    
    
    284
    
    
    
    (102
    )
    
    
    198Foreign
    
    
    450
    
    
    
    277
    
    
    
    42Deferred:Federal
    
    
    252
    
    
    
    (182
    )
    
    
    (225
    )State
    
    
    22
    
    
    
    (23
    )
    
    
    115Foreign
    
    
    
    
    
    
    (15
    )
    
    
    (4
    )Valuation Allowance
    
    
    
    
    
    
    
    
    
    
    Total expense (benefit)
    
    $
    2,445
    
    
    $
    (1,319
    )
    
    $
    2,071
  July 1, 2011
    
    
    June 25, 2010Deferred Tax Assets:Employee benefits
    
    $
    374
    
    
    $
    499Bad debt reserves
    
    
    313
    
    
    
    180All other reserves
    
    
    559
    
    
    
    336Net operating losses and tax credit
    
    
    53
    
    
    
    168Capital loss carryforward
    
    
    107
    
    
    
    122Depreciation and amortization
    
    
    
    
    
    
    332Accrued expenses
    
    
    540
    
    
    
    421Other
    
    
    34
    
    
    
    134Total Deferred Tax Assets
    
    
    1,980
    
    
    
    2,192Valuation Allowance
    
    
    (55
    )
    
    
    (51
    )Deferred Tax Liabilities:Goodwill and intangibles
    
    
    (472
    )
    
    
    (550
    )Depreciation and amortization
    
    
    (204
    )
    
    
    Asset retirement obligation
    
    
    
    
    
    
    (26
    )Other
    
    
    (27
    )
    
    
    (42
    )Net Deferred Tax Assets
    
    $
    1,222
    
    
    $
    1,523
  47




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##### Table of Contents



Years EndedJuly 1,
    
    
    June 25,
    
    
    June 26,2011
    
    
    2010
    
    
    2009(In thousands)Expected provision at federal statutory rate
    
    $
    2,016
    
    
    $
    (1,230
    )
    
    $
    1,782State income tax expense
    
    
    196
    
    
    
    (120
    )
    
    
    204Permanent items
    
    
    243
    
    
    
    25
    
    
    
    35Change in tax rates
    
    
    (7
    )
    
    
    3
    
    
    
    42Other
    
    
    (3
    )
    
    
    3
    
    
    
    8Income tax expense (benefit)
    
    $
    2,445
    
    
    $
    (1,319
    )
    
    $
    2,071
 NOTE R  EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
      48




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##### Table of Contents



NOTE S  COMMITMENTS AND CONTINGENCIES
 General
   TotalYears Ending June 30,
    
    Amount(In thousands)2012
    
    $
    3,0512013
    
    
    2,3202014
    
    
    1,9452015
    
    
    1,5572016
    
    
    593Thereafter
    
    
    354$
    9,820
  Legal Proceedings
  NOTE
T  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  Fiscal Year 2011 Quarters Ended
    
    
    Fiscal Year 2010 Quarters EndedJuly 1
    
    
    April 1
    
    
    Dec. 31
    
    
    Sep. 24
    
    
    June 25
    
    
    March 27
    
    
    Dec. 25
    
    
    Sep. 25Gross Revenue
    
    $
    34,908
    
    
    $
    31,487
    
    
    $
    41,908
    
    
    $
    29,296
    
    
    $
    27,307
    
    
    $
    24,355
    
    
    $
    24,387
    
    
    $
    24,714Gross Profit
    
    
    3,750
    
    
    
    4,212
    
    
    
    3,486
    
    
    
    2,885
    
    
    
    671
    
    
    
    1,259
    
    
    
    1,728
    
    
    
    2,353Operating income
    
    
    2,150
    
    
    
    1,368
    
    
    
    1,491
    
    
    
    876
    
    
    
    (1,254
    )
    
    
    (2,266
    )
    
    
    (510
    )
    
    
    378Net income (loss)
    
    
    1,355
    
    
    
    629
    
    
    
    924
    
    
    
    539
    
    
    
    (714
    )
    
    
    (1,517
    )
    
    
    (300
    )
    
    
    237Net income (loss) per share  diluted
    
    $
    0.14
    
    
    $
    0.07
    
    
    $
    0.10
    
    
    $
    0.06
    
    
    $
    (0.08
    )
    
    $
    (0.16
    )
    
    $
    (0.03
    )
    
    $
    0.03Weighted average
number of shares
outstanding   diluted
    
    
    9,343
    
    
    
    9,302
    
    
    
    9,317
    
    
    
    9,276
    
    
    
    9,257
    
    
    
    9,224
    
    
    
    9,121
    
    
    
    9,146
 Note:
    
    The sum of the four quarterly earnings per share amounts may not equal the annual total due to fluctuations in common shares outstanding.
  49




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##### Table of Contents



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
  
 
 
     50




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##### 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
   51




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##### 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 July 1, 2011 and June 25, 2010c)
    
    Consolidated Statements of Operations for the Years Ended July 1, 2011, June
25, 2010, and June 26, 2009d)
    
    Consolidated Statements of Changes in Stockholders Equity for the Years Ended
July 1, 2011, June 25, 2010, and June 26, 2009e)
    
    Consolidated Statements of Cash Flows for the Years Ended July 1, 2011, June
25, 2010, and June 26, 2009f)
    
    Notes to Consolidated Financial Statements
  a)
    
    Schedule II  Valuation and Qualifying Accounts for the Years Ended July 1,
2011, June 25, 2010, and June 26, 2009
  52




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##### Table of Contents



Schedule II
 VERSAR, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
 ADDITIONSBALANCE
    
    
    CHARGEDAT
    
    
    TO COSTS
    
    
    
    
    
    
    BALANCEBEGINNING
    
    
    AND
    
    
    CHARGE
    
    
    AT END OFOF YEAR
    
    
    EXPENSES
    
    
    OFFS
    
    
    YEARAllowance for Doubtful Accounts:2009
    
    $
    343,000
    
    
    $
    154,000
    
    
    $
    (28,000
    )
    
    $
    469,0002010
    
    $
    469,000
    
    
    $
    107,000
    
    
    $
    (51,000
    )
    
    $
    525,0002011
    
    $
    525,000
    
    
    $
    595,000
    
    
    $
    (280,000
    )
    
    $
    840,000Deferred Tax Valuation Allowance:2009
    
    $
    47,000
    
    
    $
    1,000
    
    
    
    
    
    
    $
    48,0002010
    
    $
    48,000
    
    
    $
    3,000
    
    
    
    
    
    
    $
    51,0002011
    
    $
    51,000
    
    
    $
    4,000
    
    
    
    
    
    
    $
    55,000
     53




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##### 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)10.115
    
    
    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)10.125
    
    
    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)
  54




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##### 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)10.133
    
    
    Ninth Modification Agreement dated September 30, 2010, by
and between United Bank and Versar, Inc., Geomet Technologies, LLC, Versar
Global Solutions, Inc., VEC Corp., Versar International, Inc., and ADVENT
Environmental, Inc.
    
    (AK)10.134
    
    
    2010 Stock Incentive Plan*
    
    (AL)10.134.1
    
    
    Form of Restricted Stock Unit Award Agreement*
    
    (AL)10.134.2
    
    
    Form of Performance Stock Award Agreement*
    
    (AL)10.134.3
    
    
    Form of Deferral Election Agreement for Deferred Share Units*
    
    (AL)10.134.4
    
    
    Form of Stock Option Award Agreement*
    
    (AL)10.134.5
    
    
    Form of Stock Appreciation Right Award Agreement*
    
    (AL)10.134.6
    
    
    Form of Restricted Stock Unit Award Agreement*
    
    (AL)10.135
    
    
    Separation and General Release Agreement between Lawrence W. Sinnott
and Versar, Inc. effective February 24, 2011. *
    
    (AM)10.136
    
    
    Consulting Agreement between Lawrence W. Sinnott and Versar, Inc.
effective February 25, 2011 .
    
    (AM)10.137
    
    
    Change of Control Severance Agreement between Anthony L. Otten
and Versar, Inc. effective as of May 24, 2010*
    
    (AN)21
    
    
    Subsidiaries of the Registrant23
    
    
    Consent of Independent Registered Public Accounting Firm, Grant Thornton LLP31.1
    
    
    Certifications by Anthony L. Otten, Chief Executive Officer Pursuant to
Securities Exchange Rule 13a-1431.2
    
    
    Certifications by Cynthia A. Downes, Exec. Vice President, Chief
Financial Officer and Treasurer 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 July 1, 2011 by Anthony L.
Otten, 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 July 1, 2011 by Cynthia A.
Downes, Exec. Vice President, Chief Financial Officer and Treasurer
 
 *
    
    Indicates management contract or compensatory plan or arrangement.(A)
    
    Incorporated by reference to the similarly numbered exhibit to the Registrants Form S-1
Registration
Statement 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.  55




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##### Table of Contents



(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.(AK)
    
    Incorporated by reference to the exhibit to the Registrants Form 10-Q filed with the
Commission on November 8, 2010.(AL)
    
    Incorporated by reference to the exhibits to the Registrants Form S-8 filed with the Commission on
February 15, 2011.(AM)
    
    Incorporated by reference to the exhibits to the Registrants Form 8-K filed with the Commission on
February 28, 2011.(AN)
    
    Incorporated by reference to the exhibit to the Registrants Form 8-K filed with the Commission on
July 9. 2010.  56




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##### Table of Contents



VERSAR, INC.

(Registrant)Date: September 19, 2011
    
    /S/ Paul J. Hoeper

Paul J. HoeperChairman and Director
  SIGNATURES
    
    TITLE
    
    DATE/S/ Paul J. Hoeper

Paul J. Hoeper
    
    Chairman and Director
    
    September 19, 2011/S/ Anthony L. Otten

Anthony L. Otten
    
    Chief Executive Officer
    
    September 19, 2011/S/ Cynthia A. Downes

Cynthia A. Downes
    
    Executive Vice President,
Chief Financial Officer, Treasurer,
and Principal Accounting Officer
    
    September 19, 2011/S/ Ruth I. Dreessen

Ruth I. Dreessen
    
    Director
    
    September 19, 2011/S/ Robert L. Durfee

Robert L. Durfee
    
    Director
    
    September 19, 2011/S/ James L. Gallagher

James L. Gallagher
    
    Director
    
    September 19, 2011/S/ Amoretta M. Hoeber

Amoretta M. Hoeber
    
    Director
    
    September 19, 2011/S/ Amir A. Metry

Amir A. Metry
    
    Director
    
    September 19, 2011
  57