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SECURITIES AND EXCHANGE COMMISSION

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $.01 par value
(Title of Class)

American Stock Exchange
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of Act:  NONE

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( )

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

     The aggregate market value of the voting stock held by non-affiliates of the registrant as of December 31, 2002 was approximately $9,090,382.

     The number of shares of Common Stock outstanding as of September 2, 2003 was 7,260,266.

     The Exhibit Index required by 17 CFR Part 240.0-3(c) is located on Pages 19 through 23 hereof.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s Proxy Statement to be filed with the Securities and Exchange Commission with respect to the 2003 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

PART I

Item 1. Business

Forward-Looking Statements

     This report contains certain forward-looking statements which are based on current expectations. Actual results may differ materially. The forward-looking statements include those regarding the continued award of future work or task orders from government and private clients, cost controls and reductions, the expected resolution of delays in billing of certain projects, and the possible impact of current and future claims against the Company based upon negligence and other theories of liability, and changes to or failure of the Federal government to fund certain programs in which the Company participates. Forward-looking statements involve numerous risks and uncertainties that could cause actual results to differ materially, including, but not limited to, the possibilities that the demand for the Company’s services may decline as a result of possible changes in general and industry specific economic conditions and the effects of competitive services and pricing; the possibility the Company will not be able to perform work within budget or contractual limitations; one or more current or future claims made against the Company may result in substantial liabilities; the possibility that acquired entities may not perform as well as expected; the possibility the Company will not be able to attract and retain key professional employees; and such other risks and uncertainties as are described in reports and other documents filed by the Company from time to time with the Securities and Exchange Commission.

Business Overview

     Versar, Inc., a Delaware Corporation organized in 1969, (the “Company” or “Versar”), is a professional services firm that provides the government and the private sector with value-added, high quality and innovative solutions for their infrastructure, facilities management , environmental quality and security needs. Versar operates three primary business segments: (1) Environmental Services including pollution prevention, compliance management and environmental restoration, (2) Architectural and Engineering Services in support of industrial, commercial, and government infrastructure projects, and (3) Defense Systems including homeland security programs and Department of Defense (“DoD”) projects.

     Versar operates a wholly owned subsidiary, GEOMET Technologies LLC, (GEOMET). GEOMET provides a comprehensive range of services and guidance including: chemical/biological (CB) agent testing and evaluation; development and evaluation of CB detection technologies; development and manufacturing of CB personal protective systems; counter-terrorism planning; air quality analysis; and innovative information technology support.

     Fiscal year 2003 was a difficult year for the United States (“U.S.”) economy and Federal budgeting process, which translated into delayed new business, reduction in budgets at the state and local level, and delay of capital projects by industry. In spite of those conditions, Versar was able to continue our support to the Federal sector, and to capitalize on the increased awareness of homeland security and critical infrastructure protection initiatives.

     Management, however, remains unsatisfied with the performance in fiscal year 2003 and is executing a plan to continue reducing costs, refocus our marketing and sales efforts on core business targets, capitalize on our recent experience in the homeland security arena, and develop more multi-year level-of-effort projects that creates a stable business base for the Company.

Environmental Services

     Environmental health and safety services include the full range of scientific, engineering and program management services addressing prevention, detection, control, management, and cleanup of toxic substances and hazardous waste releases to the environment. The environmental business segment continues to be a major component of Versar’s business base. Environmental support to the DoD, the U.S. Environmental Protection Agency and state and

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local governments comprise the majority of this work. Programs generally focus on four major “pillars” or service areas, including compliance with environmental regulations, restoration of contaminated sites, prevention of pollution at the source, and conservation of natural resources. Versar capabilities extend to each of these areas:

     Compliance: Versar provides support for regulatory compliance programs involving air, water and other media. The trend in DoD compliance services is to use the capabilities of professional services firms to support on-site activity at DoD facilities, and Versar has capitalized on that trend through the establishment of a dedicated division to provide on-site environmental management and compliance services at a competitive prices. Our outsourcing services are an increasingly attractive alternative as DoD shifts emphasis to its core mission of defense of the nation. Versar’s Federal outsourcing technical support business revenue has grown, by providing technical and professional staff primarily to the U. S. Army and Air Force. Versar now has over 50 professional and administrative on-site support staff at various DoD installations and industrial facilities across the country. The current Administration’s public commitment to utilizing the resources of the private sector to meet its personnel needs is another factor that will drive this segment of the business going forward. These positions are typically assigned on a long-term basis and represent a different business model than the traditional “project based” support that has been the core of Versar’s compliance work.

     Another significant development in the compliance arena in fiscal year 2003 was the award of the US Air Force Center for Environmental Excellence (AFCEE) “4P Plus” contract, which is a task order contract that can accept tasking from virtually any DoD facility worldwide. This contract combines the requirements for compliance support, engineering and site investigation services across a wide range of potential disciplines. The Company has begun a program to exploit this contract vehicle through focused marketing programs to obtain task orders under the contract.

     Compliance and scientific support for the Environmental Protection Agency (EPA) continued to show stable revenue in fiscal year 2003, with the award of new tasks under existing contracts to support the Office of Pesticide Programs in the areas of risk assessment, monitoring or modeling environmental concentrations, development of guidance for exposure/risk assessment, peer review and meeting support. Versar holds five prime contracts with the EPA, and recent work has involved cutting edge technical areas, such as risk assessment for exposure to toxic mold for children, an external peer panel review for the exposure and human health evaluation of airborne pollution from the World Trade Center disaster, and risk assessment of toxic substances in the food supply.

     Environmental Restoration: Restoration program revenue declined in fiscal year 2003, as DoD restoration budgets were delayed due to late funding cycles and the uncertainty of funding due to the war in Iraq. In order to contain remediation costs, DoD customers are shifting emphasis from traditional, cost plus fee remediation programs to performance based contracts, that combine a fixed price, results-based solution with cost cap insurance products to ensure that both financial and technical risk is minimized. In spite of the market uncertainty, the Company was able to book its first guaranteed fixed price remediation program, valued at $4 million, at an active Air Force installation at Charleston AFB. This task will pave the way for future awards of this size and scope. The Air Force continues to be our largest remediation customer, and through our existing AFCEE contracts we continue to bid and win task efforts at bases worldwide.

     Work at training ranges is also expected to expand, through subcontracting opportunities with large operations and maintenance firms. We have increased our staff of field personnel at Nellis AFB, for example, and expect to provide more personnel at Nellis and other ranges in fiscal year 2004.

     Remediation of mold has also been a growth area for Versar. In fact, the Company was awarded over $1 million in mold remediation work for high-end homes in Colorado and California for a major builder. Versar’s combined capabilities in indoor air quality, construction and remediation, and risk assessment led to a “one stop shopping” solution for the customer. We expect this trend to continue as more and more commercial and private facilities are subject to indoor air quality and mold problems.

     Pollution Prevention: Versar has been involved with innovative pollution prevention (P2) programs since the 1980s. The move to reduce sources of pollution and to incorporate environmentally sound practices into the operations

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has resulted in a reduced demand for hazardous waste removal and hazardous waste management. The market has shifted from the assessment of opportunities for P2 to engineering solutions that use sustainable, low impact technology to replace traditional processes.

     Our premiere P2 program continues to revolve around the technology associated with oxygen line cleaning systems aboard aircraft. The Aircraft Oxygen Line Cleaning System (OLCS) development project is near completion, and has successfully been demonstrated on a number of aircraft platforms in the DoD inventory, including the B-1 bomber, the F-15 and F-16 fighter aircraft, and the C-130 transport. The $2 million developmental program will enter a new phase in fiscal year 2004 as research and development efforts are transitioned to deployment, and agency requirements are developed to use the system. In a parallel development, a smaller-scale Oxygen Cart Cleaning System has also been developed and is in testing. Versar was awarded a contract from Robins Air Force Base, located in Perry, Georgia, to design, engineer, build, test, and validate a technology to clean oxygen cart components and oxygen cylinders used throughout the U.S. Air Force. Work will continue in fiscal year 2004 to demonstrate the system for other agencies, including NASA, and within DoD.

     Conservation of Natural Resources: Versar continues to grow our specialized expertise in ecological assessment and restoration. For more than 25 years we have supported the states of Maryland, Virginia and Delaware, EPA, and U.S. Army Corps of Engineers (USACE) in the assessment of the ecological health of the Chesapeake Bay, and the development of management practices to restore this endangered ecosystem. Versar supports the Chesapeake Bay Monitoring Program that provides scientific support to state regulatory agencies in the development of guidelines for protecting the bay. We also have major contracts with the Philadelphia and Wilmington Districts of the U.S. Army Corps of Engineers for the conduct of ecological assessments in support of the disposal of dredge material in the redevelopment of ports and harbors and the restoration of our nation’s beaches.

     Our natural resources support services recently have expanded into stormwater management and watershed support for a number of counties, including Fairfax County, VA and Frederick County, MD. These projects will use water quality models to develop and evaluate various watershed management strategies to achieve the County’s water quality management objectives.

Architectural and Engineering Services

     Versar continued to successfully develop its Architectural and Engineering Services segment. Versar has grown this business from $8 million in revenue in fiscal year 2000 to $13 million in revenue in fiscal year 2003. This growth is driven by the demand for infrastructure development and a shift toward more design-build projects. Versar is making the transition from being solely an engineering services company to a specialty contractor to address the market needs for turnkey design-build projects.

     Versar’s engineering, architecture and construction division is focused on providing solutions to industrial, government and commercial clients. We have in-house registered professionals in environmental, civil, structural, electrical, mechanical engineering, architecture and construction, which allows us to develop both design and build projects of moderate size, in the $2 to $10 million range.

     Versar was awarded a major project to design and build a freestanding, modular parking structure at our headquarters in Springfield, Virginia, as part of the renovation of the parking areas of the facility that were affected by the I-95 mixing bowl project.

     The segment signed contracts with the Virginia Polytechnic Institute, in Blacksburg, VA, for support to the campus; with The City of Lynchburg, VA, for stabilizing and rehabilitating the historic Monument Terrace; and with a number of private sector firms involved in HVAC and other retrofits to existing facilities.

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     We are also cross training our engineering staff to support both demilitarization and critical asset protection projects, through assignments to relevant programs, training, and through in-house programs. Our engineering staff has been trained to conduct vulnerability assessments, in new standards for building protection and in chemical and biological detection and protection systems for buildings.

Defense Systems

     The Defense System segment consists primarily of the assets of GEOMET Technologies, LLC. The Defense segment operates in several defense markets:

     Personal Protection Equipment: Versar’s subsidiary, GEOMET, is a leader in developing, testing and manufacturing personal protection equipment (PPE). Completion of the contract for the Army’s Self-Contained Toxic Environment Protection Outfit (STEPO) System is expected in fiscal year 2004. The STEPO contract resulted in the development of an infrastructure in the Company which now is positioned to respond to the increased demand for PPE from the emergency response sector, through grants from the Federal government, and continued support for the military. For example, the Company is currently positioning its products and conducting certification testing to meet the requirements for National Fire Protection Association (NFPA) standards, compliance with which is a requirement for selling to first responders. Additional efforts are underway to develop new products such as the Next Generation Modular CB Ensemble for the Marine Corps. The PPE marketplace will continue to be highly competitive, with decisions often based on price. Our strategy is to continue to work with customers to become a “one stop” supplier for protection needs, and to assist the customer in determining what systems are needed and how many to purchase. This strategy has been successfully demonstrated, for example, in New Castle County, DE, where GEOMET provided over $800,000 in equipment for emergency response personnel in fiscal year 2003. We will be working in fiscal year 2004 to become a stocking distributor for many essential products that first responders require.

     The Company has also been successful with submittals to the Technical Support Working Group (TSWG). TSWG is the U.S. national forum that identifies, prioritizes, and coordinates interagency and international research and development (R&D) requirements for combating terrorism. TSWG has awarded the Company an R&D task, for example, to develop a heat stress calculation system for personal protection system use which we believe is very promising. The system, based on a personal data assistant device, allows the user to rapidly assess and calculate the heat stress on an individual outfitted with PPE, and how long they can operate safely.

     Chemical Surety Laboratory: The laboratory provides cost-effective materials testing services to the U.S. Government and to private industries, particularly manufacturers of chemical protective equipment and clothing. Other laboratory services include evaluation of new agent detection instrumentation, agent decontamination and destruction techniques, site remediation/environmental cleanup support, analysis of environmental samples (air, soil, water, and sludge) for the presence of chemical and biological agents and degradation products, and testing of personal protective systems for component survivability. Laboratory operations in fiscal year 2003 were highlighted by an increase in work load from private sector manufacturers responding to market demands for chemical protection systems. The Company also conducted a major R&D effort to evaluate a proprietary plasma-based chemical agent destruction technology for an international customer.

     Biological Defense Laboratory: The Company’s biological defense laboratory was expanded in fiscal year 2003 to respond to the anticipated increase in demand for biological agent testing and identification services. Current projects include support for the Defense Advanced Research Projects Agency (DARPA) Biocomputational program, which involves early detection of biological agents. The Biological Defense Laboratory currently operates at Biosafety Level 2 (BSL-2), and our program to complete the BSL-3 suite is ongoing, which will allow the Company to enter new markets that require the ability to handle live pathogens in real time.

     Demilitarization: Versar is currently supporting the Defense Threat Reduction Agency (DTRA) in the management of the Russian Solid Rocket Destruction program. The project has involved the value engineering of a major design for a missile destruction facility in Russia, under direct contract to DTRA. A unique aspect of the program

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was the implementation of a secure, internet-based document management and project management system, which currently allows search and retrieval of over 6000 documents, drawings and reports with the ability to record and search in the Russian Cyrillic language.

     The Company is also involved with the demilitarization of Non-Stockpile Chemical Weapons for the Army, including support for a remediation effort in Alaska.

     Facility Hardening: The Company also began to integrate the skills of the traditional engineering staff with technology applications and requirements for homeland security, biological warfare agent detection, chemical agent detection, radiological protection, and explosive detection systems on a classified project which involves design, systems integration and construction of a world-class facility for screening and protection of sensitive materials shipments from around the world. This effort has already led to other opportunities in the building protection arena. Most of these projects are classified at the customer’s request. DoD design and construction projects also have transitioned to force facility protection initiatives, using contracts that traditionally have been exclusively environmental in scope. For example, Versar was awarded a new task to design an entrance for March Air Reserve Base in Riverside, CA in accordance with newly promulgated DoD force protection standards, and we expect further work in this area to emerge. This design should be useable for other facilities as force protection becomes more and more important to DoD.

     Vulnerability Assessments: Versar continued to build a track record involving the assessment of critical infrastructure for vulnerability to terrorist attack. Versar is a licensee of the Sandia Laboratories Risk Assessment Methodology for vulnerability assessment. Contracts were awarded by over 20 cities for water utility vulnerability assessments across the nation. The Illinois Department of Transportation (IDOT) selected Versar for a $725,000 contract for consulting services on deterrence, surveillance, protection, and response to potential terrorist threats. The scope included reviews and recommendations on transportation issues related to infrastructure, information technology, emergency incident prevention, preparedness, response, and recovery from potential terrorist threats. Versar performed a vulnerability assessment of the State’s highway, infrastructure (bridges and facilities), communications systems and computer assets under the project. The project also included reviewing all the operational plans and the emergency response plans for the State of Illinois. The State tasked Versar to develop a unique vulnerability assessment methodology to use in the evaluation of its critical facilities and assets. The focus of the work was on the IDOT-controlled highway network and related modal linkages, and on IDOT-controlled infrostructure systems. Management feels that this contract will be replicated in other states, and has initiated an aggressive campaign to sell these focused vulnerability assessment services nationally.

     Range Support Services/NexMIS: The Commander in Chief, U.S. Atlantic Fleet awarded the Company a contract to implement the Company’s proprietary “Next Generation Management Information System” (NexMIS) tool for the U.S. Navy. The initial work supported the integration of network-centric data management systems at military test ranges in the United States. Versar’s network-centric approach provides the customer with the ability to dynamically network any of a variety of data sources in real time, across multiple platforms, locations, and systems. Versar is actively pursuing follow-on funding for deployment of the system, which was successfully demonstrated. NexMIS also has broad applications for information management programs where data from a variety of applications can be shared via NexMIS. The Navy implementation of NexMIS will integrate current range data on training, operations, R&D, readiness, budgeting and environmental planning for the development and utilization of future strategic operational Navy and Air Force range requirements.

     DoD Contract Support: The Company was awarded a $500 million indefinite quantity contract from the Edgewood Chemical Biological Center in Edgewood, MD this Spring during fiscal year 2003. The challenge for the Company is to market this contract vehicle during fiscal year 2004 to secure task orders involving chemical and biological warfare agents, support systems and programs. Management believes that this contract will become an important foundation for future work in this arena.

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Markets

     Versar’s services are continuing to evolve in response to clients’ changing needs and our market opportunities are being driven by the availability of technology aimed at enhancing operating performance and profitability. The Company has refocused its emphasis on outsourcing professional services for government customers, developing level of effort, long term contracts to stabilize the Company’s business base and focused on the challenging homeland security market. Management believes that all three business segments have opportunities the Company can capitalize on in the next year.

     The industrial environmental marketplace, in our view, will remain highly competitive, as no major new regulatory requirements are expected to be placed on industry in the near future. Most of our private sector customers have deferred capital expenses for environmental projects, given the current economic and regulatory uncertainty. However, we will continue to pursue those opportunities that make sense, such as the recent award of a master service agreement from AIMCO, one of the nation’s largest rental apartment owner-manager firms.

     Success in the Federal environmental markets will be driven by a cost-effective set of solutions, such as the Guaranteed Fixed Price Remediation Program, outsourcing at the point of need, and relationships with key customers.

     The next round of Base Realignment and Closure (BRAC) will drive a new round of base study and cleanup work, starting in fiscal year 2005. Government reorganization and privatization also present opportunities which we will continue to pursue. In addition, test and training ranges have become more and more important to the environmental market, as new rules require more emphasis on the cleanup of munitions and safe disposal of unexploded ordnance. Water quality is also a focus area, and we have successfully entered new markets at the state and local level using our credentials gained from working at the Federal level.

     The Architecture and Engineering market remains uncertain for traditional design and construction in our sector. Private sector work may rebound with an expanding economy, and we have relationships in place that we believe will place us in a good position to bid and win the jobs in the market we serve. Design-build projects are also becoming more important, as customers look for “one stop shopping” from the contracting community. Our systems for managing these projects have been improved and specific attention is being paid to estimating and profit margins for this work. Versar will continue to pursue mid-sized design build projects that focus on hardening of critical assets, and projects that show a return on investment in energy and HVAC systems upgrade. Support for mail handling and remote delivery sites grew in fiscal year 2003 and we expect that trend to continue.

     Fiscal year 2003 saw a shift in the homeland defense priorities away from the initial response to incidents, which characterized Versar’s work on the Anthrax Crisis in fiscal year 2002, to a more complex mixture of prevention, response, and support programs across the entire spectrum of the government. Deloitte & Touche and Aviation Week Magazine, for example, cite estimated government spending of between $93 and $138 billion a year on related services, technologies and management consulting. (The Homeland Security Market: The World’s Most Challenging Emerging Business Environment, DeLoitte & Touche, 2003). The challenge for the smaller firms is to retain a niche or technology position that makes us attractive to the large prime contractors who are positioning for major support efforts for the new Department of Homeland Security, and we continue to forge those key relationships with larger firms. Management feels that our biological, chemical, force protection, vulnerability assessment and hard engineering capability will pay off as this market continues to emerge.

     The Company’s largest client was with the DoD for approximately 43% of Versar’s revenue. The EPA constitutes approximately 6 percent of our revenue. Other Federal clients make up 13 percent of our revenue to include NASA, General Services Administration, the Departments of Energy and the Interior, Federal Housing Authority, and Intelligence agencies. State and local governments comprise 15 percent of Versar’s revenue.

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Competition

     Versar continues to face substantial competition in each market in which it operates and expects to continue to face substantial competition as it diversifies its business. Competitors are often larger and have greater financial resources than Versar, which means that we have to be very selective in our marketing and sales program efforts, yet Versar is probably the largest of the smaller companies which enables us to compete for specific contracts that the larger competitors do not qualify for because the contract opportunities require that companies cannot have more than 500 employees to qualify as a small business. In addition, there has been major consolidation in the environmental services market, with two brackets of firms emerging – the large, diversified firms with a wide range of capabilities, and the smaller, niche firms with limited capability in specific horizontal or vertical markets. A number of companies have restructured to become private. Versar has historically competed primarily on its scientific, technological, and engineering expertise; however, that is not enough in today’s market.

     Our market areas of environmental, architecture and engineering and defense reflect a mix of business that we believe will be stable and allow for growth, while retaining our core capability. Toward that end, we have de-emphasized the information technology pillar as a separate organization, folding the capability into the Defense segment of our business.

     The synthesis of our three core capabilities, however, is an important selling feature as customers look for one source for critical asset protection. We believe that we are among the few firms that combine environmental health and safety/risk assessment, hard engineering design and construction, and chemical and biological defense capability in one package, and we are actively pursuing customers that require these services.

     Our pricing structure has been adjusted to ensure that we remain competitive, particularly for outsourcing, where procurement decisions are very sensitive to pricing. Similarly, we are concentrating our marketing efforts on getting the most return on investment, through expanding support for existing customers, developing tasks under existing contracts, and collaborating with firms that need our niche expertise. We are targeting and identifying specific programs that match our capability this year.

     Versar will also continue to target small business set aside opportunities in the Federal marketplace, under the North American Industry Classification System (NAICS) codes that provide opportunities for firms with fewer than 500 personnel. We continue to work with customers to make them aware of the benefits of setting aside work under these NAICS codes, and expect that trend to continue. Typically, for large, environmental contracts, at least one of the awards is targeted for a small business, and Versar brings a wealth of expertise to that sector.

Backlog

     As of June 30, 2003, total backlog for Versar, including unfunded government tasks and orders, was approximately $312 million, as compared to approximately $287 million as of June 30, 2002, an increase of 9%. Funded backlog for Versar was approximately $32 million, a decrease of 9 percent compared to approximately $35 million as of June 30, 2002. Backlog decreased with the winding down of the STEPO contract. Approximately $175 million of the contract unfunded backlog is not expected to be funded in fiscal year 2004. Funded backlog is the incremental funding authorization of contracts and task orders based on firm contractual obligations. Unfunded backlog includes contracts and contract vehicles, including option periods, in which specific work tasks and funding have not been authorized. Funded backlog amounts have historically resulted in revenues; however, no assurance can be given that all amounts included in funded backlog will ultimately be realized as revenue.

Employees

     At June 30, 2003, Versar had approximately 329 full-time employees, of which eighty-five percent are engineers, scientists, and other professionals. Eighty percent of the Company’s professional employees have a bachelor’s degree, twenty-five percent have a master’s degree, and five percent have a doctorate degree.

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Item 2. Properties

     The Company’s executive office is located in Springfield, Virginia, a suburb of Washington, D.C. Versar currently leases 66,742 square feet in two buildings from Springfield Realty Investors, LLC. The rent is subject to a two-percent escalation per year through May 31, 2009.

     As of September 2, 2003, the Company had under lease an aggregate of approximately 191,000 square feet of office and laboratory space in the following locations: Springfield, Lynchburg, Norfolk and Williamsburg, VA; Tempe, AZ; Fair Oaks, CA; Northglenn, CO; Lombard, IL; Columbia, Gaithersburg and Germantown, MD; Oklahoma City, OK; San Antonio, TX; and Horsham, PA. The lease terms primarily range from two to six years.

Item 3. Legal Proceedings

     In August 1997, Versar entered into a contract with the Trustees for the Enviro-Chem Superfund Site (the “Superfund Site”), which provided that, based upon an existing performance specification, Versar would refine the design, and construct and operate a soil vapor extraction system. During the performance of the contract, disputes arose between Versar and the Trustees regarding the scope of work. Eventually, Versar was terminated by the Trustees for convenience. The Trustees then failed to pay certain invoices and retainages due Versar.

     On March 19, 2001, Versar instituted a lawsuit against the Trustees and three environmental consulting companies in the U.S. District Court of the Eastern District of Pennsylvania, entitled Versar, Inc. v. Roy O. Ball, Trustee, URS Corporation, Environmental Resources Management and Environ Corp., No. 01CV1302. Versar, in seeking to recover amounts due under the remediation contract from the Trustees of the Superfund Site, claimed breach of contract, interference with contractual relationships, negligent misrepresentations, breach of good faith and fair dealing, unjust enrichment and implied contract. Mr. Ball and several defendants moved to dismiss the action or, in the alternative, transfer the action to the U.S. District Court for the Southern District of Indiana, where, on April 20, 2001, the two Trustees had filed suit against Versar in the U.S. District Court for the Southern District of Indiana, entitled, Roy O. Ball and Norman W. Bernstein, Trustees v. Versar, Inc., Case No. IPO1-0531 C H/G. The Trustees alleged breach of contract and breach of warranty with respect to the remediation contract and asked for a declaratory judgment on a number of the previously stated claims.

     On July 12, 2001, the Federal District Court in Pennsylvania granted defendants’ motion to transfer the Pennsylvania lawsuit and consolidate the two legal actions in Indiana. The Company filed an answer and counterclaim to the Indiana lawsuit. The plaintiffs and third-party defendants filed Motions to Dismiss the Company’s counterclaim. The court granted the motions in part and denied them in part. Versar amended its answer and counterclaim. In the meantime, plaintiffs filed a Motion for Partial Summary Judgment which the Judge granted in part and denied in part. The Judge held that certain agreements entered into by the parties prevented Versar from recovering certain amounts under its counterclaim but that Versar could pursue its claim for fraud in other areas. Written and oral discovery has commenced and is expected to be completed by the end of 2003. Trial is scheduled for September 2004. Based upon discussions with outside counsel, management does not believe that the ultimate resolution under the Trustees’ lawsuit will have a materially adverse effect on the Company’s consolidated financial condition and results of operations.

     Versar and its subsidiaries are parties from time to time to various other legal actions arising in the normal course of business. The Company believes that any ultimate unfavorable resolution of these legal actions will not have a material adverse effect on its consolidated financial condition and results of operations.

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

     No matters were submitted to a vote of the Company’s security holders during the last quarter of fiscal year 2003.

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EXECUTIVE OFFICERS

The current executive officers of Versar, and their ages as of September 1, 2003, their current offices or positions and their business experience for at least the past five years are set forth below.

     Benjamin M. Rawls, M.B.A., joined Versar as President and Chief Executive Officer in April 1991. He became Chairman of the Board in November 1993. Mr. Rawls relinquished the position of President in November 1999 and Chief Executive Officer in July 2000.

     Theodore M. Prociv, Ph.D., joined Versar as President on November 1, 1999 and was elected Chief Executive Officer on July 1, 2000. From 1995 to August 1998, Dr. Prociv served as the Deputy Assistant to the Secretary of Defense for Chemical and Biological Matters, and subsequently as the Deputy Assistant Secretary of Army for Chemical Demilitarization. Before joining the Department of Defense, Dr. Prociv was Corporate Vice President of Environmental Business at Science Applications International Corporation, (SAIC) 1993-1994, and served as the Vice President for Government Systems at Battelle Memorial Institute 1979-1993.

     Jerome B. Strauss, P.E., joined Versar in 1977, was elected Vice President in 1999, and Senior Vice President in 2003. He served as Division Director for Waste Management from 1989-2002, and Unit Manager for Atlantic Operations from 2001-2002. Mr. Strauss has led work in virtually all areas of environmental services during his 25 years with Versar.

     George J. Anastos, Ph.D., P.E. joined Versar in 1996 as a Vice President in charge of Northeast Operations. In 2000, he was promoted to Senior Vice President in charge of the Company’s Architect and Engineering Pillar. From 1992 to 1996, Dr. Anastos was Senior Vice President of Environmental Science & Engineering of Gainesville, Florida responsible for Southeast Group Operations, Laboratories and Remedial Technology & Construction Group. Between 1984 and 1992, he was Vice President of Roy F. Weston, Inc. in charge of Weston Services (Construction Group) and Engineering Group Operations Manager, in West Chester, Pennsylvania.

     Lawrence W. Sinnott, CPA, B.S., joined Versar in 1991 as Assistant Controller. In 1992, he became Corporate Controller. In 1993, he was elected Treasurer and Corporate Controller. In 1994, he became Vice President, Chief Financial Officer and Treasurer. In October 1999, he was elected Senior Vice President. From 1989 to 1991, he was Controller of a venture capital company, Defense Group, Inc.

     James C. Dobbs, J.D., L.L.M., joined Versar in 1992 as Vice President, General Counsel, and Secretary. In October 1999, he was elected Senior Vice President. From 1984 to 1992, Mr. Dobbs was employed by Metcalf & Eddy, Inc. as Vice President and General Counsel where he was responsible for providing legal and regulatory advice to senior management.

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PART II

Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters

Common Stock

     The Company’s common stock is traded on the American Stock Exchange (AMEX), under the symbol VSR. At June 30, 2003, the Company had 903 stockholders of record, excluding stockholders whose shares were held in nominee name. The quarterly high and low sales prices as reported on the AMEX during fiscal years 2003 and 2002 are presented below.

     No cash dividends have been paid by Versar since it began public trading of its stock in 1986. The Board of Directors intends to retain any future earnings for use in the Company’s business and does not anticipate paying cash dividends in the foreseeable future. Under the terms of the Company’s revolving line of credit, approval would be required from the Company’s primary bank for the payment of any dividends.

     The Company has established equity compensation plans to attract, motivate and reward good performance of high caliber employees, directors and service providers to serve Versar, Inc. and its affiliates. Currently, there are four stock option plans which were previously approved by the security holders: the 2002 Stock Incentive Plan, the 1996 Stock Option Plan, the 1992 Stock Option Plan and the 1987 Nonqualified Stock Option Plan.

Equity Compensation Plan
June 30, 2003
(shares in thousands)

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Item 6. Selected Financial Data (unaudited)

     The selected consolidated financial data set forth below should be read in conjunction with Versar’s consolidated financial statements and notes thereto beginning on page F-3 of this report. The financial data is as follows:

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     This report contains certain forward-looking statements which are based on current expectations. Actual results may differ materially. The forward-looking statements include 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, and changes to or failure of the Federal government to fund certain programs in which the Company participates. Forward-looking statements involve numerous risks and uncertainties that could cause actual results to differ materially, including, but not limited to, the possibilities that the demand for the Company’s services may decline as a result of possible changes in general and industry specific economic conditions and the effects of competitive services and pricing; the possibility the Company will not be able to perform work within budget or contractual limitations; one or more current or future claims made against the Company may result in substantial liabilities; the possibility that acquired entities may not perform as well as expected; the possibility the Company will not be able to attract and retain key professional employees; and such other risks and uncertainties as are described in reports and other documents filed by the Company from time to time with the Securities and Exchange Commission.

Critical Accounting Policies

     Revenue recognition: Contracts in process are stated at the lower of actual cost incurred plus accrued profits or net estimated realizable value of incurred costs, reduced by progress billings. The Company records income from major fixed-price contracts, extending over more than one accounting period, using the percentage-of-completion method. During performance of such contracts, estimated final contract prices and costs are periodically reviewed and revisions are made as required. The effects of these revisions are included in the periods in which the revisions are made. On cost-plus-fee contracts, revenue is recognized to the extent of costs incurred plus a proportionate amount of fee earned, and on time-and-material contracts, revenue is recognized to the extent of billable rates times hours delivered plus material and other reimbursable costs incurred. Losses on contracts are recognized when they become known.

     Receivable reserves: Disputes arise in the normal course of the Company’s business on projects where the Company is contesting with customers for collection of funds because of events such as delays, changes in contract specifications and questions of cost allowability or collectibility. Such disputes, whether claims or unapproved change orders in the process of negotiation, are recorded at the lesser of their estimated net realizable value or actual costs incurred and only when realization is probable and can be reliably estimated. Claims against the Company are recognized where loss is considered probable and reasonably determinable in amount. Management reviews outstanding receivables on a regular basis and assesses the need for reserves taking into consideration past collection history and other events that bear on the collectibility of such receivables.

     Deferred tax valuation allowance: The Company has approximately $4.7 million in deferred tax assets of which a $4.1 million valuation allowance has been established against such assets. Management provides for a valuation allowance until such time that it can conclude more likely than not that the Company will derive a benefit from such assets. The valuation allowance will be adjusted as necessary in future period based upon the Company’s operating results.

Results of Operations

     Versar’s gross revenue for fiscal year 2003 totaled $57,097,000, an $10,891,000 (16%) decrease compared to gross revenue of $67,988,000 for fiscal year 2002. Gross revenue for fiscal year 2002 increased by $2,172,000 (3%) over that reported in fiscal year 2001. Approximately 67% of the decrease in gross revenue for fiscal year 2003 was due to the anticipated winding down of the STEPO suit production contract in the Company’s Defense segment. The balance of the decrease was due to reduced construction work in the Company’s Architecture and Engineering segment and lower subcontracted activities in the Company’s Environmental segment.

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     Purchased services and materials for fiscal year 2003 totaled $21,917,000, a decrease of $7,882,000 (26%) compared to fiscal year 2002. Purchased services and materials for fiscal year 2002 increased by $3,464,000 (13%) over fiscal year 2001. Seventy-five percent of the decrease in purchased services in fiscal year 2003 was due to the anticipated winding down of the STEPO contract and reduced subcontracted activities in the Company’s Architecture and Engineering, and Environmental segments, as mentioned above.

     Net service revenue is derived by deducting the costs of purchased services from gross revenue. Versar considers it appropriate to analyze operating margins and other ratios in relation to net service revenue, because such revenues reflect the actual work performed by the Company’s labor force. Net service revenues decreased by $3,009,000 (8%) in fiscal year 2003 due to the decreases in gross revenue and purchased services as mentioned above.

     Direct costs of service and overhead include the cost to Versar of direct and overhead staff, including recoverable and unallowable costs that are directly attributable to contracts. The percentage of these costs to net service revenue decreased to 80.6% in fiscal year 2003 compared to 81.8% in fiscal year 2002 and 81.2% in fiscal year 2001. The decrease in the percentage in fiscal year 2003 is due to cost reduction efforts by the Company to balance its cost structure with the current reduced business volume and the lack of project reserves which were required in fiscal year 2002.

     Selling, general and administrative expenses approximated 16.4% of net service revenue in fiscal year 2003, compared to 16.5% in fiscal year 2002 and 16.3% in fiscal year 2001. The decrease is also due to the Company’s cost reduction efforts to balance its cost structure with the business volume. Actual selling, general and administrative costs decreased by $547,000 (9%) in fiscal year 2003.

     In the first quarter of fiscal year 2003, management and the Board of Directors approved a restructuring plan to reduce the Company’s overall cost structure and reduce costs in non-performing divisions, which resulted in a non-recurring charge of $800,000. Approximately $450,000 of this charge comprises severance payments relating to the elimination of two senior management positions. Such severance payments are expected to be paid out during the next two years starting in the third quarter of fiscal year 2003. The remainder of the charge consists of costs expected to be incurred in connection with management’s plan to reduce occupancy expense. In fiscal year 2001, the Company recorded a non-recurring charge against income of $1,320,000 as a result of a settlement of a lawsuit with TAMS Consultants, Inc.

     Operating income for fiscal year 2003 was $262,000, compared to $619,000 in fiscal year 2002. Operating income in fiscal year 2003 was lower primarily due to the non-recurring charge and the reduced gross revenue and purchased services. In fiscal year 2002, operating income was $971,000 higher than that recorded in fiscal year 2001 due to a non-recurring charge of $1,320,000 recorded in fiscal year 2001.

     Interest expense during fiscal year 2003 was $166,000, a decrease of $37,000 from fiscal year 2002. The decrease is primarily attributable to lower interest rates on the Company’s line of credit in fiscal year 2003. In fiscal year 2002, interest expenses decreased by $235,000 from fiscal year 2001. The reduction in fiscal year 2002 was due to lower utilization on the Company’s line of credit and proceeds the Company received from the exercise of stock options and new equity during the year.

     Versar’s tax expense for fiscal year 2003 was $1,104,000 compared to $257,000 for the prior fiscal year. In fiscal year 2003, the Company increased the tax valuation allowance by $1,097,000. The increase was due to lower than anticipated operating results in the fiscal year. The Company has approximately $4.7 million in deferred tax assets of which a $4.1 million valuation allowance has been established against such assets. Management provides for a valuation allowance until such time that it can conclude more likely than not that the Company will derive a benefit from such assets. The valuation allowance will be adjusted as necessary in future periods based upon the Company’s operating results.

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     In fiscal year 2002, the Company recorded a loss from discontinued operations of $80,000, net of tax of $50,000 due to a requirement for additional accruals in order to wind down a benefit plan of Science Management Corporation (SMC), a former subsidiary of the Company. In fiscal year 2001, the Company reversed $243,000 (net of tax of $150,000) of reserves that had been set up in fiscal year 1998 associated with the discontinuance of SMC.

     In summary, Versar’s net loss for fiscal year 2003 was $1,008,000 compared to net income of $79,000 in fiscal year 2002 and net loss of $787,000 in fiscal year 2001.

REVENUE

     Versar provides professional services to various industries, serving government and commercial clients. A summary of revenue generated from the Company’s client base is as follows:

Liquidity and Capital Resources

     The Company’s continuing operations generated $39,000 in cash in fiscal year 2003. The Company purchased $415,000 of property and equipment, which was primarily funded by borrowings under the Company’s long term line of credit.

     During fiscal year 2003, the Company used its line of credit to supplement its day to day operating cash requirements. At June 30, 2003, the Company had $7,065,000 of working capital, compared to $6,600,000 in fiscal year 2002. Working capital increased primarily due to improved collections of receivables, which proceeds were used to reduce outstanding accounts payables.

     Versar’s line of credit with the Bank of America (Bank) provides for advances up to $4,500,000 based on qualifying receivables. Interest on the borrowings is based on 30 day London Interbank Offered Rate (LIBOR) plus three hundred basis points (4.04% at June 30, 2003). A commitment fee of 1/4% on the unused portion of the line of credit is also charged. The line is guaranteed by the Company and each subsidiary individually and is collectively secured by accounts receivable, equipment and intangibles, plus all insurance policies on property constituting collateral. Unused borrowing availability at June 30, 2003 was approximately $2,375,000. In June 2003, the Company’s line of credit was reduced to $4,500,000 and the due date was accelerated to September 30, 2003. There are no financial covenants as of June 30, 2003.

     On September 16, 2003, the Company received a firm commitment from United Bank to provide the Company up to a $5,000,000 line of credit for working capital purposes which will be secured by qualifying receivables. Interest on the line of credit is based upon prime plus one and one half percent. Advances on the line of credit are due on November 30, 2005. The Company expects to close on the line of credit on or before September 30, 2003. The loan

15

will have certain covenants related to the maintenance of financial ratios. The Company expects that it will be able to comply with those ratios. Management believes that cash generated by operations and borrowings available from the new line of credit will be adequate to meet its working capital needs for fiscal year 2004.

Liquidity Requirements

     At June 30, 2003, the Company had unfunded contractual payment obligations of approximately $3,722,000 due within the next twelve months. The table below specifies the total contractual payment obligations as of June 30, 2003.

Impact of Inflation

     Versar seeks to protect itself from the effects of inflation. The majority of contracts the Company performs are for a period of a year or less or are cost plus fixed-fee type contracts and, accordingly, are less susceptible to the effects of inflation. Multi-year contracts provide for projected increases in labor and other costs.

Business Segments

     Versar currently has three business segments: environmental services, architecture and engineering, and defense. The details on these segments are in Note B of the Notes to the Consolidated Financial Statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     The Company has not entered into any transactions using derivative financial instruments or derivative commodity instruments and believes that its exposure to interest rate risk and other relevant market risk is not material.

Item 8. Financial Statements and Supplementary Data

     The consolidated financial statements and supplementary data begin on page F-3 of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

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Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     Evaluation of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was carried out as of the last day of the period covered by this report. This evaluation was made under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

     There have not been any changes in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART III

Item 10. Directors and Executive Officers of the Registrant

     Information required by this item with respect to directors of the Company will be contained in the Company’s Proxy Statement for its 2003 Annual Meeting of Stockholders, which is expected to be filed with the Commission not later than 120 days after the Company’s 2003 fiscal year end and is incorporated herein by reference.

     Information required by this item with respect to executive officers of the Company is included in Part I of this report and is incorporated herein by reference.

     For the purpose of calculating the aggregate market value of the voting stock of Versar held by non-affiliates as shown on the cover page of this report, it has been assumed that the directors and executive officers of the Company and the Company’s Employee Savings and Stock Ownership Plan are the only affiliates of the Company. However, this is not an admission that all such persons are, in fact, affiliates of the Company.

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

     Information required by this item is incorporated herein by reference to the Company’s Proxy Statement for its 2003 Annual Meeting of Stockholders which is expected to be filed with the Commission not later than 120 days after the end of the Company’s 2003 fiscal year.

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Item 14. Principal Accountant Fees and Services

     Information required by this item is incorporated herein by reference to the Company’s Proxy Statement for its 2003 Annual Meeting of Stockholders which is expected to be filed with the Commission not later than 120 days after the end of the Company’s 2003 fiscal year.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(A)(1) Financial Statements:

	The consolidated financial statements and financial statement schedules of Versar, Inc. and Subsidiaries are filed as part of this report and begin on page F-1.

(B) Reports on Form 8-K

     Pursuant to the Securities Exchange Release No. 33-8216, Form 8-K, which reported the Company’s third quarter Results of Operations and Financial Condition, was furnished to, but not filed with the Securities and Exchange Commission on May 15, 2003.

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Exhibit Index

19

20

* Indicates management contract or compensatory plan or arrangement
(A)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form S-1 Registration Statement (“Registration Statement”) effective November 20, 1986 (File No. 33-9391).
(B)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for the Fiscal Year Ended June 30, 1987 (“FY 1987 Form 10-K”) filed with the Commission on September 28, 1987.
(C)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for the Fiscal Year Ended June 30, 1988 (“FY 1988 Form 10-K”) filed with the Commission on September 28, 1988.
(D)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for the Fiscal Year Ended June 30, 1989 (“FY 1989 Form 10-K”) filed with the Commission on September 28, 1989.
(E)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for the Fiscal Year Ended June 30, 1990 (“FY 1990 Form 10-K”) filed with the Commission on September 28, 1990.

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(F)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-Q for the quarter ended September 30, 1989 (“1st Quarter FY 1990 Form 10-Q”).
(G)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for the Fiscal Year Ended June 30, 1991 (“FY 1991 Form 10-K”) filed with the Commission on October 15, 1991.
(H)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for Fiscal Year Ended June 30, 1992 (“FY 1992 Form 10-K”) filed with the Commission on September 28, 1992.
(I)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for Fiscal Year Ended June 30, 1993 (“FY 1993 Form 10-K”) filed with the Commission on September 22, 1993.
(J)		Incorporated by reference Sarnia Corporation Information Statement for distribution to shareholders of Versar, Inc. of the outstanding shares of its wholly-owned subsidiary, Sarnia Corporation, dated June 30, 1994.
(K)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for Fiscal Year Ended June 30, 1994 (“FY 1994 Form 10-K”) filed with the Commission on September 27, 1994.
(L)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-K/A Annual Report for Fiscal Year Ended June 30, 1994 (“FY 1994 Form 10-K/A”) filed with the Commission on May 31, 1995.
(M)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for Fiscal Year Ended June 30, 1995 (“FY 1995 Form 10-K”) filed with the Commission on September 28, 1995.
(N)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for Fiscal Year Ended June 30, 1996 (“FY 1996 Form 10-K”) filed with the Commission on September 24, 1996.
(O)		Incorporated by reference to the similarly numbered exhibit to the Registrant’s Form S-4 registration number 333-33167.
(P)		Incorporated by reference to similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for Fiscal Year Ended June 30, 1997 (“FY 1997 Form 10-K”) filed with the Commission on September 29, 1997.
(Q)		Incorporated by reference to similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for Fiscal Year Ended June 30, 1998 (“FY1998 Form 10-K”) filed with the Commission on September 28, 1998.
(R)		Incorporated by reference to similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for Fiscal Year Ended June 30, 1999 (“FY1999 Form 10-K”) filed with the Commission on September 17, 1999.

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(S)		Incorporated by reference to similarly numbered exhibit to the Registrant’s Form 10-K/A Annual Report for Fiscal Year Ended June 30, 1999 (“FY1999 Form 10K/A”) filed with the Commission on September 1, 2000.
(T)		Incorporated by reference to similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for Fiscal Year Ended June 30, 2000 (“FY2000 Form 10-K”) filed with the Commission on September 26, 2000.
(U)		Incorporated by reference to similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for Fiscal Year Ended June 30, 2001 (“FY2001 Form 10-K”) filed with the Commission on September 28, 2001.
(V)		Incorporated by reference to similarly numbered exhibit to the Registrant’s Form 10-K Annual Report for Fiscal Year Ended June 30, 2002 (“FY2002 Form 10K”) filed with the Commission on September 16, 2002.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

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25

Report of Independent Certified Public Accountants

Board of Directors
Versar, Inc.

We have audited the accompanying consolidated balance sheets of Versar, Inc. (a Delaware corporation), and subsidiaries as of June 30, 2003 and 2002, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the two years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Versar, Inc., and subsidiaries as of June 30, 2003 and 2002, and the results of their operations and their cash flows for the two years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in the notes to the consolidated financial statements, in 2003, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

We have also audited Schedule II for each of the two years in the period ended June 30, 2003. In our opinion, this schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information therein.

Vienna, Virginia
September 9, 2003 (except for Note F as to which the date is September 16, 2003)

F-1

Report of Independent Public Accountants

To the Board of Directors and Stockholders of Versar, Inc.:

We have audited the accompanying consolidated balance sheets of Versar, Inc. (a Delaware corporation) and its subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the three years ended June 30, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Versar, Inc. and its subsidiaries as of June 30, 2001 and 2000, and the results of their operations and their cash flows for the three years ended June 30, 2001, in conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II, as listed in Item 14 of the Form 10-K, is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole and the financial data required to be set forth therein.

Vienna, Virginia
September 7, 2001

This Report of Independent Certified Public Accountants is a copy of a previously issued Arthur Andersen LLP (“Andersen”) report and has not been reissued by Andersen. The inclusion of this previously issued Andersen report is pursuant to the “Temporary Final Rule and Final Rule: Requirements for Arthur Andersen LLP Auditing Clients,” issued by the U.S. Securities and Exchange Commission in March 2002. Note that this previously issued Andersen report includes references to certain fiscal years, which are not required to be presented in the accompanying consolidated financial statements as of and through fiscal years ended March 31, 2002.

F-2

VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)

The accompanying notes are an integral part of these consolidated financial statements.

F-3

VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)

The accompanying notes are an integral part of these consolidated financial statements.

F-4

VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands)