UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended March 29, 2009
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Transition period from  to
 Commission File Number 000-08193
 ARGON
ST, INC.
  Delaware
    
    38-1873250(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 12701 Fair Lakes Circle, Suite 800, Fairfax, Virginia 22033
 (703) 322-0881
  þ o
  o o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o  o þ




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##### 



ARGON ST, INC. AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
 FOR THE THREE AND SIX MONTHS ENDED MARCH 29, 2009
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at March 29, 2009 and September 30, 2008
    
    
    3Condensed Consolidated Statements of Earnings for the three and six months ended March 29, 2009 and March 30, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended March 29, 2009 and March 30, 2008
    
    
    5Condensed Consolidated Statements of Stockholders Equity for the six months ended March 29, 2009
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7-13Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14-26Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risks
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 1A.
    
    Risk Factors
    
    
    27Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3.
    
    Defaults Upon Senior Securities
    
    
    27Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    28Item 5.
    
    Other Information
    
    
    28Item 6.
    
    Exhibits
    
    
    29Signatures
    
    
    30Exhibits
    
    
    31-33
 2




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##### 



ARGON ST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 March 29, 2009
    
    
    September 30, 2008(unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    18,305
    
    
    $
    15,380Accounts receivable, net
    
    
    131,032
    
    
    
    104,859Inventory, net
    
    
    3,812
    
    
    
    3,757Deferred income tax asset
    
    
    4,400
    
    
    
    4,534Deferred project costs
    
    
    1,570
    
    
    
    3,412Prepaids and other
    
    
    1,557
    
    
    
    2,004TOTAL CURRENT ASSETS
    
    
    160,676
    
    
    
    133,946Property, equipment and software, net
    
    
    27,780
    
    
    
    27,558Goodwill
    
    
    173,948
    
    
    
    173,948Intangibles, net
    
    
    3,375
    
    
    
    4,055Other assets
    
    
    692
    
    
    
    831TOTAL ASSETS
    
    $
    366,471
    
    
    $
    340,338LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    37,228
    
    
    $
    29,133Accrued salaries and related expenses
    
    
    12,972
    
    
    
    10,283Deferred revenue
    
    
    8,014
    
    
    
    4,361Income taxes payable
    
    
    777
    
    
    
    Other liabilities
    
    
    184
    
    
    
    132TOTAL CURRENT LIABILITIES
    
    
    59,175
    
    
    
    43,909Deferred income tax liability, long term
    
    
    1,315
    
    
    
    1,900Deferred rent and other liabilities
    
    
    1,819
    
    
    
    2,085Commitments and contingenciesSTOCKHOLDERS EQUITYCommon stock:$.01 Par Value, 100,000,000 shares authorized,
22,897,279 and 22,775,423 shares issued
at March 29, 2009 and September 30, 2008
    
    
    229
    
    
    
    228Additional paid in capital
    
    
    224,559
    
    
    
    222,349Treasury stock at cost, 1,219,077 and 1,126,245 shares at
March 29, 2009 and September 30, 2008
    
    
    (19,923
    )
    
    
    (18,425
    )Retained earnings
    
    
    99,297
    
    
    
    88,292TOTAL STOCKHOLDERS EQUITY
    
    
    304,162
    
    
    
    292,444TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    366,471
    
    
    $
    340,338
  3




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##### 



ARGON ST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
(In thousands, except share and per share amounts)
 For the Three Months Ended
    
    
    For the Six Months EndedMarch 29, 2009
    
    
    March 30, 2008
    
    
    March 29, 2009
    
    
    March 30, 2008CONTRACT REVENUES
    
    $
    95,572
    
    
    $
    88,449
    
    
    $
    179,598
    
    
    $
    162,715COST OF REVENUES
    
    
    77,695
    
    
    
    73,012
    
    
    
    146,541
    
    
    
    133,349GENERAL AND ADMINISTRATIVE
EXPENSES
    
    
    6,128
    
    
    
    4,663
    
    
    
    11,916
    
    
    
    10,120RESEARCH AND DEVELOPMENT
EXPENSES
    
    
    2,366
    
    
    
    1,811
    
    
    
    4,138
    
    
    
    3,511INCOME FROM OPERATIONS
    
    
    9,383
    
    
    
    8,963
    
    
    
    17,003
    
    
    
    15,735INTEREST INCOME, NET
    
    
    (11
    )
    
    
    35
    
    
    
    (25
    )
    
    
    154INCOME BEFORE INCOME TAXES
    
    
    9,372
    
    
    
    8,998
    
    
    
    16,978
    
    
    
    15,889PROVISION FOR INCOME TAXES
    
    
    3,556
    
    
    
    3,492
    
    
    
    5,973
    
    
    
    6,101NET INCOME
    
    $
    5,816
    
    
    $
    5,506
    
    
    $
    11,005
    
    
    $
    9,788EARNINGS PER SHARE (Basic)
    
    $
    0.27
    
    
    $
    0.25
    
    
    $
    0.51
    
    
    $
    0.45EARNINGS PER SHARE (Diluted)
    
    $
    0.26
    
    
    $
    0.25
    
    
    $
    0.50
    
    
    $
    0.44WEIGHTED-AVERAGE SHARES
OUTSTANDINGBasic
    
    
    21,713,793
    
    
    
    21,698,836
    
    
    
    21,691,082
    
    
    
    21,781,588Diluted
    
    
    22,009,828
    
    
    
    22,013,836
    
    
    
    22,016,996
    
    
    
    22,146,004
  4




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##### 



ARGON ST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands)
 Six Months EndedMarch 29, 2009
    
    
    March 30, 2008Cash flows from operating activitiesNet income
    
    $
    11,005
    
    
    $
    9,788Adjustments to reconcile net income to net cash used in
operating activities:Depreciation and amortization
    
    
    4,508
    
    
    
    3,926Claims resolution
    
    
    640
    
    
    
    Amortization of deferred costs
    
    
    84
    
    
    
    84Deferred income tax expense (benefit)
    
    
    448
    
    
    
    (897
    )Stock-based compensation
    
    
    1,807
    
    
    
    1,621Other
    
    
    (93
    )
    
    
    (16
    )Change in:Accounts receivable
    
    
    (26,032
    )
    
    
    (6,480
    )Inventory
    
    
    (101
    )
    
    
    (846
    )Prepaids and other
    
    
    1,929
    
    
    
    1,284Deferred rent and other
    
    
    21
    
    
    
    2,007Accounts payable and accrued expenses
    
    
    7,855
    
    
    
    1,499Accrued salaries and related expenses
    
    
    2,689
    
    
    
    (2,063
    )Deferred revenue
    
    
    3,653
    
    
    
    (5,025
    )Net cash provided by operating activities
    
    
    8,413
    
    
    
    4,882Cash flows from investing activitiesAcquisitions of property, equipment and software
    
    
    (4,452
    )
    
    
    (5,203
    )Cash paid for acquisitions
    
    
    
    
    
    
    (3,300
    )Reduction in restricted cash
    
    
    
    
    
    
    1,800Deposits and other assets
    
    
    66
    
    
    
    Proceeds from note receivable and other
    
    
    
    
    
    
    339Net cash used in investing activities
    
    
    (4,386
    )
    
    
    (6,364
    )Cash flows from financing activitiesStock repurchases
    
    
    (1,498
    )
    
    
    (7,898
    )Payments on capital leases
    
    
    (30
    )
    
    
    (90
    )Tax benefit of stock option exercises
    
    
    4
    
    
    
    36Proceeds from exercise of stock options
    
    
    171
    
    
    
    169Proceeds from employee stock purchase plan exercises
    
    
    251
    
    
    
    284Net cash used in financing activities
    
    
    (1,102
    )
    
    
    (7,499
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,925
    
    
    
    (8,981
    )Cash and cash equivalents, beginning of period
    
    
    15,380
    
    
    
    22,965Cash and cash equivalents, end of period
    
    $
    18,305
    
    
    $
    13,984Supplemental disclosureIncome taxes paid
    
    $
    5,253
    
    
    $
    4,723Interest expense paid
    
    $
    35
    
    
    $
    12
  5




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##### 



ARGON ST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (unaudited)
(In thousands, except share data)
 TotalCommon Stock
    
    
    Common Stock
    
    
    Additional Paid in
    
    
    
    
    
    
    
    
    
    
    StockholdersNumber of Shares
    
    
    Par Value
    
    
    Capital
    
    
    Treasury Stock
    
    
    Retained Earnings
    
    
    EquityBalance, September 30, 2008
    
    
    22,775,423
    
    
    $
    228
    
    
    $
    222,349
    
    
    $
    (18,425
    )
    
    $
    88,292
    
    
    $
    292,444Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,005
    
    
    
    11,005Shares issued upon exercise
of stock options
    
    
    32,040
    
    
    
    
    
    
    
    171
    
    
    
    
    
    
    
    
    
    
    
    171Restricted stock units vested
    
    
    75,825
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Employee stock purchase plan
    
    
    13,991
    
    
    
    
    
    
    
    251
    
    
    
    
    
    
    
    
    
    
    
    251Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,785
    
    
    
    
    
    
    
    
    
    
    
    1,785Stock repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,498
    )
    
    
    
    
    
    
    (1,498
    )Tax benefit on stock option
exercises and restricted stock
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Balance, March 29, 2009
    
    
    22,897,279
    
    
    $
    229
    
    
    $
    224,559
    
    
    $
    (19,923
    )
    
    $
    99,297
    
    
    $
    304,162
  6




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##### 



ARGON ST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share and per share amounts)
 1. BASIS OF PRESENTATION
      7




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##### 



ARGON ST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share and per share amounts)
 2. EARNINGS PER SHARE
  For the three months ended
    
    
    For the six months endedMarch 29, 2009
    
    
    March 30, 2008
    
    
    March 29, 2009
    
    
    March 30, 2008Net income
    
    $
    5,816
    
    
    $
    5,506
    
    
    $
    11,005
    
    
    $
    9,788Weighted average shares outstanding  basic
    
    
    21,713,793
    
    
    
    21,698,836
    
    
    
    21,691,082
    
    
    
    21,781,588Basic earnings per share
    
    $
    0.27
    
    
    $
    0.25
    
    
    $
    0.51
    
    
    $
    0.45Effect of dilutive securities:Net shares issuable upon exercise of stock options
and awards
    
    
    296,035
    
    
    
    315,000
    
    
    
    325,914
    
    
    
    364,416Weighted average shares outstanding  diluted
    
    
    22,009,828
    
    
    
    22,013,836
    
    
    
    22,016,996
    
    
    
    22,146,004Diluted earnings per share
    
    $
    0.26
    
    
    $
    0.25
    
    
    $
    0.50
    
    
    $
    0.44
  3. STOCK-BASED COMPENSATION
   8




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##### 



ARGON ST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share and per share amounts)
 For the three months
    
    
    For the six months endedMarch 29,
    
    
    March 30,
    
    
    March 29,
    
    
    March 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of revenues
    
    $
    666
    
    
    $
    640
    
    
    $
    1,244
    
    
    $
    1,168General and administrative expense
    
    
    332
    
    
    
    258
    
    
    
    563
    
    
    
    453Total pre-tax stock-based compensation included in
income from operations
    
    
    998
    
    
    
    898
    
    
    
    1,807
    
    
    
    1,621Income tax expense (benefit) recognized for stock-based compensation
    
    
    (258
    )
    
    
    (183
    )
    
    
    (478
    )
    
    
    (311
    )Total stock-based compensation expense, net of tax
    
    $
    740
    
    
    $
    715
    
    
    $
    1,329
    
    
    $
    1,310
  Stock Option Activity
  Weighted-AverageWeighted-
    
    Remaining
    
    AggregateNumber
    
    Average
    
    Contractual
    
    Intrinsicof Shares
    
    Exercise Price
    
    Term
    
    ValueShares under option, September 30, 2008
    
    
    1,623,967
    
    
    $
    18.18Options granted
    
    
    167,000
    
    
    $
    18.62Options exercised
    
    
    (32,040
    )
    
    $
    5.34
    
    
    
    
    
    
    $
    208Options cancelled and expired
    
    
    (25,645
    )
    
    $
    23.65Shares under option, March 29, 2009
    
    
    1,733,282
    
    
    $
    18.38
    
    
    
    5.87
    
    
    $
    8,210Options vested at March 29, 2009
    
    
    1,192,099
    
    
    $
    16.81
    
    
    
    5.01
    
    
    $
    7,288As of March 29 2009, options that are
vested and expected to vest prior to
expiration
    
    
    1,419,794
    
    
    $
    17.55
    
    
    
    5.35
    
    
    $
    7,905
 9




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##### 



ARGON ST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share and per share amounts)
 Restricted Share Activity
  Weighted-AverageNumber
    
    Grant Date Fairof Shares
    
    ValueUnvested shares, September 30, 2008
    
    
    291,975
    
    
    $
    22.01Awards granted
    
    
    146,600
    
    
    $
    18.43Awards vested
    
    
    (75,825
    )
    
    $
    20.83Awards forfeited
    
    
    (3,400
    )
    
    $
    19.07Unvested shares, March 29, 2009
    
    
    359,350
    
    
    $
    20.83
   4. ACCOUNTS RECEIVABLE
  March 29, 2009
    
    
    September 30, 2008Billed and billable
    
    $
    66,755
    
    
    $
    42,794Unbilled costs and fees
    
    
    50,867
    
    
    
    54,838Unfavorable indirect rate variance
    
    
    4,410
    
    
    
    Retainages
    
    
    9,018
    
    
    
    7,438Reserve
    
    
    (18
    )
    
    
    (211
    )Accounts receivable, net
    
    $
    131,032
    
    
    $
    104,859
  10




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##### 



ARGON ST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share and per share amounts)
 5. INVENTORY
  March 29, 2009
    
    
    September 30, 2008Raw Materials
    
    $
    2,807
    
    
    $
    2,920Component parts, work in process
    
    
    494
    
    
    
    812Finished component parts
    
    
    559
    
    
    
    4103,860
    
    
    
    4,142Reserve
    
    
    (48
    )
    
    
    (385
    )Inventory, net
    
    $
    3,812
    
    
    $
    3,757
 6. PROPERTY, EQUIPMENT AND SOFTWARE
  March 29, 2009
    
    
    September 30, 2008Computer, machinery and test equipment
    
    $
    29,500
    
    
    $
    27,549Leasehold improvements
    
    
    11,569
    
    
    
    10,947Computer software
    
    
    5,563
    
    
    
    4,926Furniture and fixtures
    
    
    1,557
    
    
    
    1,726Equipment under capital lease
    
    
    337
    
    
    
    337Construction in progress
    
    
    11,415
    
    
    
    10,47859,941
    
    
    
    55,963Less accumulated depreciation and amortization
    
    
    (32,161
    )
    
    
    (28,405
    )$
    27,780
    
    
    $
    27,558
  7. REVOLVING LINE OF CREDIT
   11




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##### 



ARGON ST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share and per share amounts)
  8. INCOME TAXES
    9. COMMITMENTS AND CONTINGENCIES
   10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Business Combinations Business Combinations Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies
 12




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##### 



ARGON ST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share and per share amounts)
 Determination of the Useful
Life of Intangible Assets
 The
Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB
Statement No. 115
 Fair Value Measurements, , Effective Date of FASB Statement No. 157
 13




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-looking Statements
  Overview
 General
   14




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##### 



Revenues
        15




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##### 



Three Months Ended
    
    Six Months EndedMarch 29,
    
    March 30,
    
    March 29,
    
    March 30,Contract Type
    
    2009
    
    2008
    
    2009
    
    2008Fixed-price contracts
    
    
    55
    %
    
    
    64
    %
    
    
    56
    %
    
    
    58
    %Cost reimbursable
contracts
    
    
    40
    %
    
    
    32
    %
    
    
    39
    %
    
    
    38
    %Time and material
contracts
    
    
    5
    %
    
    
    4
    %
    
    
    5
    %
    
    
    4
    %
  Backlog
    16




---



##### 



March 29,
    
    
    September 30,2009
    
    
    2008Funded
    
    $
    216,661
    
    
    $
    272,620Unfunded
    
    
    33,523
    
    
    
    54,672Total
    
    $
    250,184
    
    
    $
    327,292
 Cost of Revenues
  General and Administrative Expenses
  Research and Development
   Interest Income and Expense
   Critical Accounting Practices and Estimates
 General
  17




---



##### 



Revenue and Cost Recognition
 General
 Accounting for Performance of Construction-Type and Production-Type Contracts.
   Indirect rate variance
    18




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##### 



Award Fee Recognition
  Goodwill
 Goodwill and Other Intangible Assets
 Long-Lived Assets (Excluding Goodwill)
 Accounting for the Impairment or Disposal of
Long-Lived Assets
 Accounts Receivable
  19




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##### 



Stock-Based Compensation
  Historical Operating Results
 Three months ended March 29, 2009 compared to three months ended March 30, 2008
  Three months quarter ended
    
    Amount ofMarch 29,
    
    March 30,
    
    increase
    
    % increase2009
    
    2008
    
    (decrease)
    
    (decrease)Contract revenues
    
    $
    95,572
    
    
    $
    88,449
    
    
    $
    7,123
    
    
    
    8
    %Cost of revenues
    
    
    77,695
    
    
    
    73,012
    
    
    
    4,683
    
    
    
    6
    %General and administrative expenses
    
    
    6,128
    
    
    
    4,663
    
    
    
    1,465
    
    
    
    31
    %Research and development expenses
    
    
    2,366
    
    
    
    1,811
    
    
    
    555
    
    
    
    31
    %Interest income, net
    
    
    (11
    )
    
    
    35
    
    
    
    (46
    )
    
    
    -131
    %Provision for income taxes
    
    
    3,556
    
    
    
    3,492
    
    
    
    64
    
    
    
    2
    %Net income
    
    
    5,816
    
    
    
    5,506
    
    
    
    310
    
    
    
    6
    %
 Revenues
  20




---



##### 



Cost of Revenues
  General and Administrative Expenses
  Research and Development Expenses
  Interest Income, net
  Provision for Income Taxes
  Net Income
  21




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##### 



Six months ended March 29, 2009 compared to six months ended March 30, 2008
  Six months endedAmount ofMarch 29,
    
    March 30,
    
    increase
    
    % increase2009
    
    2008
    
    (decrease)
    
    (decrease)Contract revenues
    
    $
    179,598
    
    
    $
    162,715
    
    
    $
    16,883
    
    
    
    10
    %Cost of revenues
    
    
    146,541
    
    
    
    133,349
    
    
    
    13,192
    
    
    
    10
    %General and administrative expenses
    
    
    11,916
    
    
    
    10,120
    
    
    
    1,796
    
    
    
    18
    %Research and development expenses
    
    
    4,138
    
    
    
    3,511
    
    
    
    627
    
    
    
    18
    %Interest income, net
    
    
    (25
    )
    
    
    154
    
    
    
    (179
    )
    
    
    -116
    %Provision for income taxes
    
    
    5,973
    
    
    
    6,101
    
    
    
    (128
    )
    
    
    -2
    %Net income
    
    
    11,005
    
    
    
    9,788
    
    
    
    1,217
    
    
    
    12
    %
 Revenues
  Cost of Revenues
  22




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##### 



General and Administrative Expenses
  Research and Development Expenses
  Interest Income, net
  Provision for Income Taxes
  Net Income
  Analysis of Liquidity and Capital Resources
  Cash
  23




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##### 



Line of Credit
    Cash Flows
    24




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##### 



Contractual Obligations and Commitments
  Due in 1
    
    
    Due in 2
    
    
    Due in 3
    
    
    Due in 4
    
    
    Due in 5Total
    
    
    year
    
    
    years
    
    
    years
    
    
    years
    
    
    years
    
    
    ThereafterCapital leases
    
    $
    78
    
    
    $
    53
    
    
    $
    20
    
    
    $
    5
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    39,969
    
    
    
    8,111
    
    
    
    7,113
    
    
    
    6,841
    
    
    
    6,508
    
    
    
    6,308
    
    
    
    5,088Earn-out obligation (a)
    
    
    3,200
    
    
    
    3,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    43,247
    
    
    $
    11,364
    
    
    $
    7,133
    
    
    $
    6,846
    
    
    $
    6,508
    
    
    $
    6,308
    
    
    $
    5,088
 
 (a)
    
    Under the Coherent Systems International, LLC (Coherent) purchase agreement, as amended, we
have agreed to pay shareholders of Coherent an additional $3.2 million in cash in the event that
certain bookings targets are met as of July 2009.  (in thousands)
    
    Total
    
    Less Than 1 Year
    
    1-3 YearsLetters of credit
    
    $
    2,443
    
    
    $
    2,443
    
    
    
    
 Contingent income tax obligations
   Market Risks
  25




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##### 



Cash and Cash Equivalents
  Access to Bank Credit
  Interest Rates
  Foreign Currency
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a)
    
    Our management has evaluated, with the participation of our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (Exchange Act)) as of the end of the period covered by this
Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to
provide reasonable assurance that the information required to be disclosed in this
Quarterly Report on Form 10-Q has been appropriately recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective at the reasonable assurance level.(b)
    
    During the last quarter, there were no significant changes in our internal
controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended) that have materially affected these
controls, or are reasonably likely to materially affect these controls subsequent to
the evaluation of these controls.
 26




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##### 



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  ApproximateTotal Number of
    
    
    Number of SharesTotal Number
    
    
    Average
    
    
    Shares Purchased as
    
    
    that May Yet Beof Shares
    
    
    Price Paid
    
    
    Part of Publicly
    
    
    Purchased UnderPeriod
    
    Purchased
    
    
    per Share
    
    
    Announced Plan
    
    
    the PlanDecember 29, 2008
to January 25, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,000,000January 26, 2009 to
February 22, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000February 23, 2009
to March 29, 2009
    
    
    92,832
    
    
    
    16.14
    
    
    
    92,832
    
    
    
    907,168Second quarter
fiscal 2009 totals
    
    
    92,832
    
    
    $
    16.14
    
    
    
    92,832
    
    
    
    907,168
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  27




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##### 



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  a)
    
    The inspector of election tabulated the following votes for the election of
directors. There were 840,298 broker non-votes.
 Nominee for Office
    
    Number of Votes In Favor
    
    Number of Votes WithheldTerry L. Collins
    
    
    20,338,643
    
    
    
    526,447Thomas E. Murdock
    
    
    20,320,656
    
    
    
    544,434Victor F. Sellier
    
    
    19,812,927
    
    
    
    1,052,163S. Kent Rockwell
    
    
    20,313,529
    
    
    
    551,561David C. Karlgaard
    
    
    20,596,344
    
    
    
    268,746Lloyd A. Semple
    
    
    20,596,344
    
    
    
    268,746Robert McCashin
    
    
    20,589,348
    
    
    
    275,742John Irvin
    
    
    20,594,271
    
    
    
    270,819Peter A. Marino
    
    
    20,594,380
    
    
    
    270,710Maureen Baginski
    
    
    20,587,838
    
    
    
    277,252Delores M. Etter
    
    
    20,587,262
    
    
    
    277,828
 b)
    
    The inspector of election tabulated the following votes for the proposal to
ratify the selection by the Audit Committee of Grant Thornton LLP as the Companys
independent registered public accounting firm for the fiscal year ending September 30,
2009. There were 840,296 broker non-votes.
 Number of Votes In Favor
    
    Number of Votes Against
    
    Abstain20,754,608
    
    
    68,072
    
    
    
    42,412
 
 ITEM 5. OTHER INFORMATION
  28




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##### 



ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description of Exhibit2.1
    
    Agreement and Plan of
Merger dated as of June
7, 2004, by and between
Sensytech, Inc. and Argon
Engineering Associates,
Inc. (incorporated by
reference to Exhibit 2.1
of the Companys
Registration Statement on
Form S-4 filed on July
16, 2004, Registration
Statement No. 333-117430)2.2
    
    Agreement and Plan of
Merger, Dated as of June
9, 2006, by and among
Argon ST, Inc., Argon ST
Merger Sub, Inc., San
Diego Research Center,
Incorporated, Lindsay
McClure, Thomas Seay and
Harry B. Lee, Trustee of
the HBL and BVL Trust
(incorporated by
reference to the
Companys Current Report
on Form 8-K, filed June
14, 2006)2.3
    
    Equity Purchase Agreement
by and among Argon ST,
Inc., CSIC Holdings LLC,
Coherent Systems
International, Corp., the
Stockholders of Coherent
Systems International,
Corp. and Richard S.
Ianieri, as Seller
Representative
(incorporated by
reference to Exhibit 2.1
to the Companys Current
Report on Form 8-K, filed
August 16, 2007)3.1
    
    Amended and Restated
Certificate of
Incorporation of the
Company (incorporated by
reference to Exhibit 3.1
of the Companys
Registration Statement on
Form S-1 (Registration
Statement No. 333-98757)
filed on August 26, 2002)3.1.1
    
    Amendment, dated
September 28, 2004, to
the Companys Amended and
Restated Certificate of
Incorporation
(incorporated by
reference to Exhibit 3.1
to the Companys Current
Report on Form 8-K filed
October 5, 2004 covering
Items 2.01, 5.01, 5.02,
8.01 and 9.01 of Form
8-K).3.1.2
    
    Amendment, dated March
15, 2005 to the Companys
Amended and Restated
Certificate of
Incorporation
(incorporated by
reference to Exhibit
3.1.2 to the Companys
Quarterly Report on Form
10-Q for the quarterly
period ended April 5,
2005, filed May 11, 2005)3.2
    
    Amended and Restated
Bylaws of the Company
(incorporated by
reference to Exhibit 3.2
of the Companys Current
Report on Form 8-K, filed
May 12, 2008)4.1
    
    Form of Common Stock Certificate
(incorporated by reference to Exhibit 4.3
to the Companys Registration Statement
on Form S-3 (Registration Statement No.
333-128211) filed on September 9, 2005)10 .1.1+
    
    Change in Control Agreement  between
the Company and Terry Collins
(incorporated by reference to Exhibit
10.1 to the Companys Current Report on
Form 8-K, filed January 22, 2009)10.1.2+
    
    Change in Control Agreement  between
the Company and Kerry Rowe (incorporated
by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K,
filed January 22, 2009)10.1.3+
    
    Change in Control Agreement  between
the Company and Aaron Daniels
(incorporated by reference to Exhibit
10.1 to the Companys Current Report on
Form 8-K, filed January 22, 2009)31.1*
    
    Certification of the Companys Chief
Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities
Exchange Act31.2*
    
    Certification of the Companys Chief
Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities
Exchange Act32.1**
    
    Certification pursuant to Rule
13a-14(b)/15d-14(b) under the Securities
Exchange Act and Section 1350 of Chapter
63 of Title 8 of the United States Code
 
 *
    
    Filed herewith**
    
    Furnished herewith+
    
    Indicates management contract or compensatory plan or arrangement 29




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##### 



SIGNATURES
  ARGON ST, INC.
(Registrant)By:
    /s/ Terry L. CollinsTerry L. Collins, Ph.D.Chairman, Chief Executive Officer and PresidentBy:
    /s/ Aaron N. DanielsAaron N. DanielsVice President, Chief Financial Officer, and
Treasurer  30