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 June 29, 2008
 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 12701 Fair Lakes Circle, Suite 800, Fairfax, Virginia 22033
 (703) 322-0881
  þ o
  Large accelerated filer o   
    Accelerated filer þ
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



ARGON ST, INC. AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
 FOR THE THREE AND NINE MONTHS ENDED JUNE 29, 2008
   TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at June 29, 2008 and September 30, 2007
    
    
    3Condensed Consolidated Statements of Earnings for the three and nine
months ended June 29, 2008 and July 1, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the
nine months ended June 29, 2008 and July 1, 2007
    
    
    5Condensed Consolidated Statements of Stockholders Equity for the nine months ended June 29, 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7-15Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16-27Item 3. Quantitative and Qualitative Disclosures about Market Risks
    
    
    28Item 4. Controls and Procedures
    
    
    28PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    30Signatures
    
    
    31Exhibits
    
    
    32-34
  2




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##### 



CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 June 29, 2008
    
    
    September 30, 2007ASSETS
    
    (unaudited)CURRENT ASSETSCash and cash equivalents
    
    $
    7,237
    
    
    $
    22,965Accounts receivable, net
    
    
    111,910
    
    
    
    95,639Inventory, net
    
    
    4,176
    
    
    
    2,927Deferred income tax asset
    
    
    4,473
    
    
    
    3,218Prepaids and other
    
    
    1,454
    
    
    
    3,154TOTAL CURRENT ASSETS
    
    
    129,250
    
    
    
    127,903Property, equipment and software, net
    
    
    26,457
    
    
    
    22,822Goodwill
    
    
    173,948
    
    
    
    170,192Intangibles, net
    
    
    4,481
    
    
    
    5,760Restricted cash
    
    
    
    
    
    
    1,800Other assets
    
    
    865
    
    
    
    1,168TOTAL ASSETS
    
    $
    335,001
    
    
    $
    329,645LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    20,233
    
    
    $
    23,796Accrued salaries and related expenses
    
    
    13,436
    
    
    
    12,899Deferred revenue
    
    
    11,026
    
    
    
    12,651Income taxes payable
    
    
    1,554
    
    
    
    Other liabilities
    
    
    113
    
    
    
    681TOTAL CURRENT LIABILITIES
    
    
    46,362
    
    
    
    50,027Deferred income tax liability, long term
    
    
    1,718
    
    
    
    1,794Deferred rent and other liabilities
    
    
    1,764
    
    
    
    2,988Commitments and contingenciesSTOCKHOLDERS EQUITYCommon stock:$.01 Par Value, 100,000,000 shares authorized,
22,702,659 and 22,561,639 shares issued
at June 29, 2008 and September 30, 2007
    
    
    227
    
    
    
    226Additional paid in capital
    
    
    220,368
    
    
    
    217,038Treasury stock at cost, 1,126,245 and 674,145 shares at
June 29, 2008 and September 30, 2007, respectively
    
    
    (18,425
    )
    
    
    (10,527
    )Retained earnings
    
    
    82,987
    
    
    
    68,099TOTAL STOCKHOLDERS EQUITY
    
    
    285,157
    
    
    
    274,836TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    335,001
    
    
    $
    329,645
  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 Nine Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007CONTRACT REVENUES
    
    $
    83,165
    
    
    $
    73,660
    
    
    $
    245,880
    
    
    $
    198,375COST OF REVENUES
    
    
    68,415
    
    
    
    61,599
    
    
    
    201,764
    
    
    
    159,254GENERAL AND ADMINISTRATIVE
EXPENSES
    
    
    5,325
    
    
    
    4,325
    
    
    
    15,445
    
    
    
    13,212RESEARCH AND DEVELOPMENT
EXPENSES
    
    
    1,587
    
    
    
    1,306
    
    
    
    5,098
    
    
    
    5,270INCOME FROM OPERATIONS
    
    
    7,838
    
    
    
    6,430
    
    
    
    23,573
    
    
    
    20,639INTEREST INCOME, NET
    
    
    444
    
    
    
    341
    
    
    
    598
    
    
    
    938INCOME BEFORE INCOME TAXES
    
    
    8,282
    
    
    
    6,771
    
    
    
    24,171
    
    
    
    21,577PROVISION FOR INCOME TAXES
    
    
    3,103
    
    
    
    2,485
    
    
    
    9,204
    
    
    
    7,945NET INCOME
    
    $
    5,179
    
    
    $
    4,286
    
    
    $
    14,967
    
    
    $
    13,632EARNINGS PER SHARE (Basic)
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.69
    
    
    $
    0.61EARNINGS PER SHARE (Diluted)
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.68
    
    
    $
    0.60WEIGHTED-AVERAGE SHARES OUTSTANDINGBasic
    
    
    21,546,554
    
    
    
    22,398,626
    
    
    
    21,703,242
    
    
    
    22,319,227Diluted
    
    
    21,913,142
    
    
    
    22,818,796
    
    
    
    22,098,271
    
    
    
    22,787,662
  4




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##### 



ARGON ST, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 Nine Months EndedJune 29, 2008
    
    
    July 1, 2007Cash flows from operating activitiesNet income
    
    $
    14,967
    
    
    $
    13,632Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    6,015
    
    
    
    5,399Amortization of deferred costs
    
    
    127
    
    
    
    Deferred income tax expense (benefit)
    
    
    (632
    )
    
    
    124Stock-based compensation
    
    
    2,553
    
    
    
    1,489(Gain) loss on sale of equipment and other
    
    
    9
    
    
    
    32Change in:Accounts receivable
    
    
    (15,935
    )
    
    
    (9,169
    )Inventory
    
    
    (1,249
    )
    
    
    (122
    )Prepaids and other
    
    
    941
    
    
    
    5,782Accounts payable and accrued expenses
    
    
    (3,826
    )
    
    
    151Accrued salaries and related expenses
    
    
    537
    
    
    
    3,444Deferred rent and other current liabilities
    
    
    1,554
    
    
    
    (201
    )Deferred revenue
    
    
    (2,145
    )
    
    
    (1,689
    )Net cash provided by operating activities
    
    
    2,916
    
    
    
    18,872Cash flows from investing activitiesAcquisitions of property, equipment and software
    
    
    (8,432
    )
    
    
    (5,613
    )Cash paid for acquisitions
    
    
    (5,300
    )
    
    
    (400
    )Reduction in restricted cash
    
    
    1,800
    
    
    
    Proceeds from note receivable and other
    
    
    325
    
    
    
    (504
    )Net cash used in investing activities
    
    
    (11,607
    )
    
    
    (6,517
    )Cash flows from financing activitiesStock repurchases
    
    
    (7,898
    )
    
    
    Payments on capital leases
    
    
    (104
    )
    
    
    (25
    )Tax benefit of stock option exercises
    
    
    167
    
    
    
    535Proceeds from exercise of stock options
    
    
    514
    
    
    
    911Proceeds from employee stock purchase plan exercises
    
    
    284
    
    
    
    395Net cash provided by (used in) financing activities
    
    
    (7,037
    )
    
    
    1,816Net increase (decrease) in cash and cash equivalents
    
    
    (15,728
    )
    
    
    14,171Cash and cash equivalents, beginning of period
    
    
    22,965
    
    
    
    33,498Cash and cash equivalents, end of period
    
    $
    7,237
    
    
    $
    47,669Supplemental disclosure
Income taxes paid
    
    $
    7,794
    
    
    $
    7,344
  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, 2007
    
    
    22,561,639
    
    
    $
    226
    
    
    $
    217,038
    
    
    $
    (10,527
    )
    
    $
    68,099
    
    
    $
    274,836Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,967
    
    
    
    14,967Cumulative effect of adoption
of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79
    )
    
    
    (79
    )Shares issued upon exercise
of stock options
    
    
    124,881
    
    
    
    1
    
    
    
    513
    
    
    
    
    
    
    
    
    
    
    
    514Employee stock purchase plan
    
    
    16,139
    
    
    
    
    
    
    
    284
    
    
    
    
    
    
    
    
    
    
    
    284Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,366
    
    
    
    
    
    
    
    
    
    
    
    2,366Tax benefit on stock option
exercises and restricted stock
    
    
    
    
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    
    
    
    
    167Stock repurchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,898
    )
    
    
    
    
    
    
    (7,898
    )Balance, June 29, 2008
    
    
    22,702,659
    
    
    $
    227
    
    
    $
    220,368
    
    
    $
    (18,425
    )
    
    $
    82,987
    
    
    $
    285,157
  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. ACQUISITION OF CSIC HOLDINGS LLC
 Business Combinations
    Tangible assets:Current assets
    
    $
    3,208Property, plant and equipment
    
    
    530Deferred tax assets
    
    
    340Other assets
    
    
    20Intangible assets:Intangible assets
    
    
    1,700Goodwill
    
    
    23,927Total assets acquired
    
    $
    29,725Total liabilities assumed
    
    $
    5,892Purchase price allocated
    
    $
    23,833
 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)
 3. EARNINGS PER SHARE
  For the three months ended
    
    For the nine months endedJune 29, 2008
    
    July, 2007
    
    June 29, 2008
    
    July 1, 2007Net income
    
    $
    5,179
    
    
    $
    4,286
    
    
    $
    14,967
    
    
    $
    13,632Weighted average shares outstanding 
basic
    
    
    21,546,554
    
    
    
    22,398,626
    
    
    
    21,703,242
    
    
    
    22,319,227Basic earnings per share
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.69
    
    
    $
    0.61Effect of dilutive securities:Net shares issuable upon exercise of
stock options and awards
    
    
    366,588
    
    
    
    420,170
    
    
    
    395,029
    
    
    
    468,435Weighted average shares outstanding 
diluted
    
    
    21,913,142
    
    
    
    22,818,796
    
    
    
    22,098,271
    
    
    
    22,787,662Diluted earnings per share
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.68
    
    
    $
    0.60
  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)
 4. STOCK-BASED COMPENSATION
 Adoption of SFAS No. 123R
   For the three months ended
    
    
    For the nine months endedJune 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007Cost of revenues
    
    $
    644
    
    
    $
    471
    
    
    $
    1,812
    
    
    $
    986General and administrative expense
    
    
    288
    
    
    
    153
    
    
    
    741
    
    
    
    503Total pre-tax stock-based compensation included in
income from operations
    
    
    932
    
    
    
    624
    
    
    
    2,553
    
    
    
    1,489Income tax expense (benefit) recognized for stock-based
compensation
    
    
    (225
    )
    
    
    (107
    )
    
    
    (536
    )
    
    
    (268
    )Total stock-based compensation expense, net of tax
    
    $
    707
    
    
    $
    517
    
    
    $
    2,017
    
    
    $
    1,221
  Stock Options
  Weighted-AverageWeighted-
    
    Remaining
    
    AggregateNumber
    
    Average
    
    Contractual
    
    Intrinsicof Shares
    
    Exercise Price
    
    Term
    
    ValueShares under option, September 30, 2007
    
    
    1,869,243
    
    
    $
    17.36Options granted
    
    
    7,000
    
    
    $
    20.69Options exercised
    
    
    (103,881
    )
    
    $
    5.52
    
    
    
    
    
    
    $
    2,002Options cancelled and expired
    
    
    (66,505
    )
    
    $
    23.75Shares under option, June 29, 2008
    
    
    1,705,857
    
    
    $
    17.85
    
    
    
    6.1
    
    
    $
    11,839Options vested at June 29, 2008
    
    
    1,098,578
    
    
    $
    15.69
    
    
    
    5.4
    
    
    $
    9,997As of June 29, 2008, options that are
vested and expected to vest prior to
expiration
    
    
    1,375,238
    
    
    $
    16.52
    
    
    
    5.7
    
    
    $
    11,373
 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)
  For the ninemonths endedJune 29, 2008Volatility
    
    
    33.8%  35.9
    %Risk free rate
    
    
    4.6%    4.8
    %Exercise factor
    
    
    1.2
 Restricted Shares
  Weighted-Average GrantNumber of Shares
    
    Date Fair ValueUnvested shares, September 30, 2007
    
    
    59,950
    
    
    $
    23.24Awards granted
    
    
    154,000
    
    
    $
    18.07Awards vested
    
    
    (21,000
    )
    
    $
    21.39Awards forfeited
    
    
    (6,375
    )
    
    $
    22.36Unvested shares, June 29, 2008
    
    
    186,575
    
    
    $
    19.21
   Stock Appreciation Rights
  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)
 5. ACCOUNTS RECEIVABLE
  June 29, 2008
    
    
    September 30, 2007Billed and billable
    
    $
    49,433
    
    
    $
    37,235Unbilled costs and fees
    
    
    50,414
    
    
    
    47,088Unfavorable indirect rate variance
    
    
    4,872
    
    
    
    Retainages
    
    
    7,402
    
    
    
    11,527Reserve
    
    
    (211
    )
    
    
    (211
    )Accounts receivable, net
    
    $
    111,910
    
    
    $
    95,639
  6. INVENTORIES
  June 29, 2008
    
    
    September 30, 2007Raw Materials
    
    $
    2,527
    
    
    $
    1,451Component parts, work in process
    
    
    1,653
    
    
    
    1,223Finished component parts
    
    
    419
    
    
    
    3944,599
    
    
    
    3,068Reserve
    
    
    (423
    )
    
    
    (141
    )Inventory, net
    
    $
    4,176
    
    
    $
    2,927
 7. PROPERTY, EQUIPMENT AND SOFTWARE
  June 29,
    
    
    September2008
    
    
    30, 2007Computer, machinery and test equipment
    
    $
    27,224
    
    
    $
    23,838Leasehold improvements
    
    
    10,648
    
    
    
    9,651Computer software
    
    
    4,634
    
    
    
    3,687Furniture and fixtures
    
    
    1,726
    
    
    
    1,643Equipment under capital lease
    
    
    337
    
    
    
    344Construction in process
    
    
    8,720
    
    
    
    6,00053,289
    
    
    
    45,163Less accumulated depreciation and amortization
    
    
    (26,832
    )
    
    
    (22,341
    )$
    26,457
    
    
    $
    22,822
 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)
  8. GOODWILL
  Balance at September 30, 2007
    
    $
    170,192Acquisition earn-outs
    
    
    5,000Net asset
adjustment, net of adjustments to indemnification clause
    
    
    (1,150
    )Adjustments to deferred tax assets
    
    
    (341
    )Adjustments
to and identification of the fair value of liabilities and reserves on accounts receivable
    
    
    247Balance at June 29, 2008
    
    $
    173,948
    9. REVOLVING LINE OF CREDIT
  13




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##### 



ARGON ST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share and per share amounts)
   10. TREASURY STOCK
   11. INCOME TAXES
 Accounting for
Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109
    14




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##### 



ARGON ST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share and per share amounts)
 12. COMMITMENTS AND CONTINGENCIES
  13. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Fair
Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilitiesincluding an amendment of FASB Statement No. 115
 Accounting
for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities
 Business Combinations Business Combinations
 Determination of the
Useful Life of Intangible Assets
 15




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-looking Statements
  Overview
 General
  Revenues
  16




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##### 



Three Months Ended
    
    Nine Months EndedContract Type
    
    June 29, 2008
    
    July 1, 2007
    
    June 29, 2008
    
    July 1, 2007Fixed-price contracts
    
    
    59
    %
    
    
    59
    %
    
    
    59
    %
    
    
    61
    %Cost reimbursable
contracts
    
    
    37
    %
    
    
    38
    %
    
    
    37
    %
    
    
    34
    %Time and
material contracts
    
    
    4
    %
    
    
    3
    %
    
    
    4
    %
    
    
    5
    %
   Backlog
  17




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##### 



September 30,June 29, 2008
    
    
    2007Funded
    
    $
    219,374
    
    
    $
    246,571Unfunded
    
    
    110,219
    
    
    
    58,279Total
    
    $
    329,593
    
    
    $
    304,850
 Cost of Revenues
  General and Administrative Expenses
  Research and Development
   18




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##### 



Interest Income and Expense
   Deferred Revenue
    Critical Accounting Practices and Estimates
 General
  Revenue and Cost Recognition
 General
 Accounting for Performance of Construction-Type and Production-Type Contracts.
 19




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##### 



Indirect rate variance
      Award Fee Recognition
  20




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##### 



Goodwill
 Goodwill and Other Intangible Assets
 Long-Lived Assets (Excluding Goodwill)
 Accounting for the Impairment or Disposal of
Long-Lived Assets
 Accounts Receivable
  Stock-Based Compensation
 Share-Based Payment Accounting for Stock Issued to
Employees
  21




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##### 



Historical Operating Results
 Three months ended June 29, 2008 compared to three months ended July 1, 2007
  Three months quarter ended
    
    Amount ofJune 29,
    
    
    
    
    
    in crease
    
    % increase2008
    
    July 1, 2007
    
    (decrease)
    
    (decrease)Contract revenues
    
    $
    83,165
    
    
    $
    73,660
    
    
    $
    9,505
    
    
    
    13
    %Cost of revenues
    
    
    68,415
    
    
    
    61,599
    
    
    
    6,816
    
    
    
    11
    %General and administrative expenses
    
    
    5,325
    
    
    
    4,325
    
    
    
    1,000
    
    
    
    23
    %Research and development expenses
    
    
    1,587
    
    
    
    1,306
    
    
    
    281
    
    
    
    22
    %Interest income, net
    
    
    444
    
    
    
    341
    
    
    
    103
    
    
    
    30
    %Provision for income taxes
    
    
    3,103
    
    
    
    2,485
    
    
    
    618
    
    
    
    25
    %Net income
    
    
    5,179
    
    
    
    4,286
    
    
    
    893
    
    
    
    21
    %
 Revenues:
  Cost of Revenues:
  General and Administrative Expenses:
  Research and Development Expenses:
  22




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##### 



Interest Income, net:
  Provision for Income Taxes:
  Net Income:
  Nine months ended June 29, 2008 compared to nine months ended July 1, 2007
  Nine months quarter ended
    
    Amount ofJune 29,
    
    
    
    
    
    in crease
    
    % increase2008
    
    July 1, 2007
    
    (decrease)
    
    (decrease)Contract revenues
    
    $
    245,880
    
    
    $
    198,375
    
    
    $
    47,505
    
    
    
    24
    %Cost of revenues
    
    
    201,764
    
    
    
    159,254
    
    
    
    42,510
    
    
    
    27
    %General and administrative expenses
    
    
    15,445
    
    
    
    13,212
    
    
    
    2,233
    
    
    
    17
    %Research and development expenses
    
    
    5,098
    
    
    
    5,270
    
    
    
    (172
    )
    
    
    -3
    %Interest income, net
    
    
    598
    
    
    
    938
    
    
    
    (340
    )
    
    
    -36
    %Provision for income taxes
    
    
    9,204
    
    
    
    7,945
    
    
    
    1,259
    
    
    
    16
    %Net income
    
    
    14,967
    
    
    
    13,632
    
    
    
    1,335
    
    
    
    10
    %
 23




---



##### 



Revenues:
  Cost of Revenues:
  General and Administrative Expenses:
  Research and Development Expenses:
  Interest Income, net:
  24




---



##### 



Provision for Income Taxes:
  Net Income:
  Analysis of Liquidity and Capital Resources
  Cash
  Line of Credit
    25




---



##### 



Cash Flows
      26




---



##### 



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
    
    $
    146
    
    
    $
    68
    
    
    $
    56
    
    
    $
    22
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    55,034
    
    
    
    14,693
    
    
    
    13,947
    
    
    
    6,886
    
    
    
    6,719
    
    
    
    6,597
    
    
    
    6,192Total
    
    $
    55,180
    
    
    $
    14,761
    
    
    $
    14,003
    
    
    $
    6,908
    
    
    $
    6,719
    
    
    $
    6,597
    
    
    $
    6,192
  (in thousands)
    
    Total
    
    Less Than 1 Year
    
    1-3 YearsLetters of credit
    
    $
    2,108
    
    
    $
    2,108
    
    
    
    
 Contingent income tax obligations .
  Market Risks
  Cash and Cash Equivalents:
  Interest Rates:
  Foreign Currency:
  27




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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a)
    
    Our management has evaluated, with the participation of the 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. Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of such date, our disclosure
controls and procedures are effective to ensure that information we are required to
disclose in reports that we file or submit under the Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.(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.
 28




---



##### 



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  29




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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 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
    
    Second Amended and Restated Line of
Credit Agreement with Bank of America
(incorporated by reference to
Exhibit 10.1 of the Companys
Registration Statement on Form S-1
(Registration Statement
No. 333-98757) filed on August 27,
2002)10.1.1
    
    Fifth Amendment to Second Amended and
Restated Financing and Security
Agreement, dated as of March 31, 2006
(incorporated by reference to
Exhibit 10.1 of the Companys Current
Report on Form 8-K filed April 6,
2006)10.1.2
    
    Sixth Amendment to the Second Amended and Restated
Financing and Security Agreement, dated as of
February 28, 2008 (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K, filed March 4, 2008)10.2+
    
    Argon ST, Inc. 2002 Stock Incentive
Plan, as amended (incorporated by
reference to Appendix A to the
Companys definitive proxy statement
on Schedule 14A for its 2006 annual
meeting of stockholders, filed
January 27, 2006)10.2.1
    
    Form of Stock Option Agreement under
Argon ST 2002 Stock Incentive Plan
(incorporated by reference to Exhibit
10.2.1 to the Companys Annual Report
on Form 10-K for the fiscal year
ended September 30, 2005, filed
December 14, 2005)10.3+
    
    Argon Engineering Associates, Inc.
Stock Plan (incorporated by reference
to Exhibit 10.3 to the Companys
Annual Report on Form 10-K for the
fiscal year ended September 30, 2004,
filed December 14, 2004)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 30




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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  31