##### 



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 30, 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.
 (Exact name of registrant as specified in its charter)
 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 SIX MONTHS ENDED MARCH 30, 2008
   TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at March 30, 2008 and September 30, 2007
    
    
    3Condensed Consolidated Statements of Earnings for the
three and six months ended March 30, 2008 and April 1, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the
six months ended March 30, 2008 and April 1, 2007
    
    
    5Condensed Consolidated Statements of Stockholders Equity for the six months ended March 30, 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7-14Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15-26Item 3. Quantitative and Qualitative Disclosures about Market Risks
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    28Item 6. Exhibits
    
    
    29-30Signatures
    
    
    31Exhibits
    
    
    32-34
  2




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##### 



ARGON ST, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share amounts)
 March 30, 2008
    
    
    September 30, 2007(unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    13,984
    
    
    $
    22,965Accounts receivable, net
    
    
    102,455
    
    
    
    95,639Inventory, net
    
    
    3,773
    
    
    
    2,927Deferred income tax asset
    
    
    4,571
    
    
    
    3,218Prepaids and other
    
    
    1,172
    
    
    
    3,154TOTAL CURRENT ASSETS
    
    
    125,955
    
    
    
    127,903Property, equipment and software, net
    
    
    24,917
    
    
    
    22,822Goodwill
    
    
    172,289
    
    
    
    170,192Intangibles, net
    
    
    4,907
    
    
    
    5,760Restricted cash
    
    
    
    
    
    
    1,800Other assets
    
    
    892
    
    
    
    1,168TOTAL ASSETS
    
    $
    328,960
    
    
    $
    329,645LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    25,804
    
    
    $
    23,796Accrued salaries and related expenses
    
    
    10,836
    
    
    
    12,899Deferred revenue
    
    
    8,146
    
    
    
    12,651Other liabilities
    
    
    2,343
    
    
    
    681TOTAL CURRENT LIABILITIES
    
    
    47,129
    
    
    
    50,027Deferred income tax liability, long term
    
    
    2,225
    
    
    
    1,794Deferred rent and other liabilities
    
    
    895
    
    
    
    2,988Commitments and contingenciesSTOCKHOLDERS EQUITYCommon stock:$.01 Par Value, 100,000,000 shares authorized,
22,647,619 and 22,561,639 shares issued
at March 30, 2008 and September 30, 2007
    
    
    226
    
    
    
    226Additional paid in capital
    
    
    219,102
    
    
    
    217,038Treasury stock at cost, 1,126,245 and 674,145 shares at
March 30, 2008 and September 30, 2007, respectively
    
    
    (18,425
    )
    
    
    (10,527
    )Retained earnings
    
    
    77,808
    
    
    
    68,099TOTAL STOCKHOLDERS EQUITY
    
    
    278,711
    
    
    
    274,836TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    328,960
    
    
    $
    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 Six Months EndedMarch 30, 2008
    
    
    April 1, 2007
    
    
    March 30, 2008
    
    
    April 1, 2007CONTRACT REVENUES
    
    $
    88,449
    
    
    $
    64,310
    
    
    $
    162,715
    
    
    $
    124,715COST OF REVENUES
    
    
    73,012
    
    
    
    51,901
    
    
    
    133,349
    
    
    
    97,655GENERAL AND ADMINISTRATIVE
EXPENSES
    
    
    4,663
    
    
    
    4,160
    
    
    
    10,120
    
    
    
    8,887RESEARCH AND DEVELOPMENT
EXPENSES
    
    
    1,811
    
    
    
    1,748
    
    
    
    3,511
    
    
    
    3,964INCOME FROM OPERATIONS
    
    
    8,963
    
    
    
    6,501
    
    
    
    15,735
    
    
    
    14,209INTEREST INCOME, NET
    
    
    35
    
    
    
    267
    
    
    
    154
    
    
    
    597INCOME BEFORE INCOME TAXES
    
    
    8,998
    
    
    
    6,768
    
    
    
    15,889
    
    
    
    14,806PROVISION FOR INCOME TAXES
    
    
    3,492
    
    
    
    2,605
    
    
    
    6,101
    
    
    
    5,460NET INCOME
    
    $
    5,506
    
    
    $
    4,163
    
    
    $
    9,788
    
    
    $
    9,346EARNINGS PER SHARE (Basic)
    
    $
    0.25
    
    
    $
    0.19
    
    
    $
    0.45
    
    
    $
    0.42EARNINGS PER SHARE (Diluted)
    
    $
    0.25
    
    
    $
    0.18
    
    
    $
    0.44
    
    
    $
    0.41WEIGHTED-AVERAGE SHARES
OUTSTANDINGBasic
    
    
    21,698,836
    
    
    
    22,331,900
    
    
    
    21,781,588
    
    
    
    22,279,745Diluted
    
    
    22,013,836
    
    
    
    22,779,417
    
    
    
    22,146,004
    
    
    
    22,755,348
  4




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##### 



ARGON ST, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 (In thousands)
 Six Months EndedMarch 30, 2008
    
    
    April 1, 2007Cash flows from operating activitiesNet income
    
    $
    9,788
    
    
    $
    9,346Adjustments to reconcile net income to net cash used in
operating activities:Depreciation and amortization
    
    
    3,926
    
    
    
    3,772Amortization of deferred costs
    
    
    84
    
    
    
    Deferred income tax benefit
    
    
    (897
    )
    
    
    (61
    )Stock-based compensation
    
    
    1,621
    
    
    
    865Gain (loss) on sale of equipment and other
    
    
    (16
    )
    
    
    32Change in:Accounts receivable
    
    
    (6,480
    )
    
    
    (5,805
    )Inventory
    
    
    (846
    )
    
    
    (38
    )Prepaids and other
    
    
    1,284
    
    
    
    6,082Accounts payable and accrued expenses
    
    
    1,499
    
    
    
    (1,664
    )Accrued salaries and related expenses
    
    
    (2,063
    )
    
    
    265Deferred rent and other current liabilities
    
    
    2,007
    
    
    
    (379
    )Deferred revenue
    
    
    (5,025
    )
    
    
    (8,987
    )Net cash provided by operating activities
    
    
    4,882
    
    
    
    3,428Cash flows from investing activitiesAcquisitions of property, equipment and software
    
    
    (5,203
    )
    
    
    (3,091
    )Cash paid for acquisitions
    
    
    (3,300
    )
    
    
    (400
    )Reduction in restricted cash
    
    
    1,800
    
    
    
    Proceeds from note receivable and other
    
    
    339
    
    
    
    (304
    )Net cash used in investing activities
    
    
    (6,364
    )
    
    
    (3,795
    )Cash flows from financing activitiesStock repurchases
    
    
    (7,898
    )
    
    
    Payments on capital leases
    
    
    (90
    )
    
    
    49Tax benefit of stock option exercises
    
    
    36
    
    
    
    438Proceeds from exercise of stock options
    
    
    169
    
    
    
    722Proceeds from employee stock purchase plan exercises
    
    
    284
    
    
    
    395Net cash provided by (used in) financing activities
    
    
    (7,499
    )
    
    
    1,604Net increase (decrease) in cash and cash equivalents
    
    
    (8,981
    )
    
    
    1,237Cash and cash equivalents, beginning of period
    
    
    22,965
    
    
    
    33,498Cash and cash equivalents, end of period
    
    $
    13,984
    
    
    $
    34,735Supplemental disclosureIncome taxes paid
    
    $
    4,723
    
    
    $
    5,389Interest expense paid
    
    $
    12
    
    
    $
    3
  5




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##### 



ARGON ST, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (unaudited)
 (In thousands, except share data)
 Common Stock
    
    
    Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalNumber of
    
    
    Stock
    
    
    Additional Paid
    
    
    Treasury
    
    
    Retained
    
    
    StockholdersShares
    
    
    Par Value
    
    
    in Capital
    
    
    Stock
    
    
    Earnings
    
    
    EquityBalance, September 30, 2007
    
    
    22,561,639
    
    
    $
    226
    
    
    $
    217,038
    
    
    $
    (10,527
    )
    
    $
    68,099
    
    
    $
    274,836Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,788
    
    
    
    9,788Cumulative effect of adoption
of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79
    )
    
    
    (79
    )Shares issued upon exercise
of stock options
    
    
    69,841
    
    
    
    
    
    
    
    169
    
    
    
    
    
    
    
    
    
    
    
    169Employee stock purchase plan
    
    
    16,139
    
    
    
    
    
    
    
    285
    
    
    
    
    
    
    
    
    
    
    
    285Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,575
    
    
    
    
    
    
    
    
    
    
    
    1,575Tax benefit on stock option
exercises
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    35Stock repurchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,898
    )
    
    
    
    
    
    
    (7,898
    )Balance, March 30, 2008
    
    
    22,647,619
    
    
    $
    226
    
    
    $
    219,102
    
    
    $
    (18,425
    )
    
    $
    77,808
    
    
    $
    278,711
  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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##### 



2. ACQUISITION OF CSIC HOLDINGS LLC
 Business Combinations
   3. EARNINGS PER SHARE
  8




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##### 



For the three months ended
    
    For the six months endedMarch 30, 2008
    
    April 1, 2007
    
    March 30, 2008
    
    April 1, 2007Net income
    
    $
    5,506
    
    
    $
    4,163
    
    
    $
    9,788
    
    
    $
    9,346Weighted average shares outstanding
 basic
    
    
    21,698,836
    
    
    
    22,331,900
    
    
    
    21,781,588
    
    
    
    22,279,745Basic earnings per share
    
    $
    0.25
    
    
    $
    0.19
    
    
    $
    0.45
    
    
    $
    0.42Effect of dilutive securities:Net shares issuable upon exercise of
stock options and awards
    
    
    315,000
    
    
    
    447,517
    
    
    
    364,416
    
    
    
    475,603Weighted average shares outstanding
 diluted
    
    
    22,013,836
    
    
    
    22,779,417
    
    
    
    22,146,004
    
    
    
    22,755,348Diluted earnings per share
    
    $
    0.25
    
    
    $
    0.18
    
    
    $
    0.44
    
    
    $
    0.41
  4. STOCK-BASED COMPENSATION
 Adoption of SFAS No. 123R
   For the three months ended
    
    
    For the six months endedMarch 30, 2008
    
    
    April 1, 2007
    
    
    March 30, 2008
    
    
    April 1, 2007Cost of revenues
    
    $
    640
    
    
    $
    333
    
    
    $
    1,168
    
    
    $
    515General and administrative expense
    
    
    258
    
    
    
    143
    
    
    
    453
    
    
    
    350Total pre-tax stock-based compensation included in
income from operations
    
    
    898
    
    
    
    476
    
    
    
    1,621
    
    
    
    865Income tax expense (benefit) recognized for stock-
based compensation
    
    
    (183
    )
    
    
    (81
    )
    
    
    (311
    )
    
    
    (160
    )Total stock-based compensation expense, net of tax
    
    $
    715
    
    
    $
    395
    
    
    $
    1,310
    
    
    $
    705
  9




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##### 



Stock Options
  Weighted-AverageWeighted-
    
    Remaining
    
    AggregateNumber
    
    Average
    
    Contractual
    
    Intrinsicof Shares
    
    Exercise Price
    
    Term
    
    ValueShares under option, September 30, 2007
    
    
    1,869,243
    
    
    $
    17.33Options granted
    
    
    7,000
    
    
    $
    20.69Options exercised
    
    
    (48,841
    )
    
    $
    3.47
    
    
    
    
    
    
    $
    641Options cancelled and expired
    
    
    (51,995
    )
    
    $
    23.56Shares under option, March 30, 2008
    
    
    1,775,407
    
    
    $
    17.54
    
    
    
    6.3
    
    
    $
    7,886Options vested at March 30, 2008
    
    
    1,153,008
    
    
    $
    15.27
    
    
    
    5.6
    
    
    $
    6,360As of March 30, 2008, options that are
vested and expected to vest prior to
expiration
    
    
    1,422,525
    
    
    $
    16.11
    
    
    
    5.9
    
    
    $
    7,366
  For the sixmonths endedMarch 30, 2008Volatility
    
    
    33.8%  35.9
    %Risk free rate
    
    
    4.6%  4.8
    %Exercise factor
    
    
    1.2
 Stock Awards
  Weighted-Number
    
    Average Grantof Shares
    
    Date Fair ValueUnvested shares, September 30, 2007
    
    
    21,000
    
    
    $
    21.39Awards granted
    
    
    32,000
    
    
    $
    18.00Awards vested
    
    
    (21,000
    )
    
    $
    21.39Unvested shares, March 30, 2008
    
    
    32,000
    
    
    $
    18.00
  10




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##### 



Restricted Shares
  Stock Appreciation Rights
  5. ACCOUNTS RECEIVABLE
  March 30, 2008
    
    
    September 30, 2007Billed and billable
    
    $
    42,473
    
    
    $
    37,235Unbilled costs and fees
    
    
    48,324
    
    
    
    47,088Unfavorable indirect rate variance
    
    
    4,773
    
    
    
    Retainages
    
    
    7,096
    
    
    
    11,527Reserve
    
    
    (211
    )
    
    
    (211
    )Accounts receivable, net
    
    $
    102,455
    
    
    $
    95,639
  6. INVENTORIES
  March 30, 2008
    
    
    September 30, 2007Raw Materials
    
    $
    2,075
    
    
    $
    1,451Component parts, work in process
    
    
    1,253
    
    
    
    1,223Finished component parts
    
    
    726
    
    
    
    3944,054
    
    
    
    3,068Reserve
    
    
    (281
    )
    
    
    (141
    )Inventory, net
    
    $
    3,773
    
    
    $
    2,927
 11




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##### 



7. PROPERTY, EQUIPMENT AND SOFTWARE
  March 30,
    
    
    September2008
    
    
    30, 2007Computer, machinery and test equipment
    
    $
    26,220
    
    
    $
    23,838Leasehold improvements
    
    
    10,459
    
    
    
    9,651Computer software
    
    
    4,410
    
    
    
    3,687Furniture and fixtures
    
    
    1,719
    
    
    
    1,643Equipment under capital lease
    
    
    337
    
    
    
    344Construction in process
    
    
    6,966
    
    
    
    6,00050,111
    
    
    
    45,163Less accumulated depreciation and amortization
    
    
    (25,194
    )
    
    
    (22,342
    )$
    24,917
    
    
    $
    22,822
  8. GOODWILL
  Balance at September 30, 2007
    
    $
    170,192Acquisition earn-out
    
    
    3,000Net asset adjustment, net of adjustments to indemnification
clause
    
    
    (1,150
    )Adjustments to and identification of the fair value of
liabilities and reserves on accounts receivable
    
    
    247Balance at March 30, 2008
    
    $
    172,289
   12




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##### 



9. REVOLVING LINE OF CREDIT
    10. TREASURY STOCK
   11. INCOME TAXES
 Accounting for
Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109
  13




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##### 



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
 14




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-looking Statements
  Overview
 General
  Revenues
  15




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##### 



Three Months Ended
    
    Six Months EndedContract Type
    
    March 30, 2008
    
    April 1, 2007
    
    March 30, 2008
    
    April 1, 2007Fixed-price contracts
    
    
    64
    %
    
    
    60
    %
    
    
    58
    %
    
    
    63
    %Cost reimbursable
contracts
    
    
    32
    %
    
    
    35
    %
    
    
    38
    %
    
    
    31
    %Time and material
contracts
    
    
    4
    %
    
    
    5
    %
    
    
    4
    %
    
    
    6
    %
   16




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##### 



Backlog
      March 30,
    
    
    September 30,2008
    
    
    2007Funded
    
    $
    223,777
    
    
    $
    246,571Unfunded
    
    
    46,353
    
    
    
    58,279Total
    
    $
    270,130
    
    
    $
    304,850
 Cost of Revenues
  General and Administrative Expenses
  Research and Development
  17




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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.
 18




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##### 



Indirect rate variance
      Award Fee Recognition
  19




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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
  20




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##### 



Historical Operating Results
 Three months ended March 30, 2008 compared to three months ended April 1, 2007
  Three months quarter ended
    
    IncreaseMarch 30, 2008
    
    April 1, 2007
    
    (Decrease)Contract revenues
    
    $
    88,449
    
    
    $
    64,310
    
    
    $
    24,139Cost of revenues
    
    $
    73,012
    
    
    $
    51,901
    
    
    $
    21,111General and administrative expenses
    
    $
    4,663
    
    
    $
    4,160
    
    
    $
    503Research and development expenses
    
    $
    1,811
    
    
    $
    1,748
    
    
    $
    63Interest income, net
    
    $
    35
    
    
    $
    267
    
    
    $
    (232
    )Provision for income taxes
    
    $
    3,492
    
    
    $
    2,605
    
    
    $
    887Net income
    
    $
    5,506
    
    
    $
    4,163
    
    
    $
    1,343
 Revenues:
  Cost of Revenues:
  General and Administrative Expenses:
  Research and Development Expenses:
  21




---



##### 



Interest Income, net:
  Provision for Income Taxes:
  Net Income:
  Six months ended March 30, 2008 compared to six months ended April 1, 2007
  Six months ended
    
    IncreaseMarch 30, 2008
    
    April 1, 2007
    
    (Decrease)Contract revenues
    
    $
    162,715
    
    
    $
    124,715
    
    
    $
    38,000Cost of revenues
    
    $
    133,349
    
    
    $
    97,655
    
    
    $
    35,694General and administrative expenses
    
    $
    10,120
    
    
    $
    8,887
    
    
    $
    1,233Research and development expenses
    
    $
    3,511
    
    
    $
    3,964
    
    
    $
    (453
    )Interest income, net
    
    $
    154
    
    
    $
    597
    
    
    $
    (443
    )Provision for income taxes
    
    $
    6,101
    
    
    $
    5,460
    
    
    $
    641Net income
    
    $
    9,788
    
    
    $
    9,346
    
    
    $
    442
 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
    
    
    Due in
    
    
    Due in
    
    
    Due in
    
    
    Due inTotal
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterCapital leases
    
    $
    164
    
    
    $
    69
    
    
    $
    63
    
    
    $
    27
    
    
    $
    5
    
    
    
    
    
    
    
    Operating leases
    
    
    18,708
    
    
    
    8,053
    
    
    
    3,714
    
    
    
    2,249
    
    
    
    1,850
    
    
    
    1,525
    
    
    
    1,317Total
    
    $
    18,872
    
    
    $
    8,122
    
    
    $
    3,777
    
    
    $
    2,276
    
    
    $
    1,855
    
    
    $
    1,525
    
    
    $
    1,317
  (in thousands)
    
    Total
    
    Less Than 1 Year
    
    1-3 YearsLetters of credit
    
    $
    2,236
    
    
    $
    2,236
    
    
    
    
  Market Risks
  Cash and Cash Equivalents:
  25




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##### 



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 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.
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  26




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##### 



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 31, 2007 to January 31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,302,100February 1, 2008 to February 29, 2008
    
    
    166,164
    
    
    
    17.49
    
    
    
    166,164
    
    
    
    1,135,936March 1, 2008 to March 30, 2008
    
    
    135,936
    
    
    
    16.33
    
    
    
    135,936
    
    
    
    1,000,000Second quarter fiscal 2008 totals
    
    
    302,100
    
    
    $
    16.97
    
    
    
    302,100
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 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 314,189 broker non-votes.
 Number of Votes
    
    Number of VotesNominee for Office
    
    In Favor
    
    WithheldTerry L. Collins
    
    
    20,919,159
    
    
    
    433,623Thomas E. Murdock
    
    
    20,706,958
    
    
    
    645,824Victor F. Sellier
    
    
    21,210,422
    
    
    
    142,360S. Kent Rockwell
    
    
    21,202,603
    
    
    
    150,179David C. Karlgaard
    
    
    20,937,630
    
    
    
    415,132Lloyd A. Semple
    
    
    20,041,792
    
    
    
    1,310,990Robert McCashin
    
    
    20,254,707
    
    
    
    1,098,075John Irvin
    
    
    21,167,415
    
    
    
    185,367Peter A. Marino
    
    
    20,544,994
    
    
    
    807,788Maureen Baginski
    
    
    21,232,155
    
    
    
    120,627
 b)
    
    The inspector of election tabulated the following votes for the proposal to
approve the Argon ST 2008 Equity Incentive Plan. There were 4,790,133 broker
non-votes.
 Number of Votes
    
    Number of VotesIn
Favor
    

Against
    
    Abstain10,655,496
    
    6,190,934
    
    28,956
 27




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##### 



c)
    
    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, 2008. There
were 314,007 broker non-votes.
 Number of Votes
    
    Number of VotesIn
Favor
    
Against
    
    Abstain21,264,226
    
    40,390
    
    46,996
 
 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 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 13(a)(i) of the Companys
Annual Report on Form 10-KSB for the
fiscal year ended September 30, 2001)3.2.1
    
    
    Amendment, dated as of February 28, 2007, to the Companys Amended
and Restated Bylaws (incorporated by reference to Exhibit 3.2 to
the Companys Current Report on Form 8-K, filed March 6, 2007)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)
 29




---



##### 



ExhibitNumber
    
    Description of Exhibitunder 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. Collins

Terry L. Collins, Ph.D.Chairman, Chief Executive Officer and PresidentBy: /s/ Aaron N. Daniels

Aaron N. DanielsVice President, Chief Financial Officer, and Treasurer
  31