UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Fiscal Year Ended September 30, 2009
 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
 Securities registered pursuant to Section 12(b) of the Act:
 Name of Exchange onTitle of Class
    
    Which RegisteredCommon Stock, par value $.01 per share
    
    The NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act: None
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  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
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DOCUMENTS INCORPORATED BY REFERENCE
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ARGON ST, INC. AND SUBSIDIARIES
 For the Fiscal Year Ended September 30, 2009
 
 TABLE OF CONTENTS
 PART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    16Item 1B. Unresolved Staff Comments
    
    
    30Item 2. Properties
    
    
    30Item 3. Legal Proceedings
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Supplemental Item. Executive Officers of the Registrant
    
    
    31PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Purchases of Equity
Securities
    
    
    32Item 6. Selected Financial Data
    
    
    34Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    35Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    48Item 8. Financial Statements and Supplementary Data
    
    
    49Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    75Item 9A. Controls and Procedures
    
    
    75Item 9B. Other Information
    
    
    75PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    76Item 11. Executive Compensation
    
    
    76Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    76Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    76Item 14. Principal Accounting Fees and Services
    
    
    76PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    77Signatures
    
    
    79Exhibits
    
    
    81
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PART I
 
 ITEM 1. BUSINESS
 Business Description.
    
    
    Signals Intelligence (SIGINT):Collecting information and producing intelligence
from the detection, interception and evaluation of signals, including communication
signals (COMINT) and electromagnetic signals, such as radar (ELINT).
 
    
    Electronic Warfare (EW):Detecting, identifying and countering adversary forces,
weapons and sensors through collection of adversary signals. Measures include
launching deceptive signals and electronic counter-measures and using electronic
support measures (ESM) to identify and locate emitters on both platforms and weapons.
 
    
    Information Operations (IO):Employment of non-lethal measures to exploit,
influence and manipulate an enemys C5ISR processes, including radio and network
communications and measures, to protect own force and friendly information and
sensors.
 
    
    Acoustic Operations:Employment of acoustic sensors and signals to detect, identify
and counter undersea threats including, but not limited to, enemy torpedoes and to
sense and find undersea targets.
 
    
    Tactical Communications and Networking:Deployment of mobile, terrestrial, and
satellite radio receivers and transmitters, to include point to point links and
extensive networks, supporting tactical operations, intelligence production and
dissemination, movement of data and information, and management of the radio frequency
spectrum.
 
    
    Threat Simulation:The use of computer and virtual based replication of signals and
sensors for training and analysis of adversary capabilities.
 
    
    Imaging:Production and analysis of information from light spectrum sources,
including multispectral, hyperspectral, infra-red, electro-optical and visible light.
 
    
    Services:The provision of material, training and support engineering expertise to
enable and sustain readiness, systems operations and mission success.
 
    
    Cyber Operations: Leveraging Argons strength in offensive information operations,
SIGINT engineering, software development, and with a focus on the emerging 3G and 4G
wireless domain,
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we provide unique and sophisticated solutions to the most demanding operational
cyber environments to include Computer Network Exploit and Attack. This technology
aligns well with our core technical competencies and recognizes that truly elegant
attacks require sophisticated sensors.
    Available Information
 http://www.argonst.com http://www.sec.gov.
 Corporate History
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Recent Developments
  Investment in New Business Pipeline, Market Penetration and Market Extension
 
    
    Shifts in priorities for our airborne technologies. The airborne
intelligence market is a strategically important part of our business, and potentially
the fastest growing. Recently, the number and size of our contracts relating to these
technologies have increased, despite delays in contract awards and activity on the
large EP-X and ACS programs. This market evolved into a very dynamic area with
immediate demands for technologies and systems to assist warfighters that require no
development. The recent and anticipated continued demand for these quickly-needed
systems, along with our ability to provide an integrated suite of advanced capabilities
for the large and long-term EP-X and ACS programs position us for continued success in
the airborne markets.
 
    
    Continued Investment in our Pipeline. In fiscal 2009, we invested heavily
in our business development process, including investments in available business
development resources, additional capabilities for available resources, and training
for all personnel involved in the business development process. With these resources and
capabilities, we have focused on certain strategic areas such as cyber-security,
airborne reconnaissance arenas, and work for the intelligence communities. While we
believe these resources and capabilities will ultimately build a strong foundation for
both development and production work in these key business areas and programs, we
continue to believe that the rate of new orders this fiscal year was greatly impacted
by delays in program competitions and awards.
 
    
    Award of Certain Large and Open Contract Vehicles. In fiscal year 2009, and
as a result of investment in our business development resources, we were awarded and we
are continuing to participate in certain large and flexible type contract vehicles.
Included in this contract portfolio is a $49 million NAVAIR contract pursuant to which
we will be tasked various development and production-type programs with a wide customer
base. We believe these types of contracts will add to our ability to quickly deliver
technologies and products to our growing customer base.
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Continued Success on Core Technologies
 
    
    SSEE Increment E and SSEE Increment F. During fiscal year 2009, we
continued to execute and deliver our SSEE Increment E systems while commencing work on
the sixth lot of full rate production. The SSEE Increment F development program is
approaching the finalization of the integration and test phase and the development
model was installed on a U.S. Navy ship during the year. The SSEE Increment F
technology is the flagship program providing state-of-the-art technology insertions
focused on future threats as well as a service-oriented architecture to transform the
sensor data into actionable information made available across the network. We expect to
continue to leverage the LIGHTHOUSE capabilities from the SSEE Increment F technology
into new capabilities across a multitude of programs in the near future. Further, we
expect that these core technologies will continue to provide a robust, multi-year
pipeline of both domestic and international sales and opportunities.
 
    
    Expanding Acoustic Sensor Technologies. We have been active in our efforts
to expand sensor technologies from our torpedo defense technologies into related
markets. We completed the successful delivery of three sonar array design models to
complete phase two of the MK 54 torpedo production effort and we have been awarded a
long-lead material contract for such efforts.
 Improved Margin, Cash Generation and Cost Savings
 
    
    Margin and Cost Savings. During fiscal year 2008 and early parts of fiscal
year 2009, we engaged in efforts to reduce costs in the business through the
integration of accounting efforts and conversion of our systems to a common enterprise
resource planning system. With these efforts and increased labor utilization, our
margins improved in fiscal year 2009 despite an increase in the overall portion of
cost-type work.
 
    
    Cash Generation. Fiscal year 2009 proved an important year in the
generation of cash into our business. We will continue to critically evaluate
strategic uses of our cash-on-hand and future cash generation, including acquisitions.
 Segments
  Technology and Applications
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Customers
   Years Ended September 30,2009
    
    
    2008
    
    
    2007United States Navy
    
    
    49
    %
    
    
    55
    %
    
    
    61
    %United States Army
    
    
    13
    %
    
    
    10
    %
    
    
    11
    %Other U.S. government agencies
    
    
    18
    %
    
    
    21
    %
    
    
    22
    %Foreign
    
    
    11
    %
    
    
    10
    %
    
    
    5
    %Commercial and other
    
    
    9
    %
    
    
    4
    %
    
    
    1
    %
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Government Contracts
  Bidding Process
  
    
    Sole-source contracts.The U.S. government awards sole-source contracts when it
determines that a single contractor has an expertise or technology that is superior to
that of other available contractors. Sole-source contracts are awarded without a formal
competition. Potential suppliers compete informally for sole-source contracts through
research and development investment and marketing efforts. To obtain a sole-source
contract, a contractor must identify the governments requirements early and
demonstrate a distinguishing expertise or technology promptly after the government has
identified a requirement.
 
    
    Competitive-bid contracts.The U.S. government awards competitive-bid contracts
based on proposal evaluation criteria established by the procuring agency.
Competitive-bid contracts are awarded after a formal bid and proposal competition among
providers. Interested contractors prepare a bid and proposal in response to the
agencys request for proposal or request for information. A bid and proposal is usually
prepared in a short time period in response to a deadline, and requires the extensive
involvement of numerous technical and administrative personnel. Following award,
competitive-bid contracts may be challenged by unsuccessful bidders in a variety of
ways.
  Years Ended September 30,2009
    
    
    2008
    
    
    2007Sole-Source Contracts
    
    
    57
    %
    
    
    52
    %
    
    
    55
    %Competitive Contracts
    
    
    43
    %
    
    
    48
    %
    
    
    45
    %
 Material Government Contract Provisions
   
    
    terminate existing contracts for convenience, which affords the U.S. government the
right to terminate the contract in whole or in part anytime it wants for any reason or
no reason, as well as for default;
 
    
    reduce or modify contracts or subcontracts, if its requirements or budgetary
constraints change;
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
    
    cancel or reduce multi-year contracts and related orders, if funds for contract
performance for any subsequent year become unavailable;
    
    claim rights in products and systems produced by its contractors and subcontractors;
    
    adjust reimbursable contract costs and fees on the basis of audits completed by its
agencies through exercise of its oversight rights;
    
    suspend or debar a contractor from doing business with the U.S. government; and
    
    control or prohibit the export of products.
  Government Contract Categories
  Fixed-price.
  Cost reimbursable.
 
    
    Cost-plus-fixed fee contracts are cost reimbursable contracts that provide for
payment to us of a negotiated fee that is fixed at the inception of the contract. This
fixed fee does not vary with actual cost of the contract, but may be adjusted as a
result of changes in the work to be performed under the contract. This contract poses
less risk than a fixed-price contract, but our ability to win future contracts from the
procuring agency may be adversely affected if we fail to perform within the maximum
cost set forth in the contract.
    
    A cost-plus-award fee contract is a cost reimbursable contract that provides for a
fee consisting of a base amount (which may be zero) fixed at inception of the contract
and an award fee amount, based upon the governments satisfaction with our performance
under the contract. With this type of contract, we assume the risk that we may not
receive the award fee, or only a portion of it, if we do not perform satisfactorily.
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
    
    A cost-plus-incentive fee contract is a cost reimbursable contract that provides for
an initially negotiated fee to be adjusted later by a formula based on the relationship
of total allowable costs to total target costs.
  Time and materials.
  Years Ended September 30,2009
    
    
    2008
    
    
    2007Fixed-price contracts
    
    
    54
    %
    
    
    58
    %
    
    
    60
    %Cost reimbursable contracts
    
    
    41
    %
    
    
    38
    %
    
    
    35
    %Time and materials contracts
    
    
    5
    %
    
    
    4
    %
    
    
    5
    %
 Regulation
   Subcontracts
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Backlog
  As of September 30,(Amounts in thousands)
    
    2009
    
    
    2008
    
    
    2007Funded
    
    $
    137,947
    
    
    $
    272,620
    
    
    $
    246,571Unfunded
    
    
    95,413
    
    
    
    54,672
    
    
    
    58,279Total
    
    $
    233,360
    
    
    $
    327,292
    
    
    $
    304,850
    Research and Development
    Years Ended September 30,(Amounts in thousands)
    
    2009
    
    
    2008
    
    
    2007Internal research and development
    
    $
    8,990
    
    
    $
    6,656
    
    
    $
    7,035Customer-funded research and
development
    
    
    83,200
    
    
    
    80,005
    
    
    
    73,397Total
    
    $
    92,190
    
    
    $
    86,661
    
    
    $
    80,432
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Competition
   Environmental
  Employees
   Industry Overview
 Government Spending
  
    
    Department of Defense Budgets.As compared to the 2009 levels of Department of
Defense spending, including defense spending for procurement and research and
development, the 2010 Department of Defense budget is expected to increase modestly,
including all special appropriations.
    
    C5ISR Spending.Consistent with the expected short-term pressure on the overall
Department of Defense budgets, spending on C5ISR is expected to remain flat or decrease
slightly from 2010 to
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2014.The highest priorities for C5ISR spending is expected in the interoperability
of current systems, increased bandwidth for mobile units, and space-based command,
control, surveillance and reconnaissance systems.
 
    
    Change in Government Administration and Priorities.With a change in government
administration in the past year, the shift in government priorities in the defense
industry, and the impact of a worldwide economic downturn, we have experienced delays
in the award of certain contracts.
    
    Iraq and Afghanistan Theatres of Operation.The conflicts in Iraq and Afghanistan
and their escalation or de-escalation may have a significant impact on U.S. defense and
other related spending.
 Significant Industry Trends
  
    
    Changing Communications Intelligence Needs.Communications Intelligence (COMINT)
continues to be the premier source of information for supporting strategic decision
makers and tactical commanders. With the transition from a monolithic enemy in the
Cold War to the dispersed collection of possible enemies in asymmetric warfare, both
the nature of the target and the COMINT requirements have changed. Communications
equipment targeted by COMINT systems is no longer limited to long term, state
developed, military systems and now represents the latest technology readily available
in the commercial communications market, (for example, cell phones). Geolocation is no
longer limited to the location of major enemy forces and strategic weapons, but now
includes an individual or specific computer. These realities of modern defense and
security radically change the requirements for COMINT systems. Todays successful
COMINT systems and designs must be dynamic, reprogrammable within a single mission and
accommodating of new technology as it becomes available, with minimum impact and costs.
Modern COMINT systems need to provide essential information within the tempo of modern
warfare.
    
    Electronic Warfare/Information Operations.Information operations and electronic
warfare have never been more important to warfighters and offer powerful new options to
commanders. Electronic Attack (EA) is increasingly becoming a weapon of choice for
both conflict management and non-lethal attack. We believe the trend towards the
weaponization of SIGINT will increase the priority for systems which can offer both
traditional ISR and EA. We also expect the need for brute force and smart jamming
against Improvised Explosive Devices (IED) to continue to be a critical requirement
anywhere the United States has military or civilian personnel in place.
    
    Multi-Intelligence Systems Integration.Dating from the Cold War era, intelligence
systems were single discipline based and stood on their own individual merit.
Information and data analysis across disciplines was performed by examining the end
conclusions of these single discipline systems. Factors such as the need for
information inside the decision cycle of todays pace of warfare, ready use and
dissemination of information from previously restricted sources, a proliferation of
sensors, and improvements in making information available create a compelling case for
the integration of information at the first possible opportunity. Warfighters today
need What is it, and where is it? answered rapidly with clear information integrated
from all useful sources. Meeting this demand has a profound impact on ISR system
design. Modern ISR systems must develop and present accurate, reliable information in
forms that can be readily combined with information from other types of sensors and
systems. We expect that the trend of intelligence integration will continue and will
have three important effects. First, modern ISR systems must automatically derive
intelligence quickly from detectable external signal characteristics and combine this
information at the raw observable level. To satisfy this requirement, newer systems
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must be able to provide geolocational information on all new energy detections.
Second, intelligence must be delivered in an actionable form to discreet personal
devices in the hands of individual warfighters. Third, we believe the pace of war
and volume of intelligence data may result in the need to execute decisions,
including the use of lethal force, on the basis of machine-generated information
without the benefit of human analysis. These trends will continue to place
increasingly difficult demands on the accuracy, reliability, and data integrity of
ISR systems.
 
    
    Network-Centric Warfare.The military is rapidly moving towards network-centric
warfare, which seeks to deliver the warfighter real-time, executable battlefield
information from multiple platforms and sources. Modern warfare requires coordinating
multiple ground troops, land vehicles and aircraft (both manned and unmanned), ships
and submarines. Network-centric warfare involves shared data, shared sensors, shared
tasking and joint operations among multiple combat platforms and personnel and requires
increasingly sophisticated, complementary and flexible C5ISR systems.
    
    Outsourcing of Support Services.A number of factors have converged to create an
environment in which government is now outsourcing an increasing percentage of work
previously done by the military or government civilians. The trend is pervasive across
nearly all functional areas except combat forces. The nature of the work ranges from
acquisition management to manning positions in intelligence and analytical operations.
A continuing manpower shortage in the military, increasingly complex systems and the
need to retrain system operators and maintenance personnel on rapidly changing hardware
and software all point to even more outsourcing. The trend enables companies to
provide the government with critical services and expertise, while they remain current
with operational needs and challenges.
 Business Strategies
  
    
    Continuing and Extending Business with our Current Customers.We adhere strongly to
the belief that our current customer is our best customer. Our intention is to extend
current contracts into additional capabilities and services for our existing customers.
Additionally, as new technology is developed or available, we will endeavor to modify
existing systems to take advantage of this new technology in the face of dynamic
threats.
    
    Expanding our Customer Base for our Existing Capabilities.The software product
line and other capabilities constituting our current products could offer additional
customers the same compelling advantages experienced by our current customers. We
intend to extend our customer set for our current and evolving products and services.
We believe the adaptability and flexibility of our SIGINT and other products make them
attractive in joint or coalition warfare environments.
    
    Developing New Products, Services and Customers.We believe a combination of our
highly-skilled staff and leading edge technology offers opportunities into new markets.
In addition, we believe that we have developed a favorable reputation for taking on
and solving the most challenging technical and engineering problems. We intend to
combine the results of customer funded research with internally funded technology
development to develop new customers through focused marketing initiatives led by our
internal professional staff, complemented by selective outside experts.
    
    Attracting and Developing Highly Skilled Personnel.Our success depends on the
continued contributions of our engineers, system designers and managers. We intend to
continue to hire and develop the highly-skilled professionals needed for our work. We
seek to recruit exceptional recent college graduates and former key personnel from the
intelligence community and Department of Defense. We believe that our managements
success in creating and maintaining a challenging and stimulating work environment has
contributed to our low engineering staff
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turnover over the last twelve months. We believe we can continue to attract, develop
and retain employees by offering competitive compensation, challenging engineering
assignments and opportunities for career and management growth.
 
    
    Leveraging Research and Development into Production Contracts.Many of our current
systems were developed through our research and development activities. Much of our
research and development is funded through research and development contracts with the
U.S. government. While these contracts are generally smaller than the related
production contracts and have lower profit margins, we have often been successful in
expanding these activities into full production contracts. We believe our involvement
in all stages of a systems life cycle provides us opportunities to be the preferred or
sole-source provider for certain systems. We intend to continue to identify and pursue
programs where we can expand research and development efforts into full production
contracts.
    
    Migrating our Multi-Intelligence Capabilities to Additional Platforms.Defense and
intelligence customers now require C5ISR systems that integrate multiple intelligence
gathering and processing capabilities. Our multi-intelligence systems have combined
communications and electronic intelligence capabilities on ships, submarines and
aircraft, and have combined radar and infra-red sensor capabilities for border patrols.
We believe our experience and capabilities position us to win contracts to develop and
produce multi-intelligence systems.
    
    Expanding our Role to Provide Support Services.We plan to continue to build on the
expertise developed from supporting and servicing our rapidly expanding inventory of
deployed systems, by providing those same services to similar systems. Our current
infrastructure can be adapted to meet the growing requirements created by the
government trend to outsource key engineering and support services.
 
 ITEM 1A. RISK FACTORS
  Risks Related to Our Business and Operations
 We rely heavily on sales to the U.S. government, particularly to agencies of the Department of
Defense.
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Multi-year U.S. government programs are generally not fully funded at inception, and funding may be
terminated or reduced at any time.
   From time to time, we depend on revenues from a few significant contracts, and any loss or
cancellation of, or any reduction or delay in, any of these contracts could significantly harm our
business.
  Our U.S. government contracts generally may be terminated at the governments convenience or for
our default.
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As a U.S. government contractor, we are subject to a number of procurement and operational rules
and regulations with respect to federal contracts.
  
    
    require certification and disclosure of all cost and pricing data in connection with
contract negotiations;
    
    impose accounting rules that define allowable and unallowable costs and otherwise
govern our right to reimbursement under certain cost-based U.S. government contracts;
and
    
    restrict the use and dissemination of information classified for national security
purposes and the exportation of certain products and technical data.
  Our U.S. government contracts contain provisions that may be unfavorable to us.
  
    
    unilaterally suspend us from receiving new contracts pending resolution of alleged
violations of procurement laws or regulations;
    
    reduce the value of existing contracts; and
    
    issue modifications to a contract.
   
    
    control and potentially prohibit the export of our products and services and
associated materials; and
    
    give the government substantial rights in products and systems produced by us.
 Our business could be adversely affected by audits performed by the U.S. government.
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Our senior management is important to our customer relationships and overall business.
  We must recruit and retain highly skilled employees to succeed in our competitive and
labor-intensive business.
  Our business is dependent upon our employees obtaining and maintaining required security
clearances.
  Cost over-runs on our contracts could subject us to losses or adversely affect our future business.
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Our quarterly operating results may vary widely.
  
    
    fluctuations in revenues derived from fixed-price contracts and contracts with a
performance-based fee structure;
    
    commencement, completion or termination of contracts during any particular quarter;
    
    personnel changes among senior U.S. government officials that affect the timing of
technology procurement;
    
    changes in policy or budgetary measures that adversely affect government contracts
in general or our business areas specifically; and
    
    increased purchase requests from customers for equipment and materials in connection
with the U.S. governments fiscal year end, which may affect our fiscal fourth quarter
operating results.
  Our earnings and profit margins may vary based on the mix of our contracts and programs and other
factors related to our contracts.
  We derive significant revenues from contracts awarded through a competitive bidding process.
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
    
    the need to bid on programs in advance of the completion of their design, which may
result in unforeseen technological difficulties and cost over-runs;
    
    the substantial cost and managerial time and effort that we spend to prepare bids
and proposals for contracts that may not be awarded to us;
    
    the need to accurately estimate the resources and cost structure that will be
required to service any contract we are awarded; and
    
    the expense and delay that may arise if our competitors protest or challenge
contract awards made to us pursuant to competitive bidding, and the risk that any such
protest or challenge could result in the resubmission of bids on modified
specifications, or in termination, reduction or modification of the awarded contract.
  We face competition from other firms, many of which have substantially greater resources.
  Our business depends upon our relationships with, and the performance of, our prime contractors.
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If our subcontractors or suppliers fail to perform their contractual obligations, our contract
performance and our ability to obtain future business could be materially and adversely affected.
  Our employees or subcontractors may engage in misconduct or other improper activities.
  If we are unable to manage our growth, our business could be adversely affected.
  Our international business poses potentially greater risks than our domestic business.
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We may not be able to receive or retain the necessary licenses or authorizations required to sell
our systems and provide services overseas.
  Our systems and products may be rendered obsolete if we are unable to adapt to the rapid
technological changes in our industry.
  We rely on a limited number of suppliers and manufacturers for specific components, and if our
supplies are interrupted, we may not be able to obtain substitute suppliers and manufacturers on
terms that are as favorable to us.
  
    
    delays in delivery or shortages in components or licensed technology could interrupt
and delay production and result in cancellations of orders for our systems;
    
    alternative suppliers could increase component prices significantly; and
    
    we may not be able to develop alternative sources for the components or licensed
technology.
 Our system design and development activities rely on extensive use of advanced components for
hardware and software.
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Our future success will depend in part on our ability to meet the changing needs of our customers.
  We may be liable for system and service failures.
  
    
    lose revenues due to adverse customer reaction;
    
    be required to provide additional services to a customer at no charge;
    
    receive negative publicity, which could damage our reputation and adversely affect
our ability to attract or retain customers; or
    
    suffer claims for substantial damages.
   Security breaches by us could adversely affect our business.
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Developing new technologies entails significant risks and uncertainties that may not be covered by
indemnity or insurance.
   Our failure to protect our proprietary technology may adversely affect our business and impair our
ability to compete effectively.
  The U.S. governments right to use technology developed by us limits our intellectual property
rights.
  We may be affected by intellectual property infringement claims.
  25




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
    
    cease selling or using products or services that incorporate the challenged software
or technology;
    
    obtain a license or additional licenses involving additional costs for use; or
    
    redesign systems and products that rely on the challenged software or technology.
 Risks Related to Accounting Matters and Our Internal Control over Financial Reporting
 If we fail to comply with requirements relating to internal control over financial reporting under Section 404
of the Sarbanes-Oxley Act, our business could be harmed and our stock price could decline.
   We may incur material impairment charges related to mergers and acquisitions.
  We may be required to reduce our profit margins on contracts on which we use the
percentage-of-completion accounting method.
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Additional Risks Related to Our Commercial Business and Operations
  Our commercial business is in its infancy.
  Our company is structured primarily for doing government business.
  Our commercial customers and contracts are fewer, therefore our performance for them is more
critical in the commercial marketplace.
  Our commercial contracts may contain provisions that are unfavorable to us.
  Commercial work is highly dependent upon customer demand.
  27




---



##### 



Commercial work is highly dependent upon the business plans and financial health of the companies
who contract with us.
  Commercial work in our industry is based upon rapidly changing technology.
  Risks Related to Acquisitions
 We intend to continue to pursue selective acquisitions, which may prove difficult in the current
acquisition environment for defense and intelligence businesses.
 .
 Acquisitions involve costs and other risks, and may not have the benefits we expect.
  
    
    diversion of managements attention from existing operations;
    
    potential loss of key employees or customers of acquired companies;
    
    exposure to unforeseen liabilities of acquired companies; and
    
    financial reporting irregularities as a result of deficient internal controls and
disclosure controls and procedures of acquired companies.
 28




---



##### 




    
    the integration of personnel with disparate business backgrounds;
    
    the transition to new information systems;
    
    the coordination of geographically dispersed organizations;
    
    the reconciliation of different corporate cultures, pay structures and benefits
plans;
    
    laws regarding business and employees that differ from those in states where we
currently do business; and
    
    the synchronization of disclosure and financial reporting controls of acquired
companies with our controls and, where applicable, improvement of the acquired
companys controls.
  Acquisitions may require us to incur debt or issue dilutive equity.
  Risk Related to Ownership of Our Common Stock
 Our current and former executive officers, whose interests may not be aligned with yours, may be
able to control the vote on matters requiring stockholder approval.
  29




---



##### 



ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
   EstimatedSquare
    
    
    
    
    
    PrincipalAddress
    
    Feet
    
    Lease Term
    
    Description
    
    Activity12701 Fair Lakes Circle
    
    
    165,000
    
    
    Leased,
    
    Multi-floor tenant
    
    Engineering/Fairfax, VA 22033
    
    
    
    
    
    Expiration
    
    in ten-story office
    
    AdministrationDate:
    
    building.2/28/201599 Spruce St
    
    
    90,000
    
    
    Leased,
    
    One-story facility.
    
    Engineering/Windber, PA 15963
    
    
    
    
    
    Expiration
    
    
    
    Production/Date:
    
    
    
    Administration9/30/20128419 Terminal Road
    
    
    67,220
    
    
    Leased,
    
    Two one-story and
    
    Engineering/Newington, VA 22122
    
    
    
    
    
    Expiration
    
    one partial two-
    
    Production/Date:
    
    story adjacent
    
    Administration6/30/2014
    
    block buildings inan industrial park.90 Laurel View Drive
    
    
    66,000
    
    
    Leased,
    
    One-story facility.
    
    Engineering/Smithfield, PA 15478
    
    
    
    
    
    Expiration
    
    
    
    Production/Date:
    
    
    
    Administration9/15/2013Mesa Ridge Road
    
    
    39,939
    
    
    Leased,
    
    Two-story
    
    Engineering/San Diego, CA 92121
    
    
    
    
    
    Expiration
    
    facilities.
    
    AdministrationDate:8/31/20101386-1390 Connellsville Rd
    
    
    30,000
    
    
    Leased,
    
    One-story facility.
    
    Engineering/Lemont Furnace, PA 15456
    
    
    
    
    
    Expiration
    
    
    
    ProductionDate:4/1/2014
 30




---



##### 




    
    Ventura, California;
    
    Orlando, Ft. Walton Beach, Largo, and Tampa, Florida;
    
    Annapolis Junction and Lexington Park, Maryland;
    
    Ann Arbor, Michigan;
    
    Camden, New Jersey;
    
    Doylestown, Pennsylvania; and
    
    Copperas Cove and San Antonio, Texas.
 
 ITEM 3. LEGAL PROCEEDINGS
   
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    Position with RegistrantTerry L. Collins,
Ph.D.
    
    
    64
    
    
    Chairman of the Board and Chief Executive OfficerKerry M. Rowe
    
    
    50
    
    
    President and Chief Operating OfficerAaron N. Daniels
    
    
    48
    
    
    Vice President, Chief Financial Officer and Treasurer
 31




---



##### 



PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
   High
    
    
    LowFiscal 2009Fourth Quarter
    
    $
    21.86
    
    
    $
    18.23Third Quarter
    
    
    23.25
    
    
    
    17.41Second Quarter
    
    
    22.04
    
    
    
    15.46First Quarter
    
    
    23.81
    
    
    
    15.00Fiscal 2008Fourth Quarter
    
    $
    27.78
    
    
    $
    22.65Third Quarter
    
    
    25.94
    
    
    
    16.38Second Quarter
    
    
    18.75
    
    
    
    15.26First Quarter
    
    
    22.11
    
    
    
    17.50
  Dividend Policy
  Equity Compensation Plan Information
  Number of
    
    
    Weightedsecurities to be
    
    
    average exerciseissued upon
    
    
    price ofexercise of
    
    
    outstanding
    
    
    Number ofoutstanding
    
    
    options,
    
    
    securities remainingoptions, warrants
    
    
    warrants and
    
    
    available for futurePlan category
    
    and rights
    
    
    rights
    
    
    issuanceEquity compensation
plans approved by
security holders
    
    
    1,595,198
    
    
    $
    16.68
    
    
    
    1,795,897Equity compensation
plans not approved
by security holders
(1)
    
    
    506,337
    
    
    $
    8.67
    
    
    
    Total
    
    
    2,101,535
    
    
    $
    14.75
    
    
    
    1,795,897
 
 (1)
    
    Consists entirely of shares of common stock issuable upon exercise of options
under the Argon Engineering Associates, Inc. Stock Plan. There will be no further
options or common stock granted under this plan. 32




---



##### 



Common Stock Performance Graph
  
 PERFORMANCE GRAPH TABLEAs of September 30, (in dollars)2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Argon ST Stock
    
    $
    100
    
    
    $
    104
    
    
    $
    85
    
    
    $
    70
    
    
    $
    84
    
    
    $
    68Russell 2000 Index
    
    
    100
    
    
    
    117
    
    
    
    127
    
    
    
    141
    
    
    
    119
    
    
    
    105BB&T Defense Electronics Index
    
    
    100
    
    
    
    101
    
    
    
    109
    
    
    
    155
    
    
    
    122
    
    
    
    114
  33




---



##### 



ITEM 6.
    
    SELECTED FINANCIAL DATA
   Years Ended September 302009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(In thousands, except per share data)Contract revenues
    
    $
    366,076
    
    
    $
    340,934
    
    
    $
    282,209
    
    
    $
    258,835
    
    
    $
    271,754Cost of revenues
    
    
    298,038
    
    
    
    279,932
    
    
    
    229,767
    
    
    
    206,023
    
    
    
    222,792General and adminstrative expenses
    
    
    22,853
    
    
    
    22,432
    
    
    
    17,342
    
    
    
    22,212
    
    
    
    10,586Research and development expenses
    
    
    8,990
    
    
    
    6,656
    
    
    
    7,035
    
    
    
    
    
    
    
    3,992Impairment of intangible assets
    
    
    
    
    
    
    
    
    
    
    6,748
    
    
    
    
    
    
    
    Income from operations
    
    
    36,195
    
    
    
    31,914
    
    
    
    21,317
    
    
    
    30,600
    
    
    
    34,384Other income, net
    
    
    (14
    )
    
    
    615
    
    
    
    1,318
    
    
    
    1,180
    
    
    
    698Income before income taxes
    
    
    36,181
    
    
    
    32,529
    
    
    
    22,635
    
    
    
    31,780
    
    
    
    35,082Provision for income taxes
    
    
    (12,490
    )
    
    
    (12,256
    )
    
    
    (7,933
    )
    
    
    (12,385
    )
    
    
    (13,301
    )Net income
    
    $
    23,691
    
    
    $
    20,273
    
    
    $
    14,702
    
    
    $
    19,395
    
    
    $
    21,781Earnings per shareBasic
    
    $
    1.09
    
    
    $
    0.94
    
    
    $
    0.66
    
    
    $
    0.90
    
    
    $
    1.10Diluted
    
    $
    1.08
    
    
    $
    0.92
    
    
    $
    0.65
    
    
    $
    0.87
    
    
    $
    1.06
 34




---



##### 



As of September 302009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(In thousands)Balance sheet dataCash and cash equivalents
    
    $
    43,108
    
    
    $
    15,380
    
    
    $
    22,965
    
    
    $
    14,800
    
    
    $
    4,064Total assets
    
    $
    380,025
    
    
    $
    340,338
    
    
    $
    329,645
    
    
    $
    313,531
    
    
    $
    249,834Total debt
    
    $
    40
    
    
    $
    100
    
    
    $
    218
    
    
    $
    86
    
    
    $
    11,138Stockholders Equity
    
    $
    319,578
    
    
    $
    292,444
    
    
    $
    274,836
    
    
    $
    265,696
    
    
    $
    192,013Other dataBacklog (unaudited)
    
    $
    233,360
    
    
    $
    322,868
    
    
    $
    304,850
    
    
    $
    225,169
    
    
    $
    271,107Dividends
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Forward-looking Statements
  Overview
 General
  Segments
  35




---



##### 



Revenues
    Years Ended September 30,Contract Type
    
    2009
    
    2008
    
    2007Fixed-price contracts
    
    
    54
    %
    
    
    58
    %
    
    
    60
    %Cost reimbursable contracts
    
    
    41
    %
    
    
    38
    %
    
    
    35
    %Time and materials contracts
    
    
    5
    %
    
    
    4
    %
    
    
    5
    %
  Backlog
  36




---



##### 



As of September 30,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Funded
    
    $
    137,947
    
    
    $
    272,620
    
    
    $
    246,571Unfunded
    
    
    95,413
    
    
    
    54,672
    
    
    
    58,279Total
    
    $
    233,360
    
    
    $
    327,292
    
    
    $
    304,850
  Cost of Revenues
  General and Administrative Expenses
  Research and Development
   Years Ended September 30,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Internal research and
development
    
    $
    8,990
    
    
    $
    6,656
    
    
    $
    7,035Customer-funded research and
development
    
    
    83,200
    
    
    
    80,005
    
    
    
    73,397Total
    
    $
    92,190
    
    
    $
    86,661
    
    
    $
    80,432
 37




---



##### 



Interest Income, net
  Critical Accounting Policies and Estimates
 General
  Revenue and Cost Recognition
 General
 Revenue Recognition  Construction-Type and Production-Type Contracts 
General.
    38




---



##### 



Indirect Rate Variance
  Award Fee Recognition
  Goodwill
 Goodwill
 Long-Lived Assets (Excluding Goodwill)
 Impairment or Disposal of Long-Lived
Assets
 39




---



##### 



Accounts Receivable
  Stock-Based Compensation
  Fair Value Determination
   Expected Volatility.
 Risk-free Interest Rate.
 Dividend Yield.
 Expected Term.
 Exercise Factor.
 Post-vest Percentage.
 40




---



##### 



Historical Operating Results
 Fiscal year ended September 30, 2009 compared to fiscal year ended September 30, 2008
  September 30,Amount of
    
    
    %in crease
    
    
    increase2009
    
    
    2008
    
    
    (decrease)
    
    
    (decrease)Contract revenues
    
    $
    366,076
    
    
    $
    340,934
    
    
    $
    25,142
    
    
    
    7
    %Cost of revenues
    
    
    298,038
    
    
    
    279,932
    
    
    
    18,106
    
    
    
    6
    %General and administrative expenses
    
    
    22,853
    
    
    
    22,432
    
    
    
    421
    
    
    
    2
    %Research and development expenses
    
    
    8,990
    
    
    
    6,656
    
    
    
    2,334
    
    
    
    35
    %Interest income, net
    
    
    (14
    )
    
    
    615
    
    
    
    (629
    )
    
    
    -102
    %Provision for income taxes
    
    
    12,490
    
    
    
    12,256
    
    
    
    234
    
    
    
    2
    %Net income
    
    $
    23,691
    
    
    $
    20,273
    
    
    $
    3,418
    
    
    
    17
    %
 Contract Revenues:
   Cost of Revenues:
  41




---



##### 



General and Administrative Expenses:
  Research and Development Expenses:
  Interest Income and Interest Expense:
  Provision for Income Taxes:
  Net Income:
  42




---



##### 



Fiscal year ended September 30, 2008 compared to fiscal year ended September 30, 2007
  September 30,Amount of
    
    
    %in crease
    
    
    increase2008
    
    
    2007
    
    
    (decrease)
    
    
    (decrease)Contract revenues
    
    $
    340,934
    
    
    $
    282,209
    
    
    $
    58,725
    
    
    
    21
    %Cost of revenues
    
    
    279,932
    
    
    
    229,767
    
    
    
    50,165
    
    
    
    22
    %General and administrative expenses
    
    
    22,432
    
    
    
    17,342
    
    
    
    5,090
    
    
    
    29
    %Research and development expenses
    
    
    6,656
    
    
    
    7,035
    
    
    
    (379
    )
    
    
    -5
    %Impairment of intangible assets
    
    
    
    
    
    
    6,748
    
    
    
    (6,748
    )
    
    
    -100
    %Interest income, net
    
    
    615
    
    
    
    1,318
    
    
    
    (703
    )
    
    
    -53
    %Provision for income taxes
    
    
    12,256
    
    
    
    7,933
    
    
    
    4,323
    
    
    
    54
    %Net income
    
    $
    20,273
    
    
    $
    14,702
    
    
    $
    5,571
    
    
    
    38
    %
 Contract Revenues:
  Cost of Revenues:
  General and Administrative Expenses:
  43




---



##### 



Research and Development Expenses:
  Impairment of Intangible Assets:
  Interest Income and Interest Expense:
  Provision for Income Taxes:
  Net Income:
  Analysis of Liquidity and Capital Resources
  44




---



##### 



Cash
  Cash Flows
      Line of Credit
  45




---



##### 



Contractual Billing Provisions
   Contractual Obligations and Commitments
  Due in
    
    
    Due in
    
    
    Due in
    
    
    Due in
    
    
    Due in(In thousands)
    
    Total
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    ThereafterCapital leases
    
    $
    47
    
    
    $
    33
    
    
    $
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    $
    35,869
    
    
    $
    7,693
    
    
    $
    6,902
    
    
    $
    6,630
    
    
    $
    6,516
    
    
    $
    5,860
    
    
    $
    2,268Total
    
    $
    35,916
    
    
    $
    7,726
    
    
    $
    6,916
    
    
    $
    6,630
    
    
    $
    6,516
    
    
    $
    5,860
    
    
    $
    2,268
 46




---



##### 



(in thousands)
    
    Total
    
    
    Less Than 1 Year
    
    
    1-3 YearsLetters of credit
    
    $
    2,238
    
    
    $
    1,948
    
    
    $
    290
  Recent Accounting Pronouncements
    ,
  47




---



##### 



Market Risks
  Cash and Cash Equivalents:
  Interest Rates:
  Foreign Currency:
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  48




---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    50Consolidated Balance Sheets
As of September 30, 2009 and 2008
    
    
    51Consolidated Statements of Earnings
For the years ended September 30, 2009, 2008 and 2007
    
    
    52Consolidated Statements of Stockholders Equity
For the years ended September 30, 2009, 2008 and 2007
    
    
    53Consolidated Statements of Cash Flows
For the years ended September 30, 2009, 2008 and 2007
    
    
    54Notes to Consolidated Financial Statements
    
    
    55
 49




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework
  
 50




---



##### 



ARGON ST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
 September 30,2009
    
    
    2008ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    43,108
    
    
    $
    15,380Accounts receivable, net
    
    
    116,656
    
    
    
    104,859Inventory, net
    
    
    6,021
    
    
    
    3,757Income taxes receivable
    
    
    
    
    
    
    360Deferred project costs
    
    
    2,296
    
    
    
    3,412Deferred income tax asset
    
    
    5,137
    
    
    
    4,534Prepaids and other
    
    
    1,499
    
    
    
    1,644TOTAL CURRENT ASSETS
    
    
    174,717
    
    
    
    133,946Property, equipment and software, net
    
    
    28,042
    
    
    
    27,558Goodwill
    
    
    173,948
    
    
    
    173,948Intangibles, net
    
    
    2,745
    
    
    
    4,055Other assets
    
    
    573
    
    
    
    831TOTAL ASSETS
    
    $
    380,025
    
    
    $
    340,338LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    32,526
    
    
    $
    29,133Accrued salaries and related expenses
    
    
    13,887
    
    
    
    10,283Deferred revenue
    
    
    5,504
    
    
    
    4,361Capital lease obligations, current portion
    
    
    27
    
    
    
    56Income taxes payable
    
    
    4,784
    
    
    
    Deferred rent, current portion
    
    
    128
    
    
    
    76TOTAL CURRENT LIABILITIES
    
    
    56,856
    
    
    
    43,909Deferred income tax liability, long-term
    
    
    1,942
    
    
    
    1,900Deferred rent, net of current portion
    
    
    1,306
    
    
    
    1,383Capital lease obligations, net of current portion
    
    
    13
    
    
    
    44Other long-term liabilities
    
    
    330
    
    
    
    658Commitments and contingenciesSTOCKHOLDERS EQUITYCommon stock:$.01 Par Value, 100,000,000 shares
authorized, 22,965,952 and 27,775,423 shares
issued at September 30, 2009 and 2008,
respectively
    
    
    230
    
    
    
    228Additional paid in capital
    
    
    227,288
    
    
    
    222,349Treasury stock at cost:1,219,077 and 1,126,245 shares at
September 30, 2009 and 2008, respectively
    
    
    (19,923
    )
    
    
    (18,425
    )Retained earnings
    
    
    111,983
    
    
    
    88,292TOTAL STOCKHOLDERS EQUITY
    
    
    319,578
    
    
    
    292,444TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    380,025
    
    
    $
    340,338
  51




---



##### 



ARGON ST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share and share amounts)
 For the Year Ended September 30,2009
    
    
    2008
    
    
    2007CONTRACT REVENUES
    
    $
    366,076
    
    
    $
    340,934
    
    
    $
    282,209COST OF REVENUES
    
    
    298,038
    
    
    
    279,932
    
    
    
    229,767GENERAL AND ADMINISTRATIVE
EXPENSES
    
    
    22,853
    
    
    
    22,432
    
    
    
    17,342RESEARCH AND DEVELOPMENT
EXPENSES
    
    
    8,990
    
    
    
    6,656
    
    
    
    7,035IMPAIRMENT OF INTANGIBLE ASSETS
    
    
    
    
    
    
    
    
    
    
    6,748INCOME FROM OPERATIONS
    
    
    36,195
    
    
    
    31,914
    
    
    
    21,317INTEREST (EXPENSE) INCOME, NET
    
    
    (14
    )
    
    
    615
    
    
    
    1,318INCOME BEFORE INCOME TAXES
    
    
    36,181
    
    
    
    32,529
    
    
    
    22,635PROVISION FOR INCOME TAXES
    
    
    12,490
    
    
    
    12,256
    
    
    
    7,933NET INCOME
    
    $
    23,691
    
    
    $
    20,273
    
    
    $
    14,702EARNINGS PER SHARE (BASIC)
    
    $
    1.09
    
    
    $
    0.94
    
    
    $
    0.66EARNINGS PER SHARE (DILUTED)
    
    $
    1.08
    
    
    $
    0.92
    
    
    $
    0.65WEIGHTED-AVERAGE SHARES
OUTSTANDINGBasic
    
    
    21,699,056
    
    
    
    21,682,069
    
    
    
    22,318,245Diluted
    
    
    22,004,024
    
    
    
    22,086,981
    
    
    
    22,767,826
  52




---



##### 



ARGON ST, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY  (In thousands, exept share amounts)
 Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalNumber of
    
    
    Common Stock
    
    
    Additional Paid
    
    
    
    
    
    
    Retained
    
    
    StockholdersShares
    
    
    Par Value
    
    
    in Capital
    
    
    Treasury Stock
    
    
    Earnings
    
    
    EquityBalance, October 1, 2006
    
    
    22,313,709
    
    
    
    223
    
    
    
    212,610
    
    
    
    (534
    )
    
    
    53,397
    
    
    
    265,696Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,702
    
    
    
    14,702Shares issued upon exercise
of stock options
    
    
    214,450
    
    
    
    2
    
    
    
    1,027
    
    
    
    
    
    
    
    
    
    
    
    1,029Employee stock purchase plan
    
    
    33,480
    
    
    
    1
    
    
    
    702
    
    
    
    
    
    
    
    
    
    
    
    703Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,149
    
    
    
    
    
    
    
    
    
    
    
    2,149Tax benefit on stock option
exercises
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    
    
    
    
    
    
    
    
    550Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,993
    )
    
    
    
    
    
    
    (9,993
    )Balance, September 30, 2007
    
    
    22,561,639
    
    
    
    226
    
    
    
    217,038
    
    
    
    (10,527
    )
    
    
    68,099
    
    
    
    274,836Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,273
    
    
    
    20,273Shares issued upon exercise
of stock options
    
    
    188,061
    
    
    
    2
    
    
    
    1,020
    
    
    
    
    
    
    
    
    
    
    
    1,022Employee stock purchase plan
    
    
    25,723
    
    
    
    
    
    
    
    510
    
    
    
    
    
    
    
    
    
    
    
    510Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,307
    
    
    
    
    
    
    
    
    
    
    
    3,307Tax benefit on stock option
exercises
    
    
    
    
    
    
    
    
    
    
    474
    
    
    
    
    
    
    
    
    
    
    
    474Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,898
    )
    
    
    
    
    
    
    (7,898
    )Adoption of FIN 48 -
unrecognized tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    (80
    )Balance, September 30, 2008
    
    
    22,775,423
    
    
    
    228
    
    
    
    222,349
    
    
    
    (18,425
    )
    
    
    88,292
    
    
    
    292,444Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,691
    
    
    
    23,691Shares issued upon exercise
of stock options
    
    
    63,030
    
    
    
    1
    
    
    
    405
    
    
    
    
    
    
    
    
    
    
    
    406Restricted stock units vested
    
    
    100,562
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Employee stock purchase plan
    
    
    26,937
    
    
    
    
    
    
    
    503
    
    
    
    
    
    
    
    
    
    
    
    503Stock repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,498
    )
    
    
    
    
    
    
    (1,498
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,799
    
    
    
    
    
    
    
    
    
    
    
    3,799Tax benefit on stock option
exercises and restricted stock
    
    
    
    
    
    
    
    
    
    
    233
    
    
    
    
    
    
    
    
    
    
    
    233Balance, September 30, 2009
    
    
    22,965,952
    
    
    
    230
    
    
    
    227,288
    
    
    
    (19,923
    )
    
    
    111,983
    
    
    
    319,578
  53




---



##### 



ARGON ST, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands)
 Years Ended September 30,2009
    
    
    2008
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    23,691
    
    
    $
    20,273
    
    
    $
    14,702Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    8,470
    
    
    
    8,150
    
    
    
    7,561Stock-based compensation
    
    
    3,888
    
    
    
    3,548
    
    
    
    2,149Claims resolution
    
    
    640
    
    
    
    
    
    
    
    Amortization of deferred costs
    
    
    168
    
    
    
    168
    
    
    
    Deferred income tax benefit
    
    
    (537
    )
    
    
    (870
    )
    
    
    (2,174
    )Other non-cash charges
    
    
    709
    
    
    
    9
    
    
    
    95Impairment of intangible assets
    
    
    
    
    
    
    
    
    
    
    6,748Change in:Accounts receivable
    
    
    (12,157
    )
    
    
    (9,234
    )
    
    
    (8,714
    )Inventory
    
    
    (2,578
    )
    
    
    (830
    )
    
    
    1,323Prepaids and other
    
    
    145
    
    
    
    89
    
    
    
    (74
    )Deferred project costs
    
    
    1,116
    
    
    
    (2,750
    )
    
    
    4,935Accounts payable and accrued expenses
    
    
    2,828
    
    
    
    4,777
    
    
    
    1,766Accrued salaries and related expenses
    
    
    3,604
    
    
    
    (2,616
    )
    
    
    1,433Deferred revenue
    
    
    1,143
    
    
    
    (8,810
    )
    
    
    (1,441
    )Income taxes
    
    
    4,703
    
    
    
    737
    
    
    
    (475
    )Deferred rent
    
    
    (25
    )
    
    
    (192
    )
    
    
    (311
    )Net cash provided by operating activities
    
    
    35,808
    
    
    
    12,449
    
    
    
    27,523Cash flows from investing activitiesAcquisitions of property, equipment and software
    
    
    (7,754
    )
    
    
    (10,838
    )
    
    
    (10,030
    )Increases (decreases) in restricted cash and cash held in escrow
    
    
    
    
    
    
    1,800
    
    
    
    (1,800
    )Purchases of investments
    
    
    
    
    
    
    
    
    
    
    (72,700
    )Sales of investments
    
    
    
    
    
    
    
    
    
    
    87,500Business acquisitions, net of cash acquired
    
    
    
    
    
    
    (5,300
    )
    
    
    (18,079
    )Other activity
    
    
    90
    
    
    
    314
    
    
    
    (391
    )Net cash used in investing activities
    
    
    (7,664
    )
    
    
    (14,024
    )
    
    
    (15,500
    )Cash flows from financing activitiesTax benefit on stock option exercises
    
    
    233
    
    
    
    474
    
    
    
    550Proceeds from exercise of stock options
    
    
    406
    
    
    
    1,022
    
    
    
    1,029Proceeds from employee stock purchase plan exercises
    
    
    503
    
    
    
    510
    
    
    
    703Principal repayments on capital lease obligations
    
    
    (60
    )
    
    
    (118
    )
    
    
    (45
    )Purchase of treasury stock
    
    
    (1,498
    )
    
    
    (7,898
    )
    
    
    (9,993
    )Net cash used in financing activities
    
    
    (416
    )
    
    
    (6,010
    )
    
    
    (7,756
    )Net increase (decrease) in cash and cash equivalents
    
    
    27,728
    
    
    
    (7,585
    )
    
    
    4,267Cash and cash equivalents, beginning of year
    
    
    15,380
    
    
    
    22,965
    
    
    
    18,698Cash and cash equivalents, end of year
    
    $
    43,108
    
    
    $
    15,380
    
    
    $
    22,965Supplemental disclosureIncome taxes paid, net of refunds
    
    
    (8,092
    )
    
    
    (11,912
    )
    
    
    (10,032
    )Interest expense paid
    
    
    (40
    )
    
    
    (27
    )
    
    
    (8
    )Assets acquired under capital leases
    
    
    
    
    
    
    
    
    
    
    55
  54




---



##### 



ARGON ST, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect per share and share amounts)
 Note 1  Summary of Significant Accounting Policies
 Nature of Business
  Principles of Consolidation
   Revenue and Cost Recognition
 Revenue Recognition 
Construction-Type and Production-Type Contracts  General
  Fiscal Years Ended September 30,2009
    
    
    2008
    
    
    2007Fixed-price contracts
    
    
    54
    %
    
    
    58
    %
    
    
    60
    %Cost reimbursable contracts
    
    
    41
    %
    
    
    38
    %
    
    
    35
    %Time and materials contracts
    
    
    5
    %
    
    
    4
    %
    
    
    5
    %
  55




---



##### 



Research and Development
 Research and Development
  Indirect Rate Variance
  56




---



##### 



Reclassification
  Cash and Cash Equivalents
  Accounts Receivable
  Inventories
  2009
    
    
    2008Raw Materials
    
    $
    3,212
    
    
    $
    2,920Component parts, work in process
    
    
    797
    
    
    
    812Finished component parts
    
    
    2,303
    
    
    
    410$
    6,313
    
    
    $
    4,142Reserve
    
    
    (291
    )
    
    
    (385
    )Total
    
    $
    6,021
    
    
    $
    3,757
 Deferred Project Costs
  Long-Lived Assets (Excluding Goodwill)
 Impairment or Disposal of
Long-Lived Assets
 57




---



##### 



Goodwill
 Goodwill
 Intangibles
   WeightedAverage Life ofEstimated
    
    
    RemainingEconomic Life
    
    
    ValueCustomer related
    
    3.0 - 8.3 years
    
    7.0 yearsDeveloped technology
    
    3 - 5 years
    
    3.7 yearsTotal intangible assets
    
    
    
    
    
    6.3 years
 Property, Equipment and Software
  Stock-Based Compensation
  Fair Value Determination
  58




---



##### 



Expected Volatility.
 Risk-free Interest Rate.
 Dividend Yield.
 Expected Term.
 Exercise Factor.
 Post-vest Percentage.
  2009
    
    
    2008
    
    
    2007Volatility
    
    
    41.3
    %
    
    
    33.8% - 35.9
    %
    
    
    33.7% - 34.0
    %Risk free rate
    
    
    1.3% - 1.6
    %
    
    
    4.6% - 4.8
    %
    
    
    4.4% - 4.6
    %Exercise factor
    
    
    1.3
    
    
    
    1.2
    
    
    
    1.6 - 1.8
  2009
    
    
    2008Volatility
    
    
    42.3
    %
    
    
    36.8
    %Risk free rate
    
    
    2.3
    %
    
    
    2.7
    %Exercise factor
    
    
    1.3
    
    
    
    1.2
 59




---



##### 



Income Taxes
  740-10-5  Tax Positions
   As of October 1, 2007
    
    $
    339Additions and settlements
    
    
    As of September 30, 2008
    
    
    339Additions and settlements
    
    
    (339
    )As of September 30, 2009
    
    $
    
   Use of Estimates
  60




---



##### 



Subsequent Events
  Operating Cycle
  Recently Issued Accounting Pronouncements
    ,
 61




---



##### 



Earnings Per Share
  2009
    
    
    2008
    
    
    2007Net Income
    
    $
    23,691
    
    
    $
    20,273
    
    
    $
    14,702Weighted Average Shares Outstanding  Basic
    
    
    21,699,056
    
    
    
    21,682,069
    
    
    
    22,318,245Effect of Dilutive Securities:Net Shares Issuable Upon Exercise of Stock Options
    
    
    304,968
    
    
    
    404,912
    
    
    
    449,581Weighted Average Shares Outstanding  Diluted
    
    
    22,004,024
    
    
    
    22,086,981
    
    
    
    22,767,826Basic Earnings per Share
    
    $
    1.09
    
    
    $
    0.94
    
    
    $
    0.66Diluted Earnings per Share
    
    $
    1.08
    
    
    $
    0.92
    
    
    $
    0.65
  Note 2  Acquisitions and Mergers
 Year Ended September 30, 2007
 Coherent Systems International, LLC
  62




---



##### 



Note 3  Goodwill and Intangible Assets
 Goodwill
  September 30,2009
    
    
    2008Beginning balance
    
    $
    173,948
    
    
    $
    170,192Contingent consideration earned and paid
    
    
    
    
    
    
    5,000Net asset adjustment to purchase price, net of
adjustments to indemnification clause
    
    
    
    
    
    
    (1,150
    )Adjustments in the fair value of assets
acquired and liabilities assumed
    
    
    
    
    
    
    (94
    )Ending Balance
    
    $
    173,948
    
    
    $
    173,948
   Intangibles
   63




---



##### 



September 30, 2009Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountCustomer related
    
    $
    8,347
    
    
    $
    5,965
    
    
    $
    2,382Developed technology
    
    
    1,980
    
    
    
    1,617
    
    
    
    363Total intangible assets
    
    $
    10,327
    
    
    $
    7,582
    
    
    $
    2,745
 September 30, 2008Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountCustomer related
    
    $
    8,347
    
    
    $
    5,113
    
    
    $
    3,234Developed technology
    
    
    1,980
    
    
    
    1,159
    
    
    
    821Total intangible assets
    
    $
    10,327
    
    
    $
    6,272
    
    
    $
    4,055
  Year Ending September 30,
    

    Amortization Expense2010
    

    1,1542011
    

    4432012
    

    3832013
    

    3832014
    

    382Total
    
$
    2,745
 Note 4  Customer Concentrations of Credit and Other Business Risks
 Customer Concentrations
  Years Ended September 30,2009
    
    2008
    
    2007U.S. Navy
    
    
    49
    %
    
    
    55
    %
    
    
    61
    %U.S. Army
    
    
    13
    %
    
    
    10
    %
    
    
    11
    %Other U.S. government agencies
    
    
    18
    %
    
    
    21
    %
    
    
    22
    %Foreign and other
    
    
    20
    %
    
    
    14
    %
    
    
    6
    %
 64




---



##### 



Years Ended September 30,2009
    
    2008
    
    2007Direct Purchases
    
    
    71
    %
    
    
    76
    %
    
    
    83
    %Subcontracts
    
    
    29
    %
    
    
    24
    %
    
    
    17
    %
 Cash Balances
  Note 5  Accounts Receivable
  September 30,2009
    
    
    2008Billed and billable
    
    $
    46,070
    
    
    $
    42,794Unbilled costs and fees
    
    
    64,779
    
    
    
    54,838Retainages
    
    
    6,109
    
    
    
    7,438Reserves
    
    
    (302
    )
    
    
    (211
    )$
    116,656
    
    
    $
    104,859
    65




---



##### 



Note 6  Property, Equipment and Software
  September 30,2009
    
    
    2008Computer, machinery and test equipment
    
    $
    29,841
    
    
    $
    27,549Leasehold improvements
    
    
    12,238
    
    
    
    10,947Computer software
    
    
    5,575
    
    
    
    4,926Furniture and fixtures
    
    
    1,514
    
    
    
    1,726Equipment under capital lease
    
    
    337
    
    
    
    337Construction in process
    
    
    11,813
    
    
    
    10,47861,318
    
    
    
    55,963Less: Accumulated depreciation and amortization
    
    
    (33,276
    )
    
    
    (28,405
    )$
    28,042
    
    
    $
    27,558
   Note 7  Revolving Line of Credit
    Note 8  Stock-Based Benefit Plans
  66




---



##### 



Stock Compensation Expense
  Years Ended September 30,2009
    
    
    2008
    
    
    2007Cost of revenues
    
    $
    2,727
    
    
    $
    2,537
    
    
    $
    1,494General and administrative expense
    
    
    1,161
    
    
    
    1,011
    
    
    
    655Total pre-tax stock-based
compensation included in income
from operations
    
    
    3,888
    
    
    
    3,548
    
    
    
    2,149Income tax benefit recognized for
stock-based compensation
    
    
    (1,057
    )
    
    
    (782
    )
    
    
    (388
    )Total stock-based compensation expense, net of tax
    
    $
    2,831
    
    
    $
    2,766
    
    
    $
    1,761
  Stock Option Activity
  67




---



##### 



Aggregate IntrinsicWeighted-Average
    
    
    Weighted-Average
    
    
    ValueNumber of Shares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    (in thousands)Shares under option, September 30, 2008
    
    
    1,623,967
    
    
    $
    18.18Options granted
    
    
    167,000
    
    
    $
    18.62Options exercised
    
    
    (63,030
    )
    
    $
    6.43
    
    
    
    
    
    
    $
    859Options
cancelled and
expired
    
    
    (52,065
    )
    
    $
    23.44Shares under option,
September 30, 2009
    
    
    1,675,872
    
    
    $
    18.50
    
    
    
    5.47
    
    
    $
    7,417Options vested at September
30, 2009
    
    
    1,152,889
    
    
    $
    17.01
    
    
    
    4.65
    
    
    $
    6,616As of September 30, 2009,
options that are vested and
expected to vest prior to
expiration
    
    
    1,657,852
    
    
    $
    18.42
    
    
    
    5.45
    
    
    $
    7,417Shares reserved for equity
awards at September 30, 2009
    
    
    1,795,897
   Weighted-AverageRemaining
    
    
    Weighted-AverageRange of Exercise Price
    
    Options Outstanding
    
    
    Contractual Life
    
    
    Exercise Price$  0.10  $  4.11
    
    
    224,327
    
    
    2.51 years
    
    $
    2.78$  4.12  $  6.88
    
    
    172,310
    
    
    3.58 years
    
    
    5.42$  6.89  $20.40
    
    
    491,900
    
    
    5.77 years
    
    
    16.60$20.41  $28.10
    
    
    388,495
    
    
    6.89 years
    
    
    24.46$28.11  $34.92
    
    
    398,840
    
    
    6.18 years
    
    
    29.531,675,872
 68




---



##### 



Weighted-AverageRemaining
    
    
    Weighted-AverageRange of Exercise Price
    
    Options Exercisable
    
    
    Contractual Life
    
    
    Exercise Price$  0.10  $  4.11
    
    
    176,327
    
    
    2.33 years
    
    $
    2.42$  4.12  $  6.88
    
    
    172,310
    
    
    3.58 years
    
    
    5.42$  6.89  $20.40
    
    
    329,900
    
    
    4.07 years
    
    
    15.60$20.41  $28.10
    
    
    203,812
    
    
    6.47 years
    
    
    25.22$28.11  $34.92
    
    
    270,540
    
    
    6.18 years
    
    
    29.411,152,889
 Stock Appreciation Rights Activity
  Restricted Share Activity
  Number of
    
    
    Weighted-Average GrantShares
    
    
    Date Fair ValueUnvested shares, October 1, 2007
    
    
    59,950
    
    
    $
    23.24Awards granted
    
    
    260,200
    
    
    $
    21.71Awards vested
    
    
    (21,000
    )
    
    $
    21.39Awards forfeited
    
    
    (7,175
    )
    
    $
    22.89Unvested shares, September 30, 2008
    
    
    291,975
    
    
    $
    22.01Awards granted
    
    
    249,350
    
    
    $
    19.28Awards vested
    
    
    (100,562
    )
    
    $
    22.35Awards forfeited
    
    
    (15,100
    )
    
    $
    21.08Unvested shares, September 30, 2009
    
    
    425,663
    
    
    $
    20.37
  Employee Stock Purchase Plan
  69




---



##### 



Note 9  Retirement Plans
  Note 10  Income Taxes
  Years Ended September 30,2009
    
    
    2008
    
    
    2007CurrentFederal
    
    $
    10,577
    
    
    $
    10,846
    
    
    $
    8,471State
    
    
    2,449
    
    
    
    2,280
    
    
    
    1,636Total current
    
    
    13,026
    
    
    
    13,126
    
    
    
    10,107DeferredFederal
    
    $
    (348
    )
    
    $
    (559
    )
    
    $
    (1,664
    )State
    
    
    (189
    )
    
    
    (311
    )
    
    
    (510
    )Total deferred
    
    
    (537
    )
    
    
    (870
    )
    
    
    (2,174
    )Income tax expense
    
    $
    12,489
    
    
    $
    12,256
    
    
    $
    7,933
  As of September 30,2009
    
    
    2008Total deferred tax assets
    
    $
    6,017
    
    
    $
    5,272Total deferred tax liabilities
    
    
    (2,822
    )
    
    
    (2,638
    )Net deferred tax asset
    
    $
    3,195
    
    
    $
    2,634
  As of September 30,2009
    
    
    2008Property, equipment and software
    
    $
    (1,057
    )
    
    $
    (1,064
    )Accrued vacation
    
    
    2,278
    
    
    
    1,947Deferred rent
    
    
    560
    
    
    
    570Net operating losses and tax credits
    
    
    164
    
    
    
    619Intangibles
    
    
    (293
    )
    
    
    (731
    )Deferred compensation
    
    
    156
    
    
    
    117Uncollectible accounts
    
    
    118
    
    
    
    83Stock-based compensation
    
    
    2,041
    
    
    
    1,302Other, net
    
    
    (772
    )
    
    
    (209
    )Net deferred tax asset
    
    $
    3,195
    
    
    $
    2,634
  70




---



##### 



Years Ended September 30,2009
    
    
    2008
    
    
    2007Statutory federal rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes, net of federal benefit
    
    
    4.0
    
    
    
    4.1
    
    
    
    3.4Stock-based compensation
    
    
    1.1
    
    
    
    1.6
    
    
    
    1.7Tax exempt interest
    
    
    
    
    
    
    (0.1
    )
    
    
    (1.5
    )Qualified manufacturing activity deduction
    
    
    (1.8
    )
    
    
    (2.1
    )
    
    
    (1.1
    )Research and development credit
    
    
    (1.7
    )
    
    
    (0.5
    )
    
    
    (1.2
    )Under (over) accrual of prior year taxes
    
    
    (2.3
    )
    
    
    (0.5
    )
    
    
    (1.5
    )Other
    
    
    .2
    
    
    
    0.2
    
    
    
    0.234.5
    %
    
    
    37.7
    %
    
    
    35.0
    %
  Note 11  Leases, Commitments and Contingencies
 Leases
  71




---



##### 



Operating LeasesFuture MinimumYear Ending September 30,
    
    Payments2010
    
    $
    7,6932011
    
    
    6,9022012
    
    
    6,6302013
    
    
    6,5162014
    
    
    5,860Thereafter
    
    
    2,268Total
    
    $
    35,869
  Capital LeasesFutureMinimumYear Ending September 30,
    
    Payments2010
    
    $
    332011
    
    
    14Total
    
    $
    47Less amount representing interest
    
    
    (7
    )Present value of future lease payments
    
    $
    40
 Legal matters
   Note 12  Fair Value of Financial Instruments
 Fair Value Measurements and
Disclosures
     72




---



##### 



Note 13  Capital Stock
 Common Stock
  Treasury Stock
    Note 14  Segment Reporting
  73




---



##### 



Note 15  Quarterly Financial Information (Unaudited)
  2009
    
    
    2008December 28,
    
    
    March 29,
    
    
    June 28,
    
    
    September 30,
    
    
    December 30,
    
    
    March 30,
    
    
    June 29,
    
    
    September 30,2008
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2007
    
    
    2008
    
    
    2008
    
    
    2008(unaudited)
    
    
    (unaudited)(In thousands, except per share data)
    
    
    (In thousands, except per share data)Contract revenues
    
    $
    84,026
    
    
    $
    95,572
    
    
    $
    91,005
    
    
    $
    95,473
    
    
    $
    74,266
    
    
    $
    88,449
    
    
    $
    83,165
    
    
    $
    95,054Direct and allocable contract costs
    
    
    76,406
    
    
    
    86,189
    
    
    
    81,473
    
    
    
    85,813
    
    
    
    67,494
    
    
    
    79,486
    
    
    
    75,327
    
    
    
    86,713Income from
Operations
    
    
    7,620
    
    
    
    9,383
    
    
    
    9,532
    
    
    
    9,660
    
    
    
    6,772
    
    
    
    8,963
    
    
    
    7,838
    
    
    
    8,341Other Income
(Expense), Net
    
    
    (14
    )
    
    
    (11
    )
    
    
    5
    
    
    
    6
    
    
    
    120
    
    
    
    35
    
    
    
    444
    
    
    
    16Income before
Income Taxes
    
    
    7,606
    
    
    
    9,372
    
    
    
    9,537
    
    
    
    9,666
    
    
    
    6,892
    
    
    
    8,998
    
    
    
    8,282
    
    
    
    8,357Provision for Income
Taxes
    
    
    2,417
    
    
    
    3,556
    
    
    
    2,945
    
    
    
    3,572
    
    
    
    2,609
    
    
    
    3,492
    
    
    
    3,103
    
    
    
    3,052Net Income
    
    $
    5,189
    
    
    $
    5,816
    
    
    $
    6,592
    
    
    $
    6,094
    
    
    $
    4,283
    
    
    $
    5,506
    
    
    $
    5,179
    
    
    $
    5,305Earnings Per ShareBasic
    
    $
    0.24
    
    
    $
    0.27
    
    
    $
    0.30
    
    
    $
    0.28
    
    
    $
    0.20
    
    
    $
    0.25
    
    
    $
    0.24
    
    
    $
    0.25Diluted
    
    $
    0.24
    
    
    $
    0.26
    
    
    $
    0.30
    
    
    $
    0.28
    
    
    $
    0.19
    
    
    $
    0.25
    
    
    $
    0.24
    
    
    $
    0.24
 74




---



##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
 Internal
Control  Integrated Framework Internal Control  Integrated
Framework
 Change in Internal Controls
  
 ITEM 9B. OTHER INFORMATION.
  75




---



##### 



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  76




---



##### 



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 Financial Statements Schedules
 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 to the
Companys 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
    
    Sixth Amendment to Second Amended and Restated
Financing and Security Agreement, dated as of
February 28, 2008 (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on
Form 8-K filed April 6, 2006)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)
 77




---



##### 



ExhibitNumber
    
    Description of Exhibit10.3+
    
    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)10.4
    
    2008 Argon Equity Incentive Plan (incorporated by reference
to Appendix A to the Registrants definitive proxy
statement on Schedule 14A for its 2008 Annual Meeting of
Stockholders, filed January 25, 2008)10.5.1+
    
    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)10.5.2+
    
    Change in Control Agreement  between the Company and
Kerry Rowe (incorporated by reference to Exhibit 10.2 to
the Companys Current Report on Form 8-K, filed January 22,
2009)10.5.3+
    
    Change in Control Agreement  between the Company and
Aaron Daniels (incorporated by reference to Exhibit 10.3 to
the Companys Current Report on Form 8-K, filed January 22,
2009)21.1*
    
    Subsidiaries of the Company23.1*
    
    Consent of Grant Thornton LLP31.1*
    
    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 78




---



##### 



SIGNATURES
  ARGON ST, INC.


(Registrant)By:
    /s/ Terry L. CollinsTerry L. Collins, Ph.D.
Chairman and Chief Executive Officer   Signature
    
    Title/s/ Terry L. Collins
    
    Chairman and Chief Executive OfficerTerry L. Collins
    
    (Principal Executive Officer)Date: December 4, 2009/s/ Aaron N. Daniels
    
    Vice President, Chief Financial Officer and TreasurerAaron N. Daniels
    
    (Principal Financial and Accounting Officer)Date: December 4, 2009/s/ S. Kent Rockwell
    
    Vice Chairman and DirectorS. Kent RockwellDate: December 4, 2009/s/ Victor F. Sellier
    
    DirectorVictor F. SellierDate: December 4, 2009/s/ Thomas E. Murdock
    
    DirectorThomas E. MurdockDate: December 4, 2009/s/ David C. Karlgaard
    
    DirectorDavid C. KarlgaardDate: December 4, 2009/s/ Peter A. Marino
    
    DirectorPeter A. MarinoDate: December 4, 2009/s/ Robert McCashin
    
    DirectorRobert McCashinDate: December 4, 2009/s/ John Irvin
    
    DirectorJohn IrvinDate: December 4, 2009/s/ Lloyd A. Semple
    
    DirectorLloyd A. SempleDate: December 4, 2009/s/ Maureen Baginski
    
    DirectorMaureen BaginskiDate: December 4, 2009/s/ Delores M. Etter
    
    DirectorDelores M. EtterDate: December 4, 2009
 79