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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

________________________

FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED DECEMBER 20, 2002.

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT 1934

FROM THE TRANSITION PERIOD FROM ______TO ______

COMMISSION FILE NUMBER 33389756

________________________

ALION SCIENCE AND TECHNOLOGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

|                                |  |                                  
|------------------------------- |  | ---------------------------------
|DELAWARE                        |  | 542061691                       
|(State or Other Jurisdiction of |  | (I.R.S. Employer                 
|Incorporation of Organization)  |  | Identification No.)              
|10 West 35th Street             |  | 1750 Tysons Boulevard, Suite 1300
|Chicago, IL 60616               |  | McLean, VA 22102                 
|(312) 5674000                  |  | (703) 9184480                   

(Address, including Zip Code and Telephone Number with
Area Code, of Principal Executive Offices)



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(Former name, former address and former fiscal year, if changed since last report)


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

/X/Yes     / / No

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

Yes / /     No /X/

The number of shares outstanding of Alion Science and Technology Corporation
common stock as of December 20, 2002, was:
Common Stock     2,575,508.127



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ALION SCIENCE AND TECHNOLOGY CORPORATION
FORM 10-Q INDEX
FOR INTERIM PERIOD ENDED DECEMBER 20, 2002

|                                                                                                 |  |  |    | 
|------------------------------------------------------------------------------------------------ |  |  | -- | 
|PART IFINANCIAL INFORMATION                                                                     |  |  | 1  | 
|                                                                                                
|Item 1.    Financial Statements                                                                  |  |  | 1  | 
|Consolidated
Balance Sheets                                                                      |  |  |    | 
|Consolidated
Statements of Operations                                                            |  |  |    | 
|Pro
Forma Consolidated Statements of Operations                                                  |  |  |    | 
|Consolidated
Statements of Shareholders Equity                                                  |  |  |    | 
|Consolidated
Statements of Cash Flows                                                            |  |  |    | 
|Notes
to Consolidated Financial Statements                                                       |  |  |    | 
|                                                                                                
|Item 2.    Managements Discussion and Analysis of Financial Condition and
Results of Operations |  |  | 11 | 
|                                                                                                
|Item 3.    Quantitative and Qualitative Disclosures About Market Risk                            |  |  | 17 | 
|                                                                                                
|Item 4.    Controls and Procedures                                                               |  |  | 18 | 
|                                                                                                
|PART IIOTHER INFORMATION                                                                        |  |  | 18 | 
|                                                                                                
|Item 1.    Legal Proceedings                                                                     |  |  | 18 | 
|                                                                                                
|Item 2.    Changes in Securities and Use of Proceeds                                             |  |  | 20 | 
|                                                                                                
|Item 3.    Defaults Upon Senior Securities                                                       |  |  | 20 | 
|                                                                                                
|Item 4.    Submission of Matters to a Vote of Security Holders                                   |  |  | 20 | 
|                                                                                                
|Item 5.    Other Information                                                                     |  |  | 20 | 
|                                                                                                
|Item 6.    Exhibits and Reports on Form 8-K                                                      |  |  | 20 | 





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PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALION SCIENCE AND TECHNOLOGY CORPORATION
Consolidated Balance Sheets
As of September 30, 2002 and December 20, 2002
(In thousands except share information)
(Unaudited)

|                                                  |                                                                                                                                                                        |                                      |                                      |        |    |               |         |              |         |  |  | 
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------ | ------ | -- | ------------- | ------- | ------------ | ------- |  |  | 
|                                                  |                                                                                                                                                                        |                                      |                                      |        |    | September 30, |         | December 20,
|                                                  |                                                                                                                                                                        |                                      |                                      |        |    | 2002          |         | 2002        
|                                                  |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             
|                                                  |                                                                                                                                                                        |                                      |                                      | Assets |    |               |         |              |         |  |  | 
|Current assets:                                   |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             
|                                                  | Cash                                                                                                                                                                   |                                      | $                                    | 5      |    |               | $       | 989          |        
|                                                  | Restricted cash                                                                                                                                                        |                                      |                                      |       |    |               |         | 189          |        
|                                                  | Accounts
receivable, less allowance of $3,267 at December 20, 2002                                                                                                     |                                      |                                      |       |    |               |         | 48,333       |        
|                                                  | Note receivable from Trust                                                                                                                                             |                                      |                                      | 1      |    |               |         | 296          |        
|                                                  | Other current assets                                                                                                                                                   |                                      |                                      |       |    |               |         | 3,718        |        
|                                                  |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             
|                                                  |                                                                                                                                                                        | Total current assets                 |                                      |        | 6  |               |         |              | 53,525  | 
|Fixed assets                                      |                                                                                                                                                                        |                                      |                                     |        |    |               | 9,908   |             
|Intangible
assets                                 |                                                                                                                                                                        |                                      |                                     |        |    |               | 30,645  |             
|Goodwill                                          |                                                                                                                                                                        |                                      |                                     |        |    |               | 58,648  |             
|Other assets                                      |                                                                                                                                                                        |                                      |                                     |        |    |               |        |             
|                                                  |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             
|                                                  |                                                                                                                                                                        | Total assets                         |                                      |        | 6  |               |         |              | 152,726 | 
|                                                  |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             
|                                                  |                                                                                                                                                                        |                                      | Liabilities and Shareholders Equity |        |    |               |         |              |         |  | 
|Current liabilities:                              |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             
|                                                  | Note payable to bank                                                                                                                                                   |                                      | $                                    | 10     |    |               | $       |             |        
|                                                  | Current portion of long-term debt                                                                                                                                      |                                      |                                      |       |    |               |         | 7,000        |        
|                                                  | Current portion of senior note payable                                                                                                                                 |                                      |                                      |        |    |               |         | 3,750        |        
|                                                  | Current
portion of Agreement with Officer due to officer                                                                                                               |                                      |                                      | 1      |    |               |         | 655          |        
|                                                  | Trade accounts payable and accrued liabilities                                                                                                                         |                                      |                                      |       |    |               |         | 9,917        |        
|                                                  | Accrued payroll and related liabilities                                                                                                                                |                                      |                                      | 4      |    |               |         | 10,737       |        
|                                                  | Advance payments                                                                                                                                                       |                                      |                                      |       |    |               |         | 189          |        
|                                                  | Billings in excess of costs and estimated earnings on uncompleted contracts                                                                                            |                                      |                                      |       |    |               |         | 1,206        |        
|                                                  |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             
|                                                  |                                                                                                                                                                        | Total current liabilities            |                                      |        | 15 |               |         |              | 33,454  | 
|Long-term debt, excluding current portion         |                                                                                                                                                                        |                                      |                                     |        |    |               | 1,172   |             
|Senior note payable, excluding current portion    |                                                                                                                                                                        |                                      |                                      |        |    |               | 29,550  |             
|Mezzanine note payable                            |                                                                                                                                                                        |                                      |                                      |        |    |               | 17,237  |             
|Subordinated note payable                         |                                                                                                                                                                        |                                      |                                      |        |    |               | 32,828  |             
|Agreement
with Officer, excluding current portion |                                                                                                                                                                        |                                      |                                      |        |    |               | 73      |             
|Accrued postretirement benefit obligation         |                                                                                                                                                                        |                                      |                                     |        |    |               | 2,400   |             
|Redeemable common stock warrants                  |                                                                                                                                                                        |                                      |                                     |        |    |               | 10,308  |             
|                                                  |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             
|                                                  |                                                                                                                                                                        | Total liabilities                    |                                      |        | 15 |               |         |              | 127,022 | 
|Shareholders
equity:                             |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             
|                                                  | Common stock, $0.01 par value, 15,000,000 shares authorized, 100 shares
and 2,575,508 issued and outstanding at September 30, 2002 and
December 20, 2002, respectively |                                      |                                      |       |    |               |         | 26           |        
|Additional paid-in capital                        |                                                                                                                                                                        |                                      | 1                                    |        |    |               | 25,729  |             
|Accumulated deficit                               |                                                                                                                                                                        |                                      | (10                                  | )      |    |               | (51     | )           
|                                                  |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             
|                                                  |                                                                                                                                                                        | Total
shareholders equity (deficit) |                                      |        | (9 | )             |         |              | 25,704  | 
|                                                  |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             
|Total liabilities and shareholders equity        |                                                                                                                                                                        |                                      | 6                                    |        |    |               | 152,726 |             
|                                                  |                                                                                                                                                                        |                                      |                                      |        |    |               |         |             

See accompanying notes to consolidated financial statements.

1



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##### 



ALION SCIENCE AND TECHNOLOGY CORPORATION
Consolidated Statements of Operations
Interim Period Ended December 21, 2001
and December 20, 2002
(In thousands)
(Unaudited)

|                         |  |                            |   |                   |   |                   |    |  |     |  
|------------------------ |  | -------------------------- | - | ----------------- | - | ----------------- | -- |  | --- | -
|                         |  |                            |   | Interim Period    |   | Interim Period   
|                         |  |                            |   | Ended             |   | Ended            
|                         |  |                            |   | December 21, 2001 |   | December 20, 2002
|                         |  |                            |   |                   |   |                  
|Operating expenses:      |  |                            |   |                   |   |                   |    | 
|                         |  | General and administrative |   | $                 |  |                   |    |  | 41  |  
|                         |  |                            |   |                   |   |                   |    | 
|Total Operating expenses |  |                            |  |                   |   |                   | 41 | 
|                         |  |                            |   |                   |   |                   |    | 
|                         |  | Operating loss             |   |                   |  |                   |    |  | (41 | )
|                         |  |                            |   |                   |   |                   |    | 
|                         |  | Net loss                   |   | $                 |  |                   |    |  | (41 | )
|                         |  |                            |   |                   |   |                   |    | 

See accompanying notes to consolidated financial statements.

2



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##### 



ALION SCIENCE AND TECHNOLOGY CORPORATION
Pro Forma Consolidated Statements of Operations
Interim Period Ended December 21, 2001
and December 20, 2002
(In thousands except share data)
(Unaudited)

|                                                             |                                |                                   |           |                   |        |                   |           |        |        |  
|------------------------------------------------------------ | ------------------------------ | --------------------------------- | --------- | ----------------- | ------ | ----------------- | --------- | ------ | ------ | -
|                                                             |                                |                                   |           | Pro forma         |        | Pro forma        
|                                                             |                                |                                   |           | Interim
Period    |        | Interim
Period   
|                                                             |                                |                                   |           | Ended             |        | Ended            
|                                                             |                                |                                   |           | December 21, 2001 |        | December 20, 2002
|                                                             |                                |                                   |           |                   |        |                  
|Contract revenue                                             |                                | $                                 | 43,701    |                   |        | $                 | 47,265    |       
|Direct contract expenses                                     |                                |                                   | 32,086    |                   |        |                   | 34,654    |       
|                                                             |                                |                                   |           |                   |        |                   |           |       
|                                                             |                                | Gross profit                      |           |                   | 11,615 |                   |           |        | 12,611 |  
|                                                             |                                |                                   |           |                   |        |                   |           |       
|Operating expenses:                                          |                                |                                   |           |                   |        |                   |           |       
|                                                             | Indirect contract expenses     |                                   |           | 2,545             |        |                   |           | 2,568  |       
|                                                             | Research and development       |                                   |           | 91                |        |                   |           | 36     |       
|                                                             | General and administrative     |                                   |           | 4,135             |        |                   |           | 5,313  |       
|                                                             | Nonrecurring transaction costs |                                   |           |                  |        |                   |           | 5,448  |       
|                                                             | Rental and occupancy expense   |                                   |           | 1,974             |        |                   |           | 2,201  |       
|                                                             | Depreciation and amortization  |                                   |           | 2,753             |        |                   |           | 2,883  |       
|                                                             | Bad debt expense               |                                   |           | 53                |        |                   |           | 120    |       
|                                                             |                                |                                   |           |                   |        |                   |           |       
|Total operating expenses                                     |                                |                                   | 11,551    |                   |        |                   | 18,569    |       
|                                                             |                                |                                   |           |                   |        |                   |           |       
|                                                             |                                | Operating
income (loss)           |           |                   | 64     |                   |           |        | (5,958 | )
|Other income (expense):                                      |                                |                                   |           |                   |        |                   |           |       
|                                                             | Interest income                |                                   |           | 2                 |        |                   |           | 22     |       
|                                                             | Interest expense               |                                   |           | (2,256            | )      |                   |           | (2,252 | )     
|                                                             | Other                          |                                   |           | (27               | )      |                   |           | (23    | )     
|                                                             |                                |                                   |           |                   |        |                   |           |       
|                                                             |                                | Income (loss) before income taxes |           |                   | (2,217 | )                 |           |        | (8,211 | )
|                                                             | Income tax expense             |                                   |           | (207              | )      |                   |           | (27    | )     
|                                                             |                                |                                   |           |                   |        |                   |           |       
|                                                             |                                | Net
income (loss)                 |           | $                 | (2,424 | )                 |           | $      | (8,238 | )
|                                                             |                                |                                   |           |                   |        |                   |           |       
|Pro
forma basic loss per share                               |                                | $                                 | (0.94     | )                 |        | $                 | (3.20     | )     
|                                                             |                                |                                   |           |                   |        |                   |           |       
|Pro
forma diluted loss per share                             |                                | $                                 | (0.94     | )                 |        | $                 | (3.20     | )     
|                                                             |                                |                                   |           |                   |        |                   |           |       
|Pro
forma Basic weighted average common shares outstanding   |                                |                                   | 2,575,508 |                   |        |                   | 2,575,508 |       
|Pro
forma Diluted weighted average common shares outstanding |                                |                                   | 2,575,508 |                   |        |                   | 2,575,508 |       

See accompanying notes to consolidated financial statements.

3



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ALION SCIENCE AND TECHNOLOGY CORPORATION
Consolidated Statement of Shareholders Equity (Deficit)
Interim Period ended December 20, 2002
(In thousands, except share data)
(Unaudited)

|                                                          |  |        |           |        |  |         |    |             |  |            |        |  |  |   |     |   |  |   |        |  
|--------------------------------------------------------- |  | ------ | --------- | ------ |  | ------- | -- | ----------- |  | ---------- | ------ |  |  | - | --- | - |  | - | ------ | -
|                                                          |  |        |           |        |  |         |    |             |  | Additional |        |  |  |   |     |   |  |  
|                                                          |  | Common |           | Common |  | Paid-in |    | Accumulated |  |            |        | 
|                                                          |  | Shares |           | Stock  |  | Capital |    | Deficit     |  | Total     
|                                                          |  |        |           |        |  |         |    |             |  |           
|Balances at September 30, 2002                            |  |        | 100       |        |  | $       |   |             |  | $          | 1      |  |  | $ | (10 | ) |  | $ | (9     | )
|Issuance of common stock to employee
stock ownership plan |  |        | 2,575,408 |        |  |         | 26 |             |  |            | 25,728 |  |  |   |    |   |  |   | 25,754 |  
|Net loss, interim period ended
December 20, 2002          |  |        |          |        |  |         |   |             |  |            |       |  |  |   | (41 | ) |  |   | (41    | )
|                                                          |  |        |           |        |  |         |    |             |  |            |        |  |  |   |     |   |  |   |        |  
|Balances at December 20, 2002                             |  |        | 2,575,508 |        |  | $       | 26 |             |  | $          | 25,729 |  |  | $ | (51 | ) |  | $ | 25,704 |  
|                                                          |  |        |           |        |  |         |    |             |  |            |        |  |  |   |     |   |  |   |        |  

See accompanying notes to consolidated financial statements.

4



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ALION SCIENCE AND TECHNOLOGY CORPORATION
Consolidated Statements of Cash Flows
For the Interim Periods Ended December 21, 2001 and December 20, 2002
(In thousands, except share information)

|                                                        |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                   |   |    |         |  
|------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------------- | - | ----------------- | --- | ----------------- | - | -- | ------- | -
|                                                        |                                                                                       |                                                                  |                                                |                                           |   | Interim Period    |     | Interim Period   
|                                                        |                                                                                       |                                                                  |                                                |                                           |   | Ended             |     | Ended            
|                                                        |                                                                                       |                                                                  |                                                |                                           |   | December 21, 2001 |     | December 20, 2002
|                                                        |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|Cash flows from operating activities:                   |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|                                                        | Net loss                                                                              |                                                                  | $                                              |                                          |   |                   | $   | (41               | )
|                                                        | Adjustments to reconcile net loss to net cash used in operating activities:           |                                                                  |                                                |                                           |   |                   |     |                   |  
|                                                        |                                                                                       | Changes in assets and liabilities, net of effect of acquisition: |                                                |                                           |   |                   |     |                   |   |   
|                                                        |                                                                                       |                                                                  | Trade accounts payable and accrued liabilities |                                           |   |                  |     |                   |   | 36 |        
|                                                        |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|                                                        |                                                                                       |                                                                  |                                                | Net cash used in operating activities     |   |                   |    |                   |   |    | (5      | )
|                                                        |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|Net cash flows from investing activities:               |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|                                                        | Cash paid for acquisition of selected operations of IITRI (net of cash acquired)      |                                                                  |                                                |                                          |   |                   |     | (58,571           | )
|                                                        |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|                                                        |                                                                                       |                                                                  |                                                | Net cash used in investing activities     |   |                   |    |                   |   |    | (58,571 | )
|                                                        |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|Cash flows from financing activities:                   |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|                                                        | Borrowings from senior note payable                                                   |                                                                  |                                                |                                           |   |                   |     | 35,000            |  
|                                                        | Payment of debt issuance costs                                                        |                                                                  |                                                |                                           |   |                   |     | (1,700            | )
|                                                        | Repayment of IITRI revolving credit facility                                          |                                                                  |                                                |                                           |   |                   |     | (6,188            | )
|                                                        | Borrowings under revolving credit facility                                            |                                                                  |                                                |                                           |   |                   |     | 7,000             |  
|                                                        | Repayment of note payable to bank                                                     |                                                                  |                                                |                                           |   |                   |     | (10               | )
|                                                        | Proceeds
from Agreement with Officer                                                  |                                                                  |                                                | 1                                         |   |                   |     |                  |  
|                                                        | Amounts loaned to Trust                                                               |                                                                  |                                                | (1                                        | ) |                   |     |                  |  
|                                                        | Issuance of 100 shares of common stock to Trust                                       |                                                                  |                                                | 1                                         |   |                   |     |                  |  
|                                                        | Issuance of 2,545,771 shares of common stock to Trust                                 |                                                                  |                                                |                                          |   |                   |     | 25,458            |  
|                                                        |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|                                                        |                                                                                       |                                                                  |                                                | Net cash provided by financing activities |   |                   | 1   |                   |   |    | 59,560  |  
|                                                        |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|                                                        |                                                                                       |                                                                  |                                                | Net increase in cash                      |   |                   | 1   |                   |   |    | 984     |  
|Cash at beginning of period                             |                                                                                       |                                                                  |                                               |                                           |   |                   | 5   |                  
|                                                        |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|Cash at end of period                                   |                                                                                       |                                                                  | 1                                              |                                           |   |                   | 989 |                  
|                                                        |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|Supplemental disclosure of noncash financing activities |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  
|                                                        | Mezzanine note and warrants issued for acquisition of selected operations of IITRI    |                                                                  | $                                              |                                          |   |                   | $   | 20,343            |  
|                                                        | Subordinated note and warrants issued for acquisition of selected operations of IITRI |                                                                  |                                                |                                          |   |                   |     | 39,900            |  
|                                                        | Issuance
of 29,637 shares of common stock to Trust for amounts due to Trust           |                                                                  |                                                |                                           |   |                   |     | 296               |  
|                                                        | Deferred compensation arrangement with officer                                        |                                                                  |                                                |                                          |   |                   |     | 857               |  
|                                                        |                                                                                       |                                                                  |                                                |                                           |   |                   |     |                  

5



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##### 



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS

Interim period ended December 20, 2002 and December 21, 2001 (unaudited)

1.     Description and Formation of the Business

Alion Science and Technology Corporation (Alion or the Company) provides
scientific and engineering expertise to research and develop technological
solutions for problems relating to national defense, public health and safety.
The Company provides these research services primarily to agencies of the
federal government and to a lesser extent, to commercial and international
customers.

Alion, a for-profit S Corporation, was formed in October 2001 for the purpose
of purchasing substantially all of the assets and certain of the liabilities of IIT Research
Institute (IITRI), a not-for-profit membership corporation working for the
advancement and knowledge and the beneficial application of science and
engineering to meet the needs of society.

On December 20, 2002, Alion completed the acquisition of substantially all of
the assets and certain of the liabilities of IITRI for aggregate proceeds of approximately
$130 million (the Transaction). See Note 9.

2.     Basis of Presentation

The accompanying unaudited consolidated financial statements include
the accounts of Alion and its wholly-owned subsidiary Human Factors
Applications, Inc. (HFA) and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in the annual financial statements, prepared
in accordance with accounting principles generally accepted in the United
States of America, have been condensed or omitted pursuant to those rules and
regulations. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the interim period ended December 20,
2002 are not necessarily indicative of the results that may be expected for
the fiscal year ending September 30, 2003. For further information, refer to
the consolidated financial statements and notes thereto included in the
registration statement on Form S-1 (No. 333-89756) filed by the Company on
December 9, 2002.

The preparation of financial statements, in
conformity with generally accepted accounting principles, requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of
contingencies at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting
period. Estimates have been prepared on the basis of the most current
and best available information and actual results could differ from
those estimates.

3.     Summary of Significant Accounting Policies

Fiscal and Interim Periods

The Companys fiscal year ends on September 30. The
Company operates on a 13-period fiscal year consisting of three, four-week
periods in its first interim period; three, four-week periods in its second interim period;
four, four-week periods in its third interim period; and the balance
of the fiscal year of approximately three, four-week periods in
its fourth interim period. Accordingly, comparisons between interim periods will need
to consider the differing length of the third interim period.

6



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##### 



New Accounting Policies

As a result of the Transaction described in Note 1, the Company adopted the
following accounting policies that were not applicable to IITRI due to its
not-for-profit status:

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS 141 requires the purchase method of accounting to be used for all business
combinations initiated after June 30, 2001 and specifies criteria that
intangible assets acquired in a business combination must meet to be recognized
and reported apart from goodwill. SFAS 142 changes the accounting for goodwill
from an amortization method to an impairment-only approach. Goodwill and other
intangible assets with an indefinite life will not be amortized, but rather
tested for impairment annually or whenever an event occurs indicating that the
asset may be impaired.

Recently Issued Accounting Pronouncements

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs of Exit or
Disposal Activities. SFAS No. 146 nullifies Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring).This statement requires that an exit or disposal activity
related cost be recognized when the liability is incurred instead of when an
entity commits to an exit plan. The provisions of SFAS No. 146 are effective
for financial transactions initiated after December 31, 2002. The Company does
not believe SFAS 146 will have a material impact on its future earnings or
financial position.

Reclassifications

Certain reclassifications have been made to previously reported balances to
conform with the current-period presentation.

4.     Earnings Per Share

Pro forma earnings per share have been computed as though the 2,575,408 shares
sold by the Company to the employee stock ownership plan (ESOP)
component of its Employee Ownership Savings and Investment Plan
(KSOP) to fund the Transaction described in Note 1
were outstanding for the entire pro forma periods presented. Prior to the sale
of shares of common stock to the ESOP, the Companys capital structure
consisted of 100 shares of common stock issued and outstanding. Accordingly,
historical earnings per share information has not been presented as it is not
indicative of the Companys prospective capital structure.

5.     Goodwill and Intangible Assets

The Company accounts for goodwill and other intangible assets in accordance
with the provisions of SFAS No. 142, which requires, among other things, the
discontinuance of goodwill amortization. In addition, goodwill is to be
reviewed at least annually for impairment. The Company has elected to perform
this review annually at the end of each fiscal year. The accompanying pro
forma statements of operations reverse historical goodwill amortization
expense.

7



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As a result of the Transaction described in Note 1, the Company recorded
goodwill of approximately $58.7 million, which will be subject to the aforementioned annual
impairment review. In addition, the Company recorded intangible assets of
approximately $30.6 million, comprised primarily of purchased contracts. The
intangible assets have an estimated useful life of three years and will be
amortized using the straight-line method.

6.     Redeemable Common Stock Warrants

In connection with the issuance of the Mezzanine Note, Subordinated Note, and
the Officer Agreement described in Note 7, the Company issued 524,229, 1,080,437,
and 22,062, respectively, detachable redeemable common stock warrants (the
Warrants) to the holders of the notes. The Warrants have an exercise price of
$10 per share and are exercisable until the sixth anniversary of the issue date
for the warrants associated with the Mezzanine Note and the Officer
Note and until the eighth
anniversary of the issuance date for the warrants associated with the
Subordinated Note. In addition, the Warrants enable the holders to sell the
warrants back to the Company, at predetermined times, at the then current fair
value of the common stock less the exercise price. Accordingly, the warrants
are classified as debt instruments in accordance with Emerging Issues Task
Force No. 00-19, Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock. The estimated fair value of
the Warrants of approximately $10.3 million on the date of issuance was recorded as a discount
to the face value of the notes issued and as a liability in the accompanying
consolidated balance sheet.

7.     Long-term Debt

On December 18, 2002, the Company entered into a Business Loan and Security
Agreement with LaSalle Bank National Association, US Bank, National Cooperative
Bank, Orix and BB&T Bank to refinance and replace debt previously held by IITRI
(Senior Credit Facility). The Senior Credit Facility provides for a $25.0
million revolving credit facility and a $35.0 million term loan (Senior Term
Note) which terminates on December 6, 2007. Borrowings under the Senior Credit
Facility are collateralized by our eligible contract receivables, inventory,
all of our stock in our subsidiaries and our property and equipment and
bear interest at the London Interbank Offering Rate (LIBOR), or the lenders
prime rate, plus market-rate spreads that are determined based on a Company
leverage ratio calculation. The LIBOR spreads may range from 2.75% to 3.50% and
the prime rate spreads may range from 1.25% to 2.00%. At December 20, 2002, the
Company had approximately $42.0 million in borrowings outstanding under the
Senior Credit Facility, comprised of approximately $7.0 million drawn under the
$25 million revolving credit facility and $35.0 million
under the Senior Term Note.

The Senior Term Note has scheduled principal payments, payable in quarterly
installments, in the following annual amounts:

|     |  |              |  | 
|---- |  | ------------ |  | 
|2003 |  | $5.0 million
|2004 |  | $5.0 million
|2005 |  | $7.5 million
|2006 |  | $8.5 million
|2007 |  | $9.0 million

8



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On December 20, 2002, the Company executed a six-year Mezzanine Note Securities
Purchase Agreement with IITRI for approximately $20.3 million (Mezzanine Note) to be used as
part of the consideration for the Transaction. The Mezzanine Note bears
interest at a rate of 12 percent per year, payable quarterly in cash with the
principal amount due in a single sum on the sixth anniversary of issuance. The
Mezzanine Note is subordinate to the Senior Credit Facility.

On December 20, 2002, the Company executed an eight-year Seller Note Securities
Purchase Agreement (Subordinated Note), with a face value of
$39.9 million, to
IITRI. The Subordinated Note served as part of the purchase price paid for the
Transaction. The Subordinated Note bears simple interest at a rate of six
percent per year in years one through six, payable quarterly by the
issuance of non-interest-bearing notes maturing at the same time as the
Subordinated Note and 16 percent per year payable quarterly in cash during the
seventh and eighth years following closing of the Transaction. One-half of the
principal amount outstanding under the Subordinated Note becomes due
in 2009, while the other half becomes due in 2010. The Subordinated Note is subordinate
to both the Senior Credit Facility and the Mezzanine Note.

On December 20, 2002, the Company entered into a
Mezzanine Deferred Compensation Agreement with an officer for
approximately $0.86
million (Deferred Compensation Agreement). The Deferred Compensation Agreement bears interest at a rate of 12
percent per year. In most circumstances, at the officer's election,
interest is payable quarterly in cash or credited to the officer's
account. The principal amount of deferred compensation plus accrued
but unpaid interest on his account is payable in full thirty days
after the sixth anniversary of the agreement or the date the holders
of the Mezzanine Note have been paid in full. The Officer Agreement is
subordinate to the Senior Credit Facility and ranks pari passu with
the Mezzanine Note.

Under the terms of the Senior Credit Facility and
Mezzanine Note, the Company is subject to
covenants including financial covenants with respect to minimum fixed charge
coverage, maximum total senior leverage, maximum total leverage, maximum capital
expenditures, minimum EBITDAE, as defined, and other customary covenants.

8.     Segment Information and Customer Concentration

The Company operates as one segment, delivering a broad array of scientific and
engineering expertise to research and develop technological solutions for
problems relating to national defense, public health and safety under contracts
with the U.S. Government, state and local governments, and commercial
customers. The Companys federal government customers typically exercise
independent contracting authority, and even offices or divisions within an
agency or department may directly, or through a prime contractor, use the
Companys services as a separate customer so long as that customer has
independent decision-making and contracting authority within its organization.

Revenues from services provided to various agencies of the U.S. Government
by the business acquired from IITRI represented $46.7 million or approximately 99%, and $42.9 million or
approximately 98%, of revenues for the interim period ended December 20, 2002
and December 21, 2001, respectively. Contract receivables from agencies of the
U.S. Government represented approximately $43.9 million, or 91%, of accounts receivable at
December 20, 2002 and 96% at December 21, 2001.

In addition, during the interim period ended
December 20, 2002, there were no sales by the business
acquired from IITRI to any customers within a single country
except for the United States where the sales accounted for 10% or more of total
revenue. The Company treats sales to U.S. Government customers as sales within
the United States regardless of where the services are

9



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performed. Substantially all of the Company's assets were located within the United States for
the interim period ended December 20, 2002.

9.     Acquisition and Pro Forma Information

On December 20, 2002, Alion acquired substantially all of the assets and
certain of the liabilities of IITRI, excluding the assets and liabilities of IITRIs Life
Sciences Operation (the Transaction) for approximately
$130 million. In connection with the acquisition, the
Company formed the KSOP, which has an ESOP
component. The ESOP
trustee, State Street Bank and Trust Company, used the proceeds from the ESOP aggregating
approximately $25.8 million to acquire approximately 2.58 million shares or
100% of the Companys outstanding common stock. The Company used the funds
from the sale of common stock to the ESOP and proceeds from the other debt
instruments described in Note 7, to fund the Transaction. The acquisition was
accounted for using the purchase method. The acquisition occurred on the last
day of the Companys interim period and accordingly, the accompanying
consolidated income statements exclude the results of operations of the
acquired company. The purchase price has been allocated to the acquired assets
and assumed liabilities based on their estimated fair values at the date of
acquisition. The purchase price allocation is preliminary and subject to
change. The Company is currently completing its analysis of intangible assets
acquired and estimated fair values of certain fixed assets acquired.

Prior to the Transaction, the Companys activities had been organizational in
nature. The consolidated balance sheet as of December 20, 2002 reflects the
estimated fair values of the acquired assets and assumed liabilities, the sale
of common stock to the ESOP, and the debt and warrants issued as described in
Note 7.

The pro forma consolidated statements of operations for the interim period ended
December 20, 2002 and December 21, 2001 have been prepared by giving effect to
the following transactions as if those transactions had been consummated on
October 1, 2002 and 2001, respectively:



| |  |  | The incurrence of debt with detachable warrants to purchase
common stock as described in Notes 6 and 7;
| | - |  | -------------------------------------------------------------------------------------------------------
|
| |  |  | The consummation of the Transaction, accounted for using the
purchase method; and                      
|
| |  |  | The purchase of common stock by the ESOP.                                                              

The pro forma consolidated statements of operations include pro forma
adjustments to reverse historical amortization expense related to
pre-Transaction goodwill, to record the amortization of identifiable intangible
assets, to record interest expense on debt issued to finance the Transaction,
to record the amortization of debt issuance costs, and to record the accretion
of debt to face value to reflect the discount for the estimated fair value of
Warrants issued.

The pro forma information does not purport to be indicative of the results of
operations that would have actually been obtained if the transactions had
occurred on the dates indicated or the results of operations that will be
reported in the future.

10



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations
should be read together with the consolidated financial statements
and the notes to those statements. This discussion contains forward-looking
statements that involve risks and uncertainties. These statements relate to our
future plans, objectives, expectations and intentions and are for illustrative
purposes only. These statements may be identified by the use of words such as
believe, expect, intend, plan, anticipate, likely, will, pro
forma, forecast, projections, and similar expressions.

The factors that could cause actual results to differ materially from those
anticipated include, but are not limited to, the following: changes to the
ERISA laws related to the Companys Employee Ownership, Savings and Investment
Plan; changes to the tax laws relating to the treatment
and deductibility of goodwill, the Companys subchapter S status, or any change
in the Companys effective tax rate; additional costs associated with
compliance with the Sarbanes-Oxley Act of 2002, including any changes in the
SECs rules, and other corporate governance requirements; failure of
government customers to exercise options under contracts; funding decisions
relating to U.S. Government projects; government contract procurement (such as
bid protest) and termination risks; competitive factors such as pricing
pressures and/or competition to hire and retain employees; the
results of current and/or future legal proceedings and government
proceedings which may arise out
of our operations (including our contracts with government agencies)
and the attendant risks of fines, liabilities,
penalties, suspension and/or debarment; material changes
in laws or regulations applicable to the Companys businesses; and other risk
factors discussed in the Companys registration statement on Form S-1 filed
with the SEC on December 9, 2002.

Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect managements view only as of February 3, 2003. The
Company undertakes no obligation to update any of the forward-looking
statements made herein, whether as a result of new information, future events,
changes in expectations or otherwise. This discussion addresses only our
continuing operations.

Critical Accounting Estimates and Policies

Our significant accounting policies are described
in Note 3 to the consolidated financial
statements for the interim period ended December 20, 2002,
included herein and in the Notes to the Consolidated Financial
Statement of Selected Operations of IIT Research Institute, the
business we acquired, included in the Companys registration
statement on Form S-1 (No. 333-89756).

Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, which potentially result in materially
different results under different assumptions and conditions. Application of
these policies is a critical element in the portrayal of our financial
condition and results of operations. The discussion and analysis of our
financial condition and results of operations are based on our consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these interim consolidated financial statements requires management to make
estimates and judgments that affect the reported amount of assets, liabilities,
revenues and expenses. Actual results may differ from these estimates under
different assumptions or conditions.

11



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Our critical accounting policies are set forth below:

Revenue Recognition, Cost Estimation and Payment

We recognize revenue when persuasive evidence of an arrangement exists,
services have been rendered, the contract price is fixed or determinable, and
collectibility is reasonably assured. We have a standard internal process that
we use to determine whether all required criteria for revenue recognition have
been met. This standard internal process includes a monthly review of contract
revenues and expenses by several levels of management. This review covers,
among other matters, progress against schedule, project staffing and levels of
effort, risks and issues, subcontract management, incurred and estimated costs,
and disposition of prior action items. This monthly internal review is designed
to determine whether the overall progress on a contract is consistent with the
effort expended and revenue recognized to date.

Our revenues consist primarily of payments for the work of our employees, and
to a lesser extent, related costs for materials and subcontract efforts under
contracts with our customers. Cost of services consists primarily of
compensation expenses for program personnel, the fringe benefits associated
with this compensation, and other direct expenses incurred to complete
programs, including cost of materials and subcontract efforts.

The majority of our revenues are derived from cost-plus-fixed-fee,
cost-plus-award-fee, firm-fixed-price, or time-and-materials contracts. Absent
evidence to the contrary, we recognize revenue as follows. Under
cost-plus-fixed-fee or cost-plus-award-fee contracts, revenues are recognized
as costs are incurred and include an estimate of applicable fees earned. Under
firm-fixed-price contracts, revenues are estimated on the percentage of
completion method, on the basis of costs incurred in relation to estimated
total costs, or upon delivery of specific products or services, as appropriate.
For time-and-materials contracts, revenues are computed by multiplying the
number of direct labor-hours expended in the performance of the contract by the
contract billing rates and adding other billable direct costs. Performance
incentives are incorporated in certain contracts, which provide increased and
decreased revenues based on actual performance compared to established targets.
Incentives based upon cost performance are recorded when earned and other
incentives and awards are recorded when the amounts are earned or can
be reasonably determined, or are awarded. In certain circumstances, revenues are recognized when
contract amendments have not been finalized. Prior to agreeing to commence work
directed by the customer and before receipt of the written modification or
amendment to the existing contract, we require the completion of an internal
memo that assesses the probability of the modification being executed in a
timely fashion and our ability to subsequently collect payment from the
customer.

Contract revenue recognition inherently involves estimation. Examples of
estimates include the contemplated level of effort to accomplish the tasks
under contract, the cost of the effort, and an ongoing assessment of our
progress towards completing the contract. From time to time, as part of our
standard management processes, facts develop that require us to revise our
estimated total costs or revenues. In most cases, these revisions relate to
changes in the contractual scope of our work. To the extent that a revised
estimate affects contract profit or revenue previously recognized, we record
the cumulative effect of the revision in the period in which the facts

12



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requiring the revision become known. Anticipated losses are recognized in the
accounting period in which they are first determined.

For the interim period ended December 20, 2002, we derived approximately 63%, 20% and
17% of our revenues from cost-plus, time-and-materials and fixed-price
contracts, respectively.

Our most significant expense is our cost of services, which consists primarily
of direct labor costs for program personnel and direct expenses incurred to
complete contracts, including cost of materials and subcontract efforts. Our
ability to accurately predict personnel requirements, salaries and other costs,
as well as to manage personnel levels and successfully redeploy personnel, can
have a significant impact on our cost of services. Overhead costs consist
primarily of indirect costs such as facility lease expenses, indirect labor
expenses, supplies and other office expenses in support of our direct contract
activities. General and administrative expenses consist primarily of costs
associated with our management, finance and administrative groups; personnel
training; sales and marketing expenses which include bid and proposal efforts;
and certain occupancy, travel and other corporate costs.

The majority of our revenues is earned under
contracts with various departments and agencies, or prime contractors,
of the federal government. Certain revenues and payments we receive
are based on provisional billings and payments that are subject to
adjustment under audit. Federal government agencies and departments
have the right to challenge our cost estimates and allocation
methodologies with respect to government contracts. Also, contracts
with such agencies are also subject to audit and possible adjustment
to account for unallowable costs under cost-type contracts or other
regulatory requirements affecting both cost-type and fixed-price
contracts.

Goodwill and Identifiable Intangible Assets

Goodwill represents the excess of cost over the fair value of net tangible and
identifiable intangible assets of acquired companies. As a result of the
acquisition of substantially all of the assets and certain of the liabilities of IIT Research
Institute on December 20, 2002, we recorded approximately
$58.7 million of goodwill and approximately $30.6 million of intangible assets. In accordance
with the provisions of SFAS No. 142, we no longer amortize goodwill, but rather goodwill is to be reviewed at
least annually for impairment. We have elected to perform the annual review at
the end of each fiscal year. In addition, we will assess the impairment of
goodwill and identifiable intangible assets whenever events or changes in
circumstances indicate that carrying value may not be recoverable. Factors
considered important to possibly trigger an impairment review consist of:



| |  |  | Significant underperformance relative to expected historical
or projected future operating results;      
| | - |  | ---------------------------------------------------------------------------------------------------------
|
| |  |  | Significant changes in the manner of use of the acquired
assets or the strategy for the overall business;
|
| |  |  | Significant negative industry
or economic trends; and                                                    
|
| |  |  | Significant decline in
Alions stock price for a sustained period.                                       

When it is determined that the carrying value of intangibles and goodwill may
not be recoverable based upon the existence of one or more of the above
indicators of impairment, management measures any impairment based upon a
projected discounted cash flow method or other measure of fair value including
independent valuation.

Pro Forma Comparisons of Results of Operations

As described in the notes to the accompanying consolidated financial
statements, Alion completed the acquisition of substantially all of the assets
and certain of the liabilities of IIT Research Institute on December 20, 2002, the last day of
the Companys first interim period. The following
discussion and analysis of results of operations relates to the pro forma
results of operations for the periods described, assuming that the acquisition
had been consummated on the first day of each interim period.

The following table sets forth, for each period indicated, the percentage of
our revenues derived from each of our major types of customers.

|                           |       |  |                      |       |                   |  |      |       |  
|-------------------------- | ----- |  | -------------------- | ----- | ----------------- |  | ---- | ----- | -
|                           |       |  | Interim period ended
|                           |       |  |                     
|                           |       |  | December
20, 2001    |       | December
21, 2002
|                           |       |  |                      |       |                  
|Department of
Defense      |       |  | 89.2                 | %     |                   |  | 93.0 | %    
|Federal Civilian
Agencies  |       |  | 9.0                  |       |                   |  | 5.8  |      
|Commercial / State
/ Local |       |  | 1.8                  |       |                   |  | 1.2  |      
|                           |       |  |                      |       |                   |  |      |       |  
|                           | Total |  |                      | 100.0 | %                 |  |      | 100.0 | %
|                           |       |  |                      |       |                   |  |      |       |  

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Results of Operations

Pro Forma Interim Period Ended
December 20, 2002 Compared to Pro Forma Interim Period Ended
December 21, 2001

Revenues. Revenues increased $3.6 million, or 8.2%, to $47.3 million for the
interim period ended December 20, 2002, from $43.7 million
for the interim period
ended December 21, 2001. This $3.6 million increase is attributable primarily
to our performance of additional work under contracts that were in existence
during the prior year. Additional work in modeling and simulation services
performed under the MSIAC contract with the Department of Defense contributed
approximately $3.0 million of the revenue increase. An increase in our
decommissioning and demilitarization support services to the U.S. Armys
Newport Chemical Agent Disposal Facility (NECDF), under a subcontract to
Parsons Infrastructure and Technology Group, Inc., accounted for approximately
$1.0 million of increased revenue, while our support to the Department of
Defense Joint Spectrum Center (JSC) accounted for approximately $0.4 million of
increased revenue. On the balance
of our contracts, revenue decreased approximately $0.2 million
for the interim period ended December 20, 2002 as compared to
the interim period ended December
21, 2001. Increases in revenue during the interim period
were partially offset by
$0.6 million related to certain additional costs on a fixed-price contract and
non-reimbursable direct costs on a cost-reimbursement contract. Subcontract revenue accounted for approximately 22.0% of our revenue
for the interim period ended December 20, 2002, compared with 19.0% for 2001.

Direct Contract Expenses.Direct contract expenses increased $2.6 million, or
8.1%, to $34.7 million for the interim period ended
December 20, 2002, from $32.1
million for the equivalent
period in 2001. As a percentage of revenue, direct contract expenses decreased
from 73.4% for the interim period ended December 21, 2001 to
73.3% for the interim
period ended December 20, 2002. As a component of direct contract expenses,
direct labor costs for the interim period ended December 20, 2002, increased by
5.7% or $1.3 million, while other direct costs (ODCs)
increased by 44.4% or 0.4
million when compared to the interim period ended December 21, 2001. Material
and subcontract costs increased $2.1 million, or 29.2%, to $9.3 million for the
interim period ended December 20, 2002, compared to
$7.2 million for the interim
period ended December 21, 2001. The increase in direct labor costs was due to
an increase in personnel, primarily in support of the JSC and NECDF contracts
referenced above. ODC expenditures occur as a result of specific contract
requirements.

Gross Profit. Gross profit increased $1.0 million, or 8.6%, to $12.6 million
for the interim period ended December 20, 2002, from $11.6 million for
the equivalent period in 2001. Gross profit margin as a percentage of revenue
increased to 26.7% for the interim period ended December 20, 2002, from 26.6%
for the interim period ended December 21, 2001.

Operating Expenses. Operating expenses, net of depreciation and amortization,
increased approximately $6.9 million, or approximately 78.4%, to
$15.7 million
for the interim period ended December 20, 2002, from
$8.8 million for the interim
period ended December 21, 2001. Of this $6.9 million
increase,
approximately $5.5 million consisted of transaction-related
expenses (e.g., third party legal, accounting, finance, etc.)
incurred in connection with the purchase of assets from IITRI; no
related expenses were incurred for the interim period ended
December 21, 2001. As a component of our operating
expenses,
overhead expenses for indirect personnel and facilities costs related to rental
and occupancy expenses increased approximately $0.3 million, or
6.7%, to $4.8
million for the interim period ended December 20, 2002, from $4.5 million for
the interim period ended December 21, 2001. This was primarily driven by our
infrastructure

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needs. As a component of our operating expenses, general and administrative expenses increased
approximately $1.2 million, or 29.3%, to $5.3 million for
the interim period ended
December 20, 2002, compared to $4.1 million for the interim period ended
December 21, 2001. This increase reflects costs associated with additional
management personnel and infrastructure of approximately $1.0 million to
support the growth of our business. As a percentage of revenues, general and
administrative expenses increased to approximately 10.8% for the
interim period
ended December 20, 2002, compared to 9.4% for the interim period ended December
21, 2001.

Depreciation and Amortization. Depreciation and amortization expense increased
approximately $0.1 million, or 3.6%, to $2.9 million for
the interim period ended
December 20, 2002, as compared to $2.8 million for the equivalent period in
2001. The increase in both depreciation expense and amortization expense is due
in part to the acquisition of assets from Daedalic, Inc. This acquisition was effective May
29, 2002, and, therefore, the related amortization expense
did not affect financial performance for the interim period ended
December 20,
2002. Depreciation expense also increased due to implementation of the
PeopleSoft human resources and payroll system. This amortization began in May
2002. For each respective interim period, approximately $2.4 million
of total amortization expense was incurred associated with the
intangible asset value assigned to purchased customer contracts. Additionally, for
each respective interim period, approximately $0.1 million of
depreciation expense was incurred, associated with the fair market
value assigned to purchased non-capital assets which IITRI had
expensed.

Income from operations. For the interim period ended December 20, 2002, we
sustained a $6.0 million loss from operations compared with $0.1 million in
operating income for the interim period ended December 21, 2001.
The $6.0 million operating
loss included approximately $5.5 million of transaction-related expenses,
referenced above. Transaction-related costs of a similar nature did
not occur during the interim period ended December 21, 2001. Additionally, the
reduction of $0.6 million in our contract revenue, discussed above, had a
negative impact on income for the interim period ended December 20, 2002. For
each respective interim period, approximately $2.5 million of
depreciation and amortization expense associated with the purchase of IITRI
assets, as described above, contributed to the recognized loss of $6.0 million
for the interim period ended December 20, 2002 and negatively impacted the recognized
income of $0.1 million for the interim period ended December 21, 2001.

Other Income and Expense.Other expenses remained constant at approximately
$2.3 million for the interim period ended December 20, 2002 and December 21,
2001. For each respective interim period, approximately
$2.2 million of interest expense was incurred related to the debt financing
associated with purchase of the assets from IITRI.

Income Tax (Expense) Benefit.Our wholly-owned subsidiary, HFA, had operating
income of approximately $0.3 million for the interim period ended December 21,
2001, compared to $0.1 million for the interim period ended December 20, 2002.
As a result, HFA recorded income tax provisions of approximately $0.2 million
and $0.03 million, respectively.

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Net Income (Loss).The net loss of
$8.2 million for the interim period ended
December 20, 2002, as compared to net loss of
$2.4 million for the interim period ended December 21, 2001, is due to the factors discussed above.

Recent Accounting Pronouncements. In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and for the associated asset retirement costs. SFAS
143 must be applied starting with fiscal years beginning after June 15, 2002.
We are currently evaluating the impact that the adoption of SFAS 143 will have
on our consolidated financial statements.

During June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. Such standard requires costs associated with
exit or disposal activities (including restructurings) to be recognized when
the costs are incurred, rather than at a date of commitment to an exit or
disposal plan. SFAS No. 146 nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). Under SFAS No. 146, a liability related to an exit or disposal
activity is not recognized until such liability has actually been
incurred,
whereas under EITF Issue No. 94-3, a liability was recognized at the time of a
commitment to an exit or disposal plan. The provisions of this standard are
effective for disposal activities initiated after December 31, 2002.

Liquidity and Capital Resources.

Our primary sources of liquidity have been cash provided by operations, and our
revolving credit and term-loan facilities. We fund our operations primarily
through cash provided by operating activities and drawdowns from our revolving
credit facility. Comments related to the cash flow from operating
activities of the selected operations of IITRI have been provided in
conjunction with those which result from Alions Consolidated
Statements of Cash Flow provided herein.

Net cash used in operating activities of continuing operations was $4.2 million
for the interim period ended December 20, 2002, an increased use of $2.4 million
from the interim period ended December 21, 2001. The primary reason for this
$2.4 million increase in cash used in operations was the cash
payment, during the interim period ended December 20, 2002, of
approximately $3.2 million in transaction costs associated with the purchase of
assets from IITRI.

Net cash used in investing activities of continuing operations was $0.5 million
and $0.8 million for the interim period ended December 20, 2002, and December
21, 2001, respectively. During the interim period ended December 20, 2002, the cash paid for the selected operations of IITRI
was $58.6 million. Cash of $25.5 million resulted from the
sale of common stock to the ESOP Trust; and $33.1 million
resulted from borrowings under the Senior Term Note.

Net cash provided by financing activities of
continuing operations was $2.9
million for the interim period ended December 20, 2002, compared to cash
provided by financing activities of $3.3 million for the interim period ended
December 21, 2001. This decrease of $0.4 million in net cash provided by
financing activities was primarily due to a decrease in borrowings
under our working capital bank facility. During the interim period, the additional financing required to complete the
purchase of the selected operations of IITRI included a $35.0 Senior
Term Note, a $20.3 million Mezzanine Note (with warrants), a
$39.9 million Subordinated Note (with warrants), and the sale of
$25.5 million of common stock to the ESOP Trust.

Discussion of debt structure:

On December 18, 2002, we executed a new Business Loan and Security Agreement
with LaSalle Bank National Association, US Bank, National Cooperative Bank,
Orix and BB&T Bank to refinance and replace our prior credit
arrangements. The new
agreement provides for a $25.0 million revolving credit facility and a $35.0
million term loan. Under the term loan portion of this new senior
credit facility, principal payments will be payable in quarterly installments
yielding annual repayments in the following amounts:

|       |  |              |  | 
|------ |  | ------------ |  | 
|Year 1 |  | $5.0 million
|Year 2 |  | $5.0 million
|Year 3 |  | $7.5 million
|Year 4 |  | $8.5 million
|Year 5 |  | $9.0 million

The maturity date of the new agreement is December 6, 2007. Borrowings under
the new agreement are collateralized by our eligible contract receivables,
inventory, all of our stock in our subsidiaries and our property and
equipment and bear interest at the London Interbank Offering Rate (LIBOR), or
the lenders prime rate, plus market-rate spreads that are determined based on
a Company leverage ratio calculation. The LIBOR spreads may range from 2.75% to
3.50% and the prime rate spreads may range from 1.25% to 2.00%. Our
senior lender has required us to hedge at least 50% of our interest
rate exposure under the senior term not be means of an interest rate
swap, cap or collar arrangement. At December 20,
2002, we had approximately $42.0 million in borrowings
outstanding under our senior credit facility.

The senior term note is also subject to a
mandatory prepayment of principal if we generate excess cash
flow in any given year. Should this occur, any excess cash
prepayment amount will be applied ratably to the principal
payments remaining over the life of the loan. The outstanding
balance on our replacement $25.0 million revolving credit
facility will be due, in full, in December 2007.

16



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##### 



On December 20, 2002, we executed a six-year Mezzanine Note Securities Purchase
Agreement with IITRI, which we refer to as the Mezzanine Note, for $20.3
million. This was used as part of the consideration paid for the purchase of assets
from IITRI. The
Mezzanine Note is subordinate to the senior credit facility. We will be required
to pay the entire face value
of the mezzanine note in a lump sum in December 2008. We will have
to make quarterly cash interest payments on the note until
maturity. The interest rate is 12% per year.

On December 20, 2002, we also executed an eight-year Seller Note Securities
Purchase Agreement with IITRI, which we refer to as the Subordinated Note, with a face
value of $39.9 million. The Subordinated Note served as part of the
purchase price paid for IITRIs assets in the acquisition.
The subordinated
note bears interest at a rate of six percent per year through
December 2008 payable quarterly by the issuance of non-interest
bearing notes, which we refer to as paid-in-kind notes or PIK
notes, maturing at the same time as the subordinated note. The
issuance of the PIK notes has the effect of deferring the
underlying interest expense on the subordinated note but because
the PIK notes do themselves bear interest, they will not
have the effect of compounding any interest on these interest
payment obligations. Commencing December 2008 the subordinated
note will bear interest at 16% per year payable quarterly in
cash through the time of repayment in full of the subordinated
note. Principal on the subordinated note will be payable in
equal installments of $19.95 million in December 2009 and
December 2010; the PIK notes are also due in equal installments
of $7.2 million on these same dates.

We issued detachable warrants with the
mezzanine note and the subordinated note. The warrants
associated with the mezzanine note represent the right to
buy approximately 12 percent of our shares of common stock
on a fully diluted basis (assuming the exercise of all
outstanding warrants), at an exercise price
of $10 per share. These warrants are exercisable until the sixth
anniversary of the issue date. These warrants also contain a put
right whereby the warrantholder has the right, within thirty
days prior to the sixth anniversary date (or within thirty days
after delivery to the current holders of an appraisal of the per
share value of our common stock as of September 30, 2008,
if the ESOP still exists and no public market price exists for
our common stock) or within thirty days after a change in
control, to require us to purchase the warrants back at the then
current fair value of common stock, minus the warrants
exercise price. The warrants associated with the subordinated
note represent the right to buy approximately
26 percent of our shares of common stock on a fully diluted
basis (assuming the exercise of all outstanding warrants)
at an exercise price of $10 per share. These
warrants are exercisable until the eighth anniversary of the
issue date. These warrants also contain a put right whereby the
warrantholder has the right to require us to purchase the
warrants back at the then current fair value of common stock,
minus the warrants exercise price. This put right applies
to up to 50 percent of these warrants within thirty days
prior to the seventh anniversary of the issue date (or within
thirty days after delivery to the warrant holders of an
appraisal of the per shares value of our common stock as of
September 30, 2009, if the ESOP still exists and no public
market price exists for our common stock), and up to
100 percent of these warrants within thirty days prior to
the eighth anniversary of the issue date (or within thirty days
after delivery to the warrant holders of an appraisal of the per
share value of our common stock as of September 30, 2010,
if the ESOP still exists and no public market value exists for
our common stock). All put rights terminate upon one or more
underwritten public offerings of Alion common stock resulting in
aggregate gross proceeds of at least $30.0 million to the
sellers (excluding proceeds received from certain affiliates of
Alion).

Under the terms of the senior credit facility, we
are subject to covenants including financial covenants with
respect to minimum fixed charge average, maximum total senior
leverage, maximum total leverage, maximum capital expenditures
and minimum EBITDAE. EBITDAE means earnings before interest,
taxes, depreciation, amortization, ESOP repurchase obligations
and non-cash compensation expenses. The mezzanine note contains
financial covenants similar to those contained in the
senior credit facility, but relaxed on terms mutually agreed
upon among us, IITRI and the senior lenders. The subordinated
note includes customary covenants for deeply subordinated
obligations, including the timely payment of principal and
interest.

We have earnout payment obligations to AB
Technologies, Inc. which will not exceed $11.5 million, related
to an earnout arrangement, which are due in March 2003, March
2004 and March 2005. We will have principal obligations on the
senior term note payable in quarterly installments, yielding
aggregate annual principal repayments in the following amounts:

Our minimum lease payment obligations under
non-cancelable operating leases for years ending
September 30, 2003, 2004, 2005, 2006 and 2007, are
$8.5 million, $7.9 million, $7.5 million,
$5.6 million, and $5.7 million, respectively. The
remaining aggregate obligations on these leases thereafter are
$11.0 million. Commercial facility lease expenses are
included in these amounts. These commercial facility
lease obligations are currently reimbursable
costs under our government contracts, or may be cancelled upon
termination of the related contracts.

Other contingent liabilities which will impact
our cash flow relate to



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | our repurchase obligations under the KSOP which
    may be significant commencing in 2004;                        
|
| |  | our obligations related to the holders put
    right associated with the mezzanine note warrants;                
|
| |  | our obligations related to the holders put
    right associated with the subordinated note warrants;             
|
| |  | the estimated value of our obligations relating
    to our stock appreciation rights, or SAR, program; and        
|
| |  | the estimated value of our obligations relating
    to our deferred compensation programs for our senior managers.

We believe that cash flow from operations and
cash available under our revolving credit facility will provide
us with sufficient capital to fulfill our current business plan
and to fund our working capital needs for at least the next
48 months.
Although we expect to continue to have positive cash flow from
operations, we will need to generate significant additional
revenues and net income beyond our current revenue base in order
to repay principal and interest on the indebtedness we will take
on to fund the acquisition. Additionally, our business plan
calls for us to continue to acquire companies with complementary
technologies. If we do not have sufficient cash on hand to fund
such acquisitions then we will be required to obtain financing
to do so.

Given our significant obligations that become due
in years 2007, 2008, 2009, and 2010, we expect that we will need
to refinance a portion of our indebtedness at least by fiscal
year 2007. Our cash from operations will be insufficient to
satisfy all of our obligations and we cannot be certain that we
will be able to refinance at all or on terms that will be
favorable to us. Moreover, if our plans or assumptions change,
if our assumptions prove inaccurate, if we consummate
investments in or acquisitions of other companies, if we
experience unexpected costs or competitive pressures, or if our
existing cash and projected cash flow from operations prove
insufficient, we may need to obtain greater amounts of
additional financing and sooner than expected. While it is our
intention to enter only into new financing or refinancing that
we consider advantageous, we cannot be certain that such sources
of financing will be available to us in the future, or, if
available, that they could be obtained on terms acceptable to us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily to
the Companys existing credit facility. The $25.0 million revolver and up to
$35.0 million of the Senior Term Note bear interest at variable rates tied to
either the prime (base) rate or Eurodollar rate. Such variable rates would
increase the risk that interest charges will increase materially if market
interest rates increase. Partially offsetting these risks is that requirement
imposed by the senior lenders that at least one-half of the outstanding
principal amount of the Senior Term Note be subject to interest rate hedging
agreements for a period of at least three years following the closing of the
facility. The Company has not entered into these arrangements at this time,
but such measures are expected to include any of an interest rate swap,
interest rate cap or interest rate collar. A hypothetical 10% increase in
interest rates (i.e., 110% of our current interest rates) would have increased our pro forma interest expense for the
interim period ended December 20, 2002 by less than $0.05 million.

The Company does not use derivative financial instruments for speculative or
trading purposes. The Company invests its excess cash in short-term, investment
grade, interest-bearing securities. Finally, because our expenses and
revenues from our international research contracts are generally
denominated in U.S. dollars, we do not believe that our
operations are subject to material risks associated with currency
fluctuations.

17



---



##### 



ITEM 4. CONTROLS AND PROCEDURES

Our disclosure controls and procedures are designed to ensure that information
required to be disclosed in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission. The Chief Executive Officer and the Chief Financial
Officer have reviewed the effectiveness of our disclosure controls and
procedures within the last ninety days and have concluded that the disclosure
controls and procedures are effective. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the last day they were evaluated by our Chief Executive
Officer and Chief Financial Officer.

PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On September 16, 2002, IITRI, Alions predecessor entity, filed a lawsuit
against Clyde Andrews and William Bewley in the U.S. District Court for the
Eastern District of Virginia, which we refer to as the Court. Messrs. Andrews
and Bewley were formerly the shareholders of AB Technologies, Inc. IITRI
acquired substantially all of the assets of AB Technologies in February 2000.

In the complaint, IITRI states that:



| |  |  | Prior to its acquisition of AB Technologies assets, AB Technologies provided
IITRI financial statements for the acquired business dated July 31, 1998 that
were not audited and that did not conform to generally accepted accounting
principles, or GAAP;                                                                                           
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | IITRI based its initial purchase price on the unaudited statements;                                                                                                                                                                                                                                                                                   
|
| |  |  | the AB Technologies asset purchase agreement specifies that
the parties will adjust the purchase price after receiving audited,
GAAP-compliant financial statements, based on the conditions of the
business as of March 31, 1999;                                                                                                                    
|
| |  |  | after the acquisition, IITRI retained a nationally recognized
accounting firm to review the financial condition of the business as
of March 31, 1999. The results of the procedures performed indicated
that IITRI was entitled to a downward price adjustment of
approximately $1.1 million from the $5.0 million that IITRI had paid
for the assets;
|
| |  |  | the AB Technologies asset purchase agreement also provides
that IITRI will pay the shareholders of AB Technologies an earnout
for a period of five years after closing, which is calculated
generally as a percentage of the net income of the business after it
became an operating unit of IITRI;                                                   
|
| |  |  | the AB Technologies asset purchase agreement requires Messrs.
Andrews and Bewley to distribute 7.5 percent of the annual earnout
payments to employees of the acquired business and they have failed
to do so; and                                                                                                                                    

18



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##### 





| |  |  | the AB Technologies asset purchase agreement also requires
the parties to submit any disputes relating to the purchase price
adjustment and the earnout to a mutually agreed upon, independent
accounting firm.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

After IITRIs efforts failed to persuade Messrs. Andrews and Bewley to resolve
these disputes through negotiation and to honor the AB Technologies asset
purchase agreements requirement to submit the disputes to an accounting firm,
IITRI filed this lawsuit. The lawsuit asks the Court to compel Messrs. Andrews
and Bewley to submit disputed issues to an independent accounting firm, in
accordance with the requirements of the asset purchase agreement. The lawsuit
also asks the Court to make a declaratory judgment concluding that IITRI is
entitled to an approximately $1.1 million downward adjustment of the purchase
price paid under the asset purchase agreement, and that IITRI properly computed
the earnout in accordance with the earnout formula in the asset purchase
agreement.

Messrs. Andrews and Bewley filed a lawsuit against IITRI in Circuit Court for
Fairfax County, Virginia on September 12, 2002. The complaint filed by Messrs.
Andrews and Bewley alleges breach of the AB Technologies asset purchase
agreement, and claims damages of at least $8.2 million. Their lawsuit does not explain
how Messrs. Andrews and Bewley calculate their damages figure. Messrs. Andrews
and Bewley have also asked the court to order an accounting of their earnout.
IITRI filed a Notice of Removal, asking the U.S. District Court for the Eastern
District of Virginia to remove Messrs. Andrews and Bewleys lawsuit from state
court and assume jurisdiction over it in federal court. That Removal was
granted, and Messrs. Andrews and Bewleys lawsuit was consolidated into IITRIs
lawsuit in federal court. The federal court has stayed the litigation and
ordered both parties to submit the dispute to an independent accounting firm to
arbitrate the dispute, as requested in IITRIs complaint.

At the closing of Alions acquisition of IITRIs assets, Alion assumed
responsibility for and acquired all claims under both of these lawsuits.

Other than the foregoing actions, we are not involved in any legal proceeding
other than routine legal proceedings occurring in the ordinary course of
business. We believe that these routine legal proceedings, in the aggregate,
are not material to our financial condition and results of operations.

As a government contractor, we may be subject from time to time to federal
government inquiries relating to our operations and audits of our accounting
procedures by the Defense Contract Audit Agency. Government contractors who are
found to have violated the False Claims Act, or who are indicted or convicted
for violations of other federal laws, may be suspended or debarred from
government contracting for some period. Such an event could also result in
fines or penalties. Given our dependence on federal government contracts,
suspension or debarment could have a material adverse effect on the Company. We
are not aware of any such claims or investigations against us.

19



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##### 



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On December 20, 2002, we raised approximately
$25.8 million in gross proceeds through a private placement of
our common stock. A total of 2,575,408 shares of our common stock
were sold to the ESOP at a price of $10.00 per share. The shares of
common stock were offered pursuant to an exemption to registration
provided under Section 4(2) of the Securities Act of 1933, as
amended, as the sale was made without general solicitation or
advertising and the ESOP was a sophisticated investor with access
to all relevant information.

As payment of $20.3 million of the total
purchase price for the acquisition of substantially of all IITRIs
assets, as of December 20, 2002, we issued to IITRI the
Mezzanine Note together with 524,229 warrants redeemable for shares
of our common stock. The warrants have an exercise price of $10 per
share, subject to adjustments and are exercisable until the sixth
anniversary of the issue date for the warrants. The warrants were
offered pursuant to an exemption to registration provided under
Section 4(2) of the Securities Act of 1933, as amended, as the
sale was made without general solicitation or advertising and IITRI
was a sophisticated investor with access to all relevant information.

As payment of $39.9 million of the total
purchase price for the acquisition of substantially all of
IITRIs assets, as of December 20, 2002, we issued to IITRI
the Subordinated Note together with 1,080,437 warrants redeemable for
shares of our common stock. The warrants have an exercise price of
$10 per share, subject to adjustments and are exercisable until the
eighth anniversary of the issuance date for the warrants. The warrants
were offered pursuant to an exemption to registration provided under
Section 4(2) of the Securities Act of 1933, as amended, as the
sale was made without general solicitation or advertising and IITRI
was a sophisticated investor with access to all relevant information.

In exchange for Dr. Atefis agreement to
waive his right to payment to him of $0.86 million from his
deferred compensation account with IITRI, as of December 20,
2002, we entered into a deferred compensation agreement with
Dr. Atefi and issued 22,062 warrants redeemable for shares of
our common stock. The warrants have an exercise price of $10 per
share, subject to adjustments. The warrants were offered pursuant to
an exemption to registration provided under Section 4(2) of the
Securities Act of 1933, as amended, as the sale was made without
general solicitation or advertising and Dr. Atefi was a
sophisticated investor with access to all relevant information.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

|        |  |                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                     
|No.     |  | Description                                                                                                                                                                         
|       
|3.1     |  | Second Amended and Restated Certificate of Incorporation of Beagle
Holdings, Inc.(3)                                                                                                
|3.2     |  | Amended and Restated By-laws of Alion Science and Technology
Corporation.(1)                                                                                                        
|4.1     |  | Amended and Restated Alion Science and Technology Corporation Employee
Ownership, Savings and Investment Plan.(2)                                                                   
|10.1    |  | Fourth Amended and Restated Asset Purchase Agreement by and between
Alion Science and Technology Corporation and IITRI.(1)                                                          
|10.2    |  | Alion Science and Technology Corporation 2002 Stock Appreciation
Rights Plan by and between Alion Science and Technology Corporation, and
its directors, officers, and employees.(1)
|10.3    |  | Revolving credit and term loan facility by and among LaSalle
Bank National Association as agent, various lenders and Alion Science and
Technology Corporation.                      
|       
|10.4    |  | Mezzanine Note Securities Purchase Agreement by and between
IITRI and Alion Science and Technology Corporation.                                                                     
|       
|10.4.1  |  | Mezzanine Note Securities Purchase Agreement Waiver Letter
Agreement.(2)                                                                                                            
|       
|10.5    |  | Seller Note Securities Purchase Agreement by and between IITRI
and Alion Science and Technology Corporation.(2)                                                                     

20



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##### 



|      |  |                                                                                                                                                                                                 
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6  |  | Mezzanine Warrant Agreement.                                                                                                                                                                    
|10.7  |  | Seller Warrant Agreement.                                                                                                                                                                       
|10.8  |  | Rights Agreement.(2)                                                                                                                                                                            
|10.9  |  | Retention Agreement, dated September 1, 2001, between IITRI and Bahman Atefi.(4)                                                                                                                
|10.10 |  | Retention Agreement, dated September 1, 2001, between IITRI and Stacy Mendler.(4)                                                                                                               
|10.11 |  | Retention Agreement, dated September 1, 2001, between IITRI and Randy
Crawford.(4)                                                                                                              
|10.12 |  | Retention Agreement, dated September 1, 2001, between IITRI and Barry
Watson.(4)                                                                                                                
|10.13 |  | Retention Agreement, dated September 1, 2001, between IITRI and
Stephen Trichka.(4)                                                                                                             
|10.14 |  | Employment Agreement between Alion Science and Technology Corporation
and Bahman Atefi.(1)                                                                                                      
|10.15 |  | Employment Agreement between Alion Science and Technology Corporation
and Stacy Mendler.(1)                                                                                                     
|10.16 |  | Employment Agreement between Alion Science and Technology Corporation
and Randy Crawford.(1)                                                                                                    
|10.17 |  | Employment Agreement between Alion Science and Technology Corporation
and Barry Watson.(1)                                                                                                      
|10.18 |  | Employment Agreement between Alion Science and Technology Corporation
and John Hughes.(1)                                                                                                       
|10.19 |  | Agreement regarding Employment between Alion Science and Tehcnology
Corporation and Stephen Trichka dated December 20, 2002.                                                                    
|10.20 |  | Agreement regarding Employment between Alion Science and Tehcnology
Corporation and Gary Amstutz dated December 20, 2002.                                                                       
|10.21 |  | Alion Mezzanine Deferred Compensation Agreement between Alion
Science and Technology Corporation and Bahman Atefi.                                                                              
|10.22 |  | Alion Mezzanine Warrant Agreement between Alion Science and
Technology Corporation, Alion Science and Technology Corporation Employee
Ownership, Savings and Investment Trust, and Bahman Atefi.
|10.23 |  | Alion Executive Deferred Compensation Plan.(2)                                                                                                                                                  

21



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##### 



|      |  |                                                                                                                                                                                                               
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.24 |  | Alion Director Deferred Compensation Plan.(2)                                                                                                                                                                 
|10.25 |  | Stock Purchase Agreement between Alion Science and Technology
Corporation and Alion Science and Technology Corporation Employee
Ownership, Savings and Investment Trust.                                      
|99.1  |  | Certification of Bahman Atefi, Chief Executive Officer of Alion Science
and Technology Corporation, pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  
|99.2  |  | Certification of John M. Hughes, Chief Financial Officer of Alion Science
and Technology Corporation, pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



---



|(1) |  | Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to the Companys Post-Effective Amendment No. 2 to the
Registration Statement on Form S1 filed with the Securities and Exchange
Commission on December 9, 2002 (File no. 95013324018). 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to the Companys Pre-Effective Amendment No. 3 to the
Registration Statement on Form S1 filed with the Securities and Exchange
Commission on October 7, 2002 (File no. 95013323343).   
|   
|(3) |  | Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to the Companys Pre-Effective Amendment No. 2 to the
Registration Statement on Form S1 filed with the Securities and Exchange
Commission on September 17, 2002 (File no. 95013323224).
|   
|(4) |  | Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to the Companys Registration Statement on Form S1 filed
with the Securities and Exchange Commission on June 4, 2002 (File no.
95013322198).                                           

(b)  Reports on Form 8-K:

The
Company filed a Report on Form 8K on December 24, 2002 with respect to
Item 2. Acquisition or Disposition of Assets and Item 7. Financial Statements,
Pro Forma Financial Information and Exhibits (the closing of
Alions
acquisition of substantially all of IITRIs assets on
December 20, 2002).

22



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##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                       |  |                                                                         
|---------------------- |  | ------------------------------------------------------------------------
|                       |  | ALION SCIENCE AND TECHNOLOGY CORPORATION                                
|Date: February 3, 2003 |  | By:__________________________                                           
|                       |  | Name: John M. Hughes                                                    
|                       |  | Title: Chief Financial Officer                                          
|                       |  | (Principal Financial and Accounting Officer
and Duly Authorized Officer)

23



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##### 



CERTIFICATION

I, Bahman Atefi, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Alion Science and
Technology Corporation;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
|
| | b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

24



---



##### 



6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                       |  |                              
|---------------------- |  | -----------------------------
|Date: February 3, 2003 |  | By:__________________________
|                       |  | Bahman Atefi                 
|                       |  | Chief Executive Officer      

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CERTIFICATION

I, John M. Hughes, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Alion Science and
Technology Corporation;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
|
| | b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

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6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                       |  |                             
|---------------------- |  | ----------------------------
|Date: February 3, 2003 |  | By:_________________________
|                       |  | John M. Hughes              
|                       |  | Chief Financial Officer     

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EXHIBIT INDEX

|        |  |                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                     
|No.     |  | Description                                                                                                                                                                         
|       
|3.1     |  | Second Amended and Restated Certificate of Incorporation of Beagle
Holdings, Inc.(3)                                                                                                
|3.2     |  | Amended and Restated By-laws of Alion Science and Technology
Corporation.(1)                                                                                                        
|4.1     |  | Amended and Restated Alion Science and Technology Corporation Employee
Ownership, Savings and Investment Plan.(2)                                                                   
|10.1    |  | Fourth Amended and Restated Asset Purchase Agreement by and between
Alion Science and Technology Corporation and IITRI.(1)                                                          
|10.2    |  | Alion Science and Technology Corporation 2002 Stock Appreciation
Rights Plan by and between Alion Science and Technology Corporation, and
its directors, officers, and employees.(1)
|10.3    |  | revolving credit and term loan facility by and among LaSalle
Bank National Association as agent, various lenders and Alion Science and
Technology Corporation.                      
|10.4    |  | Mezzanine Note Securities Purchase Agreement by and between
IITRI and Alion Science and Technology Corporation.                                                                     
|10.4.1  |  | Mezzanine Note Securities Purchase Agreement Waiver Letter
Agreement.(2)                                                                                                            
|10.5    |  | Seller Note Securities Purchase Agreement by and between IITRI
and Alion Science and Technology Corporation.(2)                                                                     
|10.6    |  | Mezzanine Warrant Agreement.                                                                                                                                                        
|10.7    |  | Seller Warrant Agreement.                                                                                                                                                           
|10.8    |  | Rights Agreement.(2)                                                                                                                                                                
|10.9    |  | Retention Agreement, dated September 1, 2001, between IITRI and Bahman Atefi.(4)                                                                                                    
|10.10   |  | Retention Agreement, dated September 1, 2001, between IITRI and Stacy Mendler.(4)                                                                                                   
|10.11   |  | Retention Agreement, dated September 1, 2001, between IITRI and Randy
Crawford.(4)                                                                                                  
|10.12   |  | Retention Agreement, dated September 1, 2001, between IITRI and Barry
Watson.(4)                                                                                                    
|10.13   |  | Retention Agreement, dated September 1, 2001, between IITRI and
Stephen Trichka.(4)                                                                                                 

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|      |  |                                                                                                                                                                                                               
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14 |  | Employment Agreement between Alion Science and Technology Corporation
and Bahman Atefi.(1)                                                                                                                    
|10.15 |  | Employment Agreement between Alion Science and Technology Corporation
and Stacy Mendler.(1)                                                                                                                   
|10.16 |  | Employment Agreement between Alion Science and Technology Corporation
and Randy Crawford.(1)                                                                                                                  
|10.17 |  | Employment Agreement between Alion Science and Technology Corporation
and Barry Watson.(1)                                                                                                                    
|10.18 |  | Employment Agreement between Alion Science and Technology Corporation
and John Hughes.(1)                                                                                                                     
|10.19 |  | Agreement regarding Employment between Alion Science and Tehcnology
Corporation and Stephen Trichka dated December 20, 2002.                                                                                  
|10.20 |  | Agreement regarding Employment between Alion Science and Tehcnology
Corporation and Gary Amstutz dated December 20, 2002.                                                                                     
|10.21 |  | Alion Mezzanine Deferred Compensation Agreement between Alion
Science and Technology Corporation and Bahman Atefi.                                                                                            
|10.22 |  | Alion Mezzanine Warrant Agreement between Alion Science and
Technology Corporation, Alion Science and Technology Corporation Employee
Ownership, Savings and Investment Trust, and Bahman Atefi.              
|10.23 |  | Alion Executive Deferred Compensation Plan.(2)                                                                                                                                                                
|10.24 |  | Alion Director Deferred Compensation Plan.(2)                                                                                                                                                                 
|10.25 |  | Stock Purchase Agreement between Alion Science and Technology
Corporation and Alion Science and Technology Corporation Employee
Ownership, Savings and Investment Trust.                                      
|99.1  |  | Certification of Bahman Atefi, Chief Executive Officer of Alion Science
and Technology Corporation, pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  
|99.2  |  | Certification of John M. Hughes, Chief Financial Officer of Alion Science
and Technology Corporation, pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



---

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|(1) |  | Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to the Companys Post-Effective Amendment No. 2 to the
Registration Statement on Form S1 filed with the Securities and Exchange
Commission on December 9, 2002 (File no. 95013324018). 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to the Companys Pre-Effective Amendment No. 3 to the
Registration Statement on Form S1 filed with the Securities and Exchange
Commission on October 7, 2002 (File no. 95013323343).   
|   
|(3) |  | Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to the Companys Pre-Effective Amendment No. 2 to the
Registration Statement on Form S1 filed with the Securities and Exchange
Commission on September 17, 2002 (File no. 95013323224).
|   
|(4) |  | Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to the Companys Registration Statement on Form S1 filed
with the Securities and Exchange Commission on June 4, 2002 (File no.
95013322198).                                           

30