UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, DC
    20549
      Form 10-Q
  þ QUARTERLY
    REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008.
  COMMISSION FILE NUMBER 333-89756
      
  Alion Science and Technology
    Corporation
 (Exact Name of Registrant as
    Specified in Its Charter)
  DELAWARE(State or Other Jurisdiction
    of
    Incorporation of Organization)

54-2061691(I.R.S. Employer
    Identification No.)10 West
    35th Street
    Chicago, IL 60616
    (312) 567-4000

1750 Tysons Boulevard, Suite 1300
    McLean, VA  22102
    (703) 918-4480   (Address, including Zip Code and
    Telephone Number with Area Code, of Principal Executive
    Offices)
      (Former name, former address and
    former fiscal year, if changed since last report)
  o þ
  Rule 12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   Rule 12b-2 o þ




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  FORM 10-Q
  FOR THE
    QUARTER ENDED JUNE 30, 2008
  PART I  FINANCIAL INFORMATION


3Item 1.


Financial Statements (unaudited)


3Condensed Consolidated Balance Sheets (unaudited)


3Condensed Consolidated Statements of Operations (unaudited)


4Condensed Consolidated Statements of Cash Flows (unaudited)


5Notes to Condensed Consolidated Financial Statements (unaudited)


6Item 2.


Managements Discussion and Analysis of Financial Condition
    and Results of Operations


30Item 3.


Quantitative and Qualitative Disclosures About Market Risk


45Item 4.


Controls and Procedures


46Item 4T.


Controls and Procedures


46PART II  OTHER INFORMATION


46Item 1.


Legal Proceedings


46Item 1A.


Risk Factors


47Item 2.


Unregistered Sales of Equity Securities and Use of Proceeds


47Item 3.


Defaults Upon Senior Securities


47Item 4.


Submission of Matters to a Vote of Security Holders


47Item 5.


Other Information


47Item 6.


Exhibits


47  2




---



##### 



PART I 
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements (unaudited)  ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  Condensed Consolidated Balance Sheets
    (unaudited)
 As of June 30, 2008 and September 30, 2007
  June 30,


September 30,2008


2007(In thousands, except share and per share information)Current assets:Cash and cash equivalents

$
39


$
11,684Accounts receivable, net


207,938



186,660Stock subscriptions receivable






3,378Prepaid expenses and other current assets


3,786



3,634Total current assets


211,763



205,356Property, plant and equipment, net


19,394



19,552Intangible assets, net


44,609



55,659Goodwill


398,821



395,926Other assets


7,405



7,477Total assets

$
681,992


$
683,970Current liabilities:Interest payable

$
13,013


$
12,111Current portion, Term B senior term loan payable


2,430



2,430Interest rate swap liability


1,245



Current portion, acquisition obligations






4,832Trade accounts payable


52,936



46,104Accrued liabilities


39,941



33,238Accrued payroll and related liabilities


52,740



43,702Billings in excess of costs and estimated earnings on
    uncompleted contracts


2,308



2,059Total current liabilities


164,613



144,476Notes payable to bank


10,850



9,250Term B senior term loan payable, excluding current portion


237,171



238,356Senior unsecured notes


244,137



243,483Subordinated note payable


54,714



51,313Accrued compensation, excluding current portion


10,925



15,483Accrued postretirement benefit obligations


1,214



1,175Non-current portion of lease obligations


6,312



6,203Redeemable common stock warrants


34,046



33,610Redeemable common stock, $0.01 par value,
    8,000,000 shares authorized, 5,104,948 and
    5,012,934 shares issued and outstanding at June 30,
    2008 and September 30, 2007


209,303



200,768Accumulated deficit


(291,293
)


(260,147
)Total liabilities, redeemable common stock and accumulated
    deficit

$
681,992


$
683,970    3




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  Condensed
    Consolidated Statements of Operations (unaudited)
  Quarter Ended


Nine Months EndedJune 30,


June 30,2008


2007


2008


2007(In thousands, except share and per share information)Contract revenue

$
185,876


$
184,933


$
558,264


$
553,971Direct contract expense


142,862



142,172



426,274



423,785Gross profit


43,014



42,761



131,990



130,186Operating expenses:Indirect contract expense


10,410



11,689



31,369



32,861Research and development


359



577



815



1,878General and administrative


15,298



17,315



48,004



49,313Rental and occupancy expense


7,979



7,876



23,392



24,352Depreciation and amortization


5,313



4,955



15,673



16,294Total operating expenses


39,359



42,412



119,253



124,698Operating income


3,655



349



12,737



5,488Other income (expense):Interest income


92



54



364



196Interest expense


(12,332
)


(14,290
)


(39,439
)


(43,339
)Loss on extinguishment of debt














(6,170
)Other


706



61



(41
)


181Total other income (expenses)


(11,534
)


(14,175
)


(39,116
)


(49,132
)Loss before income taxes


(7,879
)


(13,826
)


(26,379
)


(43,644
)Income tax benefit (expense)


(14
)


(1
)


(25
)


11Net loss

$
(7,893
)

$
(13,827
)

$
(26,404
)

$
(43,633
)Basic and diluted loss per share


(1.55
)


(2.63
)


(5.24
)


(8.40
)Basic and diluted weighted average common shares outstanding


5,104,958



5,252,863



5,043,375



5,194,412    4




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  Condensed
    Consolidated Statements of Cash Flows (unaudited)
  Nine Months EndedJune 30,2008


2007(In thousands)Cash flows from operating activities:Net loss

$
(26,404
)

$
(43,633
)Adjustments to reconcile net loss to net cash used in operating
    activities:Depreciation and amortization


15,673



16,294Accretion of debt to face value


760



724Amortization of debt issuance costs


1,325



2,325Loss on extinguishment of debt






6,170Decrease in value of interest rate cap






238Loss on interest rate swap


276



Change in fair value of redeemable common stock warrants


436



3,415Stock-based compensation


5,686



9,859Gain on disposal of assets






(18
)Gain on sale of investments, net






(10
)Changes in assets and liabilities, net of effect of acquisitions:Accounts receivable, net


(21,279
)


(50,724
)Other assets


(485
)


(1,536
)Trade accounts payable


6,834



480Accrued liabilities


10,789



Interest payable


902



13,612Other liabilities


3,038



3,951Net cash used in operating activities


(2,449
)


(38,853
)Cash flows from investing activities:Cash paid for acquisition related obligations


(7,946
)


(12,551
)Capital expenditures


(4,091
)


(6,497
)Net cash used in investing activities


(12,037
)


(19,048
)Cash flows from financing activities:Change in book overdraft






4,186Proceeds from Term B Senior Credit Facility note payable






15,000Proceeds from Senior Unsecured Notes






250,000Cash received from interest rate swap


969



Repayment of Term B Credit Facility note payable


(1,855
)


(52,894
)Repayment of Bridge Loan






(170,000
)Payment of debt issuance costs






(10,069
)Net borrowings under revolving credit facility


1,600



13,000Loan to ESOP Trust


(3,369
)


ESOP loan repayment


3,369



Purchase of redeemable common stock from ESOP Trust


(1,250
)


(6,656
)Cash received from sale of redeemable common stock to ESOP Trust


3,377



12,657Net cash provided by financing activities


2,841



55,224Net decrease in cash and cash equivalents


(11,645
)


(2,677
)Cash and cash equivalents at beginning of period


11,684



2,755Cash and cash equivalents at end of period

$
39


$
78Supplemental disclosure of cash flow information:Cash paid for interest


33,477



19,926Cash paid for taxes


67



36Non-cash financing activities:Common stock issued to ESOP Trust in satisfaction of employer
    contribution liability


5,043



5,211    5




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)
  (1)
    Description
    and Formation of the Business      (2)
    Summary
    of Significant Accounting Policies  Basis
    of Presentation and Principles of Consolidation
  Form 10-K/A
    Fiscal
    and Quarter Periods
    Use of
    Estimates
    Reclassifications
    Revenue
    Recognition
  time-and-material
 6




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  time-and-material
          Income
    Taxes
    Cash
    and Cash Equivalents
   7




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounts
    Receivable and Billings in Excess of Costs and Estimated
    Earnings on Uncompleted Contracts
    Property,
    Plant and Equipment
    Goodwill
    and Other Intangibles
  Goodwill and Other Intangible
    Assets,
  Purchased contracts


1-13 yearsInternal use software and engineering designs


3-6 yearsNon-compete agreements


2-3 years   Postretirement
    Benefits
  Employers
    Accounting for Postretirement Benefits Other Than Pension Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans
  Redeemable
    Common Stock
   8




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Concentration
    of Credit Risk and Fair Value of Financial
    Instruments
      Recently
    Issued Accounting Pronouncements
  Fair Value Measurements,
  The Fair Value Option for Financial
    Assets and Liabilities  including an amendment of
    FASB Statement No. 115,
  Business Combinations,
 9




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Noncontrolling Interests in Consolidated Financial
    Statements,
    Disclosures about Derivative Instruments and Hedging
    Activities, Accounting for Derivative Instruments
    and Hedging Activities
  (3)
    Employee
    Stock Ownership Plan (ESOP) and Stock Ownership Trust    (4)
    Postretirement
    Benefits   10




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (5)
    Loss Per
    Share    (6)
    Redeemable
    Common Stock Owned by ESOP Trust        (7)
    Accounts
    Receivable  June 30,


September 30,2008


2007(In thousands)Billed receivables

$
122,977


$
126,430Unbilled receivables:Amounts currently billable


36,636



40,539Revenues recorded in excess of milestone billings on fixed price
    contracts


5,171



2,059Revenues recorded in excess of estimated contract value or
    funding


35,049



17,661Retainages and other amounts billable upon contract completion


11,998



5,243Allowance for doubtful accounts


(3,893
)


(5,272
)Total Accounts Receivable

$
207,938


$
186,660    11




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (8)
    Property,
    Plant and Equipment  June 30,


September 30,2008


2007(In thousands)Leasehold improvements

$
9,495


$
7,212Equipment and software


32,670



31,388Total cost


42,165



38,600Less: accumulated depreciation and amortization


(22,771
)


(19,048
)Net fixed assets

$
19,394


$
19,552     (9)
    Goodwill
    and Other Intangible Assets    Total(In thousands)Balance as of October 1, 2007

$
395,926Adjustment to initial allocation made during the nine months
    ended June 30, 2008 (earn-out obligations)


2,895Balance as of June 30, 2008

$
398,821     June 30, 2008


September 30, 2007Accumulated








AccumulatedGross


Amortization


Net


Gross


Amortization


Net(In thousands)Purchased contracts

$
111,519


$
(68,035
)

$
43,484


$
111,519


$
(57,296
)

$
54,223Internal use software and engineering designs


2,155



(1,082
)


1,073



2,155



(790
)


1,365Non-compete agreements


725



(673
)


52



725



(654
)


71Total

$
114,399


$
(69,790
)

$
44,609


$
114,399


$
(58,740
)

$
55,659    12




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands)For the remaining three months:2008

$
3,440For the year ending September 30:2009


12,4872010


10,9852011


6,8432012


5,7672013


3,247and thereafter


1,840Total:

$
44,609   (10)
    Long-Term
    Debt  Term B
    Senior Credit Facility
    Interest and Fees.
  Financial Covenants.
  Senior
    Unsecured Notes
   13




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Interest and Fees.
  Interest
    Payable
    June 30,


September 30,2008


2007(In thousands)Senior Unsecured Notes

$
10,677


$
4,271Term B Senior Credit Facility


2,336



7,840Total

$
13,013


$
12,111   Subordinated
    Note
  payment-in-kind
    2008


2009


2010


2011


2012


2013


Thereafter


Total(In thousands)Senior Secured Term B Loan(1)

$
618


$
2,474


$
2,474


$
2,474


$
2,474


$
233,134


$



$
243,648Senior Unsecured Notes


























250,000



250,000Subordinated Seller Note










19,950



19,950















39,900Subordinated Paid in Kind Note










7,402



7,402















14,804Total Principal Payments

$
618


$
2,474


$
29,826


$
29,826


$
2,474


$
233,134


$
250,000


$
548,352     (1)
    
    The table does not reflect any prepayments of the senior term
    loan based on excess cash flow or other conditions as the timing
    and amount of any such payments are uncertain. 14




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (11)
    Interest
    Rate Swap      (12)
    Redeemable
    Common Stock Warrants  No. 00-19, Accounting for Derivative Financial Instruments Indexed to,
    and Potentially Settled in, a Companys Own Stock.
 15




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (13)
    Leases    Future
    Minimum Lease Payments
  Fiscal Years Ending

(In thousands)2008 (for the remainder of fiscal year)

$
6,3452009


23,6872010


19,9962011


17,2422012


13,5982013


12,436and thereafter


23,747Gross lease payments


117,051Less: non-cancelable subtenant receipts


(5,711
)Net lease payments

$
111,340   Composition
    of Total Rent Expense
  June 30,2008


2007(In thousands)Minimum rentals

$
18,765


$
19,334Less: Sublease rental income


(2,671
)


(1,991
)Total rent expense, net

$
16,094


$
17,343   (14)
    Stock
    Appreciation Rights (SARs)   16




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Share-Based Payment
  Stock-based
    Compensation Disclosures per FAS 123 and FAS 123R
    Stock Appreciation Rights
    As of June 30, 2008
  Shares


Shares


TotalGranted to


Granted to


Shares


Exercise


Outstanding


Outstanding











Vested


ExercisableDate of Grant

Employees


Directors


Granted


Price


at 9/30/07


at 6/30/08


Forfeited


Exercised


Expired


at 6/30/08


at 6/30/08December 2002


64,450







64,450


$
10.00



38,705







1,740



36,965











December 2002






29,400



29,400


$
10.00



























May 2003


300







300


$
11.13



90











90











June 2003


300







300


$
11.13



























November 2003


129,550







129,550


$
14.71



81,721



71,175



2,266



8,280







54,410



9,037November 2003






12,600



12,600


$
14.71



























November 2004






12,600



12,600


$
19.94



8,400











8,400











February 2005


164,750







164,750


$
19.94



109,800



92,250



3,550



11,000







67,650



March 2005


2,000







2,000


$
19.94



2,000



2,000















1,500



April 2005


33,000







33,000


$
29.81



24,000



20,250



500



3,250







13,500



June 2005


2,000







2,000


$
29.81



2,000



2,000















1,500



December 2005


276,675







276,675


$
35.89



229,288



211,324



11,141



6,823







107,759



February 2006


13,000







13,000


$
35.89



10,250



7,750



1,250



1,250







3,875



February 2006


7,500







7,500


$
35.89



5,000



3,750



625



625







1,875



May 2006


7,000







7,000


$
37.06



7,000



6,500



500











3,500



July 2006


15,000







15,000


$
37.06



15,000



11,000



3,250



750







5,500



August 2006


1,250







1,250


$
37.06



1,250







938



313











October 2006


2,500







2,500


$
41.02



2,500



2,500















625



December 2006


239,290







239,290


$
41.02



225,600



208,483



14,992



2,125







53,413



February 2007


33,450







33,450


$
41.02



31,700



28,075



2,812



813







6,863



May 2007


2,000







2,000


$
43.37



2,000



2,000















500



September 2007


2,000







2,000


$
43.37



2,000



2,000



















December 2007


232,385







232,385


$
40.05







216,535



15,850















April 2008


2,000







2,000


$
41.00







2,000



















Total


1,230,400



54,600



1,285,000







798,304



892,592



59,414



80,684







322,470



9,037Wtd Avg Exercise Price

$
31.95


$
13.38


$
31.16






$
31.61


$
34.76


$
36.06


$
17.95


$



$
29.63


$
14.71  17




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock-based
    Compensation Disclosures per FAS 123 and 123R
    Stock Appreciation Rights
    As of June 30, 2008
  Risk Free





Remaining LifeDate of Grant

Interest Rate

Volatility

Expected Life

(Months)December 2002

4.06% - 4.49%

60%

5 yrs

0.0December 2002

4.06% - 4.49%

60%

3 yrs

0.0May 2003

2.70% - 3.30%

55%

5 yrs

0.0June 2003

2.70% - 3.30%

55%

5 yrs

0.0November 2003

4.06% - 4.49%

60%

5 yrs

4.7November 2003

4.06% - 4.49%

60%

3 yrs

0.0November 2004

3.10% - 3.60%

45%

3 yrs

0.0February 2005

3.10% - 3.60%

45%

4 yrs

7.1March 2005

3.10% - 3.60%

45%

4 yrs

8.2April 2005

4.10% - 4.20%

45%

4 yrs

9.0June 2005

4.10% - 4.20%

45%

4 yrs

11.2December 2005

4.20% - 4.20%

40%

4 yrs

17.7February 2006

4.20% - 4.20%

40%

4 yrs

19.4February 2006

4.20% - 4.20%

40%

4 yrs

19.9May 2006

4.82% - 4.83%

35%

4 yrs

22.6July 2006

4.82% - 4.83%

35%

4 yrs

24.0August 2006

4.82% - 4.83%

35%

4 yrs

25.9October 2006

4.82% - 4.83%

35%

4 yrs

27.8December 2006

4.54% - 4.58%

35%

4 yrs

29.8February 2007

4.54% - 4.58%

35%

4 yrs

31.8May 2007

4.54% - 4.58%

35%

4 yrs

34.7September 2007

4.54% - 4.54%

35%

4 yrs

38.1December 2007

4.23% - 4.23%

35%

4 yrs

41.8April 2008

4.23% - 4.23%

35%

4 yrs

45.9Wtd Avg Remaining Life (months)







24.7   (15)
    Phantom
    Stock Plans     18




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock-based
    Compensation Disclosures per FAS 123 and FAS 123R
    Phantom Stock
    as of June 30, 2008
  GrantShares


Shares


Total


DateGranted to


Granted to


Shares


Price


Outstanding


Outstanding











Vested


ExercisableDate of Grant

Employees


Directors


Granted


per Share


at 9/30/07


at 6/30/08


Forfeited


Exercised


Expired


at 6/30/08


at 6/30/08February 2003


171,000







171,000


$
10.00



26,000



2,500







23,500







2,500


$
2,500November 2003


52,685







52,685


$
14.71



19,715



13,256







6,459







6,798



6,798February 2005


213,215







213,215


$
19.94



188,140



186,788



1,352











186,788



150,638February 2005


98,399







98,399


$
19.94



98,399



46,993







51,406







46,993



46,993February 2005


5,015







5,015


$
19.94



5,015



5,015















3,761



August 2005


2,960







2,960


$
33.78



2,960



2,960















1,974



November 2005


66,592







66,592


$
35.89



62,413



62,413















11,145



11,145November 2005






7,808



7,808


$
35.89



6,181



5,531







651







3,253



3,253November 2005


55,726







55,726


$
35.89



55,726



55,726















13,931



13,931November 2006






5,978



5,978


$
41.02



5,978



5,409







569







1,423



1,423November 2006


65,456







65,456


$
41.02



60,580



60,580















10,239



10,239November 2007






6,993



6,993


$
40.05







6,993



















November 2007


42,447







42,447


$
40.05







42,447















2,497



2,497January 2008


2,497







2,497


$
40.05







2,497



















May 2008


1,220







1,220


$
41.00







1,220



















Total


777,212



20,779



797,991







531,107



500,328



1,352



82,585







291,302



249,417Wtd Avg Grant Date Fair Value Price per Share

$
22.93


$
38.77


$
23.34






$
25.71


$
28.70


$
19.94


$
16.97






$
22.39


$
22.70  19




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock-based
    Compensation Disclosures per FAS 123 and FAS 123R
    Phantom Stock
    as of June 30, 2008
  Risk Free





Remaining LifeDate of Grant

Interest Rate

Volatility

Expected Life

(Months)February 2003

4.06% - 4.49%

60%

5 yrs

November 2003

4.06% - 4.49%

60%

5 yrs

7.3February 2005

3.10% - 3.60%

45%

3 yrs

February 2005

3.10% - 3.60%

45%

3 yrs

February 2005

3.10% - 3.60%

45%

4 yrs

10.1August 2005

3.72% - 3.77%

45%

3 yrs

4.1November 2005

4.20% - 4.20%

40%

3 yrs

7.3November 2005

4.20% - 4.20%

40%

3 yrs

7.3November 2005

4.20% - 4.20%

40%

5 yrs

31.3November 2006

4.54% - 4.58%

35%

3 yrs

19.5November 2006

4.54% - 4.58%

35%

3 yrs

19.5November 2007

4.23% - 4.23%

35%

3 yrs

31.4November 2007

4.23% - 4.23%

35%

3 yrs

31.4November 2007

4.23% - 4.23%

35%

3 yrs

33.5January 2008

4.23% - 4.23%

35%

3 yrs

30.5May 2008

4.23 - 4.23%

35%

3 yrs

34.4Wtd Avg Remaining Life (months)







9.1   (16)
    Segment
    Information and Customer Concentration      (17)
    Guarantor/Non-guarantor
    Condensed Consolidated Financial Information   20




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Balance Sheet Information at June 30,
    2008  Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Current assets:Cash and cash equivalents

$
253


$
(86
)

$
(128
)

$



$
39Accounts receivable


198,201



4,467



5,270







207,938Prepaid expenses and other current assets


3,642



79



65







3,786Total current assets


202,096



4,460



5,207







211,763Property, plant and equipment, net


19,194



111



89







19,394Intangible assets, net


44,609















44,609Goodwill


398,821















398,821Investment in subsidiaries


10,120











(10,120
)


Intercompany receivables






7,165







(7,165
)


Other assets


7,389



16











7,405Total assets

$
682,229


$
11,752


$
5,296


$
(17,285
)

$
681,992Current liabilities:Interest payable

$
13,013


$



$



$



$
13,013Current portion, Term B Senior Credit Facility note payable


2,430















2,430Interest rate swap liability


1,245















1,245Trade accounts payable


52,221



157



558







52,936Accrued liabilities


38,409



990



542







39,941Accrued payroll and related liabilities


51,316



1,085



339







52,740Billings in excess of costs and estimated earnings on
    uncompleted contracts


2,308















2,308Total current liabilities


160,942



2,232



1,439







164,613Intercompany payables


3,987







3,178



(7,165
)


Notes payable to bank


10,850















10,850Term B Senior Credit Facility note payable, excluding current
    portion


237,171















237,171Senior Unsecured Notes


244,137















244,137Subordinated note payable


54,714















54,714Accrued compensation, excluding current portion


10,925















10,925Accrued postretirement benefit obligations


1,214















1,214Non-current portion of lease obligations


6,233



63



16







6,312Redeemable common stock warrants


34,046















34,046Common stock of subsidiaries






2,799



1



(2,800
)


Redeemable Common stock


209,303















209,303Accumulated surplus (deficit)


(291,293
)


6,658



662



(7,320
)


(291,293
)Total liabilities, redeemable common stock and accumulated
    deficit

$
682,229


$
11,752


$
5,296


$
(17,285
)

$
681,992  21




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Balance Sheet Information at September 30,
    2007
  Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Current assets:Cash and cash equivalents

$
11,718


$
(33
)

$
(1
)

$



$
11,684Accounts receivable


180,431



6,224



5







186,660Stock subscriptions receivable


3,378















3,378Prepaid expenses and other current assets


3,569



64



1







3,634Total current assets


199,096



6,255



5







205,356Property, plant and equipment, net


19,350



202











19,552Intangible assets, net


55,659















55,659Goodwill


395,926















395,926Investment in subsidiaries


7,679











(7,679
)


Intercompany receivables






5,996







(5,996
)


Other assets


7,461



16











7,477Total assets

$
685,171


$
12,469


$
5


$
(13,675
)

$
683,970Current liabilities:Interest payable

$
12,111


$



$



$



$
12,111Current portion, Term B Senior Credit Facility note payable


2,430















2,430Current portion, acquisition obligations


4,832















4,832Trade accounts payable


45,124



980











46,104Accrued liabilities


31,638



1,594



6







33,238Accrued payroll and related liabilities


42,582



968



152







43,702Billings in excess of costs and estimated earnings on
    uncompleted contracts


2,059















2,059Total current liabilities


140,776



3,542



158







144,476Intercompany payables


5,760







236



(5,996
)


Notes payable to bank


9,250















9,250Term B Senior Credit Facility note payable, excluding current
    portion


238,356















238,356Senior Unsecured Notes


243,483















243,483Subordinated note payable


51,313















51,313Accrued compensation, excluding current portion


14,733



750











15,483Accrued postretirement benefit obligations


1,175















1,175Non-current portion of lease obligations


6,094



109











6,203Redeemable common stock warrants


33,610















33,610Common stock of subsidiaries






2,799







(2,799
)


Redeemable common stock


200,768















200,768Accumulated surplus (deficit)


(260,147
)


5,269



(389
)


(4,880
)


(260,147
)Total liabilities, redeemable common stock and accumulated
    deficit

$
685,171


$
12,469


$
5


$
(13,675
)

$
683,970  22




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations for the Quarter Ended
    June 30, 2008  Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
177,667


$
5,400


$
2,809


$



$
185,876Direct contract expense


136,932



3,791



2,139







142,862Gross profit


40,735



1,609



670







43,014Operating expenses:Indirect contract expense


9,049



1,148



213







10,410Research and development


359















359General and administrative


15,095



196



7







15,298Rental and occupancy expense


7,977







2







7,979Depreciation and amortization


5,290



18



5







5,313Total operating expenses


37,770



1,362



227







39,359Operating income


2,965



247



443







3,655Other income (expense):Interest income


81



11











92Interest expense


(12,332
)














(12,332
)Other


594



114



(2
)






706Equity in net income of subsidiaries


813











(813
)


Total other income (expense)


(10,844
)


125



(2
)


(813
)


(11,534
)Income/(Loss) before income taxes


(7,879
)


372



441



(813
)


(7,879
)Income tax (expense)


(14
)














(14
)Net income (loss)

$
(7,893
)

$
372


$
441


$
(813
)

$
(7,893
)  23




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations for the Quarter Ended
    June 30, 2007  Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
177,937


$
6,946


$
50


$



$
184,933Direct contract expense


136,973



5,165



34







142,172Gross profit


40,964



1,781



16







42,761Operating expenses:Indirect contract expense


10,425



1,254



10







11,689Research and development


492



6



79







577General and administrative


17,052



301



(38
)






17,315Rental and occupancy expense


7,840



22



14







7,876Depreciation and amortization


4,920



35











4,955Total operating expenses


40,729



1,618



65







42,412Operating income (loss)


235



163



(49
)






349Other income (expense):Interest income


54















54Interest expense


(14,290
)














(14,290
)Loss on extinguishment of debt


















Other


291



(304
)


74







61Equity in net income (loss) of subsidiaries


(117
)










117



Total other income (expense)Income/(Loss) before income taxes


(13,827
)


(141
)


25



117



(13,826
)Income tax expense






(1
)










(1
)Net income (loss)

$
(13,827
)

$
(142
)

$
25


$
117


$
(13,827
)  24




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations for the Nine Months Ended
    June 30, 2008  Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
533,155


$
18,171


$
6,938


$



$
558,264Direct contract expense


408,245



12,884



5,145







426,274Gross profit


124,910



5,287



1,793







131,990Operating expenses:Indirect contract expense


27,235



3,427



707







31,369Research and development


811







4







815General and administrative


47,346



650



8







48,004Rental and occupancy expense


23,383







9







23,392Depreciation and amortization


15,571



91



11







15,673Total operating expenses


114,346



4,168



739







119,253Operating income


10,564



1,119



1,054







12,737Other income (expense):Interest income


353



11











364Interest expense


(39,439
)














(39,439
)Other


(297
)


259



(3
)






(41
)Equity in net income (loss) of subsidiaries


2,440











(2,440
)


Total other income (expenses)


(36,943
)


270



(3
)


(2,440
)


(39,116
)Income/(Loss) before income taxes


(26,379
)


1,389



1,051



(2,440
)


(26,379
)Income tax expense


(25
)














(25
)Net income (loss)

$
(26,404
)

$
1,389


$
1,051


$
(2,440
)

$
(26,404
)  25




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations for the Nine Months Ended
    June 30, 2007  Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
533,102


$
20,684


$
185


$



$
553,971Direct contract expense


408,505



15,156



124







423,785Gross profit


124,597



5,528



61







130,186Operating expenses:Indirect contract expense


29,121



3,602



138







32,861Research and development


1,732



8



138







1,878General and administrative


48,381



1,007



(75
)






49,313Rental and occupancy expense


24,300



22



30







24,352Depreciation and amortization


16,192



102











16,294Total operating expenses


119,726



4,741



231







124,698Operating income (loss)


4,871



787



(170
)






5,488Other income (expense):Interest income


196















196Interest expense


(43,339
)














(43,339
)Loss on extinguishment of debt


(6,170
)














(6,170
)Other


952



(841
)


70







181Equity in net income (loss) of subsidiaries


(143
)










143



Total other income (expense)Income (loss) before income taxes


(46,633
)


(54
)


(100
)


143



(43,644
)Income tax benefit






11











11Net income (loss)

$
(43,633
)

$
(43
)

$
(100
)

$
143


$
(43,633
)  26




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Nine Months Ended June 30, 2008  Guarantor


Non-GuarantorParent


Companies


Companies


Consolidated(In thousands)Net cash (used in) operating activities

$
(2,369
)

$
(53
)

$
(27
)

$
(2,449
)Cash flows from investing activities:Cash paid for acquisitions, net of cash acquired


(7,946
)










(7,946
)Capital expenditures


(3,991
)






(100
)


(4,091
)Net cash used in investing activities


(11,937
)






(100
)


(12,037
)Cash flows from financing activities:Cash received from interest rate swap


969











969Repayment of Term B Credit Facility note payable


(1,855
)










(1,855
)Net borrowings under revolving credit facility


1,600











1,600Loan to ESOP Trust


(3,369
)










(3,369
)ESOP Loan Repayment


3,369











3,369Purchase of shares of common stock from ESOP Trust


(1,250
)










(1,250
)Cash received from issuance of common stock to Trust


3,377











3,377Net cash provided by financing activities


2,841











2,841Net decrease in cash and cash equivalents


(11,465
)


(53
)


(127
)


(11,645
)Cash and cash equivalents at beginning of year


11,718



(33
)


(1
)


11,684Cash and cash equivalents at end of year

$
253


$
(86
)

$
(128
)

$
39  27




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Nine Months Ended June 30, 2007  Guarantor


Non-GuarantorParent


Companies


Companies


Consolidated(In thousands)Net cash used in operating activities

$
(38,119
)

$
(674
)

$
(60
)

$
(38,853
)Cash flows from investing activities:Cash paid for acquisitions, net of cash acquired


(12,551
)










(12,551
)Capital expenditures


(6,497
)










(6,497
)Net cash used in investing activities


(19,048
)










(19,048
)Cash flows from financing activities:Change in book overdraft


3,478



706



2



4,186Proceeds from Term B Senior Credit Facilitynote payable


15,000











15,000Proceeds from Senior Unsecured Notes


250,000











250,000Repayment of Term B Credit Facility note payable


(52,894
)










(52,894
)Repayment of Bridge Loan


(170,000
)










(170,000
)Payment of debt issuance costs


(10,069
)










(10,069
)Net borrowings under revolving credit facility


13,000











13,000Purchase of common stock from ESOP Trust


(6,656
)










(6,656
)Cash received from sale of common stock to ESOP Trust


12,657











12,657Net cash provided by financing activities


54,516



706



2



55,224Net increase (decrease) in cash and cash equivalents


(2,651
)


32



(58
)


(2,677
)Cash and cash equivalents at beginning of year


2,728



(32
)


59



2,755Cash and cash equivalents at end of year

$
77


$



$
1


$
78   (18)
    Commitments
    and Contingencies  Earn-Out
    and Hold-Back Commitments
      Legal
    Proceedings
  Estate of Joseph Hudert vs. Alion Science and Technology
    Corporation; Estate of Frank Stotmeister vs. Alion Science and
    Technology Corporation.
   28




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Government
    Audits
   29




---



##### 



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K/A
  Overview
  time-and-material
  Quarter Ended

Nine Months EndedJune 30,

June 30,2008

2007

2008

2007(In millions)Revenue

$
185.9


$
184.9


$
558.3


$
554.0Net loss

$
(7.9
)

$
(13.8
)

$
(26.4
)

$
(43.6
)     For the Nine Months Ended June 30,Revenue by Contract Type

2008


2007(In millions)Cost-reimbursement

$
391.8



70.2
%

$
367.7



66.4
%Fixed-price


54.0



9.7
%


102.5



18.5
%Time-and-material


112.5



20.1
%


83.8



15.1
%Total

$
558.3



100.0
%

$
554.0



100.0
%     For the Nine Months Ended June 30,Revenue by Customer Type

2008


2007(In millions)U.S. Department of Defense (DoD)

$
481.9



86.3
%

$
505.5



91.3
%Other Federal Civilian Agencies


32.3



5.8
%


17.8



3.2
%Commercial/State/Local and International


44.1



7.9
%


30.7



5.5
%Total

$
558.3



100.0
%

$
554.0



100.0
%  30




---



##### 



Results
    of Operations
  Quarter
    Ended June 30, 2008 Compared to Quarter Ended June 30,
    2007
  Consolidated Operations of AlionQuarter Ended June 30,2008


2007%





%Revenue





Revenue(Dollars in millions)Selected Financial InformationTotal revenue

$
185.9






$
184.9Material and subcontract revenue


76.6



41.2
%


80.2



43.4
%Total direct contract expenses


142.9



76.9
%


142.2



76.9
%Major components of direct contract expensesDirect labor expense


63.3



34.1
%


60.3



32.6
%Material and subcontract expense


73.9



39.8
%


76.6



41.4
%Other direct expense


5.7



3.1
%


5.2



2.8
%Gross profit


43.0



23.1
%


42.8



23.1
%Total operating expense


39.4



21.2
%


42.4



22.9
%Major components of operating expenseIndirect personnel and facilities


18.4



9.9
%


19.6



10.6
%General and administrative (excluding stock-based compensation)


13.9



7.5
%


13.9



7.5
%Stock-based compensation


1.4



0.8
%


3.4



1.8
%Depreciation and amortization


5.3



2.9
%


5.0



2.7
%Income from operations

$
3.7



2.0
%

$
0.3



0.2
%   Revenue, Direct Contract Expense and Gross
    Profit.
  Operating Expenses.
  Income from Operations.
 31




---



##### 



Other Expense.
  Quarter Ended June 30,2008


2007(In millions)Term B  Revolving facility

$
0.4


$
0.6Term B  Senior term loan


4.0



4.6Senior unsecured note


6.6



6.6Subordinated note and warrants


1.2



2.2Interest rate swap and other


(0.7
)


0.2Total

$
11.5


$
14.2   Income Tax Expense.
  Net Loss.
  Nine
    Months Ended June 30, 2008 Compared to Nine Months Ended
    June 30, 2007
  Consolidated Operations of AlionNine Months Ended June 30,2008


2007%





%Revenue





Revenue(Dollars in millions)Financial InformationTotal revenue

$
558.3






$
554.0Material and subcontract revenue


236.2



42.3
%


230.0



41.5
%Total direct contract expenses


426.3



76.4
%


423.8



76.5
%Major components of direct contract expensesDirect labor expense


182.3



32.7
%


187.0



33.8
%Material and subcontract expense


227.4



40.7
%


221.3



39.9
%Other direct expense


16.6



3.0
%


15.5



2.8
%Gross profit


132.0



23.6
%


130.2



23.5
%Total operating expense


119.3



21.4
%


124.7



22.5
%Major components of operating expenseIndirect personnel and facilities


54.8



9.8
%


57.2



10.3
%General and administrative (excluding stock-based compensation)


42.3



7.6
%


39.4



7.1
%Stock-based compensation


5.7



1.0
%


9.9



1.8
%Depreciation and amortization


15.7



2.8
%


16.3



2.9
%Income from operations

$
12.7



2.3
%

$
5.5



1.0
%   Revenue and Direct Contract Expense.
 32




---



##### 



Gross Profit.
  Operating Expenses.
  Income from Operations.
  Other Expense.
  Nine Months Ended June 30,2008


2007(In millions)Term B  Revolving facility

$
1.9


$
1.9Term B  Senior term loan


13.8



16.6Bridge loan






6.8Senior unsecured note


19.9



10.6Subordinated note and warrants


3.8



6.7Loss on debt extinguishment






6.2Interest rate swap and other


(0.3
)


0.3Total

$
39.1


$
49.1   Income Tax Expense.
  Net Loss.
  Liquidity
    and Capital Resources
   33




---



##### 



Cash
    Flows.
               34




---



##### 



five-year
    Cash
    flow effects and risks associated with equity-related
    obligations
            Discussion
    of Debt Structure
   35




---



##### 



Term B
    Senior Credit Facility
    
    a senior term loan in the approximate amount of
    $243.6 million
    a $50.0 million senior revolving credit facility of which
    approximately $35.6 million was available. At June 30,
    2008, the Company had $3.5 million in outstanding letters
    of credit and had drawn $10.9 million on the revolver.
    a $110.0 million uncommitted incremental term loan
    accordion facility    
    In April 2005, the first amendment made certain changes and
    added $72.0 million in senior term loans to the total Term
    B Senior Credit Facility debt.
    In March 2006, the second amendment made certain changes,
    increased the senior term loan commitment by $68.0 million
    (drawn in full) and increased the revolving credit commitment
    from $30.0 million to $50.0 million.
    On June 30, 2006, the third amendment made certain changes
    and added $50.0 million in senior term loans to the total
    Term B Senior Credit Facility debt.
    On January 4, 2007, the fourth increment added
    $15.0 million in senior term loans to the total Term B
    Senior Credit Facility debt.
    On February 6, 2007, the fourth amendment made certain
    changes, extended the maturity date of the senior term loans to
    February 6, 2013, adjusted the principal repayment schedule
    to require a balloon principal repayment at maturity, and added
    an incurrence test as an additional condition to Alions
    ability to incur permitted indebtedness.
    On July 17, 2007, Alion entered into a fifth incremental
    term loan facility which added $25.0 million in senior term
    loans to the Term B Senior Credit Facility.    Interest and Fees.
  * Senior Term Loan.
 36




---



##### 



Senior Revolving Credit Facility.
  Federal Funds ABR


Prime Rate ABREurodollar Spread


Spread


SpreadLeverage Ratio

(in Basis Points)


(in Basis Points)


(in Basis Points)Category 1


250



225



150Greater than or equal to 3.00 to 1.00Category 2


250



200



150Greater than or equal to 2.50 to 1.00 
    but less than 3.00 to 1.00Category 3


225



175



125Greater than or equal to 2.00 to 1.00 
    but less than 2.50 to 1.00Category 4


200



150



100Less than 2.00 to 1.00     Interest Rate Swap.
  Other Fees and Expenses.
    Financial Covenants.
 37




---



##### 




    incur additional indebtedness other than permitted additional
    indebtedness after satisfying a leverage-based incurrence test;
    consolidate, merge or sell all or substantially all of
    Alions assets;
    make certain loans and investments including acquisitions of
    businesses, other than permitted acquisitions;
    pay dividends or distributions other than distributions needed
    for the ESOP to satisfy its repurchase obligations and for
    certain payments required under Alions equity based
    incentive plans;
    enter into certain transactions with Alions shareholders
    and affiliates;
    enter into certain transactions not permitted under ERISA;
    grant certain liens and security interests;
    enter into sale and leaseback transactions;
    change lines of business;
    repay subordinated indebtedness before it is due and redeem or
    repurchase certain equity;
    pay certain earn-outs in connection with permitted
    acquisitions; or
    use the proceeds of Alions borrowings other than as
    permitted by the Term B Senior Credit Facility.  Events of Default.
  
    payment default;
    breach of representations and warranties;
    uncured covenant breaches;
    default under certain other debt exceeding an agreed amount;
    bankruptcy and insolvency events;
    notice of debarment, suspension or termination under a material
    government contract;
    certain ERISA violations;
    unstayed judgments in excess of an agreed amount;
    failure of the subordinated note to be subordinated to the Term
    B Senior Credit Facility;
    failure of any guarantee of the Term B Senior Credit Facility to
    be in effect;
    failure of the security interests to be valid, perfected first
    priority security interests in the collateral;
    failure of Alion to remain an S-corporation;
    imposition on the ESOP Trust of certain taxes in excess of an
    agreed amount;
    final determination that the ESOP is not a qualified plan;
    incurrence of a civil or criminal liability in excess of
    $5 million of Alion or any subsidiary arising from a
    government investigation;
    the actual termination of a material contract due to alleged
    fraud, willful misconduct, negligence, default or any other
    wrongdoing; or
    change of control (as defined below). 38




---



##### 



Subordinated
    Note  Redeemable Common Stock Warrants
    payment-in-kind
  No. 00-19, Accounting for Derivative Financial Instruments Indexed to,
    and Potentially Settled in, a Companys Own Stock
  Senior
    Unsecured Notes
    Interest and Fees.
  Covenants.
  
    incur or guarantee additional indebtedness;
    pay dividends on capital stock or redeem, repurchase or retire
    capital stock or subordinated indebtedness, except in certain
    circumstances for the junior subordinated notes and junior
    warrants; 39




---



##### 




    repurchase or redeem shares of Company stock in connection with
    distributions and diversifications from the ESOP component of
    the KSOP;
    transfer or sell assets including shares of stock of certain
    subsidiaries outside the ordinary course of business;
    make investments other than certain permitted investments;
    engage in business unrelated to Alions existing business;
    incur certain liens and enter into sale/leaseback transactions;
    enter into certain transactions with affiliates;
    pay dividends and make distributions and loans to the
    Company; and
    merge or consolidate with other companies.  Events of Default.
  
    payment default;
    uncured covenant breaches;
    default under an acceleration of certain other debt exceeding
    $30 million;
    certain bankruptcy and insolvency events;
    a judgment for payment in excess of $30 million entered
    against the Company or any material subsidiary that remains
    outstanding for a period of 60 days and is not discharged,
    waived or stayed; and
    failure of any guarantee of the Senior Unsecured Notes to be in
    effect or the denial or disaffirmation by any subsidiary
    guarantor of its guaranty obligations.  Change of Control.
  
    subject to certain exceptions, a person, other than the ESOP
    Trust, is or becomes the beneficial owner, directly or
    indirectly, of more than 35% of the total voting power or voting
    stock of Alion;
    individuals who on the date of issuance of the Senior Unsecured
    Notes constituted Alions board of directors, cease for any
    reason to constitute a majority of the board of directors of the
    Company;
    the adoption of a plan relating to Alions liquidation or
    dissolution; and
    subject to certain exceptions, the merger or consolidation of
    the Company with or into another person or the merger of another
    person with or into the Company, or the sale of all or
    substantially all the assets of Alion to another person. 40




---



##### 



6-Fiscal Year Period2008*


2009


2010


2011


2012


2013


Thereafter($ in thousands)Bank revolving credit facility Interest(1)

$
265


$
1,493


$
1,116


$
485


$
250


$
250


$
500Senior Term Loan Interest(2)


3,393



15,661



17,493



17,769



18,104



6,506



 Principal(3)


618



2,474



2,474



2,474



2,474



233,134



Interest Rate Swap(4)






1,202



















Senior Unsecured Notes Interest


6,406



25,625



25,625



25,625



25,625



25,625



38,438 Principal


























250,000Subordinated Note Interest










6,384



3,192











 Principal










27,352



27,352











Total cash  pay interest


10,065



43,981



50,618



47,071



43,979



32,381



38,938Total cash  pay principal


618



2,474



29,826



29,825



2,474



233,134



250,000Total

$
10,983


$
46,454


$
80,444


$
76,896


$
46,452


$
265,515


$
288,938     *
    
    Estimated interest and principal payments for the remainder of
    fiscal year 2008.(1)
    
    Alion anticipates regularly accessing a $50.0 million
    revolving credit facility to finance working capital needs. The
    present revolving credit facility matures in August 2009. The
    Company expects to replace it with a similar facility for
    working capital needs at least through 2013. Alion estimates the
    average revolver balance will be $1.3 million for the
    remainder of current fiscal year; $15.5 million for fiscal
    year 2009, $9.8 million for 2010 and minimal thereafter.
    Interest expense includes estimated fees for the unused balance
    of a $50.0 million revolving credit facility. The Company
    estimates the effective Credit Suisse average prime interest
    rate will be 8.7% for all periods presented.(2)
    
    Alion estimates the average annual senior term loan balance
    under the Term B Senior Credit Facility will be:
    $243.3 million, $241.8 million, $239.3 million,
    $236.8 million, and $234.4 million for fiscal years
    2008 through 2012. The senior term loan matures February 2013.
    The Company expects it will need to refinance the Term B Senior
    term loan before September 2012 and forecasts interest expense
    to continue at levels similar to prior years. Based on an
    estimated LIBOR rate plus the Credit Suisse Eurodollar spread,
    Alion estimates the effective annual interest rates for the
    fiscal years 2008 through 2012 will be approximately 5.5%, 6.5%,
    7.3%, 7.5%, and 7.7%. Interest expense includes estimated senior
    term loan commitment fees.(3)
    
    The Term B Senior Credit Facility requires Alion to repay
    approximately 1.0 percent of the principal balance
    outstanding under the senior term loan annually. On a cumulative
    basis, Alion will pay approximately 4.5% of the principal
    through the first quarter of fiscal year 2013. The remaining
    principal balance is due on February 6, 2013, the senior
    term loan maturity date. The table reflects the balance drawn of
    $243.6 million as of June 30, 2008, resulting in
    expected aggregate annual principal payments of approximately
    $0.6 million for the remainder of fiscal year 2008,
    approximately $2.5 million in each of fiscal years 2009
    through 2012, approximately $0.6 million for the first
    quarter of fiscal year 2013, and the remaining principal balance
    of approximately $232.5 million on February 6, 2013.
    If Alion generates certain excess cash flow in a given fiscal
    year, issues or incurs certain debt or sells certain assets, the
    Term B Senior Credit Facility requires the Company to prepay a
    portion of the principal. As of June 30, 2008, no mandatory
    prepayments are due.(4)
    
    The interest rate swap has remaining net settlements on
    August 1, and November 1, 2008. Alion received
    $3.4 million on August 1, and will pay
    $4.6 million on November 1, 2008 based on a floating
    rate of 5.49% and a fixed rate of 6.52%. 41




---



##### 



Contingent
    Obligations
  Earn-
    out and Hold-back Commitments
    Other
    Contingent obligations which will impact the Companys
    cash
    
    obligations related to the holders put rights associated
    with the Subordinated Note warrants;
    obligations relating to the Companys stock based
    compensation plans; and
    repurchase obligations and diversification options under the
    KSOP.    Number of Shares





Total ValueDate

Repurchased


Share Price


Purchased(In thousands)June 2003


5,248


$
11.13


$
58July 2003


2,696


$
11.13



30December 2003


50,031


$
14.71



736May 2004


117


$
16.56



2June 2004


727


$
16.56



12June 2004


743


$
16.56



12July 2004


48,309


$
16.56



800December 2004


46,816


$
19.94



934March 2005


5,691


$
19.94



113June 2005


45,846


$
29.81



1,367August 2005


1,090


$
33.78



37September 2005


170,657


$
33.78



5,765December 2005


211,537


$
35.89



7,592June 2006


273,800


$
37.06



10,147July 2006


32,420


$
37.06



1,202August 2006


1,747


$
37.06



65December 2006


2,243


$
41.02



92January 2007


14


$
41.02



1February 2007


157,320


$
41.02



6,453March 2007


73


$
41.02



3May 2007


238


$
43.37



10 42




---



##### 



Number of Shares





Total ValueDate

Repurchased


Share Price


Purchased(In thousands)June 2007


152


$
43.37



7July 2007


276,877


$
43.37



12,008August 2007


251,248


$
43.37



10,897September 2007


15


$
43.37



1October 2007


90


$
43.37



4December 2007


210


$
40.05



8February 2008


648


$
40.05



26March 2008


19,961


$
40.05



799March 2008


10,011


$
41.00



410April 2008


60


$
40.05



2Total









$
59,593       Recent
    Accounting Pronouncements
  Fair Value Measurements,
 43




---



##### 



The Fair Value Option for Financial
    Assets and Liabilities  including an amendment of
    FASB Statement No. 115,
  Business Combinations,
  Noncontrolling Interests in Consolidated Financial
    Statements,
    Disclosures about Derivative Instruments and Hedging
    Activities, Accounting for Derivative Instruments
    and Hedging Activities
  Forward
    Looking Statements
      
    changes to the ERISA laws related to the KSOP;
    changes to Alions subchapter S status, or any change in
    Alions effective tax rate; 44




---



##### 




    additional costs associated with complying 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;
    results of current
    and/or
    future legal proceedings and government agency proceedings which
    may arise out of Alions operations and the attendant risks
    of fines, liabilities, penalties, suspension
    and/or
    debarment;
    undertaking acquisitions that could increase costs or
    liabilities or be disruptive;
    taking on additional debt to fund acquisitions;
    failure to adequately integrate acquired businesses;
    material changes in laws or regulations applicable to
    Alions businesses;
    other risk factors discussed in the Companys annual report
    on Form
    10-K/A for
    the year ended September 30, 2007 filed with the SEC on
    March 12, 2008.    Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    rate risk
      Foreign
    currency risk
   45




---



##### 



Risk
    associated with the value of Alion common stock
      Item 4.
    Controls
    and Procedures  Disclosure Controls and
    Procedures.
  Internal Control Over Financial
    Reporting.
  Institution of internal controls in compliance with
    Section 404 of Sarbanes-Oxley
  Item 4T.
    Controls
    and Procedures   PART II 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings     46




---



##### 



Item 1A.
    Risk
    Factors    Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds  Form 8-K.
  Item 3.
    Defaults
    Upon Senior Securities    Item 4.
    Submission
    of Matters to a Vote of Security Holders    Item 5.
    Other
    Information    Item 6.
    Exhibits  ExhibitNo.

Description10
.44

Employment Agreement by and between Alion Science and Technology
    Corporation and Michael J. Alber(1)10
.45

Separation Agreement by and between Alion Science and Technology
    Corporation and John. M. Hughes.31
.1

Certification of Chief Executive Officer of Alion Science and
    Technology Corporation pursuant to Rule 15d-14(a) promulgated
    under the Securities Exchange Act of 1934, as amended.31
.2

Certification of Principal Financial Officer of Alion Science
    and Technology Corporation pursuant to
    15d-14(a)
    promulgated under the Securities Exchange Act of 1934, as
    amended.32
.1

Certification of 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
    2002.32
.2

Certification of Principal 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 Current Report on
    Form 8-K
    filed by the Company on April 8, 2008. 47




---



##### 



SIGNATURES
      
   Title:
    Principal Financial Officer 
   48