##### 



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 1934For the quarterly period ended
    December 31, 2007   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
    Incorporation of Organization)

(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(Do not check if a smaller reporting company)   Rule 12b-2 o þ




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  FORM 10-Q
  FOR THE
    QUARTER ENDED DECEMBER 31, 2007
  PART I FINANCIAL INFORMATION


2Item 1.


Financial Statements (unaudited)


2Condensed Consolidated Balance Sheets


2Condensed Consolidated Statements of Operations


3Condensed Consolidated Statements of Cash Flows


4Notes to Condensed Consolidated Financial Statements


5Item 2.


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


32Item 3.


Quantitative and Qualitative Disclosures About Market Risk


46Item 4.


Controls and Procedures


46Item 4T.


Controls and Procedures


47PART II  OTHER INFORMATION


48Item 1.


Legal Proceedings


48Item 1A.


Risk Factors


48Item 2.


Unregistered Sales of Equity Securities and Use of Proceeds


48Item 3.


Defaults Upon Senior Securities


48Item 4.


Submission of Matters to a Vote of Security Holders


48Item 5.


Other Information


48Item 6.


Exhibits


48  1




---



##### 



PART I 
    FINANCIAL INFORMATION  Item 1.  Financial
    Statements (unaudited)
  ALION
    SCIENCE AND TECHNOLOGY CORPORATION
 CONDENSED
    CONSOLIDATED BALANCE SHEETS
    As of December 31, 2007 and September 30,
    2007  December 31,


September 30,2007


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

$
597


$
11,684Accounts receivable, net


225,935



186,660Stock subscriptions receivable






3,378Prepaid expenses and other current assets


5,078



3,634Total current assets


231,610



205,356Property, plant and equipment, net


19,555



19,552Intangible assets, net


51,977



55,659Goodwill


398,814



395,926Other assets


7,512



7,477Total assets


709,468



683,970Current liabilities:Book cash overdraft


2,065



Interest payable


13,824



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


2,430



2,430Current portion, acquisition obligations


7,874



4,832Trade accounts payable


49,389



46,104Accrued liabilities


38,938



33,238Accrued payroll and related liabilities


47,052



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


2,665



2,059Total current liabilities


164,237



144,476Notes payable to bank


26,550



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


237,962



238,356Senior unsecured notes


243,701



243,483Subordinated note payable


52,411



51,313Accrued compensation, excluding current portion


11,597



15,483Accrued postretirement benefit obligations


1,188



1,175Non-current portion of lease obligations


6,413



6,203Redeemable common stock warrants


33,506



33,610Redeemable common stock, $0.01 par value,
    8,000,000 shares authorized, 5,012,642 and
    5,012,934 shares issued and outstanding at
    December 31, 2007 and September 30, 2007


200,756



200,768Accumulated deficit


(268,853
)


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

$
709,468


$
683,970    2




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
 CONDENSED
    CONSOLIDATED STATEMENTS OF OPERATIONS  Three Months Ended December 31,2007


2006(In thousands, except share and per share information)(Unaudited)Contract revenue

$
183,145


$
181,139Direct contract expense


140,382



140,101Gross profit


42,763



41,038Operating expenses:Indirect contract expense


9,883



9,475Research and development


161



654General and administrative


15,473



16,613Rental and occupancy expense


7,671



8,265Depreciation and amortization


5,027



5,655Bad debt expense


268



333Total operating expenses


38,483



40,995Operating income


4,280



43Other income (expense):Interest income


155



116Interest expense


(13,276
)


(14,358
)Other


146



74Total other expenses


(12,975
)


(14,168
)Loss before income taxes


(8,695
)


(14,125
)Income tax benefit (expense)


(11
)


13Net loss

$
(8,706
)

$
(14,112
)Basic and diluted loss per share

$
(1.74
)

$
(2.71
)Basic and diluted weighted average common shares outstanding


5,012,838



5,209,858    3




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION



CONDENSED
    CONSOLIDATED STATEMENTS OF CASH FLOWS  Three Months EndedDecember 31,2007


2006(In thousands)(Unaudited)Cash flows from operating activities:Net loss

$
(8,706
)

$
(14,112
)Adjustments to reconcile net loss to net cash used in operating
    activities:Depreciation and amortization


5,027



5,655Accretion of debt to face value


246



234Amortization of debt issuance costs


442



408Decrease in value of interest rate cap agreement






76Change in fair value of redeemable common stock warrants


(104
)


2,024Stock-based compensation


2,046



3,592Other






(28
)Changes in assets and liabilities, net of effect of acquisitions:Accounts receivable, net


(39,274
)


(32,536
)Other assets


(1,480
)


(1,729
)Trade accounts payable


3,285



4,137Accrued liabilities


3,148



5,379Interest payable


1,713



614Other liabilities


1,681



1,060Net cash used in operating activities


(31,976
)


(25,226
)Cash flows from investing activities:Cash paid for acquisitions, net of cash acquired






(6,560
)Capital expenditures


(1,223
)


(1,533
)Net cash used in investing activities


(1,223
)


(8,093
)Cash flows from financing activities:Change in book overdraft


2,065



3,261Repayment of Term B Credit Facility note payable


(618
)


(655
)Payment of debt issuance costs






(850
)Net borrowings under revolving credit facility


17,300



20,250Purchase of redeemable common stock from ESOP Trust


(12
)


(92
)Cash received from sale of redeemable common stock to ESOP Trust


3,377



8,990Net cash provided by financing activities


22,112



30,904Net decrease in cash and cash equivalents


(11,087
)


(2,415
)Cash and cash equivalents at beginning of period


11,684



2,755Cash and cash equivalents at end of period

$
597


$
340Supplemental disclosure of cash flow information:Cash paid for interest

$
10,086


$
10,038Cash paid for taxes


11



30    4




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  CONDENSED
    CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
  (1)
    Description
    and Formation of the Business      (2)
    Summary
    of Significant Accounting Policies  Basis
    of Presentation and Principles of Consolidation
  Form 10-K
    
    Human Factors Application, Inc. (HFA)  acquired
    November 1998
    Innovative Technology Solution Corporation (ITSC) 
    acquired October 2003
    Alion  IPS Corporation (IPS) 
    acquired February 2004
    Alion  METI Corporation (METI)  acquired
    February 2005
    Alion  CATI Corporation (CATI)  acquired
    February 2005
    Alion Canada (US) Corporation  established February
    2005
    Alion Science and Technology (Canada) Corporation 
    established February 2005
    Alion  JJMA Corporation (JJMA)  acquired
    April 2005
    Alion Technical Services Corporation (Virginia) 
    established July 2005
    Alion  BMH Corporation (BMH)  acquired
    February 2006
    Washington Consulting, Inc. (WCI)  acquired February
    2006
    Alion  MA&D Corporation (MA&D) 
    acquired May 2006
    Alion Technical Services Corporation (Delaware) 
    established May 2006
    Washington Consulting Government Services, Inc. 
    established July 2007 5




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
   Fiscal
    and Quarter Periods
    Use of
    Estimates
    Reclassifications
    Revenue
    Recognition
  time-and-material
  time-and-material
     6




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
      SOP 81-1, Accounting for Performance on Construction-Type and Certain
    Production-Type Contracts
  Income
    Taxes
    Cash
    and Cash Equivalents
    Accounts
    Receivable and Billings in Excess of Costs and Estimated
    Earnings on Uncompleted Contracts
    Property,
    Plant and Equipment
   7




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Goodwill
    and Other Intangibles
  Goodwill and Other Intangible
    Assets
  Purchased contracts


1-13 yearsInternal use software and engineering designs


5-6 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
    Concentration
    of Credit Risk and Fair Value of Financial
    Instruments
     8




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Cash,
    cash equivalents, accounts payable and accounts
    receivable
    Senior
    long-term debt
    Redeemable
    common stock warrants
    Alion
    Stock
    Recently
    Issued Accounting Pronouncements
  Accounting for
    Uncertainty in Income Taxes. Accounting for Income Taxes
  Fair Value Measurements
  Financial Statements  Considering
    the Effects of Prior Year Misstatements when Quantifying
    Misstatements in Current Year Financial Statements.
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
 9




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Business Combinations,
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  (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
    (UNAUDITED)  (Continued)
  (5)
    Loss Per
    Share    (6)
    Redeemable
    common stock owned by ESOP Trust        (7)
    Accounts
    Receivable  December 31,


September 30,2007


2007(In thousands)Billed receivables

$
134,974


$
126,430Unbilled receivables:Amounts currently billable


56,250



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


2,561



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


29,897



17,661Retainages and other amounts billable upon contract completion


7,789



5,243Allowance for doubtful accounts


(5,536
)


(5,272
)Total Accounts Receivable

$
225,935


$
186,660    11




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    (8)
    Property,
    Plant and Equipment  December 31,


September 30,2007


2007(In thousands)Leasehold improvements

$
7,479


$
7,212Equipment and software


32,344



31,388Total cost


39,823



38,600Less: accumulated depreciation and amortization


(20,268
)


(19,048
)Net fixed assets

$
19,555


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

$
395,926Adjustment to initial allocation made during the three months
    ended December 31, 2007 (includes earn-out obligations)


2,888Balance as of December 31, 2007

$
398,814     December 31, 2007


September 30, 2007Accumulated








AccumulatedGross


Amortization


Net


Gross


Amortization


Net(In thousands)Purchased contracts

$
111,521


$
(60,877
)

$
50,644


$
111,519


$
(57,296
)

$
54,223Internal use software and engineering designs


2,155



(887
)


1,268



2,155



(790
)


1,365Non-compete agreements


725



(660
)


65



725



(654
)


71Total

$
114,401


$
(62,424
)

$
51,977


$
114,399


$
(58,740
)

$
55,659    12




---



##### 



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

2008


10,800For the year ending September 30:

2009


12,4952010


10,9862011


6,8432012


6,1542013


2,859and thereafter


1,840Total:

$
51,977   (10)
    Long-Term
    Debt  Term B
    Senior Credit Facility
    
    In April 2005, the first amendment to the Term B Senior Credit
    Facility (Amendment One) made certain changes to the Term B
    Senior Credit Facility and added $72.0 million in senior
    term loans to the Companys total Term B Senior Credit
    Facility debt.
    In March 2006, the second amendment to the Term B Senior Credit
    Facility (Amendment Two) made certain changes to the Term B
    Senior Credit Facility and increased the senior term loan
    commitment by $68.0 million, of which the full
    $68.0 million had been drawn down by the Company as of
    December 31, 2007, and increased the revolving credit
    commitment from $30.0 million to $50.0 million.
    On June 30, 2006, the third amendment to the Term B Senior
    Credit Facility (Amendment Three) made certain changes to the
    Term B Senior Credit Facility and added $50.0 million in
    senior term loans to the Companys total Term B Senior
    Credit Facility debt.
    On January 4, 2007, the fourth increment to the Term B
    Senior Credit Facility (Increment Four) added $15.0 million
    in senior term loans to the Companys total Term B Senior
    Credit Facility debt.
    On February 6, 2007, the fourth amendment to the Term B
    Senior Credit Facility (Amendment Four) made certain changes to
    the Term B Senior Credit Facility, including (i) extending
    the maturity date of the senior term loans to February 6,
    2013, (ii) adjusting the principal repayment schedule to
    require one balloon principal repayment at maturity, and
    (iii) adding an incurrence test as an additional condition
    to the Companys ability to incur permitted indebtedness.
    On July 17, 2007, the fifth increment to the Term B Senior
    Credit Facility (Increment Five) added $25.0 million in
    senior term loans to the Companys Term B Senior Credit
    Facility. 13




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
     
    a senior term loan, which is comprised of the following balances:  December 31,


September 30,2007


2007(In thousands)Senior term loan

$
244,884


$
245,502Less: Unamortized debt issuance costs


(4,492
)


(4,716
)Senior term loan payable

$
240,392


$
240,786Less: current maturities, net of unamortized debt issue costs


(2,430
)


(2,430
)Senior term loan payable, less current maturities

$
237,962


$
238,356   
    a $50.0 million senior revolving credit facility under
    which approximately $26.6 million was outstanding as of
    December 31, 2007 and approximately $3.7 million of
    which was allocated for letters of credit and as such is not
    available to be borrowed; and
    a $110.0 million uncommitted incremental senior term loan
    accordion facility.  Interest and Fees.
  * Senior Term Loan.
  Senior Revolving Credit Facility.
    Other Fees and Expenses.
    Financial Covenants.
 14




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Senior
    Unsecured Notes
    Interest and Fees.
  Covenants.
  Interest
    Payable
    December 31,


September 30,2007


2007(In thousands)Senior Unsecured Notes

$
10,677


$
4,271Term B Senior Credit Facility


3,147



7,840Total

$
13,824


$
12,111   Subordinated
    Note
    paid-in-kind
 15




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    2008


2009


2010


2011


2012


2013


Thereafter


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

$
1,855


$
2,474


$
2,474


$
2,474


$
2,474


$
233,134


$



$
244,885Senior Unsecured Notes(2)


























250,000



250,000Subordinated Seller Note(3)






19,950



19,950



















39,900Subordinated Paid in Kind Note(4)






7,402



7,402



















14,804Total Principal Payments

$
1,855


$
29,826


$
29,826


$
2,474


$
2,474


$
233,134


$
250,000


$
549,589     (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. The approximate
    $240.4 million on the face of the balance sheet (current
    and long-term portion) includes, as of December 31, 2007,
    approximately $4.5 million of unamortized debt issue costs
    (which initially totaled approximately $12.3 million). The
    Company expects to refinance the senior term loan before the end
    of fiscal year 2012.(2)
    
    The table reflects the $250.0 million of Senior Unsecured
    Notes currently issued and outstanding. The principal amount of
    $250.0 million is due and payable on February 1, 2015.(3)
    
    Repayment of $39.9 million for the face value of the
    Subordinated Note in two equal payments of $19.95 million
    in years 2009 and 2010. The $39.9 million includes, as of
    December 31, 2007, approximately $2.6 million of
    unamortized debt discount assigned to fair value of the
    detachable warrants. On December 20, 2002, approximately
    $7.1 million was assigned as the fair value of the warrants
    in accordance with Emerging Issues Task Force Issue
    No. 00-19,
    Accounting for Derivative Financial Instruments Indexed to,
    and Potentially settled in, a Companys Own Stock.The
    Company expects to refinance the Subordinated Note before the
    end of fiscal year 2008.(4)
    
    During the eight-year term of the Subordinated Note,
    approximately $14.8 million of principal accretes to the
    note in the form of PIK notes and is included in the principal
    payments in fiscal years 2009 and 2010. The principal, together
    with the outstanding balance of the PIK notes, will be due and
    payable in equal amounts at the end of fiscal years 2009 and
    2010. The Company expects to refinance the PIK notes before the
    end of fiscal year 2008.  (11)
    Redeemable
    Common Stock Warrants  No. 00-19, Accounting for Derivative Financial Instruments Indexed to,
    and Potentially Settled in, a Companys Own Stock.
 16




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    (12)
    Leases    Future
    Minimum Lease Payments
  Fiscal Years Ending

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

$
18,9932009


22,6212010


19,1132011


16,3412012


12,8152013


11,856and thereafter


23,171Gross lease payments


124,910Less: non-cancelable subtenant receipts


(7,167
)Net lease payments

$
117,743   Composition
    of Total Rent Expense
  December 31,2007


2006(In thousands)Minimum rentals

$
6,356


$
6,549Less: Sublease rental income


(835
)


(552
)Total rent expense, net

$
5,521


$
5,997   (13)
    Stock
    Appreciation Rights   17




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Share-Based Payment
 18




---



##### 





ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Alion
    Science and Technology Corporation
    Stock-based Compensation Disclosures per FAS 123 and
    FAS 123R
    Stock Appreciation Rights
    As of December 31, 2007
  Shares


Shares


TotalGranted to


Granted to


Shares


Exercise


Outstanding


Outstanding











Vested


ExercisableDate of Grant

Employees


Directors


Granted


Price


at 9/30/07


at 12/31/07


Forfeited


Exercised


Expired


at 12/31/07


at 12/31/07December 2002


64,250







64,250


$
10.00



38,505



35,580



120



2,805







35,580



35,580December 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



75,481



400



5,840







57,416



12,043November 2003






12,600



12,600


$
14.71



























November 2004






12,600



12,600


$
19.94



8,400



8,400















8,400



8,400February 2005


164,750







164,750


$
19.94



109,800



107,550



1,050



1,200







47,900



March 2005


2,000







2,000


$
19.94



2,000



2,000















1,000



April 2005


33,000







33,000


$
29.81



24,000



22,500



500



1,000







9,000



June 2005


2,000







2,000


$
29.81



2,000



2,000















1,000



December 2005


276,675







276,675


$
35.89



229,288



224,756



2,844



1,688







113,019



February 2006


13,000







13,000


$
35.89



10,250



10,250















2,563



February 2006


7,500







7,500


$
35.89



5,000



5,000















1,250



May 2006


7,000







7,000


$
37.06



7,000



7,000















1,750



July 2006


15,000







15,000


$
37.06



15,000



15,000















3,750



August 2006


1,250







1,250


$
37.06



1,250



313



938











313



December 2006


239,290







239,290


$
41.02



225,600



221,475



4,125











55,538



February 2007


33,450







33,450


$
41.02



31,700



31,700



















September 2007


2,000







2,000


$
43.37



2,000



2,000



















Total


991,315



54,600



1,045,915







793,604



771,005



9,977



12,623







338,479



56,023Wtd Avg Exercise Price

$
29.99


$
13.38


$
29.12






$
26.39


$
31.73


$
34.98


$
18.16


$



$
27.56


$
12.50  19




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)


Alion
    Science and Technology Corporation
    Stock-based Compensation Disclosures per FAS 123 and
    123R
    Stock Appreciation Rights
    As of December 31, 2007
  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



4.3June 2003


2.70
%


-



3.30
%


55
%


5 yrs



5.1November 2003


4.06
%


-



4.49
%


60
%


5 yrs



10.7November 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



13.1March 2005


3.10
%


-



3.60
%


45
%


4 yrs



14.2April 2005


4.10
%


-



4.20
%


45
%


4 yrs



15.0June 2005


4.10
%


-



4.20
%


45
%


4 yrs



17.2December 2005


4.20
%


-



4.20
%


40
%


4 yrs



23.7February 2006


4.20
%


-



4.20
%


40
%


4 yrs



25.4February 2006


4.20
%


-



4.20
%


40
%


4 yrs



25.8May 2006


4.82
%


-



4.83
%


35
%


4 yrs



28.6July 2006


4.82
%


-



4.83
%


35
%


4 yrs



30.0August 2006


4.82
%


-



4.83
%


35
%


4 yrs



31.9December 2006


4.54
%


-



4.58
%


35
%


4 yrs



35.7February 2007


4.54
%


-



4.58
%


35
%


4 yrs



37.8September 2007


4.54
%


-



4.54
%


35
%


4 yrs



44.1Wtd Avg Remaining Life (months)






















23.6   (14)
    Phantom
    Stock Plans     20




---



##### 






ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Alion
    Science and Technology Corporation
    Stock-based Compensation Disclosures per FAS 123 and
    FAS 123R
    Phantom Stock
    as of December 31, 2007
  GrantShares


Shares


Total


Date





OutstandingGranted to


Granted to


Shares


Price per


Outstanding


at











Vested at


Exercisable atDate of Grant

Employees


Directors


Granted


Share


at 9/30/07


12/31/07


Forfeited


Exercised


Expired


12/31/07


12/31/07February 2003


171,000







171,000


$
10.00



26,000



26,000



















November 2003


52,685







52,685


$
14.71



19,715



13,256







6,459







5,438



5,438February 2005


213,215







213,215


$
19.94



188,140



188,140



















February 2005


98,399







98,399


$
19.94



98,399



98,399



















February 2005


5,015







5,015


$
19.94



5,015



5,015















2,508



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



















November 2005






7,808



7,808


$
35.89



6,181



6,181















3,904



3,904November 2005


55,726







55,726


$
35.89



55,726



55,726



















November 2006






5,978



5,978


$
41.02



5,978



5,978















1,993



1,993November 2006


65,456







65,456


$
41.02



60,580



60,580



















Total


731,048



13,786



744,834







531,107



524,648







6,459







15,817



11,335Wtd Avg Grant Date Fair Value Price per Share

$
21.85


$
38.11


$
22.15






$
25.71


$
25.85


$



$
14.71


$



$
26.46


$
26.63  21




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)


Alion
    Science and Technology Corporation
    Stock-based Compensation Disclosures per FAS 123 and
    FAS 123R
    Phantom Stock
    as of December 31, 2007
  Remaining LifeDate of Grant

Risk Free Interest Rate


Volatility


Expected Life


(months)February 2003


4.06
%


-



4.49
%


60
%


5 yrs



1.3November 2003


4.06
%


-



4.49
%


60
%


5 yrs



10.3February 2005


3.10
%


-



3.60
%


45
%


3 yrs



1.1February 2005


3.10
%


-



3.60
%


45
%


3 yrs



1.1February 2005


3.10
%


-



3.60
%


45
%


4 yrs



13.1August 2005


3.72
%


-



3.77
%


45
%


3 yrs



7.1November 2005


4.20
%


-



4.20
%


40
%


3 yrs



10.3November 2005


4.20
%


-



4.20
%


40
%


3 yrs



10.3November 2005


4.20
%


-



4.20
%


40
%


5 yrs



34.3November 2006


4.54
%


-



4.58
%


35
%


3 yrs



22.5November 2006


4.54
%


-



4.58
%


35
%


3 yrs



22.5TotalWtd Avg Remaining Life (months)






















8.9   (15)
    Segment
    Information and Customer Concentration      For the Three Months Ended December 31,Government Agency

Contract

2007


2006Department of Defense

SeaPort MultipleNavy

Award Contract


18.0
%


14.5
%  22




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  (16)
    Guarantor/Non-guarantor
    Condensed Consolidated Financial Information   23




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Condensed
    Consolidating Balance Sheet Information at December 31,
    2007
  Non-Guarantor


GuarantorParent


Companies


Companies


Eliminations


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

$
597


$



$



$



$
597Accounts receivable


220,860



5,043



32







225,935Prepaid expenses and other current assets


5,042



36











5,078Total current assets


226,499



5,079



32







231,610Property, plant and equipment, net


19,377



178











19,555Intangible assets, net


51,977















51,977Goodwill


398,814















398,814Investment in subsidiaries


7,929











(7,929
)


Intercompany receivables






7,431







(7,431
)


Other assets


7,496



16











7,512Total assets


712,092



12,704



32



(15,360
)


709,468Current liabilities:Book cash overdraft


1,564



501











2,065Interest payable


13,824















13,824Current portion, Term B Senior Credit Facility note payable


2,430















2,430Current portion, acquisition obligations


7,874















7,874Trade accounts payable


48,474



905



10







49,389Accrued liabilities


37,118



1,817



3







38,938Accrued payroll and related liabilities


45,939



965



148







47,052Billings in excess of costs and estimated earnings on
    uncompleted contracts


2,665















2,665Total current liabilities


159,888



4,188



161







164,237Intercompany payables


7,090







341



(7,431
)


Notes payable to bank


26,550















26,550Term B Senior Credit Facility note payable, excluding current
    portion


237,962















237,962Senior Unsecured Notes


243,701















243,701Subordinated note payable


52,411















52,411Accrued compensation, excluding current portion


11,597















11,597Accrued postretirement benefit obligations


1,188















1,188Non-current portion of lease obligations


6,296



117











6,413Redeemable common stock warrants


33,506















33,506Common stock of subsidiaries






2,799







(2,799
)


Redeemable common stock


200,756















200,756Accumulated surplus (deficit)


(279,125
)


5,606



(470
)


5,136



(268,853
)Total liabilities, redeemable common stock and accumulated
    deficit

$
701,820


$
12,710


$
32


$
(5,094
)

$
709,468  24




---



##### 



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


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
)


4,947



(389
)


(4,558
)


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

$
685,171


$
12,469


$
5


$
(13,675
)

$
683,970  25




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Condensed
    Consolidating Statement of Operations
    for the Three Months Ended December 31, 2007
  Non-Guarantor


GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
176,759


$
6,349


$
37


$



$
183,145Direct contract expense


135,803



4,549



30







140,382Gross profit


40,956



1,800



7







42,763Operating expenses:Indirect contract expense


8,533



1,268



82







9,883Research and development


161















161General and administrative


15,218



256



(1
)






15,473Rental and occupancy expense


7,664







7







7,671Depreciation and amortization


5,006



21











5,027Bad debt expense


260



8











268Total operating expenses


36,842



1,553



88







38,483Operating income (loss)


4,114



247



(81
)






4,280Other income (expense):Interest income


155















155Interest expense


(13,276
)














(13,276
)Other


62



84











146Equity in net income (loss) of subsidiaries


250











(250
)


Income (loss) before income taxes


(8,695
)


331



(81
)


(250
)


(8,695
)Income tax expense


(11
)














(11
)Net income (loss)

$
(8,706
)

$
331


$
(81
)

$
(250
)

$
(8,706
)  26




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Condensed
    Consolidating Statement of Operations
    for the Three Months Ended December 31, 2006
  Non-Guarantor


GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
174,133


$
6,924


$
82


$



$
181,139Direct contract expense


135,043



4,996



62







140,101Gross profit


39,090



1,928



20







41,038Operating expenses:Indirect contract expense


8,379



1,072



24







9,475Research and development


604







50







654General and administrative


16,258



347



8







16,613Rental and occupancy expense


8,258







7







8,265Depreciation and amortization


5,622



33











5,655Bad debt expense


318



15











333Total operating expenses


39,439



1,467



89







40,995Operating income


(349
)


461



(69
)






43Other income (expense):Interest income


116















116Interest expense


(14,358
)














(14,358
)Other


235



(261
)


100







74Equity in net income (loss) of subsidiaries


244











(244
)


Income (loss) before income taxes


(14,112
)


200



31



(244
)


(14,125
)Income tax benefit






13











13Net income (loss)

$
(14,112
)

$
213


$
31


$
(244
)

$
(14,112
)  27




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Three Months Ended December 31, 2007
  Non-Guarantor


GuarantorParent


Companies


Companies


Consolidated(In thousands)Net cash used in operating activities

$
(31,521
)

$
(456
)

$
1


$
(31,976
)Cash flows from investing activities:Cash paid for acquisitions, net of cash acquired














Capital expenditures


(1,211
)


(12
)






(1,223
)Net cash used in investing activities


(1,211
)


(12
)






(1,223
)Cash flows from financing activities:Change in book overdraft


1,564



501







2,065Repayment of Term B Credit Facility note payable


(618
)










(618
)Net borrowings under revolving credit facility


17,300











17,300Purchase of common stock from ESOP Trust


(12
)










(12
)Cash received from sale of common stock to ESOP Trust


3,377











3,377Net cash provided by financing activities


21,611



501







22,112Net increase (decrease) in cash and cash equivalents


(11,121
)


33



1



(11,087
)Cash and cash equivalents at beginning of year


11,718



(33
)


(1
)


11,684Cash and cash equivalents at end of year

$
597


$



$



$
597  28




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Three Months Ended December 31, 2006
  Non-Guarantor


GuarantorParent


Companies


Companies


Consolidated(In thousands)Net cash used in operating activities

$
(25,169
)

$
(83
)

$
26


$
(25,226
)Cash flows from investing activities:Cash paid for acquisitions, net of cash acquired


(6,560
)










(6,560
)Capital expenditures


(1,500
)






(33
)


(1,533
)Net cash used in investing activities


(8,060
)






(33
)


(8,093
)Cash flows from financing activities:Book overdraft


3,261











3,261Repayment of Term B Credit Facility note payable


(655
)










(655
)Payment of debt issuance costs


(850
)










(850
)Net borrowings under revolving credit facility


20,250











20,250Purchase of shares of common stock from ESOP Trust


(92
)










(92
)Cash received from issuance of common stock to Trust


8,990











8,990Net cash provided by financing activities


30,904











30,904Net decrease in cash and cash equivalents


(2,325
)


(83
)


(7
)


(2,415
)Cash and cash equivalents at beginning of year


2,728



(32
)


59



2,755Cash and cash equivalents at end of year

$
403


$
(115
)

$
52


$
340   (17)
    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.
   29




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
            Government
    Audits
   30




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  (18)
    Subsequent
    Events   31




---



##### 



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K/A
  Overview
    Three Months Ended December 31,2007


2006(In millions)Revenue

$
183.1


$
181.1Net loss


(8.7
)


(14.1
)     For the Three Months Ended December 31,Contract Type

2007


2006*(In millions)Cost-reimbursement

$
128.4



70.1
%

$
127.9



70.6
%Fixed-price


22.2



12.2
%


15.9



8.8
%Time-and-material


32.5



17.7
%


37.3



20.6
%Total

$
183.1



100.0
%

$
181.1



100.0
%    *
    
    The 2006 amounts were revised to conform to the current
    presentation for the reallocation of the ID/IQ contracts.    For the Three Months Ended December 31,Customer Type

2007


2006(In millions)U.S. Department of Defense (DoD)

$
159.5



87.1
%

$
163.9



90.5
%Other Federal Civilian Agencies


8.9



4.9
%


6.9



3.8
%Commercial / State / Local and International


14.7



8.0
%


10.3



5.7
%Total

$
183.1



100.0
%

$
181.1



100.0
%   Results
    of Operations
  Three Months Ended December 31, 2007 Compared to Three
    Months Ended December 31, 2006
 32




---



##### 



Consolidated Operations of AlionThree Months Ended December 31,2007


2006(Dollars in millions)%





%Financial Information




revenue





revenueTotal Revenue

$
183.1






$
181.1Material and subcontract revenue


79.5



43.4
%


78.5



43.3
%Total direct contract expenses


140.4



76.7
%


140.1



77.4
%Major components of direct contract expenses Direct labor expense


58.6



32.0
%


61.2



33.8
%Material and subcontract expense


76.6



41.8
%


74.0



40.9
%Other direct expense


5.2



2.8
%


4.9



2.7
%Gross profit


42.8



23.4
%


41.0



22.6
%Total operating expense


38.5



21.0
%


41.0



22.6
%Major components of operating expense Indirect personnel and
    facilities


17.6



9.6
%


17.7



9.8
%General and administrative (excluding stock- based compensation)


13.4



7.3
%


13.0



7.2
%Stock-based compensation


2.0



1.1
%


3.6



2.0
%Depreciation and amortization


5.0



2.7
%


5.6



3.1
%Income from operations

$
4.3



2.3
%

$
0.0



0.1
%   Revenues.
  IncreaseContract

(Decrease)(In millions)SeaPort Multiple Award Contract

$
6.8Navy Virtual SYSCOM contract


2.5Secretary of the Air Force Technical and Analytical Support
    (SAFTAS) Contract


1.9Joint Spectrum Center (JSC) contract


(7.7
)Modeling and Simulation Information Analysis Center (MSIAC)
    Contract


(6.6
)All other contracts


5.1Net increase in revenue

$
2.0     Direct Contract Expenses.
 33




---



##### 




    Direct labor expense for the three months ended
    December 31, 2007 decreased $2.6 million, or 4.2%,
    from the three months ended December 31, 2006. Direct labor
    expense declined to 32.0% from 33.8% of total revenue for the
    three months ended December 31, 2007 and 2006, respectively.
    M&S expense for the three months ended December 31,
    2007 increased $2.6 million, or 3.5%, over the three months
    ended December 31, 2006. M&S expense increased to
    41.8% from 40.9% of total revenue for the three months ended
    December 31, 2007 and 2006, respectively, primarily as a
    result of increased use of subcontractors in support of our
    contracts. This was evidenced by the growth of the SAFTAS
    contract, which had a high content of M&S direct contract
    expenses.  Gross Profit.
  Operating Expenses.
  
    Operating expenses for indirect personnel and rental and
    occupancy expenses for the three months ended December 31,
    2007 were relatively consistent with the expenses for the three
    months ended December 31, 2006. Operating expenses for
    indirect personnel and facilities were 9.6% and 9.8% of total
    revenue for the three months ended December 31, 2007 and
    2006, respectively.
    General and administrative (G&A) expense, excluding
    stock-based compensation, for the three months ended
    December 31, 2007 increased approximately
    $0.4 million, or 3.1%, over the three months ended
    December 31, 2006.
    Stock-based compensation expense (a separate element of G&A
    expense) relates to the SAR and phantom stock plans. This
    expense for the three months ended December 31, 2007
    decreased approximately $1.6 million, or 44.4%, from the
    three months ended December 31, 2006. The change in
    stock-based compensation expense results from the relative
    change in price of a share in Alion common stock and, to a
    lesser extent, the change in balance of awards that remain
    outstanding.
    Depreciation and amortization expense for the three months ended
    December 31, 2007 decreased approximately
    $0.6 million, or 10.7%, over the three months ended
    December 31, 2006. Depreciation and amortization expenses
    are affected by the level of our annual capital expenditures and
    the amount of identified intangibles related to acquisitions. We
    do not presently forsee significant changes in our capital
    expenditure requirements, which have been approximately 1.0% to
    2.0% of revenue over the last three fiscal years. As we continue
    to make selected strategic acquisitions, the amortization of
    identified intangible assets may increase as a percentage of our
    revenue.  Income from Operations.
  Other Expense.
 34




---



##### 



Three Months Ended December 31,2007


2006(In millions)Term B  Revolving facility

$
0.7


$
0.7Term B  Senior term loan


4.7



5.3- amortization of debt issuance costs


0.2



0.4Bridge loan






4.6Senior unsecured note


6.4



- amortization of debt issuance costs


0.2



Subordinated note  PIK interest


0.6



0.6-long-term deferred interest


0.2



0.2-amortization of debt issuance costs


0.2



0.2Accretion (reduction) of warrants(a)


(0.1
)


2.0Other


0.2



0.4Total

$
13.3


$
14.4     (a)
    
    Reflects change in value assigned to the detachable warrants
    associated with the Subordinated Note based on the change in the
    value of Alion common stock and the number of warrants
    outstanding.  Income Tax Expense.
  Net Loss.
  Liquidity
    and Capital Resources
    Cash
    Flows.
       35




---



##### 



Discussion
    of Debt Structure
    Term
    B Senior Credit Facility
    
    a senior term loan in the approximate amount of
    $244.9 million;
    a $50.0 million senior revolving credit facility under
    which approximately $26.6 million was outstanding as of
    December 31, 2007, and approximately $3.7 million of
    which was allocated for letters of credit and as such is not
    available to be borrowed; and
    a $110.0 million uncommitted incremental term loan
    accordion facility.    
    In April 2005, the first amendment to the Term B Senior Credit
    Facility (Amendment One) made certain changes to the Term B
    Senior Credit Facility and added $72.0 million in senior
    term loans to the Companys total Term B Senior Credit
    Facility debt.
    In March 2006, the second amendment to the Term B Senior Credit
    Facility (Amendment Two) made certain changes to the Term B
    Senior Credit Facility and increased the senior term loan
    commitment by $68.0 million, and increased the revolving
    credit commitment from $30.0 million to $50.0 million.
    On June 30, 2006, the third amendment to the Term B Senior
    Credit Facility (Amendment Three) made certain changes to the
    Term B Senior Credit Facility and added $50.0 million in
    senior term loans to the Companys total Term B Senior
    Credit Facility debt.
    On January 4, 2007, the fourth increment to the Term B
    Senior Credit Facility (Increment Four) added $15.0 million
    in senior term loans to the Companys total Term B Senior
    Credit Facility debt.
    On February 6, 2007, the fourth amendment to the Term B
    Senior Credit Facility (Amendment Four) made certain changes to
    the Term B Senior Credit Facility, including (i) extending
    the maturity date of the senior term loans to February 6,
    2013, (ii) adjusting the principal repayment schedule to
    require one balloon principal repayment at maturity, and
    (iii) adding an incurrence test as an additional condition
    to the Companys ability to incur permitted indebtedness.
    On July 17, 2007, the Company entered into a fifth
    incremental term loan facility (Increment Five), which added
    $25.0 million in senior term loans to the Term B Senior
    Credit Facility. 36




---



##### 



Interest and Fees.
  * Senior Term Loan.
  Senior Revolving Credit Facility.
  Federal Funds


Prime Rate ABREurodollar Spread


ABR 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 1.00but less than 3.00 to 1.00Category 3


225



175



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


200



150



100Less than 2.00 to 1.00     Interest Rate Swap.
 37




---



##### 



Other Fees and Expenses.
    Financial Covenants.
    
    incur additional indebtedness other than permitted additional
    indebtedness after satisfying a senior secured leverage based
    incurrence test;
    consolidate, merge or sell all or substantially all of the
    Company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 the Companys equity based
    incentive plans;
    enter into certain transactions with the Company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 the Company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; 38




---



##### 




    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 the Company 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 the Company 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).    Subordinated
    Note  Redeemable Common Stock Warrants
    paid-in-kind
  No. 00-19, Accounting for Derivative Financial Instruments Indexed to,
    and
 39




---



##### 



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;
    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 of the Company outside the ordinary course of
    business;
    make investments other than certain permitted investments;
    engage in business unrelated to the Companys existing
    business;
    incur certain liens and enter into sale/leaseback transactions;
    enter into certain transactions with affiliates;
    pay dividends and make their 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. 40




---



##### 



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 the Company;
    individuals who on the date of issuance of the Senior Unsecured
    Notes constituted the board of directors of the Company, cease
    for any reason to constitute a majority of the board of
    directors of the Company;
    the adoption of a plan relating to the liquidation or
    dissolution of the Company; 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 the Company to another person.    6-Fiscal Year Period2008*


2009


2010


2011


2012


2013


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

$
1,766


$
1,529


$
1,059


$
250


$
250


$
250


$
500Senior Term Loan- Interest(2)


9,389



13,402



14,723



15,797



17,067



6,528



- Principal(3)


1,855



2,474



2,474



2,474



2,474



233,134Interest Rate Swap(4)


(968
)


1,202



















Senior Unsecured Notes- Interest


25,625



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


35,812



48,142



44,599



41,672



42,942



32,403



38,938Total cash  Pay principal


1,855



29,826



29,826



2,474



2,474



233,134



250,000Total

$
37,667


$
77,968


$
74,425


$
44,146


$
45,416


$
265,537



288,938     *
    
    Estimated interest and principal payments for the remainder of
    fiscal year 2008.(1)
    
    The Company anticipates accessing, from time to time, its
    $50.0 million revolving credit facility to finance the
    Companys ongoing working capital needs. The remaining term
    of the revolving credit facility is approximately two years;
    however, the Company expects to access a revolving credit
    facility as an on-going requirement to fund working capital at
    least through 2013. For the remainder of fiscal year 2008, the
    average balance drawn on the Companys revolving credit
    facility is projected to be approximately $25.0 million.
    For fiscal years 2009 and 2010, the average balance is estimated
    to be $15.5 million and $5.3 million. For the fiscal
    years 2011 through 2012, the Company anticipates the balance
    drawn on its then revolving credit facility will be minimal. For
    the years 2008 through 2013, the projected effective Credit
    Suisse prime interest rate is estimated to be approximately
    7.25%. Interest expense value includes an estimate for the
    unused balance fee on the $50.0 million revolving credit
    facility.(2)
    
    The projected average annual senior term loan balance the
    Company estimates will be drawn under the Term B Senior Credit
    Facility is as follows: $244.3 million,
    $241.8 million, $239.3 million, $236.8 million,
    and $234.4 million for the remainder of fiscal year 2008
    and for fiscal years ending September 30, 2009 through
    2012, respectively. The Company expects it will need to
    refinance the Term B Senior term loan before the end 41




---



##### 



of fiscal year 2012 and expects interest expense to continue at
    levels similar to prior years. Based on an estimated LIBOR rate
    plus the Credit Suisse Eurodollar spread, the effective annual
    interest rate for the remainder of fiscal year 2008, and for
    fiscal years ending September 30, 2009 through 2012 is
    estimated to be approximately 5.1%, 5.5%, 6.2%, 6.7%, and 7.3%,
    respectively. The senior term loan matures February 6,
    2013. Estimated interest expense includes an estimate for the
    commitment fee on the senior term loan.(3)
    
    The Term B Senior Credit Facility requires the Company to repay
    approximately 1.0 percent of the principal balance
    outstanding under the senior term loan annually. Approximately
    6.0% of the principal will be paid during fiscal years 2008
    through 2012 and the first quarter of fiscal year 2013 and the
    remaining principal balance will be repaid on February 6,
    2013, the senior term loan maturity date. The table reflects the
    balance drawn of $244.9 million as of December 31,
    2007, resulting in expected aggregate annual principal payments
    of approximately $1.9 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. The Term B Senior Credit Facility also requires the
    Company to make mandatory prepayments of principal if the
    Company generates certain excess cash flow in a given fiscal
    year, issues or incurs certain debt or sells certain assets. As
    of December 31, 2007, no mandatory prepayments are due.(4)
    
    The interest rate swap has net settlements on May 1, 2008
    and November 1, 2008. The $1.0 net receipt on
    May 1, 2008 is based on the existing floating rate (LIBOR
    plus basis point spread) of 7.32%. The $1.2 net payment on
    November 1, 2008 is based on the estimated floating rate of
    5.54%.  Contingent
    Obligations
  Earn-
    out and Hold-back Commitments
    EstimatedAmount

AmountMaximum


Expiration


Basis of

paid in

to be paid inAcquisition Date

Business Unit

Hold-back


Earn-out


Date


Earn-outs

FY2007

FY2008 *2/10/06

BMH


1.50M



6.00M



12/31/07


Revenue of
    business unit

$3.00M
    (earn-out)
    $1.50M
    (hold-back)

$3.00M
    (earn-out)7/20/07

LogConGroup






0.90M



09/30/13


Revenue of
    business unit



     *
    
    Amounts accrued as of December 31, 2007.  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 under the KSOP.    42




---



##### 



Number ofShares





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



1,201August 2006


1,747


$
37.06



64December 2006


2,243


$
41.02



92January 2007


14


$
41.02



1February 2007


160,020


$
41.02



6,564March 2007


73


$
41.02



3May 2007


238


$
43.37



10June 2007


(2,549
)

$
40.88
*


(104
)July 2007


276,877


$
43.37



12,008August 2007


251,248


$
43.37



10,897September 2007


15


$
43.37



1October 2007


83


$
43.37



4December 2007


210


$
40.05



8Total









$
58,354     *
    
    This is an average share price that represent a combination of
    transactions.     43




---



##### 



Recent
    Accounting Pronouncements
  Accounting for
    Uncertainty in Income Taxes. Accounting for Income Taxes
  Fair Value Measurements
  Financial Statements  Considering
    the Effects of Prior Year Misstatements when Quantifying
    Misstatements in Current Year Financial Statements.
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
  Business Combinations,
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
 44




---



##### 



Forward
    Looking Statements
      
    changes to the ERISA laws related to the Alion Science and
    Technology Corporation 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 provisions of
    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 agency 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;
    undertaking acquisitions that could increase our 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 the
    Companys businesses;
    as well as other risk factors discussed in the Companys
    annual report on
    Form 10-K
    for the year ended September 30, 2007 filed with the SEC on
    December 28, 2007.   45




---



##### 



Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    risk
        Foreign
    currency risk
    Risk
    associated with the value of Alion common stock
          Item 4.
    Controls
    and Procedures  Disclosure Controls and Procedures.
 46




---



##### 



Section 210.5-02 Regulation S-X Form 10-K/A,
  Internal Control Over Financial
    Reporting.
  Institution of internal controls in compliance with
    Section 404 of Sarbanes-Oxley
  Item 4T.
    Controls
    and Procedures   47




---



##### 



PART II 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings      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  Exhibit No.

Description31
.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.  48




---



##### 



SIGNATURES
      /s/  Michael
    J. Alber   Title:
    Principal Financial Officer     49