##### 



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
    March 31, 2007.   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
    o o þ
  Rule 12b-2 o þ




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  FORM 10-Q
  FOR THE
    QUARTER ENDED MARCH 31, 2007
  PART I 
    Financial InformationItem 1.


Financial Statements (unaudited)Condensed
    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


35Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk


57Item 4.


Controls and
    Procedures


58Item 4T


Controls and
    Procedure


58PART II 
    Other Information


59Item 1.


Legal
    Proceedings


59Item 1A.


Risk
    Factors


59Item 2.


Unregistered Sales
    of Equity Securities and Use of Proceeds


60Item 3.


Defaults Upon
    Senior Securities


60Item 4.


Submission of
    Matters to a Vote of Security Holders


60Item 5.


Other
    Information


60Item 6.


Exhibits


61   1




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  CONDENSED CONSOLIDATED BALANCE SHEETS
  March 31,


September 30,2007


2006(In thousands, except share and per share information)(Unaudited)Current assets:Cash and cash equivalents

$
1,034


$
2,755Accounts receivable, net


184,609



150,412Stock subscriptions receivable


3,668



8,990Prepaid expenses and other current
    assets


6,098



6,028Total current assets


195,409



168,185Property, plant and equipment, net


16,236



14,644Intangible assets, net


66,898



75,403Goodwill


391,247



387,927Other assets


6,025



4,810Total assets


675,815



650,969Current liabilities:Interest payable


4,435



240Current portion, Term B Senior
    Credit Facility note payable


2,179



2,576Current portion, acquisition
    obligations


7,678



11,457Trade accounts payable and accrued
    liabilities


81,813



62,803Accrued payroll and related
    liabilities


30,645



35,135Billings in excess of costs and
    estimated earnings on uncompleted contracts


1,888



2,163Total current liabilities


128,638



114,374Acquisition obligations, excluding
    current portion


2,587



3,568Notes payable to bank


2,700



12,300Term B Senior Credit Facility note
    payable, excluding current portion


214,873



252,100Senior Unsecured Notes


243,163



Bridge loan payable






164,680Subordinated note payable


49,119



46,963Accrued compensation, excluding
    current portion


23,546



21,026Accrued postretirement benefit
    obligations


4,450



3,722Non-current portion of lease
    obligations


4,314



4,292Redeemable common stock warrants


37,543



35,234Total liabilities


710,933



658,259Shareholders deficit:Common stock, $0.01 par
    value, 8,000,000 shares authorized, 5,251,514 and
    5,210,126 shares issued and outstanding at March 31,
    2007 and September 30, 2006


52



52Additional paid-in capital


93,807



91,829Accumulated deficit


(128,977
)


(99,171
)Total shareholders deficit


(35,118
)


(7,290
)Total liabilities and
    shareholders deficit

$
675,815


$
650,969    2




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  CONDENSED CONSOLIDATED STATEMENTS OF
    OPERATIONS
  Three Months Ended


Six Months EndedMarch 31,


March 31,2007


2006


2007


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

$
187,899


$
111,189


$
369,038


$
212,478Direct contract expense


141,512



81,047



281,613



157,352Gross profit


46,387



30,142



87,425



55,126Operating expenses:Indirect contract expense


11,697



6,803



21,172



12,158Research and development


647



525



1,301



770General and administrative


14,830



13,821



31,443



26,180Rental and occupancy expense


8,211



5,096



16,476



10,053Depreciation and amortization


5,684



2,401



11,339



7,191Bad debt expense


222



109



555



215Total operating expenses


41,291



28,755



82,286



56,567Operating income (loss)


5,096



1,387



5,139



(1,441
)Other income (expense):Interest income


26



89



142



461Interest expense


(14,691
)


(2,472
)


(29,049
)


(7,917
)Loss on extinguishment of debt


(6,170
)






(6,170
)


Other


46



76



120



216Loss before income taxes


(15,693
)


(920
)


(29,818
)


(8,681
)Income tax benefit (expense)


(1
)






12



(19
)Net loss

$
(15,694
)

$
(920
)

$
(29,806
)

$
(8,700
)Basic and diluted loss per share

$
(3.07
)

$
(0.19
)

$
(5.77
)

$
(1.73
)Basic and diluted weighted average
    common shares outstanding


5,119,838



4,944,448



5,165,179



5,035,835    3




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  CONDENSED CONSOLIDATED STATEMENTS OF CASH
    FLOWS
  Six Months EndedMarch 31,2007


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

$
(29,806
)

$
(8,700
)Adjustments to reconcile net loss
    to net cash used in operating activities:Depreciation and amortization


11,339



7,191Accretion of debt to face value


479



373Amortization of debt issuance costs


1,899



660Loss on extinguishment of debt


6,170



Decrease/(Increase) in value of
    interest rate cap agreement


164



(128
)Change in fair value of redeemable
    common stock warrants


2,309



233Stock-based compensation


6,447



5,022Gain on disposal of assets


(18
)


(1
)Gain on sale of investments, net


(10
)


(48
)Changes in assets and liabilities,
    net of effect of acquisitions:Accounts receivable, net


(33,996
)


(16,776
)Other assets


(1,516
)


(1,074
)Trade accounts payable and accruals


15,795



2,067Interest payable


4,195



31Other liabilities


2,152



1,019Net cash used in operating
    activities


(14,397
)


(10,131
)Cash flows from investing
    activities:Cash paid for acquisitions, net of
    cash acquired


(8,073
)


(38,926
)Capital expenditures


(4,493
)


(2,276
)Purchase of investment securities






(1,250
)Net cash used in investing
    activities


(12,566
)


(42,452
)Cash flows from financing
    activities:Proceeds from Term B Senior Credit
    Facility note payable


15,000



32,000Proceeds from Senior Unsecured
    Notes


250,000



Repayment of Term B Credit
    Facility note payable


(52,338
)


(720
)Repayment of mezzanine note
    warrants






(13,643
)Repayment of Bridge Loan


(170,000
)


Payment of debt issuance costs


(10,154
)


(1,553
)Net (repayments)/borrowings under
    revolving credit facility


(9,600
)


10,000Purchase of common stock from ESOP
    Trust


(6,656
)


(7,592
)Cash received from sale of common
    stock to ESOP Trust


8,990



1,693Net cash provided by financing
    activities


25,242



20,185Net decrease in cash and cash
    equivalents


(1,721
)


(32,398
)Cash and cash equivalents at
    beginning of period


2,755



37,778Cash and cash equivalents at end
    of period

$
1,034


$
5,380Supplemental disclosure of cash
    flow information:Cash paid for interest


18,068



4,989Cash paid for taxes


638



90    4




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)
  (1)  Description
    and Formation of the Business
    not-for-profit
  (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  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 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
  Postretirement
    Benefits
  Employers Accounting for Postretirement Benefits Other
    Than Pension Employers Accounting for Defined
    Benefit Pension and Other Postretirement Plans
  Fair
    Value of Financial Instruments
    Cash,
    cash equivalents, accounts payable and accounts
    receivable
    Marketable
    securities
    Senior
    long-term debt
    Interest
    rate caps
   8




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
   Redeemable
    common stock warrants
    Alion
    Stock
    Recently
    Issued Accounting Pronouncements
  Fair Value Measurements
  Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
  (3)  Business
    Combinations
  Fiscal
    Year 2006 Acquisitions
  Acquisition of BMH Associates, Inc.
  Acquisition of Washington Consulting,
    Inc.
  Acquisition of Micro Analysis and Design,
    Inc.
 9




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Acquisition of certain assets of Anteon
    Corporation.
    WeightedAverageRemainingEstimated


Residual


AmortizationAmounts in Millions

Fair Value


Value


PeriodPurchased contracts

$
54.7


$




4 years   (4)  Employee
    Stock Ownership Plan (ESOP) and Stock Ownership Trust
    (5)  Postretirement
    Benefits
      (6)  Loss
    Per Share
    (7)  Shareholders
    Equity
   10




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
      (8)  Accounts
    Receivable
  March 31,


September 30,2007


2006(In thousands)Billed receivables

$
108,117


$
106,310Unbilled receivables:Amounts currently billable


53,847



36,548Revenues recorded in excess of
    milestone billings on fixed price contracts


5,817



5,591Revenues recorded in excess of
    estimated contract value or funding


14,910



3,354Retainages and other amounts
    billable upon contract completion


6,418



2,570Allowance for doubtful accounts


(4,500
)


(3,961
)Total Accounts Receivable

$
184,609


$
150,412     (9)  Property,
    Plant and Equipment
  March 31,


September 30,2007


2006(In thousands)Leasehold improvements

$
3,748


$
2,709Equipment and software


28,699



25,188Total cost


32,447



27,897Less: accumulated depreciation and
    amortization


(16,211
)


(13,253
)Net fixed assets

$
16,236


$
14,644    11




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
   (10)  Goodwill
    and Intangible Assets
    Total(In thousands)Balance as of September 30,
    2006

$
387,927Adjustment to initial allocation
    made during the six months ended March 31, 2007 (includes
    earn out obligations)


3,320Balance as of March 31, 2007

$
391,247       AccumulatedGross


Amortization


Net(In thousands)Purchased contracts

$
115,246


$
50,061


$
65,185Internal use software and
    engineering designs


2,155



595



1,560Non-compete agreements


650



497



153Total

$
118,051


$
51,153


$
66,898     (In thousands)For the remaining six months:

2007

$
8,253For the year ending
    September 30:

2008


16,4572009


15,2732010


14,5042011


8,5992012


1,049and thereafter


2,763Total:

$
66,898  12




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  (11)  Long-Term
    Debt
  Term B
    Senior Credit Facility
    
    In April 2005, the first amendment to the Term B Senior Credit
    Facility (Amendment One) added $72.0 million in 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) increased the term loan commitment by
    $68.0 million, of which the full $68.0 million had
    been drawn down by the Company as of March 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) added $50.0 million in
    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 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) (i) extended the
    maturity date of the senior term loans to February 6, 2013,
    (ii) adjusted the principal repayment schedule to require
    one balloon principal repayment at maturity, and
    (iii) added an incurrence test as an additional condition
    to the Companys ability to incur permitted indebtedness.    
    a senior term loan, which is comprised of the following balances:  March 31,


September 30,2007


2006(In thousands)Senior term loan

$
221,676


$
259,015Less: Unamortized debt issuance
    costs


(4,624
)


(4,339
)Term B Senior Credit Facility
    Note Payable

$
217,052


$
254,676Less: current maturities, net of
    unamortized debt issue costs


(2,179
)


(2,576
)Term B Senior Credit Facility
    Note Payable, less current maturities

$
214,873


$
252,100   
    a $50.0 million senior revolving credit facility under
    which approximately $2.7 million was outstanding as of
    March 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 $135.0 million uncommitted incremental term loan
    accordion facility. 13




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
           Use of Proceeds.
    Security.
  Interest and Fees.
   14




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
    Interest Rate Cap Agreements.
  Other Fees and Expenses.
    Financial Covenants.
  Senior
    Unsecured Notes
    Use of Proceeds.
  Security.
  Ranking.
  Interest and Fees.
 15




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
   Optional Redemption.
    12-month
  Period

Redemption Price2011


105.125
%2012


102.563
%2013 and thereafter


100.000
%   Covenants.
  Exchange Offer; Registration Rights.
  Bridge
    Loan
    Interest
    Payable
    March 31,


September 30,2007


2006(In thousands)Senior Unsecured Notes

$
3,772


$
Term B Senior Credit Facility
    Note Payable


663



137Bridge loan payable






103Total

$
4,435


$
240  16




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Subordinated
    Note
    paid-in-kind
    2007


2008


2009


2010


2011


2012


Thereafter


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

$
1,112


$
2,224


$
2,224


$
2,224


$
2,224


$
2,224


$
209,446


$
221,678Senior 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

$
1,112


$
2,224


$
29,576


$
29,576


$
2,224


$
2,224


$
459,446


$
526,382     (1)
    
    The table does not reflect any prepayments of the Term B Senior
    Credit Facility based on excess cash flow or other conditions as
    the timing and amount of any such payments are uncertain. The
    approximate $217.1 million on the face of the balance sheet
    (current and long-term portion) includes, as of March 31,
    2007, approximately $4.6 million of unamortized debt issue
    costs (which initially totaled approximately
    $12.3 million). The Company expects that it will need to
    refinance the Term B Senior term loan before the end of fiscal
    year 2012.(2)
    
    The table reflects the issuance of $250.0 million of Senior
    Unsecured Notes on February 8, 2007. 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
    March 31, 2007, approximately $3.4 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.(4)
    
    During the eight-year term of the Subordinated Note,
    approximately $14.8 million of principal accretes to the
    note 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.  (12)  Redeemable
    Common Stock Warrants
   17




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  No. 00-19, Accounting for Derivative Financial Instruments Indexed to,
    and Potentially Settled in, a Companys Own
    Stock.
  (13)  Leases
  sub-lease
  Fiscal Years Ending

(In thousands)2007 (for the remainder of fiscal
    year)

$
12,4042008


25,4882009


22,1972010


16,4532011


14,3092012


9,743and thereafter


22,829Gross lease payments

$
123,423Less: non-cancelable subtenant
    receipts


4,793Net lease payments

$
118,630     (14)  Stock
    Appreciation Rights
   18




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
   Accounting for Stock-Based Compensation. Share-Based Payment.
 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
    FAS 123R
    Stock Appreciation Rights
    As of March 31, 2007
  Shares


Shares


TotalGranted to


Granted to


Shares


Exercise


Outstanding


Outstanding











Vested


ExercisableDate of Grant

Employees


Directors


Granted


Price


at
    9/30/06


at
    3/31/07


Forfeited


Exercised


Expired


at
    3/31/07


at
    3/31/07December 2002


64,250







64,250


$
10.00



47,785



42,840



1,280



3,665







33,750



18,960December 2002






29,400



29,400


$
10.00



























May 2003


300







300


$
11.13



240



150







90







30



30June 2003


300







300


$
11.13



300



180



120











180



180November 2003


129,550







129,550


$
14.71



100,466



90,528



2,778



7,160







51,418



19,250November 2003






12,600



12,600


$
14.71



2,800



2,800















2,800



2,800November 2004






12,600



12,600


$
19.94



12,600



12,600















8,400



8,400February 2005


164,750







164,750


$
19.94



135,588



128,588



5,450



1,550







61,763



March 2005


2,000







2,000


$
19.94



2,000



2,000















1,000



April 2005


33,000







33,000


$
29.81



27,500



27,500















5,000



June 2005


2,000







2,000


$
29.81



2,000



2,000















500



December 2005


276,675







276,675


$
35.89



257,900



248,062



9,838











63,150



February 2006


13,000







13,000


$
35.89



10,250



10,250















2,563



February 2006


7,500







7,500


$
35.89



7,500



7,500















1,875



May 2006


7,000







7,000


$
37.06



7,000



7,000



















July 2006


15,000







15,000


$
37.06



15,000



15,000



















August 2006


1,250







1,250


$
37.06



1,250



1,250



















December 2006


239,290







239,290


$
41.02







236,050



3,240















February 2007


33,450







33,450


$
41.02







33,450



















Total


989,315



54,600



1,043,915







630,179



868,748



22,706



12,465







232,429



49,620Wtd Avg Exercise Price

$
29.96


$
13.38


$
29.09






$
26.39


$
31.11


$
28.61


$
13.95


$



$
22.14


$
13.78   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
    123R
    Stock Appreciation Rights
    As of March 31, 2007
  Risk Free






Remaining LifeDate of Grant

Interest Rate

Volatility


Expected Life

(months)December 2002

4.06% - 4.49%


60%


5 yrs


7.3December 2002

4.06% - 4.49%


60%


3 yrs


0.0May 2003

2.70% - 3.30%


55%


5 yrs


12.7June 2003

2.70% - 3.30%


55%


5 yrs


13.5November 2003

4.06% - 4.49%


60%


5 yrs


19.2November 2003

4.06% - 4.49%


60%


3 yrs


0.0November 2004

3.10% - 3.60%


45%


3 yrs


7.3February 2005

3.10% - 3.60%


45%


4 yrs


21.7March 2005

3.10% - 3.60%


45%


4 yrs


22.9April 2005

4.10% - 4.20%


45%


4 yrs


23.7June 2005

4.10% - 4.20%


45%


4 yrs


25.9December 2005

4.20% - 4.20%


40%


4 yrs


32.5February 2006

4.20% - 4.20%


40%


4 yrs


34.2February 2006

4.20% - 4.20%


40%


4 yrs


34.7May 2006

4.82% - 4.83%


35%


4 yrs


37.5July 2006

4.82% - 4.83%


35%


4 yrs


38.9August 2006

4.82% - 4.83%


35%


4 yrs


40.8December 2006

4.54% - 4.58%


35%


4 yrs


44.7February 2007

4.54% - 4.58%


35%


4 yrs


46.8Wtd Avg Remaining Life (months)










31.5  21




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  (15)  Phantom
    Stock Plans
    Accounting for Stock-Based Compensation Share-Based Payment
 22




---



##### 



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 March 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
    9/30/06


3/31/07


Forfeited


Exercised


Expired


3/31/07


3/31/07February 2003


171,000







171,000


$
10.00



85,000



59,000







26,000







24,750



24,750November 2003


52,685







52,685


$
14.71



32,971



26,513







6,458







8,158



8,158February 2005


202,763







202,763


$
19.94



202,763



202,763



















February 2005


103,414







103,414


$
19.94



103,414



103,414



















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















987



November 2005


66,592







66,592


$
35.89



66,592



66,592



















November 2005






7,808



7,808


$
35.89



6,832



6,181







651







1,626



1,626November 2005


55,726







55,726


$
35.89



55,726



55,726



















November 2006






5,978



5,978


$
41.02







5,978



















November 2006


65,456







65,456


$
41.02







65,456



















Total


725,612



13,786



739,398







561,274



599,599







33,109







38,028



34,534Wtd Avg Grant Date Fair Value
    Price per Share

$
21.86


$
38.11


$
22.17






$
21.87


$
24.73


$



$
11.43


$



$
13.39


$
12.33  23




---



##### 



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 March 31, 2007
  Risk Free








RemainingDate of Grant

Interest Rate


Volatility


Expected Life


Life (months)February 2003


4.06% - 4.49%



60
%


5 yrs



9.7November 2003


4.06% - 4.49%



60
%


5 yrs



18.8February 2005


3.10% - 3.60%



45
%


3 yrs



9.7February 2005


3.10% - 3.60%



45
%


3 yrs



9.7February 2005


3.10% - 3.60%



45
%


4 yrs



21.7August 2005


3.72% - 3.77%



45
%


3 yrs



15.9November 2005


4.20% - 4.20%



40
%


3 yrs



19.1November 2005


4.20% - 4.20%



40
%


3 yrs



19.1November 2005


4.20% - 4.20%



40
%


5 yrs



43.1November 2006


4.54% - 4.58%



35
%


3 yrs



31.4November 2006


4.54% - 4.58%



35
%


3 yrs



31.4TotalWtd Avg Remaining Life (months)














17.1   (16)  Segment
    Information and Customer Concentration
      (17)  Guarantor/Non-guarantor
    Condensed Consolidated Financial Information
   24




---



##### 



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


GuarantorParent


Companies


Companies


Eliminations


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

$
1,102


$
(63
)

$
(5
)

$



$
1,034Accounts receivable


178,988



5,607



14







184,609Stock subscriptions receivable


3,668















3,668Other current assets


5,915



176



7







6,098Total current assets


189,673



5,720



16







195,409Property, plant and equipment, net


16,004



232











16,236Intangible assets, net


66,898















66,898Goodwill


391,247















391,247Investment in subsidiaries


7,953











(7,953
)


Intercompany receivables






7,075







(7,075
)


Other assets


6,012



13











6,025Total assets


677,787



13,040



16



(15,028
)


675,815Current liabilities:Interest payable


4,435















4,435Current portion, Term B Senior
    Credit Facility note payable


2,179















2,179Current portion, acquisition
    obligations


7,678















7,678Trade accounts payable and accrued
    liabilities


78,961



2,850



2







81,813Accrued payroll and related
    liabilities


29,533



968



144







30,645Billings in excess of costs and
    estimated earnings on uncompleted contracts


1,888















1,888Total current liabilities


124,674



3,818



146







128,638Acquisition obligations, excluding
    current portion


2,587















2,587Intercompany payables


6,785







290



(7,075
)


Notes payable to bank


2,700















2,700Term B Senior Credit Facility note
    payable, excluding current portion


214,873















214,873Senior Unsecured Notes


243,163















243,163Subordinated note payable


49,119















49,119Accrued compensation, excluding
    current portion


22,752



794











23,546Accrued postretirement benefit
    obligations


4,450















4,450Non-current portion of lease
    obligations


4,259



55











4,314Redeemable common stock warrants


37,543















37,543Total liabilities


712,905



4,667



436



(7,075
)


710,933Shareholders equity (deficit):Common stock


52



1







(1
)


52Additional paid-in capital


93,807



2,800







(2,800
)


93,807Treasury stock






(2
)






2



Accumulated deficit


(128,977
)


5,574



(420
)


(5,154
)


(128,977
)Total shareholders equity
    (deficit)


(35,118
)


8,373



(420
)


(7,953
)


(35,118
)Total liabilities and
    shareholders equity (deficit)

$
677,787


$
13,040


$
16


$
(15,028
)

$
675,815  25




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
  Condensed
    Consolidating Balance Sheet Information at September 30,
    2006
  Non-Guarantor


GuarantorParent


Companies


Companies


Eliminations


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

$
2,728


$
(32
)

$
59


$



$
2,755Accounts receivable


144,751



5,657



4







150,412Stock subscriptions receivable


8,990















8,990Other current assets


5,885



134



9







6,028Total current assets


162,354



5,759



72







168,185Property, plant and equipment, net


14,029



299



316







14,644Intangible assets, net


75,403















75,403Goodwill


387,927















387,927Investment in subsidiaries


7,979











(7,979
)


Intercompany receivables






8,310







(8,310
)


Other assets


4,797



13











4,810Total assets


652,489



14,381



388



(16,2889
)


650,969Current liabilities:Interest payable


240















240Current portion, Term B Senior
    Credit Facility note payable


2,576















2,576Current portion, acquisition
    obligations


11,457















11,457Trade accounts payable and accrued
    liabilities


59,174



3,625



4







62,803Accrued payroll and related
    liabilities


33,288



1,694



153







35,135Billings in excess of costs and
    estimated earnings on uncompleted contracts


2,163















2,163Total current liabilities


108,898



5,319



157







114,374Acquisition obligations, excluding
    current portion


3,568















3,568Intercompany payables


7,784







526



(8,310
)


Notes payable to bank


12,300















12,300Term B Senior Credit Facility note
    payable, excluding current portion


252,100















252,100Bridge loan payable


164,680















164,680Subordinated note payable


46,963















46,963Accrued compensation, excluding
    current portion


20,254



772











21,026Accrued postretirement benefit
    obligations


3,722















3,722Non-current portion of lease
    obligations


4,276



16











4,292Redeemable common stock warrants


35,234















35,234Total liabilities


659,779



6,107



683



(8,310
)


658,259Shareholders equity
    (deficit):Common stock


52



1







(1
)


52Additional paid-in capital


91,829



2,800







(2,800
)


91,829Treasury stock






(2
)






2



Accumulated deficit


(99,171
)


5,475



(295
)


(5,180
)


(99,171
)Total shareholders equity
    (deficit)


(7,290
)


8,274



(295
)


(7,979
)


(7,290
)Total liabilities and
    shareholders equity (deficit)

$
652,489


$
14,381


$
388


$
(16,289
)

$
650,969  26




---



##### 



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


GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
181,032


$
6,814


$
53


$



$
187,899Direct contract expense


136,489



4,995



28







141,512Gross profit


44,543



1,819



25







46,387Operating expenses:Indirect contract expense


10,317



1,276



104







11,697Research and development


636



2



9







647General and administrative


14,541



334



(45
)






14,830Rental and occupancy expense


8,202







9







8,211Depreciation and amortization


5,650



34











5,684Bad debt expense


212



10











222Total operating expenses


39,558



1,656



77







41,291Operating income (loss)


4,985



163



(52
)






5,096Other income (expense):Interest income


26















26Interest expense


(14,691
)














(14,691
)Loss on extinguishment of debt


(6,170
)














(6,170
)Other


426



(276
)


(104
)






46Equity in net income (loss) of
    subsidiaries


(270
)










270



Loss before income taxes


(15,694
)


(113
)


(156
)


270



(15,693
)Income tax benefit (expense)






(1
)










(1
)Net income (loss)

$
(15,694
)

$
(114
)

$
(156
)

$
270


$
(15,694
)  27




---



##### 



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


GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
107,627


$
3,456


$
106


$



$
111,189Direct contract expense


78,522



2,455



70







81,047Gross profit


29,105



1,001



36







30,142Operating expenses:Indirect contract expense


6,481



323



(1
)






6,803Research and development


396







129







525General and administrative


13,644



125



52







13,821Rental and occupancy expense


5,083



3



10







5,096Depreciation and amortization


2,389



12











2,401Bad debt expense


109















109Total operating expenses


28,102



463



190







28,755Operating income (loss)


1,003



538



(154
)






1,387Other income (expense):Interest income


89















89Interest expense


(2,472
)














(2,472
)Other


347



(249
)


(22
)






76Equity in net income (loss) of
    subsidiaries


113











(113
)


Loss before income taxes


(920
)


289



(176
)


(113
)


(920
)Income tax benefit (expense)


















Net income (loss)

$
(920
)

$
289


$
(176
)

$
(113
)

$
(920
)  28




---



##### 



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


GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
355,165


$
13,738


$
135


$



$
369,038Direct contract expense


271,532



9,991



90







281,613Gross profit


83,633



3,747



45







87,425Operating expenses:Indirect contract expense


18,696



2,348



128







21,172Research and development


1,240



2



59







1,301General and administrative


30,799



681



(37
)






31,443Rental and occupancy expense


16,460







16







16,476Depreciation and amortization


11,272



67











11,339Bad debt expense


530



25











555Total operating expenses


78,997



3,123



166







82,286Operating income (loss)


4,636



624



(121
)






5,139Other income (expense):Interest income


142















142Interest expense


(29,049
)














(29,049
)Loss on extinguishment of debt


(6,170
)














(6,170
)Other


661



(537
)


(4
)






120Equity in net income (loss) of
    subsidiaries


(26
)










26



Income (loss) before income taxes


(29,806
)


87



(125
)


26



(29,818
)Income tax expense






12











12Net income (loss)

$
(29,806
)

$
99


$
(125
)

$
26


$
(29,806
)  29




---



##### 



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


GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
207,050


$
5,050


$
378






$
212,478Direct contract expense


153,497



3,615



240







157,352Gross profit


53,553



1,435



138







55,126Operating expenses:Indirect contract expense


11,734



408



16







12,158Research and development


591







179







770General and administrative


25,922



206



52







26,180Rental and occupancy expense


10,032



3



18







10,053Depreciation and amortization


7,177



14











7,191Bad debt expense


215















215Total operating expenses


55,671



631



265







56,567Operating income (loss)


(2,118
)


804



(127
)






(1,441
)Other income (expense):Interest income


461















461Interest expense


(7,917
)














(7,917
)Loss on extinguishment of debt


















Other


666



(383
)


(67
)






216Equity in net income (loss) of
    subsidiaries


227











(227
)


Loss before income taxes


(8,681
)


421



(194
)


(227
)


(8,681
)Income tax benefit (expense)


(19
)














(19
)Net income (loss)

$
(8,700
)

$
421


$
(194
)

$
(227
)

$
(8,700
)  30




---



##### 



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


GuarantorParent


Companies


Companies


Consolidated(In thousands)Net cash used in operating
    activities

$
(14,302
)

$
(31
)

$
(64
)

$
(14,397
)Cash flows from investing
    activities:Cash paid for acquisitions, net of
    cash acquired


(8,073
)










(8,073
)Capital expenditures


(4,493
)










(4,493
)Purchase of investment securities














Net cash used in investing
    activities


(12,566
)










(12,566
)Cash flows from financing
    activities:Proceeds from Term B Senior CreditFacility note payable


15,000











15,000Proceeds from Senior Unsecured
    Notes


250,000











250,000Repayment of Term B Credit
    Facility note payable


(52,338
)










(52,338
)Repayment of Bridge Loan


(170,000
)










(170,000
)Payment of debt issuance costs


(10,154
)










(10,154
)Net (repayments)/borrowings under
    revolving credit facility


(9,600
)










(9,600
)Purchase of common stock from ESOPTrust


(6,656
)










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


8,990











8,990Net cash provided by financing
    activities


25,242











25,242Net decrease in cash and cash
    equivalents


(1,626
)


(31
)


(64
)


(1,721
)Cash and cash equivalents at
    beginning of year


2,728



(32
)


59



2,755Cash and cash equivalents at end
    of year

$
1,102


$
(63
)

$
(5
)

$
1,034  31




---



##### 



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


GuarantorParent


Companies


Companies


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

$
(10,578
)

$
455


$
(8
)

$
(10,131
)Cash flows from investing
    activities:Cash paid for acquisitions, net of
    cash acquired


(38,926
)










(38,926
)Capital expenditures


(2,276
)










(2,276
)Purchase of investment securities


(1,250
)










(1,250
)Net cash used in investing
    activities


(42,452
)










(42,452
)Cash flows from financing
    activities:Proceeds from Term B Senior CreditFacility note payable


32,000











32,000Payment of debt issuance costs


(1,553
)










(1,553
)Repayment of Term B Credit
    Facility note payable


(720
)










(720
)Repayment of mezzanine note payable














Repayment of mezzanine note
    warrants


(13,643
)










(13,643
)Payment of agreements with officers














Borrowings under revolving credit
    facility


10,000











10,000Purchase of shares of common stock
    from ESOP Trust


(7,592
)










(7,592
)Cash received from issuance of
    common stock to Trust


1,693











1,693Net cash provided by financing
    activities


20,185











20,185Net increase (decrease) in cash
    and cash equivalents


(32,845
)


455



(8
)


(32,398
)Cash and cash equivalents at
    beginning of year


37,634



139



5



37,778Cash and cash equivalents at end
    of year

$
4,789


$
594


$
(3
)

$
5,380   (18)  Commitments
    and Contingencies
  Earn
    Out Commitments
         32




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
       Legal
    Proceedings
  Estate of Joseph Hudert vs.  Alion Science and
    Technology Corporation; Estate of Frank Stotmeister vs. Alion
    Science and Technology Corporation.
           33




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)  (Continued)
   Government
    Audits
    (19)  Subsequent
    Events
   34




---



##### 



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K
  Overview
    Three Months Ended


Six Months EndedMarch 31,


March 31,2007


2006


2007


2006(In millions)Revenue

$
187.9


$
111.2



369.0


$
212.5Net loss


(15.7
)


(0.9
)


(29.8
)


(8.7
)     For the Six Months Ended March 31,Contract Type

2007


2006(In millions)Cost-reimbursement

$
243.6



66.0
%

$
129.7



61.0
%Fixed-price


69.2



18.8
%


42.4



20.0
%Time-and-material


56.2



15.2
%


40.4



19.0
%Total

$
369.0



100.0
%

$
212.5



100.0
%     For the Six Months Ended March 31,Customer Type

2007


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

$
332.9



90.2
%

$
190.5



89.6
%Other Federal Civilian Agencies


15.9



4.3
%


13.2



6.2
%Commercial / State / Local and
    International


20.2



8.8
%


8.8



4.2
%Total

$
369.0



100.0
%

$
212.5



100.0
%  35




---



##### 



Results
    of Operations
  Three
    Months Ended March 31, 2007 Compared to Three Months Ended
    March 31, 2006
    Three Months Ended


Three Months EndedMarch 31, 2007


March 31, 2006Consolidated Operations of Alion


Consolidated Operations of Alion(Dollars in millions)%





%Financial Information




revenue





revenueTotal Revenue

$
187.9






$
111.2Material and subcontract revenue


71.2



37.9
%


32.8



29.5
%Total direct contract expenses


141.5



75.3
%


81.0



72.9
%Major components of direct
    contract expensesDirect labor expense


65.5



34.9
%


47.2



42.5
%Other direct expense


5.4



2.9
%


2.6



2.3
%Material and subcontract expense


70.6



37.6
%


31.2



28.1
%Gross profit


46.4



24.7
%


30.1



27.1
%Total operating expense


41.3



22.0
%


28.8



25.9
%Major components of operating
    expenseIndirect personnel and facilities


19.9



10.6
%


11.9



10.7
%General and administrative
    (excluding stock- based compensation)


12.0



6.4
%


11.6



10.4
%Stock-based compensation


2.9



1.5
%


2.3



2.0
%Depreciation and amortization


5.7



3.0
%


2.4



2.2
%Income from operations

$
5.1



2.7
%

$
1.4



1.3
%   Revenues.
   Increase in revenue
    generated by the activities of the acquired operations

$
74.3 million Increase in revenue
    generated by the activities of the non-acquired operations

$
2.4 millionTotal:

$
76.7 million     Direct Contract Expenses.
 36




---



##### 




    Direct labor expense for the three months ended March 31,
    2007 increased $18.3 million, or 38.8%, over the three
    months ended March 31, 2006. Direct labor expense declined
    to 34.9% from 42.5% of total revenue for the three months ended
    March 31, 2007 and 2006, respectively. This decrease was
    due to the decrease in content of direct labor expense from
    acquired operations primarily related to WCI and for work
    provided in support of the Anteon contracts.
    M&S expense for the three months ended March 31, 2007
    increased $39.4 million, or 126.3%, over the three months
    ended March 31, 2006. M&S expense increased to 37.6%
    from 28.1% of total revenue for the three months ended
    March 31, 2007 and 2006, respectively. The percent increase
    in M&S expense was due to the increase in content of
    M&S expense to total direct contract expense of the
    acquired operations, primarily related to WCI and for work
    provided in support of the Anteon contracts. M&S expense
    was approximately 99.2% and 95.1% of M&S revenue for the
    three months ended March 31, 2007 and 2006, respectively.    Gross Profit.
  Operating Expenses.
  
    Operating expenses for indirect personnel and rental and
    occupancy expenses for the three months ended March 31,
    2007 increased approximately $8.0 million, or 67.2%, over
    the three months ended March 31, 2006. The increase was
    primarily associated with higher indirect personnel and
    facilities expenses related to the activities in support of the
    contracts acquired from Anteon. The contracts from Anteon were
    acquired on June 30, 2006; therefore, there was no related
    activity for the three months ended March 31, 2006.
    Operating expenses for indirect personnel and facilities was
    10.6% and 10.7% of total revenue for the three months ended
    March 31, 2007 and 2006, respectively.
    General and administrative (G&A) expense, excluding
    stock-based compensation, for the three months ended
    March 31, 2007 increased approximately $0.4 million,
    or 3.4%, over the three months ended March 31, 2006.
    G&A expenses were 6.4% and 10.4% of revenue for the three
    months ended March 31, 2007 and 2006, respectively. For the
    three months ended March 31, 2007, the Company incurred
    approximately $3.3 million of third-party legal and
    accounting fees associated with financing expense and
    approximately $0.4 million for third party legal expense
    for contract protests. These additional expenses represent
    approximately 2.0% of total revenue. For the three months ended
    March 30, 2006, the Company incurred approximately
    $1.3 million in additional external accounting and legal
    fees related to completion of an independent investigation
    relating to an anonymous letter received by the Company shortly
    before the deadline for filing the Annual Report. The anonymous
    letter alleged, among other things, that on one of the
    Companys business units had engaged in illegal activities
    with respect to certain of its business operations. The
    independent investigators concluded that there was no material
    basis for the allegations. Approximately $0.2 million was
    incurred in third-party legal and accounting fees. These
    additional expenses represented approximately 1.3% of revenue.
    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 March 31, 2007 increased
    approximately $0.6 million, or 26.1%, over the three months
    ended March 31, 2006. The increase 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
    increase in the awards granted. 37




---



##### 




    Depreciation and amortization expense for the three months ended
    March 31, 2007 increased approximately $3.3 million,
    or 137.5%, over the three months ended March 31, 2006.
    Depreciation expense primarily arises from fixed assets while
    amortization expense results primarily from purchased contracts.
    For the three months ended March 31, 2007, approximately
    $2.5 million of amortization expense was associated with
    the contracts purchased from Anteon. Depreciation and
    amortization expense was 3.0% and 2.2% of revenue for the three
    months ended March 31, 2007 and 2006, respectively.  Income from Operations.
  Other Expense.
  Interest Expense.
  Three MonthsEndedMarch 31,2007


2006(In millions)Revolving facility

$
0.5


$
0.2Senior term loan


6.3



2.6Bridge loan


2.2



Senior unsecured note


4.0



Subordinated Note


0.6



0.6-long-term deferred interest


0.2



0.2-amortization of debt issuance
    costs


0.3



0.2Accretion of warrants(a)


0.3



(1.4
)Other


0.3



0.1Total

$
14.7


$
2.5     (a)
    
    Reflects change in value assigned to the detachable warrants
    associated with Mezzanine and Subordinated notes based on the
    change in the value of Alion common stock and the number of
    warrants outstanding.  Loss on extinguishment of debt.
  Income Tax (Expense) Benefit.
  Net Loss.
  Six Months Ended March 31, 2007 Compared to Six Months
    Ended March 31, 2006
   38




---



##### 



Six Months Ended March 31, 2007


Six Months Ended March 31, 2006Consolidated


ConsolidatedOperations of


Operations ofAlion


Alion(Dollars in millions)%





%Financial Information




revenue





revenueTotal Revenue

$
369.0






$
212.5Material and subcontract revenue


149.8



40.6
%


66.6



31.3
%Total direct contract expenses


281.6



76.3
%


157.4



74.1
%Major components of direct
    contract expensesDirect labor expense


126.7



34.3
%


88.7



41.7
%Other direct expense


10.3



2.8
%


5.2



2.5
%Material and subcontract expense


144.6



39.2
%


63.5



29.9
%Gross profit


87.4



23.7
%


55.1



25.9
%Total operating expense


82.3



22.3
%


56.8



26.6
%Major components of operating
    expenseIndirect personnel and facilities


37.6



10.2
%


22.2



10.5
%General and administrative
    (excluding stock-based compensation)


25.0



6.8
%


21.2



10.0
%Stock-based compensation (included
    in G&A expense)


6.4



1.7
%


5.0



2.4Depreciation and amortization


11.3



3.1
%


7.2



3.4Income (loss) from operations

$
5.1



1.4
%

$
(1.4
)


(1.2
)%   Revenues.
   Increase in revenue
    generated by the activities of the acquired operations

$
153.7 million Increase in revenue
    generated by the activities of the non-acquired operations

$
2.8 millionTotal:

$
156.5 million     Direct Contract Expenses.
  
    Direct labor expense for the six months ended March 31,
    2007 increased $38.0 million, or 42.8%, over the six months
    ended March 31, 2006. Direct labor expense declined to
    34.3% from 41.7% of total revenue for the six months ended
    March 31, 2007 and 2006, respectively. This decrease was
    due to the decrease in content of direct labor expense from
    acquired operations primarily related to WCI and for work
    provided in support of the Anteon contracts. 39




---



##### 




    M&S expense for the six months ended March 31, 2007
    increased $81.1 million, or 127.7%, over the six months
    ended March 31, 2006. M&S expense increased to 39.2%
    from 29.9% of total revenue for the six months ended
    March 31, 2007 and 2006, respectively. The percent increase
    in M&S expense was due to the increase in content of
    M&S expense to total direct contract expense of the
    acquired operations, primarily related to WCI and for work
    provided in support of the Anteon contracts. M&S expense
    was approximately 96.5% and 95.3% of M&S revenue for the
    six months ended March 31, 2007 and 2006, respectively.    Gross Profit.
  Operating Expenses.
  
    Operating expenses for indirect personnel and rental and
    occupancy expenses for the six months ended March 31, 2007
    increased approximately $15.4 million, or 69.4%, over the
    six months ended March 31, 2006. Operating expenses for
    indirect personnel and facilities declined to 10.2% from 10.5%
    of total revenue for the six months ended March 31, 2007
    and 2006, respectively.
    General and administrative (G&A) expense, excluding
    stock-based compensation, for the six months ended
    March 31, 2007 increased approximately $3.8 million,
    or 17.9%, over the six months ended March 31, 2006.
    G&A expenses were 6.8% and 10.0% of revenue for the six
    months ended March 31, 2007 and 2006, respectively. For the
    six months ended March 31, 2007, the Company incurred
    expenses of approximately $4.3 million for third-party
    legal and accounting fees associated with financing expense and
    approximately $1.0 million for third party legal expense
    for contract protests. These additional expenses represent
    approximately 1.4% of total revenue. For the six months ended
    March 31, 2006, the Company incurred expenses of
    approximately $1.3 million for external accounting and
    legal fees associated with the completion of an investigation
    relating to an anonymous letter received by the Company shortly
    before the deadline for filing the Annual Report. The anonymous
    letter alleged, among other things, that one of the
    Companys business units had engaged in illegal activities
    with respect to certain of its business operations. The
    independent investigators concluded that there was no material
    basis for the allegations. Approximately $1.7 million was
    incurred for legal and accounting fees associated with
    acquisitions. These additional expenses represented
    approximately 1.4% of total revenue.
    Stock-based compensation expense (a separate element in G&A
    expense) relates to the SAR and phantom stock plans. This
    expense for the six months ended March 31, 2007 increased
    approximately $1.4 million, or 28.0%, over the six months
    ended March 31, 2006. The increase 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
    increase in the awards granted.
    Depreciation and amortization expense for the six months ended
    March 31, 2007 increased approximately $4.1 million,
    or 56.9%, over the six months ended March 31, 2006.
    Depreciation expense primarily arises from fixed assets while
    amortization expense results primarily from purchase contracts.
    Depreciation and amortization expense was 3.1% and 3.4% of
    revenue for the six months ended March 31, 2007 and 2006,
    respectively.  Income (loss) from Operations.
 40




---



##### 



Other Expense.
  Interest Expense.
  Six Months Ended March 31,2007


2006(In millions)Revolving facility

$
1.3


$
0.3Senior term loan


11.9



5.3Bridge loan


6.8



Senior unsecured note


4.0



Subordinated Note


1.2



1.2-long-term deferred interest


0.4



0.3-amortization of debt issuance
    costs


0.5



0.5Accretion of warrants(a)


2.3



0.3Other


0.6



Total

$
29.0


$
7.9     (a)
    
    Reflects change in value assigned to the detachable warrants
    associated with Mezzanine and Subordinated notes based on the
    change in the value of Alion common stock and the number of
    warrants outstanding.  Loss on extinguishment of debt.
  Income Tax (Expense) Benefit.
  Net Loss.
  Liquidity
    and Capital Resources
       41




---



##### 



Discussion
    of Debt Structure
  Term
    B Senior Credit Facility
    
    a senior term loan in the approximate amount of
    $221.7 million;
    a $50.0 million senior revolving credit facility under
    which approximately $2.7 million was outstanding as of
    March 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 $135.0 million uncommitted incremental term loan
    accordion facility.      
    On April 1, 2005, the Company entered into an incremental
    term loan facility and an amendment to the Term B Senior Credit
    Facility (Amendment One), which added $72.0 million in term
    loans to the Companys total indebtedness under the Term B
    Senior Credit Facility.
    On March 24, 2006, the Company entered into a second
    incremental term loan facility and second amendment to the Term
    B Senior Credit Facility (Amendment Two), which increased the
    term loan commitment under the Term B Senior Credit Facility by
    $68.0 million. Amendment Two also increased the revolving
    credit commitment under the senior revolving credit facility
    from $30.0 million to $50.0 million.
    On June 30, 2006, the Company entered into a third
    incremental term loan facility and amendment to the Term B
    Senior Credit Facility (Amendment Three), which added
    $50.0 million in term loans to the Term B Senior Credit
    Facility.
    On January 4, 2007, the Company entered into a fourth
    incremental term loan facility (Increment Four), which added
    $15.0 million in term loans to the Term B Senior Credit
    Facility.
    On February 6, 2007, the Company entered into a fourth
    amendment to the Term B Senior Credit Facility (Amendment Four).   42




---



##### 



Use of Proceeds.
    Security.
 43




---



##### 



Interest and Fees.
  Eurodollar


Federal Funds


Prime RateSpread


ABR Spread


ABR SpreadLeverage Ratio

(in basis points)


(in basis points)


(in basis points)Category 1


275



225



175Greater 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 Cap Agreements.
     44




---



##### 



Other Fees and Expenses.
    Financial Covenants. Form 10-Q
     45




---



##### 




    Consolidated EBITDA does not reflect the Companys cash
    expenditures, or future requirements for capital expenditures or
    contractual commitments;
    Consolidated EBITDA does not reflect changes in, or cash
    requirements for, the Companys working capital needs;
    Consolidated EBITDA does not reflect interest expense, or the
    cash requirements necessary to service interest or principal
    payments, on the Companys debt; and
    Although depreciation and amortization are non-cash charges, the
    assets being depreciated and amortized will often have to be
    replaced in the future, and Consolidated EBITDA does not reflect
    any cash requirements for such replacements.    Non-GAAP Measures 
    EBITDA and Consolidated EBITDA
    For the Twelve Months Ended March 31, 2007 and
    2006
  Calculation of EBITDA

2007


2006(Dollars in thousands)Net loss

$
(52,221
)

$
(25,608
)Plus: Interest expense


50,823



23,728Plus: Income tax expense (benefit)


(5
)


34Plus: Depreciation and
    amortization expense


20,714



17,703EBITDA

$
19,311


$
15,857   Calculation of Consolidated EBITDA

2007


2006(Dollars in thousands)EBITDA


19,311


$
15,857Plus: Non-cash expenses with
    respect to the stock appreciation rights and phantom stock plans
    (Stock-based compensation less cash settlements)*


12,163



11,448Plus: Non-cash contributions to
    the ESOP (including Company
    401-k match)*


9,264



6,802Plus: Loss on extinguishment of
    debt


6,170



Plus: Adjustments permitted by
    certain covenants in the Term B Senior Credit Facility


18,081



8,857Consolidated EBITDA

$
64,989


$
42,964  46




---



##### 



*
    
    Non-cash expenses with respect to the stock appreciation rights
    and phantom stock plans and non-cash contributions to the ESOP
    constitute all the non-cash charges and expenses that are
    included in the calculation of Consolidated EBITDA.  Leverage Ratio.
  Period

RatioMarch 24, 2006 through
    September 30, 2006


4.50 to 1.00October 1, 2006 through
    September 30, 2007


3.75 to 1.00October 1, 2007 through
    September 30, 2008


3.25 to 1.00Thereafter


3.00 to 1.00     Computation
    of Leverage Ratio
    Under the Term B Senior Credit Facility
    For the Twelve Months Ended March 31 2006
  2006(Dollars in thousands)Numerator:Revolving credit facility

$
10,000Term B Senior Credit facility debt
    outstanding, at face value


174,200Total debt outstanding

$
184,200Denominator:Consolidated EBITDA

$
42,964Plus: Permitted covenant
    adjustments


3,900Consolidated EBITDA with pro forma
    effect of acquisitions

$
46,864Leverage ratio:


3.93     Period

RatioMarch 31, 2007 through
    September 30, 2007


4.00 to 1.00October 1, 2007 through
    September 30, 2008


3.75 to 1.00October 1, 2008 through
    September 30, 2009


3.25 to 1.00Thereafter


3.00 to 1.00  47




---



##### 



Computation
    of Leverage Ratio
    Under the Term B Senior Credit Facility
    For the Twelve Months Ended March 31, 2007
  2007(Dollars in thousands)Numerator:Revolving credit facility


2,700Term B Senior Credit facility debt
    outstanding, at face value


221,676Total debt outstanding


224,376Denominator:Consolidated EBITDA


64,989Plus: Permitted covenant
    adjustments


10,948Consolidated EBITDA with pro forma
    effect of acquisitions


75,937Leverage ratio:


2.95   Interest Coverage Ratio.
  Period

RatioMarch 24, 2006 through
    September 30, 2006


3.00 to 1.00October 1, 2006 through
    September 30, 2007


3.25 to 1.00October 1, 2007 through
    September 30, 2008


3.50 to 1.00Thereafter


4.00 to 1.00     Computation
    of Interest Coverage Ratio
    Under the Term B Senior Credit Facility
    For the Twelve Months Ended March 31, 2006
  2006(Dollars in thousands)Numerator:Consolidated EBITDA

$
42,964Plus: Permitted covenant
    adjustments


3,900Consolidated EBITDA with pro forma
    effect of acquisitions


46,864Less: Capital expenditures


3,395Consolidated EBITDA with pro forma
    effect of acquisitions less capital expenditures


43,469   48




---



##### 



2006(Dollars in thousands)Denominator:Consolidated interest expense

$
9,362Interest coverage ratio


4.64       Computation
    of Interest Coverage Ratio
    Under the Term B Senior Credit Facility
    For the Twelve Months Ended March 31, 2007
  2007(Dollars in thousands)Numerator:Consolidated EBITDA

$
64,989Plus: Permitted covenant
    adjustments


10,948Consolidated EBITDA with pro forma
    effect of acquisitions


75,937Less: Capital expenditures


7,444Consolidated EBITDA with pro forma
    effect of acquisitions less capital expenditures

$
68,493   2007(Dollars in thousands)Denominator:Consolidated interest expense

$
32,428Interest coverage ratio


2.11     
    incur additional indebtedness other than permitted additional
    indebtedness after satisfying a 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; 49




---



##### 




    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;
    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).      Bridge
    Loan Agreement
   50




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##### 



Subordinated
    Note
    paid-in-kind
  Senior
    Unsecured Notes
    Use of Proceeds.
  Security.
  Ranking.
  Interest and Fees.
  Optional Redemption.
   51




---



##### 



12-month
  Period

Redemption Price2011


105.125
%2012


102.563
%2013 and thereafter


100.000
%   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.  Exchange Offer; Registration Rights.
 52




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##### 



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 Period2007*


2008


2009


2010


2011


2012


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

$
386


$
250


$
250


$
250


$
250


$
250


$
750Senior Secured Term B Loan- Interest(2)


8,482



15,937



16,024



16,202



16,277



16,708



6,051- Principal(3)


1,112



2,224



2,224



2,224



2,224



2,224



209,446Senior Unsecured Notes- Interest(4)


12,314



25,625



25,625



25,625



25,625



25,625



64,063- Principal(4)


























250,000Subordinated note- Interest(5)










6,384



3,192











- Principal(5)










27,352



27,352











Total cash  Pay interest


21,182



41,812



48,283



45,269



42,152



42,583



70,864Total cash  Pay
    principal


1,112



2,224



29,576



29,576



2,224



2,224



459,446Total

$
22,294


$
44,036


$
77,859


$
74,845


$
44,376


$
44,807


$
530,310     *
    
    Estimated interest and principal payments for the remainder of
    fiscal year 2007.(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 2012. For the remainder of fiscal year 2007, the
    average balance drawn on the Companys then revolving
    credit facility is projected to be approximately
    $2.0 million. For the fiscal years 2008 through 2012, the
    Company anticipates the balance drawn on its then revolving
    credit facility will be minimal. As of March 31, 2007, the
    Company has borrowed approximately $2.7 million under the
    revolving credit facility, and an additional approximately
    $3.7 million was allocated for letters of credit and as
    such is not available to be borrowed. 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: $220.8 million,
    $219.5 million, $217.2 million, $215.0 million,
    $212.8 million, and $210.6 million for the remainder
    of fiscal year 2007 and for fiscal years ending
    September 30, 2008 through 2012, respectively. The Company
    expects it will need to refinance the Term B Senior term loan
    before the end of fiscal year 2012 and expects interest expense
    to continue at levels similar 53




---



##### 



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 2007, and for fiscal years ending
    September 30, 2008 through 2012 is estimated to be
    approximately 7.5%, 7.1%, 7.3%, 7.4%, 7.5%, and 7.8%,
    respectively. The effective interest rate takes into account the
    interest rate cap agreements which limit the interest rate on a
    portion, but not all, of the outstanding principal balance of
    the Term B Senior Credit Facility through September 2007.
    Outstanding principal balances not under the cap agreements had
    interest based on the Eurodollar rate. The senior term loan
    matures February 6, 2013. The approximate impact of a 1%
    increase in the interest rate, as applied to principal balances
    drawn under the senior term loan not covered by the current
    interest rate cap agreements would be $0.6 million,
    $2.2 million, $2.2 million, $2.2 million,
    $2.1 million, and $2.1 million for the remainder of
    fiscal year 2007 and for fiscal years ending September 30,
    2008 through 2012, respectively. 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 2007
    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 $221.7 million as of December 31,
    2006, plus the $15.0 million in additional term loans drawn
    under the Term B Senior Credit Facility on January 4, 2007,
    less a $51.0 million repayment of the Term B Senior loan on
    February 8, 2007 from the proceeds of sale of
    $250.0 million Senior Unsecured Notes, less approximately
    $0.7 million in principal paid for the three months ended
    March 31, 2007, resulting in expected aggregate annual
    principal payments of approximately $1.1 million for the
    remainder of fiscal year 2007 and approximately
    $2.2 million in each of fiscal years 2008 through 2012. The
    remaining principal balance of approximately $209.5 million
    is to be paid 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 March 31, 2007, no mandatory
    prepayments are due.(4)
    
    The table reflects the issuance of $250.0 million of Senior
    Unsecured Notes on February 8, 2007. The principal amount
    of $250.0 million is due and payable on February 1,
    2015.(5)
    
    The Subordinated Note bears interest at (i) 6.0% through
    December 20, 2006, (ii) approximately 6.4% from
    December 21, 2006 through December 20, 2007, and
    (iii) 6.7% from December 21, 2007 through
    December 20, 2008. Interest is payable quarterly by the
    issuance of
    paid-in-kind
    or PIK notes maturing at the same time as the Subordinated Note.
    Commencing December 2008, the Subordinated Note will bear
    interest at 16.0% per year payable quarterly in cash
    through the time of repayment in full of the Subordinated Note.
    Principal on the Subordinated Note will be payable in equal
    installments of $19.95 million in December 2009 and
    December 2010; the PIK notes are also due in equal installments
    of approximately $7.4 million on these same dates.  Other
    Obligations
  Earn
    outs
         54




---



##### 



Lease
    Payments
    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.    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


1,695


$
37.06



63December 2006


2,243


$
41.02



92January 2007


14


$
41.02



1February 2007


160,020


$
41.02



6,564March 2007


73


$
41.02



3Total









$
35,529  55




---



##### 



Contract
    performance  Joint Spectrum Center
    Contract
    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; 56




---



##### 




    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, 2006 filed with the SEC on
    December 1, 2006.    Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk          Foreign
    currency risk
    Risk
    associated with the value of Alion common stock
   57




---



##### 



Item 4.
    Controls
    and Procedures  Disclosure Controls and
    Procedures. Rule 15d-15(e)
  Internal Control Over Financial
    Reporting. Rule 15d-15(f)
  Item 4T.
    Controls
    and Procedures   58




---



##### 



PART II 
    OTHER INFORMATION Item 1.  Legal
    Proceedings      Item 1A.
    Risk
    Factors  Our
    substantial leverage may limit our operational flexibility and
    negatively affect the value of your investment in
    us.
      
    making it more difficult for us to satisfy our obligations with
    respect to our debt, and any failure to comply with the
    obligations of any of our debt instruments, including
    restrictive and financial covenants, could result in an event of
    default under the agreements governing our debt;
    making it more difficult for us to satisfy our repurchase
    obligations to ESOP participants;
    increasing our vulnerability to general adverse economic and
    industry conditions by making it more difficult for us to react
    to changing conditions;
    limiting our ability to obtain additional financing to fund
    future working capital, capital expenditures, acquisitions and
    other business opportunities, introductions of new technologies
    and other general corporate requirements;
    requiring a substantial portion of our cash flow from operations
    for the payments of interest on our debt and reducing our
    ability to use our cash flow to fund future working capital,
    capital expenditures, acquisitions and other business
    opportunities, introductions of new technologies and other
    general corporate requirements;
    exposing us to risks inherent in interest rate fluctuations
    because some of our borrowings will be at variable rates of
    interest, which could result in higher interest expense in the
    event of increases in interest rates;
    limiting our flexibility in planning for, or reacting to,
    changes in our business and the industry in which we
    operate; and
    placing us at a competitive disadvantage compared with our
    competitors that have less debt.  Despite
    current indebtedness levels, we and our subsidiaries may still
    be able to incur more debt. This could further exacerbate the
    risks associated with our substantial leverage.
   59




---



##### 



Our
    Term B Senior Credit Facility and the Indenture governing the
    Senior Unsecured Notes will restrict our
    operations.
    
    incur additional debt other than permitted additional debt;
    pay dividends or distributions on our capital stock or purchase,
    redeem or retire our capital stock other than distributions
    necessary for the ESOP to satisfy its repurchase obligations and
    certain payments required under our equity based compensation
    plans;
    make acquisitions and investments other than permitted
    acquisitions and permitted investments;
    issue or sell preferred stock of subsidiaries;
    create liens on our assets;
    enter into certain transactions with affiliates;
    merge or consolidate with another company; and
    transfer and sell assets outside the ordinary course of business.    and/or and/or
  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   60




---



##### 



Item 6.
    Exhibits  Exhibit No.

Description4
.16

Indenture dated as of
    February 8, 2007, among Alion Science and Technology
    Corporation, certain subsidiary guarantors and Wilmington Trust
    Company, as trustee.(1)4
.17

Form of 10.25% Senior Notes
    due 2015 (included as Exhibit 1 to Exhibit 4.16 of
    this quarterly report on
    Form 10-Q)(1)4
.18

Amended and Restated Alion Science
    and Technology Corporation Employee Ownership, Savings and
    Investment Plan.(2)10
.81

Incremental Term
    Loan Assumption Agreement dated January 4, 2007
    related to the Credit Agreement dated as of August 2, 2004,
    as amended, among Alion Science and Technology Corporation,
    certain subsidiary guarantors, Credit Suisse, and the lenders
    party thereto.(3)10
.82

Purchase Agreement dated
    January 26, 2007 among Alion Science and Technology
    Corporation, certain subsidiary guarantors and Credit Suisse
    Securities (USA) LLC.(1)10
.83

Amendment No. 4 to the Credit
    Agreement dated as of August 2, 2004, as amended, among
    Alion Science and Technology Corporation, certain subsidiary
    guarantors, Credit Suisse and the lenders party thereto.(3)10
.84

Registration Rights Agreement
    dated February 8, 2007 among Alion Science and Technology
    Corporation, certain subsidiary guarantors and Credit Suisse
    Securities (USA) LLC.(1)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 Chief 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 Chief Financial
    Officer of Alion Science and Technology Corporation, pursuant to
    18 U.S.C. Section 1350 as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     (1)
    
    Incorporated by reference to the corresponding exhibit
    previously filed as an exhibit to the Companys
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 8, 2007.(2)
    
    Incorporated by reference to the corresponding exhibit
    previously filed as an exhibit to the Companys
    Form S-4
    filed with the Securities and Exchange Commission on
    April 30, 2007.(3)
    
    Incorporated by reference to the corresponding exhibit
    previously filed as an exhibit to the Companys
    Form 8-K
    filed with the Securities and Exchange Commission on
    January 10, 2007. 61




---



##### 



SIGNATURES
      John
    M. Hughes
        62