##### 





UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
   Form 10-K
   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    September 30, 2007    Alion Science and Technology
    Corporation
 (Exact name of Registrant as
    Specified in its Charter)
   Delaware

333-89756

54-2061691(State or Other Jurisdiction
    of
    Organization)

(Commission File
    Number)

(IRS Employer Incorporation
    or 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, including
 Area Code, of Principal
    Executive Offices)
      Securities registered pursuant to Section 12(b) or 12(g)
    of the Act:
    None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2 o o þ
  Rule 12b-2 o þ
      Documents
    Incorporated by Reference:
    None




---



##### 





ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  FORM 10-K
  TABLE OF
    CONTENTS
  PART IItem 1.


Business


2Item 1A.


Risk Factors


18Item 1B.


Unresolved Staff Comments


29Item 2.


Properties


29Item 3.


Legal Proceedings


29Item 4.


Submission of Matters to a Vote of Security
    Holders


30PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholders Matters and Issuer Purchases of Equity
    Securities


30Item 6.


Selected Financial Data


31Item 7.


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


34Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


57Item 8.


Financial Statements and Supplementary Data


59Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


103Item 9A.


Controls and Procedures


103Item 9A(T).


Controls and Procedures


103Item 9B.


Other Information


103PART IIIItem 10.


Directors, Executive Officers, and Corporate
    Governance


104Item 11.


Executive Compensation


109Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholders Matters


125Item 13.


Certain Relationships and Related Transactions
    and Director Independence


126Item 14.


Principal Accountant Fees and Services


126Item 15.


Exhibits and Financial Statement Schedules


127   1




---



##### 



PART I
  Item 1.
    Business  Form 10-K
  and/or and/or and/or
    Overview
       2




---



##### 



Revenue
    by Fiscal Year
  Core Business Area

2007


2006


2005(In millions)-Defense Operations

$
151.3



20.5
%

$
134.1



26.3
%

$
135.4



36.7
%-Wireless Communications


18.4



2.5
%


47.2



9.3
%

$
56.0



15.2
%-Industrial Technology Solutions


31.6



4.3
%


37.0



7.3
%

$
45.1



12.2
%-Naval Architecture and Marine Engineering


296.7



40.2
%


140.4



27.6
%

$
51.1



13.8
%-Modeling and Simulation


52.4



7.1
%


50.9



10.0
%

$
34.4



9.3
%-Chemical, Biological, Nuclear, and Environmental Sciences


70.3



9.5
%


51.0



10.0
%

$
32.0



8.7
%-Information Technology


39.0



5.3
%


25.8



5.1
%

$
11.4



3.1
%-Systems Engineering


77.9



10.6
%


22.2



4.4
%

$
3.8



1.0
%$
737.6



100.0
%

$
508.6



100.0
%

$
369.2



100.0
%   Defense Operations.
  
    Military transformation:  we identify and
    analyze issues and programs of major importance for the Office
    of the Secretary of Defense and related U.S. military
    services transformation initiatives such as joint warfare
    experimentation. We also integrate Command, Control,
    Communication, and Computer Intelligence (C4I) initiatives and
    develop net-centric initiatives.
    Logistics management:  we provide support to
    the U.S. Army on a broad range of requirements including
    infrastructure assessment, defense industrial base assessment,
    financial management, cost analysis, and base realignment, from
    planning to implementation.
    Readiness assessments and operational
    support:  we deliver strategic planning and
    decision-making process improvements by providing technical
    assistance and decision support tools, such as Full Spectrum
    Analysis and Distributed Information System Collaboration
    Architecture.
    Training and education services:  we assist the
    DoD in the development of its department-wide education and
    training policies. We develop the necessary technology, compile
    the information to be used in the courseware, and then translate
    this into an electronic or web-based advanced distant learning
    medium so that the student can interact with the courseware from
    a remote location.
    Critical infrastructure protection, risk and vulnerability
    analysis:   we provide techniques, tools, and
    operational support to assess vulnerabilities and defend
    infrastructure, including ports, power plants and communications
    nodes.  Wireless Communications.
  
    Wireless and communications-electronics
    engineering:  we perform work for the government
    communications-electronics and commercial wireless
    communities. The term communications-electronics
    refers to all devices or systems that use the radio frequency
    spectrum. Our work for the government sector includes such tasks
    as conducting modeling and simulation of communications networks
    and analyzing radar and space systems performance. For our
    commercial customers, both foreign and domestic, we determine
    whether wireless communication networks have the geographic
    coverage the customers desire, and whether the systems operate
    free of interference, and we make recommendations designed to
    improve network performance. We also evaluate and make
    recommendations for the design of radio transmitters, receivers
    and antennas for our commercial customers. In the area of
    net-centric operations, we design next generation wireless
    networks and devices, including frequency and bandwidth-adaptive
    systems. 3




---



##### 




    Spectrum management:  we perform studies and
    analyses related to the manner in which the radio frequency
    spectrum may be utilized without interruption or interference by
    both new and existing users and technologies. In addition, we
    assess existing and new technologies for their ability to
    utilize the radio frequency spectrum efficiently  in
    other words, to accomplish designated tasks without using too
    much of the available radio frequency spectrum. Our services,
    which include providing spectrum policy advice, are used to
    support decisions of senior government officials in the
    U.S. and abroad.
    C4ISR system engineering:  we deliver Command,
    Control, Communication and Computer Intelligence, Surveillance,
    and Reconnaissance (C4ISR) engineering and analysis support for
    radio frequency communications, radar, and Identification Friend
    or Foe to DoD system developers and integrators. We also develop
    automated spectrum management software to assign frequencies to
    multiple users of the radio frequency spectrum in an effort to
    minimize interference. Our software tool, Spectrum XXITM, is the
    automated spectrum management system used worldwide by the DoD,
    and it is now also being used by other agencies of the
    U.S. federal government. We also design, integrate and
    deploy spectrum monitoring software to locate and track
    violators of the rules and regulations of spectrum usage.
    Electromagnetic environmental effects:  we
    perform studies and analyses to measure and predict
    electromagnetic environmental effects for both government and
    commercial customers. Our work has involved building automated
    tools designed to predict the effects of potential hazards of
    electromagnetic radiation to ordnance, fuel and personnel. We
    also analyze electronic components in automotive parts such as
    brakes and airbags for electromagnetic interference issues on
    behalf of various commercial customers.  Industrial Technology Solutions.
  
    Reliability, material and manufacturing
    engineering:  we apply technology to enhance
    production, improve performance, reduce cost and extend life of
    complex engineered products.
    Sensor technology development:  we develop,
    evaluate, adapt and integrate sensor technologies and provide
    support to the DoDs Night Vision and Electronic Sensors
    Directorate.
    Facilities engineering/construction
    management:  we provide expertise in engineering,
    architecture and related disciplines (e.g., construction
    management, logistics, design oversight and inspection).
    Research and analysis center management:  we
    manage a number of DoD information analysis centers such as the:
    Advanced Materials, Manufacturing and Testing Information
    Analysis Center (AMMTIAC) which is a recent combination of the
    Advanced Materials Processes Technology Information Analysis
    Center (AMPTIAC), the Manufacturing Technology Information
    Analysis Center (MTIAC), and the Non Destructive Testing
    Information Analysis Center (NTIAC). We also manage the DuPage
    Manufacturing Research Center.
    Aerospace coating production and
    application:  we develop and apply coatings to
    protect government and commercial satellites.
    Innovative manufacturing technologies:  we
    develop and integrate systems for low-volume productivity (e.g.,
    laser cladding of parts) and rapid manufacturing systems.    Naval Architecture and Marine Engineering.
  
    Ship design:  we provide total ship design
    services for military and commercial customers. The services
    encompass whole ship systems engineering including requirements
    definition, concept analysis, feasibility studies and contract
    design, detail design and production support. 4




---



##### 




    Naval architecture:  we provide systems
    engineering/design integration, hull form development and
    performance analysis, structural design and analysis, weight
    engineering and intact and damage stability analysis.
    Marine engineering:  we design and engineer
    ship systems including propulsion, electrical, fluids/piping,
    auxiliary, HVAC, deck machinery, and machinery automation and
    control systems. We provide expertise for machinery integration,
    test and trials, failure analysis, modeling and simulation, and
    integrated logistics support.
    Combat systems engineering:  we provide
    services including mission and threat analysis, evaluation of
    candidate warfare and combat systems, development of
    specifications and installation drawings for topside and
    below-deck interface requirements, and ship modernizations.
    Program management:  we furnish acquisition
    planning, business and financial management, configuration and
    data management, test and evaluation support, and production
    analysis and management in all life cycle phases of equipment,
    systems, and ships.  Modeling and Simulation.
  
    Wargaming, experimentation, scenario design and execution:we design and conduct strategic and operations analytic
    wargames to evaluate future operational concepts and force
    transformation initiatives, create and implement training
    scenarios for two-dimensional and three-dimensional
    (3-D)
    simulation systems, support Joint Forces Commands
    Millennium Challenge, and we support Joint Conflict and Tactical
    Simulation (JCATS) scenarios.
    C4I integration:  we design and develop
    policies for the DoD to enable standard automated interfaces
    between simulation and C4I systems which support improved
    planning, training and military operations.
    Analysis and visualization:  we develop terrain
    modeling databases and realistic
    3-D visual
    systems for flight simulation and other training systems. We
    manage the Modeling and Simulation Information Analysis Center
    (MSIAC) for the DoD.
    Phenomenological modeling:  we develop
    phenomenological models for nuclear, chemical, biological and
    electromagnetic environments.  Chemical, Biological, Nuclear and Environmental
    Sciences.
  
    Chemical/biological agent detection and decontamination:we develop, test and evaluate methods for detection and
    chemical decontamination of chemical, biological and other toxic
    agents; and operate a chemical agent surety laboratory. We
    provide analytical methods to enhance safe handling of chemical
    substances and design methods to convert harmful chemical and
    biological materials into harmless materials.
    Laboratory support:  using our laboratory
    facilities we analyze materials, wastes and effluents to
    determine constituents
    and/or
    properties; develop and validate analytical methods and
    instruments; and develop, test and implement methods for
    measuring air quality.
    Life sciences:  we provide analysis, testing,
    operational and laboratory support in the areas of:
    biotechnology, biomedical sciences and toxicology.
    Detection, recovery and disposal of unexploded ordnance and
    explosives:we demilitarize conventional, toxic/radioactive
    and chemical warfare material; and we decontaminate and demolish
    buildings and equipment contaminated with explosives. We provide
    these services through our wholly-owned subsidiary, Human
    Factors Applications, Inc.
    Environmental sciences:  we provide analysis,
    operational and laboratory support in: air pollution research,
    toxicology, ecology and habitat, and quality assurance program
    support; exhaust plume dispersion 5




---



##### 



calculations and modeling; emissions modeling; air and water
    pollution equipment evaluations; and technology evaluations of
    waste streams.  
    Nuclear safety and analysis:  we provide
    nuclear safety and analysis services to the U.S. Department
    of Energy and its National Laboratories as well as to the
    commercial nuclear power industry.  Information Technology.
  
    Enterprise architecture development and
    integration:  we design, develop and implement
    enterprise information systems.
    Applications development:  we develop web-based
    and stand-alone solutions, as well as decision support tools.
    Knowledge management:  we deliver solutions for
    data warehousing/mining, decision support, and information
    analysis.
    Network design and secure network
    operations:  we provide information assurance,
    business continuity and disaster planning, network planning and
    designs for virtual private networks.
    Independent verification and validation:  we
    implement modeling and simulation, test and evaluation, and
    database monitoring.
    Medical informatics:  we develop and integrate
    technologies for acquisition, storage and use of information,
    including decision support in the field of biomedicine.  Systems Engineering.
  
    System design, integration and process
    optimization:  our systems engineering expertise
    is designed to ensure that operational and client requirements
    are optimized throughout the design process, resulting in
    solutions that meet critical needs and support long-term goals.
    Logistics analysis and assets management:  we
    provide complete DoD program support and management, from
    acquisition and financial management to logistics and strategic
    planning. We support a broad range of requirements including
    infrastructure, reserve mobilization, cost analysis, and base
    realignment.
    Human-Systems integration:  our engineers
    provide insight to how the operators of a system interact with
    technology and the working environment. Our extensive
    capabilities in this area include human factors engineering,
    system safety analysis, and crew resource requirements modeling.
    Major systems acquisition management:  our
    experts develop and use tested methodologies and tools to
    provide oversight of all aspects of the acquisition lifecycle,
    resulting in greater control over costs and deadlines.
    Design for life cycle management:  our
    technical and operational experts can assess needs and develop
    and implement systems designed to provide maximum return on
    investment from cradle to exit.  Software Tools and Technology Products.
  
    Frequency Assignment & Certification Engineering
    Tool
    (FACETtm):this software tool automates the assignment of radio
    frequencies, which we refer to as spectrum management, in a way
    that is designed to minimize interference between multiple users
    of the radio frequency spectrum.
    Advanced Cosite Analysis Tool
    (ACATtm):this software tool is designed to permit co-location of
    numerous antennas on towers, rooftops and other platforms by
    predicting interference between the various systems and
    informing the user how to minimize interference. 6




---



##### 




    Spectrum Monitoring Automatic Reporting and Tracking System
    (SMARTtm):this system characterizes the frequency usage in a given
    geographic area, allowing the customer to remotely monitor the
    spectrum to identify unauthorized users and to look for gaps in
    the spectrum usage.
    X-IGtm:  this
    software provides
    3-D images
    for managing and displaying visuals of terrain and environment
    used in flight simulation and other training systems.
    MobSimtm / SimViewertm:
    this software provides for tracking components across multiple
    modes of transportation (e.g., air, sea, rail and truck).
    Virtual
    Oceantm:  this
    software provides visualization of ship motions based on
    analytically correct representation of the seaway.
    Countermeasurestm:  we
    provide vulnerability/risk assessment software used to analyze
    and quantify physical or electronic security.
    CaveDogtm:  this
    product is a small, remote-controlled hemispherical,
    multi-spectral vision robot vehicle used for surveillance and
    reconnaissance.
    Real Time Location System
    (RTLStm):  this
    product is designed to enable customers to track thousands of
    users in a defined area, such as a seaport, a football stadium
    or an office building, using low cost antennas and badges.
    Isis-
    3Dtm:  we
    provide fire code software with specific models for weapon
    thermal hazard response, including aerosol and radiation models.
    PRISMtm:  we
    provide software used for system level failure rate modeling
    with the ability to model both operating and non-operating
    failure rates. The system considers non-component failure causes
    through process assessment.  Corporate
    History
    The
    Acquisition and Deal Terms for the Purchase of Assets from IITRI
    (the Transaction)
  Acquired Business.
  Purchase Price.
  Assumption of Liabilities.
 7




---



##### 



Indemnification.
  The
    Purchase of Alion Common Stock by ESOP Trust
    Representations and Warranties.
  Covenants.
  
    we will not take any steps without the ESOP Trusts consent
    to change our status as an S corporation;
    we will not enter into any transactions with any of our officers
    or directors without approval from our Board of Directors or
    Compensation Committee;
    we will obtain the ESOP Trusts consent before effecting
    our first public offering of stock to be listed on any
    securities exchange;
    we will not take actions that would prevent the ESOP Trust from
    acquiring any additional shares of our stock under the control
    share acquisition provisions of the Delaware General Corporation
    Law;
    we will repurchase any shares of common stock distributed to
    participants in the ESOP component of the KSOP, to the extent
    required by the ESOP, any ESOP related documents and applicable
    laws;
    we will maintain the KSOP and the ESOP Trust so that they will
    remain in compliance with the qualification and tax exemption
    requirements under the Internal Revenue Code; and
    we will use our best efforts to ensure that the ESOP Trust fully
    enjoys its right to elect a majority of our Board of Directors
    and to otherwise control Alion.    Indemnification.
  The
    Alion ESOP
    
    rolling over their eligible retirement account balances into the
    ESOP component of the KSOP by making an individual one-time ESOP
    investment election available to new hires; and/or
    directing a portion of their pre-tax payroll income to be
    invested in the ESOP component of the KSOP.   8




---



##### 



Business
    Strategy
    Broaden our existing core competencies.
  Leverage experience and reputation to expand market
    share.
  Continue to improve financial performance and increase
    scale.
 9




---



##### 



Pursue a disciplined acquisition strategy.
  Market
    and Industry Background
    Continuing Growth in Overall DoD
    Budget/Spending.
  Growing Spending in the DoD Operations and Maintenance
    Accounts.
  Projected Increases in Private Sector Information Technology
    Government Spending. Federal IT Market Forecast, FY 2007  FY
    2012
  Expected Growth in DoD Research and Development
    Expenditures.
  Increased Budget Dollars for Homeland
    Security.
  Increased Reliance on Technology Services
    Contractors.
 10




---



##### 



Growing Opportunities for Sophisticated Technology Solution
    Providers.
  
    Shift from an emphasis on ships, guns, tanks and planes to a
    focus on information, knowledge, and timely, actionable
    intelligence.
    Implement enterprise-wide changes to ensure that organizations,
    processes and procedures effectively support DoDs
    strategic direction.
    Emphasize joint command and control for homeland defense and
    civil support missions, including communication and command and
    control systems that are interoperable with other agencies and
    state and local governments.
    Nearly double unmanned aerial vehicle (UAV) coverage capacity by
    accelerating the acquisition of Predator UAVs and Global Hawk
    UAVs.
    Build a larger naval fleet that includes 11 Carrier Strike
    Groups, balance the need to transform and recapitalize the naval
    fleet, improve affordability and provide stability for the
    shipbuilding industry.
    Accelerate procurement of Littoral Combat Ships to provide power
    projection capabilities in littoral waters.
    Make additional investments in information assurance
    capabilities to protect information and the DoDs computer
    networks.
    Improve DoDs information sharing with other
    U.S. agencies and with international allies and partners by
    developing information protection policies and exploiting the
    latest commercial technologies.
    Continue to pursue enabling technologies for transformational
    logistics and innovative operational concepts such as Seabasing.
    Increase investment to implement the Global Information Grid,
    protect information and networks and focus research and
    development on its protection.
    Develop a new bandwidth requirements model to determine optimum
    network size and capability to best support operational forces.
    Expand training programs to accommodate planners from other
    agencies and working with the DHS.  Continuing Impact of U.S. Government Procurement
    Reform.
 11




---



##### 



We are
    primarily a government contractor.
      Contract Types. time-and-material
  
    Cost-reimbursement contracts are structured to allow us to
    recover our direct labor and allocable indirect costs, plus a
    fee that may be fixed or variable depending on the contract
    arrangement. Allocable indirect costs refer to those costs
    related to operating our business that can be recovered under a
    contract.
    Fixed-price contracts oblige customers to pay us a fixed dollar
    amount to cover all direct and indirect costs, and fees. Under
    fixed-price contracts we assume the risk of any cost overruns
    and receive the benefit of any cost savings.
    Time-and-material
    contracts are structured to allow us to recover our labor costs,
    related indirect expenses and a fee through fixed hourly labor
    billing rates, and to recover certain material and other direct
    costs through cost reimbursable provisions without fee.      For the Year Ended September 30,Contract Type

2007


2006*


2005*(Amounts in millions)Cost-reimbursement

$
514.4



69.7
%

$
335.0



65.9
%

$
225.1



61.0
%Fixed-price


70.0



9.5
%


61.6



12.1
%


51.4



13.9
%Time-and-material


153.2



20.8
%


112.0



22.0
%


92.7



25.1
%Total

$
737.6



100.0
%

$
508.6



100.0
%

$
369.2



100.0
%     *
    
    The 2006 and 2005 amounts were revised to conform to the current
    presentation for the reallocation of the
    ID/IQ
    contracts.   12




---



##### 



Government Oversight.
  Backlog.
  
    Funded backlog reflects amounts that have been awarded to us and
    whose funding has been authorized by the customer, less revenue
    previously recognized under the same contracts.
    Unfunded backlog represents the total estimated value of
    contracts awarded to us, but whose funding has not yet been
    authorized by the customer.   13




---



##### 



September 30,2007


2006


2005(In millions)Backlog:Funded

$
360.0


$
386.0


$
193.0Unfunded

$
4,669.0


$
3,861.0


$
2,581.0Total

$
5,029.0


$
4,247.0


$
2,774.0     
    in-process backlog, which refers to proposals that we are
    preparing to submit following a request from a customer, and
    submitted backlog, which refers to proposals that we have
    submitted to a customer and for which we are awaiting an award
    decision.    September 30,2007


2006


2005(In millions)In-process

$
250.0


$
650.0


$
276.0Submitted

$
834.0


$
474.0


$
1,121.0Total

$
1,084.0


$
1,124.0


$
1,397.0   Corporate
    Culture, Employees and Recruiting
     14




---



##### 



Our
    Customers
    2007


2006


2005(In millions)U.S. Department of Defense (DoD)

$
655.9



88.9
%

$
451.8



88.8
%

$
324.1



87.8
%Other Federal Civilian Agencies

$
32.3



4.4
%

$
30.1



5.9
%

$
30.3



8.2
%Commercial and International

$
49.4



6.7
%

$
26.7



5.3
%

$
14.8



4.0
%Total

$
737.6



100.0
%

$
508.6



100.0
%

$
369.2



100.0
%   Competition
       15




---



##### 




    technical capabilities and approach;
    quality of personnel, including management capabilities;
    successful past contract performance; and
    price.    S
    Corporation Status
    
    one class of stock;
    up to 100 shareholders; and
    certain types of shareholders, such as individuals, trusts and
    some tax-exempt organizations, including ESOPs.           16




---



##### 



Business
    Development and Promotional Activities
          Resources
    Patents
    and Proprietary Information
   17




---



##### 



Foreign
    Operations
  U.S.-based
  Company
    Information Available on the Internet
    Environmental
    Matters
  and/or
      Item 1A.
    Risk
    Factors  Risks
    Related to Our Business
  We
    have incurred a significant amount of debt, and our debt load
    may limit our operational flexibility and negatively affect the
    value of your investment in the ESOP component.
     18




---



##### 




    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.
    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; 19




---



##### 




    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 and/or
  We
    expect to experience net losses in at least our next five years
    of operation.
    Our
    ability to meet our financial and other future obligations is
    dependent on our future operating results and we cannot be sure
    that we will be able to meet these obligations as they come
    due.
    
    funding of our contract backlog;
    the time within which our customers pay our accounts receivable; 20




---



##### 




    new contract awards and our performance under those contracts;
    continued increase in revenue on an annual basis;
    increase in operating income on an annual basis;
    the amount of our common stock purchased by our employees via
    payroll deferrals and rollovers to our ESOP;
    the amount of our common stock repurchased from our former
    employees;
    interest rate levels;
    our status as an S corporation for U.S. federal income
    tax purposes;
    the current economic condition and conditions in the defense
    contracting industry;
    U.S. government spending levels, both generally and by our
    particular customers;
    the failure by the Congress to approve budgets timely for the
    U.S. federal agencies we support;
    any operating difficulties, operating costs or pricing pressures
    we may experience;
    the passage of legislation or other regulatory developments that
    affects us adversely; and
    any delays in implementing any strategic projects we may have.  payment-in-kind
    We
    face intense competition from many competitors that have greater
    resources than we do, which could result in price reductions,
    reduced profitability, and loss of market share.
   21




---



##### 




    the effectiveness of our research and development programs;
    our ability to offer better performance than our competitors at
    a lower or comparable cost;
    the readiness of our facilities, equipment and personnel to
    perform the programs for which we compete; and
    our ability to attract and retain key personnel.    Historically,
    a few contracts have provided us with most of our revenues, and
    if we do not retain or replace these contracts our operations
    will suffer.
    1.
    SeaPort Multiple Award Contract for the Naval Sea Systems
    Command (17.9%);2.
    Technical and Analytical Support for the U.S. Air Force
    (8.7%);3.
    Engineering, Financial and Program Management Services to the
    Virtual SYSCOM for the U.S. Navy (6.7%);4.
    Modeling and Simulation Information Analysis Center for the DoD
    for the Defense Modeling and Simulation Office (5.9%); and5.
    Night Vision HighTech Omnibus Contract for the U.S. Army
    (4.3%)    If we
    are unable to manage our growth, our business could be adversely
    affected.
    Our
    acquisitions could increase our costs or liabilities or be
    disruptive.
   22




---



##### 



Due to
    the inherent danger involved in some of the businesses that we
    conduct, there are risks of claims by clients and third parties
    that could have a substantial adverse economic impact upon
    us.
    We
    depend on key management and may not be able to retain those
    employees due to competition for their services.
    Our
    business could suffer if we fail to attract, train and retain
    skilled employees.
    If we
    do not, or the ESOP Trust does not, continue to be exempt from
    U.S. federal income tax and any unrelated business income tax,
    our cash flow available to meet our financial obligations and to
    reinvest in our operations may decrease.
     23




---



##### 



In
    order to succeed, we will have to keep up with rapid
    technological changes in a number of industries and various
    factors could impact our ability to keep pace with these
    changes.
    
    defense operations support;
    wireless communications;
    industrial technology solutions;
    naval architecture and marine engineering;
    modeling and simulation;
    chemical, biological, nuclear and environmental sciences;
    information technology; and
    systems engineering    An
    economic downturn could harm our business.
    Our
    employees may engage in misconduct or other improper activities,
    which could harm our business.
   24




---



##### 



The
    interests of the ESOP Trust may not be aligned with the
    interests of participants in the ESOP component of the
    KSOP.
    Environmental
    laws and regulations and our use of hazardous materials may
    subject us to significant liabilities.
    
    modifications to current laws and regulations;
    new laws and regulations;
    violations of environmental laws or the permits required for our
    operations;
    new guidance or new interpretation of existing laws and
    regulations; or
    the discovery of previously unknown contamination.  Risks
    Related to Our Industry
  We are
    dependent on U.S. government contracts for substantially all of
    our revenue, and changes in the contracting policies or fiscal
    policies of the U.S. government could adversely affect our
    business, financial condition or results of
    operations.
    
    budgetary constraints affecting U.S. government spending
    generally, or specific departments or agencies in particular,
    and changes in fiscal policies or available funding;
    changes in U.S. government programs or requirements;
    curtailment of the U.S. governments use of technology
    services firms;
    the adoption of new laws or regulations;
    technological developments;
    U.S. government shutdowns (such as that which occurred
    during the U.S. governments 1996 fiscal year);
    competition and consolidation in the information technology
    industry; and
    general economic conditions.   25




---



##### 



The
    failure by the Congress to approve budgets timely for the U.S.
    federal agencies we support could delay or reduce spending and
    cause us to lose revenue.
    We may
    not receive the full amount of our backlog, which could lower
    future revenue.
    Many
    of our U.S. government customers spend their procurement budgets
    through Indefinite Delivery/Indefinite Quantity (ID/IQ)
    contracts, GSA Schedule contracts and Government Wide
    Acquisition Contracts (GWAC) under which we are required to
    compete for post-award orders.
  and/or
  U.S.
    government contracts contain termination provisions that are
    unfavorable to us.
   26




---



##### 



If we
    do not accurately estimate the expenses, time and resources
    necessary to satisfy our contractual obligations, our profit
    will be lower than expected.
      Our
    operating margins and operating results may suffer if
    cost-reimbursement contracts increase in proportion to our total
    contract mix.
    If the
    volume of services we provide under fixed-price contracts
    decreases in total or as a proportion of our total business, or
    if profit rates on these contracts decline, our operating
    margins and operating results may suffer.
    Our
    subcontractors failure to perform contractual obligations
    could damage our reputation as a prime contractor and thereby
    our ability to obtain future business.
    Because
    U.S. government contracts are subject to government audits,
    contract payments are subject to adjustment and repayment which
    may result in revenue attributed to a contract being lower than
    expected.
   27




---



##### 



If we
    fail to recover pre-contract costs, it may result in reduced
    fees or in losses.
    Actual
    or perceived conflicts of interest may prevent us from being
    able to bid on or perform contracts.
    As a
    U.S. government contractor, we must comply with complex
    procurement laws and regulations and our failure to do so could
    have a negative impact upon our business.
  and/or
  We
    derive significant revenue from U.S. government contracts
    awarded through a competitive bidding process which is an
    inherently unpredictable process.
    
    the frequent need to bid on programs in advance of the
    completion of their design, which may result in unforeseen
    technological difficulties
    and/or cost
    overruns;
    the substantial time and effort, including design, development
    and promotional activities, required to prepare bids and
    proposals for contracts that may not be awarded to us; and
    the design complexity and rapid rate of technological
    advancement of most of our research offerings.    Our
    failure to obtain and maintain necessary security clearances may
    limit our ability to carry out confidential work for U.S.
    government customers, which could cause our revenue to
    decline.
   28




---



##### 



and/or
  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties          Item 3.
    Legal
    Proceedings  Estate
    of Joseph Hudert vs. Alion Science and Technology Corporation;
    Estate of Frank Stotmeister vs. Alion Science and Technology
    Corporation.
     29




---



##### 



Item 4.
    Submission
    of Matters to a Vote of Security Holders    PART II
  Item 5.
    Market
    for Registrants Common Equity, Related Stockholders
    Matters and Issuer Purchases of Equity Securities    Form 8-K.
  Dividend
    Policy
   30




---



##### 



Item 6.
    Selected
    Financial Data       31




---



##### 



Selected
    Financial Data of Alion Science and Technology Corporation
    For Years Ended September 30,
  2007(1)


2006(2)


2005(3)


2004(4)


2003(5)(In thousands, except share and per share data)Consolidated Operating Data:Contract revenue

$
737,587


$
508,628


$
369,231


$
269,940


$
165,917Direct contract expenses


562,139



381,467



267,241



196,388



120,559Operating expenses(6)


161,283



129,466



104,081



73,703



46,273Operating income (loss)


14,165



(2,305
)


(2,091
)


(151
)


(915
)Other expense(7)


(56,945
)


(28,784
)


(38,081
)


(14,943
)


(11,701
)Income tax (expense) benefit


10



(26
)


(66
)


(17
)


Net loss

$
(42,770
)

$
(31,115
)

$
(40,238
)

$
(15,111
)

$
(12,616
)Basic and diluted loss per share

$
(8.35
)

$
(6.19
)

$
(9.50
)

$
(4.91
)

$
(6.05
)Basic and diluted weighted-average common shares outstanding


5,121,033



5,029,670



4,235,947



3,074,709



2,085,274Consolidated Balance Sheet Data at End of Period:Net accounts receivable

$
186,660


$
150,412


$
80,898


$
68,949


$
42,775Total assets


683,970



650,969



334,249



188,461



144,754Current portion of long-term debt


14,541



2,816



1,404



468



5,000Long-term debt, excluding current portion


491,089



463,743



180,833



99,631



74,719Redeemable common stock warrants


33,610



35,234



44,590



20,777



14,762Other Data:Depreciation and amortization

$
21,824


$
16,566


$
17,771


$
13,447


$
9,553Capital expenditures


10,687



5,227



2,233



3,678



1,329Cash flows provided by (used in):Operating activities

$
(27,936
)

$
(15,678
)

$
35,140


$
5,675


$
14,264Investing activities


(25,438
)


(284,423
)


(78,017
)


(23,625
)


(61,428
)Financing activities


62,303



265,078



75,938



22,173



47,652Funded contract backlog(8)


360,000



386,000



193,000



161,000



107,000Unfunded contract backlog(9)


4,669,000



3,861,000



2,581,000



1,793,000



1,435,000Number of employees


3,402



3,575



2,508



1,880



1,604     (1)
    
    During fiscal year 2007, the Company completed one acquisition
    as described below. The results of operations for the company
    acquired is included in Alions operations from the date of
    the acquisition. We acquired LogConGroup, Inc. on July 20,
    2007. The Company acquired substantially all the assets of
    LogConGroup, Inc, a provider of logistics technology and total
    asset visibility management, for $1.7 million plus
    additional contingent earn-out obligations over a six year
    period which cannot exceed $0.9 million. As of
    September 30, 2007, the Company has recorded approximately
    $1.6 million in goodwill relating to this acquisition.(2)
    
    During fiscal year 2006, the Company completed four acquisitions
    as described below. The results of operations for the companies
    acquired are included in Alions operations from the dates
    of the acquisitions. On February 10, 2006, Alion purchased
    100% of the outstanding stock of BMH Associates, Inc. (BMH), a
    provider of advanced software, systems engineering and
    distributed interactive simulations for military training and
    experimentation, for approximately $20.0 million (less a
    $1.5 million hold back) plus additional contingent earn-out
    obligations over a two year period which can not exceed
    $6.0 million. As of September 30, 2007, the Company
    has recorded approximately $19.2 million in goodwill
    relating to this acquisition. 32




---



##### 



On February 24, 2006, the Company acquired 100% of the
    issued and outstanding stock of Washington Consulting, Inc.
    (WCI), a provider of enterprise IT and management consulting
    solutions and services to commercial and government customers,
    for $18.0 million (less a $1.5 million hold back) plus
    additional contingent earn-out obligations over a two year
    period which can not exceed $2.5 million. As of
    September 30, 2007, the Company has recorded approximately
    $17.4 million in goodwill relating to this acquisition.On May 19, 2006, the Company acquired 100% of the issued
    and outstanding stock of Micro Analysis and Design, Inc.
    (MA&D), a provider of human factors engineering, modeling
    and simulation and software development for approximately
    $16.9 million (less a $2.0 million hold back) plus
    additional contingent earn-out obligations over a two year
    period which can not exceed approximately $4.1 million. As
    of September 30, 2007, the Company has recorded
    approximately $15.7 million in goodwill relating to this
    acquisition.On June 30, 2006, the Company acquired from Anteon a group
    of assets consisting primarily of customer contracts for
    approximately $221.4 million. As of September 30,
    2007, the Company has recorded approximately $50.0 million
    for purchased contracts and approximately $174.0 million in
    goodwill relating to this acquisition.(3)
    
    During fiscal year 2005, the Company completed four acquisitions
    and made one strategic investment as described below. The
    results of operations for the companies acquired are included in
    Alions operations from the dates of the acquisitions. On
    October 28, 2004, Alion purchased substantially all of the
    assets of Countermeasures Inc. (Countermeasures) for
    approximately $2.4 million. Countermeasures had two
    employees and was located in Hollywood, Maryland. As of
    September 30, 2007, the Company has recorded approximately
    $1.4 million in goodwill relating to this acquisition.On February 11, 2005, Alion acquired 100% of the
    outstanding stock of METI Corporation (METI), an environmental
    and life sciences research and development company for
    approximately $7.0 million in cash. METI had approximately
    110 employees and was headquartered in Research Triangle
    Park, North Carolina. As of September 30, 2007, the Company
    has recorded $5.6 million in goodwill related to this
    acquisition.On February 25, 2005, Alion acquired 100% of the
    outstanding stock of Carmel Applied Technologies, Inc. (CATI), a
    flight training software and simulator development company, for
    approximately $7.3 million in cash. CATI had approximately
    55 employees and was headquartered in Seaside, California.
    The transaction is subject to an earn-out provision
    not-to-exceed a cumulative amount of $8.3 million based on
    attaining certain cumulative revenue goals for fiscal years
    2005, 2006, and 2007, and a second earn-out provision
    not-to-exceed $1.5 million for attaining certain revenue
    goals in the commercial aviation industry. As of
    September 30, 2007, the Company has recorded approximately
    $13.9 million in goodwill related to this acquisition.On April 1, 2005, the Company acquired 100% of the issued
    and outstanding stock of JJMA Corporation (JJMA). The Company
    paid the equity holders of JJMA approximately
    $52.9 million, issued 1,347,197 shares of Alion common
    stock to the JJMA Trust valued at approximately
    $37.3 million, and agreed to make $8.3 million in
    future payments. Including acquisition costs of
    $1.3 million, the aggregate purchase price was
    $99.8 million. As of September 30, 2007, the Company
    has recorded approximately $57.8 million in goodwill
    related to the JJMA acquisition.On March 22, 2005, Alion acquired approximately
    12.5 percent of the class A ordinary shares in
    VectorCommand Ltd. for $1.5 million, which investment is
    accounted for at cost.(4)
    
    During fiscal year 2004, the Company completed two acquisitions
    as described below. Operating results for these businesses are
    included in our consolidated totals from the respective dates of
    acquisitions. On October 31, 2003, Alion acquired 100% of
    the outstanding stock of Innovative Technology Solutions
    Corporation (ITSC), for $4.0 million. The transaction is
    subject to an earn-out provision not-to-exceed
    $1.5 million. ITSC is a New Mexico corporation with
    approximately 53 employees, the majority of whom are
    located in New Mexico. As of September 30, 2007, the
    Company has recorded approximately $5.0 million of goodwill
    relating to this acquisition.On February 13, 2004, Alion acquired 100% of the
    outstanding stock of Identix Public Sector, Inc. (IPS, now known
    as Alion-IPS Corporation) for $8.0 million in cash. IPS,
    formerly ANADAC, was a wholly-owned subsidiary of Identix
    Incorporated. Following the closing, the Company paid Identix
    approximately $4.3 million for intercompany payables. As of
    September 30, 2007, the Company has recorded approximately
    $6.1 million of goodwill relating to this acquisition. 33




---



##### 



(5)
    
    For fiscal year 2003 (October 1, 2002 to September 30,
    2003), the operations data presented reflects approximately nine
    months of Alion operations since the Transaction occurred on
    December 20, 2002, which was at the end of IITRIs
    first quarter of operations for fiscal 2003. During the period
    October 1, 2002 to December 20, 2002, Alion was
    organizationally a business shell, operationally inactive until
    the Transaction occurred.(6)
    
    Operating expenses include (i) transaction expenses of
    approximately $6.7 million for the year ended
    September 30, 2003, and (ii) conversion and roll-out
    expenses of approximately $1.5 million for the year ended
    September 30, 2003.(7)
    
    For the years ended September 30, 2007, 2006 and 2005,
    other income (expense) includes approximately
    $51.2 million, $29.7 million, and $38.7 million,
    respectively, in interest-related expense associated with the
    debt financing (which includes the related change in warrant
    valuation associated with the change in the share price of Alion
    stock) resulting from the acquisitions which were completed in
    fiscal years 2006 and 2005, as described above. Other income
    (expense) for the year ended September 30, 2004 includes a
    gain of approximately $2.1 million on the sale of the
    Companys minority interest in Matrics Incorporated.(8)
    
    Funded backlog represents the total amount of contracts that
    have been awarded and whose funding has been authorized minus
    the amount of revenue booked under the contracts from their
    inception to date.(9)
    
    Unfunded backlog refers to the estimated total value of
    contracts which have been awarded but whose funding has not yet
    been authorized for expenditure.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    About
    This Managements Discussion and Analysis
    
    provide an overview of our business;
    explain the year-over-year trends in our results of operations;
    describe our liquidity and capital resources;
    explain our critical accounting policies;
    explain certain of our other obligations; and
    disclose market and other risks.  Overview
   34




---



##### 



For the Years Ended September 30,2007


2006


2005(In millions)Revenue

$
737.6


$
508.6


$
369.2Net loss

$
(42.8
)

$
(31.1
)

$
(40.2
)Contract Backlog:Funded


360.0



386.0



193.0Unfunded


4,669.0



3,861.0



2,581.0Total

$
5,029.0


$
4,247.0


$
2,774.0     2007


2006


2005(In millions)U.S. Department of Defense (DoD)

$
655.9



88.9
%

$
451.8



88.8
%

$
324.1



87.8
%Other Federal Civilian Agencies


32.3



4.4
%


30.1



5.9
%


30.3



8.2
%Commercial and International


49.4



6.7
%


26.7



5.3
%


14.8



4.0
%Total

$
737.6



100.0
%

$
508.6



100.0
%

$
369.2



100.0
%      35




---



##### 



FY07





FY06





FY05Percent of





Percent of





Percent ofFY07


Total


FY06


Total


FY05


TotalAnnual


Annual


Annual


Annual


Annual


AnnualPrimary Core

Revenue


Revenue


Revenue


Revenue


Revenue


RevenueSponsor/Government Agency

Title

Business Area*

Amount


Amount


Amount


Amount


Amount


Amount(In millions)





(In millions)





(In millions)Department of Defense  Navy

SeaPort Multiple Award Contract

Naval
    Architecture and
    Marine Engineering

$
132.1



17.9
%

$
19.3



3.8
%






Department of Defense - 
    Air Force

Technical and Analytical Support

Systems Engineering

$
64.1



8.7
%

$
16.4



3.2
%






Department of Defense - Navy

Engineering, Financial and Program Management Services to the
    Virtual SYSCOM program

Naval Architecture and Marine Engineering

$
49.6



6.7
%

$
46.6



9.2
%

$
18.5



5.0
%Department of Defense - Defense Modeling and Simulation
    Information Systems Agency

Information Analysis Center

Modeling and Simulation

$
43.7



5.9
%

$
63.4



12.5
%

$
69.4



18.8
%Department of Defense - Army

U.S. Army Night Vision Lab HighTech Omnibus contract

Defense Operations

$
32.0



4.3
%

$
21.1



4.2
%

$
18.9



5.1
%Subtotal





$
321.5



43.5
%

$
166.8



32.9
%

$
106.8



28.9
%OtherSponsors/Agencies





$
416.1



56.5
%

$
341.8



67.1
%

$
262.4



71.1
%Total Revenues





$
737.6



100.0
%

$
508.6



100.0
%

$
369.2



100.0
%     *
    
    The total annual revenue identified with a sponsor/government
    agency may include revenue within multiple business areas. The
    primary core business area is the single largest business area
    with the sponsor/government agency.    time-and-material). time-and-material time-and-material
 36




---



##### 



For the Year Ended September 30,Contract Type

2007


2006 *


2005 *(Amounts in millions)Cost-reimbursement

$
514.4



69.7
%

$
335.0



65.9
%

$
225.1



61.0
%Fixed-price


70.0



9.5
%


61.6



12.1
%

$
51.4



13.9
%Time-and-material


153.2



20.8
%


112.0



22.0
%

$
92.7



25.1
%Total

$
737.6



100.0
%

$
508.6



100.0
%

$
369.2



100.0
%     *
    
    The 2006 and 2005 amounts were revised to conform to the current
    presentation for the reallocation of the ID/IQ contracts.      
    helps us expand our research base to include increasingly large
    and complex programs;
    increases our opportunities to exploit the synergies between
    different research fields in which we work to broaden our
    offerings to our existing customers;
    brings new strengths to our technical capabilities through
    cross-utilization of research technology and engineering
    skills; and
    increases the overall depth and experience of our management.  Results
    of Operations
    Year
    ended September 30, 2007 Compared to Year ended
    September 30, 2006
  Form 10-K.
 37




---



##### 



Year Ended September 30, 2007


Year Ended September 30, 2006Consolidated








ConsolidatedOperations of








Operations ofConsolidated





Alion Less


Consolidated





Alion LessOperations of


Acquired


the Acquired


Operations of


Acquired


the AcquiredFinancial information

Alion


Operations


Operations


Alion


Operations


Operations(In millions)Total revenue

$
737.6


$
330.3


$
407.3


$
508.6


$
95.4


$
413.2Material and subcontract revenue


306.8



158.7



148.1



172.2



40.4



131.8Total direct contract expenses


562.1



258.9



303.2



381.5



71.9



309.6Major components of direct contract expense:Direct labor expense


245.8



99.4



146.4



202.6



31.8



170.8Material and subcontract expense


295.1



153.9



141.2



162.3



38.6



123.7Other direct expense


21.2



5.6



15.6



16.5



1.5



15.0Gross profit


175.4



71.5



103.9



127.2



23.5



103.7Total operating expense


161.3



62.6



98.7



129.5



19.6



109.9Major components of operating expense:Indirect personnel and facilities


76.4



32.0



44.4



52.1



9.2



42.9General and administrative (excluding stock-based compensation)


50.5



19.5



31.0



47.4



6.9



40.5Stock-based compensation


8.3







8.3



10.7







10.7Depreciation and amortization


21.8



11.1



10.7



16.6



3.4



13.2Operating income (loss)

$
14.1


$
8.8


$
5.3


$
(2.3
)

$
3.9


$
(6.2
)   Contract Revenues.
    Direct Contract Expenses.
  
    Direct labor expense for the year ended September 30, 2007
    increased $43.2 million or 21.3% over the year ended
    September 30, 2006. As a percentage of revenue, direct
    labor expense was 33.3% and 39.8% for the years ended
    September 30, 2007 and 2006, respectively, primarily as a
    result of decreased content of direct labor related expense from
    acquired operations primarily related to WCI and for work
    provided in support of the Anteon contracts. 38




---



##### 




    M&S expense for the year ended September 30, 2007
    increased $132.8 million or 81.8% over the year ended
    September 30, 2006. As a percentage of revenue, M&S
    expense was 40.0% and 31.9% for the years ended
    September 30, 2007 and 2006, respectively, primarily as a
    result of larger purchases of equipment and materials directly
    for contracts and increased use of subcontractors in support of
    our contracts. M&S expense, as a percentage of M&S
    revenue, was approximately 96.2% and 94.3% for the years ended
    September 30, 2007 and 2006, respectively, primarily as a
    result of lower profit margins on M&S work from acquired
    operations.  Gross Profit.
  Operating Expenses.
  
    Indirect personnel and rental and occupancy expenses for the
    year ended September 30, 2007 increased approximately
    $24.3 million or 46.6% over the year ended
    September 30, 2006. The increase was primarily associated
    with additional indirect personnel and facilities expenses
    related to the activities in support of the contracts acquired
    from Anteon. Operating expenses for indirect personnel and
    facilities were 10.4% and 10.2% of revenue for the years ended
    September 30, 2007 and 2006, respectively.
    General and administrative (G&A) expense, excluding
    stock-based compensation, for the year ended September 30,
    2007 increased approximately $3.1 million or 6.5% over the
    year ended September 30, 2006. G&A expenses were 6.8%
    and 9.3% of revenue for the years ended September 30, 2007
    and 2006, respectively. The increase primarily consists of
    $2.6 million of additional third party legal and accounting
    fees related to issuing the senior unsecured notes,
    $3.4 million for various infrastructure costs associated
    with supporting the growth of the Company, and $0.4 million
    for third-party legal and accounting fees associated with the
    acquisition of LogConGroup. These increases were offset by a
    postretirement benefits curtailment gain of $3.3 million,
    which resulted from an amendment to the postretirement benefits
    plan as of September 30, 2007.
    Stock-based compensation (a separate element in G&A)
    expense relates primarily to the expense associated with the
    stock appreciation rights and phantom stock plans. As a
    percentage of revenue, stock-based compensation was 1.1% and
    2.1% for the years ended September 30, 2007 and 2006,
    respectively. This expense decreased approximately
    $2.4 million or 22.4% from the year ended
    September 30, 2006, which resulted from the relative change
    in price of a share of Alion common stock in the year ended
    September 30, 2007 and, to a lesser extent, the decrease in
    awards granted.
    Depreciation and amortization for the year ended
    September 30, 2007 expense increased approximately
    $5.2 million or 31.3% over the year ended
    September 30, 2006 due to the acquisitions. Depreciation
    expense primarily arises from fixed assets while amortization
    expense derives primarily from purchased contracts. Depreciation
    and amortization expense was 3.0% and 3.3% of revenue for the
    years ended September 30, 2007 and 2006, respectively.  Operating Income (Loss).
 39




---



##### 



Other Expense.
  Interest Expense
  Year Ended September 30,2007


2006(In millions)Term B - Revolving facility

$
2.2


$
1.0Term B - Senior term loan


19.8



13.5- amortization of
    debt issuance costs


2.2



1.7Bridge loan


6.8



4.8Senior unsecured note


16.6



- amortization of
    debt issuance costs


0.6



Subordinated note - PIK interest


2.5



2.4- long-term
    deferred interest


0.9



0.8- amortization
    of debt issuance costs


1.0



0.9(Reduction) Accretion of warrants(a)


(1.6
)


4.3Other


0.3



0.3Total

$
51.2


$
29.7     (a)
    
    Reflects change in value assigned to the detachable warrants
    associated with the Subordinated Note and/or the Mezzanine Note
    based on the change in the value of Alion common stock and the
    number of warrants outstanding; the warrants associated with the
    Mezzanine Note were redeemed on March 28, 2006.  Loss on extinguishment of debt.
    Income Tax Expense.
  Net Loss.
  Year
    ended September 30, 2006 Compared to Year ended
    September 30, 2005
  Form 10-K.
  40




---



##### 



Year Ended September 30, 2006


Year Ended September 30, 2005Consolidated








ConsolidatedOperations of








Operations ofConsolidated





Alion Less


Consolidated





Alion LessOperations of


Acquired


the Acquired


Operations of


Acquired


the AcquiredFinancial information

Alion


Operations


Operations


Alion


Operations


Operations(In millions)Total revenue

$
508.6


$
222.2


$
286.4


$
369.2


$
65.3


$
303.9Material and subcontract revenue


172.2



83.1



89.1



102.7



16.9



85.8Total direct contract expenses


381.5



166.5



214.9



267.2



46.1



221.1Major components of direct contract expense:Direct labor expense


202.6



83.6



119.0



152.5



26.6



125.9Material and subcontract expense


162.3



79.0



83.3



101.0



16.6



84.4Other direct expense


16.5



3.9



12.6



13.7



2.9



10.8Gross profit


127.2



55.7



71.5



102.0



19.2



82.8Total operating expense


129.5



53.1



76.4



104.1



13.1



91.0Major components of operating expense:Indirect personnel and facilities


52.1



24.7



27.4



41.6



6.9



34.7General and administrative (excluding stock-based compensation)


47.4



20.6



26.8



33.0



2.9



30.1Stock-based compensation


10.7







10.7



10.6







10.6Depreciation and amortization


16.6



7.8



8.8



17.8



3.2



14.6Operating (loss) income

$
(2.3
)

$
2.6


$
(4.9
)

$
(2.1
)

$
6.1


$
(8.2
)     *
    
    For the years ended September 30, 2006 and 2005, the
    operations of the acquired entities and the operating results
    generated in support of the Anteon contracts have been fully
    integrated within Alion on a consolidated basis. The selected
    financial information provided in the table is managements
    approximations of actual results for the acquired and
    non-acquired operations.  Contract Revenues.
   41




---



##### 



Direct Contract Expenses.
  
    Direct labor expense for the year ended September 30, 2006
    increased by $50.1 million, or 32.9%, to
    $202.6 million from $152.5 million for the year ended
    September 30, 2005. Direct labor expense decreased to 39.9%
    of revenue for the year ended September 30, 2006, from
    41.3% of revenue in the year ended September 30, 2005, due
    to a shift from direct labor to M&S expense. The percentage
    decrease in direct labor expense is primarily due to the lower
    content of direct labor expense to total direct contract expense
    of the acquired operations. The content of direct labor expense
    generated by the JSC and Guam Ordnance Services contracts was
    higher in the year ended September 30, 2006 than in the
    year ended September 30, 2005.
    M&S expense increased approximately $61.3 million, or
    60.7%, to $162.3 million for the year ended
    September 30, 2006, compared to $101.0 million for the
    year ended September 30, 2005. M&S expense was 31.9%
    and 27.4% of revenue for the years ended September 30, 2006
    and 2005, respectively. The percentage increase in M&S
    expense was primarily due to the higher content of M&S
    expense to total direct contract expense of the acquired
    operations. M&S expense, as a percentage of M&S
    revenue, was approximately 94.3% and 98.3% for the years ended
    September 30, 2006 and 2005, respectively, primarily as a
    result of increased profit margins on M&S work by acquired
    operations.  Gross Profit.
  Operating Expenses.
  
    Indirect personnel and rental and occupancy expenses increased
    approximately $10.5 million, or 25.2%, to
    $52.1 million for the year ended September 30, 2006,
    from $41.6 million for the year ended September 30,
    2005. The increase is partially attributable to expense
    associated with integrating the BMH and WCI acquisitions in the
    second quarter of fiscal year 2006, the MA&D acquisition in
    the third quarter of fiscal year 2006 and the Anteon Contracts
    acquisition in the fourth quarter of fiscal year 2006.
    Additionally, due to the delays in approving the 2006 Federal
    budget, contract funding was delayed, which results in increased
    indirect labor expense required in order to sustain our
    engineers and technical labor base. Operating expenses for
    indirect personnel and facilities were 10.2% and 11.3% of
    revenue for the years ended September 30, 2006 and 2005,
    respectively. 42




---



##### 




    General and administrative (G&A) expense, excluding
    stock-based compensation, increased approximately
    $14.4 million, or 43.6%, to $47.4 million for the year
    ended September 30, 2006, compared to $33.0 million
    for the year ended September 30, 2005. G&A expenses
    were 9.3% and 8.9% of revenue for the years ended
    September 30, 2006 and 2005, respectively. The increase
    consists of $8.4 million of additional third-party legal
    and accounting fees and approximately $4.9 million of
    additional employee fringe benefit expense, which is an element
    of G&A expense. These additional expenses represent
    approximately 2.6% of revenue.
    Stock-based compensation (a separate element in G&A)
    expense, relates primarily to the expense associated with the
    stock appreciation rights and phantom stock plans. Stock-based
    compensation was approximately 2.1% and 2.9% of revenue for the
    years ended September 30, 2006 and 2005, respectively. This
    expense increased approximately $0.1 million, or 1.0%, to
    $10.7 million for the fiscal year ended September 30,
    2006, compared to approximately $10.6 million for the year
    ended September 30, 2005. The increase in stock-based
    compensation expense results from the relative change in price
    of a share of Alion common stock in the year ended
    September 30, 2006 and, to a lesser extent, the increase in
    awards granted.
    Depreciation and amortization expense decreased approximately
    $1.2 million, or 6.7%, to $16.6 million for the year
    ended September 30, 2006, compared to $17.8 million
    for the year ended September 30, 2005. Depreciation expense
    primarily arises from fixed assets while amortization expense
    derives primarily from purchased contracts.    Operating Loss.
  Other Expense.
  Year Ended September 30,2006


2005(In millions)Term B - Revolving facility

$
1.0


$
0.2Term B - Senior term loan


15.2



6.9Bridge loan


4.8



Mezzanine Note - cash-pay interest






1.8- amortization
    of debt issuance costs






2.2Subordinated note - PIK interest


2.4



2.3- accretion
    of long-term deferred interest


0.8



0.6- amortization
    of debt issuance costs


0.9



0.9Accretion of warrants(a)


4.3



23.5Other


0.3



0.3Total

$
29.7


$
38.7     (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.   43




---



##### 



Income Tax Expense.
  Net Loss.
  Liquidity
    and Capital Resources
    Cash
    Flows
         44




---



##### 



Discussion
    of Debt Structure
    Term B
    Senior Credit Facility
    
    a senior term loan in the approximate amount of
    $245.5 million;
    a $50.0 million senior revolving credit facility under
    which approximately $9.3 million was outstanding as of
    September 30, 2007, and approximately $3.9 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 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 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
    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) 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 term loans to the Term B Senior Credit
    Facility.     45




---



##### 



Use of Proceeds.
    Security.
  Interest and Fees.
  * Senior Term Loan.
 46




---



##### 



Senior Revolving Credit Facility.
  Federal Funds ABR


Prime Rate ABREurodollar Spread


Spread


SpreadLeverage Ratio

(in basis points)


(in basis points)


(in basis points)Category 1


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.
   47




---



##### 



Interest








NotionalRate Cap

Date

Cost


Cap Rate

Principal

PeriodFirst Cap

Aug 2004

$
319,000


6.64% (3.89% floating rate cap plus 2.75% spread)

$36.9M

Sep 2004  Sep 2005Aug 2004





7.41% (4.66% floating rate cap plus 2.75% spread)

$34.5M

Sep 2005  Sep 2007Amendment #1

Apr 2005





6.91% (4.66% floating rate cap plus 2.25% spread)Amendment #2

Mar 2006





7.16% (4.66% floating rate cap plus 2.50% spread)Amendment #3

Jun 2006





7.41% (4.66% floating rate cap plus 2.75% spread)Amendment #4

Feb 2007





7.16% (4.66% floating rate cap plus 2.50% spread)Second Cap

Apr 2005

$
117,000


7.25% (5.00% floating rate cap plus 2.25% spread)

$28.0M

Through Sep 2007Amendment #2

Mar 2006





7.50% (5.00% floating rate cap plus 2.50% spread)Amendment #3

Jun 2006





7.75% (5.00% floating rate cap plus 2.75% spread)Amendment #4

Feb 2007





7.50% (5.00% floating rate cap plus 2.50% spread)Third Cap

Apr 2006

$
43,600


8.00% (5.50% floating rate cap plus 2.50% spread)

$30.0M

Through Sep 2007Amendment #3

Jun 2006





8.25% (5.50% floating rate cap plus 2.75% spread)Amendment #4

Feb 2007





8.00% (5.50% floating rate cap plus 2.50% spread)   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; 48




---



##### 




    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
   49




---



##### 



Subordinated
    Note
    paid-in-kind
  Senior
    Unsecured Notes
    Use of Proceeds.
  Security.
  Ranking.
  Interest and Fees.
  Optional Redemption.
     50




---



##### 



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.  Exchange Offer; Registration Rights.
  Events of Default.
  
    payment default;
    uncured covenant breaches;
    default under an acceleration of certain other debt exceeding
    $30 million;
    certain bankruptcy and insolvency events;
    a judgment for payment in excess of $30 million entered
    against the Company or any material subsidiary that remains
    outstanding for a period of 60 days and is not discharged,
    waived or stayed; and
    failure of any guarantee of the Senior Unsecured Notes to be in
    effect or the denial or disaffirmation by any subsidiary
    guarantor of its guaranty obligations.  Change of Control.
  
    subject to certain exceptions, a person, other than the ESOP
    Trust, is or becomes the beneficial owner, directly or
    indirectly, of more than 35% of the total voting power or voting
    stock of 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; 51




---



##### 




    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 Period ($ In thousands)2008


2009


2010


2011


2012


2013


ThereafterBank revolving credit facility- Interest(1)

$
250


$
250


$
250


$
250


$
250


$
250


$
500Senior Term Loan- Interest(2)


16,448



16,910



17,592



17,983



18,441



6,671



- Principal(3)


2,474



2,474



2,474



2,474



2,474



233,134



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


42,323



49,169



46,659



43,858



44,316



32,546



38,938Total cash - Pay principal


2,474



29,826



29,826



2,474



2,474



233,134



250,000Total

$
44,797


$
78,995


$
76,485


$
46,332


$
46,790


$
265,680


$
288,938     (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.
    Interest expense value includes an estimate for the unused
    balance fee on the $50.0 million revolving credit facility
    and managements estimate for interest payment on its
    revolving credit facility and any successor revolving credit
    facility the Company may access.(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 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 to prior years. Based on an
    estimated LIBOR rate plus the Credit Suisse Eurodollar spread,
    the effective annual interest rate for fiscal years ending
    September 30, 2008 through 2012 is estimated to be
    approximately 6.7%, 7.0%, 7.4%, 7.6%, and 7.9%, 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 $245.5 million as of September 30,
    2007, resulting in expected aggregate annual principal payments
    of approximately $2.5 million in each of fiscal years 2008
    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
    September 30, 2007, no mandatory prepayments are due. 52




---



##### 



Contingent
    Obligations
  Earn-outs
    and Hold-backs
    Amount

AmountAcquisition



Hold-


Maximum


Expiration

Basis of

paid in

to be paid inDate

Business Unit

back


Earn-out


Date

Earn-outs

FY2007

FY2008 *2/25/05

CATI

$



$
8.25M


9/30/07

Revenue for fiscal
    years 2005-2007







1.50M


9/30/07

Revenue in
    commercial
    aviation industry



2/10/06

BMH


1.50M



6.00M


12/31/07

Revenue of
    business unit

$3.00M
    (earn-out)

$1.50M
    (hold-back)2/24/06

WCI


1.50M



2.60M


9/30/07

Revenue of
    business unit

$1.25M
    (earn-out)

$0.98M
    (earn-out)$0.5M
    (hold-back)

$1.08
    (hold-back)5/19/06

MA&D


2.00M



4.10M


9/30/07

Revenue of
    business unit

$0.3M
    (hold-back)

$2.00M
    (hold-back)7/20/07

LogConGroup






0.90M


9/30/13

Revenue of
    business unit

     *
    
    Amounts accrued as of September 30, 2007.  Other
    Contingent obligations which will impact the Companys
    cash
    
    obligations relating to deferred compensation programs for
    senior managers;
    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 of Shares





Total ValueDate

Repurchased


Share Price


Purchased(In thousands)June 2003


5,248


$
11.13


$
58July 2003


2,696


$
11.13


$
30December 2003


50,031


$
14.71


$
736May 2004


117


$
16.56


$
2June 2004


727


$
16.56


$
12June 2004


743


$
16.56


$
12July 2004


48,309


$
16.56


$
800December 2004


46,816


$
19.94


$
934March 2005


5,691


$
19.94


$
113June 2005


45,846


$
29.81


$
1,367 53




---



##### 



Number of Shares





Total ValueDate

Repurchased


Share Price


Purchased(In thousands)August 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


$
1Total









$
58,342      54




---



##### 



Contractual
    Obligations
    Payments Due by Fiscal Year2014 andTotal


2008


2009-2011


2012-2013


After(In thousands)Contractual Obligations:Long-term debt(1)

$
848,017


$
44,797


$
201,812


$
312,470


$
288,938Lease Obligations


121,285



26,597



56,507



21,656



16,525Total contractual obligations

$
969,302


$
71,394


$
258,319


$
334,126



305,463     (1)
    
    Includes interest payments and forecasted debt obligations.  Off-Balance
    Sheet Financing Arrangements
    Summary
    of Critical Accounting Policies
  Revenue
    Recognition
  time-and-material
  time-and-material
     55




---



##### 



SOP 81-1, Accounting for Performance on Construction-Type and Certain
    Production-Type Contracts
  Goodwill
    and Intangible Assets
    Business Combinations.
    Recently
    Issued Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes. Accounting for
    Income Taxes
 56




---



##### 



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
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    rate risk
        Foreign
    currency risk
    Risk
    associated with value of Alion common stock
     57




---



##### 



58




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    FINANCIAL STATEMENTS
  Consolidated Financial Statements of Alion Science and
    Technology CorporationReports of Independent Registered Public
    Accounting Firms


60Consolidated Financial Statements:Consolidated Balance Sheets as of
    September 30, 2007 and 2006


62Consolidated Statements of Operations for the
    years ended September 30, 2007, 2006, and 2005


63Consolidated Statements of Shareholders
    Equity (Deficit) for the years ended September 30, 2007,
    2006, and 2005


64Consolidated Statements of Cash Flows for the
    years ended September 30, 2007, 2006, and 2005


65Notes to Consolidated Financial Statements


66Consolidated Financial Statement ScheduleSchedule II  Valuation and Qualifying Accounts


127  59




---



##### 



REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            /s/  DELOITTE &
    TOUCHE LLP    60




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
           /s/  KPMG
    LLP    61




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  CONSOLIDATED BALANCE SHEETS
  September 30,2007


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

$
11,684


$
2,755Accounts receivable, net


186,660



150,412Stock subscriptions receivable


3,378



8,990Prepaid expenses and other current assets


5,161



6,028Total current assets


206,883



168,185Property, plant and equipment, net


19,552



14,644Intangible assets, net


55,659



75,403Goodwill


395,926



387,927Other assets


5,950



4,810Total assets


683,970



650,969Current liabilities:Interest payable


12,111



240Current portion, Term B Senior Credit Facility note payable


2,430



2,576Current portion, acquisition obligations


4,832



11,457Trade accounts payable


46,104



36,142Accrued liabilities


33,238



26,661Accrued payroll and related liabilities


43,702



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


2,059



2,163Total current liabilities


144,476



114,374Acquisition obligations, excluding current portion






3,568Notes payable to bank


9,250



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


238,356



252,100Senior Unsecured Notes


243,483



Bridge loan payable






164,680Subordinated note payable


51,313



46,963Accrued compensation, excluding current portion


15,483



21,026Accrued postretirement benefit obligations


1,175



3,722Non-current portion of lease obligations


6,203



4,292Redeemable common stock warrants


33,610



35,234Total liabilities


743,349



658,259Shareholders deficit:Common stock, $0.01 par value, 8,000,000 shares
    authorized, 5,012,934 and 5,210,126 shares issued and
    outstanding at September 30, 2007 and September 30,
    2006


50



52Additional paid-in capital


82,512



91,829Accumulated deficit


(141,941
)


(99,171
)Total shareholders deficit


(59,379
)


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

$
683,970


$
650,969    62




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  CONSOLIDATED STATEMENTS OF OPERATIONS
  Year Ended September 30,2007


2006


2005(In thousands, except share andper share information)Contract revenue

$
737,587


$
508,628


$
369,231Direct contract expense


562,139



381,467



267,241Gross profit


175,448



127,161



101,990Operating expenses:Indirect contract expense


43,972



29,907



29,017Research and development


2,379



2,025



498General and administrative


58,886



58,093



43,602Rental and occupancy expense


32,410



22,208



12,542Depreciation and amortization


21,824



16,566



17,771Bad debt expense


1,812



667



651Total operating expenses


161,283



129,466



104,081Operating income (loss)


14,165



(2,305
)


(2,091
)Other income (expense):Interest income


319



590



475Interest expense


(51,226
)


(29,691
)


(38,696
)Loss on extinguishment on debt


(6,170
)






Other


132



317



140Total other expenses


(56,945
)


(28,784
)


(38,081
)Loss before income taxes


(42,780
)


(31,089
)


(40,172
)Income tax benefit (expense)


10



(26
)


(66
)Net loss

$
(42,770
)

$
(31,115
)

$
(40,238
)Basic and diluted loss per share

$
(8.35
)

$
(6.19
)

$
(9.50
)Basic and diluted weighted average common shares outstanding


5,121,033



5,029,670



4,235,947    63




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
    (DEFICIT)
  AdditionalCommon


Common


Paid-in-


Treasury


Treasury


AccumulatedShares


Stock


Capital


Shares


Stock


Deficit


TotalBalances at October 1, 2004


3,376,197


$
34


$
37,532






$



$
(27,818
)

$
9,748Purchase of common stock from ESOP Trust


(52,507
)










52,507



(1,047
)






(1,047
)Release of treasury shares to ESOP Trust


52,507











(52,507
)


1,047







1,047Issuance of common stock to ESOP Trust


1,944,300



19



56,710















56,729Retirement of common stock from ESOP Trust


(170,657
)


(2
)


(5,763
)














(5,765
)Net loss for year ended September 30, 2005






















(40,238
)


(40,238
)Balances at September 30, 2005


5,149,840


$
51


$
88,479






$



$
(68,056
)

$
20,474Issuance of common stock to ESOP Trust


579,739



6



22,348















22,354Retirement of common stock from ESOP Trust


(519,453
)


(5
)


(18,998
)














(19,003
)Net loss for year ended September 30, 2006






















(31,115
)


(31,115
)Balances at September 30, 2006


5,210,126


$
52


$
91,829






$



$
(99,171
)

$
(7,290
)Issuance of common stock to ESOP Trust


493,740



5



20,260















20,265Retirement of common stock from ESOP Trust


(690,932
)


(7
)


(29,577
)














(29,584
)Net loss for year ended September 30, 2007






















(42,770
)


(42,770
)Balances at September 30, 2007


5,012,934


$
50


$
82,512






$



$
(141,941
)

$
(59,379
)    64




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended September 30,2007


2006


2005(In thousands)Cash flows from operating activities:Net loss

$
(42,770
)

$
(31,115
)

$
(40,238
)Adjustments to reconcile net loss to net cash (used in) provided
    by operating activities:Depreciation and amortization


21,824



16,566



17,771Accretion of debt to face value


969



922



3,056Amortization of debt issuance costs


2,768



1,669



840Loss on extinguishment of debt


6,170







Postretirement benefits curtailment gain


(3,320
)






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


413



(94
)


(118
)Change in fair value of redeemable common stock warrants


(1,624
)


4,287



23,730Stock-based compensation


8,340



10,738



10,628Other


(28
)


(33
)


(45
)Changes in assets and liabilities, net of effect of acquisitions:Accounts receivable, net


(35,771
)


(59,687
)


12,078Other assets


(773
)


(1,316
)


1,036Trade accounts payable


10,229



22,192



1,438Accrued liabilities


(12,194
)


16,917



5,148Interest payable


11,871



183



(386
)Other liabilities


5,960



3,093



202Net cash (used in) provided by operating activities


(27,936
)


(15,678
)


35,140Cash flows from investing activities:Cash paid for acquisitions, net of cash acquired


(14,751
)


(279,196
)


(74,591
)Capital expenditures


(10,687
)


(5,227
)


(2,233
)Purchase of investment securities










(1,193
)Net cash used in investing activities


(25,438
)


(284,423
)


(78,017
)Cash flows from financing activities:Proceeds from Term B Senior Credit Facility note payable


40,000



118,000



94,000Proceeds from Senior Unsecured Notes


250,000







(Repayment) proceeds of Bridge loan


(170,000
)


170,000



Payment of debt issuance costs


(10,796
)


(7,758
)


(1,307
)Repayment of Term B Credit Facility note payable


(53,513
)


(1,905
)


(1,080
)Repayment of mezzanine note payable










(20,201
)Repayment of mezzanine warrants






(13,643
)


Repayment of agreements with officers










(1,823
)(Payments) borrowings under revolving credit facility


(3,050
)


12,300



Proceeds from interest rate cap agreement


360







Purchase of interest rate cap agreement






(44
)


Purchase of shares of common stock from ESOP Trust


(6,656
)


(19,003
)


(8,160
)Cash received from issuance of common stock to Trust


15,958



7,131



14,509Net cash provided by financing activities


62,303



265,078



75,938Net increase (decrease) in cash and cash equivalents


8,929



(35,023
)


33,061Cash and cash equivalents at beginning of year


2,755



37,778



4,717Cash and cash equivalents at end of year

$
11,684


$
2,755


$
37,778Supplemental disclosure of cash flow information:Cash paid for interest


33,695



19,349



9,328Cash paid for taxes


975



806



367Non-cash financing activities:Common stock issued to ESOP Trust in satisfaction of employer
    contribution liability


9,920



7,871



5,707Common stock issued for acquisitions










37,250    65




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (1)  Description
    and Formation of the Business
      (2)  Summary
    of Significant Accounting Policies
  Basis
    of Presentation and Principles of Consolidation
    
    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
    LogConGroup, Inc. (LogConGroup)  acquired July 2007 66




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Fiscal,
    Quarter and Interim Periods
    Use of
    Estimates
    Reclassifications
    Revenue
    Recognition
  time-and-material
  time-and-material
     67




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (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
   68




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (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
  Fair
    Value of Financial Instruments
    Cash, cash equivalents, accounts payable and accounts
    receivable.
  Marketable securities.
  Senior Long-term debt.
  Redeemable common stock warrants.
  Alion Stock.
 69




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  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
  (3)
    Business
    Combinations  Fiscal
    Year 2007 Acquisitions
  Acquisition of LogConGroup, Inc. Business Combinations,
  Fiscal
    Year 2006 Acquisitions
  Acquisition of BMH Associates, Inc.
 70




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Acquisition of Washington Consulting, Inc.
  Acquisition of Micro Analysis and Design,
    Inc.
  Acquisition of certain assets of Anteon
    Corporation.
    Twelve Months Ended September 30, 2006


Twelve Months Ended September 30, 2005Anteon Pro


Alion Pro





Anteon


Alion ProAlion


Forma


Forma


Alion


Pro Forma


Forma(In thousands, except share and per share information)Pro Forma Revenue

$
508,628


$
191,362


$
699,990


$
369,231


$
206,786


$
576,017Pro Forma Loss

$
(31,115
)

$
(8,861
)

$
(39,976
)

$
(40,238
)

$
(15,952
)

$
(56,190
)Weighted Average Shares Outstanding


5,029,670







5,029,670



4,235,947







4,235,947Loss Per Share

$
(6.19
)

$



$
(7.95
)

$
(9.50
)

$



$
(13.27
)     Estimated

Residual

Weighted Average RemainingFair Value

Value

Amortization PeriodAmounts in MillionsPurchased contracts

$
54.7


$




4 years   Fiscal
    Year 2005 Acquisitions
  Acquisition of Assets of Countermeasures,
    Inc.
  Acquisition of ManTech Environmental Technology,
    Inc.
 71




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Acquisition of Carmel Applied Technologies,
    Inc.
  Investment in VectorCommand Ltd.
  Acquisition of John J. McMullen Associates, Inc. and Pro
    Forma Information.
  Fair ValueForm of Consideration

(In millions)Cash paid, net of cash acquired

$
52.9Stock issued


37.3Future payments


8.3Acquisition costs


1.3Total consideration

$
99.8     Accounts receivable

$
21.5Property and equipment


1.0Other assets


1.4Identifiable intangible assets


25.6Goodwill


61.8Accounts payable and other accrued liabilities


(11.5
)  72




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Twelve Months Ended September 30, 2005JJMA Pro


Alion ProAlion


Forma


Forma(In thousands, except share and per share information)Pro Forma Revenue

$
369,231


$
51,103


$
420,334Pro Forma Loss

$
(40,238
)

$
(17,524
)

$
(57,762
)Weighted Average Shares Outstanding


4,235,947



671,753



4,907,700Loss Per Share

$
(9.50
)

$



$
(11.77
)     Weighted AverageEstimated


Residual


RemainingFair Value


Value


Amortization PeriodAmounts in MillionsPurchased contracts

$
28.0


$




11 yearsInternal use software and designs


0.9







3 yearsNot to Compete Agreements


0.7







0 yearsTotal

$
29.6


$




11 years   (4)
    Employee
    Stock Ownership Plan (ESOP) and Stock Ownership Trust    (5)
    Postretirement
    Benefits   73




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Curtailment.
  Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans
    2007


2006(In thousands)Accumulated postretirement benefit obligation as of September 30:Retirees

$
1,053


$
2,364Fully eligible active plan participants


122



1,833Other active plan participants






4,837$
1,175


$
9,034   2007


2006(In thousands)Reconciliation of beginning and ending benefit obligation:Benefit obligation at beginning of year

$
9,034


$
3,583Service cost


454



246Interest cost


531



239Actuarial (gain) loss


(321
)


4,312Plan amendment


(7,840
)


1,014Benefits paid


(683
)


(360
)Benefit obligation at end of year

$
1,175


$
9,034   74




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2007


2006(In thousands)Funded status of the plan:Obligation at September 30

$
(1,175
)

$
(9,034
)Unrecognized prior service cost






1,014Unrecognized net actuarial loss






4,298Accrued postretirement benefits included in the consolidated
    balance sheet

$
(1,175
)

$
(3,722
)Amounts recognized in the statement of financial position
    consist of:Current assets

$



$
Noncurrent assets






Current liabilities






Noncurrent liabilities


1,175



3,722$
1,175


$
3,722   2007


2006(In thousands)Components of net periodic postretirement benefit cost:Service cost

$
454


$
246Interest cost


531



239Amortization of unrecognized prior service cost


140



Amortization of unrecognized net actuarial loss


331



40Net curtailment gain


(3,320
)


Net periodic postretirement benefit cost

$
(1,864
)

$
525     2007


2006(In thousands)Net loss (gain)

$




N/APrior service cost (credit)






N/ATransition obligation






N/A$




N/A       2007

2006Accumulated post retirement benefit obligation at September 30


6.15%



5.75%Service and interest cost portions of net periodic
    postretirement benefit cost


5.75%



5.25%  75




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006Health care cost trend rate assumed for next year


10.0%



11.0%Rate to which the cost trend rate is assumed to decline
    (ultimate trend rates)


6.0%



5.0%Year the rate reaches the ultimate trend rate


2016



2018     One-Percentage-

One-Percentage-Point Increase

Point Decrease(In thousands)Effect on total service and interest cost

$
97


$
85Effect on accumulated postretirement benefit obligation

$
32


$
30     (In thousands)2008

$
6672009


592010


602011


612012


612013-2017


273     (6)  Loss
    Per Share
    (7)  Shareholders
    Equity (Deficit)
   76




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (8)  Accounts
    Receivable
    2007


2006(In thousands)Billed receivables

$
126,430


$
106,310Unbilled receivables:Amounts currently billable


40,539



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


2,059



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


17,661



3,354Retainages and other amounts billable upon contract completion


5,243



2,570Less: Allowance for doubtful accounts


(5,272
)


(3,961
)Total Accounts Receivable

$
186,660


$
150,412     (9)  Property,
    Plant and Equipment
    2007


2006(In thousands)Leasehold improvements

$
7,212


$
2,709Equipment and software


31,388



25,188Total cost


38,600



27,897Less-accumulated depreciation and amortization


19,048



13,253Net Property, Plant and Equipment

$
19,552


$
14,644     (10)  Goodwill
    and Intangible Assets
  Goodwill and other
    Intangible Assets
 77




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Total(In thousands)Balance as of October 1, 2005

$
163,419Goodwill acquired during the year


223,412Adjustment to initial allocation (includes earn out obligations)


1,096Balance as of September 30, 2006

$
387,927Goodwill acquired during the year


1,594Adjustment to initial allocation (includes earn out obligations)


6,405Balance as of September 30, 2007


395,926     AccumulatedGross


Amortization


Net(In thousands)Purchased contracts

$
78,995


$
(24,772
)

$
54,223Internal use software and engineering designs


2,155



(790
)


1,365Non-compete agreements


75



(4
)


71Total

$
81,225


$
(25,566
)

$
55,659     (In thousands)For the year ended September 30:2008

$
14,4902009


12,4872010


10,9852011


6,8432012


5,767Thereafter


5,087$
55,659   (11)  Long-Term
    Debt
  Term B
    Senior Credit Facility
   78




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    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 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 term loan commitment by
    $68.0 million, of which the full $68.0 million had
    been drawn down by the Company as of June 30, 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
    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) 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
    term loans to the Companys Term B Senior Credit Facility.    
    a senior term loan, which is comprised of the following balances:  September 30,


September 30,2007


2006(In thousands)Senior term loan

$
245,502


$
259,015Less: Unamortized debt issuance costs


(4,716
)


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

$
240,786


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


(2,430
)


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

$
238,356


$
252,100   
    a $50.0 million senior revolving credit facility under
    which approximately $9.3 million was outstanding as of
    September 30, 2007, and approximately $3.9 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.   79




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Use of Proceeds.
    Security.
  Interest and Fees.
  *Senior Term Loan.
  Senior Revolving Credit Facility.
 80




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Interest Rate Cap Agreements.
  Other Fees and Expenses.
    Financial Covenants.
  Senior
    Unsecured Notes
    Use of Proceeds.
  Security.
  Ranking.
 81




---



##### 



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

Redemption Price2011


105.125
%2012


102.563
%2013 and thereafter


100.000
%   Covenants.
  Exchange Offer; Registration Rights.
  Bridge
    Loan
   82




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Interest
    Payable
    September 30,


September 30,2007


2006(In thousands)Senior Unsecured Notes

$
4,271


$
Term B Senior Credit Facility Note Payable


7,840



137Bridge loan payable






103Total

$
12,111


$
240   Subordinated
    Note
    paid-in-kind
    2008


2009


2010


2011


2012


2013


Thereafter


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

$
2,474


$
2,474


$
2,474


$
2,474


$
2,474


$
233,134


$



$
245,504Senior 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

$
2,474


$
29,826


$
29,826


$
2,474


$
2,474


$
233,134


$
250,000


$
550,208     (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 $240.8 million on the face of the balance sheet
    (current and long-term portion) includes, as of
    September 30, 2007, approximately $4.7 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. 83




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (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
    September 30, 2007, approximately $2.9 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  No. 00-19, Accounting for Derivative Financial Instruments Indexed to,
    and Potentially Settled in, a Companys Own Stock
  (13)
    Leases    84




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Lease Payments for Fiscal Years Ending

(In thousands)2008


26,5972009


23,3572010


17,6322011


15,5182012


10,994And thereafter


27,187Gross lease payments


121,285Less: non-cancelable subtenant receipts


(3,819
)Net lease payments


117,466   Composition
    of Total Rent Expense
    (In thousands)
  September 30,2007


2006


2005Minimum rentals

$
28,072


$
20,624


$
16,915Less: Sublease rental income


1,949



2,138



1,793Total rent expense, net

$
26,123


$
18,486


$
15,122   (14)
    Stock
    Appreciation Rights  2002
    SAR Plan
    Amendment #1.
  Vesting.
  Amendment #2.
    2004
    SAR Plan
  10-year
 85




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Vesting.
  Amendment.
   86




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Share-Based Payment
  Alion
    Science and Technology Corporation
    Stock-based Compensation Disclosures per FAS 123 and
    FAS 123R
    Stock Appreciation Rights
    As of September 30, 2007
  Shares


Shares


Total




















VestedGranted to


Granted to


Shares


Exercise


Outstanding


Outstanding











at


ExercisableDate of Grant

Employees


Directors


Granted


Price


at 9/30/06


at 9/30/07


Forfeited


Exercised


Expired


9/30/07


at 9/30/07December 2002


64,250







64,250


$
10.00



47,785



38,505



1,985



7,295







30,100



15,350December 2002






29,400



29,400


$
10.00



























May 2003


300







300


$
11.13



240



90



60



90







90



90June 2003


300







300


$
11.13



300







120



180











November 2003


129,550







129,550


$
14.71



100,466



81,721



5,508



13,237







45,191



13,123November 2003






12,600



12,600


$
14.71



2,800











2,800











November 2004






12,600



12,600


$
19.94



12,600



8,400







4,200







4,200



4,200February 2005


164,750







164,750


$
19.94



135,588



109,800



11,525



14,263







49,100



March 2005


2,000







2,000


$
19.94



2,000



2,000















1,000



April 2005


33,000







33,000


$
29.81



27,500



24,000



1,000



2,500







10,000



June 2005


2,000







2,000


$
29.81



2,000



2,000















1,000



December 2005


276,675







276,675


$
35.89



257,900



229,288



24,024



4,588







58,588



February 2006


13,000







13,000


$
35.89



10,250



10,250















2,563



February 2006


7,500







7,500


$
35.89



7,500



5,000



1,875



625







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



1,250















313



December 2006


239,290







239,290


$
41.02







225,600



13,190



500











February 2007


33,450







33,450


$
41.02







31,700



1,750















September 2007


2,000







2,000


$
43.37







2,000



















Total


989,315



54,600



1,045,915







630,179



793,604



61,037



50,278







208,895



32,763Wtd Avg Exercise Price

$
29.99


$
13.38


$
29.12






$
26.39


$
31.55


$
31.21


$
19.14


$



$
23.13


$
13.16  87




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Alion
    Science and Technology Corporation
    Stock-based Compensation Disclosures per FAS 123 and
    123R
    Stock Appreciation Rights
    As of September 30, 2007
  RemainingRisk Free




Expected


LifeDate of Grant

Interest Rate

Volatility


Life


(months)December 2002

4.06%-4.49%


60
%


5 yrs



4.3December 2002

4.06%-4.49%


60
%


3 yrs



0.0May 2003

2.70%-3.30%


55
%


5 yrs



9.7June 2003

2.70%-3.30%


55
%


5 yrs



10.5November 2003

4.06%-4.49%


60
%


5 yrs



16.1November 2003

4.06%-4.49%


60
%


3 yrs



0.0November 2004

3.10%-3.60%


45
%


3 yrs



4.3February 2005

3.10%-3.60%


45
%


4 yrs



18.7March 2005

3.10%-3.60%


45
%


4 yrs



19.8April 2005

4.10%-4.20%


45
%


4 yrs



20.7June 2005

4.10%-4.20%


45
%


4 yrs



22.9December 2005

4.20%-4.20%


40
%


4 yrs



29.5February 2006

4.20%-4.20%


40
%


4 yrs



31.2February 2006

4.20%-4.20%


40
%


4 yrs



31.7May 2006

4.82%-4.83%


35
%


4 yrs



34.5July 2006

4.82%-4.83%


35
%


4 yrs



35.9August 2006

4.82%-4.83%


35
%


4 yrs



37.8December 2006

4.54%-4.58%


35
%


4 yrs



41.7February 2007

4.54%-4.58%


35
%


4 yrs



43.8September 2007

4.54%-4.54%


35
%


4 yrs



47.1Wtd Avg Remaining Life (months)












26.0   (15)
    Phantom
    Stock Plans    Initial
    Phantom Stock Plan
   88




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Vesting.
  The Vested Amount forGrant inAnniversary from Grant Date

February 2003


November 20031st






20
%2nd






20
%3rd


50
%


20
%4th


25
%


20
%5th


25
%


20
%   Second
    Phantom Stock Plan
    Vesting.
  Director
    Phantom Stock Plan
   89




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Vesting.
      Alion
    Science and Technology Corporation
    Stock-based Compensation Disclosures per FAS 123 and
    FAS 123R
    Phantom Stock
    as of September 30, 2007
  SharesShares


Granted


Total


Grant DateGranted to


to


Shares


Price per


Outstanding


Outstanding











Vested at


ExercisableDate of Grant

Employees


Directors


Granted


Share


at 9/30/06


at 9/30/07


Forfeited


Exercised


Expired


9/30/07


at 9/30/07February 2003


171,000







171,000


$
10.00



85,000



26,000



1,100



57,900











November 2003


52,685







52,685


$
14.71



32,971



19,715



770



12,486







4,079



4,079February 2005


213,215







213,215


$
19.94



207,778



188,140



5,015



20,060











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



66,592



62,413







4,179











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







60,580







4,876











Total


731,049



13,786



744,835







561,274



531,108



6,885



100,152







10,186



5,705Wtd Avg Grant Date Fair Value Price per Share

$
21.85


$
38.11


$
22.15






$
21.87


$
25.71


$
17.77


$
15.34


$



$
23.07


$
20.75  90




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Alion
    Science and Technology Corporation
    Stock-based Compensation Disclosures per FAS 123 and
    FAS 123R
    Phantom Stock
    as of September 30, 2007
  RemainingRisk Free




Expected


LifeDate of Grant

Interest Rate

Volatility


Life


(months)February 2003

4.06%-4.49%


60
%


5 yrs



3.6November 2003

4.06%-4.49%


60
%


5 yrs



12.7February 2005

3.10%-3.60%


45
%


3 yrs



3.6February 2005

3.10%-3.60%


45
%


3 yrs



3.6February 2005

3.10%-3.60%


45
%


4 yrs



15.6August 2005

3.72%-3.77%


45
%


3 yrs



9.8November 2005

4.20%-4.20%


40
%


3 yrs



13.0November 2005

4.20%-4.20%


40
%


3 yrs



13.0November 2005

4.20%-4.20%


40
%


5 yrs



37.0November 2006

4.54%-4.58%


35
%


3 yrs



25.3November 2006

4.54%-4.58%


35
%


3 yrs



25.3Wtd Avg Remaining Life (months)












11.5   (16)
    Segment
    Information and Customer Concentration      For The Years Ended September 30,Government Agency

Contract

2007


2006


2005Department of Defense Navy

SeaPort Multiple Award Contract


17.9
%


3.8
%


Defense Modeling and Simulation Information

Information Analysis Center


5.9
%


12.5
%


18.8
%Joint Spectrum Center

Engineering Support Services


1.0
%


7.0
%


12.4
%  91




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (17)
    Guarantor/Non-guarantor
    Condensed Consolidated Financial Information   92




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (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














$
3,378Other current assets


5,096



64



1







5,161Total current assets


200,623



6,255



5







206,883Property, 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


5,934



16











5,950Total 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


140,766



3,542



158



0



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















33,610Total liabilities


744,550



4,401



394



(5,996
)


743,349Shareholders equity (deficit):Common stock


50



1







(1
)


50Additional paid-in capital


82,512



2,800







(2,800
)


82,512Treasury stock






(2
)






2



Accumulated surplus (deficit)


(141,941
)


5,269



(389
)


(4,880
)


(141,941
)Total shareholders equity (deficit)


(59,379
)


8,068



(389
)


(7,679
)


(59,379
)Total liabilities and shareholders equity (deficit)

$
685,171


$
12,469


$
5


$
(13,675
)

$
683,970  93




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (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



(16,289
)


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


34,656



1,482



4







36,142Accrued liabilities


24,518



2,143











26,661Accrued 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 surplus (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  94




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations for the Year Ended
    September 30, 2007
    (In thousands)
  Non-Guarantor


GuarantorParent


Companies


Companies


Eliminations


ConsolidatedContract revenue

$
709,980


$
27,375


$
232


$




737,587Direct contract expense


542,085



19904



150







562,139Gross profit


167,895



7,471



82







175,448Operating expenses:Indirect contract expense


39,206



4,629



137







43,972Research and development


2,158



8



213







2,379General and administrative


57,567



1,445



(126
)






58,886Rental and occupancy expense


32,098



273



39







32,410Depreciation and amortization


21,689



135











21,824Bad debt expense


1,761



51











1,812Total operating expenses


154,479



6,541



263







161,283Operating income (loss)


13,416



930



(181
)






14,165Other income (expense):Interest income


319















319Interest expense


(51,226
)














(51,226
)Loss on extinguishment of debt


(6,170
)














(6,170
)Other


1,191



(1,146
)


87







132Equity in operations of subsidiaries


(300
)










300



Total other income (expenses)


(58,186
)


(1,146
)


87



300



(56,945
)Income (loss) before income taxes


(42,770
)


(216
)


(94
)


300



(42,780
)Income tax benefit






10











10Net income (loss)

$
(42,770
)

$
(206
)

$
(94
)

$
300


$
(42,770
)  95




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations for the Year Ended
    September 30, 2006
    (In thousands)
  Non-Guarantor


GuarantorParent


Companies


Companies


Eliminations


ConsolidatedContract revenue

$
489,013


$
19,146


$
469


$



$
508,628Direct contract expense


367,585



13,590



292







381,467Gross profit


121,428



5,556



177







127,161Operating expenses:Indirect contract expense


27,491



2,312



104







29,907Research and development


1,884







141







2,025General and administrative


56,931



894



268







58,093Rental and occupancy expense


22,166



6



36







22,208Depreciation and amortization


16,491



75











16,566Bad debt expense


667















667Total operating expenses


125,630



3,287



549







129,466Operating income (loss)


(4,202
)


2,269



(372
)






(2,305
)Other income (expense):Interest income


590















590Interest expense


(26,691
)














(29,691
)Equity in operations of subsidiaries


766











(766
)


Other


1,448



(1,033
)


(98
)






317Total other expenses


(23,887
)


(1,033
)


(98
)


(766
)


(28,784
)Income (loss) before income taxes


(31,089
)


1,236



(470
)


(766
)


(31,089
)Income tax expense


(26
)














(26
)Net income (loss)

$
(31,115
)

$
1,236


$
(470
)

$
(766
)

$
(31,115
)  96




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations for the Year Ended
    September 30, 2005
    (In thousands)
  Non-Guarantor


GuarantorParent


Companies


Companies


Eliminations


ConsolidatedContract revenue

$
360,130


$
8,133


$
968


$



$
369,231Direct contract expense


262,026



4,622



593







267,241Gross profit


98,104



3,511



375







101,990Operating expenses:Indirect contract expense


28,367



618



32







29,017Research and development


498















498General and administrative


42,676



910



16







43,602Rental and occupancy expense


12,475



47



20







12,542Depreciation and amortization


17,763



8











17,771Bad debt expense


651















651Total operating expenses


102,430



1,583



68







104,081Operating income (loss)


(4,326
)


1,928



307







(2,091
)Other income (expense):Interest income


475















475Interest expense


(38,696
)














(38,696
)Equity in operations of subsidiaries


1,124











(1,124
)


Other


1,248



(976
)


(132
)






140Total other expenses


(35,849
)


(976
)


(132
)


(1,124
)


(38,081
)Income (loss) before income taxes


(40,175
)


952



175



(1,124
)


(40,172
)Income tax expense


(63
)


(3
)










(66
)Net income (loss)

$
(40,238
)

$
949


$
175


$
(1,124
)

$
(40,238
)  97




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Year Ended September 30, 2007
    (In thousands)
  Non-Guarantor


GuarantorParent


Companies


Companies


ConsolidatedNet cash provided by (used in) operating activities

$
(27,914
)

$
38


$
(60
)

$
(27,936
)Cash flows from investing activities:Cash paid for acquisitions, net of cash acquired


(14,751
)










(14,751
)Capital expenditures


(10,648
)


(39
)






(10,687
)Net cash used in investing activities


(25,399
)


(39
)






(25,438
)Cash flows from financing activities:Proceeds from Term B Senior Credit Facility note payable


40,000











40,000Proceeds from Senior Unsecured Notes


250,000











250,000Repayment of Bridge Loan


(170,000
)










(170,000
)Payment of debt issuance costs


(10,796
)










(10,796
)Repayment of Term B Credit Facility note payable


(53,513
)










(53,513
)Payments under revolving credit facility


(3,050
)










(3,050
)Proceeds from interest rate cap agreement


360











360Purchase of common stock from ESOP Trust


(6,656
)










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


15,958











15,958Net cash provided by financing activities


62,303











62,303Net increase (decrease) in cash and cash equivalents


8,990



(1
)


(60
)


8,929Cash and cash equivalents at beginning of year


2,728



(32
)


59



2,755Cash and cash equivalents at end of year

$
11,718


$
(33
)

$
(1
)

$
11,684  98




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Year Ended September 30, 2006
    (In thousands)
  Non-Guarantor


GuarantorParent


Companies


Companies


ConsolidatedNet cash provided by (used in) operating activities

$
(15,787
)

$
(256
)

$
366


$
(15,678
)Cash flows from investing activities:Cash paid for acquisitions, net of cash acquired


(279,196
)










(279,196
)Capital expenditures


(4,878
)


(37
)


(312
)


(5,227
)Net cash used in investing activities


(284,074
)


(37
)


(312
)


(284,423
)Cash flows from financing activities:Proceeds from Term B Senior Credit Facility note payable


118,000











118,000Repayment of mezzanine note warrants


(13,643
)










(13,643
)Proceeds from Bridge Loan


170,000











170,000Payment of debt issuance costs


(7,758
)










(7,758
)Repayment of Term B Credit Facility note payable


(1,905
)










(1,905
)Borrowings under revolving credit facility


12,300











12,300Purchase interest rate cap agreement


(44
)










(44
)Purchase of shares of common stock from ESOP Trust


(19,003
)










(19,003
)Cash received from issuance of common stock to Trust


7,131











7,131Net cash provided by financing activities


265,078











265,078Net (decrease) increase in cash and cash equivalents


(34,783
)


(293
)


54



(35,023
)Cash and cash equivalents at beginning of year


37,512



261



5



37,778Cash and cash equivalents at end of year

$
2,728


$
(32
)

$
59


$
2,755  99




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Year Ended September 30, 2005
    (In thousands)
  Non-Guarantor


GuarantorParent


Companies


Companies


ConsolidatedNet cash provided by operating activities

$
35,093


$
37


$
10


$
35,140Cash flows from investing activities:Cash paid for acquisitions, net of cash acquired


(74,591
)










(74,591
)Capital expenditures


(2,222
)


(6
)


(5
)


(2,233
)Purchase of investment securities


(1,193
)










(1,193
)Net cash used in investing activities


(78,006
)


(6
)


(5
)


(78,017
)Cash flows from financing activities:Proceeds from Term B Senior Credit Facility note payable


94,000











94,000Repayment of mezzanine note payable


(20,201
)










(20,201
)Repayment of mezzanine note warrants














Proceeds from bridge loan














Payment of debt issuance costs


(1,307
)










(1,307
)Repayment of Term B Credit Facility note payable


(1,080
)










(1,080
)Repayments of agreements with officers


(1,823
)










(1,823
)Borrowings under revolving credit facility














Purchase interest rate cap agreement














Purchase of shares of common stock from ESOP Trust


(8,160
)










(8,160
)Cash received from issuance of common stock to Trust


14,509











14,509Net cash provided by financing activities


75,938











75,938Net increase in cash and cash equivalents


33,025



31



5



33,061Cash and cash equivalents at beginning of year


4,609



108







4,717Cash and cash equivalents at end of year

$
37,634


$
139


$
5


$
37,778  100




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (18)
    Related
    Party Transactions    (19)
    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.
     101




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Government
    Audits
    (20)
    Interim
    Period Information (Unaudited, in thousands except per share
    information)  2007 Quarters1st


2nd


3rd


4thRevenue

$
181,139


$
187,899


$
184,933


$
183,616Gross profit

$
41,038


$
46,387


$
42,761


$
45,262Net income (loss)

$
(14,112
)

$
(15,694
)

$
(13,827
)

$
863Income (loss) per share

$
(2.71
)

$
(3.07
)

$
(2.63
)

$
0.06   2006 Quarters1st


2nd


3rd


4thRevenue

$
101,289


$
111,189


$
116,830


$
179,320Gross profit

$
24,984


$
30,142


$
29,638


$
42,397Net loss

$
(7,780
)

$
(920
)

$
(8,242
)

$
(14,173
)Loss per share

$
(1.52
)

$
(0.19
)

$
(1.60
)

$
(3.26
)  102




---



##### 



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure Controls and Procedures.
    Internal Control Over Financial
    Reporting.
  Item 9A(T).
    Controls
    and Procedures    Item 9B.
    Other
    Information   103




---



##### 



PART III
  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Information
    Regarding the Directors of the Registrant
    Term

DirectorName

Age

Position

Expires

SinceBahman Atefi


54


President, Chief Executive Officer
    and Chairman


2008



2001Edward C. (Pete) Aldridge, Jr.


69


Director


2009



2003Leslie L. Armitage


39


Director


2010



2002Lewis Collens


69


Director


2010



2002Admiral (Ret.) Harold W. Gehman, Jr.


64


Director


2010



2002Donald E. Goss


76


Director


2009



2002General (Ret.) George A. Joulwan


67


Director


2008



2002General (Ret.) Michael E. Ryan


65


Director


2008



2002       Bahman Atefi 600-person
  Edward C. (Pete) Aldridge, Jr.
  Leslie L. Armitage
 104




---



##### 



Lewis Collens
  Admiral (Ret.) Harold W. Gehman, Jr.
  Donald E. Goss
  General (Ret.) George A. Joulwan 1990-1993 1993-1997.
  General (Ret.) Michael E. Ryan
 105




---



##### 



Establishment
    of Committees
    Committee

Chairperson

MembersAudit and Finance Committee

Donald Goss

Leslie Armitage, Harold Gehman, Michael RyanCompensation Committee

Harold Gehman

Pete Aldridge, Leslie Armitage, Lewis Collens, George JoulwanGovernance and Compliance Committee

Michael Ryan

Bahman Atefi, George Joulwan, Harold Gehman   Regulation S-K,
  Audit
    and Finance Committee
    
    professional services provided by our independent registered
    public accounting firm;
    independence of our independent registered public accounting
    firm from our management;
    our quarterly and annual financial statements and our system of
    internal control over financial reporting;
    our capital structure, including the issuance of equity and debt
    securities, the incurrence of indebtedness, and related matters;
    general financial planning, including cash flow and working
    capital management, capital budgeting and expenditures, tax
    planning and compliance and related matters;
    mergers, acquisitions and strategic transactions;
    investment policies, financial performance and funding of our
    employee benefit plans; and
    any other transactions or financial issues that the Board of
    Directors or management would like the committee to review.    Compensation
    Committee
    
    determining the compensation of our Chief Executive Officer and
    reviewing and approving the compensation of our other executive
    officers;
    exercising all rights, authority and functions under our KSOP,
    retirement and other compensation plans;
    approving and making recommendations to the Board regarding
    non-employee director compensation;
    preparing an annual report on executive compensation for
    inclusion in our annual report on
    Form 10-K
    in accordance with the rules and regulations of the Securities
    and Exchange Commission;
    establishing, implementing and monitoring adherence with the
    Companys compensation philosophy; and
    evaluating both performance and compensation to ensure that the
    Company maintains its ability to attract and retain superior
    employees in key positions and that compensation provided to key
    employees remains competitive relative to the compensation paid
    to similarly situated executives of other companies. 106




---



##### 



Corporate
    Governance and Compliance Committee
      Information
    Regarding the Executive Officers of the Registrant
    Name

Age

Office

Position SinceBahman Atefi


54


President, Chief Executive Officer and Chairman of the Board of
    Directors(1)

December 2001Stacy Mendler


44


Chief Operating Officer and Executive Vice President(1)

September 2006John (Jack) Hughes


55


Executive Vice President, Chief Financial Officer and
    Treasurer(1)

September 2005Rob Goff


61


Sector Senior Vice President - Defense Operations Integration
    Sector(1)

February 2004Scott Fry


58


Sector Senior Vice President -- Engineering and Integration
    Solutions Sector

October 2005Walter (Buck) Buchanan


57


Sector Senior Vice President -- Engineering and Information
    Technology Sector

June 2007James Fontana


49


Senior Vice President, General Counsel and Secretary

January 2004     (1)
    
    Member of the ESOP committee    Stacy Mendler
 107




---



##### 



John (Jack) Hughes
  Rob Goff
  Scott Fry
  Walter Buchanan
  James Fontana
 108




---



##### 



Code of
    Ethics
      Item 11.
    Executive
    Compensation  Compensation
    Discussion and Analysis
  Objectives
    of Executive Compensation Program
      What Our
    Compensation Program is Designed to Reward
    Form 10-K,
 109




---



##### 



Roles and
    Responsibilities for Our Compensation Program
    Roles and
    Responsibilities for Our Compensation Program
  Role
    of the Compensation Committee
    Role
    of the Chief Executive Officer
    Role
    of the Compensation Consultant
    Elements
    of Companys Executive Compensation Plan
    Base
    Salary
   110




---



##### 



Named Executive Officer

Fiscal 2007 Base SalaryBahman Atefi

$
540,000Stacy Mendler

$
325,000Jack Hughes

$
310,500Rob Goff

$
310,000Scott Fry

$
300,000Randy Crawford

$
300,000       
    The Washington Technical Professional Forum (WTPF)
    (www.marketpay.com). WTPF is an organization comprised of Human
    Resources Professionals who work for firms in the R&D,
    technical, or professional services industries in the
    Washington, DC metropolitan area. WTPFs membership
    includes more than 1,000 professionals and more than
    250 companies.
    Western Management Group (WMG) (www.wmgnet.com). WMG is a global
    leader in the design, development and conduct of compensation
    surveys. WMGs objective is to provide timely, valid and
    accurate market data to compensation professionals through the
    use of state-of-the-art tools and analyses. WMG has conducted
    specialized surveys and studies in a wide variety of industries
    including high technology, electronics, computers,
    semiconductors, pharmaceuticals, medical, chemicals, aerospace,
    telecommunications, transportation, banking, legal services,
    marketing, maritime, printing, clothing, governmental, and
    research institutions.
    Salary.com (www.salary.com). In 2006, Alion purchased the
    CompAnalyst on-line compensation product from Salary.com. This
    state-of-the-art tool allows Alion instant access to
    market-price jobs based on industry, geography, and company
    size, and provides Alion with the ability to run reports and
    analyses regarding our current pay practices. Users can access
    real-time market data by job within job families, and have the
    capability to benchmark internal Alion jobs to CompAnalyst data.    
    market data;
    internal review of the executives compensation, both
    individually and relative to other officers;
    individual performance of the executive; and
    our financial and operating results.    Annual
    Bonus
   111




---



##### 



Stock
    Incentives/Awards
    Phantom
    Stock Plans
    Stock
    Appreciation Rights (SAR) Plan
  2002 SAR Plan. 10-year
  2004 SAR Plan. 10-year
  Severance/Change
    in Control
    Change in
    Control
  and/or
 112




---



##### 



Termination
    without Cause
    Health
    and Welfare Benefits
      KSOP
   113




---



##### 



Summary
    Compensation Table
    Non-EquityPhantom



Incentive

DeferredName and Principal







Stock

SAR

Plan

Compensation

All OtherPosition

Year

Salary

Bonus(1)

Awards(2)

Awards(2)

Compensation(3)

Earnings

Compensation(4)

TotalBahman Atefi


2007


$
532,997






$
976,353






$
490,000






$
87,120


$
2,086,470Chief Executive Officer and PresidentStacy Mendler


2007


$
321,206






$
429,595






$
180,000






$
65,618


$
996,419Chief Operating Officer and Executive VPJack Hughes


2007


$
308,913






$
410,068






$
180,000






$
58,083


$
957,064Executive VP, Chief Financial Officer and TreasurerRob Goff


2007


$
308,562






$
146,453






$
255,000






$
45,119


$
755,134Defense Operations Integration Sector Senior VPScott Fry


2007


$
295,431






$
195,271






$
150,000






$
38,120


$
678,822Engineering and Integration Solutions Sector Senior VPRandy Crawford(5)


2007


$
210,494






$
195,271






$
135,000






$
89,102


$
629,867Engineering and Information Technology Sector 
    Senior VP     (1)
    
    This column includes non-incentive based cash bonuses awarded to
    our named executive officers, such as sign-on bonuses. None of
    our named executive officers received any non-incentive bonuses
    in fiscal year 2007. See the column entitled Non-equity
    Incentive Plan Compensation for other bonuses awarded for
    their service in fiscal year 2007.(2)
    
    These columns reflect the dollar amounts that were recognized in
    fiscal 2007 for financial statement reporting purposes under
    SFAS 123(R) with respect to phantom stock and SAR awards
    granted to our named executive officers in fiscal year 2007.(3)
    
    This column includes cash bonuses awarded to our named executive
    officers under the Non-Equity Incentive Plan for their service
    in fiscal year 2007.(4)
    
    This column includes the following amounts with respect to our
    Named Executive Officers: Company matching contributions under Alions
    KSOP; Company contributions for long and short term
    disability; any amounts paid by the Company for life insurance
    premiums; any amounts paid or reimbursed by the company with
    respect to health and welfare; any amounts paid or reimbursed by the Company with
    respect to social club membership; and any amounts paid or reimbursed by the Company with
    respect to leased cars.Please see table below for detailed information regarding all
    other compensation.  All Other
    Compensation
  Company



Long and Short



Term LifeMatching

Health and

Term Disability

Club

Insurance PaidName and Principal

Contributions Under

Welfare

Paid by the

Membership

by thePosition

Alions KSOP

Benefits

Company

Fees

Company

Leased Cars

TotalBahman Atefi

$
14,869


$
43,758


$
3,921


$
4,920


$
486


$
19,165


$
87,120Stacy Mendler

$
14,300


$
29,262


$
2,644






$
486


$
18,926


$
65,618Jack Hughes

$
14,300


$
23,696


$
2,567






$
486


$
17,034


$
58,083Rob Goff

$
14,300


$
15,168


$
2,565






$
486


$
12,600


$
45,119Scott Fry

$
10,341


$
13,075


$
2,491






$
481


$
11,733


$
38,120Randy Crawford

$
12,242


$
64,821


$
1,725






$
333


$
9,981


$
89,102  114




---



##### 



(5)
    
    Mr. Crawford resigned as Sector Senior Vice President of
    the Engineering and Information Technology Sector on
    June 15, 2007.  Phantom
    Stock Plans
  Initial
    Phantom Stock Plan
    Vesting.
  Vested Amount for Grant inFebruary


NovemberAnniversary from Grant Date

2003


20031st






20
%2nd






20
%3rd


50
%


20
%4th


25
%


20
%5th


25
%


20
%     
    the numerator of which is the number of months from the date of
    grant of the phantom stock through the end of the month of such
    termination; and
    the denominator of which is 60.    Payments.
  Amendment.
 115




---



##### 



Second
    Phantom Stock Plan
    Vesting.
  Payments.
  Amendment.
    Director
    Phantom Stock Plan
   116




---



##### 



Vesting.
  Payments.
        
    Date of grant;
    Number of shares of the phantom stock awarded; and
    Provisions governing vesting of the phantom stock awarded.           117




---



##### 



Cumulative SharesShares Issued by


Cumulative Shares


Authorized underDate of Issuance

Plan


Issued by Plan


all PlansFebruary 2003


171,000
(1)


171,000
(1)


173,000
(1)November 2003


52,685
(1)


223,685
(1)


225,000
(1)February 2005


316,629
(2)


316,629
(2)


2,000,000
(2)August 2005


2,960
(2)


319,589
(2)


2,000,000
(2)November 2005


122,318
(2)


441,907
(2)


2,000,000
(2)November 2006


65,456
(2)


507,363
(2)


2,000,000
(2)November 2005


7,808
(3)


7,808
(3)


2,000,000
(3)November 2006


5,978
(3)


13,786
(3)


2,000,000
(3)     (1)
    
    Number of shares authorized under the Initial Phantom Stock Plan
    as periodically amended and approved by the Compensation
    Committee of Alions Board of Directors.(2)
    
    Number of shares authorized under the Second Phantom Stock Plan
    as periodically amended and approved by the Compensation
    Committee of Alions Board of Directors.(3)
    
    Number of shares authorized under the Director Phantom Stock
    Plan as periodically amended and approved by the Compensation
    Committee of Alions Board of Directors.    Name

Number of shares

Grant Date

Grant Type

Full vesting period

Period(s) until payoutBahman Atefi


65,500
(1)

February 2003

Retention

February 2008(2)

February 2006, 2007, 2008(3)18,695
(1)

November 2003

Retention

November 2008(2)

November 2006, 2007, 2008(3)43,951


February 2005

Retention

February 2008(4)

February 2008(4)67,888
(5)

February 2005

Performance

February 2008(4)

February 2008(4)22,290


November 2005

Retention

November 2008(4)

November 2008(4)27,863


November 2005

Retention

November 2010(4)

November 2010(4)24,378


November 2006

Retention

November 2009(4)

November 2009(4)Jack Hughes


10,000
(1)

February 2003

Retention

February 2008(2)

February 2006, 2007, 2008(3)6,798
(1)

November 2003

Retention

November 2008(2)

November 2006, 2007, 2008(3)30,297


February 2005

Retention

February 2008(4)

February 2008(4)46,797
(5)

February 2005

Performance

February 2008(4)

February 2008(4)11,145


November 2005

Retention

November 2008(4)

November 2008(4)13,931


November 2005

Retention

November 2010(4)

November 2010(4)10,239


November 2006

Retention

November 2009(4)

November 2009(4)Stacy Mendler


28,500
(1)

February 2003

Retention

February 2008(2)

February 2006, 2007, 2008(3)6,798
(1)

November 2003

Retention

November 2008(2)

November 2006, 2007, 2008(3)24,151


February 2005

Retention

February 2008(4)

February 2008(4)37,305
(5)

February 2005

Performance

February 2008(4)

February 2008(4)11,145


November 2005

Retention

November 2008(4)

November 2008(4)13,931


November 2005

Retention

November 2010(4)

November 2010(4)10,726


November 2006

Retention

November 2009(4)

November 2009(4)Robert Goff


3,399
(1)

November 2003

Retention

November 2008(2)

November 2008(3)25,821
(5)

February 2005

Performance

February 2008(4)

November 2010(4)8,080


November 2005

Retention

November 2008(4)

November 2008(4)3,657


November 2006

Retention

November 2009(4)

November 2009(4)Scott Fry


2,507


February 2005

Retention

February 2009(4)

February 2010(4)4,179


November 2005

Retention

November 2008(4)

November 2008(4)4,876


November 2006

Retention

November 2009(4)

November 2009(4)  118




---



##### 



(1)
    
    The initial set of awards made in February 2003 was made solely
    to Alions executive management team. The awards made in
    November 2003 were made to executive and senior management of
    Alion.(2)
    
    Pursuant to the Initial Phantom Stock Plan, recipients will
    become fully vested on the fifth year from the grant date, or
    approximately February 2008 and November 2008.(3)
    
    Pursuant to the Initial Phantom Stock Plan, recipients will be
    paid commencing on the fifth year from the date of grant.
    However, in November 2005, the Initial Phantom Stock Plan was
    amended to permit employees to make a one-time election to
    receive payment for phantom shares as they vest each year or
    when fully vested. Mr. Atefi, Mr. Hughes, and
    Ms. Mendler made this one-time election, whereas
    Mr. Goff did not make this election.(4)
    
    Pursuant to the Second Phantom Stock Plan, recipients may be
    awarded performance-based or retention-based phantom stock.
    Under this plan, performance-based phantom stock will become
    fully vested three years from the date of grant; retention-based
    phantom stock will become fully vested as specified in the
    individual agreements. Under this plan, recipients of
    performance-based and retention-based phantom stock will be paid
    as specified in the individual agreements.(5)
    
    Pursuant to the Second Phantom Stock Plan, performance awards
    are subject to change at the vesting date. The performance-based
    grants in February 2005 were fixed based on the
    September 30, 2007 share price.  Stock
    Appreciation Rights (SAR) Plans
  2002
    SAR Plan
  10-year
  Amendment #1.
  Amendment #2.
  Vesting.
  Payments.
 119




---



##### 



2004 SAR
    Plan
  10-year
  Vesting.
  Payments. 5-year
    Amendment.
   120




---



##### 



Grants of
    Plan-Based Awards
    Allotherstock


Allawards:


other





GrantNumber


SAR


Exercise


dateof


awards:


or


fairshares


Number


base


valueof


of


price


of stockstock


securities


of


andor


underlying


SAR


SARGrant


Estimated future payments under Non-equity incentive plan
    awards(1)


Estimated future payments under Equity incentive plan
    awards(2)


units


options


awards


awardsName

date


Threshold


Target


Maximum


Threshold


Target


Maximum


(#)(3)


(#)


($/Sh)


(4)Bahman Atefi


11/14/2006



























24,378










$
1,000,000Stacy Mendler


11/14/2006



























10,726










$
440,000Jack Hughes


11/14/2006



























10,239










$
420,000Rob Goff


11/14/2006



























3,657










$
150,000Scott Fry


11/14/2006



























4,876










$
200,000Randy Crawford


11/14/2006



























4,876










$
200,000     (1)
    
    Threshold, target and maximum amounts do not apply to the
    Companys bonus program.(2)
    
    Threshold, target and maximum amounts only apply to performance
    based phantom stock, and not to retention based phantom stock.
    Only retention based phantom stock was issued to the Named
    Executive Officers in fiscal year 2007.(3)
    
    This column represents the amount of Phantom stock awards given
    to the Named Executive Officers.(4)
    
    The share price at the grant date of November 14, 2006 was
    $41.02.  Outstanding
    Equity Awards at Fiscal Year-End
    SAR Awards


Phantom Stock AwardsNumber ofsecurities


Number ofunderlying


securities








Number of


Market value ofunexercised


underlying


SAR





shares or


shares or units ofSARs


unexercised SARs


exercise





units of stock that


stock that have not(#)


(#)


price





have not vested


vested (4)Name

Exercisable


Unexercisable


($)


SAR expiration date


(#)


($)Bahman Atefi


















208,262


$
8,340,893Stacy Mendler


















106,025


$
4,246,341Jack Hughes


















116,277


$
4,656,894Rob Goff(1)






240


$
10.00



12/23/07



38,172


$
1,528,789(2)






1,000


$
14.71



12/01/08







Scott Fry(3)


2,000



2,000


$
19.94



12/01/09



10,309


$
412,875     (1)
    
    In December 2002, Mr. Goff was awarded 1,200 SARs at the
    exercise price of $10.00 per share, of which 240 SARs were
    outstanding as of September 30, 2007.(2)
    
    In December 2003, Mr. Goff was awarded 2,500 SARs at the
    exercise price of $14.71 per share, of which 1,000 SARs were
    outstanding as of September 30, 2007. 121




---



##### 



(3)
    
    In February 2005, Mr. Fry was awarded 4,000 SARs at the
    exercise price of $19.94 per share, all of which were
    outstanding as of September 30, 2007.(4)
    
    The market value is based on the share price of $40.05 as of
    September 30, 2007.  SAR
    Exercises and Phantom Stock Vested
    SAR Awards


Phantom Stock AwardsNumber of sharesacquired on


Value realized on


Number of shares


Value realized onexercise


exercise


acquired on vesting


vestingName

(#)


($)


(#)


($)Bahman Atefi










20,114


$
805,564Stacy Mendler










8,485


$
339,809Jack Hughes










3,860


$
154,578Rob Goff


240


$
7,445
(1)


680


$
27,226500


$
13,155
(2)Scott Fry










627


$
25,107Randy Crawford










9,610


$
384,865     (1)
    
    Based on the exercise price of $10.00 per share and the
    December 27, 2006 share price of $41.02 per share.(2)
    
    Based on the exercise price of $14.71 per share and the
    December 27, 2006 share price of $41.02 per share.  Deferred
    Compensation Plans
    and/or
      Other
    Potential Post-Termination Payments
    Severance Agreements.
 122




---



##### 



Stock Incentive and Deferred Compensation Plans.
    Termination
    by the Company without Cause;
    Termination by Executive based upon Constructive Termination;
    Termination in the event of Death or Disability;
    Termination upon Expiration of the Employment Agreement due to
    Company Election Not to Extend
  Early VestingSeverance


of StockAmount


Awards


Other


TotalName

(a)


(b)


(c)


(d)Bahman Atefi

$
2,060,000


$
8,340,893


$
25,000


$
10,425,893Stacy Mendler

$
757,569


$
4,246,341


$
25,000


$
5,028,910Jack Hughes

$
735,792


$
4,656,894


$
25,000


$
5,417,686Rob Goff

$
470,027


$
1,528,789


$
25,000


$
2,023,816Scott Fry

$
450,054


$
412,875


$
25,000


$
887,929     (a)
    
    Represents a cash payment of a certain percentage of the annual
    salary payable to the executive and a certain percentage of the
    bonus that would have been earned by the executive as of such
    date, the latter of which was based upon the Companys
    actual bonus payment for performance for fiscal year 2007.  Name

Salary


BonusBahman Atefi


200
%


200
%Stacy Mendler


150
%


150
%Jack Hughes


150
%


150
%Rob Goff


100
%


100
%Scott Fry


100
%


100
%   (b)
    
    Represents the value of the stock and stock option awards held
    by the executive and unvested as of September 30, 2007. In
    the case of stock awards, the value of the unvested awards is
    the number of unvested shares multiplied by the closing market
    of the Companys stock on September 30, 2007. In the
    event of SAR awards, the value of the unvested awards is the
    number of unvested shares multiplied by the difference between
    the share price of the Companys stock on
    September 30, 2007 and the exercise price for each such SAR
    award. The amount in this column applies and would be received
    by the executive if the termination occurs within one year
    following the execution of a definitive agreement for a change
    of control, which transaction is subsequently consummated.(c)
    
    Represents outplacement services in an amount not to exceed
    $25,000 with a firm selected by the Company and at the
    reasonable expense of the Company; provided, however, that under
    no circumstances shall such outplacement services be provided
    beyond the December 31 of the second calendar year following the
    calendar year in which the executives separation from
    service occurred.  and/or and/or
 123




---



##### 



(d)
    
    Represents the maximum amount that the executive can receive,
    including in the event the executive is entitled to full vesting
    of his or her stock and SARs in the event of a termination
    occurring within one year following the execution of a
    definitive agreement for a change in control, which transaction
    is subsequently consummated.  Director
    Compensation
  Fees








Non-equity


Change inearned or


Phantom





incentive


nonqualifiedpaid in


Stock


SAR


plan


deferred


All othercash


awards


awards


compensation


compensation


compensation


TotalName

($)(1)


($)(2)


($)


($)


earnings


($)(3)


($)Bahman Atefi


























Edward C. (Pete) Aldridge, Jr.

$
37,500


$
35,000


















$
72,500Leslie Armitage

$
41,500


$
35,000


















$
76,500Lewis Collens

$
36,000


$
35,000














$
2,398


$
73,398Admiral (Ret.) Harold W. Gehman, Jr.

$
45,000


$
35,000














$
1,425


$
81,425Donald E. Goss

$
43,000


$
35,000














$
4,889


$
82,889General (Ret.) George A. Joulwan

$
43,000


$
35,000


















$
78,000General (Ret.) Michael E. Ryan

$
45,000


$
35,000














$
4,497


$
84,497     (1)
    
    This column represents the total fees including the annual
    retainer fee made to the non-employee directors. The
    Companys employee directors do not receive any additional
    compensation for their services as members of the Board of
    Directors. For the year ended September 30, 2007, the
    Companys non-employee directors received an annual
    retainer of $25,000, payable in quarterly installments, for
    their services as members of the Board of Directors. As of
    October 1, 2007, the annual retainer increased to $30,000.
    These services include preparation for and attendance in person
    at four Board of Directors meetings per year and all committee
    meetings that take place on the same day as a full Board of
    Directors meeting. In addition, each director receives a fee of
    $2,500 for in-person attendance at each additional Board of
    Directors meeting, and $1,000 for telephone attendance at each
    additional Board of Directors meeting. The chairman of the Audit
    and Finance Committee receives $7,500 per year for each year he
    or she serves in such capacity. The other board committee
    chairmen receive $5,000 per year for each year he or she serves
    in such capacity. Board committee members receive $1,000 per
    committee meeting if the committee meeting occurs on a day other
    than the day of a full Alion Board of Directors meeting. Alion
    reimburses directors for reasonable travel expenses in
    connection with attendance at Board of Directors and board
    committee meetings.(2)
    
    The awards represent a grant made to directors of the Company.
    For the year ended September 30, 2007, each of the
    Companys non-employee directors received an annual award
    of $35,000 in shares of phantom stock under our Director Phantom
    Stock Plan. As of October 1, 2007, the annual award
    increased to $40,000 in shares of phantom stock. Each award
    vests ratably over a three year period. The stock awards will
    vest over a period of 3 years from the respective grant
    date. The amount in this column represents the expense amount
    recognized by the Company for fiscal year 2007 under Financial
    Accounting Standard Board Statement of Financial Accounting
    Standards No 123 (revised 2004) Share-Based Payment
    (FAS 123R). The Companys calculation of the expense
    amount for FAS 123R purposes is based on a model that
    includes subjective assumptions, which are set forth in and
    discussed in more detail in the footnotes to the financial
    statements for the Company contained in this annual report. The
    Companys directors also have the option to participate in
    a deferred compensation plan for tax deferral of their annual
    compensation and/or payments to be made upon exercise of their
    phantom stock awards. For more information about the Alion
    Science and Technology Corporation Director Phantom Stock Plan,
    please read Item 11. Executive
    Compensation  Phantom Stock Plans 
    Director Phantom Stock Plan. 124




---



##### 



(3)
    
    The amounts included in this column represent the amount paid by
    the Company for travel expenses for the Board of Directors
    meetings.  Compensation
    Committee Interlocks and Insider Participation
    Compensation
    Committee Report
  Regulation S-K
         Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholders Matters    Amount and Natureof Beneficial


PercentageName of Beneficial Owner

Title of Class


Ownership


of Class(1)Five Percent Security Holders:Illinois Institute of Technology(2)


Common stock



1,080,437
(3)


17.7Directors(4) and Executive Officers:Bahman Atefi


Common stock



67,707
(5)


1.3Jack Hughes


Common stock



5,870
(5)


*Stacy Mendler


Common stock



72,771
(5)


1.5Rob Goff


Common stock



11,514
(5)


*Scott Fry


Common stock



3,434
(5)


*All Directors and Executive Officers as a Group
    (5 Persons)


Common stock



161,296
(5)


3.2     *
    
    less than 1%.(1)
    
    Applicable percentages based on 5,012,934 shares
    outstanding on September 30, 2007, and also includes shares
    of common stock subject to warrants that may be exercised within
    60 days of September 30, 2007. Such shares are deemed
    to be outstanding for the purposes of computing the percentage
    ownership of the individual or entity holding the shares, but
    are not deemed outstanding for purposes of computing the
    percentage of any other person shown in the table. This table is
    based upon information in the Companys possession and
    believed to be accurate. Unless indicated in the footnotes to
    this table and subject to community property laws where 125




---



##### 



applicable, the Company believes that each of the shareholders
    named in this table has sole voting and investment power with
    respect to the shares indicated as beneficially owned.(2)
    
    Illinois Institute of Technologys address is 3300 South
    Federal Street, Chicago, IL 60616.(3)
    
    The number of shares deemed to be beneficially held by IIT
    represents currently exercisable warrants held by IIT under the
    Subordinated Warrant for an aggregate of 1,080,437 shares
    of common stock.(4)
    
    No directors (other than Dr. Atefi) are believed by the
    Company to be beneficial owners of its common stock.(5)
    
    Includes beneficial ownership of shares of Alions common
    stock pursuant to the Alion Science and Technology Corporation
    Employee Ownership, Savings and Investment Plan, which the
    Company refers to as the KSOP.  Changes
    in Control
    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence      Independent
    Directors
          Item 14.
    Principal
    Accountant Fees and Services   126




---



##### 



Fee Category

2007


2006Audit Fees(1)

$
1,045,145


$
1,235,970Audit-Related Fees(2)


230,625



292,646Tax Fees and All Other Fees


56,775



58,866Total Fees

$
1,332,545


$
1,587,482     (1)
    
    Audit fees consist of fees for the audit of the Companys
    financial statements, the review of the interim financial
    statements included in the Companys quarterly reports on
    Form 10-Q,
    and other professional services provided in connection with
    statutory and regulatory filings or engagements.(2)
    
    Audit-related fees consist of fees for assurance and related
    services that are reasonably related to the performance of the
    audit and the review of the Companys financial statements
    and which are not reported under Audit Fees. In
    fiscal years 2006 and 2007, these services related to audit
    services provided in conjunction with acquisitions, accounting
    consultations, and audits of employee benefit plans. In fiscal
    years 2007 and 2006, these services related to audit of employee
    benefit plan and Sarbanes-Oxley Section 404 assistance.
    These services were approved by the Audit and Finance Committee.  PART IV
  Item 15.
    Exhibits
    and Financial Statement Schedules  (a) Consolidated Financial Statements of Alion Science
    and Technology CorporationReports of Independent Registered Public Accounting FirmConsolidated Financial Statements:Consolidated Balance Sheets as of September 30, 2007 and
    2006Consolidated Statements of Operations for the years ended
    September 30, 2007, 2006 and 2005Consolidated Statements of Shareholders Equity (Deficit),
    for the years ended September 30, 2007, 2006 and 2005Consolidated Statements of Cash Flows for the years ended
    September 30, 2007, 2006 and 2005Notes to Consolidated Financial Statements(b) Consolidated Financial Statement ScheduleSchedule II  Valuation and Qualifying Accounts
    (in thousands)   Balance at


Charged to








Balance atBeginning


Costs and








End ofAllowance for Doubtful Accounts Receivable

of Year


Expenses


Deductions(1)


Acquisitions


YearFiscal year ended 2007

$
3,961


$
2,176


$
(865
)

$



$
5,272Fiscal year ended 2006

$
3,539


$
667


$
(462
)

$
217
(2)

$
3,961Fiscal year ended 2005

$
2,896


$
700


$
(970
)

$
913
(3)

$
3,539     (1)
    
    Accounts receivable written off against the allowance for
    doubtful accounts.(2)
    
    Adjustments pursuant to the allocation of purchase price to
    assets acquired and liabilities assumed in Alions
    acquisitions of BMH, WCI, MA&D and the Anteon Contracts. 127




---



##### 



(3)
    
    Adjustments pursuant to the allocation of purchase price to
    assets acquired and liabilities assumed in Alions
    acquisitions of CATI, METI, and JJMA.  (c) Exhibits
  ExhibitNo.

Description3
.2

Amended and Restated By-laws of Alion Science and Technology
    Corporation.(24)3
.3

Third Amended and Restated Certificate of Incorporation of Alion
    Science and Technology Corporation.(15)4
.1

Indenture dated as of February 8, 2007, among Alion Science
    and Technology Corporation, certain subsidiary guarantors and
    Wilmington Trust Company, as trustee.(27)4
.2

Form of 10.25% Senior Notes due 2015.(27)4
.3

Amended and Restated Alion Science and Technology Corporation
    Employee Ownership, Savings and Investment Plan.(28)4
.4

First Amendment to Amended and Restated Alion Science and
    Technology Corporation Employee Ownership, Savings and
    Investment Plan.(30)10
.1

Seller Note Securities Purchase Agreement by and between IIT
    Research Institute and Alion Science and Technology Corporation
    (Seller Note Agreement).(2)10
.2

Seller Warrant Agreement by and among Alion Science and
    Technology Corporation, IIT Research Institute and Alion
    Science and Technology Employee Ownership, Savings and
    Investment Trust (Seller Warrant Agreement).(3)10
.3

Rights Agreement by and among Alion Science and Technology
    Corporation, IIT Research Institute and Alion Science and
    Technology Employee Ownership, Savings and Investment Trust.(2)10
.4

Term B Senior Credit Facility (the Credit Agreement)
    that includes a revolving credit facility and Term B note, by
    and among Credit Suisse First Boston as arranger, various
    lenders, and Alion Science and Technology Corporation.(8)10
.5

First Amendment to the Seller Warrant Agreement.(8)10
.6

Second Amendment to the Seller Warrant Agreement.(9)10
.7

Commitment letter agreement by and between Alion Science and
    Technology Corporation and Credit Suisse First Boston.(10)10
.8

Third Amendment to the Seller Warrant Agreement.(11)10
.9

Stock Purchase Agreement by and among Alion Science and
    Technology Corporation, John J. McMullen Associates, Inc.,
    Marshall and Ilsley Trust Company, N.A. as Trustee to the
    John J. McMullen, Inc. Employee Stock Ownership Trust and P.
    Thomas Diamant, Anthony Serro, and David Hanafourde.(12)10
.10

Incremental Term Loan Assumption Agreement and Amendment
    No. 1 under the Credit Agreement .(13)10
.11

Employment Agreement between Alion Science and Technology
    Corporation and Anthony Serro.(14)*10
.12

Employment Agreement between Alion Science and Technology
    Corporation and P. Thomas Diamant.(14)*10
.13

Alion Science and Technology Corporation Board of Directors
    Phantom Stock Plan.(16)*10
.14

Amended and Restated Alion Science and Technology Corporation
    Phantom Stock Plan.(16)*10
.15

Amended and Restated Alion Science and Technology Corporation
    Performance Shares and Retention Phantom Stock Plan.(16)*10
.16

Amended and Restated Alion Science and Technology Corporation
    2002 Stock Appreciation Rights Plan.(16)*10
.17

Amended and Restated Alion Science and Technology Corporation
    2004 Stock Appreciation Rights Plan.(16)*10
.18

Amended and Restated Alion Science and Technology Corporation
    Executive Deferred Compensation Plan.(16)*10
.19

Amended and Restated Alion Science and Technology Corporation
    Director Deferred Compensation Plan.(16)* 128




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##### 



ExhibitNo.

Description10
.20

Commitment letter by and between Alion Science and Technology
    Corporation, Credit Suisse and Credit Suisse Securities (USA)
    LLC.(18)10
.21

Incremental Term Loan Assumption Agreement and Amendment
    No. 2 under the Credit Agreement.(19)10
.22

Fourth Amendment to the Seller Warrant Agreement.(20)10
.23

Mezzanine Warrant Redemption Agreement by and between Alion
    Science and Technology Corporation and Illinois Institute of
    Technology.(20)10
.24

Alion Mezzanine Warrant Redemption Agreement by and among
    Alion Science and Technology Corporation, Alion Science and
    Technology Employee Ownership, Savings and Investment Trust and
    Bahman Atefi.(20)10
.25

Asset Purchase Agreement dated as of June 4, 2006, by and
    between Anteon Corporation, Alion Technical Services Corporation
    and Alion Science and Technology Corporation.(21)10
.26

Incremental Term Loan Assumption Agreement and Amendment
    No. 3 under the Credit Agreement.(21)10
.27

Bridge Loan Agreement dated as of June 30, 2006, by and
    among Alion Science and Technology Corporation, HFA, METI, CATI,
    JJMA, BMH, WCI, MA&D, CS, and the lenders party thereto
    (Bridge Loan Agreement).(21)10
.28

Closing Letter Agreement dated as of June 30, 2006, by and
    among Alion Science and Technology Corporation, Alion Technical
    Services Corporation and Anteon Corporation.(21)10
.29

First Amendment to Seller Note Agreement.(21)10
.30

Commitment letter by and between Alion Science and Technology
    Corporation, Credit Suisse and Credit Suisse Securities (USA)
    LLC.(22)10
.31

Amendment No. 1 to Bridge Loan Agreement.(25)10
.32

Incremental Term Loan Assumption Agreement under the Credit
    Agreement.(26)10
.33

Purchase Agreement dated January 26, 2007 among Alion
    Science and Technology Corporation, certain subsidiary
    guarantors and Credit Suisse Securities (USA) LLC.(27)10
.34

Amendment No. 4 to the Credit Agreement.(27)10
.35

Registration Rights Agreement dated February 8, 2007 among
    Alion Science and Technology Corporation, certain subsidiary
    guarantors and Credit Suisse Securities (USA) LLC.(27)10
.36

Employment Agreement between Alion Science and Technology
    Corporation and Dr. Bahman Atefi.(29)*10
.37

Employment Agreement between Alion Science and Technology
    Corporation and Stacy Mendler.(31)*10
.38

Employment Agreement between Alion Science and Technology
    Corporation and John M. Hughes.(31)*10
.39

Employment Agreement between Alion Science and Technology
    Corporation and James Fontana.*10
.40

Employment Agreement between Alion Science and Technology
    Corporation and Rob Goff.(31)*10
.41

Employment Agreement between Alion Science and Technology
    Corporation and Scott Fry.*10
.42

Employment Agreement between Alion Science and Technology
    Corporation and Buck Buchanan.*10
.43

Incremental Term Loan Assumption Agreement under the Credit
    Agreement.(32)12


Computation of Ratios14


Code of Ethics(33)16


Letter from KPMG LLP dated May 31, 2006.(23) 129




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##### 



ExhibitNo.

Description21


Subsidiaries of Alion Science and Technology Corporation are
    wholly-owned (either directly or indirectly) by Alion Science
    and Technology Corporation:(i) Human Factors Applications, Inc., incorporated in the
    Commonwealth of Pennsylvania,(ii) Innovative Technology Solutions Corporation,
    incorporated in the State of New Mexico,(iii) Alion-IPS Corporation, incorporated in the
    Commonwealth of Virginia,(iv) Alion-METI Corporation, incorporated in the
    Commonwealth of Virginia,(v) Alion-CATI Corporation, incorporated in the State of
    California,(vi) Alion-JJMA Corporation, incorporated in the State of
    New York,(vii) Alion Technical Services Corporation, incorporated in
    the Commonwealth of Virginia,(viii) Alion Technical Services Corporation, incorporated
    in the State of Delaware,(ix) Alion Canada (U.S.), Inc., incorporated in the State
    of Delaware,(x) Alion Science and Technology (Canada) Corporation,
    incorporated in the Province of Nova Scotia,(xi) Alion-BMH Corporation, incorporated in the
    Commonwealth of Virginia,(xii) Washington Consulting, Inc., incorporated in the
    Commonwealth of Virginia,(xiii) Alion-MA&D Corporation, incorporated in the
    State of Colorado,(xiv) Washington Consulting Government Services, Inc.,
    incorporated in the Commonwealth of Virginia, and(xv) LogConGroup, Inc., incorporated in the State of Iowa.23
.1

Consent of Deloitte and Touche LLP.23
.2

Consent of KPMG LLP.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 from the Companys Pre-Effective
    Amendment No. 3 to the Registration Statement on
    Form S-1
    filed with the SEC on October 7, 2002.(2)
    
    Incorporated by reference from the Companys Post-Effective
    Amendment No. 3 to the Registration Statement on
    Form S-1
    filed with the SEC on March 24, 2003.(3)
    
    Incorporated by reference from the Companys December 2002
    Form 10-Q
    filed with the SEC on February 3, 2003.(4)
    
    Incorporated by reference from the Companys August 2003
    Form 10-Q
    filed with the SEC on July 4, 2003.(5)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-8
    filed with the SEC on April 28, 2004.(6)
    
    Incorporated by reference from the Companys March 2004
    Form 10-Q
    filed with the SEC on May 17, 2004.(7)
    
    Incorporated by reference from the Companys June 2004
    Form 10-Q
    filed with the SEC on August 13, 2004.(8)
    
    Incorporated by reference from the Companys September 2004
    Form 10-K
    filed with the SEC on December 28, 2004.(9)
    
    Companys Post-effective Amendment No. 5 to the
    Registration Statement on
    Form S-1
    filed with the SEC on January 24, 2005.(10)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on March 9, 2005. 130




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##### 



(11)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on March 14, 2005.(12)
    
    Incorporated by reference from the Companys
    Form 8-K/A
    filed with the SEC on April 6, 2005.(13)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on April 6, 2005.(14)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on April 7, 2005.(15)
    
    Incorporated by reference from the Companys March 2005
    Form 10-Q
    filed with the SEC on May 13, 2005.(16)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on December 2, 2005.(17)
    
    Incorporated by reference from the Companys September 2004
    Form 10-K
    filed with the SEC on January 31, 2006.(18)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on February 23, 2006.(19)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on March 29, 2006.(20)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on March 31, 2006.(21)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on June 7, 2006.(22)
    
    Incorporated by reference from the Companys June 2006
    Form 10-Q
    filed with the SEC on August 14, 2006(23)
    
    Incorporated by reference from the Companys
    Form 8-K/A
    filed with the SEC on June 1, 2006.(24)
    
    Incorporated by reference from the Companys September 2006
    Form 10-K
    filed with the SEC on December 1, 2006.(25)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on December 14, 2006.(26)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on January 10, 2007.(27)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on February 8, 2007.(28)
    
    Incorporated by reference from the Companys
    Form S-4
    filed with the SEC on April 30, 2007.(29)
    
    Incorporated by reference from the Companys
    Form S-4
    (8-K) filed
    with the SEC on June 21, 2007.(30)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on July 13, 2007.(31)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on July 20, 2007.(32)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on July 20, 2007.(33)
    
    Incorporated by reference from the Companys
    Form 8-K
    filed with the SEC on November 15, 2007.*
    
    Denotes management contract and/or compensatory plan/arrangement. 131




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##### 



SIGNATURES
  Pursuant to the requirements of Section 13 or 15(d) of
    the Securities Exchange Act of 1934, as amended, the registrant
    has duly caused this report to be signed on its behalf by the
    undersigned, thereunto duly authorized.
  Alion Science and
    Technology Corporation
   By:
    /s/  Bahman
    Atefi   Chairman, Chief Executive Officer and Director
      Signature

Title

Date/s/  Bahman
    AtefiBahman
    Atefi

Chairman, Chief Executive Officer 
    and Director

December 28, 2007/s/  John
    M. HughesJohn
    M. (Jack) Hughes

Chief Financial Officer (Principal Financial Officer)

December 28, 2007/s/  Gary
    N. AmstutzGary
    N. Amstutz

Senior Vice President and Executive Director of Finance

December 28, 2007/s/  Leslie
    L. ArmitageLeslie
    Armitage

Director

December 28, 2007/s/  Lewis
    CollensLewis
    Collens

Director

December 28, 2007/s/  Harold
    W. Gehman, Jr.Harold
    Gehman

Director

December 28, 2007/s/  Donald
    E. GossDonald
    E. Goss

Director

December 28, 2007/s/  George
    A. JoulwanGeorge
    A. Joulwan

Director

December 28, 2007/s/  Michael
    E. RyanMichael
    E. Ryan

Director

December 28, 2007/s/  Edward
    C. Aldridge, Jr.Edward
    C. (Pete) Aldridge, Jr.

Director

December 28, 2007   Supplemental Information to be Furnished with Reports Filed
    Pursuant to Section 15(d) of the Act by Registrants which
    Have Not Registered Securities Pursuant to Section 12 of
    the Act
   132