FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004.

COMMISSION FILE NUMBER 333–89756

Alion Science and Technology Corporation

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
/X/ Yes / / No

Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b–2 of the Exchange Act).
Yes / / No /X/

The number of shares outstanding of Alion Science and Technology Corporation
common stock as of June 30, 2004, was:

Common Stock      3,224,027

ALION SCIENCE AND TECHNOLOGY CORPORATION
FORM 10-Q INDEX
FOR THE QUARTER ENDED JUNE 30, 2004

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ALION SCIENCE AND TECHNOLOGY CORPORATION
Consolidated Balance Sheets
As of June 30, 2004 (Unaudited) and September 30, 2003
(In thousands, except share information)

See accompanying notes to consolidated financial statements.

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ALION SCIENCE AND TECHNOLOGY CORPORATION
Consolidated Statements of Operations
Three Months Ended June 30, 2004, Sixteen-Week Period Ended July 4, 2003
Nine Months Ended June 30, 2004 and the Forty-Week Period Ended July 4, 2003
(In thousands, except share information)
(Unaudited)

See accompanying notes to consolidated financial statements.

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ALION SCIENCE AND TECHNOLOGY CORPORATION
Consolidated Statements of Operations
Three Months Ended June 30, 2004, Sixteen-Week Period Ended July 4, 2003 and
Nine Months Ended June 30, 2004 and
Pro Forma Consolidated Statement of Operations for the Forty-Week Period Ended July 4, 2003
(In thousands, except share information)
(Unaudited)

See accompanying notes to consolidated financial statements.

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ALION SCIENCE AND TECHNOLOGY CORPORATION
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2004
and Forty-Week Period Ended July 4, 2003
(In thousands, except share information)
(Unaudited)

See accompanying notes to consolidated financial statements.

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ALION SCIENCE AND TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)

1. Description and Formation of the Business

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

     Alion, a for-profit S Corporation, was formed in October 2001 for the purpose of purchasing substantially all of the assets and certain of the liabilities of IIT Research Institute (IITRI), a not-for-profit membership corporation affiliated with and controlled by the Illinois Institute of Technology. Prior to the acquisition of substantially all of the assets and liabilities of IITRI (the Transaction), the Company’s activities had been organizational in nature.

     On December 20, 2002, Alion acquired substantially all of the assets and liabilities of IITRI (Business), excluding the assets and liabilities of IITRI’s Life Sciences Operation, for aggregate total proceeds of $127.3 million consisting of (in thousands):

•		$58,571 cash, consisting of $56,721 paid to IITRI and $1,517 paid for certain transaction expenses on behalf of IITRI, and $333 paid for other transaction expenses;
•		$39,900 in seller notes to IITRI, with detachable warrants representing approximately 26% of the outstanding common stock of Alion (on a fully diluted basis). The seller notes bear interest at an effective interest rate of 6.71% per annum. See notes 6 and 8;
•		$20,343 in mezzanine notes to IITRI, with detachable warrants representing 12% of the outstanding common stock of Alion (on a fully diluted basis). The mezzanine notes bear interest at 12% per annum. See notes 6 and 8;
•		$2,300 in transaction costs less the $1,517 referenced above;
•		$6,185 in assumed IITRI debt due to its bank; and
•		$1,520 in additional amounts due to IITRI for purchase price adjustments related to the Life Sciences Operation.

     The acquisition was accounted for using the purchase method. The purchase price has been allocated to the acquired assets and assumed liabilities based on their estimated fair values at the date of acquisition. As a result of the Transaction, the Company recorded goodwill of approximately $63.6 million, which is subject to an annual impairment review, as discussed below. In addition, the Company recorded intangible assets of approximately $30.6 million, comprised of purchased contracts. The intangible assets have an estimated useful life of three years and are amortized using the straight-line method.

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The total purchase consideration of approximately $127.3 million was allocated to the fair value of the net assets acquired as follows (in thousands):

2. Basis of Presentation

     The accompanying unaudited consolidated financial statements include the accounts of Alion and its wholly owned subsidiaries Human Factors Applications, Inc. (HFA), Innovative Technology Solutions Corporation (ITSC), and Identix Public Sector, Incorporated (“IPS”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial information. Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2004. For further information, refer to the consolidated financial statements and notes thereto included in the Post Effective Amendment No. 4 to the Company’s registration statement on Form S-1 (No. 333-89756) filed with the SEC on January 22, 2004.

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

3. Summary of Significant Accounting Policies

     The consolidated financial statements are prepared on the accrual basis of accounting and include the accounts of Alion prior to the Transaction and the accounts of Alion and its wholly owned subsidiaries subsequent to the Transaction. All significant intercompany accounts have been eliminated in consolidation.

Fiscal, Quarter and Interim Periods

     The Company’s fiscal year ends on September 30. Beginning with the fiscal year ending September 30, 2004, the Company began operating based on a three-month quarter, four-quarter fiscal year. For the fiscal year ended September 30, 2003, the Company operated on a thirteen-period fiscal year that consisted of three, four-week periods in its first interim period; three, four-week periods in its second interim period; four, four-week periods in its third interim period; and the balance of the fiscal year of approximately three, four-week periods in its fourth interim period. For the three months ended June 30, 2004, there were 64 available work days (based on a standard work week of Monday through Friday and

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excluding designated holidays recognized by Alion) as compared to 78 available workdays for the sixteen-week period ended July 4, 2003. On a fiscal year-to-date basis, through the nine months ended June 30, 2004, there were 192 available workdays as compared to 194 available workdays for the forty-week period ended July 4, 2003. Accordingly, comparisons between the three-month quarter ended June 30, 2004 and the sixteen-week period ended July 4, 2003 and comparisons between the nine months ended June 30, 2004 and the forty-week period ended July 4, 2003 will need to consider the differing lengths of time.

Reclassifications

     Where appropriate, certain items relating to prior years have been reclassified to conform to the current period presentation.

Recently Issued Accounting Pronouncements

     On January 12, 2004, the Financial Accounting Standards Board (FASB) issued Staff Position No. FAS 106-1 “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP 106-1). FSP 106-1 permits employers that sponsor postretirement benefit plans to defer accounting for any effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 that was signed into law on December 8, 2003. FSP 106-1 was superseded by FSP FAS 106-2 which is effective beginning July 1, 2004.

     In accordance with FSP 106-1 and FSP 106-2, neither the accumulated post-retirement benefit obligation nor the net periodic postretirement benefit costs reflected in the accompanying financial statements reflects the effect of the Medicare Prescription Drug Improvement and Modernization Act of 2003 on Alion’s plan. Authoritative guidance, when issued, could require the Company to change previously reported information.

4. Earnings (Loss) Per Share

     Basic and diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. For the pro forma forty-week period ended July 4, 2003, pro forma loss per share has been computed as though the 2,575,408 shares of common stock sold by the Company to the employee stock ownership plan (ESOP) component of the Alion Science and Technology Corporation Employee Ownership, Savings and Investment Plan (KSOP) on December 20, 2002 to fund the Transaction described in Note 1, were outstanding for the entire period presented. Prior to the sale of shares of common stock to the ESOP, the Company’s capital structure consisted of 100 shares of common stock issued and outstanding. Accordingly, historical earnings per share information for periods prior to the Transaction has not been presented as it is not indicative of the Company’s ongoing capital structure.

     Loss per share excludes the impact of warrants and stock appreciation rights described herein as the impact of their inclusion would be anti-dilutive for all periods presented.

5. Goodwill and Intangible Assets

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

     During the fiscal year ended September 30, 2003, the Company recorded goodwill of approximately $65.5 million, which is subject to the aforementioned annual impairment review. During the nine months ended June 30, 2004, goodwill increased by approximately $16.2 million primarily as a result

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of recording additional obligations of $6.5 million related to earnout arrangements for historical acquisitions and approximately $9.8 million for the acquisitions described in Note 10.

     In addition, the Company recorded intangible assets of approximately $30.6 million during fiscal year 2003, comprised primarily of contracts purchased from IITRI. For the acquisitions described in Note 10, as of June 30, 2004, the Company recorded intangible assets of approximately $1.5 million for purchased contracts. For the acquisitions described in Note 10, the Company’s allocation of purchase price is preliminary and subject to adjustment. The intangible assets have an estimated useful life of one to three years and are being amortized using the straight-line method. Amortization expense was approximately $7.9 million during the nine months ended June 30, 2004. Amortization expense is estimated to be approximately $10.7 million, $2.4 million, and $0.2 million for fiscal years ending September 30, 2005, 2006, and 2007, respectively.

6. Redeemable Common Stock Warrants

     In connection with the issuance of the Mezzanine Note, Subordinated Note, and the Deferred Compensation Agreement described in Note 8, the Company issued 524,229, 1,080,437, and 22,062, respectively, detachable redeemable common stock warrants (the Warrants) to the holders of those instruments. The Warrants have an exercise price of $10 per share and are exercisable until December 20, 2008 for the warrants associated with the Mezzanine Note and the Deferred Compensation Agreement and until December 20, 2010 for the warrants associated with the Subordinated Note. In addition, the Warrants enable the holders to sell the warrants back to the Company, at predetermined times, at the then current fair value of the common stock less the exercise price. Accordingly, the warrants are classified as debt instruments in accordance with Emerging Issues Task Force Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. The estimated fair value of the Warrants of approximately $10.3 million on the date of issuance was recorded as a discount to the face value of the notes issued and as a liability in the accompanying consolidated balance sheet. The estimated fair value of the Warrants was approximately $16.8 million as of June 30, 2004. Changes in the estimated fair value of the Warrants are recorded as interest expense in the accompanying consolidated statements of operations.

7. Shareholder’s Equity, Subject to Redemption

     The Company’s outstanding common stock is owned by the Alion Science and Technology Corporation Employee Ownership, Savings and Investment Trust (the Trust). The Company provides a put option to any participant or beneficiary which permits the participant or beneficiary to sell such common stock to the Company during certain periods, at the then current market value per share, which was $16.56 per share as of June 30, 2004. Accordingly, all of the Company’s equity is classified as subject to redemption in the accompanying consolidated balance sheets. The per share market value is determined based upon a valuation performed by an independent, third-party firm. The Company may allow the Trust to purchase shares of common stock tendered to the Company under the put option.

     Certain participants have the right to sell to the Company their shares distributed from participant accounts that were acquired on the closing date of the Transaction at a value per share equal to the greater of the original purchase price and the then current market value of the common stock.

8. Long-term Debt

     To fund the Transaction described in Note 1, the Company entered into various debt agreements as described below. As described in Note 14, on August 2, 2004, the Company entered into a new Senior Credit Facility. The impact of the new facility on the repayment obligations of the original debt agreements is described in Note 14.

Senior Credit Agreement

     On December 20, 2002, the Company executed a Senior Credit Agreement among LaSalle Bank National Association, US Bank, National Cooperative Bank, Orix Financial Services, Inc. and BB&T Bank to refinance and replace IITRI’s prior credit arrangements and to finance, in part, the Transaction. The Senior Credit Agreement consists of a $35.0 million Senior Term Note and a $25.0 million revolving credit facility. All principal obligations under the Senior Credit Agreement are to be repaid in full no later than December 20, 2007. The Senior Credit Agreement is secured by a first priority, perfected security interest in all of the Company’s current and future tangible and intangible property. On December 20, 2002, the

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Company paid $1.7 million to obtain this facility which was recorded as debt discount. The Company is using the effective interest method to accrete the value of long-term debt to its face value. For the nine months ended June 30, 2004, the Company recognized approximately $0.3 million of interest expense related to accretion of this discount.

     The revolving credit facility bears interest at the LaSalle Bank prime rate plus 200 basis points, which equaled 6.0% as of June 30, 2004. As of June 30, 2004, the Company had approximately $23.8 million borrowed under the revolving credit facility.

     As of June 30, 2004 and prior to the impact of the new credit facility described in Note 14, the remaining principal repayments (adjusted for prepayments made through such date) of $24.4 million under the Senior Term Note are payable in quarterly installments, yielding remaining fiscal year repayments in the following amounts:

     For the periods until the receipt of the compliance certificate and audited financial statements for the fiscal year ended September 30, 2003, the Company’s borrowings under the Senior Credit Agreement were to bear interest at either of two floating rates: a per year rate equal to the Eurodollar rate plus 350 basis points, or LaSalle’s prime rate (base rate) plus 200 basis points.

     Effective February 14, 2003, the Company exercised its right and elected that the Senior Term Note bear interest at a Eurodollar rate. This election did not affect the interest rate applicable to amounts borrowed under the revolving line of credit. Interest under the Senior Term Note was payable at LaSalle’s prime rate (base rate) plus 200 basis points until February 14, 2003. Thereafter, the Senior Term Note bore interest at the Eurodollar rate plus 350 basis points.

     The Company entered into an interest rate cap agreement effective as of February 3, 2003 with one of its senior lenders. Under this agreement, the Company’s maximum effective rate of interest payable on the first $25 million of principal under its term note is not to exceed 6%. Any interest the Company pays on the first $25 million of principal in excess of 6% will be reimbursed to the Company semiannually by the senior lender pursuant to the cap agreement. This cap agreement expires February 3, 2007. As of June 30, 2004, the cap agreement had a fair value of approximately $0.047 million.

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Mezzanine Note

     On December 20, 2002, the Company issued to IITRI a Mezzanine Note securities purchase agreement (Mezzanine Note) with a face value of approximately $20.3 million. The Mezzanine Note served as part of the consideration for the Transaction. The Company is required to pay interest on the Mezzanine Note at a rate of 12% per year, based on a 360-day year of twelve 30-day months. Interest is payable quarterly in cash. The Company is required to pay the outstanding principal amount of the Mezzanine Note in a lump sum on December 20, 2008. The Mezzanine Note is subordinate to the senior credit facility, but ranks senior to the subordinated note.

     Under the terms of the Senior Credit Agreement and Mezzanine Note, the Company is subject to covenants including financial covenants with respect to minimum fixed charge coverage, maximum total senior leverage, maximum total leverage, maximum capital expenditures, minimum EBITDAE, as defined, and other customary covenants. As of June 30, 2004, the Company was in compliance with these financial covenants.

Subordinated Note

     Also, on December 20, 2002, the Company issued a seller note to IITRI under a seller note securities purchase agreement (Subordinated Note) with a face value of $39.9 million. The Subordinated Note served as part of the consideration for the Transaction. The Subordinated Note bears interest at a rate of 6% per year through December 2008 payable quarterly by the issuance of non-interest bearing notes (paid-in-kind notes or PIK notes) maturing at the same time as the Subordinated Note. The issuance of the PIK notes will have the effect of deferring the underlying cash interest expense on the Subordinated Note, but because the PIK notes will not themselves bear interest, they will not have the effect of compounding any interest on these interest payment obligations. Commencing December 2008, the Subordinated Note will bear interest at 16% per year payable quarterly in cash through the time of repayment in full of the Subordinated Note. Principal on the Subordinated Note will be payable in equal installments of $19.95 million in December 2009 and December 2010; the PIK notes are also due in equal installments of $7.2 million on these same dates.

Other Notes and Agreements

     On December 20, 2002, the Company entered into a deferred compensation agreement with Dr. Bahman Atefi, its President, CEO and Chairman, as a condition to completing the Transaction. Under the deferred compensation agreement, Dr. Atefi is entitled to a payment of approximately $857,000 on December 20, 2008, plus 12% cash interest per year.

     On March 28, 2003, an officer of the Company purchased a portion of the Company’s Mezzanine Note owned by IITRI for $750,000, its face value, along with warrants to purchase 19,327 shares of Alion’s common stock at an exercise price of $10.00 per share. On November 12, 2003, the Company purchased the portion of the Mezzanine Note and warrants from the officer for an aggregate purchase price of $1,034,020, the estimated fair value of the note and warrants on that date.

     On February 11, 2004, the Company borrowed $750,000 from an officer of the Company. In exchange, on June 7, 2004, the Company issued a promissory note in the principal amount of $750,000 to the officer. The promissory note bears interest at a rate of 15% per year, payable quarterly. The annual interest period was effective beginning February 11, 2004. The Company is required to pay the outstanding principal amount of the promissory note in a lump sum on March 31, 2009. The promissory note is subordinate to the Senior Credit Agreement and the Mezzanine Note.

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     In summary, for the aforementioned debt agreements, as of June 30, 2004 the remaining fiscal year repayments (at face amount before debt discount) are as follows: