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, and (2) has been subject to such filing requirements for the past 90 days.

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o  Accelerated filer þ  Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     As of January 30,May 4, 2007, there were 22,292,37422,401,020 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.

          The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for fair presentation have been included. Operating results for the period ended December 31, 2006April 1, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2007. Inter-company accounts and transactions have been eliminated in consolidation. For further information, refer to the consolidated financial statements and footnotes thereto included in Argon ST, Inc.’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006. Reclassifications are made to the prior year financial statements when appropriate, to conform to the current year presentation.

          Argon ST maintains a September 30 fiscal year-end for annual financial reporting purposes. Argon ST presents its interim periods ending on the Sunday closest to the end of the month for each quarter consistent with labor and billing cycles. As a result, each quarter of each year may contain more or less days than other quarters of the year. Management does not believe that this practice has a material effect on quarterly results or on the comparison of such results.

          Argon ST records contract revenues and costs of operations for interim reporting purposes based on annual targeted indirect rates. At year-end, the revenues and costs are adjusted for actual indirect rates. During the Company’s interim reporting periods, variances may accumulate between the actual indirect rates and the annual targeted rates. Timing-related indirect spending variances are not applied to contract costs, research and development, and general and administrative expenses, but are included in unbilled receivables during these interim reporting periods. These rates are reviewed regularly, and the Company records adjustments for any material, permanent variances in the period they become determinable.

          Argon ST’s accounting policy for recording indirect rate variances is based on management’s belief that variances accumulated during interim reporting periods will be absorbed by management actions to control costs during the remainder of the year. The Company considers the rate variance to be unfavorable when the actual indirect rates are greater than the Company’s annual targeted rates. During interim reporting periods, unfavorable rate variances are recorded as reductions to operating expenses and increases to unbilled receivables. Favorable rate variances are recorded as increases to operating expenses and decreases to unbilled receivables. At December 31, 2006,April 1, 2007, the unfavorable rate variance totaled $3.5$3.4 million of which $2.4$1.9 million was planned for the period. If the Company anticipates that actual contract activities will be different than planned levels, there are alternatives the Company can utilize to absorb the variance: the Company can adjust planned indirect spending during the year, modify its billing rates to its customers, or record adjustments to expense based on estimates of future contract activities. Management expects the variance to be eliminated over the course of the fiscal year and therefore, no portion of the variance is considered permanent.

          If the Company’s rate variance is unfavorable, the modification of the Company’s indirect rates will likely increase revenue and operating expenses. Profit percentages on fixed-price contracts will generally decline as a result of an increase to indirect costs unless compensating savings can be achieved in the direct costs to complete the projects. Profit percentages on cost reimbursement contracts will generally decline as a percentage of total costs as a result of an increase in indirect costs even if the cost increase is funded by the customer. If the Company’s rate variance is favorable, the modification of the Company’s indirect rates will decrease revenue and operating expenses. In this event, profit percentages on fixed-price contracts will generally increase. Profit percentages on cost-reimbursable contracts will generally be unaffected as a result of any reduction to indirect costs, due to the fact that programs will typically expend all of the funds available. Any impact on operating income, however, will depend on a number of other factors, including mix of contract types, contract terms and anticipated performance on specific contracts.

          Basic earnings per share is computed using the weighted average number of common shares outstanding during each period. Diluted earnings per share is computed using the weighted average number of common and common equivalent shares outstanding during each period. The following summary is presented for the fiscal quarters ended December 31, 2006 and January 1, 2006indicated periods (in thousands, except per share amounts):

          InventoriesThe Company has elected to use both the Binomial option pricing model and straight-line amortization of compensation expense over the requisite service period of the grant. The Company will reconsider use of the Binomial model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.

Post-vest Percentage.The post-vest percentage is the rate at which employees are statedlikely to exercise their options earlier than usual because they are leaving the Company, as estimated by management. Employees have 90 days and directors have 1 year to exercise upon termination of employment or resignation from the board. The post-vest percentage used in valuing options granted during the six months ended April 1, 2007 was 3.08%. For options granted to executive personnel, the post vest percentage was zero.

          During the six months ended April 1, 2007, the Company granted stock options to purchase 317,875 shares of common stock at a weighted-average exercise price of $24.01 per share. The Binomial weighted-average fair value of the options granted during the six months ended April 1, 2007 was $9.66 per share. Of these options, 292,875 vest at the lowerrate of cost or market, determined20% per year over five years from the date of grant and 25,000 of these options vest over seven years from the date of grant. All of the options expire ten years from the grant date. For the six months ended April 1, 2007, the weighted average closing price was $23.29 per share.

          The Company maintains an employee stock purchase plan (ESPP), as provided under the Argon ST Stock Incentive Plan, and has reserved 100,000 shares for issuance under the plan. The ESPP is available to all employees eligible on the first-in, first-out basis. Inventories consiststart date of the semi-annual enrollment periods. Eligible employees may purchase the Company’s common stock through payroll deductions up to 10% of the employee’s compensation, at a price equal to 95% of the of the fair market value of the common stock on the purchase date. For the six months ended April 1, 2007, 19,446 shares were purchased under the ESSP at a price of $20.31 per share. No stock compensation expense was recorded.

          Accounts receivable consists of the following at the dates shown below (in thousands):as of:

          The Company maintains a $40,000,000 line of credit with Bank of America, N.A. (the “Lender”). The credit facility will terminate no later than February 28, 2008 at which time the facility will be subject to renewal. The credit facility also contains a sublimit of $15,000,000 to cover letters of credit. In addition, borrowings on the line of credit bear interest at LIBOR plus 150 basis points. An unused commitment fee of 0.25% per annum, payable in arrears, is also required.

          All borrowings under the line of credit are collateralized by all tangible assets of the Company. The line of credit agreement includes customary restrictions regarding additional indebtedness, business operations, permitted acquisitions, liens, guarantees, transfers and sales of assets, and maintaining the Company’s primary accounts with the Lender. Borrowing availability under the line of credit is equal to the Company’s earnings before interest, taxes depreciation and amortization (EBITDA) for the trailing 12 months, calculated as of the end of each fiscal quarter. For the fiscal quarter ending December 31, 2006,As of April 1, 2007, EBITDA, on a trailing 12 month basis, was $36,756,000.$34,169,000. The agreement requires the Company to comply with a specific EBITDA to Funded Debt ratio, and contains customary events of default, including the failure to make timely payments and the failure to satisfy covenants, which would permit the Lender to accelerate repayment of borrowings under the agreement if not cured within the applicable grace period. As of December 31, 2006,April 1, 2007, the Company was in compliance with these covenants and the financial ratio.

          At December 31, 2006,April 1, 2007, there were no borrowings outstanding against the line of credit. Letters of credit outstanding at December 31, 2006April 1, 2007 amounted to $1,040,000, and $35,716,000$33,129,000 was available on the line of credit.

          For the threesix months ended December 31, 2006,April 1, 2007, the Company recorded a discrete income tax benefit of $104,000 related to the federal research and development tax credit which was reinstated effective January 1, 2006, but not reflected in the tax provision for the fiscal year ended September 30, 2006. In addition, a discrete income tax benefitbenefits of $45,000 wasand $54,000 were recorded relating to a true-up of deferred taxes.taxes and disqualifying dispositions of incentive stock options, respectively. The effective rate increased to 38.5% from 37.7% for the three month periods ended April 1, 2007 and April 2, 2006, respectively. The two discrete items reduced the effective annual tax rate of 36.9% for the six months ended April 1, 2007 from 37.4% to 35.5%.38.6% for the six months ended April 2, 2006.

          The following discussion provides information which management believes is relevant to an assessment and an understanding of the Company’s operations and financial condition. This discussion should be read in conjunction with the attached unaudited condensed consolidated financial statements and accompanying notes as well as our annual report on Form 10-K for the fiscal year ended September 30, 2006.

          Statements in this filing which are not historical facts are forward-looking statements under the provision of the Private Securities Litigation Reform Act of 1955.1995. Such forward-looking statements include, without limitation, statements with respect to total estimated remaining contract values and the Company’s expectations regarding the U.S. government’s procurement activities. Forward-looking statements are not guarantees of future performance and are based upon numerous assumptions about future conditions that could prove not to be accurate. Forward looking statements are subject to numerous risks and uncertainties, and our actual results could differ materially as a result of such risks and other factors. In addition to those risks specifically mentioned in this report and in the other reports filed by the Company with the Securities and Exchange Commission (including our Form 10-K for the fiscal year ended September 30, 2006), such risks and uncertainties include, but are not limited to: the availability of U.S. and international government funding for our products and services; changes in the U.S. federal government procurement laws, regulations, policies and budgets (including changes to respond to budgetary constraints and cost-cutting initiatives); the number and type of contracts and task orders awarded to us; the exercise by the U.S. government of options to extend our contracts; our ability to retain contracts during any rebidding process; the timing of Congressional funding on our contracts; any government delay in award of or termination of our contracts and programs; difficulties in developing and producing operationally advanced technology systems; the timing and customer acceptance of contract deliverables; our ability to attract and retain qualified personnel, including technical personnel and personnel with required security clearances; charges from any future impairment reviews; the future impact of any acquisitions or divestitures we may make; the competitive environment for defense and intelligence information technology products and services; general economic, business and political conditions domestically and internationally; and other factors affecting our business that are beyond our control. All of the forward-looking statements should be considered in light of these factors. You should not put undue reliance on any forward-looking statements. We undertake no obligation to update these forward-looking statements to reflect new information, future events or otherwise, except as provided by law.

          We are a leading systems engineering and development company providing full-service C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) systems to a wide range of defense and intelligence customers. Our systems provide communications intelligence, electromagnetic intelligence, electronic warfare and information operations capabilities that enable our defense and intelligence customers to detect, evaluate and respond to potential threats. These systems are deployed on a range of military and strategic platforms including surface ships, submarines, unmanned underwater vehicles (UUV), aircraft, unmanned aerial vehicles (UAV), land mobile vehicles, fixed site installations and re-locatable land sites.

          Our revenues are primarily generated from the design, development, installation and support of complex sensor systems under contracts primarily with the U.S. Government and major domestic prime contractors, as well as with foreign governments, agencies and defense contractors.

          Our government contracts can be divided into three major types: cost reimbursable, fixed-price, and time and material. Cost reimbursable contracts are primarily used for system design and development activities involving considerable risks to the contractor, including risks related to cost estimates on complex systems, performance risks associated with real time signal processing, embedded software, high performance hardware, and requirements that are not fully understood by the customer or us, the development of technology that has never been used, and interfaces with other systems that are in development or are obsolete without adequate documentation. Fees under these contracts are usually fixed at the time of negotiation; however, in some cases the fee is an incentive or award fee based on cost, schedule, and performance or a combination of those factors. Although the U.S. government customer assumes the cost risk on these contracts, the contractor is not allowed to exceed the cost ceiling on the contract without the approval of the customer.

          From time to time, we will exclude from backlog portions of contract values of very long or complex contracts where we judge revenue could be jeopardized by a change in U.S. government policy. Because of possible future changes in delivery schedules and cancellations of orders, backlog at any particular date is not necessarily representative of actual sales to be expected for any succeeding period, and actual sales for the year may not meet or exceed the backlog represented. We may experience significant contract cancellations that were previously booked and included in backlog.

          Our backlog at the dates shown was as follows (in thousands):

          We conduct internally funded research and development into complex signal processing, system and software architectures, and other technologies that are important to continued advancement of our systems and are of interest to our current and prospective customers. In the fiscal quarterssix months ending December 31, 2006April 1, 2007 and January 1,April 2, 2006, internal research and development expenditures (“IRAD”) were $2.2 million$3,964,000 and $1.2 million,$2,904,000, respectively, representing 4%3.2% and 2%2.3% respectively, of revenues in each period. The increase in IRAD is attributable to increased funding of a major R&D effort, and the additional R&D performed by acquired companies.

          Internal research and development is a small portion of our overall research and development, as government funded research and development constitutes the majority of our activities in this area.

          Many of our fixed-price contracts contain provisions under which our customers are required to make payments when we achieve certain milestones. In many instances, these milestone payments occur before we have incurred the associated costs to which the payments will be applied. For example, under certain of our production contracts, our order of materials constitutes a milestone for which we receive a significant payment, but we do not pay the materials vendors until the materials are received and placed into production. We recognize deferred revenue when we receive milestone payments for which we have not yet incurred the applicable costs. As costs are incurred and revenue recognition criteria are met, we recognize revenue.

          As the time lag between our receipt of a milestone payment and our incurrence of associated costs under the contract can be several months, milestone payments under fixed-price contracts can significantly affect our cash position at any given time. The receipt of milestone payments will temporarily increase our cash on hand and our deferred revenue. As costs are incurred under the contract and contract revenue is recognized, cash and deferred revenue associated with the payment will decrease.

          We expect that fluctuations in deferred revenue will occur based on the particular timing of milestone payments under our fixed-price contracts and our subsequent incurrence of costs under the contracts. Due to these fluctuations, our cash position at the end of any fiscal quarter or year may not be indicative of our cash position at the end of subsequent fiscal quarters or years. During the fiscal quartersix months ended December 31, 2006,April 1, 2007, we incurred cost on certain fixed-price contracts resulting in a decrease of approximately $9$9.1 million of deferred revenues, as compared to the year ended September 30, 2006.

          Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements. These financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe that the estimates, assumptions, and judgments involved in the accounting practices described below have the greatest potential impact on our financial statements and, therefore, consider these to be critical accounting practices.

          General

          The majority of our contracts, which are with the U.S. government, are accounted for in accordance with the American Institute of Certified Public Accountants Statement of Position 81-1,Accounting for Performance of Construction-Type and Production-Type Contracts.These contracts are transacted using written contractual arrangements, most of which require us to design, develop, manufacture and/or modify complex products and systems, and perform related services according to specifications provided by the customer. We account for fixed-

price contracts by using the percentage-of-completion method of accounting. Under this method, contract costs are charged to operations as incurred. A portion of the contract revenue, based on estimated profits and the degree of completion of the contract as measured by a comparison of the actual and estimated costs, is recognized as revenue each period. In the case of contracts with materials requirements, revenue is recognized as those materials are applied to the production process in satisfaction of the contracts’ end objectives. We account for cost reimbursable contracts by charging contract costs to operations as incurred and recognizing contract revenues and profits by applying the negotiated fee rate to actual costs on an individual contract basis. Management reviews contract performance, costs incurred, and estimated completion costs regularly and adjusts revenues and profits on contracts in the period in which changes become determinable.

          Anticipated losses on contracts are also recorded in the period in which they become determinable. Unexpected increases in the cost to develop or manufacture a product, whether due to inaccurate estimates in the bidding process, unanticipated increases in material costs, inefficiencies, or other factors are borne by us on fixed-price contracts, and could have a material adverse effect on results of operations and financial condition. Unexpected cost increases in cost reimbursable contracts may be borne by us for purposes of maintaining customer relationships. If the customer agrees to fund cost increases on cost type contracts, the additional work does not have any profit and therefore dilutes margin.

          We record contract revenues and costs of operations for interim reporting purposes based on annual targeted indirect rates. At year-end, the revenues and costs are adjusted for actual indirect rates. During our interim reporting periods, variances may accumulate between the actual indirect rates and the annual targeted rates. Timing-related indirect spending variances are not applied to contract costs, research and development, and general and administrative expenses, but are included in unbilled receivables during these interim reporting periods. These rates are reviewed regularly, and we record adjustments for any material, permanent variances in the period they become determinable.

          Our accounting policy for recording indirect rate variances is based on management’s belief that variances accumulated during interim reporting periods will be absorbed by management actions to control costs during the remainder of the year. We consider the rate variance to be unfavorable when the actual indirect rates are greater than our annual targeted rates. During interim reporting periods, unfavorable rate variances are recorded as reductions to operating expenses and increases to unbilled receivables. Favorable rate variances are recorded as increases to operating expenses and decreases to unbilled receivables.

          If we anticipate that actual contract activities will be different than planned levels, there are alternatives we can utilize to absorb the variance: we can adjust planned indirect spending during the year, modify our billing rates to our customers, or record adjustments to expense based on estimates of future contract activities.

          If our rate variance is unfavorable, the modification of our indirect rates will likely increase revenue and operating expenses. Profit percentages on fixed-price contracts will generally decline as a result of an increase to indirect costs unless compensating savings can be achieved in the direct costs to complete the projects. Profit percentages on cost reimbursement contracts will generally decline as a percentage of total costs as a result of an increase in indirect costs even if the cost increase is funded by the customer. If our rate variance is favorable, the modification of our indirect rates will decrease revenue and operating expenses. In this event, profit percentages on fixed-price contracts will generally increase. Profit percentages on cost-reimbursable contracts will generally be unaffected as a result of any reduction to indirect costs, due to the fact that programs will typically expend all of the funds available. Any impact on operating income, however, will depend on a number of other factors, including mix of contract types, contract terms and anticipated performance on specific contracts.

          At December 31, 2006,April 1, 2007, the unfavorable rate variance totaled $3.5$3.4 million of which $2.4$1.9 million was planned. Management expects this variance will be eliminated over the course of the fiscal year and therefore, no portion of this variance is considered permanent.

          Our policy for recognizing interim fee on our cost-plus-award-fee contracts is based on management’s assessment as to the likelihood that the award fee or an incremental portion of the award fee will be earned on a contract-by-contract basis. Management’s assessments are based on numerous factors including contract terms, nature of the work performed, our relationship and history with the customer, our history with similar types of projects, and our current and anticipated performance on the specific contract. No award fee is recognized until management determines that it is probable that an award fee or portion thereof will be earned. Actual fees awarded are typically within management’s estimates. However, changes could arise within an award fee period causing management to either lower or raise the award fee estimate in the period in which it occurs.

          Costs in excess of the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded as goodwill. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, we test for impairment at least annually using a two-step approach. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income, or discounted cash flows approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of the unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. We test for impairment annually in the fourth fiscal quarter.

          We currently determine goodwill impairment on three reporting units. Each reporting unit is a component of the Company’s single homogeneous business segment with discrete financial information. Goodwill allocated to the reporting units was determined as of the acquisition dates. There was no structural change to the reporting units during the fiscal quartersix months ended December 31, 2006.April 1, 2007.

          We account for stock-based compensation in accordance with SFAS No. 123(R), Share-Based Payment. Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating expected volatility, dividend yield, expected term and estimated forfeitures of the options granted.

          The following table sets forth certain items, including consolidated revenues, cost of revenues, general and administrative expenses, income tax expense and net income, and the changes in these items for the fiscal quarters ended December 31, 2006April 1, 2007 and January 1,April 2, 2006 (in thousands):

          Revenues decreasedincreased approximately 11%15% for the fiscal quarter ended December 31, 2006,April 1, 2007, as compared to the fiscal quarter ended January 1,April 2, 2006. The revenue decreaseincrease is attributable to new contracts, primarily for the production of surface ship systems as well as the impact of acquisitions completed after the second quarter of fiscal year 2006. These increases were partially offset by the completion or substantialnear completion of several mobile systems, as well as a number of submarine and surface ship systems, partially offset by revenue attributable to a number of new contracts awarded over the last 12 months and additional revenue from three acquisitions completed following the first quarter of 2006. We continue to see a trend that revenue will continue to be spread over a larger population of developmental contracts as large production contracts are nearing completion.systems.

          Cost of revenues decreasedincreased approximately 13%19% for the fiscal quarter ended December 31, 2006April 1, 2007 as compared to the fiscal quarter ended January 1,April 2, 2006. The decreaseincrease was primarily comprised of decreasesincreases in direct materials and subcontract costs of $10.8$2.5 million and $1.7$1.4 million, respectively, related to decreased productionincreased contract activities during the quarter. Direct labor and other direct costs increased by $1.8 million and $0.9$0.8 million, respectively, relatingalso related to an increase in development contracts. Fringe benefits allocated to costs of revenue increased $1.2 million, and facilities allocated to costs of revenue, rent increased by $0.5 million.contract activities. Engineering overhead increased by $1.7 million. Cost of revenues as a percentage of revenue decreasedincreased to 76%81% for the quarter ended December 31, 2006April 1, 2007 from 77%78% for the quarter ended January 1,April 2, 2006. This increase in costs was due primarily to an increase in the amortization of intangible assets related to companies acquired subsequent to April 2, 2006; an increase in costs beyond planned expenditures involving a single time and material contract; and a change in contract mix from fixed price to cost plus fixed fee resulting in lower profit margins.

          General and administrative expenses increased approximately 14%16% for the fiscal quarter ended December 31, 2006,April 1, 2007, as compared to the fiscal quarter ended January 1,April 2, 2006. The increase was due primarily to the impact of acquisitions completed after the second quarter of fiscal year 2006, and an increase in internal researchinfrastructure to support related business growth and development costsemployee population. General and administrative expenses as a percentage of $1.0 million, which is attributable to increased funding of a major R&D effort, and the additional R&D performed by acquired companies.

          Our effective income tax rate decreasedincreased to 35.5%38.5% for the fiscal quarter ended December 31, 2006,April 1, 2007, compared to an effective rate of 39.4 %37.7% for the fiscal quarter ended January 1,April 2, 2006. This decrease was primarilyThe increase is due mainly to increased activity in states with higher tax rates, a decreased effect from tax exempt interest and the domestic production activities deduction, partially offset by an increased effect from the R&D tax credit adjustment which reduced the rate by 2.3%, tax exempt interest reduction of 1.1% and qualified manufacturing deductions of 0.5%.credit.

          As a result of the above, net income decreased approximately $0.4 million, or 7%8%, for the fiscal quarter ended December 31, 2006April 1, 2007 compared to the fiscal quarter ended JanuaryApril 2, 2006.

          Revenues increased approximately 1% for the six months ended April 1, 2007, as compared to the same period in the prior year. Increased revenue from acquisitions completed after April 2, 2006 as well as new surface ship production and development contracts were partially offset by decreased revenue due to the completion of submarine and other systems.

          As a result of the above, net income decreased approximately $779,000, or 8%, for the six months ended April 1, 2007 compared to the six months ended April 2, 2006.

          Our liquidity requirements relate primarily to the funding of working capital requirements supporting operations, capital expenditures and strategic initiatives including research and development activities and any acquisitions we may make.

          At December 31, 2006,April 1, 2007, we had cash of $30.5$34.7 million compared to cash of $33.5 million on September 30, 2006. This decreaseincrease in cash of $3.0$1.2 million was primarily the result of net cash provided by operating activities, partially offset by cash used in operatinginvesting activities and capital additions.(see Cash Flows discussion below).

          All borrowings under the line of credit are collateralized by all tangible assets of the Company. The line of credit agreement includes customary restrictions regarding additional indebtedness, business operations, permitted acquisitions, liens, guarantees, transfers and sales of assets, and maintaining the Company’s primary accounts with the Lender. Borrowing availability under the line of credit is equal to the Company’s EBITDA for the trailing 12 months, calculated as of the end of each fiscal quarter. For the fiscal quarter ending December 31, 2006, EBITA,As of April 1, 2007, EBITDA, on a trailing 12 month basis, was $36.8$34.2 million. The agreement requires the Company to comply with a specific EBITDA to Funded Debt ratio, and contains customary events of default, including the failure to make timely payments and the failure to satisfy covenants, which would permit the Lender to accelerate repayment of borrowings under the agreement if not cured within the applicable grace period. As of December 31, 2006,April 1, 2007, the Company was in compliance with these covenants and the financial ratio.

          At December 31, 2006,April 1, 2007, there were no borrowings outstanding against the line of credit. Letters of credit outstanding at December 31, 2006April 1, 2007 amounted to $1.0 million, and $35.7leaving $33.2 million was available on the line of credit.

          Many of the Company’s larger fixed price contracts contain milestone billing provisions. These contracts have arrangements which allow us to bill our customer only upon completion of specified milestone activities. As a result, the Company must often fund operating working capital requirements in advance of the billings associated with those activities. In addition, to the extent cash flows from milestone billings are tied to early activities on a contract, revenue related to these billings is deferred until recognition. See “—Overview—Deferred Revenue” above.

Net cash used inprovided by operating activities was $2.3$3.4 million infor the fiscal quartersix months ending December 31, 2006,April 1, 2007, compared to net cash used inprovided by operating activities of $11.4$20.9 million in fiscal quarterfor the six months ending January 1,April 2, 2006. The lowerdecrease in cash used inprovided by operating activities was attributableis primarily due to improvedthe increase in accounts receivable and payables management comparedwhich was partially offset by a decrease in accounts payable. The increase in accounts receivable was primarily due to contractual milestones which were not scheduled for completion until a later date. In the prior year. In addition,first six months of fiscal 2007, we were able to put into production $5.5 million of project costs deferred at the end of fiscal year 2006. However, these improvements were2006; however, this was offset by $9.0 million of deferred revenue recognized during the fiscal quarterfirst six months ended December 31, 2006.April 1, 2007.

          Net cash used in investing activities was $1.3$3.8 million for the fiscal quartersix months ended December 31, 2006,April 1, 2007, compared to net cash provided byused in investing activities of $0.7$2.4 million for the fiscal quartersix months ended January 1,April 2, 2006. The decreaseThis is due primarily to cash of $1.1 million acquiredan increase in the October 2006 Radix acquisition. Investment incapital expenditures for property, equipment and software increased by $0.5of $1.1 million. During the period, we made an additional payment of $0.4 million as compared to fiscal quarter ended January 1, 2006.Radix shareholders for achieving certain financial targets.

          Net cash provided by financing activities was $0.6$1.6 million for the six months ended April 1, 2007 compared to $39.6 million for the fiscal quarter ended December 31, 2006 compared to $36.8 million for the fiscal quarter ended January 1,April 2, 2006. The decrease in net cash provided by financing activities was primarily due to the net proceeds from our secondary stock offering of $46.8 million, partially offset by the repayment of the line of credit in December 2005.

          As of December 31, 2006,April 1, 2007, our contractual cash obligations were as follows (in thousands):

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.