ANALEX CORP - 10-Q Quarterly Report

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Back to GetFilings.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2002 or

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the period from to

Commission file number 0-5404

ANALEX CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		71-0869563
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

5904 Richmond Highway

Suite 300

Alexandria, Virginia 22303

(Address of principal executive offices)

Registrant’s Telephone number including area code

(703) 329-9400

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:

Yes x

No ¨

As of August 6, 2002, 14,385,855 shares of the Common Stock of the registrant were outstanding.

ANALEX CORPORATION

TABLE OF CONTENTS

		Page No.

Part I Financial Information:

Item 1.	Financial Statements

	Consolidated Balance Sheets at June 30, 2002 and December 31, 2001	3

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001	5

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	19

Part II Other Information:

Item 1.	Legal Proceedings	20

Item 4.	Submission of Matters to a Vote of Security Holders	20

Item 6.	Exhibits and Reports on Form 8-K	21

SIGNATURES		23

ANALEX CORPORATION

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2002 AND DECEMBER 31, 2001

	June 30, 2002		December 31, 2001
ASSETS
Current assets:
Cash and cash equivalents	$	369,200	$	83,100
Accounts receivable, net		11,106,000		9,152,800
Prepaid expenses and other		496,600		223,300

Total current assets		11,971,800		9,459,200

Fixed assets, net		328,700		260,600
Goodwill and other intangibles, net		16,363,100		16,488,600
Contract Rights		991,100		—
Deferred finance costs		241,500		72,500
Other		91,900		119,400

Total other assets		18,016,300		16,941,100

Total assets	$	29,988,100	$	26,400,300

See Notes to Consolidated Financial Statements

ANALEX CORPORATION

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2002 AND DECEMBER 31, 2001

	June 30, 2002			December 31, 2001
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,401,400		$	1,371,400
Note payable - line of credit		3,474,000			1,696,500
Note payable - bank term note		700,000			700,000
Notes payable - other		968,300			838,500
Other current liabilities		5,509,700			4,779,400

Total current liabilities		12,053,400			9,385,800

Note payable - bank term note		2,392,000			2,741,600
Notes payable - other		2,600,100			2,262,600
Other		779,000			835,200

Total long-term liabilities		5,771,100			5,839,400

Commitments and contingencies
Total liabilities		17,824,500			15,225,200

Shareholders’ equity:
Common stock $.02 par; authorized 20,000,000 shares; issued and outstanding - June 30, 2002 14,385,855 shares and December 31, 2001, 14,375,975 shares		288,900			287,500
Additional capital		21,160,800			20,726,300
Deferred compensation		(17,200	)		(22,300	)
Accumulated other comprehensive loss		(52,200	)		—
Accumulated deficit		(9,216,700	)		(9,816,400	)

Total shareholders’ equity		12,163,600			11,175,100

Total liabilities and shareholders’ equity	$	29,988,100		$	26,400,300

See Notes to Consolidated Financial Statements

ANALEX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
Revenues	$	12,928,200		$	4,357,600		$	25,963,700		$	8,587,500
Operating costs and expenses:
Costs of revenue		11,231,100			3,503,600			22,260,000			7,009,200
Selling, general and administrative		1,144,700			663,500			2,397,300			1,220,100
Amortization of goodwill and other intangibles		74,500			84,000			140,000			168,000

Total operating costs and expenses		12,450,300			4,251,100			24,797,300			8,397,300

Operating income		477,900			106,500			1,166,400			190,200

Other income (expense):
Interest income		500			—			600			—
Interest expense		(241,900	)		(34,000	)		(510,400	)		(72,000	)
Other expense		(27,900	)		(100	)		(43,300	)		(24,500	)

Total other expense		(269,300	)		(34,100	)		(553,100	)		(96,500	)

Income before income taxes		208,600			72,400			613,300			93,700
Provision for income taxes		4,200			—			13,700			—

Net income	$	204,400		$	72,400		$	599,600		$	93,700

Net income per share:
Basic	$	0.01		$	0.01		$	0.04		$	0.01

Diluted	$	0.01		$	0.01		$	0.04		$	0.01

Weighted average number of shares:
Basic		14,395,177			6,517,780			14,390,477			6,511,787

Diluted		16,997,139			7,985,845			16,887,701			7,882,512

See Notes to Consolidated Financial Statements

ANALEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001

	JUNE 30,
	2002			2001
Cash flows from operating activities:
Net income	$	599,600		$	93,700


Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation		55,800			68,900
Amortization of goodwill and other intangibles		140,000			168,000
Amortization of finance costs		176,500			—
Stock compensation expense		5,100			2,700
Changes in operating assets and liabilities:
Accounts receivable		(1,953,200	)		(201,400	)
Prepaid expenses and other		(273,300	)		(139,100	)
Other assets		27,500			(5,300	)
Accounts payable		24,700			(230,400	)
Other current liabilities		677,900			260,600
Other long-term liabilities		(56,200	)		—


Total adjustments		(1,175,200	)		(76,000	)


Net cash provided (used) by operating activities		(575,600	)		17,700


Cash flows from investing activities:
Property additions		(123,900	)		(50,500	)


Net cash used in investing activities		(123,900	)		(50,500	)


Cash flows from financing activities:
Proceeds from borrowings on line of credit, net		1,777,500			1,347,300
Proceeds from stock options exercised		16,400			—
Proceeds from sale of common stock					50,000
Proceeds from employee stock purchases		74,000			17,900
Payments on bank loans		(349,600	)		(1,462,100	)
Payments on other loans		(532,700	)		—


Net cash provided (used) by financing activities		985,600			(46,900	)


Net increase (decrease) in cash and cash equivalents		286,100			(79,700	)

Cash and cash equivalents at beginning of period		83,100			234,900


Cash and cash equivalents at end of period	$	369,200		$	155,200

See Notes to Consolidated Financial Statements

ANALEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Name Change, Award of Elvis Contract and Business Segments

Pursuant to an approval voted by Hadron’s shareholders at its annual shareholder meeting held on May 21, 2002, Hadron, Inc. changed its name on July 1, 2002, to Analex Corporation by merging Hadron, Inc. into its wholly-owned subsidiary Analex Corporation. Hadron’s name was changed to Analex to take advantage of Analex’s broader name recognition in both the intelligence and aerospace systems engineering market segments. Under the resulting corporate structure, Analex Corporation wholly owns two subsidiaries, SyCom Services Inc. (“SyCom”) and Advanced Biosystems Inc. (“ABS”).

On May 29, 2002, Analex announced that it had been awarded a $164 million Expendable Launch Vehicle Integrated Support (“ELVIS”) contract by NASA, having a nine-year and four-month period of performance (3-year base period and two 3-year option periods). The contract has a one-month phase-in period beginning June 1, 2002, followed by a three-year, three-month basic period of performance. There are two options of three years each for a potential nine-year, four-month contract term. The contract value for the basic performance period is $54.9 million. The ELVIS contract was effective on July 1, 2002. With ELVIS, Analex now has approximately 575 employees.

Analex conducts its business through three segments: the Homeland Security Group, supporting intelligence systems; the Systems Engineering Group, supporting the development of space-based systems and the operation of terrestrial assets, including the ELVIS contract; and its ABS subsidiary, pursuing research and business opportunities in the areas of defenses against biological warfare agents and other infectious diseases.

2. Comparative Results of Operations

The actual results of operations for the three months and six months ended June 30, 2002 are not directly comparable with the corresponding prior year periods. On November 5, 2001, Hadron, Inc. acquired Analex Corporation in a purchase combination. Thus, the three and six month periods for 2001 are reported without the effect of the combination. In an effort to make the comparative results of operations more meaningful, the Company has provided pro-forma results for the three and six months ended June 2001 as if the same organizational structure and operating units had been in place in 2001 as are in place for 2002.

As mentioned above, with the award of the ELVIS contract, the Company is organized in three segments: The Homeland Security Group is expected to account for approximately 43% of the Company’s 2002 revenue. The Homeland Security Group expects to benefit from the country’s shifting priorities and new emphasis on enhanced intelligence capabilities. This Group provides engineering, scientific and information technology services and

solutions to assist in the development, implementation and support of intelligence systems. Analex provides these services to various members of the Intelligence community, including the NRO, CRA, NSA, DoD, and major prime contractors.

The Systems Engineering Group is expected to account for approximately 45% of the Company’s 2002 revenues. This Group provides engineering and information technology services and solutions to assist in the development of space-based systems and support operations of terrestrial assets. Capabilities include expendable launch vehicle (ELV) engineering, space systems development, and ground support for space operations. This Group’s primary customers, including NASA and major aerospace firms, expects to be beneficiaries of increased defense spending.

ABS is expected to account for approximately 12% of the Company’s 2002 revenues. ABS pursues research and business opportunities in the areas of defenses against, and treatments for, biological warfare agents and other infectious diseases. ABS also provides consulting services regarding biological weapons, threats, and defensive strategies.

3. Basis of Presentation

The interim consolidated financial statements for Analex Corporation (the “Company”) are unaudited, but in the opinion of management, reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 (“2001 Form 10-K”) filed with the Securities and Exchange Commission on March 26, 2002.

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill is no longer amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets continue to be amortized over their useful lives. Goodwill is no longer being amortized, effective January 1, 2002.

If SFAS No. 142 had been adopted at the beginning of 2001, the absence of goodwill amortization would have increased net income by $84,000 for the three months ended June 30, 2001, resulting in pro forma three month 2001 net income of $156,000, basic earnings per share of $.02 and diluted earnings per share of $.02. For the six months ended June 30, 2001, the absence of goodwill amortization would have increased net income by $168,000, resulting in pro forma six month net income of $262,000, basic earnings per share of $.04 and diluted earnings per share of $.03.

4. Debt

On November 2, 2001, to finance the acquisition of Analex, the Company entered into a Credit Agreement (“Agreement”) with Bank of America, N.A. The Agreement provides the Company with a $4,000,000 revolving credit facility (the “Credit Facility”) through November 2, 2006 and a five-year $3,500,000 term loan (“Term Loan”). The principal amount of the Term Loan is amortized in sixty equal monthly payments of $58,333. Interest on each of the facilities is at the LIBOR Rate plus an applicable margin as specified in a pricing grid. As of June 30, 2002, the Credit Facility and Term Loan balances were $3,474,000 and $3,092,000, respectively. The interest rate at June 30, 2002 was 4.59% for the Credit Facility and 5.09% for the Term Loan. The Company is subject to certain financial covenants pursuant to the Agreement, including debt to EBITDA ratio, fixed charge coverage ratio, senior debt to EBITDA ratio, and net worth requirements. As of June 30, 2002, the Company is in compliance with these covenants. The Credit Facility and Term Loan are secured by the accounts receivable and other assets of the Company.

The Company’s $3.5 million Term Loan facility from Bank of America carries interest comprised of two components: floating-rate LIBOR plus an applicable margin. The Company has entered into an interest-rate swap agreement with Bank of America whereby its obligation to pay floating-rate LIBOR on debt totaling $2,950,000 is swapped into a fixed rate obligation at 4.25% beginning in January 2002. The Company continues to have the obligation to pay the credit performance margin in addition to its swapped 4.25% payment obligation. The total effective interest rate on the swapped portion of the Term Loan amounted to 7.75% at June 30, 2002.

The Company’s comprehensive income for the three months ended June 30, 2002 was $163,500, which includes net income of $204,400 and other comprehensive loss of $40,900 arising from the interest rate swap.

On November 2, 2001, the Company issued promissory notes to certain Analex sellers totaling $772,600 with a five-year term,

bearing interest at 6%. The Company also entered into non-competition agreements with these sellers for total payments of $540,000 over a three-year period. In addition, the Company entered into non-competition agreements with former employees totaling $352,000, on a discounted basis, payable over various periods.

With its purchase of Analex, the Company assumed a note payable to the Department of Justice (“DOJ”). The agreement provides for quarterly payments of $80,000 consisting of principal and interest at 7% through February 2006, with a final payment due in May 2006. The DOJ note payable balance was $1,033,000 as of June 30, 2002.

In May 1999, the Company issued three-year $998,000 convertible notes, to the former shareholders of ATI in connection with the Company’s acquisition of ATI. In May 2002, the remaining convertible notes totaling $102,000 were paid in full.

In connection with the December 1998 purchase of Vail Research and Technology Corporation (“Vail”), the Company issued a non-interest bearing promissory note $100,000. In April 2002, the Company satisfied its obligations with a payment of $30,000.

5. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2002		2001		2002		2001
Numerator: Net Income	$	204,400	$	72,400	$	599,600	$	93,700
Denominator:
Denominator for basic earnings per share:
weighted average shares outstanding		14,395,177		6,517,780		14,390,477		6,511,787
Effect of dilutive securities:
Warrants		1,848,726		1,277,990		1,810,982		1,204,752
Employee stock options		753,236		190,075		686,242		165,973

Denominator for diluted earnings per share		16,997,139		7,985,845		16,887,701		7,882,512

Basic earnings per share	$	.01	$	.01	$	.04	$	.01

Diluted earnings per share	$	.01	$	.01	$	.04	$	.01

Shares issuable upon the exercise of stock options or warrants or upon conversion of debt have been excluded from the

computation to the extent that their inclusion would be anti-dilutive.

6. Income Taxes

The provision for income taxes is limited to state taxes and the liability for alternative minimum tax as the majority of income for federal and state tax purposes has been offset by carrying forward net operating losses.

7. Concentration of Business

Almost all of the Company’s revenues are derived either directly as prime contractor or indirectly as a subcontractor to other government prime contractors. With the award of the ELVIS contract to the Company by NASA, approximately 47% of the Company’s 2002 revenues are expected to be derived, directly and indirectly, from NASA. Approximately 51% of the Company’s 2002 revenues are expected to be derived, from various Department of Defense agencies.

The majority of the Company’s technical and professional services business with governmental departments and agencies is obtained through competitive procurement and through follow-on services related to existing contracts. In certain instances, however, the Company acquires such service contracts because of special professional competency or proprietary knowledge in specific subject areas.

8. Equity Capital

Pursuant to the November 2, 2001 acquisition of Analex, the Company issued 3,572,143 shares of the Company’s Common Stock to the shareholders representing all of the outstanding equity of Analex (the “Sellers”). Of the 3,572,143 shares, 857,143 shares are subject to a provision by which the Company guarantees for a five-year period to reimburse the Sellers the difference between the price at which they sell such shares and a guaranteed sales price ranging from $1.60 to $2.20 per share (“Guaranteed Shares”), if such shares are sold within such period and if certain other conditions are satisfied.

The Company was required by Bank of America to obtain personal guarantees in the amount of $2,000,000, which the Company procured from two individuals, the Company’s Board member Gerald R. McNichols and the president of the Company’s investment banker, J. Richard Knop. The compensation during the period of guaranty is in the form of cash and warrants. In January 2002, 198,522 total warrants were issued pursuant to the guaranty. The Company recorded interest expense of $30,000 and $60,000 and amortization expense of $86,000 and $172,000 for the three and

six months ended June 30, 2002, respectively, related to the issuance of warrants.

9. Business segments

With the award of the ELVIS contract, the Company has reorganized its internal operating structure. Prior to the ELVIS award, the company had three reportable segments, Homeland Security, Aerospace and ABS. With the reorganization, certain divisions of the Aerospace Group were realigned within the Homeland Security Group. The remainder of the Aerospace Group, along with the ELVIS contract, form the Systems Engineering Group.

The three active reportable segments are now the Homeland Security Group, the Systems Engineering Group, and ABS. Together, these segments provide engineering, information technology, medical research or technical services to federal government agencies or major defense contractors. The reportable segments are distinguished by their individual clients, prior experience and technical skills. The Homeland Security Group supports intelligence systems. The Systems Engineering Group supports the development of space-based systems and the operation of terrestrial assets, including the ELVIS contract. ABS pursues research and business opportunities in the areas of defenses against biological warfare agents and other infectious diseases.

Operating results are measured at the net income/(loss) level for each segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company’s corporate amounts consist primarily of certain activities and assets not attributable to the reportable segments.

ANALEX CORPORATION

REPORTABLE SEGMENTS

FASB STATEMENT 131

DESCRIPTON:	THREE MONTHS ENDED JUNE 30, 2002			THREE MONTHS ENDED JUNE 30, 2001			SIX MONTHS ENDED JUNE 30, 2002			SIX MONTHS ENDED JUNE 30, 2001
Trade revenues:
ABS	$	1,588,200		$	1,161,700		$	3,158,400		$	1,873,300
Homeland Security Group		6,069,600			3,195,900			12,715,900			6,714,200
Systems Engineering Group		5,270,400						10,089,400
Corporate

Total trade revenues	$	12,928,200		$	4,357,600		$	25,963,700		$	8,587,500

Net income/(loss):
ABS	$	144,000		$	142,100		$	206,300		$	113,400
Homeland Security Group		384,900			(34,100	)		979,000			42,100
Systems Engineering Group		23,900						127,600
Corporate		(348,400	)		(35,600	)		(713,300	)		(61,800	)

Total net income	$	204,400		$	72,400			599,600			93,700

Assets:
ABS	$	805,900		$	903,800		$	805,900		$	903,800
Homeland Security Group		12,610,500			4,405,500			12,610,500			4,405,500
Systems Engineering Group		15,574,500						15,574,000
Corporate		997,200			554,400			997,200			554,400

Total assets	$	29,988,100		$	5,863,700		$	29,988,100		$	5,863,700

10. Acquisitions

Effective November 2001, the Company acquired Analex, a professional services and program management firm whose principal customers are NASA and the U.S. intelligence community. The purchase price was satisfied with cash payments of $6,510,000, 3,572,143 shares of Common Stock valued at $4,723,000, the issuance of promissory notes of $773,000, non-compete arrangements of $892,000, and the satisfaction of other certain liabilities of Analex. Pursuant to the Merger Agreement by which Analex was acquired by Hadron, and with the award of the ELVIS contract, an additional payment amounting to $1 million became due to certain of the sellers of Analex. This $1 million is payable over 3 years. The purchase price is subject to adjustment related to the closing balance sheet. Accordingly the final purchase price allocation has not been completed.

The fair value of the assets acquired and liabilities assumed approximated their book value of $5,058,000 and $6,647,000, respectively. The Company incurred financial, legal and accounting costs associated with the Analex purchase of approximately $570,000. Resulting from the acquisition of Analex, the Company recorded goodwill and other intangibles of approximately $16,057,000.

Goodwill related to the acquisition of Analex in November 2001 is subject to SFAS 142, and accordingly has not been amortized. Other intangible assets identified in connection with the acquisition, including non-compete arrangements and contractual relationships, are amortized on a straight-line basis over their estimated lives ranging from three to ten years.

The following table sets forth pro forma results of operations of the Company for the three and six months ended June 30, 2001, as if Analex had been acquired on January 1, 2001:

	Three months ended June 30, 2001			Six months ended June 30, 2001
Revenue	$	11,985,400		$	24,919,700
Operating income		398,700			745,700
Net loss		(159,100	)		(135,200	)
Net loss per share:
Basic		(.01	)		(.01	)
Diluted		(.01	)		(.01	)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002

TO THE THREE MONTHS ENDED JUNE 30, 2001

Revenues for the three months ended June 30, 2002 were $12,928,200, an increase of $8,570,600 from the period ended June 30, 2001. This increase is primarily due to revenues of $8,462,300 generated by the business units acquired from the former Analex Corporation, acquired in November 2001, coupled with the increased revenues of ABS. Revenues increased $942,800, or 8%, in the quarter ended June 30, 2002 as compared to the pro-forma revenues for the same period in 2001.

Costs of revenue for the quarter ended June 30, 2002 were $11,231,100, an increase of $7,727,500 from the same period of the prior year. The increase is largely due to the costs of revenue of the business units acquired from the former Analex Corporation, coupled with increased ABS costs. Costs of revenue as a percentage of revenues were approximately 87% and 80% for the quarters ended June 30, 2002 and 2001, respectively.

Selling, general and administrative expenses, including amortization of goodwill and other intangibles, totaled $1,219,200 for the June 30, 2002 quarter, compared with $747,500 for the same period of the prior year. The $471,700 increase is primarily due to the addition of the former Analex Corporation’s costs and costs related to key finance, business development and marketing positions filled.

Operating income for the three months ended June 30, 2002 was $477,900, compared to operating income of $106,500 for the period ended June 30, 2001. This $371,400 increase is primarily attributable to the profitability of the business units of the former Analex Corporation, coupled with increased profitability of ABS. Operating income increased $79,200, or 20%, in the quarter ended June 30, 2002 as compared to the pro-forma operating income for the same period in 2001.

Interest expense totaled $241,900 for the June 30, 2002 quarter, compared with $34,000 for the same period of the prior year. The $207,900 increase is due to the Company’s increased debt obligations and financing commitments associated with the acquisition of the former Analex Corporation.

Net income was $204,400 for the quarter ended June 30, 2002, compared to net income of $72,400 for the same period of the prior year. The $132,000 increase resulted primarily from the net income produced by the business units of the former Analex Corporation and ABS respectively, partially offset by increased

interest and finance costs associated with the Analex acquisition. Net income increased $363,500 in the three months ended June 30, 2002 as compared to the pro-forma net income for the same period in 2001.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002

TO THE SIX MONTHS ENDED JUNE 30, 2001

Revenues for the six months ended June 30, 2002 were $25,963,700, an increase of $17,376,200 from the period ended June 30, 2001. This increase is primarily due to revenues generated by business units of the former Analex Corporation, acquired in November 2001, coupled with the increased revenues of ABS. Revenues increased $1,044,000, or 4%, in the six months ended June 30, 2002 as compared to the pro-forma revenues for the same period in 2001.

Costs of revenue for the six months ended June 30, 2002 were $22,260,000, an increase of $15,250,800 from the same period of the prior year. The increase is largely due to the costs of revenue of the business units of the former Analex Corporation, coupled with increased ABS costs. Costs of revenue as a percentage of revenues were approximately 86% and 82% for the six month period ended June 30, 2002 and 2001, respectively.

Selling, general and administrative expenses, including amortization of goodwill and other intangibles, totaled $2,537,300 for the six months ended June 30, 2002, compared with $1,388,100 for the same period of the prior year. The $1,149,200 increase is primarily due to the addition of the business units of the former Analex Corporation costs and costs related to key finance, business development and marketing positions filled.

Operating income for the six months ended June 30, 2002 was $1,166,400, compared to operating income of $190,200 for the period ended June 30, 2001. This $976,200 increase is primarily attributable to the profitability of the business units of the former Analex Corporation, coupled with increased profitability of ABS. Operating income increased $420,700, or 56%, in the six months ended June 30, 2002 as compared to the pro-forma operating income for the same period in 2001.

Interest expense totaled $510,400 for the six months ended June 30, 2002, compared with $72,000 for the same period of the prior year. The $438,400 increase is due to the Company’s increased debt obligations and financing commitments associated with the acquisition of Analex.

Net income was approximately $599,600 for the six months ended June 30, 2002, compared to net income of approximately

$94,000 for the same period of the prior year. The $505,600 increase resulted primarily from the net income produced by the business units of the former Analex Corporation, partially offset by the increased interest and finance costs associated with the Analex acquisition. Net income increased $734,800 in the six months ended June 30, 2002 as compared to the pro-forma net income for the same period in 2001.

CAPITAL RESOURCES AND LIQUIDITY

The working capital at June 30, 2002 decreased by approximately $155,000 from December 31, 2001, primarily due to an increase in Other Current Liabilities related to timing differences on employee benefit plans.

In the three months ended June 30, 2002, the Company recorded net income of approximately $204,400 and EBITDA, as defined below, of $551,000, after add-backs for interest of $241,900, depreciation of $26,000, amortization of $74,500, and income taxes of $4,200.

In the six months ended June 30, 2002, the Company recorded net income of approximately $599,600 and EBITDA, as defined below, of $1,319,500, after add-backs for interest of $510,400, depreciation of $55,800, amortization of $140,000,and income taxes of $13,700.

EBITDA consists of earnings before interest expense, interest and other income, income taxes, deferred compensation, and depreciation and amortization. EBITDA does not represent funds available for the Company’s discretionary use and is not intended to represent cash flow from operations. EBITDA should also not be construed as a substitute for operating income or a better measure of liquidity than cash flow from operating activities, which are determined in accordance with generally accepted accounting principles. EBITDA excludes components that are significant in understanding and assessing the Company’s results of operations and cash flows. In addition, EBITDA is considered relevant and useful information, which is often reported and widely used by analysts, investors and other interested parties. Accordingly, the Company is disclosing this information to permit a more comprehensive analysis of the Company’s operating performance, as an additional meaningful measure of performance and liquidity, and to provide additional information with respect to the Company’s ability to meet future debt service, capital expenditure and working capital requirements.

Net cash used in operating activities during the six months ended June 30, 2002 was approximately $575,600, as compared with

net cash provided of approximately $17,700 during the same period in 2001.

Net cash used in investing activities during the six months ended June 30, 2002 and 2001 was approximately $123,900 and $50,500, respectively. Net cash used in investing activities in each of these periods was for fixed asset purchases.

On November 2, 2001, to finance the acquisition of Analex, the Company entered into the Credit Agreement which provides the Company with a $4,000,000 Credit Facility through November 2, 2006 and a five-year $3,500,000 Term Loan. The principal amount of the Term Loan is amortized in sixty equal monthly payments of $58,333. Interest on each of the facilities is at the LIBOR Rate plus an applicable margin as specified in a pricing grid. The Company is subject to certain financial covenants pursuant to the Agreement, including debt to EBITDA ratio, fixed charge coverage ratio, senior debt to EBITDA ratio, and net worth requirements. The Credit Facility and Term Loan are secured by the accounts receivable and other assets of the Company.

ELVIS Contract

Under the ELVIS contract, Analex will provide a broad range of Expendable Launch Vehicle (ELV) support services for NASA requirements at John F. Kennedy Space Center, Florida; Cape Canaveral Air Force Station, Florida; Vandenberg Air Force Base, California; and other launch site locations. This includes management, operation and maintenance of facilities, systems and equipment, as well as specified technical and administrative capabilities.

The contract covers responsibility for furnishing engineering services; performing safety and mission assurance functions; and providing communications, data and telemetry support. In addition, at Vandenberg, Analex will also be responsible for maintenance of NASA’s administrative, launch support and spacecraft facilities, mission support planning, and customer support for payload processing activities.

The contract has a one-month phase-in period beginning June 1, 2002, to be followed by a three-year, three-month basic period of performance. There are two options of three years each for a potential nine-year, four-month contract term. The contract value for the basic performance period is $54.9 million. The potential contract value including all priced options over nine years, four months is $163.7 million.

Except for the historical information contained herein, the matters discussed in this 10-Q include forward-looking statements that involve a number of risks and uncertainties. There are

certain important factors and risks that could cause results to differ materially from those anticipated by the statements contained herein. Such factors and risks include business conditions and growth in the information services, engineering services, software development and government contracting arenas and in the economy in general. Competitive factors include the pressures toward consolidation of small government contracts into larger contracts awarded to major, multi-national corporations; the Company’s ability to continue to recruit and retain highly skilled technical, managerial and sales/marketing personnel; and the Company’s ability to successfully identify, complete and integrate acquisitions. Other risks may be detailed from time to time in the Company’s SEC reports.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

The Company is exposed to market risks related to fluctuations in interest rates on its debt. The Company limits these risks by following established risk management policies and procedures including the use of an interest rate swap on $2,550,000 of its $3,092,000 Term Loan to manage, or hedge, interest rate risk. The Company does not enter into derivative instruments for speculative purposes. The Company requires that the hedging derivative instruments are effective in reducing the interest rate risk exposure. The effectiveness is essential for qualifying for hedge accounting. Changes in the hedging instruments fair value related to the effective portion of the risk being hedged are included in accumulated other comprehensive income (loss).

In conjunction with the Company’s policy to reduce interest rate risk, the Company entered into an interest rate swap in conjunction with its Term Loan to hedge the variability of monthly cash outflows attributable to changes in LIBOR. The swap effectively locks LIBOR at 4.25% plus the applicable margin.

Increases in prevailing interest rates on other debt could increase the Company’s interest payment obligations relating to variable debt such as its revolving credit facility and the unhedged portion of its Term Loan. For example, a 100 basis point increase in interest rates would increase annual interest expense by $14,660, using debt balances at June 30, 2002.

Part II. Other Information

Item 1. Legal Proceedings

No material legal proceedings are currently pending.

Item 4. Submission of Matters to a Vote of Security Holders

The Company’s Annual Meeting of Stockholders was held on May 21, 2002.

At the Annual Meeting, the Company’s stockholders re-elected the Company’s eight directors, approved and ratified the Analex Corporation 2002 Stock Option Plan, approved a proposed name change of the Company to Analex Corporation, approved a proposed change in the state of incorporation of the Company from New York to Delaware, approved an increase in the number of authorized Common Stock to 30,000,000 and the addition of a class of Preferred Stock, and ratified the appointment of Ernst & Young LLP as the Company’s independent auditors for the fiscal year 2002.

The following votes were cast at the Annual Meeting with respect to each of the matters above:

Directors:

Directors	Votes For	Votes Withheld	Abstentions and Broker Non-Votes
Jon M. Stout	11,643,547	10,219	—
C.W. Gilluly	11,643,541	10,225	—
Gerald R. McNichols	11,643,541	10,225	—
John D. Sanders	11,643,541	10,225	—
Sterling E. Phillips,Jr.	11,643,541	10,225	—
Shawna Stout	11,643,597	10,169	—
Peter C. Belford, Sr.	11,643,597	10,169	—
Gerald R. Young	11,643,577	10,189	—

Ratification of the Analex Corporation 2002 Stock Option Plan:

Votes For		Votes Against		Abstentions and Broker Non-Votes
11,429,622		72,968		151,176

Approval of the name change of the Company to Analex Corporation:

Votes For		Votes Against		Abstentions and Broker Non-Votes
11,569,047		52,452		32,267

Approval of the change in incorporation of the Company from New York to Delaware:

Votes For		Votes Against		Abstentions and Broker Non-Votes
10,467,584		15,204		1,170,978

Approval to increase the number of authorized Common Stock to 30,000,000 and to add a class of Preferred Stock:

Votes For		Votes Against		Abstentions and Broker Non-Votes
10,309,280		145,525		1,198,961

Approval to ratify the appointment of Ernst & Young LLP as the Company’s independent auditors for the fiscal year 2002:

Votes For		Votes Against		Abstentions and Broker Non-Votes
11,640,366		6,690		6,710

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


3.1		Certificate of Incorporation

3.2		Bylaws

3.3		Certificate of Amendment of Certificate of Incorporation, dated November 19, 2001.

3.4		Certificate of Amendment of Certificate of Incorporation, dated June 25, 2002.

10.38		Expendable Launch Vehicle Integrated Support (ELVIS) contract by and between the Registrant and The National Aeronautics and Space Administration (NASA).

10.39		2002 Stock Option Plan

99.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

The Registrant filed the following Current Reports on or after April 1, 2002 and prior to the date of this Form 10-Q:

Current Report on Form 8-K, dated April 30, 2002, attaching a press release issued by the Registrant announcing its earnings for the quarter ended March 31, 2002.

Current Report on Form 8-K, dated May 22, 2002, attaching a press release issued by the Registrant announcing the filing, by its Advanced Biosystems, Inc. subsidiary, of nine provisional patent applications with the U.S. Patent and Trademark Office.

Current Report on Form 8-K, dated May 29, 2002, attaching a press release issued by the Registrant announcing its award of the Expendable Launch Vehicle Integrated Support (ELVIS) contract by The National Aeronautics and Space Administration (NASA).

Current Report on Form 8-K, dated July 3, 2002, attaching press releases issued by the Registrant announcing that the Registrant had changed its name from Hadron, Inc. to Analex Corporation, changed its trading symbol from HDRN to ANLX, and reorganized in Delaware.

Current Report on Form 8-K, dated August 9, 2002, attaching press releases issued by the Registrant announcing its earnings conference call and Webcast relating to the second quarter of 2002, the award of the DARPA contract and its earnings for the quarter ended March 31, 2002.

SIGNATURES

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 there unto duly authorized.

Date: August 13, 2002

Analex Corporation

(Registrant)

/s/ STERLING E. PHILLIPS, JR.

/s/ RONALD B. ALEXANDER

Sterling E. Phillips, Jr.

Ronald B. Alexander

President and Chief Executive Officer
(Principal Executive Officer)

Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)