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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Annual Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

For the Year Ended December 31, 2003

Commission File Number 0-5404

Analex Corporation

(Exact name of registrant as specified in its charter)

5904 Richmond Highway, Suite 300

Alexandria, Virginia 22303

(Address of principal executive offices)

Registrant’s telephone number including area code

(703) 329-9400

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

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  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)    Yes  ¨    No  x

The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant (based upon the closing price of the common stock on the American Stock Exchange on June 30, 2003) was approximately $23,965,092.

As of March 25, 2004, 13,061,175 shares of the common stock of the registrant were outstanding.

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PART I

Introduction

Analex Corporation (“Analex” or the “Company”) specializes in providing information technology, engineering and bio-defense services and solutions in support of our nation’s security. Analex focuses on developing innovative technical approaches for the intelligence community, analyzing and supporting defense systems, designing, developing and testing aerospace systems and developing medical defenses and treatments for infectious agents used in biological warfare and terrorism.

Name Change

Pursuant to shareholders’ approval obtained at the Company’s 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 acquired Analex on November 5, 2001. Hadron’s name was changed to Analex to improve marketing effectiveness and 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 has two wholly owned subsidiaries, SyCom Services, Inc. (“SyCom”) and Advanced Biosystems, Inc. (“ABS”).

Operations

The Company has two reportable segments: Analex, which is engaged in professional services related to information technology and systems engineering for the U.S. government, primarily NASA and the Department of Defense; and Advanced Biosystems (ABS), which is engaged in biomedical research for broad-spectrum defenses against toxic agents capable of being used as bioterrorist weapons, such as anthrax and smallpox. The segments are distinguished by their individual clients, past experience and technical skills.

The Analex segment consists of two business groups: the Homeland Security Group and the Systems Engineering Group. The Homeland Security Group provides information technology services, systems integration, hardware and software engineering and independent quality assurance in support of the U.S. intelligence community and Department of Defense. The Systems Engineering Group provides engineering, information technology and program management support to NASA, the Department of Defense, and major aerospace contractors such as Lockheed Martin and Northrop Grumman.

Financial information on each segment is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Analex Segment

Homeland Security Group.    Since 1964, the Company has provided hardware and software engineering, systems integration, information technology solutions and independent quality assurance to support the requirements of the U.S. intelligence community. The Homeland Security Group’s role in the support of the intelligence community brings specialized skills to a broad set of technical requirements. In the area of intelligence, reconnaissance and surveillance, it provides solutions that enable the simulation of a realistic operational environment so that satellites and related systems can be tested prior to deployment. Homeland Security performs verification and validation of test results to ensure the reliability of the data and also develops radar, modeling and simulation, and system software, all in support of testing, collecting, and analyzing data from various intelligence systems.

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The Homeland Security Group is an independent expert in the design and testing of expendable launch vehicles for the Department of Defense and intelligence community. Its highly specialized expertise provides test analysis and independent validation and verification support in areas such as structural dynamics, trajectory and performance, thermal system performance, and range safety.

Homeland Security provides independent validation and verification services to the United States Air Force and the National Reconnaissance Office in support of launches of expendable launch vehicles. The Company’s contribution to the success and reliability of these launches has earned two prestigious awards: the Defense Department’s David Packard Excellence in Acquisition Award, and the National Reconnaissance Office’s Gold Medal Award.

Homeland Security supports other intelligence agencies such as the National Security Agency by providing software development, systems integration, configuration management and network administration services. A substantial majority of the Company’s operating income, 72% in 2003, is derived from one contract within this group.

Systems Engineering Group.    The Systems Engineering Group provides sophisticated professional services to NASA, the Defense Department and major aerospace contractors such as Lockheed Martin and Northrop Grumman. The Company provides engineering and information technology services to assist in the development of space systems and support operations of terrestrial assets. These systems include expendable launch vehicles, satellites, space-based experiments, and components and payloads associated with the International Space Station. The Company also supports Northrop Grumman in development of sophisticated airborne electronic sensors and systems.

On May 29, 2002, the Company announced that it had been awarded a $164 million Expendable Launch Vehicle Integrated Support (ELVIS) prime contract by NASA. The ELVIS contract was effective July 1, 2002 and has a nine-year and four-month period of performance if all option terms are exercised. Under the ELVIS contract, Analex will provide a broad range of expendable launch vehicle 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 locations. Under the contract, Analex is responsible for engineering services, performing safety and mission assurance functions, and providing communications, computing and telemetry support. In October 2003, Analex Corporation was named Small Business Prime Contractor of the Year by NASA’s Kennedy Space Center based on the Company’s outstanding performance on the ELVIS contract.

Under the ELVIS contract, the Company is the prime contractor with three subcontractors performing various functions. Approximately 27% of the contract is expected to be performed by the subcontractors. As the prime contractor, the Company is responsible for all aspects of work performed by the subcontractors including, but not limited to, quality of work, timeliness of performance, and cost control. The Company records all customer payments under this contract as revenues and all subcontractor invoices as contract costs. Approximately 30% of the Company’s revenues in 2003 are derived from the ELVIS contract.

The Systems Engineering Group provides a broad range of aerospace engineering services to support the programs of NASA Glenn Research Center in Cleveland, Ohio. These support services include development of next generation launch vehicles, engineering design and development of aerospace systems, engineering support for research and technology development, engineering support for operations of experimental systems, and project management support.

Under the Company’s Microgravity Research Development and Operations Contract with Northrop Grumman, Systems Engineering also supports NASA Glenn Research Center in development of an automated laboratory environment to be installed aboard the International Space Station to enable research in the performance of fluids and combustion in the near-zero gravity of space. The Company participates in the design,

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development, manufacturing, test and delivery of the fluids and combustion facility and associated subsystems. The contract ends in November 2007, however, upon our completion of contract-defined deliverables, our effort on this contract will end. At this time, we anticipate completion in the latter part of 2004.

Advanced Biosystems Segment

The Company’s role in bio-defense began in 1999 when it established its Advanced Biosystems (ABS) subsidiary. Since then, an elite group of biologists, immunologists and other researchers have conducted research to develop effective medical defenses and treatments for anthrax, smallpox and other biological warfare agents. Some of these researchers are also on the faculty of George Mason University and also provide research services to that University’s National Center for Biodefense.

ABS scientists have advised Congress, members of the Bush administration, Department of Defense officials and senior members of the medical community on strategies for bio-defense. ABS also provides training on biological warfare agents, their effects, and defensive strategies to improve preparedness. ABS has been awarded almost $12 million in contracts with the Defense Advanced Research Projects Agency (“DARPA”). ABS has filed patent applications with respect to novel scientific and research insights into pathogenic processes and the effects of experimental agents in interrupting toxic pathways, but none of these patent applications have yet been reviewed by the Patent and Trademark Office.

Parties such as ABS that are interested in performing federally-funded research apply for available research grants and are selected on the basis of expertise, past research activity and research plans. The grants mandate that contract researchers submit regular reports on the progress of their research. Award grantees submit invoices and are paid on a regular basis, usually monthly, for their actual costs incurred in performing research, up to the total amount of the grant. As with any government contract, these research grants are terminable at the convenience of the government at any time. Moreover, it is possible that Congress or the government agencies that administer government research programs will decide to scale back programs or terminate them. In certain cases with respect to on-going programs of research, there are opportunities to receive additional grants upon the achievement of stated research objectives.

Under the Defense Federal Acquisition Regulations and the Federal Acquisition Regulation, ABS owns any intellectual property developed under its DARPA and NIH contracts, respectively, subject to a non-exclusive, royalty free license to the U.S. Government. Although ABS has not yet developed technologies or products that would be subject to federal regulations, any technologies or products which ABS may develop may be subject to the regulatory processes of the Federal Drug Administration or other governmental agencies.

Government Procurement and Significant Customers

The principal customer for the Company’s services is the U.S. government. The Company’s sales to the U.S. government and its prime contractors represented approximately 98% of total net sales during the Company’s twelve months ended December 31, 2003, 2002, 2001 and are expected to continue to account for a substantial portion of the Company’s revenues for the foreseeable future.

The principal U.S. government customer is the Department of Defense, which, directly or through its prime contractors, accounted for approximately 44%, 52%, and 64% of the Company’s revenues in the twelve months ended December 31, 2003, 2002, and 2001, respectively. With the acquisition of the former Analex Corporation in November 2001, NASA became a significant customer, generating 53% and 45% of revenues for the twelve months ended December 31, 2003 and 2002. Approximately 30% of our revenue for fiscal year 2003 came from one prime contract with NASA, which has a potential nine-year and four-month contract term if all options are exercised. In addition, the Homeland Security Group’s contract with one Department of Defense customer generated 17% of the Company’s revenues and 72% of the Company’s operating income for the twelve months ended December 31, 2003.

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During 2003, the Company derived revenues from subcontracts with Northrop Grumman and QSS Group, Inc., which in the aggregate comprised 18% and 15%, respectively, of the Company’s total revenues for the year. Approximately 57% of the Company’s revenues were generated as a prime contractor to the federal government and approximately 43% of the Company’s revenues were generated as a subcontractor to a prime contractor to the federal government during the year ended December 31, 2003.

The Company’s contracts with the U.S. government are subject to the availability of funds through annual appropriations, may be terminated by the government for its convenience at any time, and generally do not require the purchase of a fixed quantity of services or products. Reductions in U.S. government defense spending could adversely affect the Company’s operating results. While the Company is not aware of present or anticipated reductions in U.S. government spending on specific programs or contracts, there can be no assurance that such reductions will not occur or that decreases in U.S. government defense spending in general will not have an adverse effect on the Company’s revenues in the future. Contracts with the U.S. government are subject to audit by the Defense Contract Audit Agency.

The Company has been a contractor or subcontractor with the Department of Defense continuously since 1973 with periodic renewals. During this time, neither the Company nor its subsidiaries have experienced any material adjustment of profits under its contracts. However, no assurance can be given that the Department of Defense will not seek and obtain an adjustment of profits in the future. All U.S. government contracts contain clauses that allow for the termination of contracts at the convenience of the U.S. government.

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

Government Contracts

Direct and indirect contracts with government defense and intelligence agencies comprise the majority of the Company’s business base. During 2003, 51% of the Company’s contracts were cost-reimbursement, 33% were time-and-materials, and 16% were firm fixed-price. Following are brief descriptions of the various types of contracts the Company receives from the government.

Cost-reimbursement contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract, plus a profit component. These contracts establish an estimate of total cost for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed without the approval of the contracting officer. Cost-reimbursement contracts are suitable for use when uncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy to use a fixed-price contract. Cost-reimbursement contracts covered by the Federal Acquisition Regulation require an audit of actual costs and provide for upward or downward adjustments if actual recoverable costs differ from billed recoverable costs. If our costs exceed the ceiling or are not allowable under the terms of the contract or applicable regulations, we may not be able to recover those costs.

Time-and-materials (T&M) contracts provide for acquiring services on the basis of direct labor hours at specified fixed hourly rates. A T&M contract may also provide for acquiring materials, including, if appropriate, material handling costs. Profit margins on T&M contracts fluctuate based on the difference between negotiated billing rates and actual labor and overhead costs directly charged or allocated to such contracts. We assume the risk that a contract’s costs of performance may exceed the negotiated hourly rates.

Firm fixed-price contracts provide for delivery of products or services for a price that is negotiated in advance on the basis of the contractor’s cost experience. The price is not subject to any adjustment unless there is a change in the scope of work. Profit margins increase to the extent that costs are below the contracted amounts. If the costs exceed the estimates, profit margins decrease and a loss may be realized on the contract.

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Contract Backlog

The Company’s backlog of orders, based on remaining contract value, believed to be firm as of December 31, 2003 was approximately $171 million, of which approximately $170.4 million was attributable to the Analex segment and $0.6 million was attributable to the ABS segment. The portion of the total backlog expected to be realized within 2004 is $56 million. Funded backlog as of December 31, 2003 was approximately $19.3 million, of which approximately $0.6 million was attributable to the ABS segment. We expect to consume all of the funded backlog during 2004. Included in the backlog approximation are amounts from future years of government contracts under which the government has the right to exercise an option for the Company to perform services.

Competition

In general, the industry in which the Company operates includes a large number of competitors of varying sizes. Competition within the information technology and government contracting arenas is intense. The Company maintains a primary commitment to its current direct and indirect government clients, while intensifying its business development efforts to win additional government clients. The Company is continuing efforts to diversify its client base.

The Analex segment generally competes against federal systems integrators such as Anteon International Corporation, CACI International Inc., Computer Sciences Corporation, and Science Applications International Corporation, among others including a variety of small, privately-held government contractors offering information technology and systems engineering services to the U.S. government. In addition, the Systems Engineering Group competes against large aerospace contractors such as Boeing and Lockheed Martin and other small privately held firms in the provision of launch related services. Selection is based primarily on a combination of the price of services and evaluation of technical capability, as well as past performance, quality of service and responsiveness to client requirements.

Within the Analex segment, the Company believes that the Homeland Security Group has a competitive advantage in its skilled engineers and customer relationships within the intelligence community and in its expertise and experience with independent verification and validation of space launch vehicles. However, larger government contractors can provide a breadth of professional offerings that the smaller Homeland Security Group may not be able to match. The Company also believes that the Systems Engineering Group has a competitive advantage in space launch support, especially in the expendable launch vehicle support segment, arising from the Company’s work on the ELVIS contract. Given the Company’s size, larger government contractors operating in this business area may be able to provide a breadth of service offerings beyond the Company’s capabilities.

The ABS segment’s main competition comes from individual research professionals and research groups at academic institutions seeking government funded research work. ABS competes for research grants on the basis of scientific expertise, past research activity and past performance under previous research grants. In the event that any technologies or products are developed based on ABS’ research, ABS will likely compete against a variety of large and small biotechnology and pharmaceutical businesses.

Employees

As of December 31, 2003, the Company (including its subsidiaries) employed approximately 552 people including full time, part time and casual employees. Of the 552 employees, 48 are members of unions, and employee relations are believed by management to be generally good. In October 2002, the Company entered into a three-year Collective Bargaining Agreement with the International Brotherhood of Teamsters now representing approximately 37 employees on the NASA ELVIS contract at Vandenberg Air Force Base in California. In February 2003, the Company entered into a three-year Collective Bargaining Agreement with the International Brotherhood of Electrical Workers now representing approximately 11 employees on the NASA ELVIS contract at the Kennedy Space Center in Florida.

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General Information

Raw materials, patents, licenses, trademarks, franchises and concessions are not material to the operation of the Company’s business and the Company’s business is not seasonal. The Company derives no revenues from foreign operations.

Recent Developments

On March 4, 2003, Analex began trading on the American Stock Exchange under the symbol “NLX”.

On July 18, 2003, the Company entered into a Subordinated Note and Series A Convertible Preferred Stock Purchase Agreement (together with the First Amendment thereto dated September 30, 2003 and the Second Amendment thereto dated November 4, 2003, the “Pequot Purchase Agreement”) with Pequot Private Equity Fund III, L.P., a Delaware limited partnership, and Pequot Offshore Private Equity Partners III, L.P., a Cayman Islands limited partnership (“Pequot”). Details of the terms of the securities sold to Pequot pursuant to the Pequot Purchase Agreement are contained in Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Accounting treatment of these securities is discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Available Information

The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including the Company. The Company also provides a link to certain of its most recent filings with the SEC at the Company’s Internet site at http://www.analex.com. The information contained on the Company’s Internet site is not part of this Annual Report.

Item 2.    Properties

The Company owns no real property. As of December 31, 2003, the Company leased a total of 68,373 square feet of office space at various locations in Virginia, Maryland, Colorado and Ohio. These leases expire between December 2004 and September 2006. (See Note 13 of the Notes to Consolidated Financial Statements.)

Item 3.    Legal Proceedings

The Company was served on October 9, 2003 with a complaint filed by Swales & Associates, Inc. in the Maryland Circuit Court for Prince George’s County alleging breach of contract and other claims relating to Swales’ termination as a subcontractor under the Company’s ELVIS contract with NASA. Management believes that the allegation is without merit and is vigorously contesting the complaint. Management believes and will assert that it validly exercised its contractual right to terminate the subcontract for Analex’s convenience and that termination of Swales occurred only after NASA was informed of Swales’ cost overruns and negotiations with Swales failed to yield an acceptable alternative. The Company will assert that Swales entered into the subcontract after it had hired incumbent ELVIS personnel at cost-prohibitive rates, knowing that its actual costs would greatly exceed the subcontract’s funding limitations. Under the complaint, Swales is seeking damages in excess of $4.0 million. Management believes that any liability that may ultimately result from the resolution of this matter will not have a material adverse effect on the financial position or results of operations of the Company.

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

(a)  The Company held a Special Meeting of Stockholders on December 9, 2003.

(b)  At the Special Meeting, the Company’s stockholders approved (i) the Pequot Transaction and (ii) amendments to the Company’s Certificate of Incorporation to increase the Company’s authorized capital stock from 35,000,000 shares, consisting of 30,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par value $0.02 per share (“Preferred Stock”), to 100,000,000 shares consisting of 65,000,000 shares of Common Stock and 35,000,000 shares of Preferred Stock.

The following votes were cast with respect to each of the matters voted on at the Special Meeting:

PART II

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Prior to March 3, 2003, the Company’s common stock was traded over the counter (OTC) and quoted on the OTC Bulletin Board under the symbol “ANLX”. On March 4, 2003, the common stock was listed on the American Stock Exchange and began trading under the symbol “NLX”.

The range of high and low bid quotations for the Common Stock, as reported by the American Stock Exchange and the OTC Bulletin Board, for each quarterly period during 2003, 2002, and 2001 is shown below. The prices presented below reflect inter-dealer prices without retail mark-ups, mark-downs or commissions, and may not reflect actual transactions.

As of March 25, 2004, there were approximately 2,054 shareholders of record of the Company’s Common Stock. No cash dividends were paid to common shareholders during 2003 or during the past three fiscal years, and no dividends are expected to be declared during 2004 for common shareholders. The ability of the Company to pay dividends on its Common Stock requires the consent of Bank of America, N.A. under the Company’s credit agreement with Bank of America, and the consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock pursuant to the Certificate of Designations.

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Pequot Transaction

Pursuant to the Pequot Purchase Agreement dated July 18, 2003, the Company agreed to:

In addition, on July 18, 2003, the Company entered into a Securities Repurchase Agreement (together with the First Amendment thereto dated September 30, 2003 and the Second Amendment thereto dated November 4, 2003, the “Stout Repurchase Agreement”) with Company’s former Chairman Jon M. Stout, certain members of Mr. Stout’s immediate family including former Company director Shawna Stout, and certain entities controlled by Mr. Stout and his family (collectively, the “Stout Parties”), pursuant to which the Company agreed to purchase an aggregate of 2,625,451 shares of Common Stock and warrants and options exercisable to purchase an aggregate of 1,209,088 shares of Common Stock from the Stout Parties for aggregate consideration of $9,166,844.

The transactions contemplated by the Pequot Purchase Agreement and the Stout Repurchase Agreement were consummated simultaneously at closing (the “Closing”) which occurred on December 9, 2003. The Closing occurred immediately following the approval by the Company’s stockholders of the Pequot Transaction. Because the consummation of the transactions under each of the Pequot Purchase Agreement and the Stout Repurchase Agreement were conditioned upon each other, they constituted a single transaction to be voted upon by the stockholders. The transactions contemplated by the Pequot Purchase Agreement and the Stout Repurchase Agreement are collectively referred to herein as the “Pequot Transaction.” The Series A Preferred Stock, the Convertible Notes and the related warrants sold and issued to Pequot in December 2003 are collectively referred to as the “Pequot Instruments”.

The proceeds from the sale of the Convertible Notes were used to repurchase the securities from the Stout Parties and pay expenses incurred by the Company in connection with the Pequot Transaction. Subsequent to year end, the Company used a portion of the proceeds from the sale of the Series A Preferred Stock to pay in full the outstanding promissory note issued to the Department of Justice under a Settlement Agreement between the former Analex Corporation and the Department of Justice. Remaining proceeds from the sale of the Series A Preferred Stock will be used to finance all or a portion of the cost of future acquisitions by the Company.

Discussed below is a summary of the key terms of the Pequot Instruments. Accounting treatment of these instruments is discussed in further detail in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. A substantial portion of the face value of these instruments is allocated to the Company’s equity account on its balance sheet, subject to annual accretion over the next four years.

Series A Preferred Stock

The Series A Preferred Stock bears a cumulative annual dividend of 6%, payable quarterly in cash or, if the Company’s available cash for operations does not meet specified levels or such payment would result in an event

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of default under the Company’s senior credit facility, in additional shares of Series A Preferred Stock. Due to non-cash accounting accretion related to the Series A Preferred Stock, the annual charges taken on the Company’s statement of operations are expected to be substantially larger than the 6% dividend. Holders of Series A Preferred Stock are entitled to vote together with all other classes and series of voting stock of the Company on all actions to be taken by the stockholders of the Company. In addition, as long as 50% of the Series A Preferred Stock originally issued remains outstanding, the Company may not take numerous actions without obtaining the written consent of the holders of a majority of the Series A Preferred Stock.

Upon any liquidation, dissolution or winding up of the Company, holders of the Series A Preferred Stock are entitled to receive, out of the Company’s assets available for shareholder distributions and prior to distributions to junior securities (including the Common Stock), an amount equal to the Series A Purchase Price plus any accrued but unpaid dividends thereon.

The Series A Preferred Stock is convertible into Common Stock at any time at the election of its holders, initially at a ratio of one share of Common Stock for every share of Series A Preferred Stock. The Series A Preferred Stock will automatically convert into Common Stock if, any time following 18 months after the Closing, the average closing price of the Common Stock over a 20 consecutive trading day period exceeds 2.5 times the conversion price then in effect ($2.23 as of December 31, 2003) for the Series A Preferred Stock. In addition, the Series A Preferred Stock held by holders that do not accept an offer by the Company to purchase the Series A Preferred Stock for at least 2.5 times the conversion price then in effect also will automatically convert into Common Stock. The Series A Preferred Stock will also automatically convert into Common Stock upon the agreement of the holders of a majority of the Series A Preferred Stock.

Holders of the Series A Preferred Stock may require the Company to redeem their shares in four equal quarterly installments any time on or after the fourth anniversary of the Closing at the Series A Purchase Price, as adjusted for stock splits, stock dividends and similar events, plus accrued but unpaid dividends.

Convertible Notes

The Convertible Notes mature on December 9, 2007. The Convertible Notes bear interest at an annual rate of 7%, payable quarterly in cash or, if the Company’s available cash for operations does not meet specified levels or such payment would result in an event of default under the Company’s senior credit facility, such interest will be accrued and added to the outstanding principal. Due to non-cash accretion related to the Convertible Notes, the annual charges taken on the Company’s statement of operations are expected to be substantially larger than the 7% interest charge.

Prior to the date which is 18 months after the Closing, the Convertible Notes may not be prepaid without the consent of the holders of a majority of the outstanding principal amount of the Convertible Notes. Any time following 18 months after the Closing, the Company, at its sole option, may prepay the Convertible Notes. Such prepayment will be made, at the option of the Convertible Note holders, either in cash in an amount equal to the outstanding principal plus the net present value of interest to maturity discounted at 7% per annum or by conversion of the principal into shares of Series A Preferred Stock and the payment of interest in cash or in shares of Series A Preferred Stock. Holders of the Convertible Notes may convert the outstanding principal and accrued interest on the Notes into Series A Preferred Stock at any time. The conversion price for the Convertible Notes is 135% of the Series A Purchase Price, subject to adjustment for stock splits, stock dividends and similar events. The Company may cause the automatic conversion of the Convertible Notes into Common Stock if, any time following 18 months after the Closing, the average closing price for the Common Stock over a 20 consecutive trading day period exceeds 2.5 times the Series A Purchase Price.

The Company’s obligations under the Convertible Notes are secured by a lien on substantially all of the assets of the Company and its subsidiaries and are guaranteed by the Company’s subsidiaries. Such obligations are subordinated to the rights of the Company’s present and future senior secured lenders.

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Warrants

The Warrants are exercisable at any time before the tenth anniversary of the Closing. The Preferred Warrants are exercisable to purchase one share of Common Stock for every five shares of Common Stock issued or issuable upon conversion of the Series A Preferred Stock. The Note Warrants are exercisable to purchase one share of Common Stock for every five shares of Common Stock issued or issuable upon conversion of the Convertible Notes. The initial exercise price of the Warrants is $3.28 representing a 47% premium to the Series A Purchase Price.

Item 6.    Selected Consolidated Financial Data

The following selected consolidated financial data as of December 31, 2003, 2002 and 2001, for the six months ended December 31, 2000 and 1999 and for the fiscal years ended June 30, 2000 and 1999 have been taken from the consolidated financial statements of the Company. This data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and the related notes thereto included elsewhere in this Report.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the “Selected Consolidated Financial Data”, and the consolidated financial statements and related notes included elsewhere in this Form 10-K.

Overview

Analex specializes in developing intelligence, system engineering and bio-defense services in support of our nation’s security. All of our sales are generated using written contractual arrangements. The contracts require us to deliver technical services to the intelligence community, analyze and support defense systems, design, develop and test aerospace systems according to the specifications provided by our customers. In the case of ABS, the contracts require us to develop medial defenses and treatments for infectious agents such as anthrax and smallpox used in biological warfare and terrorism.

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Sales to U.S. federal government agencies and their prime contractors represented approximately 98% of our total revenues during the twelve months ended December 31, 2003 and 2002. The Department of Defense accounted for approximately 44% and 52% of our revenues in the twelve months ended December 31, 2003 and 2002, respectively. With the acquisition of the former Analex Corporation in November 2001, NASA became our largest customer, generating 53% and 45% of our revenues for the twelve months ended December 31, 2003 and 2002, respectively. Approximately 17% of our revenues and 72% of our operating income for fiscal year 2003 came from one prime contract with an agency within the Department of Defense. Approximately 30% of our revenues for fiscal year 2003 came from one prime contract with NASA, which has a potential nine-year and four-month contract term if all options are exercised. We expect that federal government contracts will continue to be the source of substantially all of our revenues for the foreseeable future.

In fiscal year 2003, a majority of our revenues were generated as a prime contractor to the federal government. We intend to focus on retaining and increasing the percentage of our business as prime contractor because it provides us with stronger client relationships. The following table shows our revenues as prime contractor and as subcontractor as a percentage of our total revenues for the following periods:

We have two reportable segments: (1) Analex, which is engaged in professional services related to information technology and systems engineering for the U.S. government, primarily NASA and the Department of Defense, and (2) Advanced Biosystems (ABS), which is engaged in biomedical research for medical defenses against toxic agents capable of being used as bioterrorist weapons, such as anthrax and smallpox. The Analex segment consists of two business groups: the Homeland Security Group and the Systems Engineering Group. The Homeland Security Group provides information technology services, systems integration, hardware and software engineering and independent quality assurance in support of the U.S. intelligence community and Department of Defense. The Systems Engineering Group provides engineering, information technology and program management support to NASA, the Department of Defense, and major aerospace contractors such as Lockheed Martin and Northrop Grumman. The following table shows our revenues from each of these segments as a percentage of our total revenues for the past three years:

Percent of Revenues by Segment