UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2004
| ¨ | 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 incorporation or organization) |
(I.R.S. Employer 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)
Yes ¨ No x
As of May 10, 2004, 13,416,789 shares of the common stock of the registrant were outstanding.
1
ANALEX CORPORATION
| Page No. | ||||
| Part I Financial Information: |
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| Item 1. |
Financial Statements |
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| Consolidated Balance Sheets at March 31, 2004 (unaudited) and December 31, 2003 |
3 | |||
| Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 (unaudited) |
5 | |||
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (unaudited) |
6 | |||
| 7 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | ||
| Item 3. |
29 | |||
| Item 4. |
30 | |||
| Part II Other Information: |
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| Item 1. |
31 | |||
| Item 6. |
32 | |||
| 33 | ||||
2
ANALEX CORPORATION
MARCH 31, 2004 AND DECEMBER 31, 2003
| March 31, 2004 (unaudited) |
December 31, 2003 | |||||
| ASSETS |
||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 11,774,500 | $ | 14,177,500 | ||
| Accounts receivable, net |
13,924,200 | 10,719,400 | ||||
| Deferred tax asset |
226,800 | 150,000 | ||||
| Prepaid expenses and other |
387,500 | 483,600 | ||||
| Total current assets |
26,313,000 | 25,530,500 | ||||
| Fixed assets, net |
552,800 | 552,900 | ||||
| Contract rights and other intangibles, net |
1,603,800 | 1,753,000 | ||||
| Goodwill |
15,281,600 | 15,281,600 | ||||
| Other assets |
484,800 | 514,100 | ||||
| Total other assets |
17,923,000 | 18,101,600 | ||||
| Total assets |
$ | 44,236,000 | $ | 43,632,100 | ||
See Notes to Consolidated Financial Statements
3
ANALEX CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003
| March 31, 2004 (unaudited) |
December 31, 2003 |
|||||||
| LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 1,326,300 | $ | 776,200 | ||||
| Note payable - bank term note |
700,000 | 700,000 | ||||||
| Notes payable - other |
949,200 | 1,487,400 | ||||||
| Other current liabilities |
6,399,500 | 5,463,500 | ||||||
| Total current liabilities |
9,375,000 | 8,427,100 | ||||||
| Note payable - bank term note |
1,225,000 | 1,341,700 | ||||||
| Notes payable - other |
695,500 | 1,209,300 | ||||||
| Convertible debt |
3,333,400 | 2,881,400 | ||||||
| Other |
32,900 | 43,800 | ||||||
| Total long-term liabilities |
5,286,800 | 5,476,200 | ||||||
| Total liabilities |
14,661,800 | 13,903,300 | ||||||
| Commitments and contingencies |
||||||||
| Series A convertible preferred stock |
1,173,800 | 236,300 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock $.02 par; authorized 65,000,000 shares; issued and outstanding - March 31, 2004, 13,061,175 shares and December 31, 2003, 13,036,666 shares |
261,200 | 260,700 | ||||||
| Additional paid in capital |
28,590,300 | 28,519,100 | ||||||
| Warrants outstanding |
5,762,900 | 5,762,900 | ||||||
| Accumulated other comprehensive loss |
(32,900 | ) | (43,800 | ) | ||||
| Accumulated deficit |
(6,181,100 | ) | (5,006,400 | ) | ||||
| Total shareholders’ equity |
28,400,400 | 29,492,500 | ||||||
| Total liabilities, convertible preferred stock and shareholders’ equity |
$ | 44,236,000 | $ | 43,632,100 | ||||
See Notes to Consolidated Financial Statements
4
ANALEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
| March 31, 2004 |
March 31, 2003 |
|||||||
| Revenues |
$ | 17,110,100 | $ | 16,631,200 | ||||
| Operating costs and expenses: |
||||||||
| Costs of revenue |
14,451,700 | 13,860,100 | ||||||
| Selling, general and administrative |
1,909,800 | 1,531,000 | ||||||
| Amortization of intangible assets |
149,200 | 100,200 | ||||||
| Total operating costs and expenses |
16,510,700 | 15,491,300 | ||||||
| Operating income |
599,400 | 1,139,900 | ||||||
| Other income (expense): |
||||||||
| Interest income |
13,300 | 1,100 | ||||||
| Interest expense |
(701,100 | ) | (112,400 | ) | ||||
| Total other expense, net |
(687,800 | ) | (111,300 | ) | ||||
| Income (loss) before income taxes |
(88,400 | ) | 1,028,600 | |||||
| Provision (benefit) for income taxes |
(76,300 | ) | 293,200 | |||||
| Net income (loss) |
$ | (12,100 | ) | $ | 735,400 | |||
| Dividends on convertible preferred stock |
(225,000 | ) | — | |||||
| Accretion of convertible preferred stock |
(937,500 | ) | — | |||||
| Net income (loss) available to common shareholders |
$ | (1,174,600 | ) | $ | 735,400 | |||
| Net income (loss) per share: |
||||||||
| Basic |
$ | (0.09 | ) | $ | 0.05 | |||
| Diluted |
$ | (0.09 | ) | $ | 0.04 | |||
| Weighted average number of shares: |
||||||||
| Basic |
13,044,691 | 14,445,356 | ||||||
| Diluted |
13,044,691 | 17,565,684 | ||||||
See Notes to Consolidated Financial Statements
5
ANALEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
| March 31, 2004 |
March 31, 2003 |
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| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (12,100 | ) | $ | 735,400 | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||
| Depreciation |
46,500 | 24,300 | ||||||
| Amortization of intangible assets |
149,200 | 100,200 | ||||||
| Amortization of debt discount and deferred financing costs |
482,900 | — | ||||||
| Stock-based compensation expense |
— | 3,800 | ||||||
| Write-off of patent related costs |
— | 6,500 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
(3,204,800 | ) | (731,500 | ) | ||||
| Deferred tax asset |
(76,800 | ) | — | |||||
| Prepaid expenses and other |
96,100 | (12,700 | ) | |||||
| Other assets |
(1,600 | ) | 3,300 | |||||
| Accounts payable |
550,100 | (1,654,500 | ) | |||||
| Other current liabilities |
711,000 | 207,000 | ||||||
| Net cash used in operating activities |
(1,259,500 | ) | (1,318,200 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Property additions |
(46,500 | ) | (45,500 | ) | ||||
| Intangible additions |
— | (4,000 | ) | |||||
| Net cash used in investing activities |
(46,500 | ) | (49,500 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from borrowings on bank and other loans |
— | 1,829,000 | ||||||
| Proceeds from stock options and warrants exercised |
71,700 | 10,300 | ||||||
| Payments on bank and other loans |
(1,168,700 | ) | (708,200 | ) | ||||
| Net cash provided by (used in) financing activities |
(1,097,000 | ) | 1,131,100 | |||||
| Net decrease in cash and cash equivalents |
(2,403,000 | ) | (236,600 | ) | ||||
| Cash and cash equivalents at beginning of period |
14,177,500 | 301,800 | ||||||
| Cash and cash equivalents at end of period |
$ | 11,774,500 | $ | 65,200 | ||||
See Notes to Consolidated Financial Statements
6
ANALEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| 1. | Business Groups |
Analex Corporation (the “Company”) provides information technology and systems engineering services to the United States government through two groups: the Homeland Security Group, supporting intelligence systems; and the Systems Engineering Group, supporting the development of space-based systems, the operation of terrestrial assets, and the launch of unmanned rockets by NASA under the Company’s Expendable Launch Vehicle Integrated Support (“ELVIS”) contract. In addition, its Advanced Biosystems Inc. subsidiary (“ABS”) is engaged in biomedical research for broad spectrum defenses against toxic agents capable of being used as bioterrorist weapons, such as anthrax and smallpox (See note 11).
The Homeland Security Group has accounted for approximately 42% of the Company’s 2004 year-to-date revenue. 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 the intelligence community, including the National Reconnaissance Office, the National Security Agency, the Department of Defense, and major aerospace contractors, such as Lockheed Martin and Northrop Grumman.
The Systems Engineering Group has accounted for approximately 55% of the Company’s 2004 year-to-date 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 engineering, space systems development, and ground support for space operations.
ABS has accounted for approximately 3% of the Company’s 2004 year-to-date revenues. ABS pursues research 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.
| 2. | Basis of Presentation |
The interim consolidated financial statements for 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
7
necessarily indicative of results for the full year. The balance sheet at December 31, 2003 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 unaudited 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, 2003 (“2003 Form 10-K”) filed with the Securities and Exchange Commission on March 30, 2004.
The Company pursues acquisitions to complement its Analex segment. In accordance with the provisions of Statement of Financial Accounting Standards No. 141, Business Combinations, the direct costs associated with these acquisitions are accounted for as additional purchase consideration. Costs associated with transactions for which we discontinue our pursuit are expensed in the period in which the transaction is abandoned.
| 3. | Debt |
On November 2, 2001, to finance the acquisition of Analex, the Company entered into a Credit Agreement (“Credit Agreement”) with Bank of America, N.A. The Credit Agreement originally provided 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 Credit Facility has an annual renewal occurring April 30 of each year. To fund additional working capital requirements generated by the award of the ELVIS contract, the Company negotiated an increase of the Credit Facility to $8,000,000 in August 2002. 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 March 31, 2004, the Credit Facility and Term Loan balances were zero and $1,925,000, respectively. The interest rate at March 31, 2004 was 3.59% for the Credit Facility and 4.10% for the Term Loan.
Upon the Closing of the Pequot Transaction, Bank of America and the Company entered into a modification of the Credit Agreement amending financial covenant requirements including the total funded debt to EBITDA ratio and the fixed charge coverage ratio. As of March 31, 2004, the Company was in compliance with these covenants. The Credit Agreement also restricts the Company’s ability to dispose of properties, incur additional indebtedness, pay dividends (except to holders of the Series A Preferred Stock) or other distributions, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances, engage in mergers or consolidations, and engage in transactions with affiliates. The Credit Facility and
8
Term Loan are secured by the accounts receivable and other assets of the Company.
The Company’s $3.5 million Term Loan from Bank of America carries interest comprised of two components: floating-rate LIBOR plus a credit performance margin. In January 2002, the Company entered into an interest-rate swap agreement with Bank of America whereby its obligation to pay floating-rate LIBOR on debt, now totaling $1,600,000,was swapped into a fixed rate obligation at 4.25%. 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 7.25% at March 31, 2004.
The Company’s comprehensive loss available to common shareholders for the three months ended March 31, 2004 was $1,163,700 which includes the net loss available to common shareholders of $1,174,600 and other comprehensive income of $10,900 arising from the interest rate swap. The Company’s comprehensive income for the three months ended March 31, 2003 was $742,600, which includes net income of $735,400 and other comprehensive income of $7,200 arising from the interest rate swap.
| 4. | Earnings Per Share |
The following table sets forth the computation of basic and diluted earnings per share:
| Three Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| Net income (loss) available to common shareholders |
($1,174,600 | ) | $ | 735,400 | ||
| Weighted average shares outstanding |
13,044,691 | 14,445,356 | ||||
| Effect of dilutive securities: |
||||||
| Warrants |
— | 1,956,858 | ||||
| Employee stock options |
— | 1,163,470 | ||||
| Diluted weighted average shares outstanding |
13,044,691 | 17,565,684 | ||||
| Basic earnings per share |
($0.09 | ) | $ | 0.05 | ||
| Diluted earnings per share |
($0.09 | |||||