---



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, 2002



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 Number)



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:



|Title of Class                          |  | Name of exchange on which registered:
|--------------------------------------- |  | -------------------------------------
|Common Stock, par value $0.02 per share |  | American Stock Exchange              



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 March 13, 2003) was approximately $14,468,900.



As of March 13, 2003, 14,488,578 shares of the common stock of
the registrant were outstanding.



Documents
incorporated by reference. (1) Portions of the registrants Proxy Statement to be filed in connection with the registrants 2003 annual meeting of stockholders are incorporated by reference in Part III of this Annual Report pursuant to
General Instruction G(3) to Form 10-K.



---



---

PART I



Item 1. Business



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. Analex has three strategic business units. 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. Advanced Biosystems, Inc. a wholly owned subsidiary, focuses on development of medical defenses against, and
treatments for, biological warfare agents that threaten military and civilian populations.



Name Change



Pursuant to an approval voted by the Company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 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 three operating units, the Homeland Security
Group, Advanced Biosystems, Inc., and the Systems Engineering Group, whose descriptions follow.



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 Companys role in the support



2



---

of the intelligence community brings specialized skills to a broad set of technical requirements. In the
area of Intelligence, Reconnaissance and Surveillance (ISR), it provides solutions that enable the simulation of a realistic operational environment so that satellites and related systems can be tested prior to deployment. The Company
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.



The Company is an independent expert in
the design and testing of expendable launch vehicles (ELV) for the Department of Defense (DoD) and intelligence community. Its highly specialized expertise provides test analysis and independent validation and verification
(IV&V) support in areas such as Structural Dynamics, Trajectory and Performance, Thermal System Performance, and Range Safety.



The Company provides IV&V services to the United States Air Force and the National Reconnaissance Office (NRO) in support
of launches of the Atlas and Titan ELVs. The Companys contribution to the success and reliability of these launches has earned two prestigious awards: the DoDs David Packard Excellence in Acquisition Award, and the NROs Gold
Medal Award.



The Company supports other
intelligence agencies such as the National Security Agency and the Central Intelligence Agency by providing software development, systems integration, configuration management and network administration services. In addition, the Company develops
and conducts training of military personnel in debriefing and interrogating enemy combatants.



Advanced Biosystems, Inc.



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.



ABS scientists play a significant role in advising Congress, members of the Bush administration, DoD 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 U.S. Defense
Advanced Research Projects Agency (DARPA) for development of non specific-immunity based defenses against biological threat agents. ABS was awarded a grant from the National Institutes of Health (NIH) to study the role of
certain cellular components in blocking the development of Anthrax. In total, ABS has received to



3



---

date more than $17 million in research grants.



In December 2002, ABS entered into a Memorandum of
Understanding with George Mason University regarding collaborative efforts on certain projects and the use of George Mason laboratory facilities. ABS Chief Scientist, Dr. Ken Alibek, also serves as Executive Director of the George Mason Center
for Biodefense and a member of the George Mason faculty.



Systems Engineering Group



The Systems Engineering Group provides sophisticated professional services to NASA, the DoD 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 a major aerospace firm in development of sophisticated airborne electronic sensors and systems.



On May 29, 2002, Analex 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 including all options.



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 locations. Under the contract, Analex is responsible for engineering services, performing safety and mission assurance
functions, and providing communications, computing and telemetry support.



The Company provides a broad range of aerospace engineering services to support the programs of NASA Glenn Research Center (GRC) in Cleveland, Ohio. These support services include development of next generation
launch vehicles, engineering design and development of aerospace systems, engineering support to research and technology development, engineering support to operations of experimental systems, and project management support.



Under the Microgravity Research Development and Operations
Contract (MRDOC), the Company also supports GRC 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, development, manufacturing, test and delivery of the Fluids and Combustion Facility and associated subsystems.



4



---

Recent Developments



On March 4, 2003, Analex began trading on the American Stock Exchange Amex under the symbol NLX.



Change in Fiscal Year



On February 14, 2001, the Board of Directors of the Company
approved a change of the Companys fiscal year from the period of July 1 through June 30 to the period of January 1 through December 31, and declared the period of July 1, 2000 through December 31, 2000 the transition period.



General Information



The Company provides engineering, information technology,
medical research and technical services to federal government agencies or major defense contractors. 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. 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.



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.



Direct and indirect contracts with government defense and
intelligence agencies comprise the majority of the Companys business base, and competition for government-funded projects continues to exert pressure on profit margins. The majority of the Companys contracts are fixed price  level
of effort and time and material type contracts.



The Companys backlog of orders believed to be firm as of December 31, 2002 approximated $169 million. The portion expected to be realized within 2003 is $35 million. 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.



As of December 31, 2002, the Company (including its subsidiaries) employed approximately 534 people. Certain of the Companys
employees 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
representing approximately 32 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



5



---

with the International Brotherhood of Electrical Workers representing approximately 12 employees on the
NASA ELVIS conrtract at the Kennedy Space Center in Florida.



Raw materials, patents, licenses, trademarks, franchises and concessions are not materially important to the conduct of the Companys business and the Companys business is not seasonal.



Government Procurement



The principal customer for the Companys services is the
United States 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, 2002, 2001, the six month periods ended
December 31, 2000 and 1999, and the fiscal year 2000, 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 DoD, which, directly or through its prime contractors,
accounted for approximately 52%, 64%, 70%, 76%, and 92% of the Companys revenues in the twelve months ended December 31, 2002, 2001, the six month periods ended December 31, 2000 and 1999, and the fiscal year 2000, respectively. With the
acquisition of the former Analex Corporation, the National Aeronautics and Space Administration (NASA) became a significant customer, generating 45% and 11% of revenues for the twelve months ended December 31, 2002 and 2001.



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 (DCAA).



The Company has been a contractor or subcontractor with the DoD continuously since 1973 with periodic renewals. During this time, neither the Company nor its subsidiaries have experienced any material adjustment of profits under
these contracts. However, no assurance can be given that the DoD 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.



6



---

The preponderance of the Companys technical and professional services business with
the DoD 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.



The Company derives no revenues from foreign operations.



Available Information



The Company files annual, quarterly and special 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, 2002,
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 February 2002 and September 2006. (See Note 11 of the Notes to Consolidated Financial
Statements.)



Item 3. Legal Proceedings



No material legal proceedings are currently
pending.



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



None.



PART II



|Item |  | 5. Market for Registrants Common Equity and Related Stockholder Matters
|---- |  | ------------------------------------------------------------------------



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.



7



---

The range of high and low bid quotations for the Common Stock, as reported by the OTC
Bulletin Board, for each quarterly period during 2002, 2001, the six-month period ended December 31, 2000 and fiscal year 2000 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.



|Year Ended December 31, 2002      |  | High |  | Low 
|--------------------------------- |  | ---- |  | ----
|First Quarter (1/1 to 3/31/02)    |  | 2.45 |  | 1.60
|Second Quarter (4/1 to 06/30/02)  |  | 2.85 |  | 1.73
|Third Quarter (7/1 to 09/30/02)   |  | 2.88 |  | 2.09
|Fourth Quarter (10/1 to 12/31/02) |  | 2.65 |  | 2.30
|                                 
|Year Ended December 31, 2001      |  | High |  | Low 
|First Quarter (1/1 to 3/31/01)    |  | 1.44 |  | .81 
|Second Quarter (4/1 to 06/30/01)  |  | 1.40 |  | 1.00
|Third Quarter (7/1 to 09/30/01)   |  | 2.50 |  | 1.06
|Fourth Quarter (10/1 to 12/31/01) |  | 4.55 |  | 1.40
|                                 
|Period Ended December 31, 2000    |  | High |  | Low 
|First Quarter (7/1 to 9/30/00)    |  | 1.06 |  | .63 
|Second Quarter (10/1 to 12/31/00) |  | 1.56 |  | .75 
|                                 
|Fiscal Year Ended June 30, 2000   |  | High |  | Low 
|First Quarter (7/1 to 9/30/99)    |  | 1.28 |  | .63 
|Second Quarter (10/1 to 12/31/99) |  | .75  |  | .50 
|Third Quarter (1/1 to 3/31/00)    |  | 2.00 |  | .47 
|Fourth Quarter (4/1 to 6/30/00)   |  | 1.56 |  | .75 



8



---



As of March
14, 2003, there were approximately 2,234 shareholders of record of the Companys Common Stock. No cash dividends were paid during 2002 or during the past three fiscal years, and no dividends are expected to be declared during 2003.



The Company does not have any equity
compensation program that was not approved by stockholders. Set forth below is certain information as of December 31, 2002, regarding equity compensation plans that have been approved by stockholders



|Equity compensation plans approved by stockholders |  | Number of securities to be issued upon exercise of outstanding options and rights |  | Weighted average exercise price |      | Number of securities remaining available for
issuance under the plan(s)
|-------------------------------------------------- |  | --------------------------------------------------------------------------------- |  | ------------------------------- | ---- | -----------------------------------------------------------------------
|Stock Option Plans                                 |  | 2,456,100                                                                         |  | $                               | 1.55 |                                                                        



Item 6. Selected
Financial Data



The following selected
consolidated financial data as of December 31, 2002 and 2001, for the six months ended December 31, 2000 and 1999 and for the fiscal years ended June 30, 2000, 1999 and 1998 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.



(In thousands of dollars, except per
share amounts)



|                                         |  | Year Ended 12/31/02 |        | Year Ended 12/31/01 |   |        | Six Months Ended 12/31/00 |  | Unaudited Six Months Ended 12/31/99 |       |  | Fiscal Year 6/30/00 |        |   | Fiscal Year 6/30/99 |   |        | Fiscal Year 6/30/98 | 
|---------------------------------------- |  | ------------------- | ------ | ------------------- | - | ------ | ------------------------- |  | ----------------------------------- | ----- |  | ------------------- | ------ | - | ------------------- | - | ------ | ------------------- | 
|                                         |  |                     |       
|Total Revenues(1)                        |  | $                   | 59,317 |                     | $ | 21,936 |                           |  | $                                   | 8,943 |  | $                   | 10,267 |   |                     | $ | 19,901 |                     | 
|Operating Income (Loss)                  |  |                     | 3,524  |                     |   | 432    |                           |  |                                     | 190   |  |                     | (481   | ) |                     |   | (421   | )                   | 
|Interest Expense, net of Interest income |  |                     | 1,018  |                     |   | 217    |                           |  |                                     | 112   |  |                     | 167    |   |                     |   | 324    |                     | 
|Income (Loss) Before income taxes        |  |                     | 2,506  |                     |   | 216    |                           |  |                                     | 85    |  |                     | (631   | ) |                     |   | (724   | )                   | 
|Net Income (Loss)(1)                     |  |                     | 2,357  |                     |   | 196    |                           |  |                                     | 85    |  |                     | (631   | ) |                     |   | (745   | )                   | 
|Income (Loss) per share                  |  |                     |        |                     |   |        |                           |  |                                     |       |  |                     |        |   |                     |   |        |                     | 
|Basic                                    |  |                     | .16    |                     |   | .03    |                           |  |                                     | .01   |  |                     | (.24   | ) |                     |   | (.23   | )                   | 
|Diluted                                  |  |                     | .14    |                     |   | .02    |                           |  |                                     | .01   |  |                     | (.24   | ) |                     |   | (.23   | )                   | 
|At Period End:                           |  |                     |        |                     |   |        |                           |  |                                     |       |  |                     |        |   |                     |   |        |                     | 
|Total Assets                             |  |                     | 30,784 |                     |   | 25,625 |                           |  |                                     | 5,784 |  |                     | 6,127  |   |                     |   | 5,951  |                     | 
|Long-term Liabilities                    |  |                     | 4,430  |                     |   | 5,064  |                           |  |                                     | 412   |  |                     | 1,040  |   |                     |   | 702    |                     | 
|Working Capital (Deficit)                |  |                     | 676    |                     |   | (702   | )                         |  |                                     | 266   |  |                     | (1,454 | ) |                     |   | (13    | )                   | 
|Shareholders Equity (Deficit)           |  |                     | 13,902 |                     |   | 11,175 |                           |  |                                     | 2,002 |  |                     | (80    | ) |                     |   | 1,535  |                     | 



|(1) |  | See Item 7 Managements Discussion and Analysis for an explanation of events that materially affect comparability.
|--- |  | --------------------------------------------------------------------------------------------------------------------



9



---



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



Forward-Looking Statements



The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation, statements about the Companys expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements
included in this report are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. The forward-looking statements contained herein involve risks and
uncertainties. The Companys actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in this report.



Critical Accounting Policies



The consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States, which require the Company to make estimates and assumptions. The Companys significant accounting policies are described in Note 2 to the consolidated financial
statements. The Company believes that the following critical accounting policies require significant management judgments, estimates and assumptions in the preparation of the consolidated financial statements.



10



---



Revenue



The Companys contracts with the government are
typically cost plus fee, time and materials, or fixed-price contracts. Revenues result from work performed on these contracts by the Companys employees and from pass-through of costs for material and work performed by subcontractors. Revenues
on cost-type contracts are recorded as contract-allowable costs are incurred and fees earned. Revenues for time and materials contracts are recorded on the basis of contract-allowable labor hours worked multiplied by the contract defined billing
rates, plus the cost of materials used in performance on the contract. Profits on time and material contracts result from the difference between the cost of services performed and the contract defined billing rates for these services. Revenue on
certain fixed-price service contracts are recorded each period based on a monthly amount for services provided. Revenues on other fixed-price contracts are recorded as costs are incurred, using the percentage-of-completion method of accounting.
Profits on fixed-price contracts result from the difference between the incurred costs and the revenue earned. In the normal course of business, the Company may be party to claims and disputes resulting from modifications and change orders and other
contract matters. Claims for additional contract compensation are recognized when realization is probable and estimable.



Long-Lived Assets



In assessing the recoverability of long-lived assets, including goodwill and other intangibles, the Company must make assumptions
regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or the Companys related assumptions change in the future, the Company may be required to record impairment charges
for these assets not previously recorded.



Contingencies



From time to time, the Company is subject
to proceedings, lawsuits and other claims related to labor and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes to these contingencies as well as potential ranges of probable losses and establish
reserves accordingly. The amount of reserves required, if any, may change in future periods due to new developments in each matter or changes in approach to a matter such as a change in settlement strategy.



Derivatives



The Company utilizes an interest rate swap to manage interest
rate exposure. The interest rate swap has been designated as a cash flow hedge, wherein the effective portion of the change in value of the derivative instrument, based on market pricing, is



11



---

reported as a component of other comprehensive income (loss) and is reclassified into earnings as interest
expense in the period when the hedged transaction affects earnings. The ineffective portion of the change in value of the derivative instrument, if any, is recognized in current earnings during the period of change. The interest rate swap is carried
at fair value in other liabilities.



Results of
Operations

Comparison Of Year Ended December 31, 2002 To

the Twelve Months Ended December 31, 2001



Revenues for the twelve months ended December 31, 2002 were approximately $59,317,000, a 170% increase from the $21,936,000 in
revenues for the twelve-month period ended December 31, 2001. This increase is primarily due to revenue generated by the former Analex Corporation, acquired in November 2001, coupled with revenue generated by the NASA ELVIS contract that began July
1, 2002.



Costs of revenue for the twelve months
ended December 31, 2002 were approximately $50,437,000, an increase of approximately 178% from the same period of the prior year. The increase is primarily due to the costs of revenue of the former Analex Corporation, coupled with costs associated
with the ELVIS contract. Costs of revenue as a percentage of revenues were approximately 85% for the twelve months ended December 31, 2002 and approximately 83% for the twelve months ended December 31, 2001.



Selling, general and administrative expenses totaled
approximately $5,049,000, 8.5% of revenues, for the twelve months ended December 31, 2002, compared with approximately $2,968,000, 13.5% of revenues, for the twelve months ended December 31, 2001. The $2,081,000, or 70% increase is primarily
due to the addition of the former Analex Corporations costs and the costs associated with capturing the ELVIS contract. However, the increase in the Companys revenues reduced selling, general and administrative expenses as a percentage
of revenues, allowing the Company to increase spending on such items as new business development while improving operating profit margins.



The Company had operating income of approximately $3,524,000 for the twelve months ended December 31, 2002, compared to operating income
of approximately $432,200 for the twelve month period ended December 31, 2001. This $3,091,800 increase is primarily attributable to the profitability of the former Analex Corporation along with profits generated by the ELVIS contract.



The Company had interest expense of $1,018,300
for the twelve months ended December 31, 2002, compared to interest expense of $225,200 for the twelve month period ended December 31, 2001. The increase is primarily due to interest on debt related to the acquisition of Analex Corporation.



12



---



The Company
had amortization expense of $307,600 for the twelve months ended December 31, 2002, compared to amortization expense of $378,400 for the twelve month period ended December 31, 2001. The decrease in amortization expense is due to the implementation
of SFAS 142, which ceased amortization of a 1999 acquisition, partially offset by amortization of certain intangible assets related to the acquisition of Analex Corporation.



Net income was approximately $2,356,600 for the twelve months ended December 31, 2002, compared to net income
of approximately $196,000 for the twelve months ended December 31, 2001. The $2,160,600 increase resulted primarily from net income produced by the former Analex Corporation along with income generated by the ELVIS contract.



Results of Operations

Comparison Of Year Ended December 31, 2001 To

the Unaudited Twelve Months Ended December 31, 2000



Revenues for the twelve months ended December 31, 2001 were approximately $21,936,000, an 18% increase from the unaudited
$18,577,400 in revenues for the twelve-month period ended December 31, 2000. This increase is primarily due to the addition of two months of revenues, totaling $4,658,000, generated by the former Analex Corporation, acquired in November 2001,
coupled with the increased revenues of ABS, partially offset by decreased revenues of the Homeland Security Group.



Costs of revenue for the twelve months ended December 31, 2001 were approximately $18,158,000, an increase of approximately 18% from the
same period of the prior year. The increase is primarily due to the costs of revenue of the former Analex, coupled with increased ABS costs, partially offset by decreased costs of the Homeland Security Group. Costs of revenue as a percentage of
revenues were approximately 83% for the twelve months ended December 31, 2001 and 2000.



Selling, general and administrative expenses totaled approximately $2,968,000 for the twelve months ended December 31, 2001, compared with approximately $2,573,000 for the twelve months ended
December 31, 2000. The $395,000, or 15% increase is primarily due to the addition of the former Analex Corporations costs and the costs associated with the acquisition.



The Company had operating income of approximately $432,200 for the twelve months ended December 31, 2001,
compared to operating income of approximately $250,000 for the twelve month period ended December 31, 2000. This $182,200 increase is primarily attributable to the profitability of the former Analex Corporation partially offset by the
Companys acquisition costs.



The Company
had amortization expense of $378,400 for the twelve months ended December 31, 2001, compared to $335,100 for the



13



---

twelve months ended December 31, 2000. This increase is due to amortization of certain intangible assets
related to the acquisition of Analex Corporation.



Net income was approximately $196,000 for the twelve months ended December 31, 2001, compared to a net loss of approximately $29,000 for the twelve months ended December 31, 2000. The $225,000 increase resulted primarily from the
$350,000 net income produced by the former Analex Corporation, coupled with the $186,000 net income of ABS, partially offset by the $10,000 net loss of the Homeland Security Group and increased costs associated with the Analex acquisition.



Results of Operations

Comparison Of Six Month Period Ended December 31, 2000

To the Unaudited Six Month Period Ended December 31, 1999



Revenues for the six months ended December 31, 2000 were approximately $8,943,000, a 13% decrease from the unaudited $10,267,300 in
revenue for the period ended December 31, 1999. This decrease is primarily due to the loss of billable personnel resulting from the hiring of certain of the Companys technical employees by the Homeland Security Groups major client, Johns
Hopkins Universitys Applied Physics Laboratory (APL), partially offset by additional revenue produced by ABS. The Companys billable staff dedicated to the APL contracts decreased 83% between December 31, 1999 and December 31,
2000.



Costs of revenue for the six months ended
December 31, 2000 were approximately $7,601,000, a decrease of approximately 13% from the same period of the prior year. The decrease is primarily due to the lowered personnel costs of the Homeland Security Group partially offset by costs associated
with the increased ABS revenues. Costs of revenue as a percentage of revenues were approximately 85% for the six-month periods ended December 31, 2000 and 1999, respectively.



Selling, general and administrative expenses totaled approximately $984,000 for the six months ended December
31, 2000, compared with approximately $1,823,300 for the same period of the prior year. The $839,300, or 46%, decrease is primarily due to the Companys aggressive cost reduction and containment program.



The Company had operating income of $190,000 for the six
months ended December 31, 2000, compared to an operating loss of $481,000 for the period ended December 31, 1999. This $671,000 increase is primarily attributable to the Companys aggressive cost reductions coupled with increases in the
productivity of the Companys billable staff.



Net income was $85,000 for the six months ended December 31, 2000, compared to a net loss of approximately $631,000 for the same period of the prior year. The $716,000 increase resulted from the



14



---

same factors mentioned above.



Capital Resources and Liquidity



The working capital at December 31, 2002 increased by approximately $1,377,300 from December 31, 2001,
primarily due to increased profitability generated by the Companys purchase of the former Analex Corporation and the award of the ELVIS contract.



In the twelve months ended December 31, 2002, the Company recorded net income of $2,356,600 and EBITDA of $3,943,000, after add-backs for
interest of $1,018,300, taxes of $149,100, depreciation of $111,400 and amortization of $307,600.



The Company believes that cash provided by operations, together with its expected capacity to raise additional financing, if needed,
should be adequate to service its obligations as they come due.



EBITDA consists of earnings before interest expense, interest and other income, income taxes, 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 accounting principles
generally accepted in the U.S. EBITDA excludes components that are significant in understanding and assessing the Companys results of operations and cash flows. EBITDA is considered to be 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 provided by operating activities was
$1,299,500 during the twelve months ended December 31, 2002, compared to a net use of cash from operating activities of $435,400 for the prior year. The increased net cash provided by operating activities resulted primarily from increased net
income in 2002 compared to 2001.



Net cash used
in investing activities during the twelve months ended December 31, 2002 was $240,000. Net cash used in investing activities in this period was for fixed asset purchases and legal fees associated with the filing of patent applications for ABS.



Net cash used by financing activities in 2002
amounted to $840,800 compared to net cash provided by financing activities in 2001 of $6,537,500. In 2002 the Company paid down net bank debt of



15



---

$1,000,500 compared to net bank borrowings of $2,335,400 and net proceeds from the issuance of common
stock of $3,917,600 in 2001 associated with the acquisition of the former Analex Corporation. For 2002, the Company generated a net increase in cash and equivalents of $218,700 compared to a net decrease of $151,800 in 2001.



On November 2, 2001, to finance the acquisition of Analex, the
Company entered into a Credit Agreement with Bank of America, which provides the Company with a $4,000,000 Revolving 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. In August 2002, the credit limit on the Revolving Credit Facility was increased to $8,000,000. At December 31, 2002, the outstanding balance on the Revolving Credit Facility was $2.2 million and the
outstanding balance on the Term Loan was $2.7 million.



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. 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 Companys Investment Banker J. Richard Knop. The compensation during the period of guaranty is
in the form of cash and warrants. On December 20, 2002, Mr. McNichols and Mr. Knop were released from their guarantees.



In October 2001, the Company issued 3,961,060 shares of Common Stock for aggregate consideration of approximately $3,868,000 through a
private placement pursuant to Regulation D under the Securities Act of 1933 consisting of (i) the Companys Common Stock at a price of $1.14 per share to purchasers who purchased less than $500,000 worth thereof or (ii) units consisting of the
Companys Common Stock and warrants to purchase 0.2061 shares of the Companys Common Stock at an exercise price of $0.02 per share for each share purchased at a price of $1.14 per unit for purchasers who purchased $500,000 or more of the
Companys equity. Two of such purchasers are directors or affiliates of a director. All of these proceeds were directed to financing the acquisition of Analex.



On November 2, 2001, the Company issued promissory notes to certain Analex sellers totaling $773,000 with a
five-year term, bearing interest at 6%. At December 31, 2002, the outstanding balance on the promissory notes was $635,900. 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



16



---

various periods. At December 31, 2002, the outstanding balance on the non-competition agreements was
$540,000.



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. At
December 31, 2002, the outstanding balance on the DOJ note payable was $946,400.



On May 29, 2002, Analex announced that it had been awarded a $164 million Expendable Launch Vehicle Integrated Support (ELVIS) prime contract by NASA. In conjunction with this award the
Company issued promissory notes to certain Analex sellers totaling $1,000,000 with a three-year term, bearing interest at prime plus 1%. At December 31, 2002, the outstanding balance on these notes was $916,700.



Contractual Obligations



The Company has contractual obligations to pay long-term
debt, leases and other non-cancelable obligations. The following table aggregates the amounts of these obligations as of December 31, 2002:



|Year                          |  | Long-term debt (1) |           | Operating Leases |   | Non-compete Agreements |  | Total
|----------------------------- |  | ------------------ | --------- | ---------------- | - | ---------------------- |  | -----
|2004                          |  | $                  | 1,468,900 |                  | $ | 1,037,600              |  | $    
|2005                          |  |                    | 1,412,700 |                  |   | 774,200                |  |      
|2006                          |  |                    | 922,500   |                  |   | 56,200                 |  |      
|2007                          |  |                    |           |                  |   |                        |  |      
|                              |  |                    |           |                  |   |                        |  |      
|Total contractual obligations |  | $                  | 3,804,100 |                  | $ | 1,868,000              |  | $    
|                              |  |                    |           |                  |   |                        |  |      



| | (1) |  | Does not include line of credit.
| | --- |  | --------------------------------



Payments for long-term debt do not include interest payments. Lease commitments could require higher payments than shown in the table due
to escalation provisions that are tied to various measures of inflation. The lease commitments reflect only existing commitments and do not include future requirements necessary to replace existing leases. In addition to the contractual obligations
included above, the Company also has routine purchase order commitments for materials and supplies that are entered into in the normal course of business and are not in excess of current requirements. Also, pursuant to the purchase of Analex, the
Company has guaranteed a minimum sales price ranging from $1.60 to



17



---

$2.20 per share for 857,143 shares issued to the sellers, for various periods through 2006.



Recently Issued Accounting Standards



In August 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations(SFAS No. 143). SFAS No. 143 addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company does not anticipate that adoption of SFAS No.
143 will have a material impact, either positive or negative, on future results of operations or financial condition.



In September 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses financial accounting and reporting for the impairment and disposal of long-lived assets, including intangible assets with finite lives. The
effective date for the Companys implementation of SFAS No. 144 was January 1, 2002.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosurean amendment of SFAS No. 123. This statement amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The
Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 and related interpretations. Accordingly, compensation expense for stock options is measured as the excess, if
any, of the fair market value of the Companys stock at the date of the grant over the exercise price of the related option. The Company has adopted the annual disclosure provisions of SFAS No. 148 in its financial reports for the year ended
December 31, 2002 and will adopt the interim disclosure provisions for its financial reports for the quarter ending March 31, 2003.



|Item |  | 7A. Quantitative and Qualitative Disclosure about Market Risk
|---- |  | -------------------------------------------------------------



Market Risks and Hedging Activities



18



---



The
Companys outstanding bank debt bears interest at variable interest rates tied to LIBOR. The use of variable-rate debt to finance operations and capital improvements exposes the Company to variability in interest payments due to changes in
interest rates. The Company uses an interest rate swap to reduce the interest rate exposure on these variable rate obligations. The Company does not hold any derivatives for trading or speculative purposes.



The Companys $3.5 million term loan facility from Bank
of America carries interest comprised of two components: floating-rate LIBOR plus a credit performance margin. The Company has entered into an interest-rate swap agreement with Bank of America whereby its obligation to pay floating-rate LIBOR 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.



Interest rate hedges that are designated as cash flow hedges
hedge the future cash outflows on debt. Interest rate swaps that convert variable payments to fixed payments, interest rate caps, floors, collars and forwards are cash flow hedges. The unrealized gains/losses in the fair value of these hedges are
reported on the balance sheet and included in other long-term liabilities with a corresponding adjustment to either accumulated other comprehensive income/(loss) or in earnings depending on the hedging relationship. If the hedging transaction is a
cash flow hedge, then the offsetting gains/losses are reported in accumulated other comprehensive income/(loss). Over time, the unrealized gains/losses held in accumulated other comprehensive income/(loss) will be recognized in earnings consistent
with when the hedged items are recognized in earnings.



Under the interest rate swap, the Company pays the bank at a fixed rate and receives variable interest at a rate approximating the variable rate of the Companys debt, thereby creating the equivalent of a fixed rate obligation.
The following table summarizes the original financial terms of the Companys interest rate swap:



|Notional Value |  | Variable Rate Received |  | Fixed Rate Paid |  | Effective Date |  | Expiration Date
|-------------- |  | ---------------------- |  | --------------- |  | -------------- |  | ---------------
|$2,950,000     |  | LIBOR                  |  | 4.25%           |  | 1/1/02         |  | 12/1/04        



The
notional value of the interest rate swap declines as the amount of the Term Loan is paid down. At December 31, 2002, the notional value of the swap was $2,350,000. Increases in prevailing interest rates could increase the Companys interest
payment obligations relating to variable rate debt. For example, a 100 basis points increase in interest rates would increase annual interest expense by $51,000, based on debt levels at December 31, 2002.



19



---



Item 8. Financial
Statements and Supplementary Data



The
information required by this item is set forth under Item 15(a), which information is incorporated herein by reference.



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



None.



PART III



Item 10. Directors and Executive Officers of the Registrant



Item 11. Executive Compensation



Item 12. Security Ownership of Certain Beneficial Owners and
Managementand Related Stockholder Matters



Item 13.
Certain Relationships and Related Transactions



The information required by Items 10, 11, 12 and 13 of Part III of Form 10-K have been omitted in reliance on General Instruction G(3) to Form 10-K and are incorporated herein by reference to the Companys definitive
proxy statement with respect to its 2003 annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended.



Item 14. Controls and Procedures



Within 90 days prior to the date of this report, the
Companys disclosure controls and procedures were evaluated, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer. Such controls and
procedures were deemed to be effective to ensure that information required to be disclosed by the Company is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. There were no significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their last evaluation.



20



---



PART IV



Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K



(a) (1) Financial Statements



|Report of Independent Auditors                                                                                                                                                                                                      |  | F-1
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                                                                                                                                                        |  | F-2
|Consolidated Statements of Operations for the years ended December 31, 2002 and 2001,
the six-month period ended December 31, 2000, the unaudited six-month period ended December 31, 1999, and the fiscal year ended June 30, 2000 |  | F-4
|Consolidated Statements of Shareholders Equity for the year ended December 31,
2002 and 2001, the six-month period ended December 31, 2000, and the fiscal year ended June 30, 2000                                                |  | F-5
|Consolidated Statements of Cash Flows for the year ended December 31, 2002 and 2001, the
six-month period ended December 31, 2000, the unaudited six-month period ended December 31, 1999, and the fiscal year ended June 30, 2000  |  | F-6
|Notes to Consolidated Financial Statements                                                                                                                                                                                          |  | F-7



(a) (2) Financial
Statement Schedules



All schedules are omitted since the
required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.



(a) (3) Exhibits



|Exhibit No. |  |                                                                                                                                                                                                                                                        
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Stock Purchase Agreement dated as of December 18, 1998 among Jeannine Mantz, Hadron, Inc., and Vail Research and
Technology Corporation (incorporated by reference to the Companys Current Report on Form 8-K filed January 4, 1999, Exhibit No. 2.2).
|           
|2.2         |  | Stock Purchase Agreement dated as of May 12, 1999 among Hadron, Inc., Avenue Technologies, Inc. and Six
Nations,                                                                                                                                       



21



---

|
|

|     |  | Inc. (incorporated by reference to the Companys Current Report on Form 8-K
filed May 27, 1999, Exhibit No. 2.1).                                                                                                                                                                                          
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|2.3  |  | Agreement and Plan of Merger by and among Analex Corporation, certain Sellers, Analex Corporation Employee Stock
Ownership Plan and Trust, Hadron, Inc. and Hadron Acquisition Corp., as of October 31, 2001 (portions omitted pursuant for an application for confidential treatment).                    
|    
|3.1  |  | Certificate of Incorporation (incorporated by reference to the Companys Form 10-Q for the fiscal quarter ended
June 30, 2002 and filed with the Commission on August 14, 2002).                                                                                                                           
|    
|3.2  |  | Bylaws (incorporated by reference to the Companys Form 10-Q for the fiscal quarter ended June 30, 2002 and filed
with the Commission on August 14, 2002).                                                                                                                                                 
|    
|3.3  |  | Certificate of Amendment of Certificate of Incorporation, dated November 19, 2002 (incorporated by reference to the
Companys form 10-Q for the fiscal quarter ended June 30, 2002 and filed with the Commission on August 14, 2002).                                                                      
|    
|3.4  |  | Certificate of Amendment of Certificate of Incorporation, dated June 25, 2002 (incorporated by reference to the
Companys form 10-Q for the fiscal quarter ended June 30, 2002 and filed with the Commission on August 14, 2002).                                                                          
|    
|10.1 |  | Hadron, Inc. 1997 Employee Stock Purchase Plan (incorporated by reference to the Companys Proxy Statement dated
October 28,1997).                                                                                                                                                                         
|    
|10.2 |  | Amended Stock Purchase Warrant issued to C.W. Gilluly and dated June 2, 1997 (incorporated by reference to the
Companys Annual Report on Form 10-K for the fiscal year ended June 30, 1999 and filed with the Commission on September 28, 1999, Exhibit No. 10.11).                                       
|    
|10.3 |  | Stock Purchase Warrant for the purchase of 430,000 shares of common stock issued to C.W. Gilluly by the Company dated
February 15, 2000 (incorporated by reference to the Companys Form 10-Q for the fiscal quarter ended March 31, 2000 and filed with the Commission on May 15, 2000, Exhibit No. 10.2).
|    
|10.4 |  | First Amendment to the Hadron, Inc. 1997 Employee Stock Purchase Plan dated as of February 7, 2000 (incorporated by
reference to the Companys Form S-8 filed with the Commission on February 7, 2000, Exhibit No. 99.1).                                                                                  



22



---



|     
|-----
|10.5 
|     
|10.6 
|     
|10.7 
|     
|10.8 
|     
|10.9 
|     
|10.10
|     
|10.11
|     
|10.12
|     
|10.13
|     
|10.14
|     
|10.15



23



---

|
|

|     
|-----
|     
|     
|10.16
|     
|10.17
|     
|10.18
|     
|10.19
|     
|10.20
|     
|10.21
|     
|10.22



24



---

|     
|-----
|     
|     
|10.23
|     
|10.24
|     
|10.25
|     
|10.26
|     
|10.27
|     
|10.28
|     
|10.29



25



---



|     
|-----
|     
|     
|10.30
|     
|10.31
|     
|10.32
|     
|10.33
|     
|10.34
|     
|10.35
|     
|21   
|     
|23   
|     
|99.1 



(b) Reports on Form
8-K





26



---



None.



SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|Date: March 24, 2003 |  |                                                                                               |  | ANALEX CORPORATION
|-------------------- |  | --------------------------------------------------------------------------------------------- |  | ------------------
|                    
|By:                  |  | /s/    STERLING E. PHILLIPS,
JR.                                                              |  |                   
|                     |  | Sterling E. Phillips, Jr. Chief Executive Officer and President (Principal Executive Officer) |  |                   



Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.



|Signature                                         |  | Title    |  | Date          
|------------------------------------------------- |  | -------- |  | --------------
|                                                 
|/s/    PETER C. BELFORD,
SR.Peter C. Belford, Sr. |  | Director |  | March 24, 2003





27



---

|                                                         
|---------------------------------------------------------
|/s/    C.W.
GILLULYC.W. Gilluly                          
|                                                         
|/s/    GERALD R.
MCNICHOLSGerald R. McNichols            
|                                                         
|/s/    STERLING E. PHILLIPS,
JR.Sterling E. Phillips, Jr.
|                                                         
|/s/    JOHN D.
SANDERSJohn D. Sanders                    
|                                                         
|/s/    JON M.
STOUTJon
M. Stout                          
|                                                         
|/s/    SHAWNA L.
STOUTShawna L. Stout                    
|                                                         
|/s/    GERALD R.
YOUNGGerald R. Young                    



CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of Analex Corporation
(the Company) on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof, the undersigned, Sterling E. Phillips, Jr., Chief Executive Officer of the Company hereby
certifies, pursuant to § 302 of the Sarbanes-Oxley Act of 2002, that:



| | (1) |  | I have reviewed this annual report on Form 10-K for the period ending December 31, 2002.
| | --- |  | ----------------------------------------------------------------------------------------

| | (2) |  | Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations, and cash flows of the Company as of, and for, the periods presented in this annual report.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) |  | The Companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and have:
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



---

| | a. |  | designed such disclosure controls and procedures to ensure that material information relating to the Company and its consolidated subsidiaries is made known to us by
others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. |  | evaluated the effectiveness of the Companys disclosure controls and procedures as of a date within 90 days prior to the filing date of the Report (the
Evaluation Date); and
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. |  | presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of the Evaluation Date.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) |  | The Companys other certifying officer and I have disclosed, based on our most recent evaluation, to the Companys auditors and the Audit Committee of the
Companys Board of Directors:
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the Companys ability to record, process, summarize,
and report financial data and have identified for the issuers auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal controls; and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) |  | The Companys other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent of the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                
|----------------------------------------------------------------
|/s/    STERLING E. PHILLIPS,
JR.                                
|Sterling E. Phillips, Jr. Chief Executive Officer March 24, 2003



29



---

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of Analex Corporation (the Company) on Form 10-K for the period ending December
31, 2002 as filed with the Securities and Exchange Commission on the date hereof, the undersigned, Ronald B. Alexander, Chief Financial Officer of the Company hereby certifies, pursuant to § 302 of the Sarbanes-Oxley Act of 2002, that:



| | (7) |  | I have reviewed this annual report on Form 10-K for the period ending December 31, 2002.
| | --- |  | ----------------------------------------------------------------------------------------

| | (8) |  | Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (9) |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations, and cash flows of the Company as of, and for, the periods presented in this annual report.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (10) |  | The Companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and have:
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. |  | designed such disclosure controls and procedures to ensure that material information relating to the Company and its consolidated subsidiaries is made known to us by
others within those entities, particularly during the period in which this annual
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30



---

report is being prepared;

| | b. |  | evaluated the effectiveness of the Companys disclosure controls and procedures as of a date within 90 days prior to the filing date of the Report (the
Evaluation Date); and
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. |  | presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of the Evaluation Date.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (11) |  | The Companys other certifying officer and I have disclosed, based on our most recent evaluation, to the Companys auditors and the Audit Committee of the
Companys Board of Directors:
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the Companys ability to record, process, summarize,
and report financial data and have identified for the issuers auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal controls; and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | (12) |  | The Companys other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent of the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                          
|----------------------------------------------------------
|/s/    RONALD B. ALEXANDER                                
|Ronald B. Alexander Chief Financial Officer March 24, 2003



31



---



REPORT OF INDEPENDENT AUDITORS



Board of Directors and Shareholders

Analex Corporation



We have audited the accompanying consolidated balance sheets of Analex
Corporation and subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of operations, shareholders equity, and cash flows for each of the two years in the period ended December 31, 2002, the six-month transition
period ended December 31, 2000 and the year ended June 30, 2000. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Analex Corporation and subsidiaries at December 31, 2002 and 2001, and
the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2002, the six-month transition period ended December 31, 2000 and the year ended June 30, 2000, in conformity with
accounting principles generally accepted in the United States.



As discussed in Note 2 to the consolidated financial statements, the Company changed its accounting for goodwill and intangible assets, which was effective in 2001 for acquisitions subsequent to July 1, 2001, and January 1, 2002 for
all acquisitions prior to July 1, 2001.



/s/ Ernst & Young LLP



McLean, Virginia

February 14, 2003



F-1



---



ANALEX
CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

DECEMBER 31, 2002, DECEMBER 31, 2001



|                                           |  | December 31, 2002 |            | December 31, 2001
|------------------------------------------ |  | ----------------- | ---------- | -----------------
|ASSETS                                     |  |                   |            |                  
|Current assets:                            |  |                   |            |                  
|Cash and cash equivalents                  |  | $                 | 301,800    |                  
|Accounts receivable, net                   |  |                   | 12,556,100 |                  
|Prepaid expenses and other                 |  |                   | 270,500    |                  
|                                           |  |                   |            |                  
|Total current assets                       |  |                   | 13,128,400 |                  
|                                           |  |                   |            |                  
|Fixed assets, net                          |  |                   | 216,700    |                  
|Goodwill                                   |  |                   | 15,534,600 |                  
|Contract rights and other intangibles, net |  |                   | 1,770,200  |                  
|Deferred finance costs                     |  |                   | 75,900     |                  
|Other                                      |  |                   | 58,400     |                  
|                                           |  |                   |            |                  
|Total other assets                         |  |                   | 17,655,800 |                  
|                                           |  |                   |            |                  
|Total assets                               |  | $                 | 30,784,200 |                  
|                                           |  |                   |            |                  



See
Notes to Consolidated Financial Statements



F-2



---



ANALEX
CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

DECEMBER 31, 2002, DECEMBER 31, 2001



|                                                                                                                                                         |  | December 31, 2002 |            |   | December 31, 2001 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | -
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                     |  |                   |            |   |                   |  
|Current liabilities:                                                                                                                                     |  |                   |            |   |                   |  
|Accounts payable                                                                                                                                         |  | $                 | 3,294,700  |   |                   | $
|Note payableline of credit                                                                                                                              |  |                   | 2,187,700  |   |                   |  
|Note payablebank term note                                                                                                                              |  |                   | 700,000    |   |                   |  
|Notes payableother                                                                                                                                      |  |                   | 1,012,100  |   |                   |  
|Other current liabilities                                                                                                                                |  |                   | 5,258,400  |   |                   |  
|                                                                                                                                                         |  |                   |            |   |                   |  
|Total current liabilities                                                                                                                                |  |                   | 12,452,900 |   |                   |  
|                                                                                                                                                         |  |                   |            |   |                   |  
|Note payablebank term note                                                                                                                              |  |                   | 2,041,700  |   |                   |  
|Notes payableother                                                                                                                                      |  |                   | 2,297,200  |   |                   |  
|Other                                                                                                                                                    |  |                   | 90,600     |   |                   |  
|                                                                                                                                                         |  |                   |            |   |                   |  
|Total long-term liabilities                                                                                                                              |  |                   | 4,429,500  |   |                   |  
|                                                                                                                                                         |  |                   |            |   |                   |  
|Total liabilities                                                                                                                                        |  |                   | 16,882,400 |   |                   |  
|                                                                                                                                                         |  |                   |            |   |                   |  
|Commitments and contingencies                                                                                                                            |  |                   |            |   |                   |  
|Shareholdersequity:                                                                                                                                     |  |                   |            |   |                   |  
|                                                                                                                                                        
|
|Common stock $.02 par; authorized 20,000,000 shares; issued and
outstandingDecember 31, 2002 14,427,080 shares and December 31, 2001, 14,375,975 shares |  |                   | 288,500    |   |                   |  
|Additional capital                                                                                                                                       |  |                   | 21,171,400 |   |                   |  
|Deferred compensation                                                                                                                                    |  |                   | (7,700     | ) |                   |  
|Accumulated other comprehensive loss                                                                                                                     |  |                   | (90,600    | ) |                   |  
|Accumulated deficit                                                                                                                                      |  |                   | (7,459,800 | ) |                   |  
|                                                                                                                                                         |  |                   |            |   |                   |  
|Total shareholdersequity                                                                                                                                |  |                   | 13,901,800 |   |                   |  
|                                                                                                                                                         |  |                   |            |   |                   |  
|Total liabilities and shareholders/equity                                                                                                                |  | $                 | 30,784,200 |   |                   | $
|                                                                                                                                                         |  |                   |            |   |                   |  



See
Notes to Consolidated Financial Statements





F-3



---



ANALEX
CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001,

THE SIX MONTH PERIOD ENDED DECEMBER 31, 2000,

THE SIX MONTH UNAUDITED PERIOD ENDED DECEMBER 31,
1999,

AND THE FISCAL YEAR ENDED JUNE30, 2000



|                                               |  | YEAR ENDED DECEMBER 31, 2002 |            |   | YEAR ENDED DECEMBER 31, 2001 |   |            | SIX MONTH PERIOD ENDED DECEMBER 31, 2000 |  |   | SIX MONTHS ENDED DECEMBER 31, 1999 UNAUDITED |   |  | FISCAL YEAR ENDED JUNE 30, 2000 |           
|---------------------------------------------- |  | ---------------------------- | ---------- | - | ---------------------------- | - | ---------- | ---------------------------------------- |  | - | -------------------------------------------- | - |  | ------------------------------- | ----------
|Revenues                                       |  | $                            | 59,317,000 |   |                              | $ | 21,936,000 |                                          |  | $ | 8,943,400                                    |   |  | $                               | 10,267,300
|Operating costs and expenses:                  |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Costs of revenue                               |  |                              | 50,436,700 |   |                              |   | 18,157,800 |                                          |  |   | 7,600,700                                    |   |  |                                 | 8,753,200 
|Selling, general and administrative            |  |                              | 5,048,700  |   |                              |   | 2,967,600  |                                          |  |   | 984,000                                      |   |  |                                 | 1,823,300 
|Amortization of goodwill and other intangibles |  |                              | 307,600    |   |                              |   | 378,400    |                                          |  |   | 169,000                                      |   |  |                                 | 171,900   
|                                               |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Total operating costs and expenses             |  |                              | 55,793,000 |   |                              |   | 21,503,800 |                                          |  |   | 8,753,700                                    |   |  |                                 | 10,748,400
|                                               |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Operating income (loss)                        |  |                              | 3,524,000  |   |                              |   | 432,200    |                                          |  |   | 189,700                                      |   |  |                                 | (481,100  
|                                               |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Other income (expense):                        |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Interest income                                |  |                              |           |   |                              |   | 8,600      |                                          |  |   |                                             |   |  |                                 | 600       
|Interest expense                               |  |                              | (1,018,300 | ) |                              |   | (225,200   | )                                        |  |   | (112,000                                     | ) |  |                                 | (167,100  
|Other income                                   |  |                              |           |   |                              |   |           |                                          |  |   | 7,100                                        |   |  |                                 | 16,600    
|                                               |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Total other expense                            |  |                              | (1,018,300 | ) |                              |   | (216,600   | )                                        |  |   | (104,900                                     | ) |  |                                 | (149,900  
|                                               |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Income (loss) before income taxes              |  |                              | 2,505,700  |   |                              |   | 215,600    |                                          |  |   | 84,800                                       |   |  |                                 | (631,000  
|Provision for income taxes                     |  |                              | 149,100    |   |                              |   | 19,600     |                                          |  |   |                                             |   |  |                                 |          
|                                               |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Net income (loss)                              |  | $                            | 2,356,600  |   |                              | $ | 196,000    |                                          |  | $ | 84,800                                       |   |  | $                               | (631,000  
|                                               |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Net income (loss) per share:                   |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Basic                                          |  | $                            | 0.16       |   |                              | $ | 0.03       |                                          |  | $ | 0.01                                         |   |  | $                               | (0.24     
|                                               |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Diluted                                        |  | $                            | 0.14       |   |                              | $ | 0.02       |                                          |  | $ | 0.01                                         |   |  | $                               | (0.24     
|                                               |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Weighted average number of shares:             |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Basic                                          |  |                              | 14,412,554 |   |                              |   | 7,721,779  |                                          |  |   | 6,153,914                                    |   |  |                                 | 2,599,915 
|                                               |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Diluted                                        |  |                              | 17,081,651 |   |                              |   | 9,588,029  |                                          |  |   | 7,118,895                                    |   |  |                                 | 2,599,915 
|                                               |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           



See
Notes to Consolidated Financial Statements



F-4



---



ANALEX
CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2002, DECEMBER 31, 2001,

THE SIX MONTH PERIOD ENDED DECEMBER 31, 2000 AND THE FISCAL YEAR ENDED JUNE 30, 2000



|                                                                 |  | Common Stock |   |  | Additional Capital |         |   | Deferred Compensation |   |            | Accumulated Other Comprehensive Loss |       |   | Accumulated Deficit |   |  |   |        
|---------------------------------------------------------------- |  | ------------ | - |  | ------------------ | ------- | - | --------------------- | - | ---------- | ------------------------------------ | ----- | - | ------------------- | - |  | - | -------
|                                                                 |  | Shares       |   |  | Amount             |         |   |                       |   |            |                                      | Total |  
|BalanceJune 30, 1999                                            |  | 2,487,518    |   |  | $                  | 49,700  |   |                       | $ | 9,758,300  |                                      |       | $ |                    |   |  | $ |       
|Shares purchased pursuant to the Employee Stock Purchase Plan    |  | 118,722      |   |  |                    | 2,400   |   |                       |   | 48,000     |                                      |       |   |                     |   |  |   |        
|Exercise of warrants                                             |  | 220,000      |   |  |                    | 4,400   |   |                       |   | 50,600     |                                      |       |   |                     |   |  |   |        
|Exercise of options                                              |  | 78,166       |   |  |                    | 1,600   |   |                       |   | 27,000     |                                      |       |   |                     |   |  |   |        
|Shares issued upon conversion of debt                            |  | 676,933      |   |  |                    | 13,500  |   |                       |   | 842,100    |                                      |       |   |                     |   |  |   |        
|Shares issued pursuant to sale of common stock                   |  | 2,250,000    |   |  |                    | 45,000  |   |                       |   | 790,000    |                                      |       |   |                     |   |  |   |        
|Net loss                                                         |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   |                     |   |  |   |        
|                                                                 |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   |                     |   |  |   |        
|BalanceJune 30, 2000                                            |  | 5,831,339    |   |  |                    | 116,600 |   |                       |   | 11,516,000 |                                      |       |   |                    |   |  |   |       
|Shares purchased pursuant to the Employee Stock Purchase Plan    |  | 19,180       |   |  |                    | 400     |   |                       |   | 13,900     |                                      |       |   |                     |   |  |   |        
|Exercise of warrants                                             |  | 462,894      |   |  |                    | 9,300   |   |                       |   | 324,000    |                                      |       |   |                     |   |  |   |        
|Exercise of options                                              |  | 62,500       |   |  |                    | 1,200   |   |                       |   | 25,300     |                                      |       |   |                     |   |  |   |        
|Shares issued pursuant to sale of common stock                   |  | 75,000       |   |  |                    | 1,500   |   |                       |   | 6,100      |                                      |       |   |                     |   |  |   |        
|Net income                                                       |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   |                     |   |  |   |        
|                                                                 |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   |                     |   |  |   |        
|BalanceDecember 31, 2000                                        |  | 6,450,913    |   |  |                    | 129,000 |   |                       |   | 11,885,300 |                                      |       |   |                    |   |  |   |       
|Shares issued pursuant to sale of common stock                   |  | 4,027,727    |   |  |                    | 80,600  |   |                       |   | 3,837,000  |                                      |       |   |                     |   |  |   |        
|Shares and warrants issued pursuant to acquisition of Analex     |  | 3,572,143    |   |  |                    | 71,400  |   |                       |   | 4,687,200  |                                      |       |   |                     |   |  |   |        
|Deferred stock compensation                                      |  |              |   |  |                    |         |   |                       |   | 38,800     |                                      |       |   | (38,800             | ) |  |   |        
|Amortizaton of deferred stock compensation                       |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   | 16,500              |   |  |   |        
|Shares purchased pursuant to the Employee Stock Purchase Plan    |  | 39,964       |   |  |                    | 800     |   |                       |   | 40,400     |                                      |       |   |                     |   |  |   |        
|Exercise of options and warrants                                 |  | 285,228      |   |  |                    | 5,700   |   |                       |   | 237,600    |                                      |       |   |                     |   |  |   |        
|Net income                                                       |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   |                     |   |  |   |        
|                                                                 |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   |                     |   |  |   |        
|BalanceDecember 31, 2001                                        |  | 14,375,975   |   |  |                    | 287,500 |   |                       |   | 20,726,300 |                                      |       |   | (22,300             | ) |  |   |       
|Amortizaton of deferred stock compensation                       |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   | 14,600              |   |  |   |        
|Warrants issued pursuant to bank guarantee                       |  |              |   |  |                    |         |   |                       |   | 345,400    |                                      |       |   |                     |   |  |   |        
|Shares returned and retired in connectionwith Analex acquisition |  | (51,804      | ) |  |                    | (1,000  | ) |                       |   | (58,000    | )                                    |       |   |                     |   |  |   |        
|Shares purchased pursuant to the Employee Stock Purchase Plan    |  | 81,739       |   |  |                    | 1,600   |   |                       |   | 139,100    |                                      |       |   |                     |   |  |   |        
|Exercise of options and warrants                                 |  | 21,170       |   |  |                    | 400     |   |                       |   | 18,600     |                                      |       |   |                     |   |  |   |        
|Unrealized loss on derivative contract                           |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   |                     |   |  |   | (90,600
|Net income                                                       |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   |                     |   |  |   |        
|Total comprehensive income                                       |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   |                     |   |  |   |        
|                                                                 |  | 14,427,080   |   |  | $                  | 288,500 |   |                       | $ | 21,171,400 |                                      |       | $ | (7,700              | ) |  | $ | (90,600
|                                                                 |  |              |   |  |                    |         |   |                       |   |            |                                      |       |   |                     |   |  |   |        



See
Notes to Consolidated Financial Statements



F-5



---



ANALEX
CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001,

THE SIX MONTH PERIOD ENDED DECEMBER 31, 2000,

THE SIX MONTH UNAUDITED PERIOD ENDED DECEMBER 31,
1999,

AND THE FISCAL YEAR ENDED JUNE 30, 2000



|                                                                                                |  | YEAR ENDED DECEMBER 31, 2002 |            |   | YEAR ENDED DECEMBER 31, 2001 |   |            | SIX MONTH PERIOD ENDED DECEMBER 31, 2000 |  |   | SIX MONTHS ENDED DECEMBER 31, 1999 UNAUDITED |   |  | FISCAL YEAR ENDED JUNE 30, 2000 |           
|----------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---------------------------- | - | ---------- | ---------------------------------------- |  | - | -------------------------------------------- | - |  | ------------------------------- | ----------
|Cash flows from operating activities:                                                           |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Net income (loss)                                                                               |  | $                            | 2,356,600  |   |                              | $ | 196,000    |                                          |  | $ | 84,800                                       |   |  | $                               | (631,000  
|                                                                                                |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Adjustments to reconcile net income (loss) to net cash provided (used) by operating
activities: |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Depreciation                                                                                    |  |                              | 111,400    |   |                              |   | 146,200    |                                          |  |   | 67,500                                       |   |  |                                 | 36,700    
|Amortization of goodwill and other intangibles                                                  |  |                              | 307,600    |   |                              |   | 378,000    |                                          |  |   | 162,000                                      |   |  |                                 | 172,000   
|Non-cash interest expense                                                                       |  |                              | 345,400    |   |                              |   | 37,500     |                                          |  |   |                                             |   |  |                                 |          
|Stock compensation expense                                                                      |  |                              | 14,600     |   |                              |   | 16,500     |                                          |  |   |                                             |   |  |                                 |          
|Changes in operating assets and liabilities:                                                    |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Accounts receivable                                                                             |  |                              | (4,278,500 | ) |                              |   | (940,700   | )                                        |  |   | 217,200                                      |   |  |                                 | 141,400   
|Prepaid expenses and other                                                                      |  |                              | (47,200    | ) |                              |   | (39,100    | )                                        |  |   | (35,000                                      | ) |  |                                 | 89,800    
|Other assets                                                                                    |  |                              | 57,600     |   |                              |   | (11,300    | )                                        |  |   | 5,200                                        |   |  |                                 | 86,200    
|Accounts payable                                                                                |  |                              | 1,923,300  |   |                              |   | 108,600    |                                          |  |   | (250,200                                     | ) |  |                                 | (123,200  
|Other current liabilities                                                                       |  |                              | 478,100    |   |                              |   | (327,100   | )                                        |  |   | (289,300                                     | ) |  |                                 | (135,700  
|Other long-term liabilities                                                                     |  |                              | 30,600     |   |                              |   |           |                                          |  |   | (40,000                                      | ) |  |                                 | (20,800   
|                                                                                                |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Total adjustments                                                                               |  |                              | (1,057,100 | ) |                              |   | (631,400   | )                                        |  |   | (162,600                                     | ) |  |                                 | 246,400   
|                                                                                                |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Net cash provided (used) by operating activities                                                |  |                              | 1,299,500  |   |                              |   | (435,400   | )                                        |  |   | (77,800                                      | ) |  |                                 | (384,600  
|                                                                                                |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Cash flows from investing activities:                                                           |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Purchase of Analex, net of cash acquired                                                        |  |                              |           |   |                              |   | (6,167,900 | )                                        |  |   |                                             |   |  |                                 |          
|Property additions                                                                              |  |                              | (67,100    | ) |                              |   | (86,000    | )                                        |  |   | (132,800                                     | ) |  |                                 | (2,400    
|Intangible additions                                                                            |  |                              | (172,900   | ) |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|                                                                                                |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Net cash used in investing activities                                                           |  |                              | (240,000   | ) |                              |   | (6,253,900 | )                                        |  |   | (132,800                                     | ) |  |                                 | (2,400    
|                                                                                                |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Cash flows from financing activities:                                                           |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Proceeds from borrowings on banks and other loans                                               |  |                              | 491,200    |   |                              |   | 5,500,000  |                                          |  |   | 1,326,400                                    |   |  |                                 | 1,496,600 
|Proceeds from stock options and warrants exercised                                              |  |                              | 19,000     |   |                              |   | 243,300    |                                          |  |   | 359,800                                      |   |  |                                 | 58,800    
|Proceeds from sale of common stock                                                              |  |                              |           |   |                              |   | 3,917,600  |                                          |  |   | 7,600                                        |   |  |                                 |          
|Proceeds from employee stock purchases                                                          |  |                              | 140,700    |   |                              |   | 41,200     |                                          |  |   | 14,300                                       |   |  |                                 | 36,700    
|Payments on bank and other loans                                                                |  |                              | (1,491,700 | ) |                              |   | (3,164,600 | )                                        |  |   | (1,380,600                                   | ) |  |                                 | (1,267,900
|                                                                                                |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Net cash provided (used) by financing activities                                                |  |                              | (840,800   | ) |                              |   | 6,537,500  |                                          |  |   | 327,500                                      |   |  |                                 | 324,200   
|                                                                                                |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Net increase (decrease) in cash and cash equivalents                                            |  |                              | 218,700    |   |                              |   | (151,800   | )                                        |  |   | 116,900                                      |   |  |                                 | (62,800   
|Cash and cash equivalents at beginning of period                                                |  |                              | 83,100     |   |                              |   | 234,900    |                                          |  |   | 118,000                                      |   |  |                                 | 256,000   
|                                                                                                |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           
|Cash and cash equivalents at end of period                                                      |  | $                            | 301,800    |   |                              | $ | 83,100     |                                          |  | $ | 234,900                                      |   |  | $                               | 193,200   
|                                                                                                |  |                              |            |   |                              |   |            |                                          |  |   |                                              |   |  |                                 |           



See
Notes to Consolidated Financial Statements



F-6



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





|1. |  | The Company:
|-- |  | ------------



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. Analex has three strategic business units. 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. Advanced Biosystems, Inc. a wholly owned subsidiary, focuses on development of medical defenses against,
and treatments for, biological warfare agents that threaten military and civilian populations.



Revenues from services performed under direct and indirect long-term contracts and subcontracts with government defense
and intelligence agencies comprise the majority of the Companys business. 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.



|2. |  | Summary of significant accounting policies:
|-- |  | -------------------------------------------



| | A. |  | Principles of consolidation:
| | -- |  | ----------------------------



The consolidated financial statements include the accounts of Analex Corporation and its two active wholly owned
subsidiaries, Advanced Biosystems, Inc. (ABS), and SyCom Services, Inc. (SyCom). All significant intercompany transactions have been eliminated.



| | B. |  | Risks and uncertainties:
| | -- |  | ------------------------



Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents, and accounts receivable. The Company maintains its cash and cash equivalents principally in oneUnited States (U.S.) commercial bank. Cash in excess of daily



F-7



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





requirements is invested by the bank in one-day repurchase agreements of securities of U.S. government agencies. To date, the Company has not incurred losses related to cash and cash equivalents.



The Companys accounts receivable
consists principally of accounts receivable from prime contractors to agencies and departments of, as well as directly from, the U.S. government. The Company extends credit in the normal course of operations and does not require collateral from its
customers.



The Company has
historically been, and continues to be, heavily dependent upon direct and indirect contracts from various U.S. government agencies. Contracts and subcontracts with the U.S. government are subject to audit by audit agencies of the government. Such
audits determine, among other things, whether an adjustment of invoices rendered to the government is appropriate under the underlying terms of the contracts. All U.S. government contracts contain clauses that allow for the termination of contracts
at the convenience of the government.



The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and
contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.



| | C. |  | Cash equivalents:
| | -- |  | -----------------



Cash equivalents represent amounts invested in highly liquid short-term investments with original maturities of three
months or less.



| | D. |  | Fixed assets:
| | -- |  | -------------



Furniture and equipment and leasehold improvements are stated at cost or fair value if acquired in a business combination.
The Company uses the straight-line method of depreciation and amortization over the estimated useful lives of the furniture and equipment (principally three to ten years) and over the lease term for leasehold improvements, if shorter.



Maintenance and repairs are charged to
expense as incurred, and the cost of additions and betterments are capitalized. When assets are retired or sold, the cost and related accumulated depreciation are removed from the accounts and the gain or loss is included in operations.



Purchased software is
capitalized at cost. Such costs are amortized using the straight-line method for a period of up to



F-8



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





five
years.



| | E. |  | Goodwill and Other Intangible Assets:
| | -- |  | -------------------------------------



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 is subject to annual impairment
tests in accordance with Statement 142. Other intangible assets will continue to be amortized over their useful lives.



Goodwill related to the acquisition of Analex in November 2001, is subject to SFAS 142, and accordingly has not been
amortized. Other goodwill related to a 1999 acquisition ceased amortization from January 1, 2002. Other intangible assets identified in connection with acquisitions, including non-compete arrangements and contractual relationships, are amortized on
a straight-line basis over their estimated lives ranging from three to ten years.



|                                           |  | 2002 |           | 2001 |   | 6 mos 12/00 |  | 6 mos 12/99 |         |  | 2000 |         
|------------------------------------------ |  | ---- | --------- | ---- | - | ----------- |  | ----------- | ------- |  | ---- | --------
|Net income as reported                     |  | $    | 2,356,600 |      | $ | 196,000     |  | $           | 84,800  |  | $    | (631,000
|Add back goodwill amortization, net of tax |  | $    |          |      | $ | 337,000     |  | $           | 169,000 |  | $    | 171,900 
|Adjusted net income                        |  | $    | 2,356,600 |      | $ | 533,000     |  | $           | 253,800 |  | $    | (459,100
|Basic earnings per share:                  |  |      |           |      |   |             |  |             |         |  |      |         
|As reported                                |  | $    | .16       |      | $ | .03         |  | $           | .01     |  | $    | (.24    
|Goodwill amortization, net of tax          |  | $    |          |      | $ | .04         |  | $           | .03     |  | $    | .06     
|Adjusted basic earnings per share          |  | $    | .16       |      | $ | .07         |  | $           | .04     |  | $    | (.18    
|Diluted earnings per share:                |  |      |           |      |   |             |  |             |         |  |      |         
|As reported                                |  | $    | .14       |      | $ | .02         |  | $           | .01     |  | $    | (.24    
|Goodwill amortization, net of tax          |  | $    |          |      | $ | .04         |  | $           | .02     |  | $    | .06     
|Adjusted basic earnings per share          |  | $    | .14       |      | $ | .06         |  | $           | .03     |  | $    | (.18    



| | F. |  | Accounting for contracts:
| | -- |  | -------------------------



The Companys contracts with customers are typically cost plus fee, time and materials, or fixed-price contracts.
Revenues result from work performed on these contracts by the Companys employees and from pass-through of costs for material and work performed by subcontractors. Revenues on cost-type contracts are recorded as contract allowable costs are
incurred and fees earned. Revenues for time and materials contracts are



F-9



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---



recorded on the basis of contract allowable labor hours worked times the contract
defined billing rates, plus the cost of materials used in performance on the contract. Profits on time and material contracts result from the difference between the cost of services performed and the contract defined billing rates for these
services. Revenues on certain fixed-price service contracts are recorded each period based on a monthly amount for services provided. Revenues on other fixed-price contracts are recorded as costs are incurred, using the percentage-of-completion
method of accounting. Profits on fixed-price contracts result from the difference between the incurred costs and the revenue earned. In the normal course of business, the Company may be party to claims and disputes resulting from modifications and
change orders and other contract matters. Claims for additional contract compensation are recognized when realization is probable and estimable.



In accordance with industry practice, accounts receivable relating to long-term contracts are classified as current assets
although an indeterminable portion of these amounts is not expected to be realized within one year.



| | G. |  | Stock-based compensation:
| | -- |  | -------------------------



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and
Disclosurean amendment of SFAS No. 123. This statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported results. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 and related
interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the fair market value of the companys stock at the date of the grant over the exercise price of the related option. The company has
adopted the annual disclosure provisions of SFAS No. 148 in its financial reports for the year ended December 31, 2002 and will adopt the interim disclosure provisions for its financial reports for the quarter ending March 31, 2003.



F-10



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





|                                                                                                                                                      |  | 2002 |           | 2001 |   |          | 6 mos 12/00 |  | 6 mos 12/99 |        |  | 2000 |         
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | -------- | ----------- |  | ----------- | ------ |  | ---- | --------
|Net income as reported                                                                                                                                |  | $    | 2,356,600 |      | $ | 196,000  |             |  | $           | 84,800 |  | $    | (631,000
|Add: Total stock-based employee compensation expense as reported under intrinsic value
method (APB No. 25) for all awards, net of related tax effects |  | $    | 14,600    |      | $ | 16,500   |             |  | $           |       |  | $    |        
|Deduct: Total stock-based compensation expense determined under fair value based method
(SFAS No. 123) for all awards, net of related tax effects     |  | $    | 947,600   |      | $ | 516,000  |             |  | $           | 33,900 |  | $    | 40,900  
|Pro forma net income                                                                                                                                  |  | $    | 1,423,600 |      | $ | (320,600 | )           |  | $           | 50,900 |  | $    | (671,900
|Earnings per share:                                                                                                                                   |  |      |           |      |   |          |             |  |             |        |  |      |         
|Basic as reported                                                                                                                                     |  | $    | .16       |      | $ | .03      |             |  | $           | .01    |  | $    | (.24    
|Diluted as reported                                                                                                                                   |  | $    | .14       |      | $ | .02      |             |  | $           | .01    |  | $    | (.24    
|Basic pro forma                                                                                                                                       |  | $    | .10       |      | $ | (.03     | )           |  | $           | .01    |  | $    | (.26    
|Diluted pro forma                                                                                                                                     |  | $    | .08       |      | $ | (.03     | )           |  | $           | .01    |  | $    | (.26    



| | H. |  | Long-Lived Assets
| | -- |  | -----------------



In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement Obligations(SFAS No. 143). SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The company does not anticipate that adoption of SFAS No. 143 will have a material impact, either positive or negative, on
future results of operations or financial condition.



In September 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144).
SFAS No. 144 addresses financial accounting and reporting for the impairment and disposal of long-lived assets, including intangible assets with finite lives. The effective date for the Companys implementation of SFAS No. 144 was January 1,
2002.



| | I. |  | Reclassifications:
| | -- |  | ------------------



Certain prior period amounts have been reclassified to conform to the 2002 presentation.



| | I. |  | Derivatives
| | -- |  | -----------



The Company utilizes an interest rate swap to manage interest rate exposure. The interest rate swap has been designated as
a cash flow hedge, wherein the effective portion of the change in value of the derivative instrument, based on



F-11



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---



market pricing, is reported as a component of other comprehensive income (loss) and is
reclassified into earnings as interest expense in the period when the hedged transaction affects earnings. The ineffective portion of the change in value of the derivative instrument, if any, is recognized in current earnings during the period of
change. The interest rate swap is carried at fair value in other liabilities.



| | 3. |  | Accounts receivable:
| | -- |  | --------------------



The components of accounts receivable are as follows:



|                                           |  | December 31, |           
|------------------------------------------ |  | ------------ | ----------
|                                           |  | 2002         |           
|Trade accounts receivable:                 |  |              |           
|U.S. Government:                           |  |              |           
|Amounts billed                             |  | $            | 10,312,900
|Recoverable costs and profits  not billed |  |              | 2,609,200 
|                                           |  |              |           
|Total                                      |  |              | 12,922,100
|                                           |  |              |           
|Commercial, state and local governments:   |  |              |           
|Amounts billed                             |  |              | 334,800   
|Recoverable costs and profits  not billed |  |              | 151,400   
|                                           |  |              |           
|Total                                      |  |              | 486,200   
|                                           |  |              |           
|Total accounts receivable                  |  |              | 13,408,300
|Less: Allowance for doubtful accounts      |  |              | (852,200  
|                                           |  |              |           
|Total accounts receivable, net             |  | $            | 12,556,100
|                                           |  |              |           



The following table summarizes activity in the allowance for doubtful accounts:



|                  |  | Calendar year 2002 |         |   | Calendar year 2001 |   | 6 months 12/31/00 |  | Unaudited 6 months 12/31/99 |         |  | Fiscal year 2000 |         
|----------------- |  | ------------------ | ------- | - | ------------------ | - | ----------------- |  | --------------------------- | ------- |  | ---------------- | --------
|Beginning balance |  | $                  | 926,400 |   |                    | $ | 151,200           |  | $                           | 151,200 |  | $                | 253,700 
|Additions         |  |                    |        |   |                    |   | 775,200           |  |                             |        |  |                  |        
|Write-offs        |  |                    | (74,200 | ) |                    |   |                  |  |                             |        |  |                  | (104,300
|                  |  |                    |         |   |                    |   |                   |  |                             |         |  |                  |         
|Ending Balance    |  | $                  | 852,200 |   |                    | $ | 926,400           |  | $                           | 151,200 |  | $                | 149,400 
|                  |  |                    |         |   |                    |   |                   |  |                             |         |  |                  |         



F-12



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





Unbilled accounts receivable can be invoiced upon completion of contractual billing cycles, attaining certain milestones under fixed-price contracts, attaining a stipulated level of effort on cost-type contracts for government
agencies, upon completion of federal government overhead audits and upon final approval of design plans for engineering services.



|4. |  | Fixed assets:
|-- |  | -------------



The components of fixed assets are as follows:



|                                                |  | December 31, |         
|----------------------------------------------- |  | ------------ | --------
|                                                |  | 2002         |         
|Computer hardware and software                  |  | $            | 515,700 
|Leasehold improvements                          |  |              | 36,400  
|Laboratory equipment                            |  |              | 141,400 
|Office equipment                                |  |              | 125,000 
|                                                |  |              |         
|Total fixed assets                              |  |              | 818,500 
|Less: Accumulated depreciation and amortization |  |              | (601,800
|                                                |  |              |         
|Total fixed assets, net                         |  | $            | 216,700 
|                                                |  |              |         



|5. |  | Debt:
|-- |  | -----



The components of debt are as follows:



|                          |  | December 31,
|------------------------- |  | ------------
|                          |  | 2002        
|Current:                  |  |             
|Line of Credit            |  | $           
|Bank Term Note            |  |             
|Convertible Notes         |  |             
|Notes Payable Shareholder |  |             
|Note Payable Other        |  |             
|Non-compete Agreements    |  |             
|Note to DOJ               |  |             
|Other                     |  |             
|                          |  |             
|Subtotal current debt     |  |             
|Long-term:                |  |             
|Bank Term Note            |  |             
|Notes Payable Shareholder |  |             
|Note Payable Other        |  |             
|Non  compete Agreements  |  |             
|Note to DOJ               |  |             
|Other                     |  |             
|                          |  |             
|Subtotal long-term debt   |  |             
|                          |  |             
|Total debt                |  | $           
|                          |  |             



F-13



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





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. The interest rate at December 31, 2002 was 3.92% for the Credit Facility and 4.38% 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. The Company is in compliance with all financial covenants. The Credit Facility and Term Loan are secured
by the accounts receivable and other assets of the Company.



To fund additional working capital requirements generated by the award of the ELVIS contract, the Company negotiated an increase of the Credit Facility. The Company now has an $8,000,000 Credit
Facility.



The Companys
$3.5 million term loan facility from Bank of America carries interest comprised of two components: floating-rate LIBOR plus a credit performance 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 at4.25% 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 fair value of the swap of $(90,600) is included in other liabilities.



In addition, 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 J. Richard Knop. The compensation during the period of guaranty is in the form of cash and warrants. On December 20, 2002, Mr. McNichols and Mr. Knop
were released from the guarantees.





F-14



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





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.



On May 29, 2002, Analex announced that it had
been awarded a $164 million Expendable Launch Vehicle Integrated Support (ELVIS) prime contract by NASA. In conjunction with this award the Company issued promissory notes to certain Analex sellers totaling $1,000,000 with a three-year
term, bearing interest at prime plus 1%. At December 31, 2002, the outstanding balance on these notes was $916,700.



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.



In May 1999, the Company issued three-year $998,000 convertible notes, interest payable at 6%, to the former shareholders
of ATI in connection with the Companys acquisition of ATI. The notes were convertible into 444,000 restricted shares of the Companys Common Stock at $2.25 per share. These notes were subordinated to the Companys obligations under
the Term Note and the Credit Facility. In May 2000, the Board of Directors adopted resolutions providing for the conversion of the convertible notes on the basis of one share of Common Stock for $1.25 per share if tendered to Hadron for conversion
before the close of business on June 30, 2000. At June 30, 2000, $846,000 of the convertible notes were converted into 677,000 restricted shares of the Companys Common Stock at the $1.25 per share. As of December 31, 2001, two convertible
notes totaling $102,000 remained. As of December 31, 2002, these notes have been paid in full.



In connection with the December 1998 purchase of Vail Research and Technology Corporation (Vail), the Company
issued two non-interest bearing promissory notes of $300,000 and $100,000, respectively. The $300,000 non-interest bearing note was payable each month in the amount of $25,000 for twelve months. The $100,000 non-interest bearing promissory note was
due and payable on the two-year anniversary of the closing date, less permitted deductions taken for contingent liabilities and uncollected accounts receivable. The Company took permitted deductions in the amount of $70,000 and repaid the balance of
the note payable in 2002.



F-15



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





The Companys future debt maturities at December 31, 2002 are summarized below:



|Year                        |  | Debt Maturities |           
|--------------------------- |  | --------------- | ----------
|2003                        |  |                 | 3,899,800 
|2004                        |  |                 | 1,730,800 
|2005                        |  |                 | 1,655,400 
|2006                        |  |                 | 939,000   
|2007                        |  |                 | 13,700    
|                            |  |                 |           
|Total minimum debt payments |  |                 | 8,238,700 
|Less: current maturities    |  |                 | (3,899,800
|                            |  |                 |           
|Total long-term debt        |  | $               | 4,338,900 
|                            |  |                 |           



|6. |  | 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.



To finance the
acquisition of Analex, the Company issued 3,961,060 shares of common stock for aggregate consideration of approximately $3,868,000 through a private placement consisting of (i) Hadron Common Stock at a price of $1.14 per share to purchasers who
purchased less than $500,000 worth thereof or (ii) units consisting of Hadron Common Stock and warrants to purchase 0.2061 shares of Hadron Common Stock at an exercise price of $0.02 per share for each share purchased at a price of $1.14 per unit
for purchasers who purchased $500,000 or more of Hadrons equity. Two of such purchasers are directors or affiliates of a director. The warrants were exercised concurrent with the stock purchase.



On November 2, 2001, to assist in financing
the Analex acquisition, Dr. C.W. Gilluly, one of the Companys directors, and J. Richard Knop, exercised warrants and/or stock options to purchase an aggregate of 247,888 shares of common stock, resulting in proceeds of approximately $200,000.



On January 16, 2001, Sterling
E. Phillips, Jr. was appointed to the positions of President and Chief Executive Officer of the



F-16



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---



Company. Mr. Phillips was also elected to serve as a member of the Companys
Board of Directors. In connection with his appointment, Mr. Phillips purchased 66,667 shares of Common Stock for $0.75 per share. As a result of this transaction, the Company recorded deferred compensation of $10,800, $5,400 of which was amortized
during 2001, the remainder was amortized in 2002. In addition, Mr. Phillips was awarded a five-year, non-qualified stock option to purchase 875,725 shares of the Companys common stock at the exercise price equal to 100% of the fair market
value of the common stock on the grant date, exercisable in one-third increments over a two-year period.



|7. |  | Other current liabilities:
|-- |  | --------------------------



Other current liabilities include the following major classifications:



|                                |  | December 31,
|------------------------------- |  | ------------
|                                |  | 2002        
|Payroll and related taxes       |  | $           
|Accrued vacation                |  |             
|Self-insured medical expense    |  |             
|Due to subcontractors           |  |             
|Deferred income                 |  |             
|Other                           |  |             
|                                |  |             
|Total other current liabilities |  | $           
|                                |  |             



|8. |  | 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, for approximately $12,898,000. The purchase price was satisfied with cash payments of $6,510,000, 3,520,339 shares of Common Stock valued at $4,664,000, the issuance of promissory notes of
$773,000, non-compete arrangements of $892,000, and the satisfaction of other certain liabilities of Analex. The acquisition of Analex should increase the Companys presence in the intelligence community and provide an additional earnings base
from which the Company can grow.



The fair value of the assets acquired and liabilities assumed approximated their book value of $5,039,000 and $5,730,000, respectively. The Company incurred financial, legal and accounting costs associated with the Analex purchase of
approximately $570,000.During 2002, certain contingencies were finalized including the settlement of the Analex closing balance sheet requirements and the award of the ELVIS contract.



Following is a condensed balance sheet
reflecting the final



F-17



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---



purchase price allocation:



|Cash                                         |  | $ | 343,100   
|-------------------------------------------- |  | - | ----------
|Accounts receivable and other current assets |  |   | 4,605,800 
|Goodwill and other intangibles               |  |   | 14,061,700
|Other long term assets                       |  |   | 90,300    
|Current liabilities                          |  |   | 4,357,500 
|Long term debt and other liabilities         |  |   | 1,372,500 



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 weighted-average amortization life of contract rights and other intangibles is 5.2 years. Amortization expense for
contract rights and other intangibles for the fiscal years ended 2002 and 2001 was $307,600 and $41,700. Amortization expense for goodwill for the year ended December 31, 2001, the six month periods ended December 31, 2000 and December 31, 1999, and
the fiscal year ended June 30, 2000 was $336,700, $162,000, $172,000, and $344,000.



The following table sets forth adjusted pro forma results of operations of the Company for 2001, the six month period
ended December 31, 2000 and the fiscal year 2000, as if Analex had been acquired at the beginning of the respective periods.



|                             |  | 2001 |            | Six months 12/31/00 |   | Fiscal Year 2000 | 
|---------------------------- |  | ---- | ---------- | ------------------- | - | ---------------- | 
|Net revenues                 |  | $    | 49,126,600 |                     | $ | 24,772,400       | 
|Net income (loss)            |  | $    | 910,200    |                     | $ | 1,242,100        | 
|Net income (loss) per share: |  |      |            |                     |   |                  | 
|Basic EPS                    |  | $    | .06        |                     | $ | .09              | 
|Diluted EPS                  |  | $    | .05        |                     | $ | .08              | 



On May 12, 1999, the Company acquired all the outstanding capital stock of ATI, a privately held information technology firm based in Alexandria, Virginia, for $2,503,000. Resulting from the acquisition of ATI, the Company recorded
goodwill of approximately $2,287,000, which, until the implementation of SFAS 142, was being amortized, on a straight-line basis, over a 7-year period.



|9. |  | Net income (loss) per share:
|-- |  | ----------------------------



F-18



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





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



|                                           |  | 2002 |            | 2001 |   | 6 mos 12/31/00 |  | Unaudited 6 mos 12/31/99 |           |  | Fiscal 2000 |          
|------------------------------------------ |  | ---- | ---------- | ---- | - | -------------- |  | ------------------------ | --------- |  | ----------- | ---------
|Numerator:                                 |  |      |            |      |   |                |  |                          |           |  |             |          
|Net income (loss)                          |  | $    | 2,356,900  |      | $ | 196,000        |  | $                        | 84,800    |  | $           | (631,000 
|                                           |  |      |            |      |   |                |  |                          |           |  |             |          
|Denominator:                               |  |      |            |      |   |                |  |                          |           |  |             |          
|Denominator for basic earnings per share:  |  |      |            |      |   |                |  |                          |           |  |             |          
|Weighted average shares outstanding        |  |      | 14,412,554 |      |   | 7,721,779      |  |                          | 6,153,914 |  |             | 2,599,915
|Effect of dilutive securities:             |  |      |            |      |   |                |  |                          |           |  |             |          
|Warrants                                   |  |      | 1,860,811  |      |   | 1,413,289      |  |                          | 892,288   |  |             |         
|Employee stock options                     |  |      | 808,286    |      |   | 452,961        |  |                          | 72,693    |  |             |         
|                                           |  |      |            |      |   |                |  |                          |           |  |             |          
|Denominator for diluted earnings per share |  |      | 17,081,651 |      |   | 9,588,029      |  |                          | 7,118,895 |  |             | 2,599,915
|                                           |  |      |            |      |   |                |  |                          |           |  |             |          
|Basic earnings per share                   |  | $    | .16        |      | $ | .03            |  | $                        | .01       |  | $           | (.24     
|                                           |  |      |            |      |   |                |  |                          |           |  |             |          
|Diluted earnings per share                 |  | $    | .14        |      | $ | .02            |  | $                        | .01       |  | $           | (.24     
|                                           |  |      |            |      |   |                |  |                          |           |  |             |          



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.



|10. |  | Income taxes:
|--- |  | -------------



The provision for income taxes for 2002, 2001, the six month periods ended December 31, 2000 and 1999, and the fiscal year
2000 has been 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.



The tax provision differs from the amounts
computed using the statutory federal income tax rate as follows:



|                                                 |  | 2002 |   |  | 2001 |   |  | 6 mos 12/00 |   |  | 6 mos 12/99 |    |  | FY 2000 |   
|------------------------------------------------ |  | ---- | - |  | ---- | - |  | ----------- | - |  | ----------- | -- |  | ------- | --
|Tax expense at statutory rate-federal            |  | 35   | % |  | 35   | % |  | 35          | % |  | (35         | )% |  | (35     | )%
|State tax expense net of federal taxes           |  | 4    |   |  | 13   |   |  | 3           |   |  | 1           |    |  | 1       |   
|Permanent differences                            |  | 3    |   |  | 63   |   |  | 158         |   |  | 17          |    |  | 17      |   
|Utilization of net operating loss carry forwards |  | (36  | ) |  | (102 | ) |  | (196        | ) |  | 17          |    |  | 20      |   
|                                                 |  |      |   |  |      |   |  |             |   |  |             |    |  |         |   
|Tax expense at actual rate                       |  | 6    | % |  | 9    | % |  | 0           | % |  | 0           | %  |  | 3       | % 
|                                                 |  |      |   |  |      |   |  |             |   |  |             |    |  |         |   



F-19



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets at December 31, 2002 and 2001
consist primarily of the following:



|                                |  | December 2002 |          |   | December 2001 |  
|------------------------------- |  | ------------- | -------- | - | ------------- | -
|Net operating loss carryforward |  | $             | 826,100  |   |               | $
|Reserve for bad debts           |  |               | 328,700  |   |               |  
|Accrued vacation                |  |               | 378,900  |   |               |  
|Fixed assets                    |  |               | 21,200   |   |               |  
|Unbilled receivables            |  |               | (789,800 | ) |               |  
|Other                           |  |               | 5,600    |   |               |  
|Valuation allowance             |  |               | (770,700 | ) |               |  
|                                |  |               |          |   |               |  
|Net deferred tax asset          |  | $             |         |   |               | $
|                                |  |               |          |   |               |  



At December 31, 2002, the Company had net operating loss carryforwards for federal income tax purposes of approximately $2,141,400, which expire at various dates beginning June 30, 2008. The Companys utilization of these
carryforwards may be subject to limitation under Section 382 of the Internal Revenue Code.



In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
or all of the deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which the net operating loss carryforwards are available.
Management considers projected future taxable income, the scheduled reversal of deferred tax liabilities and available tax planning strategies that can be implemented by the Company in making this assessment. Based upon the level of historical
taxable income and projection for future taxable income over the periods in which the net operating loss carryforwards are available to reduce income taxes payable, management has established a full valuation allowance.



|11. |  | Commitments and contingencies:
|--- |  | ------------------------------



Operating leases:



The Company leases real property and personal property under various long-term operating leases and sublease agreements
expiring at various dates through 2006. Certain of the leases contain renewal options and require payment of property taxes, insurance and maintenance costs. The Companys future minimum operating lease commitments inclusive of property taxes,
insurance



F-20



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---



and maintenance costs at December 31, 2002 are summarized below:



|Year                            |  | Lease Commitments
|------------------------------- |  | -----------------
|2003                            |  |                  
|2004                            |  |                  
|2005                            |  |                  
|2006                            |  |                  
|                                |  |                  
|Total minimum payments required |  | $                
|                                |  |                  



Rent expense, net of sublease income, included in the consolidated statements of operations is as follows:



|Period                   |  | Rent Expense
|------------------------ |  | ------------
|2002                     |  | $           
|2001                     |  |             
|6 Months 2000            |  |             
|6 Months 1999(unaudited) |  |             
|Fiscal Year 2000         |  |             



U.S.
government contract audits:



The
Companys revenues and costs related to contracts with agencies and departments of the U.S. government are subject to audit by the Defense Contract Audit Agency, which has completed the majority of its audits for the Companys fiscal years
through fiscal year 2000. It is the opinion of management that the results of such audits will not have a material effect on the financial condition or results of operations of the Company.



|12. |  | Benefit plans:
|--- |  | --------------



Employee savings plan:



The Company sponsors a defined contribution savings plan under section 401(k) of the Internal
Revenue Code. The Companys contributions to the 401(k) plan are based upon a percentage of employee contributions. The Companys discretionary contributions to the Plan were $1,067,200, $432,000, $79,000, $69,000,and $150,000 for
2002, 2001, the six month periods ended December 31, 2000 and 1999 (unaudited), and the fiscal year 2000 respectively.



Employee stock purchase plan:



In December 1997, shareholders approved the Hadron, Inc. 1997 Employee Stock Purchase Plan
(the Plan). In fiscal year 2000 and



F-21



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---



the six-month period ended December 31, 2000, amendments to the Plan were adopted to
increase the number of shares reserved for issuance thereunder from 250,000 to 500,000. The purpose of the Plan is to secure for the Company and its shareholders the benefits of the incentive inherent in the ownership of Common Stock by present and
future employees of the Company. The Plan is intended to comply with the terms of Section 423 of the Internal Revenue Code of 1986, as amended, and Rule 16b-3 of the Securities Exchange Act of 1934. The Plan is non-compensatory as defined by APB 25.
Under the terms of the Plan, individual employees may pay up to $10,000 for the purchase of the Companys common shares, at 85% of the determined market price. During 2002, 2001, the six month periods ended December 31, 2000 and 1999
(unaudited), and the fiscal year 2000, employees paid approximately $141,000, $41,000, $14,000, $37,000, and $50,000, respectively, for the purchase of common stock under the Plan.



Employee deferred compensation plan:



In December 1998, shareholders approved the
Hadron, Inc. Deferred Compensation Plan (the Plan). The Plan is intended to provide employees an option to defer a portion of their salary in order to provide for supplemental retirement benefits. As a requirement of this non-qualified
plan, participant deferrals remain as unsecured liabilities of the Company. Under the terms of the Plan, eligible employees can elect to irrevocably defer salary of up to $50,000 for the calendar year. If an employee elects to defer at least one and
one-half percent of his/her gross salary, the Company contributes one-half percent of the participants gross salary to the participants supplemental account. Salary deferrals and Company contributions earn interest at the higher of six
percent or the rate quoted for ninety-day Treasury Bills. During 2002, 2001, the six month periods ended December 31, 2000 and 1999 (unaudited), and the fiscal year 2000, employees deferred approximately $8,700, $10,700, $2,000, $54,000, and
$81,000, respectively, of which the Company matched approximately $1,200, $3,000, $500, $3,000, and $4,000 during these periods.



Other:



Pursuant to the acquisition of Analex, the Company assumed the Analex Corporation Employee Stock Ownership Plan and Trust
(the Analex ESOP). The Analex ESOP was terminated as of the November 5, 2001, the effective date of the acquisition. The Company has obtained a determination letter from the Internal Revenue Service and is in the process of liquidating
the Analex ESOP.



Collective
Bargaining Agreement:



The
company has two collective bargaining agreements (CBA).



F-22



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





The CBA
with the International Brotherhood of Electrical Workers expires January 31, 2006, and covers 11 employees at John F. Kennedy Space Center, Florida, and Cape Canaveral Air Force Station, Florida. The CBA with the Teamsters and Warehousemen
Union covers 35 employees at Vandenberg Air Force Base and expires October 31, 2005.



|13. |  | Stock option plan:
|--- |  | ------------------



In December 2000, shareholders approved the Hadron, Inc. 2000 Stock Option Plan (2000 Stock Option
Plan). The 2000 Stock Option Plan provides for the issuance of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986 and non-qualified stock options to purchase an aggregate of up to 600,000 shares of
Common Stock. The 2000 Stock Option Plan permits the grant of options to key employees, consultants and directors of the Company. The exercise price of the incentive stock options is required to be at least equal to 100% of the fair market value of
the Companys common stock on the date of grant (110% of the fair market value in the case of options granted to employees who are 10% shareholders). The exercise price of the non-qualified stock options is required to be not less than the par
value of a share of the Companys common stock on the date of grant. The term of an incentive or non-qualified stock option may not exceed ten years (five years in the case of an incentive stock option granted to a 10% shareholder). The vesting
for each option holder is set forth in the individual option agreements and is generally a three year period. The 2000 Stock Option Plan honors all of the stock options outstanding under the Companys 1994 Stock Option Plan, as amended (the
Plan).



Information
with respect to incentive and non-qualified stock options issued under both plans are as follows:



|                                                                 |  |        |           |      |                                 |                 |        | Unaudited       |   |                                
|---------------------------------------------------------------- |  | ------ | --------- | ---- | ------------------------------- | --------------- | ------ | --------------- | - | -------------------------------
|                                                                 |  | 2002   |           | 2001 |                                 | 6 mos. 12/31/00 |        | 6 mos. 12/31/99 |   | Fiscal 2000                    
|                                                                 |  | Shares |           |      | Weighted Average Exercise Price |                 | Shares |                 |   | Weighted Average Exercise Price
|Outstanding at beginning of period                               |  |        | 1,672.500 |      |                                 | $               | 1.20   |                 |   | 479,300                        
|Granted                                                          |  |        | 813,100   |      |                                 |                 | 2.20   |                 |   | 1,292,800                      
|Exercised                                                        |  |        | (21,200   | )    |                                 |                 | .90    |                 |   | (64,300                        
|Expired                                                          |  |        | (8,300    | )    |                                 |                 | 1.60   |                 |   | (35,300                        
|Outstanding at end of period                                     |  |        | 2,456,100 |      |                                 | $               | 1.55   |                 |   | 1,672,500                      
|Options exercisable at end of period                             |  |        | 1,485,100 |      |                                 | $               | 1.38   |                 |   | 743,300                        
|Weighted average fair value of options granted during the period |  | $      | 1.58      |      |                                 |                 |        |                 | $ | 1.24                           





F-23



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





The weighted average remaining contractual life of options outstanding at December 31, 2002 was 6.1 years. The range of exercise prices of options outstanding at December 31, 2002 was $.25 to $2.25.



The following table summarizes information
about the stock options outstanding at December 31, 2002:



|               |  | Outstanding      |  | Exercisable                     
|-------------- |  | ---------------- |  | --------------------------------
|Exercise Price |  | Number of Shares |  | Weighted- Average Exercise Price
|0.25 - 0.75    |  | 92,500           |  | $                               
|0.76 - 1.30    |  | 597,000          |  |                                 
|1.31 - 2.25    |  | 1,766,600        |  |                                 
|               |  |                  |  |                                 
|               |  | 2,456,100        |  |                                 
|               |  |                  |  |                                 



The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing fair value model. The following assumptions were used for grants: dividend yield of 0%; expected volatility of .6 to
1.115; expected life of the option term of 10 years and risk-free interest rate of 3.71 to 5.17%.



|14. |  | Warrants:
|--- |  | ---------



The Company has issued warrants to certain parties to purchase its Common Stock in connection with certain debt and equity
transactions. The range of exercise prices for warrants outstanding at December 31, 2002 was $.02 to $.75.



Information with respect to warrants issued is as follows:



|                                   |  | 2002 Warrants |  | Price |      | 2001 Warrants |           |   | Price |   | 6 months 12/31/00 Warrants |  |           | Price |  | Unaudited 6 months 12/31/99 Warrants |      |  | Price    |   | Fiscal 2000 Warrants |   |      | Price
|---------------------------------- |  | ------------- |  | ----- | ---- | ------------- | --------- | - | ----- | - | -------------------------- |  | --------- | ----- |  | ------------------------------------ | ---- |  | -------- | - | -------------------- | - | ---- | -----
|Outstanding at beginning of period |  | 2,277,300     |  |       |      |               | 2,467,100 |   |       |   |                            |  | 2,855,000 |       |  |                                      |      |  | 620,000  |   |                      |   |      |      
|Granted                            |  | 198,500       |  | $     | 0.02 |               | 31,100    |   |       | $ | 0.02                       |  | 75,000    |       |  | $                                    | 0.75 |  |         |   |                      |   |      |      
|Exercised                          |  |               |  |       |      |               | (220,900  | ) |       |   | 0.72                       |  | (462,900  | )     |  |                                      | 0.72 |  | (220,000 | ) |                      | $ | 0.25 |      
|Expired                            |  |              |  |       |      |               |          |   |       |   |                            |  |          |       |  |                                      |      |  |         |   |                      |   |      |      
|                                   |  |               |  |       |      |               |           |   |       |   |                            |  |           |       |  |                                      |      |  |          |   |                      |   |      |      
|Outstanding at end of period       |  | 2,475,800     |  |       |      |               | 2,277,300 |   |       |   |                            |  | 2,467,100 |       |  |                                      |      |  | 400,000  |   |                      |   |      |      
|                                   |  |               |  |       |      |               |           |   |       |   |                            |  |           |       |  |                                      |      |  |          |   |                      |   |      |      





F-24



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





|15. |  | Voting Agreement:
|--- |  | -----------------



On March 30, 2000, a group of investors led by Jon M. Stout, Patricia W. Stout, the Stout Dynastic Trust (collectively the
Stouts), J. Richard Knop (Knop) (the Stouts and Knop, being collectively the Investors) and John D. Sanders purchased certain of the Companys securities pursuant to a Securities Purchase Agreement among the
Company and the Investors (the Purchase Agreement).



As further required by the Purchase Agreement, the Investors and others designated therein also entered into a Voting Agreement dated March 30, 2000 (the Voting Agreement). The Voting
Agreement was entered into by and among certain affiliates of Boles Knop & Company, L.L.C. (the Affiliates), Dr. Sanders, C.W. Gilluly and the Investors (collectively, the Voting Group). Effective November 1, 2002, Dr.
Sanders was removed from the Voting Agreement.



The Voting Group agreed, for a period of five (5) years from March 30, 2000, to vote all of the voting shares over which they have voting control and to take all other actions within such Voting Groups control (whether in his
or its capacity as a stockholder, director, member of a board committee or officer of the Company or otherwise), including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written
consents in lieu of meetings so that: (1) The authorized number of members of the Board will continue to be five unless and until such greater number is directed or approved by the Investors; (2) During the term of the Voting Agreement, the
Investors shall be entitled to nominate a majority of the members of the Board (the Nominees) and the Stockholders shall vote their shares to elect such Nominees; (3) Any Nominee elected or appointed as a director will be removed from
the Board (and thereupon from all committees of the Board), with or without cause, only upon the written request or consent of the Investors; (4) In the event that any Nominee designated hereunder for any reason ceases to serve as a member of the
Board or any committee thereof during such representatives term of office, the resulting vacancy on the Board or committee will be filled by a newly designated Nominee; and (5) Upon the written direction or consent of the Investors, the
Company will take such actions as may be necessary and convenient to change the corporate domicile of the Company to the state of Delaware.



F-25



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





In addition, the Voting Agreement provides that with the exception of transfers made: (i) pursuant to open market sales in brokers transactions; or (ii) sales made after the Investors declined a right of first refusal to
purchase such shares at the same price and terms, any attempt to transfer the Voting Groups voting shares will be of no effect unless the person(s) to whom such shares are being transferred agrees in writing to be bound by the terms of the
Voting Agreement.



|16. |  | Fair value of financial instruments:
|--- |  | ------------------------------------



Accounts receivable, accounts payable, accrued expenses and other current assets and liabilities are carried at amounts
which reasonably approximate their fair value. The estimated fair value of the Companys variable rate debt approximates its carrying value of $2,579,400. It is not practicable to estimate the fair value of the Companys notes payable to
related parties due to their unique nature.



|17. |  | Statement of cash flows  supplemental disclosures:
|--- |  | ---------------------------------------------------



During 2002, 2001, the six month periods ended December 31, 2000 and 1999 (unaudited), and the fiscal year 2000, the
Company paid income taxes of $208,300, $23,000, $12,000, $3,000, and $4,000, respectively. The Company paid interest of $672,900, $165,000, $110,000, $167,000, and $325,000 during those same periods.



|18. |  | Business segments and major customers:
|--- |  | --------------------------------------



Business segments:



The Company has two active reportable segments, ABS and Analex. The Homeland Security Group, and the Systems Engineering
Group have been aggregated to form the reportable segment Analex. This aggregation is due to the fact that both groups perform similar services, operate in similar regulatory environments, and have similar customers. Each of the operating segments
provides 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.



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. Interest on debt incurred in connection with an
acquisition and applicable associated intangible amortization is charged to the reportable segment.



F-26



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





Reportable
Segments  FASB Statement 131

For the Years ended December 31 2002, 2001, the Six Months

ended December 31, 2000 and 1999 (unaudited) and the Fiscal Year

ended June 30, 2000



|                                            |  | 2002 |            | 2001 |   | 6 mos 2000 |  | Unaudited 6 mos 1999 |           |  | Fiscal 2000 |           
|------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | -------------------- | --------- |  | ----------- | ----------
|DESCRIPTION:                                |  |      |            |      |   |            |  |                      |           |  |             |           
|Trade revenues:                             |  |      |            |      |   |            |  |                      |           |  |             |           
|ABS                                         |  | $    | 6,803,000  |      | $ | 4,761,300  |  | $                    | 1,880,600 |  | $           |          
|Analex                                      |  |      | 52,514,000 |      |   | 17,174,700 |  |                      | 7,062,800 |  |             | 10,267,300
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Total trade revenues                        |  | $    | 59,317,000 |      | $ | 21,936,000 |  | $                    | 8,943,400 |  | $           | 10,267,300
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Interest income:                            |  |      |            |      |   |            |  |                      |           |  |             |           
|ABS                                         |  | $    |           |      | $ |           |  | $                    |          |  | $           |          
|Analex                                      |  |      |           |      |   | 8,600      |  |                      |          |  |             | 600       
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Total interest income                       |  | $    |           |      | $ | 8,600      |  | $                    |          |  | $           | 600       
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Interest expense:                           |  |      |            |      |   |            |  |                      |           |  |             |           
|ABS                                         |  | $    |           |      | $ |           |  | $                    |          |  | $           |          
|Analex                                      |  |      | 1,018,300  |      |   | 225,200    |  |                      | 112,000   |  |             | 167,100   
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Total interest expense                      |  | $    | 1,018,300  |      | $ | 225,200    |  | $                    | 112,000   |  | $           | 167,100   
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Depreciation and amortization expense:      |  |      |            |      |   |            |  |                      |           |  |             |           
|ABS                                         |  | $    | 31,000     |      | $ | 47,300     |  | $                    | 10,600    |  | $           |          
|Analex                                      |  |      | 388,000    |      |   | 476,900    |  |                      | 218,900   |  |             | 208,700   
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Total depreciation and amortization expense |  | $    | 419,000    |      | $ | 524,200    |  | $                    | 229,500   |  | $           | 208,700   
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Income tax expense:                         |  |      |            |      |   |            |  |                      |           |  |             |           
|ABS                                         |  | $    |           |      | $ |           |  | $                    |          |  | $           |          
|Analex                                      |  |      | 149,100    |      |   | 19,600     |  |                      |          |  |             |          
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Total income tax expense                    |  | $    | 149,100    |      | $ | 19,600     |  | $                    |          |  | $           |          
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Net income/(loss):                          |  |      |            |      |   |            |  |                      |           |  |             |           
|ABS                                         |  | $    | 365,200    |      | $ | 186,200    |  | $                    | 4,300     |  | $           |          
|Analex                                      |  |      | 1,991,400  |      |   | 9,800      |  |                      | 80,500    |  |             | (631,000  
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Total net income/(loss)                     |  | $    | 2,356,600  |      | $ | 196,000    |  | $                    | 84,800    |  | $           | (631,000  
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Assets:                                     |  |      |            |      |   |            |  |                      |           |  |             |           
|ABS                                         |  | $    | 1,920,800  |      | $ | 1,017,200  |  | $                    | 335,900   |  | $           |          
|Analex                                      |  |      | 28,863,400 |      |   | 24,607,900 |  |                      | 5,448,000 |  |             | 6,127,200 
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Total assets                                |  | $    | 30,784,200 |      | $ | 25,625,100 |  | $                    | 5,783,900 |  | $           | 6,127,200 
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Fixed assets, net:                          |  |      |            |      |   |            |  |                      |           |  |             |           
|ABS                                         |  | $    | 83,600     |      | $ | 116,400    |  | $                    | 126,200   |  | $           |          
|Analex                                      |  |      | 133,100    |      |   | 144,200    |  |                      | 158,600   |  |             | 256,600   
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           
|Total fixed assets, net                     |  | $    | 216,700    |      | $ | 260,600    |  | $                    | 284,800   |  | $           | 256,600   
|                                            |  |      |            |      |   |            |  |                      |           |  |             |           





F-27



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





Major Customers:



Gross revenue from contracts and subcontracts with U.S. government agencies amounted to $58,059,000, $21,885,000, $8,868,000, $10,160,000 and $19,684,000, respectively, in 2002, 2001, the six months ended December 31, 2000 and 1999
(unaudited), and the fiscal year 2000.



Revenues earned on sales to the Companys major customers are as follows:



|Period                    |  | Department of Defense
|------------------------- |  | ---------------------
|2002                      |  | 30,668,000           
|2001                      |  | 14,019,000           
|6 Months 2000             |  | 6,240,000            
|6 Months 1999 (unaudited) |  | 7,791,000            
|Fiscal Year 2000          |  | 18,323,000           



|19. |  | Selected quarterly information (Unaudited):
|--- |  | -------------------------------------------



The following is a summary of the quarterly results of operations for the years 2002 and 2001:



|                                              |  | Quarter Ended:   
|--------------------------------------------- |  | -----------------
|                                              |  | December 31, 2002
|Revenues                                      |  | $                
|Operating Income                              |  |                  
|Net Income                                    |  |                  
|Net Income per share, basic                   |  | $                
|Shares used in per share calculation, basic   |  |                  
|Net Income per share, diluted                 |  | $                
|Shares used in per share calculation, diluted |  |                  



F-28



---

Analex Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---





|                                              |  | Quarter Ended:   
|--------------------------------------------- |  | -----------------
|                                              |  | December 31, 2001
|Revenues                                      |  | $                
|Operating Income                              |  |                  
|Net Income                                    |  |                  
|Net Income per share, basic                   |  | $                
|Shares used in per share calculation, basic   |  |                  
|Net Income per share, diluted                 |  | $                
|Shares used in per share calculation, diluted |  |                  



F-29



---



F-30