Quarterly Report (SEC form 10-Q)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002
TO THE THREE MONTHS ENDED MARCH 31, 2001
Revenues for the three months ended March 31, 2002 were approximately $13,036,000, an increase of approximately $8,806,000 from the period ended March 31, 2001. This increase is primarily due to revenues of $8,332,000 generated by the Aerospace Group, formerly Analex Corporation, acquired in November 2001, coupled with the increased revenues of ABS, partially offset by decreased revenues of the Homeland Security Group. Revenues increased $101,000, or 1%, in the quarter ended March 31, 2002 as compared to the pro-forma revenues for the same period in 2001.
Costs of revenue for the quarter ended March 31, 2002 were approximately $11,029,000, an increase of approximately $7,523,000 from the same period of the prior year. The increase is largely due to the costs of revenue of the Aerospace Group, 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 85% and 83% for the quarters ended March 31, 2002 and 2001, respectively.
Selling, general and administrative expenses, including amortization of goodwill and other intangibles, totaled approximately $1,318,000 for the March 31, 2002 quarter, compared with approximately $641,000 for the same period of the prior year.The $677,000 increase is primarily due to the addition of the Aerospace Group's costs and costs related to key finance, business development and marketing positions filled.
Operating income for the three months ended March 31, 2002 was approximately $689,000, compared to operating income of approximately $84,000 for the period ended March 31, 2001. This $605,000 increase is primarily attributable to the profitability of the Aerospace Group, coupled with increased profitability of ABS and the Homeland Security Group. Operating income increased $342,000, or 99%, in the quarter ended March 31, 2002 as compared to the pro-forma revenues for the same period in 2001.
Interest expense totaled approximately $268,000 for the March 31, 2002 quarter, compared with approximately $38,000 for the same period of the prior year. The $230,000 increase is due to the Company's increased debt obligations and financing commitments associated with the acquisition of Analex.
Net income was approximately $395,000 for the quarter ended March 31, 2002, compared to net income of approximately $21,000
for the same period of the prior year. The $374,000 increase resulted primarily from the net income of $430,000, $62,000, and $200,000 produced by the Aerospace Group, ABS and Homeland Security Group, respectively, partially offset by the increased interest and finance costs associated with the Analex acquisition. Net income increased $371,000 in the three months ended March 31, 2002 as compared to the pro-forma net income for the same period in 2001.
CAPITAL RESOURCES AND LIQUIDITY
The working capital at March 31, 2002 increased by approximately $106,000 from December 31, 2001, primarily due to the Company's net income, partially offset by debt pay down of $375,000.
In the three months ended March 31, 2002, the Company recorded net income of approximately $395,000 and EBITDA, as defined below, of $784,000, after add-backs for interest of $268,000, depreciation of $30,000, amortization of $66,000, income taxes of $10,000, and other expenses of $15,000.
EBITDA consists of earnings before interest expense, interest and other income, income taxes, deferred compensation, and depreciation and amortization. EBITDA does not represent funds available for the Company's discretionary use and is not intended to represent cash flow from operations. EBITDA should also not be construed as a substitute for operating income or a better measure of liquidity than cash flow from operating activities, which are determined in accordance with generally accepted accounting principles. EBITDA excludes components that are significant in understanding and assessing the Company's results of operations and cash flows. In addition, EBITDA is considered relevant and useful information, which is often reported and widely used by analysts, investors and other interested parties. Accordingly, the Company is disclosing this information to permit a more comprehensive analysis of the Company's operating performance, as an additional meaningful measure of performance and liquidity, and to provide additional information with respect to the Company's ability to meet future debt service, capital expenditure and working capital requirements.
Net cash used in operating activities during the three months ended March 31, 2002 was approximately $482,000, as compared with net cash used of approximately $145,000 during the same period in 2001.
Net cash used in investing activities during the three months ended March 31, 2002 and 2001 was approximately $36,000
and $35,000, respectively. Net cash used in investing activities in each of these periods was for fixed asset purchases.
On November 2, 2001, to finance the acquisition of Analex, the Company entered into the Credit Agreement which provides the Company with a $4,000,000 Credit Facility through November 2, 2006 and a five-year $3,500,000 Term Loan. The principal amount of the Term Loan is amortized in sixty equal monthly payments of $58,333. Interest on each of the facilities is at the LIBOR Rate plus an applicable margin as specified in a pricing grid. The Company is subject to certain financial covenants pursuant to the Agreement, including debt to EBITDA ratio, fixed charge coverage ratio, senior debt to EBITDA ratio, and net worth requirements. The Credit Facility and Term Loan are secured by the accounts receivable and other assets of the Company.
For the remainder of 2002, the Company plans to finalize the integration of its operations with Analex, maintain control over costs, pursue new business opportunities within core competencies and clients, and perform its contracts efficiently. The Company, through its acquisition of Analex, expects to concentrate in the aerospace niche of homeland security. The Company believes its enhanced presence in the intelligence community combined with its bioterrorism defense capabilities will strengthen its position in the homeland security market.
Except for the historical information contained herein, the matters discussed in this 10-Q include forward-looking statements that involve a number of risks and uncertainties. There are certain important factors and risks that could cause results to differ materially from those anticipated by the statements contained herein. Such factors and risks include business conditions and growth in the information services, engineering services, software development and government contracting arenas and in the economy in general. Competitive factors include the pressures toward consolidation of small government contracts into larger contracts awarded to major, multi-national corporations; the Company's ability to continue to recruit and retain highly skilled technical, managerial and sales/marketing personnel; and the Company's ability to successfully identify, complete and integrate acquisitions. Other risks may be detailed from time to time in the Company's SEC reports.
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Recent filings: May 15, 2001 (Qtrly Rpt) | Aug 14, 2001 (Qtrly Rpt) | Nov 05, 2001 (form8-K) | Nov 06, 2001 (form8-K) | Nov 14, 2001 (Qtrly Rpt) | Dec 21, 2001 (form8-K) | May 07, 2002 (Qtrly Rpt)
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