<PAGE> 1
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 1995.
Commission File Number 2-73737-W
---------
ESSEX CORPORATION
(Exact name of small business issuer as specified in its charter)
Virginia 54-0846569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9150 Guilford Road, Columbia, Maryland 21046-1891
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (301) 953-7797
- - -------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 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
---- ----
State the number of shares outstanding of each of the issuer's class
of Common Stock as of the latest practicable date.
OUTSTANDING
CLASS AT SEPTEMBER 24, 1995
----- ---------------------
Common Stock, par value $0.10 per share 3,585,973
<PAGE> 2
ESSEX CORPORATION
-----------------
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
The interim financial statements are unaudited but, in the opinion
of management, reflect all adjustments for a fair presentation of
results for such period. The results of operations for any interim
period are not necessarily indicative of results for the full year.
These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's
Annual Report on Form 10-KSB/A No. 1 for the fiscal year ended
December 25, 1994.
<PAGE> 3
<TABLE>
ESSEX CORPORATION
-----------------
BALANCE SHEETS
--------------
<CAPTION>
September 24, December 25,
1995 1994
------------- ------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
------
Current Assets:
Cash $ 180,756 $ 502,800
Accounts receivable, net 2,161,633 1,213,536
Refundable income taxes -- 18,600
Prepayments and other current assets 179,249 88,097
----------- -----------
2,521,638 1,823,033
----------- -----------
Property and Equipment:
Land 195,175 195,175
Buildings and improvements 1,538,815 1,530,763
Production and special equipment 1,864,914 1,538,440
Furniture and equipment 1,365,756 1,457,665
----------- -----------
4,964,660 4,722,043
Less - accumulated depreciation
and amortization (2,919,023) (3,032,187)
----------- -----------
2,045,637 1,689,856
----------- -----------
Other Assets:
Goodwill 219,253 264,113
Patents, net 178,858 168,558
Deferred stock offering costs -- 191,194
Other 52,058 71,877
----------- -----------
450,169 695,742
----------- -----------
TOTAL ASSETS $ 5,017,444 $ 4,208,631
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 4
<TABLE>
ESSEX CORPORATION
-----------------
BALANCE SHEETS
--------------
<CAPTION>
September 24, December 25,
1995 1994
------------- ------------
(unaudited) (audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt $ 80,001 $ 80,001
Current portion of capital leases 178,231 --
Accounts payable 726,448 752,487
Accrued wages and vacation 404,448 471,345
Current portion of accrued lease
settlement 307,191 405,000
Other accrued expenses 804,149 522,918
------------- ------------
2,500,468 2,231,751
Long-term Debt 253,320 313,322
Accrued lease settlement,
net of current portion 245,000 335,000
Capital leases, net of current portion 78,363 --
------------- ------------
Total Liabilities 3,077,151 2,880,073
------------- ------------
Commitments and Contingencies (Note 4)
Stockholders' Equity:
Common stock, $0.10 par value;
10 million shares authorized; 3,585,973
and 1,823,973 issued and outstanding for
1995 and 1994, respectively 358,597 182,397
Contributions in excess of par value 5,214,966 3,332,352
Retained deficit (3,633,270) (2,186,191)
------------- ------------
1,940,293 1,328,558
------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,017,444 $ 4,208,631
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 5
<TABLE>
ESSEX CORPORATION
-----------------
STATEMENTS OF OPERATIONS
FOR THE THIRTY-NINE WEEK PERIODS
ENDED SEPTEMBER 24, 1995 AND SEPTEMBER 25, 1994
-----------------------------------------------
<CAPTION>
1995 1994
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES $ 9,830,406 $ 11,609,548
------------- -------------
COSTS AND EXPENSES:
Direct Costs:
Direct labor and related expenses 4,817,526 4,770,001
Other direct costs 1,593,976 3,198,754
------------- -------------
Total Direct Costs 6,411,502 7,968,755
------------- -------------
Indirect Expenses:
Operating expenses 3,250,262 3,091,187
Lease settlement -- 375,000
Depreciation and amortization 279,324 287,668
------------- -------------
Total Indirect Expenses 3,529,586 3,753,855
ImSyn (trade mark) prototype
development expenses 1,009,001 --
Lawsuit prosecution expenses 251,055 --
Internal stock offering expenses 30,604 --
------------- -------------
Operating Loss (1,401,342) (113,062)
Interest expense 45,737 145,022
------------- -------------
LOSS BEFORE INCOME TAXES (1,447,079) (258,084)
Benefit from income taxes -- --
------------- -------------
NET LOSS $ (1,447,079) $ (258,084)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 2,671,609 1,820,534
============= =============
NET LOSS PER SHARE $ (0.54) $ (0.14)
============= =============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 6
<TABLE>
ESSEX CORPORATION
-----------------
STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEK PERIODS
ENDED SEPTEMBER 24, 1995 AND SEPTEMBER 25, 1994
-----------------------------------------------
<CAPTION>
1995 1994
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES $ 3,437,669 $ 3,953,296
------------- -------------
COSTS AND EXPENSES:
Direct Costs:
Direct labor and related expenses 1,648,774 1,612,689
Other direct costs 536,242 1,151,189
------------- -------------
Total Direct Costs 2,185,016 2,763,878
------------- -------------
Indirect Expenses:
Operating expenses 1,206,681 965,861
Depreciation and amortization 119,790 89,565
------------- -------------
Total Indirect Expenses 1,326,471 1,055,426
ImSyn (trade mark) prototype
development expenses 424,366 --
Lawsuit prosecution expenses 41,256 --
Internal stock offering expenses 1,732 --
------------- -------------
Operating Income (Loss) (541,172) 133,992
Interest expense 2,645 32,776
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (543,817) 101,216
Benefit from income taxes -- --
------------- -------------
NET INCOME (LOSS) $ (543,817) $ 101,216
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 3,460,759 1,823,973
============= =============
NET INCOME (LOSS) PER SHARE $ (0.16) $ 0.06
============= =============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 7
<TABLE>
ESSEX CORPORATION
-----------------
STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEK PERIODS
ENDED SEPTEMBER 24, 1995 AND SEPTEMBER 25, 1994
-----------------------------------------------
<CAPTION>
1995 1994
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (1,447,079) $ (258,084)
Adjustments to reconcile Net Loss To
Net Cash (Used In) Provided By Operating Activities:
Depreciation and amortization 279,324 287,668
Stock award 36,960 --
Lease settlement stock option -- 35,000
Gain on sale of assets (11,801) (6,218)
Change in Assets and Liabilities
Accounts receivable (948,097) (913,708)
Refundable income taxes 18,600 224,831
Prepayments and other assets (90,129) 138,863
Accounts payable (26,039) 110,245
Accrued lease settlement (187,809) 310,000
Other liabilities 214,334 260,558
------------- -------------
Net Cash (Used In) Provided By
Operating Activities (2,161,736) 189,155
------------- -------------
Cash Flows From Investing Activities:
Purchases of property and equipment (220,647) (53,378)
Proceeds from sale of fixed assets 18,542 8,352
------------- -------------
Net Cash Used In Investing Activities (202,105) (45,026)
------------- -------------
Cash Flows From Financing Activities:
Repayment of short-term borrowings, net -- (350,000)
Repayment of long-term debt (60,002) (60,002)
Payment of capital lease obligations (111,249) --
Sale of common stock, net of stock
offering costs 2,213,048 16,075
Deferred stock offering costs -- (63,281)
------------- -------------
Net Cash Provided By (Used In)
Financing Activities 2,041,797 (457,208)
------------- -------------
Cash and Cash Equivalents:
Net decrease (322,044) (313,079)
Balance - beginning of period 502,800 330,770
------------- -------------
Balance - end of period $ 180,756 $ 17,691
============= =============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 8
ESSEX CORPORATION
-----------------
NOTES TO INTERIM FINANCIAL INFORMATION
NOTE 1: Fiscal Year
Essex Corporation (the "Company") is on a 52/53-week fiscal year
ending the last Sunday in December. 1995 will be a 53-week fiscal
year.
NOTE 2: Income (Loss) Per Share
Income (loss) per share has been calculated by dividing net income
(loss) by the weighted average number of shares outstanding during
each period.
NOTE 3: Accounts Receivable Financing
The Company had a Purchase and Assignment Agreement (Agreement)
regarding its accounts receivable with Capitol Resource Funding,
Inc. (Capitol). Under the Agreement, Capitol would purchase certain
of the Company's accounts receivable. The Company generally
received 80% of the invoice amount at the time of purchase and the
remaining 20% when the invoice was paid. The Company was charged an
interest fee on the funded amount at an annualized rate of 20%,
payable at the time each invoice was paid.
At September 24, 1995 and December 25, 1994, the gross amount of
open accounts receivable purchased by Capitol was $125,000 and
$1,049,000, respectively. Funds received were $100,000 and
$839,000, respectively. The unpaid holdback amounts of $25,000 and
$210,000 are included in the accounts receivable balances at
September 24, 1995 and December 25, 1994. Any unpaid interest fees
have been provided for in the accompanying statements of operations.
Beginning October 1995, the Company entered into a receivables
financing arrangement with Signet Bank. This arrangement is
evidenced by a Loan Agreement, Promissory Note and Commercial
Security Agreement ("Agreements"). Under the Agreements, the Bank
will advance funds against certain accounts receivable. The funds
advanced constitute proceeds under the note which will bear interest
at an annual rate of prime plus 4.5% (total rate approximately
13.25% at October 1995). The Company must also pay certain
administrative and commitment fees which are expected to be less
than $1,000/month. An initial term for these Agreements of two
months was established while negotiations for an annual agreement
proceed. Negotiations are expected to be concluded prior to the
expiration of the current Agreements.
The line of credit is secured by all accounts receivables and
certain general intangibles (excluding patents). The Company is
subject to certain operating restrictions, such as acquisitions or
mergers; or creation or incurrence of new debt. Such restrictions
may be exceeded with the concurrence of the Bank.
The Company was able to curtail the requirement for accounts
receivable financing due to the proceeds received from the Stock
Offering (see Note 5). This will greatly reduce interest expense in
1995.
<PAGE> 9
ESSEX CORPORATION
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NOTE 4: Commitments and Contingencies
Lease Settlement
- - ----------------
The Company was in a legal dispute with the landlord of its former
corporation headquarters and Information Systems Division facility.
Effective July 1994, the parties entered into a Settlement Agreement
("Agreement"). Under the Agreement, the Company agreed to make
deferred rent cash payments of $250,000; contingent rent payments up
to $550,000 from future earnings and/or proceeds from common stock
sales or asset sales; and issued an option to purchase up to 125,000
shares of the Company's stock at an exercise price of $2 per share.
The landlord released the Company from outstanding and future rent
or other obligations arising from the leases.
Starting July 1994, the Company began to make the deferred cash rent
payments over 25 months at $10,000 per month. As additional rent,
the Company is obligated to make contingent cash payments of 25% of
future earnings (as defined) or 10-15% of the net proceeds from the
sale of common stock or operating assets, the total of such payments
not to exceed $550,000. The Company issued an option for the
landlord to purchase up to 125,000 shares of the Company's
unregistered common stock at an option price of $2 per share. The
option is exercisable through December 31, 2004 and has certain
registration rights upon exercise of the option. Prior to 1995, the
Company expensed $800,000 toward amounts potentially due under the
above terms of this Agreement and recognized a $35,000 expense for
the estimated value of the option.
Contingent amounts due, if any, are to be paid quarterly. The
period for computation of such contingent payments ends December
2004. Through September 24, 1995, contingent amounts totalling
approximately $241,000 have been earned. Of this amount, $35,000
was paid in April 1995, $62,000 in July 1995 and $144,000 in October
1995. The $552,000 total accrual as of September 24, 1995 is
comprised of $100,000 to be paid ratably over the next 10 months and
the remaining contingent portion which is probable to be paid over
the applicable consideration period.
Also under the Agreement, the Company agreed to pay 20% not to
exceed $250,000 from the net award or settlement from the lawsuit
against a competitor described below. When this legal proceeding is
concluded, then the appropriate amount payable to the former
landlord will be calculated and expensed.
Legal Proceeding
- - ----------------
The Company filed suit in April 1994 against a corporate third party
(the "Defendant") in a civil action which is presently pending in
the Federal District Court (the "Court") in Albuquerque, New Mexico.
The Company's charges include allegations of intentional and
improper interference with prospective contractual relations, fraud
and civil conspiracy. In its complaint, the Company has claimed $25
million in compensatory damages and $75 million in punitive damages.
Discovery has been completed in the case and motions were heard in
September 1995. The Company anticipates that a trial will be
scheduled in the first half of 1996.
The Defendant has filed a counterclaim against the Company for
misappropriation of trade secrets. The counterclaim seeks
unspecified compensatory and punitive damages and reasonable
attorney fees and costs. The Defendant has been unable
<PAGE> 10
ESSEX CORPORATION
-----------------
to identify any alleged damages with respect to its counterclaim.
The Company has denied the allegations raised in the counterclaim
and intends to defend vigorously against the counterclaim. Although
the outcome of this counterclaim cannot be predicted, Management
believes, based on its review of this counterclaim and discussions
with counsel, that the resolution of this counterclaim should not
have a material impact on the Company's financial position or future
results of operations.
NOTE 5: Stock Offering
In July 1995, the Company successfully completed a $2.5 million
Stock Offering. The Company sold 25,000 Units for $2,500,000 and
received such proceeds. The proceeds less offering costs are
recognized as increases to the common stock and contributions in
excess of par value accounts. In late 1994, the Company had filed
a registration statement with the Securities and Exchange
Commission. The registration statement covered a Rights Offering
first to existing shareholders and option holders and then further
public sale to other interested parties (the Offering). Through the
Offering, the Company raised $2.5 million (before expenses) for
25,000 Units consisting of 1,750,000 newly issued shares of common
stock and warrants to obtain an additional 625,000 new shares at a
later date and for an additional cost. Proceeds from the Offering
are being used for general business purposes including, principally,
completing development of commercial products. As shown in the
statement of operations, during the nine-month period ended
September 24, 1995, approximately $1,009,000 was expended with
respect to development of commercial products. A portion of the
proceeds was used to partially satisfy the contingent obligation to
the landlord. Until such usage, the proceeds will provide working
capital and reduce costly accounts receivable financing.
In connection with the Offering, the Company entered into a
Placement Agency Agreement with a registered broker/dealer. In
addition to cash compensation, the broker/dealer received warrants
for 175,000 shares of common stock. The warrants are exercisable
through December 1, 1999 at a price of $2.30 per share, subject to
adjustment under anti-dilution provisions of the Warrant Agreement.
The warrant holders have certain registration rights for these
shares of common stock.
NOTE 6: Statement of Cash Flows
Supplemental disclosures of cash flow information are as follows:
A. In 1995, the Company issued 12,000 shares of common stock with
a market value of $36,960 under the Restricted Stock Bonus Plan.
B. Capital lease obligations of $368,000 were incurred during 1995
when the Company entered into various leases for new equipment.
<PAGE> 11
ESSEX CORPORATION
-----------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Essex Corporation is a diversified, technology-based company
providing quality products and professional services to government
and industry. Essex specializes in Human-Centered Systems
Engineering (service mark) and Optoelectronic Engineering. The
Company allocates its operations to the following business units.
o Systems Effectiveness Division (SED)
o Space and Defense Division (SDD)
o Information Systems Division (ISD)
o Commercial Products Division (CPD)
The discussion that follows speaks to the changes, where
significant, that occurred in the business operations of the
Company.
STATUS
- - ------
The Company raised the entire $2.5 million of its Stock Offering by
the end of July 1995. The net proceeds were approximately $2
million before payments to the former landlord of approximately
$240,000. The remaining funds have improved liquidity and
temporarily reduced costly accounts receivable financing. The
principal usage of the net proceeds of the Offering is for
completion of development of the prototype ImSyn (trade mark)
optoelectronic processor. In anticipation of the success of the
Stock Offering, the Company began modest efforts on development of
its first ImSyn (trade mark) processor prototype in late 1994 and
full fledged work on such development in 1995. As planned, such
development continued during the third quarter of 1995. In
accordance with generally accepted accounting principles governing
such development expenses, costs of approximately $1,009,000 have
been recognized through the Company's 1995 third quarter statement
of operations as 1995 period expenses. The Company expects that
these development expenses will end during the first part of the
fourth quarter of 1995, when the first ImSyn (trade mark) processor
prototype is scheduled for completion.
Revenue volume increased in fiscal 1994 over 1993 primarily due to
the restoration of the Department of Energy, Transportations
Safeguards contract. As 1995 began, the Company continued to have
a relatively high backlog of approximately $25.5 million. During
1995, the Company has won or added approximately $27.5 million in
new business, and its total backlog was a record $43.2 million ($7.7
million funded and $35.5 million unfunded) at the end of September
1995. Funded backlog generally consists of the sum of all contract
amounts for which funding has been approved and contracts signed,
less the value of work performed under such contracts. Unfunded
backlog generally is the amount of work on contracts which has not
yet been funded (such as for option years, open purchase orders and
indefinite quantity contracts). The costs of completing such
contracts in backlog are estimated to be 92-94% of such backlog and
generally result in gross profit margins of 6-8% before such costs
as interest expense, amortization of intangibles, volume variance
and income taxes. However, there can be no assurances that revenues
from this backlog or the gross margins therefrom will ultimately be
realized. The mix of contracts in the total backlog is
approximately $40 million (93%) in cost-plus-fee type contracts and
$3 million
<PAGE> 12
ESSEX CORPORATION
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(7%) in fixed-price type contracts. Costs are charged to contracts
as incurred as the Company is generally providing labor-based
services and therefore does not normally accumulate or stock
inventory. On both types of contracts, the Company utilizes for
revenue accounting the percentage-of-completion method plus a
proportionate amount for fee earned. Anticipated losses, if any,
are recognized as soon as they become known.
While high contract backlog and proposal activity are positive
indicators, the Company has experienced net losses in each of the
past 5 fiscal years. The Company must demonstrate the ability to
complete such contract backlog within budget cost constraints, both
for direct and indirect operating costs. Although the high backlog
supports a continuation of the 1994 revenue levels into 1995, such
revenue levels were lower during the first nine months of 1995
compared to 1994. The Company devoted significant labor effort to
the ImSyn (trade mark) prototype development and this lowered
revenue levels on some customer work during the first nine months of
1995. The Company expects that revenue levels will increase in the
fourth quarter of 1995 compared to the first three quarters of 1995.
A. REVENUE
-------
The Company's revenues for the first thirty-nine weeks of 1995
totaled
$9,830,000, which were $1,780,000 or 15.3% lower than the
$11,610,000 reported during the same period in 1994. Revenue levels
decreased by $1,110,000 (19%) in SED where certain contracts were
completed or are nearing completion and have not yet been replaced
with new work. The decrease was also attributable to lower 1995
nine month revenues of $840,000 (27%) in ISD. The ImSyn (trade
mark) prototype development is being staffed primarily by ISD
personnel and this has lowered revenue levels on some customer work.
Offsetting these declines, revenues at SDD rose $205,000 (8%) due to
new contract activity.
B. INCOME
------
The Company is reporting a net loss in the first nine months of 1995
of $1,447,000 or $0.54 per share as compared to a net loss of
$258,000 or $0.14 per share for the same period in 1994. For the
third quarter of 1995, the Company is reporting a net loss of
$544,000 or $0.16 per share, as compared to net income of $101,000
or $0.06 per share in the third quarter of 1994. The net loss in
the 1995 periods is computed on a higher number of outstanding
shares as compared to the 1994 periods.
While total direct costs have remained fairly proportional as a
percentage of revenues (65% in the first nine months of 1995 and 69%
for the same period in 1994), there has been an increase in direct
labor and related expenses as a percentage of revenues (49% in 1995
compared to 41% in 1994) and a significant decrease in other direct
costs as such costs declined as a percentage of revenues from 28% in
1994 to 16% in 1995. The decrease in other direct costs as a
percentage of revenue is primarily due to the completion or lower
usage on certain contracts of outside subcontractors and
consultants. Also, increased material purchases on new contract
work are scheduled for the end of 1995 whereas there was a higher
degree of such purchases in the first nine months of 1994.
Excluding expenses totaling $1,291,000 for ImSyn (trade mark)
prototype development ($1,009,000); lawsuit prosecution ($251,000);
and internal costs
<PAGE 13>
ESSEX CORPORATION
-----------------
related to the stock offering ($31,000); the Company would have had
an operating loss of $156,000 for the first nine months of 1995. In
the same period of 1994, the Company recognized a $375,000 lease
settlement charge. Excluding this charge, the Company would have
had an operating profit of $117,000. Although revenue levels
decreased in the first nine months of 1995, the Company was still
able to cover most of the variable expenses such as business
development and the fixed expenses such as facility costs. However,
underabsorbed indirect expenses due to the lower revenue volume
account for the change described here from a 1994 operating profit
to a 1995 operating loss for the nine month periods.
In 1995, the Company's interest costs decreased sharply due to the
temporary use of the proceeds from the stock offering to reduce
costly accounts receivable financing. Total interest costs were
$46,000 in the first nine months of 1995 compared to $145,000 in the
same period of 1994.
The Company recognized the remaining tax benefit amount recoverable
from the carryback of net operating losses in 1993. The Company is
in a net operating loss (NOL) carryforward position. No benefit
from income taxes has been recognized for 1995.
C. FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
-----------------------------------------------------
The Company evaluates its liquidity position using various factors.
The following represents some of the more important factors:
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA ($ Thousands)
AS OF
-------------------------------------------------
September 24, December 25, September 25,
1995 1994 1994
------------- ------------ -------------
<S> <C> <C> <C>
Total Assets $ 5,017 $ 4,209 $ 4,723
Working Capital
(Deficit) $ 21 $ (409) $ (202)
Current Ratio 1.01:1 0.82:1 0.92:1
Current and Long-Term
Debt and Bank
Debt $ 333 $ 393 $ 413
Stockholders'
Equity $ 1,940 $ 1,329 $ 1,536
</TABLE>
The Company experienced an improvement in its working capital
dollars and ratio due to receipt of the net proceeds of
approximately $2,000,000 from the Stock Offering.
The Company experienced a 1995 nine month loss of $1,447,000. This
1995 loss was primarily attributable to expenditures in connection
with development of the ImSyn (trade mark) prototype and lawsuit
prosecution expenses. The net cash used in operations was
approximately $2.2 million, including the net loss of $1.4 million
and increase in accounts receivables of $948,000. Such operating
expenditures are being funded from the proceeds of the Stock
Offering. The development expenditures are expected to be completed
in the first part of the
<PAGE> 14
ESSEX CORPORATION
-----------------
fourth quarter of 1995. Of the increase in accounts receivables,
approximately
$739,000 is due to the repurchase of receivables by the Company from
its previous working capital lender. The Company has temporarily
utilized proceeds from the Offering to reduce costly accounts
receivable financings.
Under the settlement agreement reached with the landlord, certain
payments are to be spread over future periods or are triggered only
by other future cash inflows. There is a $100,000 remaining balance
on the original deferred rent payment of $250,000 and this balance
is payable over the next 10 months. The Company expects that the
results of operations from its total contracts backlog of
approximately $43.2 million will generate sufficient positive cash
flow over the remaining period of this obligation to make the
required payments. The Company believes that there is a
sufficiently long payment period over which to generate the cash
flows necessary to meet the required payment schedule. The
contingent portions of the landlord settlement obligation, of which
$309,000 remain after October 20, 1995, are not payable until future
earnings (as defined), operating asset sales or equity capital
funding occur. When such future events transpire, only a portion of
the cash flows or proceeds generated are payable. Accordingly, a
portion of the lease settlement costs are classified as a
non-current liability.
Beginning October 1995, the Company entered into an accounts
receivable financing arrangement with a local bank. The current
loan arrangement provides for up to $500,000 of financing at the
bank's prime rate plus 4.5%. The Company can utilize certain
accounts receivable and obtain a percentage advance as a loan under
the financing arrangement. The term of the current arrangement is
two months while an annual agreement for approximately $1 million is
negotiated. The Company expects to complete negotiations for this
annual agreement before the expiration of the current arrangement.
The Company has no plans at present to make significant capital
expenditures. The Company did acquire $221,000 of property and
equipment, mostly computers and other special equipment, through
direct cash purchase during the first nine months of 1995. The
Company further acquired approximately $368,000 of similar equipment
under capital leases having terms which spread out monthly payments
from twelve to thirty-six months. The Company intends to utilize
leasing arrangements to finance capital expenditures to the extent
practical.
The Company may sell certain assets which are underutilized or not
part of its mainstream operations; there are, however, no definitive
arrangements for any such sale. The Company believes that its
anticipated needs for working capital will be adequately met by the
combination of its projected cash flow from its remaining 1995
operations, utilization of available credit from its secured asset
lending agreement and receipts from any asset sales.
<PAGE> 15
ESSEX CORPORATION
-----------------
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - The Company filed a Form 8-K
on October 16, 1995 which
reported the actions taken at
the Annual Meeting of
Shareholders. The
shareholders elected the
Directors and approved the
outside auditors.
SIGNATURE
In accordance with the requirements of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ESSEX CORPORATION
(Registrant)
Date: 31 October 1995 Joseph R. Kurry, Jr.
------------------------------
Joseph R. Kurry, Jr.
Vice President, Treasurer and Chief Financial Officer
(Mr. Kurry is the Principal Financial and Accounting Officer and has
been duly authorized to sign on behalf of the Registrant.)
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