<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 March 31, 1996.
Commission File Number 0-10772
-------
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
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 March 31, 1996
----- -----------------
Common Stock, par value $0.10 per share 3,624,073
<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 31, 1995.
<PAGE> 3
ESSEX CORPORATION
-----------------
<TABLE>
BALANCE SHEETS
--------------
<CAPTION>
March 31, December 31,
1996 1995
(unaudited) (audited)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
- --------------
Cash $ 3,758,044 $ 822,065
Accounts receivable, net 2,221,594 2,655,046
Inventory 270,615 183,421
Prepayments and other current
assets 134,055 146,183
------------ ------------
6,384,308 3,806,715
------------ ------------
Property and Equipment
- ----------------------
Land 195,175 195,175
Buildings and improvements 1,627,679 1,622,255
Production and special equipment 1,987,454 1,908,586
Furniture and equipment 1,445,839 1,427,125
------------ ------------
5,256,147 5,153,141
Accumulated depreciation
and amortization (3,203,849) (3,060,370)
------------ ------------
2,052,298 2,092,771
Other Assets
- ------------
Goodwill -- 204,299
Patents, net 154,109 175,226
Deferred debenture financing 121,733 21,470
Other 54,167 50,057
------------ ------------
330,009 451,052
------------ ------------
TOTAL ASSETS $ 8,766,615 $ 6,350,538
- ------------ ============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 4
ESSEX CORPORATION
-----------------
<TABLE>
BALANCE SHEETS
--------------
<CAPTION>
March 31, December 31,
1996 1995
(unaudited) (audited)
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
- -------------------
Current portion of Industrial
Revenue Bond $ 80,001 $ 80,001
Current portion of capital leases 106,944 148,351
Bank line of credit 677,040 917,010
Accounts payable 886,697 770,614
Accrued wages and vacation 618,876 392,372
Accrued retirement contribution 191,455 144,500
Accrued lease settlement 598,941 378,941
Other accrued expenses 700,829 647,834
------------ ------------
3,860,783 3,479,623
Long-term Debt
- --------------
Industrial Revenue Bond, net
of current portion 213,320 233,320
10% Collateralized Convertible
Debentures Due 2000 1,400,000 535,000
Capital leases, net of current
portion 161,711 142,677
------------ ------------
Total Liabilities 5,635,814 4,390,620
------------ ------------
Commitments and Contingencies (Note 6)
- --------------------------------------
Stockholders' Equity
- --------------------
Common stock, $0.10 par value;
10 million shares authorized;
3,624,073 and 3,585,973 issued
and outstanding for 1996 and
1995, respectively 362,407 358,597
Contributions in excess of
par value 5,311,396 5,214,966
Retained deficit (2,543,002) (3,613,645)
------------ ------------
3,130,801 1,959,918
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
- -------------------- $ 8,766,615 $ 6,350,538
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 5
ESSEX CORPORATION
-----------------
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEK PERIODS
ENDED MARCH 31, 1996 AND MARCH 26, 1995
---------------------------------------
<CAPTION>
1996 1995
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES $ 4,245,290 $ 3,027,225
- --------
COSTS AND EXPENSES
- ------------------
Direct Costs:
Direct labor and related expenses 1,944,113 1,486,484
Other direct costs 948,677 502,709
------------ ------------
Total Direct Costs 2,892,790 1,989,193
------------ ------------
Indirect Expenses:
Operating expenses 1,384,614 953,294
Depreciation and amortization 166,313 80,689
------------ ------------
Total Indirect Expenses 1,550,927 1,033,983
ImSyn(Trade Mark) prototype
development expenses 157,500 204,601
Provision for contract reserves 250,000 --
------------ ------------
Operating Loss (605,927) (200,552)
Gain on settlement of lawsuit/
(expenses), net of related
expenses of $1,773,578 in 1996 2,226,422 (93,767)
Lease settlement (250,000) --
Interest expense (45,552) (23,409)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 1,324,943 (317,728)
- ---------------------------------
Provision for income taxes 254,300 --
------------ ------------
NET INCOME (LOSS) $ 1,070,643 $ (317,728)
- ----------------- ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 3,593,183 2,060,511
- -------------------------- ============ ============
NET INCOME (LOSS) PER SHARE
- ---------------------------
Primary $ 0.30 $ (0.15)
============ ============
Fully Diluted $ 0.28 $ (0.15)
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 6
ESSEX CORPORATION
-----------------
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEK PERIODS
ENDED MARCH 31, 1996 AND MARCH 26, 1995
---------------------------------------
<CAPTION>
1996 1995
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
- ------------------------------------
Net Income (Loss) $ 1,070,643 $ (317,728)
Adjustments to reconcile Net Income (Loss) to Net Cash
Provided By (Used In) Operating Activities:
Depreciation and amortization 166,313 80,688
Provision for contract reserves 250,000 --
Gain on sale/retirement of
fixed assets (850) (69)
Change in Assets and Liabilities:
Accounts receivable 183,452 (488,319)
Inventory (87,194) --
Refundable income taxes -- 18,600
Prepayments and other assets 6,303 (81,561)
Goodwill 204,299 --
Accounts payable 116,083 50,838
Accrued lease settlement 220,000 (30,000)
Other liabilities 326,454 (14,699)
------------ ------------
Net Cash Provided By (Used In)
Operating Activities 2,455,503 (782,250)
------------ ------------
Cash Flows From Investing Activities:
- ------------------------------------
Purchases of property and equipment (43,367) (105,602)
Proceeds from sale of fixed assets 850 69
------------ ------------
Net Cash Used In Investing Activities (42,517) (105,533)
------------ ------------
Cash Flows From Financing Activities:
- ------------------------------------
Short-term borrowings (repayments),
net (239,970) --
Repayment of long-term debt (20,000) (20,001)
Sale of common stock -- 750,000
Stock offering costs -- (103,497)
Proceeds from exercises of stock
options 100,240 --
Issuance of convertible debentures,
net of financing costs 764,737 --
Payment of capital lease obligations (82,014) --
------------ ------------
Net Cash Provided By Financing
Activities 522,993 626,502
------------ ------------
Cash and Cash Equivalents
- -------------------------
Net increase (decrease) 2,935,979 (261,281)
Balance - beginning of period 822,065 502,800
------------ ------------
Balance - end of period $ 3,758,044 $ 241,519
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 7
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. 1996 will be a 52-week fiscal
year.
NOTE 2: Net Income (Loss) Per Share
Net income (loss) per share has been calculated by dividing net
income (loss) by the weighted average number of shares outstanding
during each period. Common stock equivalents were excluded from the
computation of primary earnings per share because their effect was
immaterial. Fully diluted earnings per share were different from
primary earnings per share in the first quarter of 1996 due to the
consideration of the dilutive effect of the convertible debentures.
NOTE 3: Accounts Receivable Financing
The Company has a receivables financing arrangement with Signet
Bank. This arrangement is evidenced by a Loan Agreement, $1.5
million Promissory Note and Commercial Security Agreement
("Agreements"). Under the Agreements, the Bank will advance funds
against certain accounts receivable. The funds advanced ($677,000
at March 31, 1996 and $917,000 at December 31, 1995, approximately
the maximum available based upon the eligible accounts receivable)
constitute proceeds under the note which bears interest at an annual
rate of prime plus 3% (total rate approximately 11.25% at March 31,
1996 and 11.50% at December 31, 1995). The Company must also pay
certain administrative and commitment fees which are expected to be
less than $1,000/month. This agreement expires November 1996.
This $1.5 million line of credit is secured by all accounts
receivables and certain general intangibles (excluding patents).
The Company is subject to certain restrictions, such as acquisitions
or mergers; or creation or incurrence of new debt. Such
restrictions have been waived by the Bank in connection with the
issuance of the Company's convertible debentures.
During the first quarter of 1995, 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 balance 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.
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
<PAGE> 8
ESSEX CORPORATION
-----------------
and/or proceeds from common stock sales or asset sales; an
additional contingent payment up to $250,000 from any net proceeds
awarded from settlement of an outstanding lawsuit; and issued an
option to purchase up to 125,000 shares of the Company's stock at an
exercise price (subject to adjustment) 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/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.
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. As this legal proceeding was
concluded in the first quarter of 1996, the amount payable of
$250,000 to the former landlord was expensed in this period and paid
in April 1996.
Contingent amounts due, if any, are to be paid quarterly. The
period for computation of such contingent payments ends December
2004. Through March 31, 1996, contingent amounts totalling
approximately $241,000 have been earned, paid and charged against
the accrual. The $599,000 total accrual as of March 31, 1996 is
comprised of $40,000 to be paid ratably over the next 4 months, the
$250,000 described above and the remaining contingent portion of
$309,000 which is probable to be paid over the applicable
consideration period.
Legal Proceeding
- ----------------
On March 28, 1996, the Company and a corporate defendant reached an
out-of-court settlement of the Company's previously reported 1994
lawsuit pending in the United States District Court in Albuquerque,
New Mexico. The express terms of the settlement, including terms
regarding the confidentiality of the settlement, were definitized.
Full payment was received by the Company on March 29, 1996. Under
the terms of the settlement, the Company netted in 1996
approximately $2.2 million from this legal settlement after payment
of contingent attorney's fees of $1,525,000 and related expenses in
1996 of $249,000. The Company had previously expensed approximately
$384,000 in legal fees and related expenses in prior years.
NOTE 5: Common Stock Offering; Warrants
In July 1995, the Company successfully completed a $2.5 million
Stock Offering ("Offering"). The Company sold 25,000 Units for
$2,500,000 and received such proceeds less offering costs. The net
proceeds of approximately $2 million were recognized as increases to
the common stock and contributions in excess of par value accounts.
Through the Offering, the Company sold 25,000 Units consisting of
1,750,000 newly issued shares of common stock and warrants (expiring
June 30, 1998 and exercisable at $75.00 for 25 shares) to obtain an
additional 625,000 new shares. Proceeds from the Offering have been
used for general business purposes including,
<PAGE> 9
ESSEX CORPORATION
-----------------
principally, development of commercial products. During the fiscal
year ended December 31, 1995, approximately $1,254,000 ($204,601 in
the first quarter of 1995 as shown in the statement of operations),
was expended for ImSyn(Trade Mark) prototype development and
$183,000 for parts inventory. A portion of the net proceeds
($241,000) was used to partially satisfy the contingent obligation
to the landlord.
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.
In connection with the issuance of the 10% Convertible
Collateralized Debentures Due 2000, the Company has reserved
approximately 400,000 shares of common stock for conversion. In
addition, the Company has issued Warrants to the broker/dealer for
28,571 shares of common stock. The warrants are exercisable through
December 1, 2000 at a price of $3.50 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. The Company has also issued warrants for
78,400 shares to the purchasers of the Debentures under essentially
the same terms and conditions as the Warrants issued to the
broker/dealer.
The Company has reserved approximately 1,307,000 shares of common
stock in connection with the convertible debentures and the possible
exercise of all such warrants.
NOTE 6: Income Taxes
The Company was in a net operating loss (NOL) carryforward position
for book and tax purposes through December 31, 1995. The Company
expects to have book and taxable income in 1996. For book purposes,
the Company has utilized available NOLs, principally those obtained
in connection with a prior acquisition. The benefits obtained from
the utilization of this acquisition-related NOL resulted in the
elimination of all remaining acquisition-related goodwill
($204,000).
For income tax purposes, the Company expects to utilize available
NOLs to reduce its 1996 liability to the minimum per alternative
minimum tax regulations. The components of the Company's provision
for income taxes as of March 31, 1996 are as follows:
<TABLE>
<CAPTION>
Current Tax Provision
---------------------
<S> <C>
Federal $ 239,300
State 15,000
-----------
$ 254,300
===========
</TABLE>
The Company expects to have taxable income in 1996 and will utilize
its NOL carryforwards to reduce the amounts payable to approximately
$50,000. The balance of the provision for income taxes is
attributable to the elimination of previously recorded goodwill
($204,000) from an earlier acquisition.
<PAGE> 10
ESSEX CORPORATION
-----------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 Federal Systems Division (FSD)
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 continues its efforts to complete development of its
first ImSyn(Trade Mark) processor prototype. 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. In accordance with generally accepted
accounting principles governing such development expenses, costs of
approximately $157,500 have been recognized through the Company's
1996 first quarter statement of operations as 1996 period expenses.
Such expenses were $1,254,000 and $102,000 in fiscal years 1995 and
1994, respectively.
Additional funding is necessary for commercial products' inventory
buildup, marketing and further development of commercial
applications and products. As the Company works towards completion
of the initial ImSyn(Trade Mark) prototype unit, it has begun work
on initial units for inventory in anticipation of sales orders.
Selling and marketing efforts are continuing as are product
refinements and further product development. The Company also
continues to work with its patent attorneys in obtaining domestic
and international patents on proprietary technology. The Company
initially plans to sell in magnetic resonance imaging (MRI) and
advanced radar imaging markets. The Company issued $865,000 in the
first quarter of 1996, and $535,000 in December 1995 (totalling $1.4
million) of 10% Convertible Collateralized Debentures. The net
proceeds are being used for commercial product development,
commercial inventory production and marketing.
On March 28, 1996, the Company and a corporate defendant reached an
out-of-court settlement of the Company's previously reported 1994
lawsuit. Under the terms of the settlement, the Company netted in
1996 approximately $2.2 million from this legal settlement after
payment of contingent attorney's fees $1,525,000 and related
expenses in 1996 of $249,000. The Company had previously expensed
approximately $384,000 in legal fees and related expenses in prior
years.
As 1996 began, the Company continued to have a relatively high
backlog of approximately $41.4 million. In the first quarter of
1996, the Company won or added approximately $2.8 million in new
contract business. At March 31, 1996, the Company's contract
backlog was $40.0 million ($6.7 million funded and $33.3 million
unfunded). Included in this backlog are
<PAGE> 11
ESSEX CORPORATION
-----------------
two contracts with remaining values of $470,000 for delivery of
optoelectronic processors utilizing ImSyn(Trade Mark) technology and
related services to U.S. Government end users and one contract with
a remaining value of $480,000 for government-sponsored research
utilizing an ImSyn(Trade Mark) unit in synthetic aperture microscope
applications.
Funded contract 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 contract 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 contract backlog or the gross
margins therefrom will ultimately be realized. The mix of contracts
in this total backlog of approximately $40 million is approximately:
$35 million (88%) in cost-plus-fee type contracts; $3 million (7%)
in time and material and $2 million (5%) 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. The Company
utilizes the percentage-of-completion method of accounting for
revenue recognition. Anticipated losses, if any, are recognized as
soon as they become known.
A. REVENUE
-------
The Company's revenues for the first thirteen weeks of 1996 totaled
$4,245,000, which was $1,218,000 or 40% higher than the $3,027,000
reported during the same period in 1995. FSD revenues were higher
by approximately $1.2 million (73%) in the first quarter of 1996 as
compared to 1995. In FSD, revenues on the new U.S. Navy contract to
provide manufacturing and technical support for weapons systems and
associated materials were $583,000 in the first quarter of 1996.
There were also revenues in the first quarter of 1996 of
approximately $350,000 in FSD on new optoelectronic processor
programs for government customers. There was also an expanded level
of activity in the Company's work for Motorola, Inc. which produced
revenues of approximately $630,000 in the 1996 first quarter
compared to $450,000 in the same period in 1995.
Revenues were comparable between the quarterly periods in the SED
operation and no significant revenues were produced in the quarterly
periods by the CPD operations.
B. INCOME
------
The Company had net income in the first quarter of 1996 of
$1,071,000 or $0.30 per share (primary) as compared to a net loss of
$318,000 or $0.15 per share in the same quarterly period of 1995.
The net income in 1996 resulted from the gain on settlement of
lawsuit (approximately $1,972,000 net of $254,000 of income taxes,
or $0.55 per share). This gain triggered a payment to the former
landlord and expense of $250,000 ($0.07 per share). Excluding these
items, results from operations would have produced a net loss of
$651,000 or $0.18 per share in the first quarter of 1996 compared
with a net loss of $318,000 or $0.15 per share in the same
<PAGE> 12
ESSEX CORPORATION
-----------------
period in 1995. The primary earnings (loss) per share results are
computed on weighted average shares outstanding of 3,593,000 in 1996
compared to 2,061,000 in 1995.
While total direct costs have remained fairly proportional as a
percentage of revenues (68% in 1996 and 66% in 1995), there has been
a significant increase in other direct costs as such costs rose as
a percentage of revenue from 17% ($503,000) in 1995 to 22%
($949,000) in 1996 and a decrease in direct labor and related
expenses as a percentage of revenues (from 49% in 1995 to 46% in
1996). The increase in other direct costs as a percentage of
revenue is primarily due to increased material purchases on contract
work that was scheduled for 1995 but was delayed into early 1996.
The Company generally receives a smaller markup and profit recovery
from revenues generated by other direct costs.
The Company continues to incur expenses in connection with the
development of the ImSyn(Trade Mark) prototype. Such expenses were
$157,500 in the first quarter of 1996 and $204,601 in the first
quarter of 1995. The Company expensed $1,254,000 and $102,000 in
fiscal years 1995 and 1994, respectively. The Company expects that
this initial development phase will be completed during 1996.
In addition to the prototype development expenditures, the
Commercial Products Division is incurring expenses for staffing and
support costs for marketing, advertising, administrative and
engineering. Such expenditures were approximately $300,000 greater
in the first quarter of 1996 as compared to the same period in 1995.
The Company made a contract reserve provision of $250,000 in the
first quarter of 1996. The completion status of a fixed-price
contract to deliver an optoelectronic correlator has been negatively
impacted by design and specification changes which are not expected
to be recoverable under the $729,000 Small Business Innovative
Research contract. These matters primarily account for the
increased operating loss between the quarterly periods.
The Company and a corporate defendant reached an out-of-court
settlement. Under the terms of the Settlement Agreement, the
Company recognized a gain of approximately $2.2 million after
payment of contingent attorney's fees of $1,525,000 and related
expenses of $249,000. The Company had expensed in prior years
approximately $385,000 in connection with this lawsuit. In
addition, the Company recognized an expense of $250,000 as part of
the previously concluded rent dispute with its former landlord. The
Company was liable for such a payment upon successful conclusion of
the previously described lawsuit.
In 1996, the Company's interest costs increased due to the issuance
of $1.4 million of 10% convertible debentures. Total interest costs
were $46,000 in 1996 compared to $23,000 in 1995.
The Company recognized the majority of its remaining tax benefit
amount recoverable from the carryback of net operating losses prior
to 1994. The Company is in a net operating loss (NOL) carryforward
position. No provision or benefit from income taxes was recognized
in the first quarter of 1995. In the first quarter of 1996, the
Company recorded a book income tax expense, although lower than at
statutory rates. The Company expects to have taxable income in 1996
and will utilize its NOL carryforwards to reduce the amounts payable
to approximately $50,000. The balance of the provision for income
taxes is attributable to the elimination of previously recorded
goodwill ($204,000) from an earlier acquisition.
<PAGE> 13
ESSEX CORPORATION
-----------------
C. FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
-----------------------------------------------------
The Company evaluates its liquidity position using various factors.
The following represents some of the more important factors:
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA ($ Thousands)
AS OF
March 31, December 31, March 26,
1996 1995 1995
----------- ------------ ------------
<S> <C> <C> <C>
Total Assets $ 8,767 $ 6,351 $ 4,332
Working Capital $ 2,524 $ 327 $ (155)
Current Ratio 1.65:1 1.09:1 0.93:1
Current and Long-Term
Debt $ 293 $ 313 $ 373
Current and Long-Term
Capital Leases 269 291 --
Bank Note Payable/ 677 917 --
Accounts Receivable
Financing -- -- 595
10% Convertible
Debentures Due 2000 1,400 535 --
----------- ------------ ------------
Total Debt/
Financing $ 2,639 $ 2,056 $ 968
=========== ============ ============
Stockholders' Equity $ 3,131 $ 1,960 $ 1,466
</TABLE>
The Company experienced an improvement in its working capital
dollars and ratio due to receipt of the net proceeds of $2.2 million
from the lawsuit settlement. The stockholders' equity increased by
approximately $1.1 million from the 1996 first quarter net income.
The net cash provided by operations was approximately $2.5 million
and primarily resulted from the $1.1 million net income (including
the lawsuit gain) and collections of accounts receivables of
approximately $183,000. Other significant first quarter 1996 non
cash items were the $250,000 provision for contract reserves and the
net increase in the accrued lease settlement of $220,000. Such
items are expected to result in uses of cash in future quarters of
1996.
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 $40,000 balance payable
ratably through July 1996. The $250,000 payment generated by the
gain from lawsuit settlement was made in April 1996. The remaining
contingent portions of the landlord settlement obligation (which
have been accrued and expensed in prior years), of which $309,000
exists after March 31, 1996, 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.
<PAGE> 14
ESSEX CORPORATION
-----------------
The Company has an accounts receivable financing arrangement with a
local bank. The current loan arrangement provides for a line of
credit up to $1,500,000 for financing at the bank's prime rate plus
3%. The Company can utilize certain accounts receivable and obtain
a percentage advance as a loan under the financing arrangement. At
March 31, 1996, the funds advanced were $677,000, the maximum
available based upon the eligible accounts receivable. The current
arrangement extends through November 30, 1996. These borrowings
were repaid on April 1, 1996 and there are no borrowings
outstanding.
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
have been waived by the Bank in connection with the issuance of the
Company's convertible debentures.
In 1996, the Company plans to make significant expenditures for
commercial product inventory, commercial marketing and certain
capital expenditures. The Company expended $87,000 for inventory in
the first quarter of 1996. The Company purchased $43,000 of
property and equipment, mostly computers and other special
equipment, through direct cash purchase during the first quarter of
1996. The Company further acquired approximately $60,000 of similar
equipment under capital leases having terms which generally 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 has stock warrants outstanding with
potential cash proceeds of $1.9 million which became callable for
exercise beginning April 1, 1996 upon certain conditions, such as
when the last price of the Company's common stock exceeds $5 per
share for 10 consecutive trading days. The Company believes that
its anticipated needs for working capital will be adequately met by
the combination of its projected cash flow from its 1996 operations,
utilization of available credit from its secured asset lending
agreement and access to public and private financing markets.
<PAGE> 15
ESSEX CORPORATION
-----------------
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits
(i) Exhibit 27 - Financial Data Schedule
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
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: 14 May 1996 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.)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-1-1996
<PERIOD-END> Mar-31-1996
<PERIOD-TYPE> 3-MOS
<CASH> 3,758
<SECURITIES> 0
<RECEIVABLES> 2,222
<ALLOWANCES> (456)
<INVENTORY> 271
<CURRENT-ASSETS> 6,384
<PP&E> 5,256
<DEPRECIATION> (3,204)
<TOTAL-ASSETS> 8,767
<CURRENT-LIABILITIES> 3,861
<BONDS> 1,775
0
0
<COMMON> 362
<OTHER-SE> 2,768
<TOTAL-LIABILITY-AND-EQUITY> 8,767
<SALES> 4,245
<TOTAL-REVENUES> 4,245
<CGS> 2,893
<TOTAL-COSTS> 2,893
<OTHER-EXPENSES> 1,708
<LOSS-PROVISION> 250
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 1,325
<INCOME-TAX> 254
<INCOME-CONTINUING> 1,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,071
<EPS-PRIMARY> .30
<EPS-DILUTED> .28
</TABLE>
