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 June 25, 2000
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) 939-7000
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 June 25, 2000
----- ----------------
Common Stock, par value $0.10 per share 4,397,861
Transitional Small Business Disclosure Format (Check One);
YES NO X
----- -----
<PAGE>
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 for the fiscal year ended December
26, 1999.
2
<PAGE>
ESSEX CORPORATION
<TABLE>
BALANCE SHEETS
<CAPTION>
June 25, December 26,
2000 1999
----------------- ----------------
(unaudited) (audited)
ASSETS
Current Assets
<S> <C> <C>
Cash $ 633,846 $ 502,663
Accounts receivable, net 413,265 645,564
Inventory 139,857 180,178
Prepayments and other 47,605 46,795
--------------- ---------------
1,234,573 1,375,200
--------------- ---------------
Property and Equipment
Production and special equipment 724,700 729,974
Furniture, equipment and other 238,289 240,095
--------------- ---------------
962,989 970,069
Accumulated depreciation and amortization (907,464) (905,185)
--------------- ---------------
55,525 64,884
--------------- ---------------
Other Assets
Patents, net 130,218 137,658
Other 21,713 31,549
--------------- ---------------
151,931 169,207
--------------- ---------------
TOTAL ASSETS $ 1,442,029 $ 1,609,291
------------
=============== ===============
=============== ===============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
3
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ESSEX CORPORATION
<TABLE>
BALANCE SHEETS
<CAPTION>
June 25, December 26,
2000 1999
------------------- ----------------
(unaudited) (audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
<S> <C> <C>
Advance from accounts receivable financing $ 84,651 $ 59,470
Accounts payable 160,291 78,339
Accrued wages and vacation 159,421 160,932
Accrued lease settlement 92,766 123,448
10% convertible collateralized debentures 375,714 375,714
Other accrued expenses 138,022 193,182
--------------- --------------
1,010,865 991,085
Long-term Debt
Capital leases, net of current portion 5,544 8,316
--------------- --------------
Total Liabilities 1,016,409 999,401
--------------- --------------
Commitments and Contingencies (Note 4)
Stockholders' Equity
Common stock, $0.10 par value; 25 million
shares authorized; 4,397,861 shares issued
and outstanding 439,786 439,786
Redeemable preferred stock, $0.01 par
value; 1 million total shares authorized;
2,500 shares of Series A authorized, $100
liquidation value, no shares outstanding -- --
Additional paid-in capital 5,634,234 5,634,234
Accumulated deficit (5,648,400) (5,464,130)
--------------- --------------
425,620 609,890
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 1,442,029 $ 1,609,291
=============== ==============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
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ESSEX CORPORATION
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE TWENTY-SIX WEEK PERIODS
ENDED JUNE 25, 2000 AND JUNE 27, 1999
<CAPTION>
2000 1999
---------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $ 1,773,146 $ 2,209,582
Costs of goods sold and services provided (913,841) (1,143,981)
Selling, general and administrative expenses (1,029,166) (1,167,698)
--------------- ---------------
Operating Loss (169,861) (102,097)
Interest expense, net and debenture financing
amortization
(14,409) (27,977)
--------------- ---------------
--------------- ---------------
Loss Before Income Taxes (184,270) (130,074)
Provision for income taxes -- --
--------------- ---------------
Net Loss $ (184,270) $ (130,074)
=============== ===============
=============== ===============
Weighted Average Number of Shares Outstanding 4,397,861 4,397,861
=============== ===============
=============== ===============
Basic Loss Per Share $ (0.04) $ (0.03)
=============== ===============
=============== ===============
Diluted Loss Per Share $ (0.04) $ (0.03)
=============== ===============
=============== ===============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
5
<PAGE>
ESSEX CORPORATION
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEK PERIODS
ENDED JUNE 25, 2000 AND JUNE 27, 1999
<CAPTION>
2000 1999
---------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $ 797,723 $ 1,243,820
Costs of goods sold and services provided (490,318) (638,832)
Selling, general and administrative expenses (476,862) (570,051)
--------------- ---------------
Operating Income (Loss) (169,457) 34,937
Interest expense, net and debenture financing
amortization
(6,200) (15,684)
--------------- ---------------
--------------- ---------------
Income (Loss) Before Income Taxes (175,657) 19,253
Provision for income taxes -- --
--------------- ---------------
Net Income (Loss) $ (175,657) $ 19,253
=============== ===============
=============== ===============
Weighted Average Number of Shares Outstanding 4,397,861 4,397,861
=============== ===============
=============== ===============
Basic Earnings (Loss) Per Share $ (0.04) $ 0.00
=============== ===============
=============== ===============
Diluted Earnings (Loss) Per Share $ (0.04) $ 0.00
=============== ===============
=============== ===============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
6
<PAGE>
ESSEX CORPORATION
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIODS
ENDED JUNE 25, 2000 AND JUNE 27, 1999
<CAPTION>
2000 1999
-------------- ---------------
(unaudited) (unaudited)
Cash Flows From Operating Activities:
<S> <C> <C>
Net Loss $ (184,270) $ (130,074)
Adjustments to reconcile Net Loss to Net Cash
Provided By (Used In) Operating Activities:
Depreciation and amortization 26,636 83,278
Inventory valuation reserve 25,000 --
Gain on sale/retirement of fixed assets (5,306) (740)
Change in Assets and Liabilities:
Accounts receivable 232,299 (212,168)
Inventory 15,321 (2,797)
Prepayments and other assets 5,538 13,528
Accounts Payable 81,952 53,592
Other Liabilities (47,496) (49,226)
Accrued lease settlement expense (30,682) --
------------- -------------
Net Cash Provided By (Used In) Operating
Activities
118,992 (244,607)
------------- -------------
Cash Flows From Investing Activities:
Purchases of property and equipment (6,349) (15,454)
Proceeds from sale of fixed assets 5,306 1,554
------------- -------------
------------- -------------
Net Cash Used In Investing Activities (1,043) (13,900)
------------- -------------
------------- -------------
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net 25,181 79,427
Payment of capital lease obligations (11,947) (50,524)
------------- -------------
------------- -------------
Net Cash Provided By Financing Activities 13,234 28,903
------------- -------------
------------- -------------
Cash and Cash Equivalents
Net increase (decrease) 131,183 (229,604)
Balance - beginning of period 502,663 543,538
------------- -------------
------------- -------------
Balance - end of period $ 633,846 $ 313,934
============= =============
============= =============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
7
<PAGE>
ESSEX CORPORATION
NOTES TO INTERIM FINANCIAL INFORMATION
NOTE 1: General
Fiscal Year and Presentation
Essex Corporation (the "Company") is on a 52/53-week fiscal year ending the last
Sunday in December. Year 2000 is a 53-week fiscal year. Year 1999 was a 52-week
fiscal year. Certain amounts for 1999 have been reclassified to conform to the
2000 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Estimates are used when accounting for uncollectible accounts receivable,
inventory obsolescence and valuation, depreciation and amortization, intangible
assets, employee benefit plans and contingencies, among others. Actual results
could differ from those estimates.
Important Business Risk Factors
The Company has historically been principally a supplier of technical services
under contracts or subcontracts with departments or agencies of the U.S.
Government, primarily the military services and other departments and agencies
of the Department of Defense. In recent years, the Company's business had been
principally commercial in the satellite communications (SatCom) business area.
This work substantially ended in December 1999.
Since 1989, the Company has expended significant funds to transition into the
commercial marketplace, particularly the productization of its proprietary
technologies in optoelectronic processors. The Company has incurred losses over
the last decade, primarily due to the development and marketing of its
optoelectronics products and services. The long-term success of the Company in
this area is dependent on its ability to successfully develop and market
products related to its optoelectronic processors. The success of these efforts
is subject to changing technologies, availability of financing, competition, and
ultimately market acceptance.
The Company is seeking additional funds from private financing markets to
finance optoelectronic operations and to achieve desired product inventory
levels and initial market penetration. The Company is also seeking to establish
joint ventures or strategic partnerships with major industrial concerns to
facilitate these goals. Failure to commercialize or further significant delays
in the commercialization of the Company's optoelectronic products would have a
significant adverse effect on the Company's future operating results and future
financial position; however, the Company believes that in such event it could
successfully manage and reduce cash requirements for operations by curtailing
expenditures in optoelectronics operations (including general and administrative
expenses), although there can be no assurances in this regard.
8
<PAGE>
ESSEX CORPORATION
NOTES TO INTERIM FINANCIAL INFORMATION
In June 2000, the Company announced that it had filed applications to secure
patent protection for innovative technologies in two communications device
families. These are fiberoptic Hyperfine Wave Division Multiplex channelizers
(HWDM) and wireless Optimal Code Division Multiple Access Receivers (OCDMAR).
The Company is seeking financing to prosecute its programs to capitalize upon
these inventions. The Company is in discussions with several parties. The
Company is unable to predict the outcome of these discussions or the terms under
which such financing could be obtained.
NOTE 2: Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per share are computed using the weighted average number
of common shares outstanding during the period. Common stock equivalents were
anti-dilutive or immaterial in all periods.
NOTE 3: Accounts Receivable Financing
The Company has a working capital financing agreement with an accounts
receivable factoring organization. Under such an agreement, the factoring
organization may purchase certain of the Company's accounts receivable subject
to full recourse against the Company in the case of nonpayment by the customers.
The Company generally receives 85%-90% of the invoice amount at the time of
purchase and the balance when the invoice is paid. The Company is charged an
interest fee and other processing charges, payable at the time each invoice is
paid. Funds advanced were $85,000 as of June 25, 2000 and $59,000 as of December
26, 1999.
NOTE 4: Commitments and Contingencies
Effective July 1994, the Company settled a legal dispute with a former landlord.
Under the Settlement Agreement, the Company remains liable for $93,000 of
contingent cash payments from 25% of future earnings (as defined) and 10-15% of
the net proceeds from the future sale of stock or operating assets. The period
for computation of such contingent payments ends December 2004.
NOTE 5: Common Stock; Warrants; Preferred Stock
In connection with the outstanding 10% Convertible Collateralized Debentures due
November 30, 2000, the Company has reserved approximately 107,000 shares of
common stock for conversion at $3.50 per share. 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
214,000 shares of common stock in connection with the convertible debentures and
the possible exercise of all such warrants.
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<PAGE>
ESSEX CORPORATION
NOTES TO INTERIM FINANCIAL INFORMATION
The Company's Articles of Incorporation authorize a class of preferred stock, 1
million shares, par value $0.01 per share, the series and rights of which may be
designated by the Board of Directors in accordance with applicable state and
federal law. No preferred shares are currently outstanding.
NOTE 6: Income Taxes
The Company is in a net operating loss (NOL) carryforward position for book and
tax purposes. No tax benefit will be recognized until taxable income is
realized.
NOTE 7: Statements of Cash Flows - Supplemental Disclosure
In the first half of 1999, the Company entered into a capital lease for new
equipment for $110,000. There were no new capital leases entered into in the
first half of 2000.
10
<PAGE>
ESSEX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis or Plan of Operation and other sections
contain forward-looking statements that are based on management's expectations,
estimates, projections and assumptions. Words such as "expects", "anticipates",
"plans", "believes", "estimates", variations of such words and similar
expressions are intended to identify such forward-looking statements that
include, but are not limited to, projections of revenues, earnings, segment
performance, cash flows and contract awards. Such forward-looking statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements are not guarantees of future performance
and involve certain risks and uncertainties that are difficult to predict.
Therefore, actual future results and trends may differ materially from what is
indicated in forward-looking statements due to a variety of factors.
STATUS
The Company's revenues in recent years have come from satellite
telecommunications (SatCom) and optoelectronics business programs and contracts.
The SatCom work was principally with one major customer, Motorola, and was
approximately 45% ($2.2 million) of the Company's revenues for 1999. This SatCom
work substantially ended in December 1999.
The Company's revenues during 2000 principally derive from applications of its
proprietary optoelectronics technology and products. Work based on the patented
ImSyn(TM) Processor has increased with the award of a group of contracts funded
under Small Business Innovation Research (SBIR) and other research programs by
the Army, Navy, DARPA and DOD since October 1999. Aggregate multi-year funding
expected under the terms of the four contracts is $2.1-2.2 million. Such work is
generally incrementally funded and spans 1-2 years. The increase in this work
has only partially offset the decline in telecommunications revenues.
The Company has recently begun new work on a 6-month, $343,000 program for
Motorola. The Company is performing modeling and simulation systems engineering
on a Motorola terrestrial wireless infrastructure telecommunications
application.
The Company has been unable to maintain sufficient program volume and to expand
such work consistently to achieve a breakeven or better level of operations on
such revenues. While the Company was able to operate profitably in the last
three quarters of 1999, the Company's backlog of work in 2000 is not yet
sufficient to maintain a breakeven or better level of operations. The Company is
working to reduce the deficit from operations and to improve its cash flows.
Backlog and order issues will continue to be major concerns until substantial
improvements have been achieved.
Since early 1997, the Company has continued development and product improvement
of its initial ImSyn(TM) optoelectronic processor to the extent possible from
internal funds. The processor is a combination of digital and optical
componentry. Problems in the reliability and performance of initially selected
digital components as well as the combination of such state-of-the-art
subassemblies caused delays in the availability of the ImSyn(TM) processor to
potential early users and customers. Four units were completed and available in
1998. The Company has established
11
<PAGE>
ESSEX CORPORATION
significant reserves against its ImSyn(TM) inventory for such changes and delays
in the sale of these first units. The Company continues to pursue applications
of its ImSyn(TM) Processor because it believes that the performance and economic
potentials of the processor enable practical 3D holographic imaging for health
care, biology, chip fabrication and national security.
Two earlier units were sold to National Defense Agencies. Those processors and
another owned by the Company are in virtually continuous use performing
processing on various Essex contracts and development activities. One unit is on
loan to The Hospital of the University of Pennsylvania for use in specialized
magnetic resonance imaging (MRI) research. The remaining first-designed units
require upgrading with higher speed electronic circuits, hardware and software
changes and retesting and recalibrating of unit performance. The lack of
upgraded units for initial user testing and evaluation has hindered potential
sales and revenues and delayed inventory turnover.
The Company's recently built and tested second generation, more robust optical
module for its ImSyn(TM) Processor has met design objectives. This engineering
model is operating with a first generation electronics package in an ImSyn
Processor unit. It will be easier to fabricate than the first generation optical
module. A second such optical unit will be built for use in a previously
announced U.S. Navy synthetic aperture radar (SAR) program. This new optical
module produces images in which peak signal exceeds background noise by 120 dB,
1000 times better than the performance of the original optical module. It also
allows the optical system to operate four times faster. Higher speed digital
input/output circuits are now being designed. The Company is seeking funding for
the second generation electronics package which is expected to provide a 32-fold
increase in system speed. Our simplified optical module is also more robust and
easier to fabricate.
In June 2000, the Company announced that it had filed applications to secure
patent protection for innovative technologies in two communications device
families. These are fiberoptic Hyperfine Wave Division Multiplex channelizers
(HWDM) and wireless Optimal Code Division Multiple Access Receivers (OCDMAR).
The purpose of the HWDM is to increase the number of usable communications
channels within a single optical fiber. The purpose of the OCDMAR is to increase
capacity and improve voice and data quality of wireless systems. These invention
filings arose from the Company's work and expertise in the optical devices and
communications fields. The Company is seeking financing to prosecute its
programs to capitalize upon these inventions.
The Company continues to seek investment groups to pursue commercial
applications of 3D ground penetrating radar or to develop communication devices
under the newly filed patent applications. The proposed ground penetrating radar
project would apply the patented ImSyn(TM) Processor and the Company's
proprietary holographic Virtual Lens Sensor Technology(TM). Data on the location
and condition of underground utilities, transportation subgrades and
construction sites would be collected, processed, interpreted and archived in
its data warehouse. Infrastructure and natural resources business subscribers
would access it through the enterprise's broadband business-to-business network
on the public internet. Success in financing and launching such an enterprise is
not assured.
Financing for completing the fiberoptic and wireless patent applications and
development of working model and prototype devices is also being sought. The
Company is in discussions with several parties. The Company is unable to predict
the outcome of these discussions or the terms under which such financing could
be obtained.
12
<PAGE>
ESSEX CORPORATION
REVENUES
Revenues were $798,000 and $1,244,000 for the second quarters of 2000 and 1999,
respectively. Revenues for the first half of 2000 were $1,773,000, a decrease of
20% over from the $2,210,000 in revenues for the first half of 1999. The first
half 2000 revenues include approximately $148,000 for recovery of excess
indirect costs on a government contract completed in 1994. There was no such
transaction in the first half of 1999. The Company's work for Motorola for the
Iridium and other cellular communication systems accounted for revenues of
$243,000 and $1,444,000 in the first half of 2000 and 1999, respectively. This
represented 14% and 65% of total revenues for the first half of 2000 and 1999,
respectively.
Increased work in the optoelectronics computer systems area for U.S. Government
customers partially offset the decline in commercial SatCom revenues during the
first half of 2000. Such revenues were $1,281,000 in the first half of 2000
compared to $728,000 in the first half of 1999. As of June 25, 2000, the Company
had a backlog on programs related to optoelectronic services and applications of
approximately $1,620,000. This backlog was down from $2,188,000 at March 26,
2000 as no new awards were received during this second quarter period. The
Company had no firm orders for ImSyn(TM) units as of the date of this report.
INCOME (LOSS)
There was an operating loss of $176,000 and operating income of $19,000 in the
second quarters of 2000 and 1999, respectively. There were losses of $184,000
and $130,000 in the first half periods of 2000 and 1999, respectively. Cost of
goods sold and services provided ("COGS") as a percentage of revenues (excluding
revenue from recovery of prior year excess costs) for the first half of 2000
were 56.5% as compared to 51.8% in 1999. In the second quarter of 2000, COGS was
61.5% compared to 51.4% in the same period of 1999. COGS in 2000 reflects higher
costs from precontract spending on anticipated new programs and increased
inventory valuation reserve costs. COGS is generally higher on government work
and profit margins are lower relative to commercial work. The contract mix shift
from commercial to government work from 1999 to 2000 has had an impact upon
COGS.
The Company has curtailed selling, general and administrative expenses ("SG&A")
where possible while retaining essential technical capabilities and personnel in
the optoelectronics and telecommunications businesses. While SG&A expenses were
approximately $139,000 or 12% lower in the first half of 2000 compared to the
same period in 1999, the reduction was more than offset by the 20% decline in
revenues. Overall, SG&A expenses remain high relative to the revenue volume as
the Company seeks to commercialize its optoelectronic products and services and
perform initial internal work on telecommunications patent filings. The high
SG&A expenses contributed to the operating losses in the first half periods of
1999 and 2000.
CORPORATE MATTERS
In 2000, the Company's interest expense declined due to lower average accounts
receivable financings under its working capital borrowing agreement. Total
interest expense and debenture financing amortization costs were $14,000 in the
first half of 2000 compared to $28,000 in the same period of 1999.
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ESSEX CORPORATION
The Company recognized the majority of its remaining tax benefit amount
recoverable from the carryback of net operating losses prior to 1994. The
Company is in a net operating loss (NOL) carryforward position. No provision or
benefit from income taxes was recognized in the first half of 2000 or 1999.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company evaluates its liquidity position using various factors. The
following represents some of the more important factors:
<TABLE>
SELECTED FINANCIAL DATA ($ Thousands)
AS OF
----------------------------------------------
<CAPTION>
June 25, December 26, June 27,
2000 1999 1999
------------ ------------ ------------
(unaudited) (audited) (unaudited)
<S> <C> <C> <C>
Total Assets $ 1,442 $ 1,609 $ 1,794
============ ============ ============
============ ============ ============
Working Capital $ 224 $ 384 $ 493
============ ============ ============
============ ============ ============
Current Ratio 1.22:1 1.39:1 1.50:1
============ ============ ============
============ ============ ============
Advance from Accounts Receivable
Financing $ 85 $ 59 $ 243
Convertible Debentures 376 376 376
Current and Long-Term Capital Leases 11 23 64
------------ ------------ ------------
Total Debt/Financing $ 472 $ 458 $ 683
============ ============ ============
============ ============ ============
Stockholders' Equity $ 426 $ 610 $ 435
============ ============ ============
============ ============ ============
</TABLE>
The Company experienced a decrease in its working capital and current ratio at
June 25, 2000 as compared to June 27, 1999. The decrease was primarily due to
the reclassification of the convertible debentures to a current liability as the
debentures are due in November 2000. The Company's working capital and current
ratios at June 25, 2000 declined from December 1999 primarily due to the net
loss experienced in the first half of 2000.
The Company has incurred losses over the last decade, primarily due to the
development and marketing of its optoelectronics products and services. The
Company has also experienced difficulty in sustaining revenue volume in the
satellite communications (SatCom) systems business area.
The Company continues to seek additional funds under appropriate terms from
private financing sources to finance development and to achieve desired product
inventory levels and initial market penetration. The Company is also seeking to
establish joint ventures or strategic partnerships with major industrial
concerns to facilitate these goals. Further significant delays in the
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ESSEX CORPORATION
commercialization of the Company's optoelectronic products, failure to market
such products or failure to raise substantial additional working capital would
have a significant adverse effect on the Company's future operating results and
future financial position.
There are $376,000 of Convertible Debentures that are due November 30, 2000 for
which no funds have been identified or set aside for payment. The Company may
have to use all or a significant portion of its cash at that time to make the
payoff of the debentures. The use of the Company's cash resources without
securing alternative sources of liquidity would likely have a material adverse
impact on the Company's liquidity. The Company is exploring various financing
options including negotiating an extension of the final payoff date or
restructuring of the debt, but is unable to predict the likelihood of success of
such a negotiation or the terms of such an extension.
The Company has approximately $140,000 of inventory in current assets. This
inventory is comprised of ImSyn(TM) optoelectronic processors and primarily
consists of finished goods and purchased parts. Sales of such units will be
necessary in order to maintain working capital liquidity. There are no firm
orders for such units as of the date of this report.
The Company has a working capital financing agreement with an accounts
receivable factoring organization. Under such an agreement, the factoring
organization may purchase certain of the Company's accounts receivable subject
to full recourse against the Company in the case of nonpayment by the customers.
The Company generally receives 85%-90% of the invoice amount at the time of
purchase and the balance when the invoice is paid. The Company is charged an
interest fee and other processing charges, payable at the time each invoice is
paid. Funds advanced were $85,000 as of June 25, 2000.
Effective July 1994, the Company settled a legal dispute with a former landlord.
There is a $93,000 accrual as of June 25, 2000 which represents the remaining
contingent portion to be paid over the applicable consideration period. Under
the Settlement Agreement, the Company remains liable for such contingent cash
payments from 25% of future earnings (as defined) and 10-15% of the net proceeds
from the future sale of stock or operating assets. The period for computation of
such contingent payments ends December 2004.
The Company believes that it will be able to meet its 2000 funding requirements
and obligations from the aforementioned sources of revenue and capital, and if
necessary, by further cost reductions. However, there can be no assurances in
this regard and the Company expects that it will need significant additional
financing in the future.
THE PRECEDING PARAGRAPHS DISCUSSING THE COMPANY'S FINANCIAL CONDITION CONTAIN
FORWARD-LOOKING STATEMENTS. THE FACTORS AFFECTING THE ABILITY OF THE COMPANY TO
MEET ITS FUNDING REQUIREMENTS AND MANAGE ITS CASH RESOURCES INCLUDE, AMONG OTHER
THINGS, THE AMOUNT AND TIMING OF PRODUCT SALES, INVENTORY TURNOVER, THE
MAGNITUDE OF FIXED COSTS AND THE ABILITY TO OBTAIN WORKING CAPITAL, ALL OF WHICH
INVOLVE RISKS AND UNCERTAINTIES THAT ARE DIFFICULT TO PREDICT.
15
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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: August 7, 2000
/s/ Joseph R. Kurry, Jr.
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Joseph R. Kurry, Jr.
Senior 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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