ESSEX CORPORATION
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 JULY 1, 2001
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
(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 AUGUST 6, 2001
---------------------------------------------- ------------------------
Common Stock, no par value per share 4,955,961
Transitional Small Business Disclosure Format (Check One);
YES NO X
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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, 2000.
2
ESSEX CORPORATION
BALANCE SHEETS
July 1, December 31,
2001 2000
---------------------- ----------------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash $ 570,356 $ 1,015,634
Accounts receivable, net 234,802 165,614
Inventory 91,653 49,857
Prepayments and other 114,687 33,433
---------------------- ----------------------
1,011,498 1,264,538
---------------------- ----------------------
PROPERTY AND EQUIPMENT
Computer and special equipment 1,000,749 737,980
Furniture, equipment and other 298,628 225,508
---------------------- ----------------------
1,299,377 963,488
Accumulated depreciation and amortization (895,625) (863,254)
---------------------- ----------------------
403,752 100,234
---------------------- ----------------------
OTHER ASSETS
Patents, net 164,468 158,100
Other 28,790 96,461
---------------------- ----------------------
193,258 254,561
---------------------- ----------------------
TOTAL ASSETS $ 1,608,508 $ 1,619,333
------------
====================== ======================
The accompanying notes are an integral part of these statements.
3
ESSEX CORPORATION
BALANCE SHEETS
July 1, December 31,
2001 2000
---------------------- ----------------------
(unaudited) (audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 117,293 $ 131,934
Accrued wages and vacation 246,428 184,489
Capital leases 142,312 22,622
Other accrued expenses 110,413 81,748
Accrued lease settlement -- 107,766
---------------------- ----------------------
616,446 528,559
---------------------- ----------------------
LONG-TERM DEBT
Capital leases, net of current portion 128,613 --
---------------------- ----------------------
Total Liabilities 745,059 528,559
---------------------- ----------------------
STOCKHOLDERS' EQUITY
Common stock, no par value; 25 million shares
authorized; 4,825,361 and 4,570,361 shares issued and
outstanding, respectively 7,535,320 6,496,320
Convertible preferred stock, $0.01 par
value; 1 million total shares authorized;
500,000 shares of Series B authorized,
437,500 and 312,500 shares outstanding,
respectively 1,750,000 1,250,000
Additional paid-in capital 1,750,000 1,250,000
Accumulated deficit (10,171,871) (7,905,546)
---------------------- ----------------------
863,449 1,090,774
---------------------- ----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 1,608,508 $ 1,619,333
====================== ======================
The accompanying notes are an integral part of these statements.
4
ESSEX CORPORATION
STATEMENTS OF OPERATIONS
FOR THE TWENTY-SIX WEEK PERIODS
ENDED JULY 1, 2001 AND JUNE 25, 2000
2001 2000
---------------------- ----------------------
(unaudited) (unaudited)
Revenue $ 1,135,364 $ 1,773,146
Costs of goods sold and services provided (566,980) (828,956)
Research and development (1,269,645) (187,230)
Selling, general and administrative expenses (1,074,335) (926,821)
---------------------- ----------------------
Operating Loss (1,775,596) (169,861)
Interest income (expense), net and debenture
financing amortization 9,271 (14,409)
---------------------- ----------------------
Loss Before Income Taxes (1,766,325) (184,270)
Provision for income taxes -- --
---------------------- ----------------------
Net Loss (1,766,325) (184,270)
Beneficial conversion feature of convertible
preferred stock (500,000) --
---------------------- ----------------------
Net Loss Attributable to Common Stockholders $ (2,266,325) $ (184,270)
====================== ======================
Weighted Average Number of Shares
Outstanding 6,081,158 4,397,861
====================== ======================
Basic Loss Per Common Share $ (0.37) $ (0.04)
====================== ======================
Diluted Loss Per Common Share $ (0.37) $ (0.04)
====================== ======================
The accompanying notes are an integral part of these statements.
5
ESSEX CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEK PERIODS
ENDED JULY 1, 2001 AND JUNE 25, 2000
2001 2000
---------------------- ----------------------
(unaudited) (unaudited)
Revenue $ 722,536 $ 797,723
Costs of goods sold and services provided (368,027) (427,882)
Research and development (688,069) (70,063)
Selling, general and administrative expenses (488,272) (469,235)
---------------------- ----------------------
Operating Loss (821,832) (169,457)
Interest income (expense), net and debenture
financing amortization 3,577 (6,200)
---------------------- ----------------------
Loss Before Income Taxes (818,255) (175,657)
Provision for income taxes -- --
---------------------- ----------------------
Net Loss (818,255) (175,657)
Beneficial conversion feature of convertible
preferred stock (250,000) --
---------------------- ----------------------
Net Loss Attributable to Common Stockholders $ (1,068,255) $ (175,657)
====================== ======================
Weighted Average Number of Shares
Outstanding 6,288,383 4,397,861
====================== ======================
Basic Loss Per Common Share $ (0.17) $ (0.04)
====================== ======================
Diluted Loss Per Common Share $ (0.17) $ (0.04)
====================== ======================
The accompanying notes are an integral part of these statements.
6
ESSEX CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIODS
ENDED JULY 1, 2001 AND JUNE 25, 2000
2001 2000
---------------------- ----------------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,766,325) $ (184,270)
Adjustments To Reconcile Net Loss To Net Cash
(Used In) Provided By Operating Activities:
Depreciation and amortization 125,220 26,636
Inventory valuation reserve -- 25,000
Gain on sale/retirement of fixed assets (104) (5,306)
Stock option compensation expense 34,000 --
Change in Assets and Liabilities:
Accounts receivable (69,188) 232,299
Inventory (41,796) 15,321
Prepayments and other assets (81,254) 5,538
Accounts payable (14,641) 81,952
Accrued lease settlement (107,766) (30,682)
Other liabilities 74,467 (47,496)
---------------------- ----------------------
Net Cash (Used In) Provided By Operating
Activities (1,847,387) 118,992
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (62,865) (6,349)
Proceeds from sale of fixed assets 104 5,306
---------------------- ----------------------
Net Cash Used In Investing Activities (62,761) (1,043)
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of preferred stock 500,000 --
Sale of common stock 1,000,000 --
Exercise of stock options 5,000 --
Short-term repayments (borrowings), net -- 25,181
Payment of capital lease obligations (40,130) (11,947)
---------------------- ----------------------
Net Cash Provided By Financing Activities 1,464,870 13,234
---------------------- ----------------------
CASH AND CASH EQUIVALENTS
Net (decrease) increase (445,278) 131,183
Balance - beginning of period 1,015,634 502,663
---------------------- ----------------------
Balance - end of period $ 570,356 $ 633,846
====================== ======================
The accompanying notes are an integral part of these statements.
7
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 2001 is a 52-week fiscal year. Year 2000 was a 53-week
fiscal year. Certain amounts for 2000 have been reclassified to conform to the
2001 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 revenues had been
principally from a commercial customer in the satellite communications business
area. This work substantially ended in December 1999 and limited other satellite
communications work has continued.
The Company has expended significant funds to transition into the commercial
marketplace, particularly the productization of its proprietary technologies in
optoelectronic processors. In June 2000, the Company announced that it had filed
applications to secure patent protection for innovative technologies in two
communications device families: Fiberoptic HyperFine Wavelength Division
Multiplex channelizers (HfWDM) and Optical Processor Enhanced Receiver
Architecture (OPERA). In September 2000, the Company obtained $2 million in
financing from an Investor Group to advance its programs to capitalize upon
these inventions. In March 2001, the Company received a commitment for an
additional $2 million in financing from the same Investor Group, of which $1
million has been received.
Primarily due to the increased expenditures for research and development of its
optoelectronics product prototypes and services, particularly the optical
telecommunications device technologies, the Company incurred significant losses
in the first half of 2001. The Company plans to continue research and
development spending in 2001 in the optoelectronics operations. The long-term
success of the Company in these areas is dependent on its ability to
successfully develop and market products related to its communications devices
and optoelectronic processors. The success of these efforts is subject to
changing technologies, availability of additional financing, competition and
ultimately market acceptance.
8
ESSEX CORPORATION
NOTES TO INTERIM FINANCIAL INFORMATION
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Such costs include
direct labor and materials as well as a reasonable allocation of indirect costs.
However, no selling, general and administrative costs are included. Equipment
which has alternative future uses is capitalized and charged to expense over its
estimated useful life.
NOTE 2: Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per common share are computed using the weighted average
number of common shares outstanding during the period and common shares issuable
upon the required conversion of preferred stock. Diluted earnings per common
share would incorporate the incremental shares issuable upon the assumed
exercise of stock options and warrants. Since there was a net loss, such
incremental shares were anti dilutive for the periods presented.
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. There were no funds advanced as of July 1, 2001 or December 31, 2000.
NOTE 4: Common Stock; Warrants; Preferred Stock
The Company's Articles of Incorporation authorize 1 million shares of preferred
stock, 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. In September 2000, the Board designated 500,000 shares of such
preferred stock as Series B. There were 312,500 shares of Series B issued in
2000 for $1,250,000 and an additional 125,000 shares issued in 2001 for $500,000
to the Investor Group. The remaining 62,500 shares are subscribed for by the
Investor Group at $250,000 which will be paid in September 2001. Each Series B
share must be converted into 4 shares of common stock before September 12, 2002.
The Series B has 51% voting rights, subject to certain terms and conditions, on
all stockholder matters. No Series A preferred shares are currently outstanding.
In connection with the issuance of the preferred stock, the Company also issued
common stock warrants to the preferred stockholders. These warrants are for an
additional 2 million shares of common stock. The warrants have a term of 5 years
and can be exercised at a nominal price of $2,000. The warrants become
exercisable under certain terms and conditions, such as the market price of the
common stock exceeding $10 through $20 per share for 5 consecutive days, or the
occurrence of an additional private placement of $10 million where the valuation
of the Company exceeds $50 million. The warrants would also become exercisable
upon a sale of all or substantially all of the assets of the Company or a merger
or acquisition of the Company. The Company has determined that the warrants had
a nominal fair value at issuance due to the
9
ESSEX CORPORATION
NOTES TO INTERIM FINANCIAL INFORMATION
restrictive covenants. The Company has reserved 4 million shares of common stock
in connection with the convertible preferred stock and the possible exercise of
the related common stock warrants.
In accordance with Emerging Issues Task Force Issue No. 98-5 "Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios", the Company has imputed and recorded a deemed
dividend of $1,750,000 on its Series B Preferred Stock equal to the difference
between the estimated current market price at original date of issuance and the
conversion price (the "beneficial conversion feature"). There remains an
additional $250,000 of beneficial conversion feature to be recorded as a deemed
dividend when the remaining preferred stock is issued. Such imputed dividends
have no impact on net income (loss) from operations or cash flows but have to be
considered when calculating earnings (loss) per share attributable to common
stockholders.
In March 2001, the Company closed on a private placement funding transaction
with the same Investor Group. Under the terms of the funding, the Company
received $500,000 immediately and $500,000 in June. The Company will receive
payments of $500,000 in August and October 2001. The Company will issue 500,000
shares in total of its common stock in connection with this transaction.
NOTE 5: 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 6: Statements of Cash Flows - Supplemental Disclosure
In 2001, the Company entered into capital leases for new equipment for $288,000.
There were no new capital leases entered into in the first half of 2000.
NOTE 7: Restatement of Certain 2000 Financial Data
The Company has restated components of stockholders' equity to reflect the
effect of the beneficial conversion feature of the Series B Convertible
Preferred Stock, by increasing Additional Paid-In Capital to $1,250,000 from $0
and changing Accumulated Deficit by a like amount, from $(6,655,546) to
$(7,905,546). There was no change to total stockholders' equity of $1,090,774.
10
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" AND 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 business is focused increasingly upon applications of its
proprietary optoelectronics technology and development of products from these
technologies.
In September 2000 the Company closed on a private placement funding transaction
with GEF Optical Investment Company, LLC and Networking Ventures L.L.C.
(together, the "Investor Group"). Under the terms of the funding, the Company
has received $1,750,000 and will receive the final $250,000 in September 2001.
The Investor Group received preferred stock that is convertible into 1,750,000
shares of common stock. Additional preferred stock convertible into another
250,000 common shares will be issued as final payment is made. The Investor
Group was also issued warrants for an additional 2 million shares of common
stock. The warrants can be exercised for a nominal price under certain terms and
conditions. In December 2000 the Company received a separate investment of
$400,000 from the Investor Group through the purchase of 160,000 shares of
Common Stock. In March 2001, the Company received a commitment for an additional
$2 million in financing for 500,000 shares of Common Stock from the same
Investor Group. The Company received $1 million in the first half of 2001 and
will receive payments of $500,000 in August and October of 2001. See Note 4 of
Notes to Financial Statements for further details.
The Company's primary use of the funds is to patent, develop and commercialize
its key leading-edge optical technologies, principally the fiberoptic HyperFine
Wavelength Division Multiplex channelizers (HfWDM) and wireless Optical
Processor Enhanced Receiver Architecture (OPERA). The Company accelerated the
internal work to support patent filings and the related development work on the
technology devices during the third quarter of 2000. The purpose of the HfWDM is
to increase the number of usable communications channels within a single optical
fiber. The purpose of the OPERA is to increase capacity and improve voice and
data quality of wireless systems. These inventions arose from the Company's work
and expertise in the optical devices and communications fields.
The Company has working laboratory and prototype models of the HfWDM, which are
being demonstrated to prospective strategic partners and investors. The Company
expects that prototype units of its HyperFine family of devices will be
available for field trials by customers
11
ESSEX CORPORATION
beginning in late summer 2001. The Company is developing simulations of its
OPERA wireless receiver device technology and is undertaking to determine the
various market entry points for such device technology. The Company is also
having discussions with various established commercial entities that are in the
wireless communications market in order to determine the best commercial
applications of such technology.
The development of these devices has required a diversion of labor resources
from revenue generation since mid 2000 and is expected to continue to do so for
the remainder of 2001. The Company has begun to hire additional personnel to
augment existing technical staff. Since the Company is investing the new capital
in such research and development, the financial statements reflect higher than
normal expenses which increase the Company's reported losses.
Because of the emphasis on development, the Company has been unable to maintain
revenue generating programs in sufficient volume to consistently achieve an
overall breakeven or better level of operations. Work based on the patented
ImSyn(TM) Processor continues on application contracts for U.S. Government
customers for the development of advanced synthetic aperture radar (SAR)
techniques. The Company received $1.4 million in new contract awards in April
2001 from the Department of Defense. The largest contract, of which $690,000
remains for work to be performed in 2001, is to apply improvements made to
ImSyn(TM) optoelectronic processors for high speed image processing. The current
inventory has been written down to its estimated net realizable value as
components or subassemblies in the redesigned and upgraded units.
As of July 1, 2001, the Company had a backlog on programs related to services
and applications of optoelectronics of approximately $1,494,000, down from
$1,943,000 at April 1, 2001. The Company is working to reduce the deficit from
operations and to improve its operating cash flows. Backlog and order issues
will continue to be major concerns until substantial improvements realized from
customer funded development programs have been achieved.
The Company currently does not have sufficient resources to bring its
telecommunications and optoelectronics processing devices to market.
Accordingly, the Company will likely have to partner with or enter into
licensing arrangements with major industry participants in order to successfully
introduce its technology and products. There can be no assurance that the
Company will be successful in entering into such agreements.
REVENUES
Revenues were $723,000 and $798,000 for the second quarters of 2001 and 2000,
respectively. Revenues for the first half of 2001 were $1,135,000, a decrease of
36% from the $1,773,000 in revenues for the first half of 2000. 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 cost
recovery in the first half of 2001. The decline in revenues was primarily due to
the diversion of labor resources to continuing development work and the delay in
receipt of new contract awards until April 2001.
12
ESSEX CORPORATION
INCOME (LOSS)
There was an operating loss of $822,000 and $169,000 in the second quarters of
2001 and 2000, respectively. There were operating losses of $1,776,000 and
$170,000 in the first half periods of 2001 and 2000, respectively. Costs 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 2001
were 49.9% as compared to 51% in 2000. In the second quarter of 2001, COGS was
50.9% compared to 53.6% in the same period of 2000.
Research and development ("R&D") increased in 2001 to approximately $1,269,000
from approximately $187,000 in 2000. In 2001, the majority of the R&D costs were
incurred on efforts related to optical telecommunications technology. In 2000,
the majority of the expenditures were on ImSyn development. The Company has
greatly increased its R&D spending since the September 2000 capital infusion and
expects to continue its increased R&D spending in the optical and
telecommunications areas in 2001.
The Company has increased selling, general and administrative expenses ("SG&A"),
particularly as related to optoelectronics and telecommunications new device
business areas. Overall, SG&A expenses remain high relative to the revenue
volume as the Company seeks to commercialize its optoelectronic
telecommunications devices and services. The high SG&A expenses contributed to
the operating losses in the first half periods of 2001 and 2000.
CORPORATE MATTERS
In 2001, the Company netted $9,000 of interest income, primarily from the
temporary investment of funds from the private placements. Total interest
expense and debenture financing amortization costs were $14,000 in the first
half of 2000.
The Company is in a net operating loss (NOL) carryforward position. No provision
or benefit from income taxes was recognized in the first half of 2001 or 2000.
13
ESSEX CORPORATION
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company evaluates its liquidity position using various factors. The
following represents some of the more important factors:
SELECTED FINANCIAL DATA ($ Thousands)
AS OF
-----------------------------------------------------
July 1, December 31, June 25,
2001 2000 2000
--------------- --------------- ---------------
(unaudited) (audited) (unaudited)
Total Assets $ 1,609 $ 1,619 $ 1,442
=============== =============== ===============
Working Capital $ 395 $ 736 $ 224
=============== =============== ===============
Current Ratio 1.64:1 2.39:1 1.22:1
=============== =============== ===============
Advance from Accounts Receivable
Financing $ -- $ -- $ 85
Convertible Debentures -- -- 376
Capital Leases $ 271 $ 23 $ 11
--------------- --------------- ---------------
Total Debt/Financing $ 271 $ 23 $ 472
=============== =============== ===============
Stockholders' Equity $ 863 $ 1,091 $ 426
=============== =============== ===============
The Company had net cash used in operating activities of approximately $1.8
million, of which approximately $1.7 million was the net loss. The Company
primarily financed these losses from the proceeds of the equity sales discussed
below. The Company incurred the net loss in the first half of 2001 primarily due
to the increased expenditures for development of its optoelectronics products
and services, particularly the optical telecommunications device technologies.
The Company plans to continue research and development spending in 2001 in the
optoelectronics operations.
In late 2000, the Company received $1,250,000 of a $2 million commitment from
the private placement sale of 312,500 shares of Series B Preferred Stock to the
Investor Group. In the first half of 2001, the Company received $500,000 from
this commitment. The Company will receive the remaining $250,000 in September
2001 in exchange for an additional 62,500 shares of Series B Preferred Stock.
The funds are to be used primarily for the development of the optical
telecommunications device technologies.
The Company paid off the $376,000 of Convertible Debentures in November 2000. In
December 2000, the Company received proceeds of $400,000 from the sale of
160,000 shares of common stock to the Investor Group.
In March 2001, the Company negotiated an additional investment of $2 million
with the Investor Group. The additional investment is structured as a private
placement of 500,000 shares of Essex common stock. The funds will be received in
four equal installments during 2001 and the
14
ESSEX CORPORATION
first two payments were received in the first half of 2001. The proceeds will
primarily be used to expand development in the Company's optoelectronic
telecommunications device technologies.
The Company is seeking to establish joint ventures or strategic partnerships
including licensing of its technologies to major industrial concerns to
facilitate these goals. The Company may also seek additional funds under
appropriate terms from private sources, including the Investor Group, to
continue to finance development and to achieve initial market penetration.
Significant delays in the 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.
The Company has a working capital financing arrangement 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. There were no funds advanced as of July 1, 2001.
The Company believes that it will be able to meet its 2001 funding requirements
and obligations from the aforementioned sources of revenue and capital, and if
necessary, by 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
ESSEX CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(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 undersign,
thereunto duly authorized.
ESSEX CORPORATION
(Registrant)
Date: August 15, 2001
/s/ Joseph R. Kurry, Jr.
-------------------------------------
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.)