FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 SEPT. 30, 2001
------------------------------------ -------------------
Common Stock, no par value per share 5,080,961
Transitional Small Business Disclosure Format (Check One);
YES NO X
------------ -----------
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. 2 for the fiscal year ended
December 31, 2000.
2
ESSEX CORPORATION
BALANCE SHEETS
September 30, December 31,
2001 2000
------------- -------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash $ 839,601 $ 1,015,634
Accounts receivable, net 339,168 165,614
Inventory 59,983 49,857
Prepayments and other 66,974 33,433
------------ ------------
1,305,726 1,264,538
------------ ------------
PROPERTY AND EQUIPMENT
Computer and special equipment 1,018,931 737,980
Furniture, equipment and other 298,628 225,508
------------ ------------
1,317,559 963,488
Accumulated depreciation and amortization (926,718) (863,254)
------------ ------------
390,841 100,234
------------ ------------
OTHER ASSETS
Patents, net 177,478 158,100
Other 19,213 96,461
------------ ------------
196,691 254,561
------------ ------------
TOTAL ASSETS 1,893,258 1,619,333
------------ ============ ============
The accompanying notes are an integral part of these statements.
3
ESSEX CORPORATION
BALANCE SHEETS
September 30, December 31,
2001 2000
------------- -------------
(unaudited) (audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 234,455 $ 131,934
Accrued wages and vacation 187,597 184,489
Capital leases 136,634 22,622
Other accrued expenses 98,455 81,748
Accrued lease settlement -- 107,766
------------- -------------
657,141 528,559
------------- -------------
LONG-TERM DEBT
Capital leases, net of current portion 89,982 --
------------- -------------
Total Liabilities 747,123 528,559
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, no par value; 25 million
shares authorized; 5,080,961 and
4,570,361 shares issued and outstanding,
respectively 8,551,544 6,496,320
Convertible preferred stock, $0.01 par
value; 1 million total shares authorized;
500,000 shares of Series B authorized,
500,000 and 312,500 shares outstanding,
respectively 2,000,000 1,250,000
Additional paid-in capital 2,000,000 1,250,000
Accumulated deficit (11,405,409) (7,905,546)
------------- -------------
1,146,135 1,090,774
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 1,893,258 $ 1,619,333
============= =============
The accompanying notes are an integral part of these statements.
4
ESSEX CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THIRTY-NINE WEEK PERIODS
ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 24, 2000
2001 2000
-------------- --------------
-------------- --------------
(unaudited) (unaudited)
Revenue $ 1,880,832 $ 2,533,085
Costs of goods sold and services provided (948,860) (1,184,146)
Research and development (1,922,308) (291,874)
Selling, general and administrative expenses (1,767,553) (1,572,687)
-------------- --------------
Operating Loss (2,757,889) (515,622)
Interest income (expense), net and debenture
financing amortization 8,026 (21,028)
-------------- --------------
Loss Before Income Taxes (2,749,863) (536,650)
Provision for income taxes -- --
-------------- --------------
Net Loss (2,749,863) (536,650)
Beneficial conversion feature of convertible
preferred stock (750,000) (1,000,000)
-------------- --------------
Net Loss Attributable to Common Stockholders (3,499,863) $ (1,536,650)
============== ==============
Weighted Average Number of Shares
Outstanding 6,289,513 4,443,682
============== ==============
Basic Loss Per Common Share $ (0.56) $ (0.35)
============== ==============
Diluted Loss Per Common Share $ (0.56) $ (0.35)
============== ==============
The accompanying notes are an integral part of these statements.
5
ESSEX CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEK PERIODS
ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 24, 2000
2001 2000
------------- -------------
(unaudited) (unaudited)
Revenue $ 745,468 $ 759,939
Costs of goods sold and services provided (381,880) (355,190)
Research and development (652,663) (104,644)
Selling, general and administrative expenses (693,218) (645,866)
------------- -------------
Operating Loss (982,293) (345,761)
Interest expense, net and debenture financing
amortization (1,245) (6,619)
------------- -------------
Loss Before Income Taxes (983,538) (352,380)
Provision for income taxes -- --
------------- --------------
Net Loss (983,538) (352,380)
Beneficial conversion feature of convertible
preferred stock (250,000) (1,000,000)
------------- -------------
Net Loss Attributable to Common Stockholders $ (1,233,538) $ (1,352,380)
============= =============
Weighted Average Number of Shares
Outstanding 6,706,225 4,535,323
============= =============
Basic Loss Per Common Share $ (0.19) $ (0.30)
============= =============
Diluted Loss Per Common Share $ (0.19) $ (0.30)
============= =============
The accompanying notes are an integral part of these statements.
6
ESSEX CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEK PERIODS
ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 24, 2000
2001 2000
------------- -------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (2,749,863) $ (536,650)
Adjustments To Reconcile Net Loss To Net Cash
(Used In) Provided By Operating Activities:
Depreciation and amortization 160,250 40,238
Inventory valuation reserve 60,000 115,000
Stock option compensation expense 34,000 --
Other (492) 7,529
Change in Assets and Liabilities:
Accounts receivable (173,554) 328,209
Inventory (70,126) 15,321
Prepayments and other assets (33,541) 8,327
Accounts payable 102,521 542
Accrued lease settlement (107,766) (15,682)
Other liabilities (3,692) (50,103)
------------- -------------
Net Cash Used In Operating Activities (2,782,263) (87,269)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (81,048) (15,438)
Proceeds from sale of fixed assets 492 5,471
------------- -------------
Net Cash Used In Investing Activities (80,556) (9,967)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of preferred stock 750,000 1,000,000
Sale of common stock 2,000,000 1,500
Exercise of stock options 21,224 --
Short-term repayments, net -- (59,470)
Payment of capital lease obligations (84,438) (13,333)
------------- -------------
Net Cash Provided By Financing Activities 2,686,786 928,697
------------- -------------
CASH AND CASH EQUIVALENTS
Net (decrease) increase (176,033) 831,461
Balance - beginning of period 1,015,634 502,663
------------- -------------
Balance - end of period $ 839,601 $ 1,334,124
============= =============
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 accounting principles
generally accepted in the United States 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 devices (HfWDM) and Optical Processor Enhanced Receiver Architecture
(OPERA). Since September 2000, the Company has received $4.4 million in
financing from an Investor Group to advance its programs to capitalize upon
these inventions.
Primarily due to the increased expenditures for research and development as well
as marketing of its optoelectronics product prototypes and services,
particularly the optical telecommunications device technologies, the Company
incurred significant losses in fiscal 2000 and in the first nine months of 2001.
The Company plans to continue research and development spending in 2001 in the
optoelectronics operations. In order to maintain spending levels, the Company
will need additional funds. 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
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.
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 attributable
to common stockholders, 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 September 30, 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 187,500 shares issued in 2001 for $750,000
to the Investor Group. Each Series B share must be converted into 4 shares of
common stock before September 8, 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
9
ESSEX CORPORATION
NOTES TO INTERIM FINANCIAL INFORMATION
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 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 cumulatively recorded
a deemed dividend of $2,000,000 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"). 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 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 closed on a $2 million private placement funding transaction
with the same Investor Group. Under the terms of the funding, the Company
received $500,000 in March, June, August and September 2001. The Company has
issued 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 nine months 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 $2 million 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 the $2 million as the last installment was made in
September 2001. The Investor Group received preferred stock that is convertible
into 2 million shares of common stock. 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 closed on another private placement 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 received $1 million in
the third quarter 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 (HfWDM) devices 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 HfWDM is to
increase the number of usable communications channels within a single optical
fiber. The purpose of 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
began placing prototype units of its initial HyperFine devices in field trials
by potential customers in late September 2001.
11
ESSEX CORPORATION
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 been hiring 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 $350,000
remains for work to be performed in 2001, will utilize 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 September 30, 2001, the Company had a backlog on programs related to
services and applications of optoelectronics of approximately $830,000, down
from $1,494,000 at July 1, 2001. The Company has several proposals outstanding
for $3-4 million for new or additional work with U.S. Government customers which
are expected to be awarded in the fourth quarter of 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 customer
funded development programs result in new business orders.
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 $745,000 and $760,000 for the third quarters of 2001 and 2000,
respectively. Revenues for the first thirty-nine week period of 2001 were
$1,881,000, a decrease of 26% from the $2,533,000 in revenues for the first
thirty-nine week period of 2000. The first thirty-nine week period of 2000
revenues include approximately $217,000 for recovery of excess indirect costs on
a government contract completed in 1994. There was no such cost recovery in the
first thirty-nine week period 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.
12
ESSEX CORPORATION
INCOME (LOSS)
There was an operating loss of $982,000 and $346,000 in the third quarters of
2001 and 2000, respectively. There were operating losses of $2,758,000 and
$516,000 in the first thirty-nine week 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
thirty-nine week period of 2001 were 50.5% as compared to 51.1% in 2000. In the
third quarter of 2001, COGS as a percentage of revenues (excluding revenue from
recovery of prior year excess costs) was 51.2% compared to 51.4% in the same
period of 2000.
Research and development ("R&D") increased in 2001 to approximately $1,922,000
from approximately $292,000 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 infusions
and expects to continue the current level of R&D spending in the optical and
telecommunications areas during the remainder of 2001.
The Company has increased selling, general and administrative expenses ("SG&A"),
particularly in advance marketing 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 thirty-nine week periods of
2001 and 2000.
CORPORATE MATTERS
In 2001, the Company netted $8,000 of interest income, primarily from the
temporary investment of funds from the private placements. Total interest
expense and debenture financing amortization costs were $21,000 in the first
nine months of 2000.
The Company is in a net operating loss (NOL) carryforward position. No provision
or benefit from income taxes was recognized in the first nine months of 2001 or
2000.
13
ESSEX CORPORATION
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company evaluates its liquidity position using various factors. The
following represents some of the more important factors:
SELECTED FINANCIAL DATA ($ Thousands)
AS OF
----------------------------------------------------
September 30, December 31, September 24,
2001 2000 2000
--------------- -------------- ---------------
(unaudited) (audited) (unaudited)
Total Assets $ 1,893 $ 1,619 $ 2,052
=============== ============== ===============
Working Capital $ 649 $ 736 $ 767
=============== ============== ===============
Current Ratio 1.99:1 2.39:1 1.79:1
=============== ============== ===============
Convertible Debentures $ -- $ -- $ 376
Capital Leases 227 23 10
--------------- -------------- ---------------
Total Debt/Financing $ 227 $ 23 $ 386
=============== ============== ===============
Stockholders' Equity $ 1,146 $ 1,091 $ 1,075
=============== ============== ===============
The Company had net cash used in operating activities of approximately $2.8
million, of which approximately $2.5 million was attributable to the net loss
less non-cash items. The Company primarily financed these losses from the
proceeds of the equity sales discussed below. The Company incurred the net loss
in the first nine months of 2001 primarily due to the increased expenditures for
development and marketing of its optoelectronics products and services,
particularly the optical telecommunications device technologies. The Company
plans to continue research and development spending during 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 nine months of 2001, the Company received the
remaining $750,000 from this commitment. The funds are being 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 were received in
four equal installments during 2001. The proceeds are primarily being used to
expand development in the Company's optoelectronic telecommunications device
technologies.
14
ESSEX CORPORATION
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.
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 September 30, 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: October 31, 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.)
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