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 30, 2002
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 5, 2002
----- -----------------
Common Stock, no par value per share 5,396,792
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 for the fiscal year ended December
30, 2001.
2
ESSEX CORPORATION
BALANCE SHEETS
June 30, December 30,
2002 2001
------------ -------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash $ 362,175 $ 568,178
Accounts receivable, net 175,435 284,649
Prepayments and other 74,247 76,969
Inventory 29,983 29,983
------------- -------------
641,840 959,779
------------- -------------
PROPERTY AND EQUIPMENT
Computers and special equipment 919,333 849,453
Furniture, equipment and other 255,213 260,526
------------- -------------
1,174,546 1,109,979
Accumulated depreciation and amortization (806,932) (747,059)
------------- -------------
367,614 362,920
------------- -------------
OTHER ASSETS
Patents, net 270,617 211,030
Other 21,909 19,213
------------- -------------
292,526 230,243
------------- -------------
TOTAL ASSETS $ 1,301,980 $ 1,552,942
------------ ============= =============
The accompanying notes are an integral part of these statements.
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ESSEX CORPORATION
BALANCE SHEETS
June 30, December 30,
2002 2001
---------------- ---------------
(unaudited) (audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Advance from accounts receivable financing $ 36,280 $ --
Accounts payable 361,274 313,741
Accrued wages and vacation 245,877 239,476
Capital leases 151,904 130,961
Accrued retirement 37,492 62,000
Other accrued expenses 131,798 101,387
---------------- ---------------
964,625 847,565
LONG-TERM DEBT
Capital leases, net of current portion 17,561 60,078
---------------- ---------------
Total Liabilities 982,186 907,643
---------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY
Common stock, no par value; 25 million shares
authorized; 5,394,792 and 5,155,605 shares
issued and outstanding, respectively 10,209,900 8,870,044
Convertible preferred stock, $0.01 par value;
1 million total shares authorized; 500,000 shares
of Series B authorized and outstanding 2,000,000 2,000,000
Additional paid-in capital 2,000,000 2,000,000
Accumulated deficit (13,890,106) (12,224,745)
---------------- ---------------
319,794 645,299
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 1,301,980 $ 1,552,942
================ ===============
The accompanying notes are an integral part of these statements.
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ESSEX CORPORATION
STATEMENTS OF OPERATIONS
FOR THE TWENTY-SIX WEEK PERIODS
ENDED JUNE 30, 2002 AND JULY 1, 2001
2002 2001
----------------- -----------------
(unaudited) (unaudited)
Revenues $ 1,492,709 $ 1,135,364
Costs of goods sold and services provided (747,772) (566,980)
Research and development (966,233) (1,269,645)
Selling, general and administrative expenses (1,434,046) (1,074,335)
----------------- ----------------
Operating Loss (1,655,342) (1,775,596)
Interest (expense) income, net (10,019) 9,271
----------------- ----------------
Loss Before Income Taxes (1,665,361) (1,766,325)
Provision for income taxes -- --
----------------- ----------------
Net Loss (1,665,361) (1,766,325)
Beneficial conversion feature of convertible
preferred stock -- (500,000)
----------------- ----------------
Net Loss Attributable to Common Stockholders $ (1,665,361) $ (2,266,325)
================= ================
Weighted Average Number of Shares Outstanding 7,289,120 6,081,158
================= ================
Basic Loss Per Common Share $ (0.23) $ (0.37)
================= ================
Diluted Loss Per Common Share $ (0.23) $ (0.37)
================= ================
The accompanying notes are an integral part of these statements.
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ESSEX CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEK PERIODS
ENDED JUNE 30, 2002 AND JULY 1, 2001
2002 2001
----------------- ---------------
(unaudited) (unaudited)
Revenues $ 729,433 $ 722,536
Costs of goods sold and services provided (359,033) (368,027)
Research and development (468,184) (688,069)
Selling, general and administrative expenses (733,669) (488,272)
---------------- ---------------
Operating Loss (831,453) (821,832)
Interest (expense) income, net (3,877) 3,577
---------------- ---------------
Loss Before Income Taxes (835,330) (818,255)
Provision for income taxes -- --
---------------- ---------------
Net Loss (835,330) (818,255)
Beneficial conversion feature of convertible
preferred stock -- (250,000)
---------------- ---------------
Net Loss Attributable to Common Stockholders $ (835,330) $ (1,068,255)
================ ===============
Weighted Average Number of Shares Outstanding 7,353,348 6,288,383
================ ===============
Basic Loss Per Common Share $ (0.12) $ (0.17)
================ ===============
Diluted Loss Per Common Share $ (0.12) $ (0.17)
================ ===============
The accompanying notes are an integral part of these statements.
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ESSEX CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIODS
ENDED JUNE 30, 2002 AND JULY 1, 2001
2002 2001
----------------- -----------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,665,361) $ (1,766,325)
Adjustments to reconcile Net Loss to
Net Cash Used In Operating Activities:
Depreciation and amortization 73,258 125,220
Stock option and compensation expense 246,325 34,000
Gain on sale/retirement of fixed assets (91) (104)
Change in Assets and Liabilities:
Accounts receivable 109,214 (69,188)
Prepayments and other assets 2,260 (81,254)
Inventory -- (41,796)
Accounts payable 47,533 (14,641)
Accrued lease settlement -- (107,766)
Other liabilities (58,205) 74,467
----------------- ----------------
Net Cash Used In Operating Activities (1,245,067) (1,847,387)
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (7,432) (62,865)
Proceeds from sale of fixed assets 91 104
----------------- ----------------
Net Cash Used In Investing Activities (7,341) (62,761)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock 1,000,003 1,000,000
Sale of preferred stock -- 500,000
Exercise of stock options 93,528 5,000
Short-term borrowings, net 36,280 --
Payment of capital lease obligations (83,406) (40,130)
----------------- ----------------
Net Cash Provided By Financing Activities 1,046,405 1,464,870
----------------- ----------------
CASH AND CASH EQUIVALENTS
Net decrease (206,003) (445,278)
Balance - beginning of period 568,178 1,015,634
----------------- ----------------
Balance - end of period $ 362,175 $ 570,356
================= ================
The accompanying notes are an integral part of these statements.
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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. Years 2002 and 2001 are 52-week fiscal years. Certain
amounts from prior annual and quarterly periods have been reclassified to
conform to this 2002 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
The Company has expended significant funds to transition into the commercial
marketplace, particularly the productization of its proprietary technologies in
telecommunications and optoelectronic processors. Since June 2000, the Company
has filed applications to secure patent protection for innovative technologies
in two communications device families: Fiberoptic HYPERFINE WDM (wavelength
division multiplexing) devices and wireless optical processor enhanced receiver
architecture (OPERA(TM)). Since September 2000, the Company has received nearly
$6 million in financing from its Investor Group to advance its programs to
capitalize upon these inventions. 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.
Primarily due to the increased expenditures for development and marketing of its
optoelectronics products and services, particularly the optical
telecommunications device technologies, and also due to expenses related to the
Company's efforts to raise additional financing, the Company incurred
significant losses in the first half of 2002. The Company also incurred such
losses in fiscal years 2000 and 2001. The Company plans to continue research and
development spending in 2002 in the optoelectronics operations. In order to
maintain spending levels, the Company will need additional funds.
The Company is seeking to establish joint ventures or strategic partnerships
including licensing of its technologies with major industry participants to
facilitate these goals. The Company will also
8
ESSEX CORPORATION
also additional funds under appropriate terms from private sources 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.
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 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. 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 was $36,000 of funds advanced as of June 30, 2002. There were no
funds advanced as of December 30, 2001.
NOTE 4: Commitments and Contingencies
The Company has entered into several capital leases for special optical test and
telephone equipment. The capital equipment cost of these leases was
approximately $300,000, the remaining lease terms are less than 2 years and the
remaining principal amounts due total $169,000 at June 30, 2002.
NOTE 5: 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 the remaining 187,500 issued in 2001 for $750,000. 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.
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ESSEX CORPORATION
In connection with the issuance of the preferred stock, the Company also issued
common stock warrants to the preferred stock holders. These warrants are for an
additional 2 million shares of common stock. The warrants expire in September
2005 and can be exercised at a nominal total 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 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 imputed and recorded in 2000 and 2001
a total 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 had no impact on net loss from operations or cash flows but
had to be considered when calculating loss per share attributable to common
stockholders.
In March 2002, the Company amended the latest existing private placement
agreements for its common stock with its Investor Group or their affiliates. The
agreements were increased from $500,000 to $1.5 million, of which $250,000 was
received in December 2001 and $1,000,000 was received in the first half of 2002.
The remaining $250,000 is subject to a call by the Company on an as needed basis
during 2002. These agreements provide for the shares of common stock to be
issued at an initial price per share of $6.50 subject to an antidilution
adjustment feature. Under this feature if the Company issues shares at a price
less than $6.50 per share to other institutional investors during 2002, the
Investor Group's purchase price will be adjusted downward to the lower price,
but not less than $3.00 per share.
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
There were $62,000 of new capital leases entered into in the first half of 2002.
In the first half of 2001, the Company entered into capital leases for new
equipment for $288,000.
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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 upon applications of its proprietary
optoelectronics technology and products.
In March 2002, the Company amended the latest existing private placement
agreements for its common stock with its Investor Group or their affiliates.
These agreements were increased from $500,000 to $1.5 million, of which $250,000
was received in December 2001 and $1,000,000 was received in the first half of
2002. The remaining $250,000 is subject to a call by the Company on an as needed
basis during 2002. These agreements provide for the shares of common stock to be
issued at an initial price per share of $6.50 subject to an antidilution
adjustment feature. Under this feature if the Company issues shares at a price
less than $6.50 per share to other institutional investors during 2002, the
Investor Group's purchase price will be adjusted downward to the lower price,
but not less than $3.00 per share. Prior to December 2001, the Investor Group
has invested approximately $4.4 million in the Company beginning in September
2000.
The Company's primary use of the funds is to patent, develop and commercialize
its key leading-edge optical technologies, principally the HYPERFINE WDM devices
and wireless OPERA(TM) technology. The purpose of the HYPERFINE WDM device is to
increase the number of usable communications channels within a single optical
fiber. The purpose of OPERA(TM) 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 device and communications fields.
The Company has prototypes of the HYPERFINE WDM technology which are being
demonstrated to prospective strategic partners and investors. The Company began
placing prototypes of its initial HYPERFINE WDM devices in field trials by
potential customers in late September 2001. The Company is developing
simulations of its OPERA(TM) wireless receiver device technology and is
undertaking to determine the various market entry points for such device
technology. The Company is also holding discussions with various established
commercial entities that are in the wireless communications market regarding
development of initial prototypes.
The development of these devices required a diversion of labor resources from
revenue generation in 2001 and continues to do so in 2002. The Company may hire
additional personnel to augment existing technical and sales staff. Since the
Company is investing the new capital in such research,
11
ESSEX CORPORATION
development and marketing, the financial statements reflect higher than normal
expenses which increases the Company's reported losses.
Because of the emphasis on development, the Company has been unable to maintain
customer programs of sufficient volume and to expand such work to consistently
achieve an overall breakeven or better level of operations on such revenues.
Work based on or related to the patented ImSyn(TM) Processor and other Essex
optical hardware processing and techniques continues for the development of
advanced SAR (synthetic aperture radar). These efforts generally fall under SBIR
(U.S. Government Small Business Innovative Research) programs. The Company is
working to reduce the overall deficit from operations and to improve its 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. In order to
maintain development and marketing spending levels, the Company will need
additional funds. 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 $729,000 and $723,000 for the second quarters of 2002 and 2001,
respectively. Revenues for the first half of 2002 were $1,493,000, an increase
of 31% from the $1,135,000 in revenues for the first half of 2001. The increase
in revenues was due to the Company beginning in April 2001 a U.S. Government
program for application of its proprietary optoelectronics technology and
products. The Company is continuing work on this program and others in 2002.
As of June 30, 2002, the Company had a backlog on programs related to services
and applications of optoelectronics of approximately $3,460,000, up from
$1,105,000 at March 31, 2002.
INCOME (LOSS)
There was an operating loss of $832,000 and $822,000 in the second quarters of
2002 and 2001, respectively. There were operating losses of $1,655,000 and
$1,776,000 in the first half periods of 2002 and 2001, respectively. Cost of
goods sold and services provided as a percentage of revenues for the first half
of 2002 and 2001 were both approximately 50%. In the second quarter of 2002,
costs of goods sold and services provided was 49.2% compared to 50.9% in the
same period of 2001. The year-to-date net loss declined as a larger amount of
fixed expenses were covered by the higher revenue volume.
Research and development (R&D) was approximately $966,000 in the first half of
2002, down 24% from approximately $1,270,000 in the same period in 2001.
Expenditures for the initial HYPERFINE WDM development in 2001 required
significant outside vendor costs for materials and non-recurring engineering.
Such costs have declined in 2002 and are also being managed against available
funding. The majority of the R&D costs were incurred on efforts related to
optical telecommunications technology. The Company has maintained its R&D
spending since the September 2000 capital infusion and, subject to the
availability of funds, expects to continue its R&D spending in the optical and
telecommunications areas in 2002.
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ESSEX CORPORATION
The Company has increased selling, general and administrative expenses ("SG&A"),
particularly in marketing for optoelectronics and telecommunications new device
business areas. The Company has also incurred higher expenses related to the
Company's efforts to raise additional financing in 2002. Overall, SG&A expenses
remain high relative to the revenue volume as the Company seeks to commercialize
its optoelectronic telecommunications products and services. The high SG&A
expenses contributed to the operating losses in the first half periods of 2002
and 2001.
CORPORATE MATTERS
The Company recognized a $500,000 charge in the first half of 2001 from the
beneficial conversion feature of convertible preferred stock. As proceeds were
received from the sale of preferred stock in 2001 and 2000, the Company
recognized the pro rata beneficial conversion feature on the convertible
preferred stock as a deemed dividend for purposes of computing net loss
attributable to common stockholders and per share amounts. The total recorded
was $750,000 in 2001 and $1,250,000 in 2000. This imputed amount had no effect
on net loss (from operations) or cash flows.
Total interest expense was $10,000 in the first half of 2002. In the same period
in 2001, the Company netted $9,000 of interest income, primarily from the
temporary investment of funds from the private placements.
The Company is in a NOL carryforward position. No provision or benefit from
income taxes was recognized in the first half of 2002 or 2001.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company evaluates its liquidity position using various factors. The
following represents some of the more important factors:
SELECTED FINANCIAL DATA ($ Thousands)
AS OF
-----------------------------------------------
June 30, December 30, July 1,
2002 2001 2001
------------- ------------- -------------
(unaudited) (audited) (unaudited)
Total Assets $ 1,302 $ 1,553 $ 1,609
============= ============= =============
Working Capital (Deficit) $ (323) $ 112 $ 395
============= ============= =============
Current Ratio 0.67:1 1.13:1 1.64:1
============= ============= =============
Advance from Accounts Receivable
Financing $ 36 $ -- $ --
Capital Leases 170 191 271
------------- ------------- -------------
Total Debt/Financing $ 206 $ 191 $ 271
============= ============= =============
Stockholders' Equity $ 320 $ 645 $ 863
============= ============= =============
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ESSEX CORPORATION
The net cash provided by financing activities in 2002 and 2001 is primarily from
the Company completing several private placements of equity securities to its
Investor Group or their affiliates. The Company received $3,400,000 and
$1,250,000 in fiscal 2001 and fiscal 2000, respectively and another $1,000,000
in the first half of 2002 from these private placements. The funds have been and
are to be used primarily for the development, marketing and management of the
optical telecommunications device technologies.
The net cash used in operating activities has resulted from the significant
losses incurred by the Company in 2002 and 2001, primarily due to the increased
expenditures for development and marketing of its optoelectronics products and
services, particularly in the optical telecommunications device technologies
field. The Company's working capital and ratio continue to decrease primarily
due to these losses. The Company plans to continue R&D spending in 2002 in the
optoelectronics operations. In order to maintain spending levels, the Company
will need additional funds.
The Company is seeking to establish joint ventures or strategic partnerships
including licensing of its technologies to major industry participants, to
facilitate these goals. The Company will 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. As
part of this funding effort, commencing in December 2001 the Investor Group or
their affiliates committed to purchase an additional $1.5 million of Common
Stock at an initial per share price of $6.50 subject to an antidilution
adjustment feature. Under this feature if the Company issues shares at a price
less than $6.50 per share to other institutional investors during 2002, the
Investor Group's purchase price will be adjusted downward to the lower price,
but not less than $3.00 per share. Of the $1.5 million, $250,000 was received in
December 2001 and $1,000,000 was received in the first half of 2002. The
remaining $250,000 is subject to a call by the Company on an as needed basis in
2002. 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 financial position.
The Company has a working capital financing arrangement with an accounts
receivable factoring organization. Under such 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 was $36,000 of funds advanced as of June 30, 2002. There were no
funds advanced as of December 30, 2001.
The Company believes that it will be able to meet its remaining 2002 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.
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ESSEX CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
Exhibit 99.1 - Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(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 14, 2002
/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.)
15