-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H9bbn0+4Dmc9ql6u0cA0To3mkCFcE9kNHQ04Pxz8J0IdkLQMGymgjHvbZw7DySAQ eIR62e5VTQhvl4wdT+0rKQ== /in/edgar/work/20000808/0000355199-00-000004/0000355199-00-000004.txt : 20000921 0000355199-00-000004.hdr.sgml : 20000921 ACCESSION NUMBER: 0000355199-00-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000625 FILED AS OF DATE: 20000808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESSEX CORPORATION CENTRAL INDEX KEY: 0000355199 STANDARD INDUSTRIAL CLASSIFICATION: [8711 ] IRS NUMBER: 540846569 STATE OF INCORPORATION: VA FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-10772 FILM NUMBER: 687812 BUSINESS ADDRESS: STREET 1: 9150 GILFORD RD CITY: COLUMBIA STATE: MD ZIP: 21046-1891 BUSINESS PHONE: 3019537797 MAIL ADDRESS: STREET 1: 9150 GUILFORD ROAD CITY: COLUMBIA STATE: MD ZIP: 21046-1891 10QSB 1 0001.txt 2ND QTR 10-QSB 2000 FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended June 25, 2000 Commission File Number 0-10772 ESSEX CORPORATION (Exact name of small business issuer as specified in its charter) Virginia 54-0846569 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9150 Guilford Road, Columbia, Maryland 21046-1891 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (301) 939-7000 Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- State the number of shares outstanding of each of the issuer's class of Common Stock as of the latest practicable date. Outstanding Class at June 25, 2000 ----- ---------------- Common Stock, par value $0.10 per share 4,397,861 Transitional Small Business Disclosure Format (Check One); YES NO X ----- ----- ESSEX CORPORATION PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The interim financial statements are unaudited but, in the opinion of management, reflect all adjustments for a fair presentation of results for such period. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 26, 1999. 2 ESSEX CORPORATION BALANCE SHEETS
June 25, December 26, 2000 1999 ----------------- ---------------- (unaudited) (audited) ASSETS Current Assets Cash $ 633,846 $ 502,663 Accounts receivable, net 413,265 645,564 Inventory 139,857 180,178 Prepayments and other 47,605 46,795 --------------- --------------- 1,234,573 1,375,200 --------------- --------------- Property and Equipment Production and special equipment 724,700 729,974 Furniture, equipment and other 238,289 240,095 --------------- --------------- 962,989 970,069 Accumulated depreciation and amortization (907,464) (905,185) --------------- --------------- 55,525 64,884 --------------- --------------- Other Assets Patents, net 130,218 137,658 Other 21,713 31,549 --------------- --------------- 151,931 169,207 --------------- --------------- TOTAL ASSETS $ 1,442,029 $ 1,609,291 - ------------ =============== =============== =============== =============== The accompanying notes are an integral part of these statements.
3 ESSEX CORPORATION BALANCE SHEETS
June 25, December 26, 2000 1999 ------------------- ---------------- (unaudited) (audited) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Advance from accounts receivable financing $ 84,651 $ 59,470 Accounts payable 160,291 78,339 Accrued wages and vacation 159,421 160,932 Accrued lease settlement 92,766 123,448 10% convertible collateralized debentures 375,714 375,714 Other accrued expenses 138,022 193,182 --------------- -------------- 1,010,865 991,085 Long-term Debt Capital leases, net of current portion 5,544 8,316 --------------- -------------- Total Liabilities 1,016,409 999,401 --------------- -------------- Commitments and Contingencies (Note 4) Stockholders' Equity Common stock, $0.10 par value; 25 million shares authorized; 4,397,861 shares issued and outstanding 439,786 439,786 Redeemable preferred stock, $0.01 par value; 1 million total shares authorized; 2,500 shares of Series A authorized, $100 liquidation value, no shares outstanding -- -- Additional paid-in capital 5,634,234 5,634,234 Accumulated deficit (5,648,400) (5,464,130) --------------- -------------- 425,620 609,890 --------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,442,029 $ 1,609,291 =============== ============== The accompanying notes are an integral part of these statements.
4 ESSEX CORPORATION STATEMENTS OF OPERATIONS FOR THE TWENTY-SIX WEEK PERIODS ENDED JUNE 25, 2000 AND JUNE 27, 1999
2000 1999 ---------------- ---------------- (unaudited) (unaudited) Revenues $ 1,773,146 $ 2,209,582 Costs of goods sold and services provided (913,841) (1,143,981) Selling, general and administrative expenses (1,029,166) (1,167,698) --------------- --------------- Operating Loss (169,861) (102,097) Interest expense, net and debenture financing amortization (14,409) (27,977) --------------- --------------- --------------- --------------- Loss Before Income Taxes (184,270) (130,074) Provision for income taxes -- -- --------------- --------------- Net Loss $ (184,270) $ (130,074) =============== =============== =============== =============== Weighted Average Number of Shares Outstanding 4,397,861 4,397,861 =============== =============== =============== =============== Basic Loss Per Share $ (0.04) $ (0.03) =============== =============== =============== =============== Diluted Loss Per Share $ (0.04) $ (0.03) =============== =============== =============== =============== The accompanying notes are an integral part of these statements.
5 ESSEX CORPORATION STATEMENTS OF OPERATIONS FOR THE THIRTEEN WEEK PERIODS ENDED JUNE 25, 2000 AND JUNE 27, 1999
2000 1999 ---------------- ---------------- (unaudited) (unaudited) Revenues $ 797,723 $ 1,243,820 Costs of goods sold and services provided (490,318) (638,832) Selling, general and administrative expenses (476,862) (570,051) --------------- --------------- Operating Income (Loss) (169,457) 34,937 Interest expense, net and debenture financing amortization (6,200) (15,684) --------------- --------------- --------------- --------------- Income (Loss) Before Income Taxes (175,657) 19,253 Provision for income taxes -- -- --------------- --------------- Net Income (Loss) $ (175,657) $ 19,253 =============== =============== =============== =============== Weighted Average Number of Shares Outstanding 4,397,861 4,397,861 =============== =============== =============== =============== Basic Earnings (Loss) Per Share $ (0.04) $ 0.00 =============== =============== =============== =============== Diluted Earnings (Loss) Per Share $ (0.04) $ 0.00 =============== =============== =============== =============== The accompanying notes are an integral part of these statements.
6 ESSEX CORPORATION STATEMENTS OF CASH FLOWS FOR THE TWENTY-SIX WEEK PERIODS ENDED JUNE 25, 2000 AND JUNE 27, 1999
2000 1999 -------------- --------------- (unaudited) (unaudited) Cash Flows From Operating Activities: Net Loss $ (184,270) $ (130,074) Adjustments to reconcile Net Loss to Net Cash Provided By (Used In) Operating Activities: Depreciation and amortization 26,636 83,278 Inventory valuation reserve 25,000 -- Gain on sale/retirement of fixed assets (5,306) (740) Change in Assets and Liabilities: Accounts receivable 232,299 (212,168) Inventory 15,321 (2,797) Prepayments and other assets 5,538 13,528 Accounts Payable 81,952 53,592 Other Liabilities (47,496) (49,226) Accrued lease settlement expense (30,682) -- ------------- ------------- Net Cash Provided By (Used In) Operating Activities 118,992 (244,607) ------------- ------------- Cash Flows From Investing Activities: Purchases of property and equipment (6,349) (15,454) Proceeds from sale of fixed assets 5,306 1,554 ------------- ------------- ------------- ------------- Net Cash Used In Investing Activities (1,043) (13,900) ------------- ------------- ------------- ------------- Cash Flows From Financing Activities: Short-term borrowings (repayments), net 25,181 79,427 Payment of capital lease obligations (11,947) (50,524) ------------- ------------- ------------- ------------- Net Cash Provided By Financing Activities 13,234 28,903 ------------- ------------- ------------- ------------- Cash and Cash Equivalents Net increase (decrease) 131,183 (229,604) Balance - beginning of period 502,663 543,538 ------------- ------------- ------------- ------------- Balance - end of period $ 633,846 $ 313,934 ============= ============= ============= ============= 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 2000 is a 53-week fiscal year. Year 1999 was a 52-week fiscal year. Certain amounts for 1999 have been reclassified to conform to the 2000 presentation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for uncollectible accounts receivable, inventory obsolescence and valuation, depreciation and amortization, intangible assets, employee benefit plans and contingencies, among others. Actual results could differ from those estimates. Important Business Risk Factors The Company has historically been principally a supplier of technical services under contracts or subcontracts with departments or agencies of the U.S. Government, primarily the military services and other departments and agencies of the Department of Defense. In recent years, the Company's business had been principally commercial in the satellite communications (SatCom) business area. This work substantially ended in December 1999. Since 1989, the Company has expended significant funds to transition into the commercial marketplace, particularly the productization of its proprietary technologies in optoelectronic processors. The Company has incurred losses over the last decade, primarily due to the development and marketing of its optoelectronics products and services. The long-term success of the Company in this area is dependent on its ability to successfully develop and market products related to its optoelectronic processors. The success of these efforts is subject to changing technologies, availability of financing, competition, and ultimately market acceptance. The Company is seeking additional funds from private financing markets to finance optoelectronic operations and to achieve desired product inventory levels and initial market penetration. The Company is also seeking to establish joint ventures or strategic partnerships with major industrial concerns to facilitate these goals. Failure to commercialize or further significant delays in the commercialization of the Company's optoelectronic products would have a significant adverse effect on the Company's future operating results and future financial position; however, the Company believes that in such event it could successfully manage and reduce cash requirements for operations by curtailing expenditures in optoelectronics operations (including general and administrative expenses), although there can be no assurances in this regard. 8 ESSEX CORPORATION NOTES TO INTERIM FINANCIAL INFORMATION In June 2000, the Company announced that it had filed applications to secure patent protection for innovative technologies in two communications device families. These are fiberoptic Hyperfine Wave Division Multiplex channelizers (HWDM) and wireless Optimal Code Division Multiple Access Receivers (OCDMAR). The Company is seeking financing to prosecute its programs to capitalize upon these inventions. The Company is in discussions with several parties. The Company is unable to predict the outcome of these discussions or the terms under which such financing could be obtained. NOTE 2: Basic and Diluted Earnings (Loss) Per Share Basic earnings (loss) per share are computed using the weighted average number of common shares outstanding during the period. Common stock equivalents were anti-dilutive or immaterial in all periods. NOTE 3: Accounts Receivable Financing The Company has a working capital financing agreement with an accounts receivable factoring organization. Under such an agreement, the factoring organization may purchase certain of the Company's accounts receivable subject to full recourse against the Company in the case of nonpayment by the customers. The Company generally receives 85%-90% of the invoice amount at the time of purchase and the balance when the invoice is paid. The Company is charged an interest fee and other processing charges, payable at the time each invoice is paid. Funds advanced were $85,000 as of June 25, 2000 and $59,000 as of December 26, 1999. NOTE 4: Commitments and Contingencies Effective July 1994, the Company settled a legal dispute with a former landlord. Under the Settlement Agreement, the Company remains liable for $93,000 of contingent cash payments from 25% of future earnings (as defined) and 10-15% of the net proceeds from the future sale of stock or operating assets. The period for computation of such contingent payments ends December 2004. NOTE 5: Common Stock; Warrants; Preferred Stock In connection with the outstanding 10% Convertible Collateralized Debentures due November 30, 2000, the Company has reserved approximately 107,000 shares of common stock for conversion at $3.50 per share. In addition, the Company has issued warrants to the broker/dealer for 28,571 shares of common stock. The warrants are exercisable through December 1, 2000 at a price of $3.50 per share, subject to adjustment under anti-dilution provisions of the Warrant Agreement. The warrant holders have certain registration rights for these shares of common stock. The Company has also issued warrants for 78,400 shares to the purchasers of the Debentures under essentially the same terms and conditions as the warrants issued to the broker/dealer. The Company has reserved approximately 214,000 shares of common stock in connection with the convertible debentures and the possible exercise of all such warrants. 9 ESSEX CORPORATION NOTES TO INTERIM FINANCIAL INFORMATION The Company's Articles of Incorporation authorize a class of preferred stock, 1 million shares, par value $0.01 per share, the series and rights of which may be designated by the Board of Directors in accordance with applicable state and federal law. No preferred shares are currently outstanding. NOTE 6: Income Taxes The Company is in a net operating loss (NOL) carryforward position for book and tax purposes. No tax benefit will be recognized until taxable income is realized. NOTE 7: Statements of Cash Flows - Supplemental Disclosure In the first half of 1999, the Company entered into a capital lease for new equipment for $110,000. There were no new capital leases entered into in the first half of 2000. 10 ESSEX CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Management's Discussion and Analysis or Plan of Operation and other sections contain forward-looking statements that are based on management's expectations, estimates, projections and assumptions. Words such as "expects", "anticipates", "plans", "believes", "estimates", variations of such words and similar expressions are intended to identify such forward-looking statements that include, but are not limited to, projections of revenues, earnings, segment performance, cash flows and contract awards. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Therefore, actual future results and trends may differ materially from what is indicated in forward-looking statements due to a variety of factors. STATUS The Company's revenues in recent years have come from satellite telecommunications (SatCom) and optoelectronics business programs and contracts. The SatCom work was principally with one major customer, Motorola, and was approximately 45% ($2.2 million) of the Company's revenues for 1999. This SatCom work substantially ended in December 1999. The Company's revenues during 2000 principally derive from applications of its proprietary optoelectronics technology and products. Work based on the patented ImSyn(TM) Processor has increased with the award of a group of contracts funded under Small Business Innovation Research (SBIR) and other research programs by the Army, Navy, DARPA and DOD since October 1999. Aggregate multi-year funding expected under the terms of the four contracts is $2.1-2.2 million. Such work is generally incrementally funded and spans 1-2 years. The increase in this work has only partially offset the decline in telecommunications revenues. The Company has recently begun new work on a 6-month, $343,000 program for Motorola. The Company is performing modeling and simulation systems engineering on a Motorola terrestrial wireless infrastructure telecommunications application. The Company has been unable to maintain sufficient program volume and to expand such work consistently to achieve a breakeven or better level of operations on such revenues. While the Company was able to operate profitably in the last three quarters of 1999, the Company's backlog of work in 2000 is not yet sufficient to maintain a breakeven or better level of operations. The Company is working to reduce the deficit from operations and to improve its cash flows. Backlog and order issues will continue to be major concerns until substantial improvements have been achieved. Since early 1997, the Company has continued development and product improvement of its initial ImSyn(TM) optoelectronic processor to the extent possible from internal funds. The processor is a combination of digital and optical componentry. Problems in the reliability and performance of initially selected digital components as well as the combination of such state-of-the-art subassemblies caused delays in the availability of the ImSyn(TM) processor to potential early users and customers. Four units were completed and available in 1998. The Company has established 11 ESSEX CORPORATION significant reserves against its ImSyn(TM) inventory for such changes and delays in the sale of these first units. The Company continues to pursue applications of its ImSyn(TM) Processor because it believes that the performance and economic potentials of the processor enable practical 3D holographic imaging for health care, biology, chip fabrication and national security. Two earlier units were sold to National Defense Agencies. Those processors and another owned by the Company are in virtually continuous use performing processing on various Essex contracts and development activities. One unit is on loan to The Hospital of the University of Pennsylvania for use in specialized magnetic resonance imaging (MRI) research. The remaining first-designed units require upgrading with higher speed electronic circuits, hardware and software changes and retesting and recalibrating of unit performance. The lack of upgraded units for initial user testing and evaluation has hindered potential sales and revenues and delayed inventory turnover. The Company's recently built and tested second generation, more robust optical module for its ImSyn(TM) Processor has met design objectives. This engineering model is operating with a first generation electronics package in an ImSyn Processor unit. It will be easier to fabricate than the first generation optical module. A second such optical unit will be built for use in a previously announced U.S. Navy synthetic aperture radar (SAR) program. This new optical module produces images in which peak signal exceeds background noise by 120 dB, 1000 times better than the performance of the original optical module. It also allows the optical system to operate four times faster. Higher speed digital input/output circuits are now being designed. The Company is seeking funding for the second generation electronics package which is expected to provide a 32-fold increase in system speed. Our simplified optical module is also more robust and easier to fabricate. In June 2000, the Company announced that it had filed applications to secure patent protection for innovative technologies in two communications device families. These are fiberoptic Hyperfine Wave Division Multiplex channelizers (HWDM) and wireless Optimal Code Division Multiple Access Receivers (OCDMAR). The purpose of the HWDM is to increase the number of usable communications channels within a single optical fiber. The purpose of the OCDMAR is to increase capacity and improve voice and data quality of wireless systems. These invention filings arose from the Company's work and expertise in the optical devices and communications fields. The Company is seeking financing to prosecute its programs to capitalize upon these inventions. The Company continues to seek investment groups to pursue commercial applications of 3D ground penetrating radar or to develop communication devices under the newly filed patent applications. The proposed ground penetrating radar project would apply the patented ImSyn(TM) Processor and the Company's proprietary holographic Virtual Lens Sensor Technology(TM). Data on the location and condition of underground utilities, transportation subgrades and construction sites would be collected, processed, interpreted and archived in its data warehouse. Infrastructure and natural resources business subscribers would access it through the enterprise's broadband business-to-business network on the public internet. Success in financing and launching such an enterprise is not assured. Financing for completing the fiberoptic and wireless patent applications and development of working model and prototype devices is also being sought. The Company is in discussions with several parties. The Company is unable to predict the outcome of these discussions or the terms under which such financing could be obtained. 12 ESSEX CORPORATION REVENUES Revenues were $798,000 and $1,244,000 for the second quarters of 2000 and 1999, respectively. Revenues for the first half of 2000 were $1,773,000, a decrease of 20% over from the $2,210,000 in revenues for the first half of 1999. The first half 2000 revenues include approximately $148,000 for recovery of excess indirect costs on a government contract completed in 1994. There was no such transaction in the first half of 1999. The Company's work for Motorola for the Iridium and other cellular communication systems accounted for revenues of $243,000 and $1,444,000 in the first half of 2000 and 1999, respectively. This represented 14% and 65% of total revenues for the first half of 2000 and 1999, respectively. Increased work in the optoelectronics computer systems area for U.S. Government customers partially offset the decline in commercial SatCom revenues during the first half of 2000. Such revenues were $1,281,000 in the first half of 2000 compared to $728,000 in the first half of 1999. As of June 25, 2000, the Company had a backlog on programs related to optoelectronic services and applications of approximately $1,620,000. This backlog was down from $2,188,000 at March 26, 2000 as no new awards were received during this second quarter period. The Company had no firm orders for ImSyn(TM) units as of the date of this report. INCOME (LOSS) There was an operating loss of $176,000 and operating income of $19,000 in the second quarters of 2000 and 1999, respectively. There were losses of $184,000 and $130,000 in the first half periods of 2000 and 1999, respectively. Cost of goods sold and services provided ("COGS") as a percentage of revenues (excluding revenue from recovery of prior year excess costs) for the first half of 2000 were 56.5% as compared to 51.8% in 1999. In the second quarter of 2000, COGS was 61.5% compared to 51.4% in the same period of 1999. COGS in 2000 reflects higher costs from precontract spending on anticipated new programs and increased inventory valuation reserve costs. COGS is generally higher on government work and profit margins are lower relative to commercial work. The contract mix shift from commercial to government work from 1999 to 2000 has had an impact upon COGS. The Company has curtailed selling, general and administrative expenses ("SG&A") where possible while retaining essential technical capabilities and personnel in the optoelectronics and telecommunications businesses. While SG&A expenses were approximately $139,000 or 12% lower in the first half of 2000 compared to the same period in 1999, the reduction was more than offset by the 20% decline in revenues. Overall, SG&A expenses remain high relative to the revenue volume as the Company seeks to commercialize its optoelectronic products and services and perform initial internal work on telecommunications patent filings. The high SG&A expenses contributed to the operating losses in the first half periods of 1999 and 2000. CORPORATE MATTERS In 2000, the Company's interest expense declined due to lower average accounts receivable financings under its working capital borrowing agreement. Total interest expense and debenture financing amortization costs were $14,000 in the first half of 2000 compared to $28,000 in the same period of 1999. 13 ESSEX CORPORATION The Company recognized the majority of its remaining tax benefit amount recoverable from the carryback of net operating losses prior to 1994. The Company is in a net operating loss (NOL) carryforward position. No provision or benefit from income taxes was recognized in the first half of 2000 or 1999. FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES The Company evaluates its liquidity position using various factors. The following represents some of the more important factors: SELECTED FINANCIAL DATA ($ Thousands) AS OF ----------------------------------------------
June 25, December 26, June 27, 2000 1999 1999 ------------ ------------ ------------ (unaudited) (audited) (unaudited) Total Assets $ 1,442 $ 1,609 $ 1,794 ============ ============ ============ ============ ============ ============ Working Capital $ 224 $ 384 $ 493 ============ ============ ============ ============ ============ ============ Current Ratio 1.22:1 1.39:1 1.50:1 ============ ============ ============ ============ ============ ============ Advance from Accounts Receivable Financing $ 85 $ 59 $ 243 Convertible Debentures 376 376 376 Current and Long-Term Capital Leases 11 23 64 ------------ ------------ ------------ Total Debt/Financing $ 472 $ 458 $ 683 ============ ============ ============ ============ ============ ============ Stockholders' Equity $ 426 $ 610 $ 435 ============ ============ ============ ============ ============ ============
The Company experienced a decrease in its working capital and current ratio at June 25, 2000 as compared to June 27, 1999. The decrease was primarily due to the reclassification of the convertible debentures to a current liability as the debentures are due in November 2000. The Company's working capital and current ratios at June 25, 2000 declined from December 1999 primarily due to the net loss experienced in the first half of 2000. The Company has incurred losses over the last decade, primarily due to the development and marketing of its optoelectronics products and services. The Company has also experienced difficulty in sustaining revenue volume in the satellite communications (SatCom) systems business area. The Company continues to seek additional funds under appropriate terms from private financing sources to finance development and to achieve desired product inventory levels and initial market penetration. The Company is also seeking to establish joint ventures or strategic partnerships with major industrial concerns to facilitate these goals. Further significant delays in the 14 ESSEX CORPORATION commercialization of the Company's optoelectronic products, failure to market such products or failure to raise substantial additional working capital would have a significant adverse effect on the Company's future operating results and future financial position. There are $376,000 of Convertible Debentures that are due November 30, 2000 for which no funds have been identified or set aside for payment. The Company may have to use all or a significant portion of its cash at that time to make the payoff of the debentures. The use of the Company's cash resources without securing alternative sources of liquidity would likely have a material adverse impact on the Company's liquidity. The Company is exploring various financing options including negotiating an extension of the final payoff date or restructuring of the debt, but is unable to predict the likelihood of success of such a negotiation or the terms of such an extension. The Company has approximately $140,000 of inventory in current assets. This inventory is comprised of ImSyn(TM) optoelectronic processors and primarily consists of finished goods and purchased parts. Sales of such units will be necessary in order to maintain working capital liquidity. There are no firm orders for such units as of the date of this report. The Company has a working capital financing agreement with an accounts receivable factoring organization. Under such an agreement, the factoring organization may purchase certain of the Company's accounts receivable subject to full recourse against the Company in the case of nonpayment by the customers. The Company generally receives 85%-90% of the invoice amount at the time of purchase and the balance when the invoice is paid. The Company is charged an interest fee and other processing charges, payable at the time each invoice is paid. Funds advanced were $85,000 as of June 25, 2000. Effective July 1994, the Company settled a legal dispute with a former landlord. There is a $93,000 accrual as of June 25, 2000 which represents the remaining contingent portion to be paid over the applicable consideration period. Under the Settlement Agreement, the Company remains liable for such contingent cash payments from 25% of future earnings (as defined) and 10-15% of the net proceeds from the future sale of stock or operating assets. The period for computation of such contingent payments ends December 2004. The Company believes that it will be able to meet its 2000 funding requirements and obligations from the aforementioned sources of revenue and capital, and if necessary, by further cost reductions. However, there can be no assurances in this regard and the Company expects that it will need significant additional financing in the future. THE PRECEDING PARAGRAPHS DISCUSSING THE COMPANY'S FINANCIAL CONDITION CONTAIN FORWARD-LOOKING STATEMENTS. THE FACTORS AFFECTING THE ABILITY OF THE COMPANY TO MEET ITS FUNDING REQUIREMENTS AND MANAGE ITS CASH RESOURCES INCLUDE, AMONG OTHER THINGS, THE AMOUNT AND TIMING OF PRODUCT SALES, INVENTORY TURNOVER, THE MAGNITUDE OF FIXED COSTS AND THE ABILITY TO OBTAIN WORKING CAPITAL, ALL OF WHICH INVOLVE RISKS AND UNCERTAINTIES THAT ARE DIFFICULT TO PREDICT. 15 ESSEX CORPORATION PART II - OTHER INFORMATION Item 6. Exhibits and Report on Form 8-K (a) Exhibits (i) Exhibit 27 - Financial Data Schedule 27.1 Financial Data Schedule (b) Reports on Form 8-K None SIGNATURE In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ESSEX CORPORATION (Registrant) Date: August 7, 2000 /s/ Joseph R. Kurry, Jr. ------------------------------------- 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.) 16 EX-27 2 0002.txt FDS 2ND QTR. 10-QSB 2000
5 1,000 6-MOS DEC-31-2000 DEC-27-1999 JUN-25-2000 634 0 413 (50) 140 1,235 963 (907) 1,442 1,011 0 0 0 440 14 1,442 1,773 1,773 914 1,943 0 0 14 (184) 0 (184) 0 0 0 (184) (0.04) (0.04)
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