Essex Corp. aims for civilian markets Defense contractor plans stock sale

August 19, 1994|By Kim Clark | Kim Clark,Sun Staff Writer

The Essex Corp., a Columbia-based military contractor that has been hammered by defense cutbacks, announced yesterday it would sell up to $2.5 million worth of stock in an attempt to fund its move into civilian markets.

The move was praised yesterday by one of the few stock analysts still paying attention to the company's shares: Brooklyn, N.Y.-based investor Bob Acker, author of The Acker Letter.

Mr. Acker, who started recommending Essex stock several years ago when he noticed insiders were buying shares while the stock price was falling, conceded that Essex has been having financial difficulties.

Essex has seen its sales drop by more than half in the last five years, while losses steadily mounted. The company lost $1.9 million last year on revenues of $11 million.

"The balance sheet is nightmarish," Mr. Acker said.

But, he said, "the world will be amazed" when Essex starts selling its formerly military systems to companies and hospitals.

In its prospectus, the company said it will use the money to fund development of Essex's patented "ImSyn" image processor, that, it said, will enable doctors to view a patient's beating heart while the patient is in a magnetic resonance imaging machine.

If it raises at least $1 million, Essex said it will start shipping prototypes of the MRI device to hospitals by late 1995.

Some of the money will also be used to pay a landlord who sued the company after it moved out of its former headquarters.

Essex settled with the landlord for $250,000 in cash, an agreement to pay another $250,000 from a successful stock offering, future cash payments depending upon the company's profitability, and stock options.

The remainder of the stock proceeds will be used as badly needed operating capital.

Essex has been raising cash by selling its receivables for 80 cents on the dollar.

The company said it would first offer warrants for up to 1.9 million shares only to those who own stock as of Sept. 20.

If the holders don't buy up all the warrants, Essex will offer the remaining warrants to outsiders in November.

The price of the offering has not yet been determined, the company said.

Essex President Harry Letaw Jr. said yesterday that the company raised more than $200,000 in capital last year from a private, unregistered offering to employees and officers, including Mr. Letaw himself.

But it wasn't enough, he said.

Now Essex is offering warrants for registered stock first to current holders so that they can forestall dilution of their shares.

The offering could double the number of Essex shares traded on the Nasdaq market.

The company lost $1.9 million last year.

Mr. Letaw, who is the largest holder of Essex stock, said that the company hopes that the new products and new shares will persuade stockbrokers to start paying attention to Essex again.

"We're sort of climbing back out of a great deal of difficulty," Mr. Letaw said. "We hope and believe that more analysts will be interested in our company in the future."

Essex, which was founded in 1969 and went public in 1981, wasn't always ignored by the stock analysts. As late as 1989, it had nearly 300 employees, revenues of more than $29 million and a net profit of $126,000.

Stockbrokers started dropping Essex from their lists as the defense cuts worsened in the early 1990s, however. The company has lost money every year since 1990 and dropped to as few as 135 employees last year.

But the company said that it entered 1994 with a record backlog of work, broke even on an operating basis in its most recent quarter, and continues to reduce its reliance on military contracts.

Defense contracts now make up about half of its revenues, down from two-thirds in 1992.

Staffing has increased to more than 160 this year as the company has started entering civilian markets.

Essex is one of the contractors working on Motorola's "Iridium" project to create a global cellular telephone network, for example.

And it has started marketing a computer-based testing system, originally developed for NASA, that it says can screen out workers who are not fit for safety-sensitive jobs.

Essex stock closed yesterday at $1.875, unchanged from Wednesday's close.

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