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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 31, 1997
Commission File Number 333-5753
Exigent International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 59-3379927
(State of Incorporation) (IRS Employer
Identification Number)
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1225 Evans Road
Melbourne, Florida 32904-2314
(Address and telephone number of
Registrant's principal executive offices)
(407) 723-3999
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
None on which registered
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $0.01 par value per share
Common Stock Purchase Warrants
(convertible into Common Shares at an exercise price
of $3.00 per share)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 ___ (as of April 30,1997)
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405) of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value, at April 11, 1997 (based upon the average bid
and asked price on such date and including Class A Preferred Shares valued at
the same price as the Common Shares), of the voting stock held by nonaffiliates
of the registrant was $677,628.
The number of shares outstanding of the registrant's only class of common stock
on April 11, 1997 was 3,786,600.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. Business
General
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Exigent International, Inc. ("Exigent Inc." or the "Company") was formed on
March 25, 1996 by Software Technology, Inc. ("STI") to acquire and hold all of
the issued and outstanding stock of STI. Management of STI and Exigent
anticipated that it was advantageous to form a holding company and to use its
stock to acquire additional businesses and finance product development with the
expectation that a trading market in the stock would develop. On January 30,
1997, Exigent acquired all of the issued and outstanding STI stock in exchange
for 3,486,600 Exigent Common Shares and 697,320 Exigent Class A Preferred
Shares. Coincidently, Exigent also issued 645,270 Common Stock Purchase Warrants
in exchange for STI warrants held by STI shareholders and Joseph Walker & Sons,
Inc. ("JWSI"). Upon the completion of the exchange, STI became a wholly owned
subsidiary of Exigent. All of Exigent's current business operations are
conducted through STI.
The Company through wholly owned STI provides systems and software
engineering services, and develops technical solutions for government and
industry. The Company's research and development specializes in command,
control and data acquisitions systems for spacecraft constellation development
and operations. It provides operational systems that support space based
applications including ground station support, test and integration systems,
mission tasking systems, operational simulators, launch support systems and data
analysis centers supporting space based systems. The Company also develops
systems which integrally support space based operations such as flight systems,
flight simulators and space communications. In addition to developing and
providing systems, the Company provides both related services such as data
center operation, training, MIS applications and software engineering, and
"commercial-off-the-shelf" (COTS) products for real-time command, control and
data acquisition systems such as OS/COMET(TM), a commercially available command
and control development and support system.
Generally, the government contracts specify goals to be reached and estimate
the number of hours of work of employees at various levels required to reach the
goals. The contract price is based on pre-approved, hourly rates for employees'
time with certain pre-approved overhead costs included. If the goals are met in
fewer hours, the contract rate is lowered. If it takes more hours than
estimated to meet goals, the fee percentage is reduced on a pro rata basis based
on cost of actual hours delivered versus the cost of hours estimated in the
contract.
Most of the Company's commercial contracts are "firm fixed price" or time and
material agreements. These agreements generally call for a specified set of
requirements to be delivered at a negotiated price. With respect to fixed price
agreements, if development costs yield a result that is less than fixed price,
the Company will make a profit on that contract. If development costs exceed
the fixed price, the Company will have a loss on that contract. These types of
contracts are typically broken down into a set of milestones with progress
payments made at each milestone. These are generally called earned value
milestones and are use to benchmark progress, help the customer track status,
and provide trigger points for payments.
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Typical customers for products and services are:
. Various agencies and departments of the U.S. government using satellites
for research, communication or defense programs.
. Telecommunication companies, particularly those focused on low-earth-
orbit satellite systems for use by cellular phone services.
. Aerospace and defense contractors developing computerized weaponry and
defense systems employing satellite technology.
. Engineering firms.
. Foreign agencies controlling airports and airport security and U.S.
airlines.
For the fiscal year ending January 31, 1997, approximately 61% of STI's
revenues were derived from government contracts. For fiscal year ended January
31, 1996, approximately 51% of STI's revenues were derived from government
contracts. See Management's Discussion and Analysis of Financial Condition and
Results of Operation for further discussion of the breakdown of government and
commercial sales. STI obtained additional government contracts in fiscal year
1997 accounting for the increase in percentage of revenues derived from
government contracts. The largest government contracts, representing
approximately 26% of the revenues from the government, are with the Naval
Research Laboratory ("NRL") Space Systems Division. In addition, Loral Federal
Systems (which has been acquired by Lockheed Martin Corporation referred to
herein as "Lockheed Martin") and STI, as subcontractor, were awarded a five year
contract for COTS software and workstations to upgrade the Global Positioning
Systems ("GPS") ground command and control functions. STI is providing its
OS/COMET(TM) command and control software and engineering services as part of
the GPS contract. GPS's 24 satellites provide worldwide navigation data for
military and civilian aircraft, spacecraft and land and marine applications. The
new system will replace a slower mainframe-based system and legacy software
which has become costly to maintain.
STI has several contracts with NRL. Its largest contract with NRL relates
to space systems applications and operations and was renewed in January of 1995.
It provides for services to be initially performed over two base years with
three one-year options with total estimated costs of $23,414,154 and a fixed fee
of $1,788,443. As of January 31, 1997, the first option had been exercised and
STI had received costs and fees in the aggregate of $12,051,728 under the
contract. Each of the one-year options provides for payments of approximately
$4,700,000 in costs and $359,000 in fees. The Lockheed Martin contract relates
to a U.S. Air Force GPS project and began in August of 1995 and continues
through September 30, 2000 unless modified by Lockheed Martin. STI received
$3,133,871 under the contract for the year ending January 31, 1997 with a
backlog at that time of approximately $1,913,059.
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The bulk of STI's remaining revenues came from two commercial customers with
most of such revenues, approximately 34% of STI's total revenues for the year
ending January 31, 1997, coming from its contract with Motorola/1/, Inc. to
provide the ground software for the IRIDIUM(R)/2/ program (currently believed to
be the largest commercial space program) which will control interconnected low
earth orbit satellites to provide communication worldwide using hand-held
wireless telephones.
STI has various contracts with Motorola, some of which are fixed price
contracts and some of which are time and materials contracts. Most of the
revenues from Motorola in the past three years were received under an agreement
executed in February of 1994 under which STI agreed to provide Motorola with
satellite and ground control software for the system control segment of the
IRIDIUM communications system. STI expects to receive payments under the
contract through the early part of 1999; however, warranty and other obligations
continue through December 2002. As of January 31, 1997, STI had received
approximately $26,250,000 from Motorola under this and other contracts some of
which have been completed. The backlog as of January 31, 1997 for Motorola was
$2,754,603.
STI also receives a significant amount of its revenues from Allied Signal
Technical Services Corporation ("Allied") under various purchase orders. It has
received approximately $1,791,466 from Allied during the fiscal year ending
January 31, 1997 and approximately $3,755,942 in backlog remains under existing
purchase orders.
In 1992, STI was largely dependent on NRL for its source of revenues with
approximately 80% of its revenues originating from that customer. At that time,
management made a concerted effort to begin diversifying STI's customer base
using its OS/COMET(TM) product. Since that time, contracts with Motorola and
Lockheed Martin for the IRIDIUM and GPS satellite systems respectively are
evidence of success in diversification. Management is working on developing
international business in the satellite and airport security industries which
should increase diversification at a more rapid rate. Management also believes
that the ability to make acquisitions using publicly traded stock will allow it
to enhance its technical capabilities through acquisitions and pursue customers
requiring solutions beyond STI's current existing capabilities. Acquisitions
would also bring an immediate benefit of additional customers and market share
resulting in further diversification.
STI has expertise in the following areas:
. Real-time Space Systems
. Satellite Ground Stations
. Command and Control
. Satellite Simulators
. Process Automation
. Test and Data Systems
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/1/ Motorola is a registered trademark of Motorola, Inc.
/2/ IRIDIUM(R) is a registered trademark and service mark of Iridium, Inc.
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. Networks and Systems Integration
. Professional Training
STI has played a prominent role in Navy, NASA, Air Force and BMDO space programs
since 1978. STI has also provided systems solutions to major corporations
including Lockheed Martin Corporation, Loral, Motorola, Rockwell, GE Astro
Space, Allied Field Engineering, Harris and Perot Systems.
STI's experience includes providing ground, flight and test support to the
NRL Space System Division on advanced research and development and mission
critical systems, including the advanced control system software, for NRL's
state-of-the-art ground stations; the OSSE experiment software for NASA's
Compton Gamma Ray Observatory; software engineering systems, management and
analysis to develop a nationwide network for Perot Systems; X Window graphical
user interfaces for the AT&T Telstar 4 and NASA Mars Observer SSTI satellite
checkout stations for GE Astro Space; and data acquisition and control software
used worldwide in the power control centers of electric utility, transportation
and oil companies for Harris Controls Division.
In addition to developing, marketing and supporting certain products, STI
provides engineering and training services such as: system engineering to
assist in defining and specifying quantifiable, testable system requirements;
software engineering to improve software quality and productivity supported by
formal review, configuration control and audits by the STI quality assurance and
configuration management staff; integration and testing services for black box
level through system integration and final acceptance test according to
Department of Defense and industry standards; systems management in distributed
computing systems and information networks; and professional training services
including hands-on and interactive multi-media, computer-based training.
STI is a charter member of the Software Engineering Institute's Industry
Affiliates Program and applies the SEI's software quality program.
Products
The high technology business today requires a product oriented emphasis to
market custom systems. Satellite software systems and airport security systems
are both large applications that require customization to suit particular
customer requirements. These systems can only be produced cost effectively,
quickly and reliably if they are based on proven designs that reuse components
or products. Software intensive applications benefit from economics of scale,
not only through cost reduction (by amortizing development costs), but by
reusing components that have proven themselves to be reliable through previous
developments. Cycle times (speed to market) is also critical, and applications
that use 80% to 90% COTS solutions will arrive on the scene faster and at a
lower cost. Management believes that by leveraging OS/COMET(TM) based satellite
systems and Integrated Management System (ISMS) based airport security systems
STI will realize further diversification.
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In addition to providing software engineering, systems engineering,
integration and management and professional training services, STI has designed
and developed and manufactures and markets certain commercial products. STI
owns all of the rights in some of its products while other products were
developed by STI under contracts with customers to which products the customer
retains certain rights. Descriptions of STI's main commercial products follow.
OS/COMET(TM). OS/COMET(TM) is a general-purpose, integrated tool set and run-
time environment for the development of sophisticated command-and-control
software. STI receives approximately 3% of its revenues from the license of, and
maintenance agreements relating to, OS/COMET(TM). STI originally developed the
OS/COMET(TM) family of software products for the support of satellite ground
stations and for spacecraft integration and testing environments. Due to
flexibility of design and robust architecture, OS/COMET(TM) software is readily
adaptable to virtually any feedback control requirement, such as factory
automation or supervisory process control. Currently, STI is developing
OS/COMET(TM) prototype applications for the pipeline industry and factory
automation. The OS/COMET(TM) systems can be run on any of several inexpensive,
POSIX-compliant UNIX(TM) workstations and make extensive use of the X Window
System(TM) and the OSF/Motif(TM) graphical user environment standards.
The OS/COMET(TM) environment, together with user-developed applications and
data bases, can be configured to satisfy most requirements for command, control
and data monitoring systems. Part of OS/COMET(TM)'s efficiency and popularity is
attributable to the elimination of redundancy. When any part of millions of
lines of custom software codes or attendant hardware designs developed during
past engineering projects may be applicable to new programs, these tested codes
and/or designs (also known as objects) may be identified by the user and
temporarily integrated into the new program. Using OS/COMET(TM), the objects may
be tested by simulation to see if the integration will achieve the desired
result. Then the lines of code are appropriately utilized or not. Along the same
lines, OS/COMET(TM) enables migration and consolidation of such object and
attendant hardware designs as may be useful from any of the predominant
engineering platforms to the task at hand. Use of OS/COMET(TM) results in
reduction of software development and systems design and integration costs.
The development of the initial version of the COMET(TM) software was funded
by the NRL under contract and the NRL retains certain rights to distribute that
version of COMET(TM) within the government. STI retains the exclusive rights to
OS/COMET(TM), the derivative version of COMET(TM) which is UNIX based, although
STI has agreed to license to the NRL the derivative version, OS/COMET(TM), for
their applications at no cost. Other governmental entities which want to use the
newer version will be required to pay license fees.
FotoTag(TM) Airport Passenger/Baggage Reconciliation System. The Company has
developed FotoTag, an airport passenger and baggage reconciliation system
designed to mitigate terrorist threats and enhance airport and airline
operations. The Company receives approximately 0.5% of its revenues from the
license of this product. The system works basically as follows: Baggage,
including all carry-on items (optional) are bar coded at check-in. Passenger's
faces are recorded in the computer and correlated with their baggage and a bar
code label is affixed to their
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boarding pass. Airport or airline security personnel can track passengers and
baggage from check-in through boarding by scanning these bar code labels at any
location. Baggage handlers, check-in counters, customs, immigration, boarding
gates and security checkpoints are able to share data and video images via a
high speed network of computers. As passengers approach the boarding gate, the
gate agent scans the bar code labels affixed to their boarding pass and carry-on
items (optional) with a hand-held or fixed scanner. The gate agent can verify
the passenger's identity by comparing it with the image on the computer screen.
If carry-on baggage is tagged and a passenger attempts to board the aircraft
with carry-on baggage that was not in that passenger's possession at check-in,
the system generates an alert. Likewise, if checked baggage is loaded on the
aircraft and the corresponding passenger does not board, the system alerts
security personnel. The system also informs personnel if a passenger's baggage
is not loaded on the plane when the flight is ready to be closed. Most of the
current customers of this product are outside of the United States. The Company
formed FotoTag, Inc., a Delaware corporation, in March of this year as an
operating company to hold, further develop and market FotoTag. FotoTag, Inc.
will be a wholly owned subsidiary of Exigent.
Model 2032 Data Switching Unit. This STI hardware product was developed
for use by satellite ground stations. However, the largest market for the
product is the telecommunications industry. The data switching unit allows data
received to be switched to several devices simultaneously. It is six times
faster than existing conventional products. The Company receives approximately
0.5% of its revenues from the sale of the data switching unit.
Value Added Remarketer License. STI has entered in a remarketer license
with SL Corporation pursuant to which STI is entitled to incorporate SL software
into derivative products and distribute such products so long as they add
functionality to STI's products, are not a commercially acceptable substitute
for SL's products, are not competitive as a general purpose tool and do not
provide access to programmable libraries. End users must license the copies of
the SL software embedded in the derivative products. SL's software is a dynamic
graphics engine. STI derives approximately 1% of its revenues from these
derivative products.
Research and Development
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STI is primarily a professional services company providing research and
development ("R&D") for specific projects or tasks under contract to both
government and industry. Much of its R&D activities are funded under contracts
with government or industry. STI does however fund R&D for development or
enhancement of certain products which management believes are commercially
marketable. Generally, most of its contract funded R&D relates to satellite
command and control, developing systems for the ground and space segments of the
aerospace/defense industry and phone systems providers in the telecommunications
industry. Often through these projects, STI identifies potential software
product offerings for commonly used functions. These concepts are evaluated
and, based on estimated costs and commercial sale potential, funded and
developed by STI as separate products. The emphasis placed on low cost
solutions by STI customers mandates the need for reusable software components
and products.
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STI spent $239,986 in fiscal year ending January 31, 1997, and $154,856 and
$102,533 respectively for the years ended in 1996 and 1995 on company sponsored
R&D. With respect to the commercial development and enhancement of OS/COMET(TM),
STI has spent in excess of $2,000,000 over four years. See Business -
Products. This product was initially developed over the course of ten years
through contract funded R&D. The cost of developing the high speed data
switching unit was approximately $100,000 and of developing FotoTag, the airport
security system, approximately $111,406. The latter uses mostly off-the-shelf
software.
Presently, STI's R&D efforts, in addition to contract funded R&D, are focused
on enhancing the OS/COMET(TM) product, developing an object oriented data base
system to complement OS/COMET(TM) and attempting to penetrate new markets. The
proposed OS/COMET(TM) enhancements include improved tools relying heavily on
graphics for increased utility and ease of operation. Proposed future R&D
projects include continued development of OS/COMET(TM) focusing on applications
which target specific opportunities and further development of the airport
security system adding additional image recognition capabilities and laser
scanning.
All four of STI's facilities are available for R&D activity. See Properties.
Each facility has extensive computer resources and is networked to all other
facilities. The following equipment owned by STI is fully engaged for design
development tasks:
. 40 Sun workstations
. 1 HP 9000 workstation
. 50 McIntosh computers
. 30 PC compatible computers
. 4 Vax computers
. 20 terminals
. Corporate network (Internet)
Marketing
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According to the Aerospace Industries Association of Washington annual
review as reported in Space News (December 18, 1995), space related sales within
the aerospace/defense industry (including satellite and launch vehicles) for
1995 were $27.0 billion, an increase of 1.4% over 1994 and are expected to be
$28.1 billion for 1996. Based upon an informal survey of some of its customers,
STI's management believes that approximately 10% of project funds are spent for
software development costs. Although the military and civil space agency
sectors are shrinking, the commercial sector of the aerospace industry,
particularly satellite communications, has been expanding. According to
industry studies, there are in excess of 900 satellite missions pending through
2004. Communications satellites make up at least two-thirds of the pending
launches of which more than two-thirds of those are proposed commercial
launches, by such companies as Hughes, Lockheed-Martin Corporation, Loral,
Motorola and TRW.
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Most of the Company's opportunities to bid on contracts for systems
development, software engineering or support are derived through solicitation
of, or by initiation from, STI's existing customers. STI's solicitation efforts
are made through four in-house personnel.
Prospects for the Company's commercial products such as OS/COMET(TM) and the
data switching unit are generated through direct mail solicitation handled by an
advertising firm. STI has also recently entered into a joint marketing agreement
to market OS/COMET(TM) with a division of Harris Computer Systems Corp. located
in Fort Lauderdale, Florida in connection with its sale of Harris Nighthawk
computer systems. Approximately one-third of the Nighthawk systems are used by
customers for various engineering applications involving telemetry to which
OS/COMET(TM) is applicable. In addition, STI advertises in Space News Magazine
and participates in various trade shows.
Prospects for sale of the FotoTag(TM) Airport Passenger/Baggage
Reconciliation System are generated through direct contact with airline industry
entities and direct mail solicitation handled by an advertising firm.
Backlog
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STI estimates that its backlog orders believed to be firm as of January 31,
1997 and 1996 were $31,571,380 and $46,753,100. Approximately $11,959,666 of the
1997 backlog relates to the unfunded portion of government contracts. STI
estimates that 87% of its January 31, 1997 backlog will be completed during the
fiscal year which will end on January 31, 1998. This does not include additional
revenues anticipated from new contracts.
Competition
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STI is best known for its development of command and control technology for
low earth orbit communication satellite systems. In general, aerospace/defense
contractors must obtain or produce this type of software in connection with the
manufacture and sale of satellites, but place little emphasis on this relatively
small area and often contract with other companies, such as STI, to provide the
software. Thus, many of STI's customers are also its competitors and provide, in
some circumstances, products which are similar to STI's as well as engaging STI
to provide products. In addition, there are not many "independent" competitors
because of the expertise involved and the cost of failure. Satellite systems and
command and control software are considered "mission critical." Without software
that is able to control the satellite, a multi-billion dollar satellite or
constellation of satellites could be placed in orbit and be unable to perform to
mission specifications.
STI believes it is one of only three, and the largest of these three,
"independent" companies nationwide that derive substantially all of their
revenues from development of tracking, telemetry and command and control
software related to satellites and satellite ground station support. In addition
to its two direct competitors, STI competes with many of the large
aerospace/defense contractors which are also often its customers. Companies
within the professional services sector of the computer industry are also
potential competitors of STI. However, with the exception of IBM
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through a subsidiary, Federal Systems Company which was sold to Loral
Corporation and then to Lockheed-Martin Corporation, STI is not aware of any
contracts for development of satellite tracking, telemetry or command and
control software awarded to these types of companies. Many computer
professional services companies, such as Computer Sciences Corporation, service
satellite ground stations with information technologies, such as systems to
organize, archive, interpret and analyze telemetered data. These and other
computer companies also may compete with some of STI's COTS products.
STI's two direct competitors which also derive substantially all of their
revenue from the development of satellite related software are Integral Systems,
Inc. and Talarian Corporation. Integral Systems, Inc. is a 15 year old public
company with gross revenues in the $11 million range which has approximately 92
employees. Talarian Corporation is a eight year old privately held company with
approximately 50 employees. Customers include ADP, British Telecom, IBM,
Lockheed Martin, Loral, MCI, NASA, Nortel, Pacific Bell, PG&E, Platinum
Technology, and TRW. Its gross revenues are in excess of $4 million.
There are eight leading aerospace/defense contractors in the United States
that derive revenues from space related sales, most of which have developed
tracking, telemetry and command and control software in-house as primary
contractors, through sub-contractors and through outsourcing. However, revenues
derived from development of such software represent only a minuscule portion of
their total revenue. The software is nevertheless essential to their contracts
to manufacture satellites. These aerospace/defense contractors are all
significantly larger than STI with significantly greater resources. They are
GRC International, Harris Corporation, Hughes Electronics Corporation, Lockheed-
Martin Corporation, Loral Corporation, Northrop Grumman Corporation, Rockwell
International Corporation and TRW, Inc.
Manufacturing
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In addition to providing software and system development and professional
services, STI produces certain computer software and hardware products.
Basically, software kits consist of the software license, registration card,
documentation and diskettes. A vinyl insert holds the diskettes and a binder
organizes the documentation which may include 1,000 or more pages. Each kit is
labeled and shrink-wrapped. With the exception of documentation, materials are
obtained on an as-needed basis. Two employees can easily produce several kits
per day. All of STI's products are high price/low volume; therefore, very
little inventory needs to be maintained.
In order to provide its high speed switch matrix (hardware), STI contracts
out the production of the circuit board, purchases components and assembles and
tests the product in-house just prior to shipment. This is a high margin very
low volume item sold primarily for use in satellite ground stations. STI
generally has a 120 day lead-time to deliver the product and, therefore, does
not need to keep it in inventory.
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All of the materials used in producing the software kits and the high speed
switch matrix are available from a variety of vendors. Thus, STI has not had,
and does not expect to have, any problems obtaining competitive prices from
suppliers or in effecting quick deliveries.
Employees
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The Company had 291 employees, of which 268 were salaried engineers, on
January 31, 1997. Of these employees, approximately 50% work at corporate
headquarters in Florida, 35% in the Virginia and Maryland offices in the
Washington, D.C. area, 6% in the Arizona office, and 5% at the Colorado office
with the remaining 4% working at customer locations or their homes.
Approximately 90% work in software development with the remaining 10% in
administrative positions.
History
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Exigent was formed as a Delaware corporation in 1996 to acquire all of the
issued and outstanding stock of STI. See Business - General. STI, a Florida
corporation, was formed in 1978 to take advantage of a subcontract with NRL
obtained by four aerospace engineers. The contract was for support of an NRL
ground station; the four employees had written the software for the ground
station as employees of various large aerospace/defense contractors. This
contract established STI's working relationship with NRL which continues to be
one of its two largest customers. The expertise and technology acquired through
its efforts for NLR enabled STI to pursue related work with other customers
including NASA, the Air Force and commercial space companies. The intensive
software engineering discipline developed by STI in support of mission critical
space systems also enabled STI to diversify into other software related fields
such as process control and information systems.
Out of its experiences over the years and in furtherance of its
diversification efforts, STI has been able to identify and develop software
products based on commonly occurring requirements in programming for the
satellite industry and now offers these as "commercial off-the-shelf" products
that complement its aerospace engineering expertise.
In 1993, Motorola awarded STI a long-term contract to develop most of the
software required for its IRIDIUM project which STI believes is the leading
technological model for low-earth orbit satellite systems for point-to-point
cellular phone communications in the world. It will consist of a constellation
of 66 satellites. More recently, in 1995, STI was awarded a $4,000,000 contract
to provide satellite systems software for the GPS Group System being developed
by Loral Federal Systems. With these contracts, STI has further diversified its
business and mitigating its dependency on contracts with NRL.
FotoTag, Inc., a Delaware corporation, was formed in March 1997 to further
develop and market the airport security product.
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Item 2. Properties
Exigent's and STI's corporate headquarters are located in Melbourne, Florida
near the "Space Coast." STI is currently leasing a 29,000 square foot building
pursuant to a ten year lease which will expire on December 1, 2005. STI has the
right to renew the lease for two additional five year terms and has an option to
purchase the property which may be exercised during certain periods prior to the
expiration of the fifth year and of the tenth year of the lease. The purchase
price is the fair market value of the property determined by appraisal, but in
no event less than the outstanding balance on the mortgage.
In addition to the corporate headquarters, STI leases 15,296 square feet of
space in Alexandria, Virginia which lease will expire August 31, 1998 (subject
to STI's right to renew for up to two additional one year terms), approximately
2,494 square feet of space in Aurora, Colorado which lease will expire October
31,1999, another 1,935 square feet of space in LaPlata, Maryland which will
expire October 14, 1997 (subject to STI's right to renew for up to three
additional one year terms) and approximately 2,971 square feet of space in Mesa
Arizona.
The Company believes that, with the new addition to its headquarters, its
space needs will be met until through 1997. To meet anticipated growth
requirements, the Company has entered into a build-to-suit lease for an
additional 16,000 square feet of office space and 14,000 square feet of
unfinished space to be constructed adjacent to the existing Melbourne, Florida
facility. Due to the nature of the Company's business, there are no special
facility issues to consider since software development can be conducted in
standard office space and its manufacturing requirements are minuscule and most
often handled through sub-contractors.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which Exigent or its
subsidiaries or their properties are a party, or were a party during the fourth
quarter of fiscal 1997.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to a vote of security holders of Exigent during the
fourth quarter of fiscal 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established trading market for Exigent's securities at this time;
however, trading of Exigent's Common Shares and Common Stock Purchase Warrants
is reported on the Electronic Bulletin Board. Reporting did not begin until
March 24, 1997.
11
<PAGE>
The approximate number of holders of Common Shares of Exigent is 1,344 (based
upon the number of record holders).
Exigent paid annual cash dividends of $0.05 and $0.075, respectively, during
fiscal years 1996 and 1997. (The amounts stated reflect the reorganization and
current capitalization of the Company.) In connection with certain financing,
STI is prohibited from declaring or paying dividends in excess of the lesser of
25% of net income or $100,000 without prior approval by the lender. The payment
of dividends in fiscal year 1997 was approved by the lender. See note 6 to the
financial statements.
On January 30, 1997, the effective date of a registration statement on form
S-1, Exigent issued 3,486,600 Common Shares and 697,320 Class A Preferred Shares
to the shareholders of Software Technology, Inc. in exchange for all of such
company's issued and outstanding stock. On the same date, Exigent also issued
645,270 Common Stock Purchase Warrants in exchange for all of STI's issued and
outstanding warrants. A total of 14 persons received shares and/or warrants in
connection with the transaction. Exigent claims exemption from registration
under Section 4(2) of the Securities Act of 1933. A portion of the Common Shares
and all of the warrants were registered as selling shareholder shares
Each warrant entitles the holder to purchase one Common Share of Exigent at
an exercise price of $3.00 per share for 36 months.
Item 6. Selected Financial Data
The selected financial data is that of STI. The pro forma par share figures
are calculated based upon the weighted average common shares outstanding, fully
diluted, of Exigent giving retroactive effect to the reorganization (see notes
to the financial statements for a further description).
<TABLE>
<CAPTION>
Years Ended January 31
(Amounts in thousands except
per share amounts)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 29,936 $ 25,292 $ 19,761 $ 16,761 $ 14,913
Cost of Sales (24,689) (19,408) (16,064) (13,401) (12,234)
Gross Profit 5,247 5,884 3,697 3,360 2,679
General and Administrative Expenses (5,344) (3,841) (2,539) (2,511) (1,805)
Research and Development Costs (240) (155) (102) (126) (84)
Operating Income (337) 1,888 1,056 723 790
Total Other Income (Expense) 1 (1) 20 (13) 20
Income before Taxes (336) 1,887 1,076 710 810
Income Tax Expense (150) (755) (354) (216) (357)
Net Income $ (486) $ 1,132 $ 722 $ 494 $ 453
Income per Pro Forma Weighted Average
Common Shares, Outstanding - Fully $ (0.13) $ 0.29 $ 0.19 $ 0.13 $ 0.12
Diluted
Cash Dividends $ (310) $ (178) $ (89) $ (89) $ (89)
Cash Dividends paid per pro forma
share outstanding $ 0.075 $ 0.05 $ 0.03 $ 0.03 $ 0.03
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Years Ended January 31
(Amounts in thousands except
per share amounts)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $ 10,949 $ 8,328 $ 6,471 $ 4,631 $ 4,224
Total Long-Term Liabilities $ 317 $ 10 $ 17 --- $ 4
(excluding deferred income taxes)
Total Stockholders' Equity $ 6,258 $ 4,893 $ 3,939 $ 3,306 $ 2,901
Stockholders' Equity Per Pro Forma $ 1.72 $ 1.27 $ 0.88 $ 0.86 $ 0.65
Weighted Common Share, Outstanding -
Fully Diluted
Dividends Declared Per Pro Forma $ 0.08 $ 0.05 $ 0.02 $ 0.02 $ 0.02
Weighted Average Common Share,
Outstanding - Fully Diluted
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following is management's discussion and analysis of the Company's (i)
consolidated financial condition as of January 31, 1997 compared with the fiscal
year ended January 31, 1996, and (ii) consolidated results of operations for the
years ended January 31, 1997, 1996 and 1995.
Liquidity
- ---------
January 31, 1997 compared to January 31, 1996
- ---------------------------------------------
As of January 31, 1997 and 1996, the Company's ratio of current assets to
current liabilities was consistent at 2.0. As of January 31, 1997, the Company's
quick liquidity ratio was 1.7 down from 1.9 for the year ended January 31, 1996.
This decrease is due to the $796,000 receivable for income taxes at January 31,
1997. The Company based estimated income taxes on prior year net income,
however, taxable income was significantly lower than 1996 and there were
$400,000 of additional research and development costs capitalized during fiscal
year 1997.
The Company's cash portfolio (cash and cash equivalents) increased $158,621
at January 31, 1997. The increase is due to: cash provided by operating
activities of $1,679,983, cash used in investing activities of $(1,949,728) and
cash provided by financing activities of $428,366. The cash provided by
operating activities decreased primarily due to an increase in cash paid to
suppliers and employees. This decrease is the result of the Company hiring
additional employees. The Company's cash portfolio increased $261,444 at January
31, 1996. The increase is due to: cash provided by operating activities of
$2,592,895, cash used in investing activities of $(1,247,133) and cash used
13
<PAGE>
in financing activities of $(1,084,318). The cash provided by operating
activities increased primarily due to an increase in cash received from
customers.
In fiscal year 1997 and 1996 STI acquired $1,382,163 and $1,122,226,
respectively, of capital assets compared with $526,512 in 1995. This was due
primarily to the increase in the number of the Company's contracts, government
and commercial, in fiscal years 1997 and 1996 requiring the purchase of
substantial additional computing resources. Capital for equipment purchases is
expected to slow for the next two fiscal years as the Company has now modernized
and acquired sufficient computer resources for expected operations. In fiscal
year 1997 and 1996, the Company also spent $556,167 and $161,785 in capitalized
research and development costs to develop our new products considered to be
essential in maintaining a strong market position in the Satellite Command and
Control Industry. There were $162,783 of research and development costs
capitalized in fiscal year 1995.
Cash provided by financing activities for fiscal year 1997 was $428,366 of
which $800,000 was borrowed to purchase computer equipment and $182,000 was
borrowed under a line of credit for operating cash due to the costs incurred for
going public. Cash used in financing activities for fiscal year 1996 was
$(1,084,318) of which $900,000 was used to pay off the $900,000 borrowed under a
line of credit in fiscal year 1995 when cash provided by investing activities
was $766,061. Dividends were paid of $0.45, $0.30, and $0.15 ($.075, $.050 and
$.025, giving retroactive effect of stock split) per share in fiscal year 1997,
1996 and 1995 and amounted to $309,549, $177,955 and $127,377, respectively.
Principal payments on long-term debt amounted to $251,335, $6,363 and $6,562 in
fiscal year 1997, 1996 and 1995, respectively.
As of January 31, 1997 and 1996, STI had a line of credit with a bank of
$1,800,000. Draws against the line as of January 31, 1997 and 1996 were $182,000
and $0, respectively. General and administrative expenses in fiscal year 1997
were $5,344,211, 39% or $1,503,542 higher than fiscal year 1996 expenses of
$3,840,669. This increase resulted mainly from $1,058,951 in public offering
costs, $364,155 in additional costs related to marketing and recruiting, and
$387,442 in administrative costs due to the hiring of more employees during
fiscal year 1997 and a larger overhead pool to allocate. General and
administrative expenses in fiscal year 1996 were $3,840,669, 51% or $1,302,002
higher than fiscal year 1995 expenses of $2,538,667. This increase resulted
mainly from payment of $637,438 of additional bonuses to employees, additional
contributions of $261,046 to the ESOP, increases in advertising spending of
$91,713 and in recruiting and marketing expenses of $79,876. Other changes are
described in the Financial Statements. Management believes existing cash, funds
generated by operations and the available line of credit will be sufficient to
meet STI's operating and debt service requirements in fiscal year 1998.
Provision for Income Taxes
The effective rate for the year ending January 31, 1997 was (44.5)%, down
84.5%, from the fiscal year 1996 effective rate of 40%. This decrease is
primarily the result of the public issuance costs incurred during 1997 that are
not deductible for federal and state taxes. The notes to Financial Statements
describe the differences between the U.S. statutory and effective income tax
rates.
14
<PAGE>
Analysis of Operations
Year Ended January 31, 1997 Compared with Years Ended January 31, 1996 and 1995
Sales for the year ending January 31, 1997 were $29,935,691, up 18% from
fiscal year 1996 sales of $25,291,635. The breakdown between government and
commercial sales for these periods were as follows:
<TABLE>
<CAPTION>
FY 97 FY 96 FY 95
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Government $18,233,915 61% $12,892,121 51% $13,277,955 67%
Commercial 11,701,776 39% 12,399,514 49% 6,482,645 33%
----------- ---- ----------- ---- ----------- ----
$29,935,691 100% $25,291,635 100% $19,760,600 100%
=========== ==== =========== ==== =========== ====
</TABLE>
These sales reflect a 61% to 39% government to commercial split compared to a
51% to 49% split in fiscal year 1996. Government contract revenue increased due
to the Company obtaining a $3,100,000 subcontract with Lockheed-Martin Federal
Systems. Commercial revenue decreased due to a change in estimate related to the
expected costs and profit associated with the Motorola contract. Fiscal year
1996 sales were 28% higher than fiscal year 1995 sales of $19,760,600 due mainly
to obtaining the Motorola contract.
Gross profit decreased from $5,883,499 (23.3% of sales) to $5,246,847 (17.5%
of sales) for the years ended January 31, 1996 and 1997, respectively mainly due
to the Company hiring additional employees and consultants necessary to handle
the current contracts. Gross profit for fiscal year 1995 was fairly consistent
with 1997 at $3,696,993 (18.7% of sales). The chart below shows the gross profit
breakdown between government and commercial contracts:
<TABLE>
<CAPTION>
Government FY 97 FY 96 FY 95
- ---------- ------------ ------------ ------------
<S> <C> <C> <C>
Revenue from services $ 18,233,915 $ 12,892,121 $ 13,277,955
Cost of sales (14,674,760) (11,167,741) (10,894,276)
------------ ------------ ------------
Gross profit $ 3,559,155 $ 1,724,380 $ 2,383,679
============ ============ ============
Gross profit as a % of Sales 19.5% 13.4% 18.0%
Commercial FY 97 FY 96 FY 95
- ---------- ------------ ------------ ------------
Revenue from services $ 11,701,776 $ 12,399,514 $ 6,482,645
Cost of sales (10,014,084) (8,240,395) (5,169,331)
------------ ------------ ------------
Gross profit $ 1,687,692 $ 4,159,119 $ 1,313,314
============ ============ ============
Gross profit as a % of Sales 14.4% 33.5% 20.3%
</TABLE>
Net income decreased to a loss of $(486,238) (1.6% of sales) in 1997.
Management attributes the decrease to the approximately one million of costs
incurred for the public offering during the fiscal year. In addition, there was
an increase in research and development costs expensed in the current year of
$239,986 to develop "OS/COMET" and "FotoTag". Net income rose from $722,210
(3.6% of sales) in 1995 to $1,131,741 (4.5% of sales) in 1996. Management
attributes these increases to the Company's successful transition from the
defense related industry
15
<PAGE>
to commercial operations in a short period of time and a higher margin on
commercial fixed price contracts compared to cost plus government contracts.
Fiscal year 1995 saw STI obtain its first significant commercial contracts
from Motorola when it was engaged to provide satellite ground station software
for a constellation of satellites that will provide worldwide cellular telephone
service. The Motorola contract allowed the Company to leverage its technology
into the commercial arena. In fiscal year 1996, STI repeated this feat by
winning a contract to provide similar software for the Global Positioning
Satellite (GPS) System. With these two contracts, the Company is involved in the
two premier satellite endeavors taking place today.
Overview
- --------
The current contract base provides sufficient backlog to maintain the Company
through fiscal year 1998. The backlog as of January 31, 1997 for commercial and
government contracts was $4,088,593 and $27,482,787, respectively. The Company
invested in excess of $2,000,000 over the last 4 years in its premier software
product OS/COMET. This investment facilitated the significant contract awards
that management believes would have been impossible otherwise. Commitment to
maintain support for the product will continue through fiscal year 1998 and is
necessary to deliver the services under contract.
The Company also began development on a new commercial software product
FotoTag and has invested approximately $110,000 during fiscal year 1997.
Management is committed to support the development of this product which will
continue through fiscal year 1998.
The Company completed expansion of its corporate headquarters in February of
1996 and has already begun the planning for another expansion to the
headquarters during fiscal year 1998 to facilitate its increased commercial
activity. These increased facility costs should not affect the Company's
overhead as these increases were made to accommodate existing needs and not
future expansion. The commercial satellite business is projected to continue
with strong sales worldwide and is expected to show moderate increases
throughout the end of the decade, providing additional opportunities for the
Company.
Demand for software engineers is expected to provide new opportunities for
the Company, but will place a premium on the efforts to retain the current work
force. This risk will put additional pressure on overall payroll costs, but
should be an industry wide phenomenon. Management believes that benefits offered
by the Company remain above the level of its competition and should help to
stabilize its workforce. Overhead costs for benefits should remain flat and
maintain the same percentage of wages for fiscal year 1998. Management believes
it is important that the Company not reduce benefits while the software engineer
demand remains high. To do so and hold costs stable has been a management
challenge and will continue to be so in the near future. Maintaining the
Company's comprehensive benefit plan will also facilitate its ability to sustain
an effective recruiting campaign.
16
<PAGE>
Item 7A. Quantitive and Qualitive Disclosures About Market Risk
Exigent does not have any market risk sensitive instruments.
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report - March 26, 1997 18
Consolidated Balance Sheets - January 31, 1997 and 1996 19
Consolidated Statements of Income - For the Years Ended
January 31, 1997, 1996 and 1995 21
Consolidated Statements of Changes in Stockholders' Equity -
For the Years Ended January 31, 1997, 1996 and 1995 22
Consolidated Statements of Cash Flows - For the Years Ended
January 31, 1997, 1996 and 1995 24
Notes to Financial Statements - For the Years Ended January 31,
1997, 1996 and 1995 27
</TABLE>
17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Exigent International, Inc.
We have audited the accompanying consolidated balance sheets of Exigent
International, Inc. (a Delaware corporation) and subsidiary as of January 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended January 31, 1997,
1996 and 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Exigent
International, Inc. and subsidiary as of January 31, 1997 and 1996, and the
results of its operations and its cash flows for the years ended January 31,
1997, 1996 and 1995 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, Exigent International Inc.
acquired Software Technology, Inc. in a business combination accounted for as a
pooling of interest.
Hoyman, Dobson & Company, P.A.
Melbourne, Florida
March 26, 1997
18
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
January 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 428,705 $ 270,084
Accounts receivable, pledged 2,909,746 1,451,244
Costs and estimated earnings
in excess of billings on uncompleted
contracts, pledged 3,836,828 4,698,123
Prepaid expenses 60,428 122,807
Income taxes receivable 796,143 -
Deferred income taxes 333,000 301,000
------------ ------------
TOTAL CURRENT ASSETS 8,364,850 6,843,258
------------ ------------
PROPERTY AND EQUIPMENT, pledged
Cost 4,043,152 2,686,678
Accumulated depreciation (2,195,150) (1,474,347)
------------ ------------
NET PROPERTY AND EQUIPMENT 1,848,002 1,212,331
------------ ------------
OTHER ASSETS
Research and development costs,
net of accumulated amortization of
$217,137 in 1997 and $108,379 in 1996 663,599 216,189
Organization costs 11,398 -
Deposits 40,611 34,803
Cash surrender value of life insurance 20,269 21,167
------------ ------------
TOTAL OTHER ASSETS 735,877 272,159
------------ ------------
TOTAL ASSETS $ 10,948,729 $ 8,327,748
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JANUARY 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31,
-------------------------
1997 1996
----------- -----------
CURRENT LIABILITIES
<S> <C> <C>
Line of credit $ 182,000 $ -
Accounts payable 1,100,123 222,019
Accrued expenses 2,179,200 2,614,204
Billings in excess of costs and estimated
earnings on uncompleted contracts 418,426 198,339
Income taxes payable - 304,000
Current portion, long-term debt 248,775 6,760
----------- -----------
TOTAL CURRENT LIABILITIES 4,128,524 3,345,322
----------- -----------
LONG-TERM LIABILITIES
Long-term debt, less current portion 311,111 4,461
Deferred income taxes 246,000 80,000
Other liabilities 5,541 5,428
----------- -----------
TOTAL LONG-TERM LIABILITIES 562,652 89,889
----------- -----------
TOTAL LIABILITIES 4,691,176 3,435,211
----------- -----------
STOCKHOLDERS' EQUITY
Class A preferred shares, $.01 par
value 5,000,000 shares authorized,
697,320 issued and outstanding at
January 31, 1997, $2.50 per share
liquidation/dissolution preference 6,973 -
Common stock, $.01 par value,
30,000,000 shares authorized,
3,786,600 issued and outstanding
at January 31, 1997; 800,000 shares
authorized, 768,400 issued and
678,768 outstanding at January 31, 1996 37,866 7,684
Class B common stock, $.01 par value;
600,000 shares authorized, no shares
issued or outstanding - -
Paid in capital 1,407,915 29,030
Retained earnings 4,804,799 5,600,586
----------- -----------
6,257,553 5,637,300
Treasury stock, common, 175,218 shares at
January 31, 1996, at cost (85,586 shares
were reserved for accrued liabilities) - (744,763)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 6,257,553 4,892,537
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $10,948,729 $ 8,327,748
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
20
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES FROM SERVICES $ 29,935,691 $ 25,291,635 $ 19,760,600
COST OF SALES (24,688,844) (19,408,136) (16,063,607)
------------ ------------ ------------
GROSS PROFIT 5,246,847 5,883,499 3,696,993
GENERAL AND ADMINISTRATIVE
EXPENSES (Includes $1,058,951 of
public offering costs in 1997) (5,344,211) (3,840,669) (2,538,667)
RESEARCH AND DEVELOPMENT COSTS (239,986) (154,856) (102,533)
------------ ------------ ------------
OPERATING INCOME (LOSS) (337,350) 1,887,974 1,055,793
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 55,939 33,987 34,805
Interest expense (55,119) (26,311) (11,524)
Loss on disposal of fixed assets - (8,509) (3,139)
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) 820 (833) 20,142
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (336,530) 1,887,141 1,075,935
INCOME TAX EXPENSE (149,708) (755,400) (353,725)
------------ ------------ ------------
NET INCOME (LOSS) $ (486,238) $ 1,131,741 $ 722,210
============ ============ ============
EARNINGS (LOSS) PER SHARE-PRIMARY $ (.11) $ .29 $ .19
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - PRIMARY 4,339,834 3,859,092 3,859,092
============ ============ ============
EARNINGS (LOSS) PER SHARE - FULLY
DILUTED $ (.13) $ .29 $ .19
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - FULLY DILUTED 3,642,514 3,859,092 3,859,092
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
21
<PAGE>
SOFTWARE TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Class A Preferred
------------ -----------------
Shares Amount Shares Amount
--------- ------- ------- -------
<S> <C> <C> <C> <C>
BALANCE FEBRUARY 1, 1994 768,400 $ 7,684 - $ -
Net income - - - -
Cash dividends of $.15 per share
($.025 giving retroactive effect
of stock split) - - - -
--------- ------- ------- -------
BALANCE JANUARY 31, 1995 768,400 7,684
Net income - - - -
Cash dividends of $.30 per share
($.05 giving retroactive effect
of stock split) - - - -
--------- ------- ------- -------
BALANCE JANUARY 31, 1996 768,400 7,684 - -
Issued 46,986 shares of treasury
stock to fund accrued bonuses,
cost $4.25. Market value of
Company's common stock $14.03. - - - -
Issued 38,600 shares of treasury
stock to fund accrued ESOP
contributions, cost $4.25.
Market value of Company's
common stock $14.03. - - - -
Issued 18,552 shares of treasury
stock for bonuses and manage-
ment incentives, cost $4.25.
Market value of Company's
common stock $14.03. - - - -
Cash dividend of $.45 per share
($.075 giving retroactive effect
of stock split) - - - -
Issued warrants for services - - - -
Retired 711 shares of treasury stock (71,080) (711) - -
Stock split, 5 for 1 2,789,280 27,893 - -
Issued 697,320 shares of class A
preferred stock for each share
of common stock - - 697,320 6,973
Issued 300,000 shares of stock for
services and cash 300,000 3,000 - -
Issued warrants for cash - - - -
Net loss - - - -
--------- ------- ------- -------
BALANCE JANUARY 31, 1997 3,786,600 $37,866 697,320 $6,973
========= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE>
<TABLE>
<CAPTION>
Class B Common Total
- ------------------------- Paid In Retained Treasury Stockholders
Shares Amount Capital Earnings Stock Equity
- -------- --------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
- $ - $ 29,030 $4,013,567 $(744,763) $3,305,518
- - - 722,210 - 722,210
- - - (88,977) - (88,977)
- -------- -------- ---------- ---------- --------- ----------
- - 29,030 4,646,800 (744,763) 3,938,751
- - - 1,131,741 - 1,131,741
- - - (177,955) - (177,955)
- -------- -------- ---------- ---------- --------- ----------
- - 29,030 5,600,586 (744,763) 4,892,537
- - 459,523 - 199,690 659,213
- - 377,508 - 164,050 541,558
- - 181,439 - 78,846 260,285
- - - (309,549) - (309,549)
- - 17,497 - - 17,497
- - (301,466) - 302,177 -
- - (27,893) - - -
- - (6,973) - - -
- - 675,000 - - 678,000
- - 4,250 - - 4,250
- - - (486,238) - (486,238)
- -------- -------- ---------- ---------- --------- ----------
- $ - $1,407,915 $4,804,799 $ - $6,257,553
==========================================================================================
</TABLE>
23
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C>
Cash received from customers $ 29,559,470 $ 24,719,672 $ 17,488,101
Interest received 55,939 33,987 34,805
Cash paid to suppliers and employees (26,398,002) (21,621,853) (18,197,759)
Public offering costs (366,454) - -
Interest paid (55,119) (26,311) (11,524)
Income taxes paid (1,115,851) (512,600) (349,756)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,679,983 2,592,895 (1,036,133)
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash paid for acquisition of capital assets (1,382,163) (1,122,226) (526,512)
Cash paid for organizational costs (11,398) - -
Cash proceeds from the sale of capital
assets - 36,878 -
Cash paid for capitalized research and
development (556,167) (161,785) (162,783)
------------ ------------ ------------
NET CASH USED IN INVESTING
ACTIVITIES (1,949,728) (1,247,133) (689,295)
------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings under line of credit 182,000 (900,000) 900,000
Proceeds from issuance of long-term debt 800,000 - -
Principal payments on long-term debt (251,335) (6,363) (6,562)
Cash received from issuance of common
stock 3,000 - -
Cash received from issuance of warrants 4,250 - -
Dividends paid (309,549) (177,955) (127,377)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 428,366 (1,084,318) 766,061
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 158,621 261,444 (959,367)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 270,084 8,640 968,007
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 428,705 $ 270,084 $ 8,640
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
24
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
RECONCILIATION OF NET INCOME (LOSS) TO
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (486,238) $1,131,741 $ 722,210
----------- ---------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 855,252 549,621 262,304
Loss on disposal of fixed assets - 8,509 3,139
Public offering costs 692,495 - -
Decrease (increase) in accounts receivable (1,458,502) 134,979 (857,049)
Decrease (increase) in costs and estimated earnings
in excess of billings on uncompleted contracts 861,295 (878,236) (1,447,859)
Increase in income tax refunds receivable (796,143) - -
Decrease (increase) in prepaid expenses 62,378 (108,316) 3,685
Decrease in deferred charges - - 24,961
Decrease (increase) in deferred income taxes -
current (32,000) (49,700) (83,900)
Decrease (increase) in deposits (5,808) (3,495) 7,303
Increase in cash surrender value of life insurance 898 (1,425) (3,027)
Increase in accounts payable 878,104 72,979 63,023
Increase in accrued expenses 1,026,052 1,272,207 148,972
Increase in deferred income taxes - long-term 166,000 80,000 -
Increase in billings in excess of costs and estimated
earnings on uncompleted contracts 220,087 171,294 27,045
Increase (decrease) in income taxes payable (304,000) 212,500 87,869
Increase in other liabilities 113 237 5,191
----------- ---------- -----------
Total adjustments 2,166,221 1,461,154 (1,758,343)
----------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 1,679,983 $2,592,895 $(1,036,133)
=========== ========== ===========
</TABLE>
25
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
At January 31, 1996 the Company had accrued $1,375,959 in bonus and ESOP
payments. The Company paid $175,188 of this amount in cash during the year ended
January 31, 1997. In addition, the Company issued 46,986 shares of treasury
stock with a cost of $4.25 per share $(199,690) for accrued bonuses and 38,600
shares of treasury stock with a cost of $4.25 per share $(164,050) for the ESOP
payable. The difference between the cost and market value of the treasury stock
issued $(837,031), was recorded as additional paid in capital when the shares
were issued.
On May 29, 1996, the Company accrued a $260,285 bonus and issued 18,552 shares
of treasury stock with a cost of $4.25 per share or $78,846, for bonus and
management incentive awards. The Company's stock was valued at $14.03 on the
date of the issuance; therefore, the difference between cost and market of
$181,439 was recorded as additional paid in capital.
On January 30, 1997, the following noncash transactions occurred:
The Company had a five for one stock split which resulted in 2,789,280
additional outstanding shares at a par value of $.01, or $27,893 which reduced
paid in capital.
The Company stockholders exchanged 100% of Software Technology, Inc.'s
outstanding common stock, 3,486,600 shares, for 3,486,600 shares of Exigent's
common stock and 697,320 shares of Exigent's Class A preferred stock which
reduced paid in capital by $6,973.
The Company retired 71,080 shares of treasury stock with a cost of $4.25 per
share ($302,177). The remaining balance of $301,466, representing the difference
between the par value and cost of the treasury stock issued, was recorded as a
reduction of paid in capital.
The Company issued 300,000 shares of Exigent common stock to Monogenesis
Corporation in exchange for cash and services performed related to the business
combination (See Note 1). The shares had been valued at $2.25 per share
($675,000) by independent appraisal for purposes of administration of the
Company's employee stock ownership plan. The Company received $3,000 in cash and
expensed services which were reflected at a value of $675,000. The Company
reported an increase in the par value of its stock of $3,000 and additional paid
in capital of $675,000 as a result of the transaction.
The accompanying notes are an integral part of this statement.
26
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - Exigent International, Inc. (Exigent), a Delaware corporation, was
formed on March 25, 1996 as a holding company. On January 30, 1997, it acquired
all of the outstanding stock of Software Technology, Inc. (STI) in exchange for
stock of Exigent. STI, therefore became a wholly owned subsidiary of Exigent and
is currently the consolidated group's (the "Company") only source of business
operations. Exigent, from the date of formation through January 30, 1997, had no
material activity other than the issuance of 300,000 shares of the Company's
stock for services related to the reorganization.
Software Technology, Inc. (STI) is a systems and software engineering firm
providing innovative technical solutions for government and industry throughout
the U.S. STI also produces OS/COMET - a commercially available command and
control development and support system. STI provides systems and software
engineering services and commercial off the shelf products for real-time
command, control, and data acquisition systems. STI retains expertise in leading
edge technologies supporting applications ranging from bit slice microprocessor
software to large realtime systems. STI specializes in command and control
applications for ground, flight, test, and process control and has extensive
expertise in graphics, simulations, and information systems.
POOLING OF INTERESTS - On January 30, 1997 Exigent acquired STI in a business
combination accounted for as a pooling of interests. STI became a wholly owned
subsidiary of the Company through the exchange of 3,486,600 shares of Exigent's
common stock and 697,320 shares of Exigent's Class A preferred stock for all of
the outstanding stock and warrants of STI. The accompanying financial statement
for the year ended January 31, 1997 is based on the assumption that the
companies were combined for the full year, and financial statements of prior
years have been restated to give effect to the combination. There were no
adjustments to net assets nor net income during the fiscal year as a result of
the entities combining.
CONSOLIDATION POLICY - The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary.
Intercompany transactions and balances have been eliminated in consolidation.
REVENUE AND COST RECOGNITION - The Company recognizes revenues on time-and-
material and cost-plus-fixed-fee contracts as time is expended and costs are
incurred. The fee on cost-plus fixed fee contracts is recognized ratably over
total costs as they are incurred. Revenues and costs from fixed price contracts
are recognized on the percentage-of-completion method, measured by the
percentage of total costs incurred to date to total estimated costs for each
contract. This method is used because management considers total expended costs
to be the best available measure of progress on these contracts. Costs as used
herein exclude, in the early stages of a contract, all or a portion of the costs
of materials if, in the opinion of management, it appears that such an exclusion
would result in a more accurate measurement of the level of work performed
towards contract completion.
27
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance such as indirect labor, supplies, repairs,
and depreciation costs.
Certain general and administrative expenses (including bid and proposal
expenses) allowable in accordance with United States Government procurement
practices are included in contract costs for government contracts because they
are identifiable with contract revenue.
Adjustments to cost estimates are made periodically, and losses expected to be
incurred on contracts in progress are charged to operations in the period such
losses are determined. The aggregate of costs incurred and income recognized on
uncompleted contracts in excess of related billings is shown as a current asset,
and the aggregate of billings on uncompleted contracts in excess of related
costs incurred and income recognized is shown as a current liability.
The Company is also engaged as seller in a number of software products.
Generally, revenue is recognized upon delivery of the software. After the sale,
if significant obligations remain or significant uncertainties exist about
customer acceptance of the software, revenue is deferred until the obligations
are satisfied or the uncertainties are resolved. When collectibility of the
receivable is in doubt, revenue is recognized under the installment method or
cost recovery method. Revenue from software services is recognized as the
services are performed.
CASH EQUIVALENTS - For purposes of the statement of cash flows, cash equivalents
include time deposits, certificates of deposit, and all highly liquid debt
instruments with original maturities of three months or less.
CONTRACT AND OTHER RECEIVABLES - The Company considers contract and other
receivables to be fully collectible; accordingly, no allowance for doubtful
accounts is required.
DEPRECIATION - The cost of property, plant and equipment is depreciated over the
estimated useful lives of the related assets. Depreciation is computed on the
straight-line method, accelerated cost recovery system and the modified
accelerated cost recovery system as appropriate.
AMORTIZATION - The costs of capitalized research and development costs are
amortized over their estimated useful lives of three years. Amortization is
computed on the straight-line method. The amortization method used is the
greater of the amount computed using (a) the ratio that current gross revenues
for a product bear to the total of current and anticipated future gross revenues
for that product or (b) the straight-line method over the remaining estimated
economic life of the product.
28
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES - Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due and
deferred taxes related primarily to differences between the basis of vacation
and sick leave and research and development costs for financial and income tax
reporting. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
RESEARCH AND DEVELOPMENT COSTS - In accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," the Company capitalizes the direct costs
and allocated overhead associated with the development of software products.
Initial costs are charged to operations as research prior to the development of
a detailed program design or a working model. Costs incurred subsequent to the
product release, and research and development performed under contract are
charged to operations.
EARNINGS PER SHARE - Primary earnings per share have been computed by dividing
net income (loss) by the weighted average number of Common and Class A preferred
shares outstanding. Fully diluted earnings per share are the same as primary but
exclude the Class A preferred shares due to their liquidity/dissolution
preference. Retroactive application has been given to stock splits and stock
dividends. When dilutive, stock warrants will be included as share equivalents
using the treasury stock method. The 300,000 common shares issued for services
upon the January 30, 1997 reorganization have been retroactively applied as
outstanding for all periods reflected.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
FUTURE APPLICATION OF ACCOUNTING STANDARDS - In February 1997, the Financial
Accounting Standards Board issued SFAS 128, "Earnings Per Share," effective for
interim and annual periods ending after December 15, 1997. Among other
provisions, SFAS 128's objective is to simplify the computation of earnings per
share and make the standard more compatible with standards of other countries.
The standard will require the presentation of the basic earnings per share and
the diluted earnings per share. For the fiscal year ending January 31, 1998, and
interim periods, the Company will apply the new method of accounting to the
earnings per share calculation and provide the additional required disclosures.
29
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURE APPLICATION OF ACCOUNTING STANDARDS (CONTINUED) - In February 1997, the
Financial Accounting Standards Board issued SFAS 129, "Disclosure of Information
About Capital Structure", effective for financial statements ending after
December 15, 1997. Among other provisions, SFAS 129 requires additional
disclosures regarding information about securities, the liquidation preference
of preferred stock and information regarding redeemable stock. For the fiscal
year ending January 31, 1998 and interim periods, the Company will provide the
additional required disclosures.
NOTE 2 - ACCOUNTS RECEIVABLE
The following is a summary of accounts receivable:
<TABLE>
<CAPTION>
January 31
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Contract receivables $2,658,827 $1,200,577
Retainage receivable 237,685 249,920
Other receivables 13,234 747
---------- ----------
Total accounts receivable $2,909,746 $1,451,244
========== ==========
</TABLE>
The retainage receivable balance represents contracts which provide for
retainage provisions against billable amounts and are due upon completion of the
contracts and acceptance by the customer.
The Company expects to collect all receivables within the next fiscal year.
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
January 31
----------------------- Estimated
1997 1996 Life
----------- ---------- ---------
<S> <C> <C> <C>
Furniture and equipment $ 558,082 $ 404,129 3-8 years
Vehicles 15,703 15,703 5 years
Computer equipment 3,400,579 2,243,494 3-5 years
Leasehold improvements 68,788 23,352 10 years
----------- ----------
Total cost 4,043,152 2,686,678
Less accumulated depreciation (2,195,150) (1,474,347)
----------- ----------
Net property and equipment $ 1,848,002 $1,212,331
=========== ==========
</TABLE>
30
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation expense charged to general and administrative expense in 1997, 1996
and 1995 was $131,535, $78,737 and $62,160, respectively. Depreciation expense
charged to applied overhead in 1997, 1996 and 1995 was $306,916, $218,555 and
$139,038, respectively. Depreciation expense charged directly to cost of sales
in 1997, 1996 and 1995 was $308,044, $167,635 and $37,421, respectively.
NOTE 4 - LINE OF CREDIT
STI has a $1,800,000 line of credit available from a bank as of January 31, 1997
and 1996, respectively. The note bears interest on the unpaid principal balances
at an interest rate per annum equal to the bank's prime rate plus .25% and .50%,
respectively. As of January 31, 1997 and 1996 the outstanding draws against the
lines were $182,000 and $0, respectively. The prime rate at January 31, 1997 and
1996 was 8.25% and 8.50%, respectively. All accounts receivable, equipment,
furniture and fixtures of STI are pledged as collateral on the line of credit.
The weighted average interest rate on short-term borrowings outstanding at
January 31, 1997 was 8.50%.
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
January 31
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Accrued bonuses $ 55,000 $ 834,030
Accrued payroll taxes payable 647,262 26,672
Accrued fringe benefits 1,113,552 959,515
Accrued pension and profit sharing 246,715 252,058
Accrued ESOP payment 49,343 541,929
Accrued 401K payable 67,328 -
----------- ----------
Total accrued expenses $2,179,200 $2,614,204
========== ==========
</TABLE>
31
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 6 - LONG TERM DEBT
Long term debt outstanding consists of the following:
<TABLE>
<CAPTION>
January 31
--------------------
1997 1996
--------- --------
<S> <C> <C>
Unsecured note payable to bank, payable in thirty-six
monthly installments of $630, including interest at
7.25% beginning monthly October 1994, ending
August 1997. $ 4,330 $ 11,221
Note payable to bank, payable in thirty-six monthly
installments of $22,222 beginning April 1, 1996 and
ending on March 1, 1999. Interest is payable on the
unpaid balance at an interest rate per annum equal to
the bank's prime rate plus .375%. The note is
collateralized by all accounts receivable, equipment
and furniture and fixtures of STI and prohibits STI
from declaring or paying dividends in excess of the
lesser of 25% of net income or $100,000 without prior
lender approval 555,556 --
---------- ---------
TOTAL LONG-TERM DEBT 559,886 11,221
Less: current portion of long-term debt (248,775) (6,760)
---------- ---------
TOTAL LONG-TERM DEBT, less current portion $ 311,111 $ 4,461
========== =========
</TABLE>
Future maturities of long-term debt as of January 31, 1997 are as follows:
<TABLE>
<CAPTION>
Amount
---------
<S> <C>
1998 248,775
1999 266,667
2000 44,444
--------
$559,886
========
</TABLE>
NOTE 7 - CLASS A PREFERRED STOCK
Each share of Class A preferred stock is convertible to a share of common
stock at the option of the holder. Each share of Class A preferred stock
participates equally with each share of common stock upon declaration of
dividends. Upon liquidation or dissolution, the Class A preferred stockholders
are entitled to receive $2.50 per share prior to any distribution to holders of
common shares and Class B common shares. The Class A preferred shares are not
subject to call or redemption. The dividends of the Class A preferred stock are
noncumulative. The issuance of the preferred stock has been reflected as a stock
dividend and is given retroactive recognition in all earnings (loss) and
dividends per share disclosures.
32
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 8 - STOCK WARRANTS
Common stock warrants and related exercise prices have been adjusted, where
applicable, to reflect the effects of the aforementioned 5-for-1 common stock
split.
On March 20, 1996, Software Technology, Inc. sold 174,966 ten year capital
stock purchase warrants to its financial advisors for one cent each to purchase
174,966 shares of Software Technology, Inc.'s capital stock, for a fixed
exercise price of $3 per share. The warrants were issued for services rendered
in connection with the registration offer. STI determined the value of these
warrants to be $17,497 and recorded this amount in general and administrative
expenses in fiscal year 1997. The exercise price of the warrants was greater
than their fair market value on the date issued, therefore they were deemed to
have no value.
On January 30, 1997, the Company issued 229,896 Common Stock Purchase
Warrants to Software Technology, Inc. Restated Employee Stock Ownership Plan and
Trust; 240,378 to other shareholders of the Company and 174,996 to a company of
one of the shareholders in exchange for all of the warrants outstanding of
Software Technology, Inc. In addition, on January 30, 1997, the Company granted
425,000 warrants to Monogenesis Corporation for $4,250 in cash. Each warrant
entitles the holder to purchase one share of Exigent's common stock at an
exercise price of $3 per share. The terms of these warrants provide that they
may be exercised during the period beginning January 30, 1997 and ending three
years from that date.
The exercise price of all warrants was greater than their fair market value
at January 31, 1997. As of January 31, 1997, no warrants have been exercised.
NOTE 9 - EMPLOYEE RETIREMENT PLANS
The Company has a defined contribution pension plan that covers substantially
all employees who have met certain age and length of service requirements.
Contributions to the plan are 5% of eligible compensation. Eligible compensation
for the years ended January 31, 1997, 1996 and 1995 was approximately
$12,377,000, $10,958,000 and $9,401,000, respectively. For the years ended
January 31, 1997, 1996 and 1995, the amount of pension expense was $618,838,
$547,894 and $470,066, respectively.
The Company also sponsors a profit-sharing plan which allows substantially
all full-time employees to defer compensation under Section 401(k) of the
Internal Revenue Code and the employer to electively contribute to the plan.
Employer contributions to the plan are made at the discretion of the Board of
Directors. The employer contributions made to the plan for the years ended
January 31, 1997, 1996 and 1995 were $618,838, $547,894 and $470,066,
respectively.
33
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 10 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan (ESOP). Contributions to this
plan are at the discretion of the Board of Directors. Full time employees who
have attained the age of twenty-one (21) and have one year of service are
eligible to participate in the plan. Shares purchased by the plan are allocated
annually to eligible employees proportionate to their compensation, not
including overtime and bonuses. Employee stock ownership plan contributions
charged to operations and applied to overhead amounted to $ -0- and $247,535,
respectively, for the year ending January 31, 1997, $542,064 and $ -0-,
respectively, for the year ending January 31, 1996 and $281,018 and -0-
respectively for the year ending January 31, 1995. The ESOP has 340,886, 302,286
and 279,440 shares of the total issued and outstanding stock respectively at
January 31, 1997, 1996 and 1995.
Dividends paid on the ESOP shares, as well as other shares, are considered to be
reductions in retained earnings. The shares owned by the ESOP are considered to
be outstanding shares and therefore included in the earnings per share
calculation.
The plan acquired 22,886 shares during fiscal year 1996 from outside
shareholders and had 38,600 shares from the Company which were receivable at
January 31, 1996. The 38,600 shares receivable were issued to the ESOP during
the year ending January 31, 1997. The shares' fair market value was determined
based on independent appraisal for January 31, 1997 and 1996.
NOTE 11 - LEASE OBLIGATIONS
Office space and equipment is leased under operating leases expiring in various
years through 2005.
The Company's corporate headquarters are located in Melbourne, Florida near the
"Space Coast." The Company is currently leasing a 29,000 square foot building
pursuant to a ten year lease which will expire on December 1, 2005. It has the
right to renew the lease for two additional five year terms and has an option to
purchase the property which may be exercised during certain periods prior to the
expiration of the fifth year and of the tenth year of the lease. The purchase
price is the fair market value of the property determined by appraisal, but in
no event less than the outstanding balance on the mortgage.
In addition to the corporate headquarters, the Company leases 15,296
square feet of space in Alexandria, Virginia which lease will expire August 31,
1998 (subject to the right to renew for up to two additional one year terms),
approximately 2,494 square feet of space in Aurora, Colorado which lease will
expire October 31, 1999, another 1,935 square feet of space in LaPlata, Maryland
which lease will expire October 14, 1997 (subject to the right to renew for up
to three additional one year terms) and approximately 2,971 square feet of space
in Mesa, Arizona.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of January 31, 1997 for each of the
next five years and in the aggregate are:
<TABLE>
<CAPTION>
Year ending January 31: Amount
-----------
<S> <C>
1998 $ 542,064
1999 439,688
2000 300,630
2001 275,518
2002 263,338
Subsequent to 2002 527,046
----------
Total minimum future rental payments $2,348,284
==========
</TABLE>
The minimum future rental payments have not been reduced by $ 112,007 of
sublease rentals to be received in the future under non-cancelable subleases.
Rent expense for the years ended January 31, 1997, 1996 and 1995 was $649,638,
$549,573 and $429,659, respectively. Rent expense was offset by sublease rental
income for the years ended January 31, 1997, 1996 and 1995 of $66,655, $62,103
and $25,875, respectively.
34
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 12 - ECONOMIC DEPENDENCY
The Company sold a substantial portion of its products to three major customers
during fiscal year 1997 and two in fiscal year 1996 and 1995 in the Satellite
Command and Control Industry. Transactions with these major customers; a
commercial customer, a government contractor and a group of U.S. Government
agencies, consisted of the following:
<TABLE>
<CAPTION>
1997 Customer 1 Customer 2 Customer 3
------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 10,308,204 $ 7,840,135 $ 3,133,871
Accounts receivable - at year end 1,313,767 - 164,184
Costs and estimated earnings
in excess of end billings on
uncompleted contracts - at year end 1,753,614 1,108,647 415,899
Billings in excess of costs
and estimated earnings on uncompleted
contracts - at year end (54,673) - (173,823)
1996 Customer 1 Customer 2
------- ------------ --------------
Revenues $ 10,564,099 $ 6,076,692
Accounts receivable - at year end 763,374 -
Costs and estimated earnings in
excess of billings on uncompleted
contracts - at year end 3,241,681 701,094
Billings in excess of costs and
estimated earnings on uncompleted
contracts - at year end (149,569) (16,868)
1995 Customer 1 Customer 2
------- ------------ --------------
Revenues $ 5,052,370 $ 5,623,172
Accounts receivable - at year end 264,271 342,614
Costs and estimated earnings in
excess of billings on uncompleted
contracts - at year end 2,501,763 525,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts - at year end - -
</TABLE>
35
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 13--RESEARCH AND DEVELOPMENT COSTS
Some research and development costs are charged to operations when incurred and
are included in operating expenses. The amounts charged for the years ending
January 31, 1997, 1996 and 1995 were $239,986, $154,856 and $102,533,
respectively.
During the years ended January 31, 1997, 1996 and 1995, $556,167, $161,785 and
$162,783, respectively, of research and development costs for computer software
to be sold or otherwise marketed were capitalized. The amortization of costs
related to computer software product development held for sale was $108,757,
$84,694 and $23,685 for the years ended January 31, 1997, 1996 and 1995,
respectively. The amount of unamortized computer software costs at January 31,
1997, 1996 and 1995 was $663,599, $216,189 and $139,098, respectively.
In management's opinion, the net realizable value of future sales exceeds the
carrying value of unamortized software development costs, therefore, no
adjustment to carrying value is required.
NOTE 14--INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes."
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended January 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current expense
Federal $ 3,469 $ 596,000 $ 358,400
State 12,239 129,100 79,225
Deferred tax benefit
due to temporary differences
Federal 124,000 26,800 (71,800)
State 10,000 3,500 (12,100)
--------- --------- ---------
Total provision for
income taxes $ 149,708 $ 755,400 $ 353,725
========= ========= =========
</TABLE>
36
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 14 - INCOME TAXES (CONTINUED)
The following is a reconciliation of the provisions for income taxes to the
expected amounts using the statutory rate:
<TABLE>
<CAPTION>
Year ended January 31,
-----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Expected statutory amount 34.0% 34.0% 34.0%
Nondeductible meals
and entertainment (2.1) .3 .3
Nondeductible officers
life insurance (2.9) .5 .9
Tax penalties - - .2
Dividends - ESOP 15.1 (1.6) (1.5)
Research and
experimental credit 19.9 (.6) (2.1)
Public offering costs (107.0) - -
State income taxes (3.7) 4.6 4.7
Other 2.2 2.8 (3.6)
------ ----- -----
Actual tax provision (44.5)% 40.0% 32.9%
====== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of January 31, 1997 and 1996:
<TABLE>
<CAPTION>
January 31
----------------------
1997 1996
--------- ---------
<S> <C> <C>
CURRENT
Accrued payroll expenses $ 333,000 $301,000
========= ========
NONCURENT
Depreciation 3,600 2,400
Amortization (249,600) (82,400)
--------- --------
Net noncurrent deferred tax liability $(246,000) $(80,000)
========= ========
</TABLE>
37
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 15--SIGNIFICANT ESTIMATE
The Company recognizes revenue on certain contracts using the percentage-of-
completion method which is based upon total estimated costs for each contract.
The estimate is subject to change as the work progresses on each contract.
NOTE 16--RECLASSIFICATION
Deferred income taxes in the January 31, 1996 balance sheet and statement of
cash flows have been reclassified to be consistent with the January 31, 1997
presentation.
NOTE 17--CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of temporary cash investments. The Company places
its temporary cash investments with a financial institution. The amount of
credit exposure in excess of federally-insured limits at January 31, 1997 and
1996 was $754,282 and $1,325,459, respectively.
NOTE 18--SOURCE OF LABOR SUPPLY
The Company's business of providing computer services and custom software
programming is dependent upon having a supply of computer/engineering employees.
As a result of the expansion of the number of business users of computers and
the expansion in demand for computer services and custom software programming,
there is a short supply of computer professionals. The situation is not
expected to improve in the near future. However, with the defense contractors
having laid off many of their computer/engineering employees and the trend
expected to continue, there is currently a pool of employees who would likely
have at least some of the expertise needed by the Company. In addition, the
Company has a competitive benefit package it believes will help to attract and
retain qualified employees.
NOTE 19--DEPENDENCE ON INDUSTRY
Most of the Company's revenues are derived from products and services related to
the satellite command and control industry. Should this industry take a
substantial downturn and the number of satellites deployed be materially
reduced, the Company's new business opportunities would be limited
significantly.
38
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 20--COMMITMENTS AND CONTINGENCIES
The Company has outstanding purchase commitments of $1,622,159 as of January 31,
1997. These represent outstanding purchase orders for which neither the item
nor invoice has been received.
NOTE 21--RELATED PARTY
STI paid $48,000 in consulting fees during the year ended January 31, 1996 and
issued 29,161 warrants of STI on March 20, 1996 to a company for which one of
the directors of STI provides consulting services. The STI warrants were
converted into Exigent warrants on January 30, 1997 (see Note 8). Consulting
fees paid by STI to this company for the year ended January 31, 1997 were
$94,620.
The director discussed above is also Secretary of Monogenesis and Chairman and
controlling shareholder of another company that will receive shares of the stock
of the Company from Monogenesis.
NOTE 22--SUBSEQUENT EVENT
On March 10, 1997, the Company adopted an Incentive Stock Option Plan 1Q. The
plan will grant employees the option to purchase up to 200,000 shares of the
Company's common shares. The granting of the options will be at the discretion
of the president of Software Technology, Inc.
On March 19, 1997, the Company formed FotoTag, Inc., a Delaware corporation, as
an operating company to hold, further develop and market FotoTag. FotoTag, Inc.
will be a wholly owned subsidiary of the Company.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
PART III
Item 10. Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name Position with Exigent (1) Position with STI
- ---- ------------------------- -----------------
<S> <C> <C>
Jeffrey C. Clift President, Director
Don F. Riordan, Jr. (2) Secretary/Treasurer, Director Secretary/Treasurer, Director
William K. Presley Chairman of the Board, Vice Chairman of the Board,
President, Director President, Director
Jack D. Daily Vice President, Director Vice President, Director
Bernard R. Smedley Director
David J. Nowacki (2) Vice President, Director Vice President, Director
Daniel J. Stark Vice President, Director Vice President, Director
James A. Traficant Vice President Vice President
David R. Reading Vice President Vice President
Dean W. Boley Director Director
P. Bradley Walker Director
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) All persons listed with the exception of Mr. Smedley have held such
positions with Exigent since May 1, 1996. Mr. Smedley was appointed to the
Exigent board subsequent to year end resignations submitted by Messrs.
Chewning, Daily, Nowacki and Traficant for personnel reasons with respect
to conflict of interests with regards to management and board roles.
(2) Mr. Riordan is the Trustee of the ESOP. Mr. Nowacki resigned as Trustee
for the ESOP at fiscal year end, but remains as a Trustee along with Mr.
Riordan for the other Company retirement plans.
39
<PAGE>
Officers serve at the discretion of the Board of Directors. Directors hold
office until the next annual meeting of shareholders and until their successors
have been elected and accept office. Directors receive directors' fees of $3,500
per year. Mr. Walker is employed by STI as a management consultant through
Joseph Walker & Sons, Inc. and received $94,620 for the year ending January 31,
1997. He is also Secretary of Monogenesis Corporation, a shareholder of Exigent
and the closed end investment company which distributed Exigent shares and
warrants to its shareholders as of January 30, 1997 pursuant to a registration
statement. However, there is no arrangement with Monogenesis relating to his
election or continuation as a director of Exigent or STI. See Certain
Relationship and Related Transactions.
Dean W. Baley, age 59, was one of the founders of STI and has been a director
and employee of STI since its beginning in 1978. He is currently a director of
Exigent and STI. He retired as President of STI in October 1992. Mr. Baley has
held various offices with STI including the offices of Chairman of the Board,
Secretary, Treasurer and Vice President. He received his B.S. in Petroleum
Engineering from West Virginia University in 1961.
Jeffrey C. Clift, age 41, was a director of STI from February 1993 to 1997.
He is currently a director and President and Chief Executive Officer of Exigent,
and served as President and Chief Executive Officer of STI from October 1992
through January 1997. Prior to becoming President of STI, Mr. Clift had been
Director of Operations for STI since 1988. From 1983 to 1988, he was a
Software/Systems engineer for STI. As a Software/Systems engineer, he gained
experience in the analysis, design and development of real-time software systems
for Department of Defense satellite applications including space data
processing, satellite system and subsystem testing, ground station operations,
mission support and payload processing. From 1978 to 1982, he was a software
engineer for Harris Corporation. Mr. Clift received a B.S. EE in 1977 from the
University of Florida.
Jack D. Daily, age 54, served as a director of STI from 1988 through January
1997. He has also been a Vice President and Director of Field Operations.
Currently, Mr. Daily is Executive Vice President and Director of Space
Operations for STI. He began employment with STI in 1981. He received his B.S.
in Mathematics in 1965 from the University of Alabama and completed course work
at the University of Miami in the masters program for Management Science.
David J. Nowacki, age 44, has been a director of STI since 1989 and a Vice
President of STI since 1991. Since November 1992, he has also been the Melbourne
Operations Manager and is responsible for operations at STI's Melbourne
facility. He has been an employee of STI since 1980. Prior to his employment
with STI, he was a software engineer with the RCA Service Corporation on the
Eastern Test Range from 1976 to 1980 where he was assigned to a missile tracking
ship. Mr. Nowacki received a B.S. in Mathematics from Waynesburg College in
Pennsylvania in 1974 and an M.S. in Mathematics from West Virginia University in
1976.
William K. Presley, age 50, has been a director of STI since 1987, Chairman
of the Board since 1989 and Vice President (or President in 1990) since 1987. He
is currently serving as a director and Chairman of the Board of Exigent, and is
a director and Chairman of the Board and President of STI. He has been employed
by STI since July, 1983 as a chief systems engineer. He received his B.S. EE
from Auburn University in Alabama in 1969.
David R. Reading, age 54, has been a Vice President of STI since 1991 and
served as a director of STI from 1993 through January 1997. Currently, he is
Vice President and Director of Space Operations. He has been employed by STI
since 1980 and was a director of STI from 1992 to 1994. He received a B.S. in
Computer Science from University College of Maryland in 1981.
40
<PAGE>
Don F. Riordan, Jr., age 50, has been a director of STI since 1980 and
Secretary/Treasurer and Chief Financial Officer since 1991 as well as holding
the offices of Chairman of the Board, Vice President, Secretary and Treasurer at
various times prior to 1991. Mr. Riordan is currently a director and
Secretary/Treasurer and Chief Financial Officer of Exigent, and is a director
and Secretary/Treasurer of STI. He has been employed by STI since 1979 and, in
addition to administrative duties, has provided software engineering support for
Process Control Commercial Contracts. Prior to joining STI, Mr. Riordan was
project leader on several projects for the Air Force Eastern Test Range at Cape
Canaveral as well as an on-site programmer for several Air Force ETR Missile
Tracking Stations supporting computer controlled radar systems. He received his
B.S. in Mathematics from Wake Forest University in North Carolina in 1968.
Daniel J. Stark, age 53, was one of the founders of STI and has been a
director since 1978. He has been a Vice President since 1983. He has also held
the offices of President, Chairman of the Board, Secretary and Treasurer as well
as Vice President in certain years prior to 1983. Mr. Stark is currently a
director and Vice President of Exigent, and is a director and Vice President of
STI. He has been an employee of STI from 1993 to the present and from 1978 to
1989. From 1989 to 1993, he was a software engineer with, and an owner of,
Sysgen International Inc. where he developed the interface command and telemetry
CTRUS box to the COMET operating system as well as other projects, many of which
were related to the COMET operating system. Prior to joining STI, Mr. Stark was
a system programmer with the RCA Service Corporation from 1976 to 1978. Mr.
Stark received a B.A. in Mathematics from Bellarmine College in Louisville,
Kentucky in 1965 and an M.S. in Mathematics from the Florida Institute of
Technology in 1971.
Bernard R. Smedley, age 60, became a director of Exigent on February 7, 1997.
In 1994, he took early retirement from Motorola, Inc. to become President and
Chief Executive Officer of AirNet, an infrastructure products company for
Wirless Local Loop cellular and PCS markets. Mr. Smedley started his career at
Goodyear Aerospace in 1962, and in 1969 became engineering manager for Xerox
Data Systems. He joined Motorola, Inc. in 1976, where he led the company's
successful entry in wireless RF data systems resulting in the successful effort
to develop and supply a nationwide wireless computer data communications system
for IBM and subsequently the Motorola/IBM joint venture ARDIS. In 1980, he was
put in charge of Motorola's Improved Mobile Telephone System (IMTS) business
which included the fledgling cellular systems operations, which, under his
leadership, became the cellular industry's world leader by 1990. Concurrently
with cellular, he developed other businesses in the field of wireless
communications, i.e., cellular service company joint ventures in Asia, the
Middle East and Latin America, also Altair, which is a broadband wireless in-
building Ethernet product which connects desk top P.C. and workstation devices
as a Local Area Network. Altair technology is based on Motorola's broadband
wireless in-building network technology which Mr. Smedley initiated. In 1991, he
was appointed General Manager of the newly formed Wireless Enterprise Systems
(WES). Mr. Smedley initiated several start-up businesses centered around
broadband technology for application, such as wireless PBXs and local loop
access with capabilities of high capacity data, video and toll quality voice
systems. WES also included other Motorola narrowband initiatives in the hand-
held computing and communication service business such as the Motorola Network
Interface and General Magic participation and The Envoy hand-held data terminal.
In his position as Director of Advanced Radio
41
<PAGE>
Networking, Mr. Smedley had the responsibility as a director of Satellite
Communications, Inc. for the IRIDIUM project and as Vice-Chairman of the
corporate-wide Wireless RF Data Advisory Board, which coordinates all of
Motorola's data communications businesses' activities and priorities. Mr.
Smedley has a B.A. degree in Engineering from Washington and Jefferson College
and a BSEE degree from Carnegie-Mellon University, both of Pennsylvania. He also
has attended advanced studies in engineering and marketing at several
universities.
James A. Traficant, age 35, served as a director of STI from 1990 through
January 1997. Since 1993, he has been Vice President and Director of Advanced
Programs for STI and an employee of STI since 1984. Mr. Traficant currently is
involved in the development and management of the Advanced Programs Division. As
Director of Business Development, he worked with a founder and the President of
STI to establish long term growth and diversification strategy for STI during
which time STI was awarded contracts with commercial firms. He was also
instrumental in STI's involvement in the IRIDIUM program. Mr. Traficant received
his B.S. in Electrical Engineering from Geneva College in Pennsylvania in 1984
and his M.B.A. from George Washington University in Washington, D.C. in 1992.
P. Bradley Walker, age 37, served as a director of STI from March 1996
through January 1997. He is currently a director of Exigent and has been a
consultant to Joseph Walker & Sons, Inc. (which provides consulting services to
STI) since 1992. Mr. Walker is also the sole proprietor of PBW Consulting. He
has been the Chairman and an owner of The Walker Group, Inc., a family holding
company, for the past eight years. He is also Secretary of Monogenesis
Corporation. The Walker Group, Inc., owns stock and warrants of Exigent. See
Security Ownership of Certain Beneficial Owners and Management.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Exigent became a reporting company with a retroactive effective date of
January 30, 1997 (nun pro tunc). The initial reports on Form 3 of all of the
reporting persons were late. The reporting persons were Jeffrey C. Clift, Don F.
Riordan, Jr., William K. Presley, Daniel J. Stark, Dean W. Boley, P. Bradley
Walker, Thomas O. Chewning, Jr., Jack D. Daily, David J. Nowacki and James A.
Traficant. No reports were filed by the latter four because they were no longer
reporting persons on the date of the nun pro tunc order.
Item 11. Executive Compensation
The following table sets forth the compensation of the President (the Chief
Executive Officer), the four most highly compensated executive officers and the
two most highly compensated employees of STI who are not also executive officers
for the fiscal years ending January 31, 1997, 1996 and 1995. Determination of
most highly compensated officers and employees is based upon compensation for
fiscal year 1997 and does not necessarily reflect the most highly compensated
employees for fiscal years 1996 and 1995. Exigent has not paid any compensation.
42
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
- ------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
- ------------------------------------------------------------------------------------------
Other Annual Restricted Stock
Name and Salary Bonus Compensation (1) Awards (2)
Principal Position Year ($) ($) ($) ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jeffery C. Clift 1997 126,186 0 3,500 0
President, CEO 1996 116,928 25,013 3,500 24,987
1995 112,752 30,000 3,500 -0-
- ------------------------------------------------------------------------------------------
Jack D. Daily 1997 112,364 0 3,500 0
Vice President 1996 108,099 14,012 3,500 17,594
1995 100,239 15,000 3,500 0
- ------------------------------------------------------------------------------------------
Garry W. Fuller 1997 140,984 0 0 0
1996 121,090 0 0 0
1995 109,361 667 0 0
- ------------------------------------------------------------------------------------------
William K. Presley 1997 111,168 2,503 3,500 9,588
Chairman, Vice President 1996 103,219 0 3,500 0
1995 100,940 5,000 3,500 0
- ------------------------------------------------------------------------------------------
Daniel J. Stark 1997 90,664 0 3,500 124,305
Vice President 1996 87,034 0 3,500 110,556
1995 86,503 0 3,500 0
- ------------------------------------------------------------------------------------------
James A. Traficant 1997 115,125 0 3,500 0
Vice President 1996 107,532 110,005 3,500 124,025
1995 101,700 33,000 3,500 0
- ------------------------------------------------------------------------------------------
Kenneth E. Zepf 1997 128,648 0 0 4,588
1996 103,219 0 0 0
1995 102,076 0 0 0
- ------------------------------------------------------------------------------------------
</TABLE>
(1) These are annual directors' fees. All directors receive $3,500 per year in
directors' fees.
(2) STI issued a total of 18,552 shares in restricted stock bonuses in April
1996 valued at $260,285. Of these shares, 9,692 shares valued at $135,978
were issued to the persons listed in this table. The value of all of STI's
shares as of January 31, 1996 was $9,783,400. All restricted stock was
vested upon grant. Dividends will be paid to the extent paid on any shares.
STI has a history of paying annual dividends. All shares of stock of STI
were exchanged for Common Shares and Class A Preferred Shares as of January
30, 1997.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
Prior to this year, executive compensation was determined by STI's board of
directors which consisted of executive officers of STI. Effective for fiscal
year 1997, STI established a compensation committee. The members of the current
committee are Dean Boley, Dave Nowacki, Don Riordan and Brad Walker. All members
of the compensation committee with the exception of Brad Walker are employees
and past or present officers of Exigent or STI. Brad Walker provides consulting
services to STI and Exigent. See Certain Relationships and Related Transactions.
The
43
<PAGE>
compensation committee is continuing to work on a stock incentive plan which may
use Exigent's Class B Common Shares. The Class B Common Shares would be
convertible to Common Shares based upon a participant's performance
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to ownership of issued
and outstanding stock and warrants of the Issuer by management and 5% or greater
shareholders as of April 1, 1997:
<TABLE>
<CAPTION>
Total Number of Percent
Securities Owned of
Name and Address Title of Class Beneficially (1) Class (2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dean W. Boley Common 738,402 19%
832 Palmetto Terrace Class A Preferred 110,632 16%
Oviedo, Florida Warrants 74,610 7%
- -----------------------------------------------------------------------------------------
Jeffrey C. Clift Common 11,886 *
571 Wethersfield Place Class A Preferred 1,781 *
Melbourne, Florida Warrants 1,200 *
- -----------------------------------------------------------------------------------------
Jack D. Daily Common 17,934 *
135 Moncure Drive Class A Preferred 2,687 *
Alexandria, Virginia Warrants 1,812 *
- -----------------------------------------------------------------------------------------
Rudiger D. Lichti Common 338,352 9%
304 Palm Court Class A Preferred 50,694 7%
Indialantic, Florida Warrants 34,188 3%
- -----------------------------------------------------------------------------------------
William K. Presley Common 15,546 *
635 Kenwood Court Class A Preferred 2,329 *
Satellite Beach, Florida Warrants 1,572 *
- -----------------------------------------------------------------------------------------
Don F. Riordan, Jr. Common 344,118 9%
414 LaCosta Street A Preferred 51,558 7%
Melbourne Beach, Florida Warrants 34,770 3%
- -----------------------------------------------------------------------------------------
Daniel J. Stark Common 737,430 19%
5180 Sandlake Drive Class A Preferred 110,486 16%
Melbourne, Florida Warrants 74,514 7%
- -----------------------------------------------------------------------------------------
James A. Traficant Common 59,004 2%
8305 Peach Court Class A Preferred 8,840 1%
Fairfax Station, Virginia Warrants 5,964 1%
- -----------------------------------------------------------------------------------------
P. Bradley Walker (3) Common 165,730 4%
12 Green Brier Class A Preferred 0 0%
Parkersburg, West Virginia Warrants 102,000 10%
- -----------------------------------------------------------------------------------------
STI ESOP (4) Common 2,275,212 52%
1226 Evans Road Class A Preferred 340,886 49%
Melbourne, Florida Warrants 229,896 21%
- -----------------------------------------------------------------------------------------
Total number of shares Common 2,099,592 48%
owned by directors and Class A Preferred 289,740 43%
executive officers as a Warrants 297,402 29%
group
- -----------------------------------------------------------------------------------------
</TABLE>
* Less than 1%.
44
<PAGE>
(1) Except as described below, all owners have sole voting power and sole
investment power over all shares listed. The number of shares owned does
not include shares allocated to such person's account in the ESOP, but does
include the number of Common Shares which may be received if the listed
Class A Preferred Shares are converted to Common Shares and the listed
Warrants are exercised.
(2) These figures include the Common Shares which could be received by the
listed holder upon conversion of Class A Preferred Shares. These figures
also include only Common Shares which could be issued upon the conversion
of the outstanding Common Stock Purchase Warrants held by the listed
holders. Holders of the warrants could receive up to 1,070,270 Common
Shares upon exercise of the warrants.
(3) The Shares and Warrants listed as beneficially owned by Mr. Walker are
owned by The Walker Group, Inc. which received shares and warrants as a
shareholder of Monogenesis Corporation in the distribution by Monogenesis
to its shareholders. Mr. Walker is Chairman and control shareholder of The
Walker Group, Inc. In addition, Joseph Walker & Sons, Inc. which employs
Mr. Walker as a consultant received warrants from STI as compensation for
services which warrants were exchanged for warrants of the Issuer.
(4) The ESOP shares are voted by the trustee, Don Riordan.
Item 13. Certain Relationships and Related Transactions
Brad Walker, a director of STI from March of 1996 to January of 1997 and a
director of Exigent since May of 1996, provides consulting services to Exigent
and STI through Joseph Walker & Sons, Inc. ("JWSI") which received $94,620 in
consulting fees from STI during the past year as well as warrants. See Security
Ownership of Certain Beneficial Owners and Management. Of that amount, $45,000
was paid for completion of the obligations under the agreement between STI and
JWSI. JWSI also expects to provide consulting services to Exigent and STI in the
future from which fees Mr. Walker is expected to benefit.
In addition, Mr. Walker is Secretary of Monogenesis Corporation which
received shares of stock and warrants of Exigent which it distributed to its
shareholders in connection with a registration statement. He is also Chairman
and control shareholder of The Walker Group, Inc. which received shares of stock
of the Issuer from Monogenesis in the distribution.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
Independent Auditor's Report - March 26, 1997
Consolidated Balance Sheets - January 31, 1997 and 1996
Consolidated Statements of Income - For the Years Ended January 31,
1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity -For the
Years Ended January 31, 1997, 1996 and 1995
45
<PAGE>
Consolidated Statements of Cash Flows - For the Years Ended January 31,
1997, 1996 and 1995
Notes to Financial Statements - For the Years Ended January 31, 1997,
1996 and 1995
(2) None
(3) Exhibits Index
<TABLE>
<CAPTION>
Exhibit Page
Table Number Number
------------ ------
<S> <C> <C>
I. Plan of Acquisition, Reorganization, Arrangement, 2 *
Liquidation or Succession
(i) Stock Purchase Agreement and Plan of *
Reorganization (excluding all Schedules except 1.1)
(ii) Amendment to Stock Purchase Agreement and Plan of *
Reorganization
II. Articles of Incorporation and Bylaws 3
(i) Certificate of Incorporation of Exigent International, *
Inc.
(ii) Amended and Restated Certificate of Incorporation of +
Exigent International, Inc.
(iii) Bylaws of Exigent International, Inc. *
III. Material Contracts 10
(i) Agreement Between Exigent International, Inc. and *
Transfer Agent
(ii) Common Stock Purchase Warrant Agreement Between *
Exigent International, Inc. and Warrant Agent
(iii) Contract Between Motorola, Inc. Government and x
Systems Technology Group, Satellite Communications
Division and Software Technology, Inc.
(iv) Contract Between Naval Research Laboratory and *
Software Technology, Inc.
(v) Subcontract/Purchase Order Between Lockheed-Martin x
Federal Systems Company and Software Technology, Inc.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Table Number Number
------------ ------
<S> <C> <C>
(vi) Purchase Orders from Allied Signal Technical Services
Corporation +
IV. Subsidiaries of the Registrant 21 *
V. Consent of Experts 23
(i) Consent of Hoyman, Dobson & Company, P.A., Certified 49
Public Accountants
VI. Financial Data Schedule 27
</TABLE>
* Previously filed as an exhibit to the Registration Statement on Form S-1 of
Exigent International, Inc. which became effective January 30, 1997.
+ Previously filed as an exhibit to Pre-Effective Amendment No. 1 to the above
described Registration Statement.
x Previously filed as an exhibit to Pre-Effective Amendment No. 2 to the above
described Registration Statement.
(b) No reports have been filed on Form 8-K.
(c) See (a)(3).
(d) None
47
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Exigent International, Inc.
By: /s/ Jeffrey C. Clift
----------------------------
Jeffrey C. Clift, President
Date: April 30, 1997
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ Jeffrey C. Clift on April 30, 1997
- ----------------------------------------------------
Jeffrey C. Clift, President, Chief Executive Officer
/s/ Don F. Riordan, Jr. on April 30, 1997
- ----------------------------------------------------
Don F. Riordan, Jr., Chief Financial Officer
The following are at least a majority of the directors of Exigent
International, Inc.:
/s/ Jeffrey C. Clift on April 30, 1997
- ----------------------------------------------------
Jeffrey C. Clift
/s/ Don F. Riordan, Jr. on April 30, 1997
- ----------------------------------------------------
Don F. Riordan, Jr.
/s/ Daniel J. Stark on April 30, 1997
- ----------------------------------------------------
Daniel J. Stark
/s/ William K. Presley on April 30, 1997
- ----------------------------------------------------
William K. Presley
48
<PAGE>
Exhibit 23
----------
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------
We consent to the use of our audit report relating to certain financial
statements of Exigent International, Inc. dated March 26, 1997 in the Annual
Report on Form 10-K filed on behalf of Exigent International, Inc.
Dated: April 29, 1997 Hoyman, Dobson & Company, P.A.
By: /s/ Charles W. Hoyman, Jr.
--------------------------
Title: President
-----------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Consolidated Financial Statements of Exigent International, Inc. for the Year
Ended January 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 429
<SECURITIES> 0
<RECEIVABLES> 6,747<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,365
<PP&E> 4,043
<DEPRECIATION> 2,195
<TOTAL-ASSETS> 10,949
<CURRENT-LIABILITIES> 4,129
<BONDS> 563
0
7
<COMMON> 38
<OTHER-SE> 6,213
<TOTAL-LIABILITY-AND-EQUITY> 10,949
<SALES> 0
<TOTAL-REVENUES> 29,936
<CGS> 0
<TOTAL-COSTS> 30,033
<OTHER-EXPENSES> 240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> (337)
<INCOME-TAX> 150
<INCOME-CONTINUING> (337)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (486)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.13)
<FN>
<F1> Includes costs and estimated earnings in excess of billings on uncompleted
contracts.
</FN>
</TABLE>
