<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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)
------------------------------------------------
1225 Evans Road
Melbourne, Florida 32904-2314
(Address of principal executive offices)
(407) 723-3999
(Registrant's telephone number, including area code)
------------------------------------------------
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
--- ---
The number of shares outstanding of the registrants' only class of common
stock on June 1, 1997 was 3,786,475.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets - April 30, 1997 and January 31, 1997............ 2
Consolidated Statements of Income and Retained Earnings -- For the
Three Months Ended April 30, 1997 and 1996.............................. 4
Consolidated Statements of Cash Flows -- For the Three Months
Ended April 30, 1997 and 1996........................................... 5
Notes to Consolidated Financial Statements................................... 8
</TABLE>
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 30, January 31,
1997 1997
(unaudited)
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ - $ 428,705
Accounts receivable, pledged 5,263,150 2,909,746
Costs and estimated earnings in excess of billings
on uncompleted contracts, pledged 3,068,462 3,836,828
Prepaid expenses 77,932 60,428
Income taxes receivable 615,163 796,143
Deferred income taxes 440,000 333,000
------------- -------------
TOTAL CURRENT ASSETS 9,464,707 8,364,850
------------- -------------
PROPERTY AND EQUIPMENT, pledged
Cost 4,139,565 4,043,152
Accumulated depreciation (2,385,524) (2,195,150)
------------- -------------
NET PROPERTY AND EQUIPMENT 1,754,041 1,848,002
------------- -------------
OTHER ASSETS
Research and development costs, net of
accumulated amortization 980,870 663,599
Organization costs 11,398 11,398
Deposits 38,516 40,611
Cash surrender value of life insurance 17,698 20,269
------------- -------------
TOTAL OTHER ASSETS 1,048,482 735,877
------------- -------------
TOTAL ASSETS $ 12,267,230 $ 10,948,729
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
April 30, January 31,
1997 1997
(unaudited)
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Line of credit $ 1,215,116 $ 182,000
Accounts payable 628,213 1,100,123
Accrued expenses 2,332,122 2,179,200
Billings in excess of costs and
estimated earnings on uncompleted contracts 680,724 418,426
Current portion, long-term debt 246,942 248,775
------------- -------------
TOTAL CURRENT LIABILITIES 5,103,117 4,128,524
------------- -------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 244,444 311,111
Deferred income taxes 368,000 246,000
Other liabilities 5,568 5,541
------------- -------------
TOTAL LONG-TERM LIABILITIES 618,012 562,652
------------- -------------
TOTAL LIABILITIES 5,721,129 4,691,176
------------- -------------
STOCKHOLDERS' EQUITY
Class A preferred shares, $.01 par value 5,000,000
shares authorized, 697,320 issued and outstanding at
April 30, 1997 and January 31, 1997, $2,50 per share
liquidation/dissolution preference 6,973 6,973
Common stock, $.01 par value, 30,000,000 shares
authorized, 3,786,475 and 3,786,600 issued and
outstanding at April 30, 1997 and January 31, 1997,
respectively 37,866 37,866
Class D Common stock, $.01 par value, 600,000 shares
authorized, no shares issued or outstanding - -
Paid in capital 1,407,915 1,407,915
Retained earning 5,093,347 4,804,799
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 6,546,101 6,257,553
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY $ 12,267,230 $ 10,948,729
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the Three Months Ended April
30,
---------------------------------
1997 1996
(unaudited) (unaudited)
------------- -------------
<S> <C> <C>
REVENUES FROM SERVICES $ 8,114,034 $ 7,110,664
COST OF SALES (6,329,502) (5,625,230)
------------- -------------
GROSS PROFIT 1,784,532 1,485,434
GENERAL AND ADMINISTRATIVE EXPENSES (1,270,791) (1,075,783)
RESEARCH AND DEVELOPMENT COSTS - (22,543)
------------- -------------
OPERATING INCOME 513,741 387,108
------------- -------------
OTHER INCOME (EXPENSE)
Interest income 139 4,026
Interest expense (28,082) (6,006)
------------- -------------
TOTAL OTHER INCOME (EXPENSE) (27,943) (1,980)
------------- -------------
INCOME BEFORE INCOME TAXES 485,798 385,128
INCOME TAX EXPENSE (197,250) (153,465)
------------- -------------
NET INCOME $ 288,548 $ 231,663
============= =============
EARNINGS PER SHARE - PRIMARY $ .06 $ .06
============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - PRIMARY 4,483,899 3,859,092
============= =============
EARNINGS PER SHARE - FULLY DILUTED $ .06 $ .06
============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - FULLY DILUTED 4,483,899 3,859,092
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended April 30,
------------------------------------
1997 1996
(unaudited) (unaudited)
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 6,793,865 $ 7,817,101
Interest received 139 4,026
Cash paid to suppliers and employees (7,709,475) (6,455,524)
Interest paid (28,082) (6,006)
Income taxes paid - (366,999)
--------------- ---------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (943,553) 992,598
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of capital assets (103,123) (481,361)
Cash paid for organizational costs - (11,398)
Cash paid for capitalized research and development (346,645) (40,056)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (449,768) (532,815)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 1,033,116 -
Proceeds from issuance of long-term debt - 800,000
Principal payments on long-term debt (68,500) (46,125)
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 964,616 753,875
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (428,705) 1,213,658
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 428,705 270,084
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ 1,483,742
=============== ===============
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
For the Three Months Ended April
30,
------------------------------------
1997 1996
(unaudited) (unaudited)
-------------- --------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 288,548 $ 231,663
-------------- --------------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 226,458 176,412
Increase in accounts receivable (2,591,089) (698,503)
Decrease on costs and estimated earnings in excess of
billings on uncompleted contracts 1,006,051 1,603,279
Decrease (increase) in prepaid expenses (17,504) 95,398
Increase in deferred income tax asset (107,000) (64,000)
Decrease (increase) in income taxes receivable 180,980 (14,704)
Decrease (increase) in deposits 2,095 (100)
Decrease in cash surrender value of life insurance 2,571 -
Decrease in accounts payable (471,910) (77,278)
Increase in accrued expenses 152,922 73,570
Increase (decrease) in billings in excess of costs and
estimated earnings on uncompleted contracts 262,298 (198,339)
Decrease in income taxes payable - (134,831)
Increase in deferred income tax liability 122,000 -
Increase in other liabilities 27 31
-------------- --------------
Total adjustments (1,232,101) 760,935
-------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES $ (943,553) $ 992,598
============== ==============
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
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 three
months ended April 30, 1996. In addition, the Company issued 46,986 shares of
treasury stock at a cost of $4.25 per share for accrued bonuses of $199,690 and
38,600 shares of treasury stock at a cost of $4.25 per share for the ESOP
payable of $164,050. The remaining balance $837,031, representing the
difference between the cost and market value of the treasury stock issued, was
recorded as additional paid in capital when the shares were issued.
7
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The condensed consolidated financial statements for the three month periods
ended April 30, 1997 and April 30, 1996 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim period. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997. The results of operations for the three months ended April
30, 1997 are not necessarily indicative of the results for the entire fiscal
year ending January 31, 1998.
NOTE 2 - LINE OF CREDIT
STI has a $1,800,000 line of credit available from a bank as of April 30, 1997
and January 31, 1997, 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%. As of April 30, 1997 and January 31, 1997 the outstanding draws
against the lines were $1,215,116 and $182,000, respectively. The prime rate at
April 30, 1997 and January 31, 1997 was 8.50% and 8.25%, 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 April
30, 1997 and January 31, 1997 was 8.63% and 8.50%, respectively.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company has outstanding purchase commitments of $ 1,711,531 and $1,622,159
as of April 30, 1997 and January 31, 1997, respectively. These represent
outstanding purchase orders for which neither the item nor invoice has been
received.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following is management's discussion and analysis of (i) the
consolidated financial condition as of April 30, 1997 compared with the fiscal
year ended January 31, 1997, and (ii) the consolidated results of operations
for the three months ended April 30, 1997 and 1996, of Exigent International,
Inc. and its subsidiaries (collectively, "Exigent"). It should be read together
with Exigent's Form 10-K for fiscal year 1997.
Liquidity. As of April 30, 1997, Exigent's ratio of current assets to
current liabilities was 2.0 which is comparable to 1.9 for the year ended
January 31, 1997. The quick liquidity ratios were also comparable at 1.7 and
1.6 for the three months ended April 30, 1997 and year ended January 31, 1997,
respectively.
Exigent's cash portfolio (cash and cash equivalents) decreased $(428,705)
at April 30, 1997. The decrease is due to: cash used in operating activities of
$(943,553), cash used in investing activities of $(449,768) and cash provided by
financing activities of $964,616. The cash used in operating activities
decreased primarily due to an increase in cash due from customers and a decrease
in accounts payable. The increase in cash provided by financing activities
increased due to drawing on the line of credit to reduce the accounts payable
and to fund research and development. Exigent's cash portfolio increased
$1,213,658 at April 30, 1996. The increase is due to: cash provided by
operating activities of $992,598, cash used in investing activities of
$(532,815) and cash provided by financing activities of $753,875. The increase
in cash used in operating activities is primarily due to a smaller receivable
balance in the first quarter of 1997 compared to the first quarter of 1998 due
mainly to timing of collections.
In the three months ended April 30, 1997 Exigent acquired $103,123 of
capital assets compared to $481,361 in the three months ended April 30, 1996.
This was due primarily to Exigent acquiring capital assets in the first quarter
of 1997, specifically computing resources, required under commercial contracts
obtained by Exigent during that period. Capital for equipment purchases is
expected to slow for the next two fiscal years as Exigent has now modernized and
acquired sufficient computer resources for expected operations. In the three
months ended April 30, 1997 and April 30, 1996, Exigent has also spent $346,645
and $40,056, respectively, in capitalized research and development costs to
develop new products. The increase in the first quarter of fiscal year 1998
resulted from costs incurred in developing FotoTag(TM) and developing product
enhancements.
General and administrative expenses for the three months ended April 30,
1997 were $1,270,791, 18% or $195,008 higher than expenses of $1,075,783 for the
three months ended April 30, 1996. This increase resulted mainly from a $54,000
increase in marketing costs, a $66,000 increase in administrative costs and a
$38,000 increase in travel costs. Management believes existing cash, funds
generated by operations and the available line of credit will be sufficient to
meet Exigent's operating and debt service requirements in fiscal year 1998.
Analysis of Operations. Sales for the three months ending April 30, 1997
were $8,114,034, up 14% from sales of $7,110,664 for the three months ended
April 30, 1996. The breakdown between government and commercial sales for each
of the three month periods follows:
9
<PAGE>
<TABLE>
<CAPTION>
April 30, 1997 April 30, 1996
-------------- --------------
<S> <C> <C> <C> <C>
Government $ 5,010,146 62% $ 4,296,779 60%
Commercial 3,103,888 38% 2,813,885 40%
-------------- ---- -------------- ----
$ 8,114,034 100% $ 7,110,664 100%
============== ==== ============== ====
</TABLE>
Gross profit was consistent at $1,784,532 (22.0% of sales) compared to
$1,485,434 (20.9% of sales) for the three months ended April 30, 1997 and April
30, 1996, respectively. Net income remained consistent at $288,548 (3.6% of
sales) for the three months ended April 30, 1997 with $231,663 (3.3% of sales)
for the three months ended April 30, 1996.
Fiscal year 1995 saw Software Technology, Inc. ("STI"), Exigent's wholly
owned and primary operating subsidiary, obtain its first significant commercial
contracts from Motorola, Inc. when it was engaged to provide satellite ground
station software for a constellation of satellites that will provide a direct
link with portable handsets for worldwide cellular telephone service. The
Motorola multi year contract allowed STI 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, STI is involved in the two premier satellite
endeavors taking place today.
The current contract base provides sufficient backlog to maintain STI
through fiscal year 1998. The backlog as of April 30, 1997 for commercial and
government contracts was $28,056,843. STI invested in excess of $2,000,000 over
the last two 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.
STI continued development on a new commercial software product FotoTag(TM),
and has invested approximately $150,000 during fiscal years 1997 and 1998.
Management is committed to support the development of this product which will
continue through fiscal year 1998. Exigent has formed FotoTag, Inc. as a wholly
owned subsidiary and STI transferred the FotoTag software into the new company
on May 1, 1997.
Exigent 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 Exigent'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 Exigent.
Demand for software engineers is expected to provide new opportunities for
Exigent, 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 Exigent remain above the level of its competition and should help to
stabilize
10
<PAGE>
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 Exigent 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 Exigent's
comprehensive benefit plan will also facilitate its ability to sustain an
effective recruiting campaign.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Exigent does not have any market risk sensitive instruments.
PART II - OTHER INFORMATION
Item 1. 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 first
quarter of fiscal 1998.
Item 2. Changes in Securities.
There have been no changes in the instruments defining the rights of
holders of any class of securities of Exigent or material limitations or
qualifications of the rights evidenced by any class of securities of Exigent.
No equity securities of Exigent have been sold during the period covered by
this report.
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.
Item 3. Defaults Upon Senior Securities.
There have been no material defaults with respect to any indebtedness of
Exigent and its subsidiaries which exceeds 5% of its total assets.
There is no arrearage with respect to the payment of dividends on any class
of preferred stock of Exigent or its subsidiaries.
Item 4. Submission of Matters to Vote of Security Holders.
No matters were submitted to a vote of security holders of Exigent during
the first quarter of fiscal 1998.
Item 5. Other Information.
None.
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits Index
<TABLE>
<CAPTION>
Exhibit Page
Table Number Number
------------ ------
<S> <C> <C>
I. Articles of Incorporation and Bylaws 3
(i) Certificate of Incorporation of Exigent International, (i) *
Inc.
(ii) Amended and Restated Certificate of Incorporation (i) +
of Exigent International, Inc.
(iii) Bylaws of Exigent International, Inc. (ii) *
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- x
Martin Federal Systems Company and Software
Technology, Inc.
(vi) Purchase Orders from Allied Signal Technical +
Services Corporation
VI. Financial Data Schedule 27 14
</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.
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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/ Don F. Riordan, Jr.
------------------------------------------
Don F. Riordan, Jr., Secretary
Date: June 12, 1997
By: /s/ Don F. Riordan, Jr.
------------------------------------------
Don F. Riordan, Jr., Chief Financial Officer
Date: June 12, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
The Consolidated Financial Statements for the three months ended April 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 8,332<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,465
<PP&E> 4,140
<DEPRECIATION> 2,386
<TOTAL-ASSETS> 12,267
<CURRENT-LIABILITIES> 5,103
<BONDS> 618
0
7
<COMMON> 38
<OTHER-SE> 6,501
<TOTAL-LIABILITY-AND-EQUITY> 12,267
<SALES> 0
<TOTAL-REVENUES> 8,114
<CGS> 0
<TOTAL-COSTS> 7,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 486
<INCOME-TAX> 197
<INCOME-CONTINUING> 289
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 289
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<FN>
<F1> Including costs and estimated earnings in excess of billing on uncompleted
contracts.
</FN>
</TABLE>
