SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] For the Quarterly Period Ended: March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15 (D)
of The Securities Exchange Act of 1934
For the Transition Period From _________ To ________
Commission File Number: 333-5753
Exigent International, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 59-3379927
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1225 Evans Road
Melbourne, Florida 32904-2314
(Address of principal executive offices) (Zip code)
407-952-7550
(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 registrant's common stock, $.01 par
value, on March 31, 1999 was 4,193,753.
<PAGE>
EXIGENT INTERNATIONAL, INC.
QUARTER ENDED MARCH 31, 1999
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. Page
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and April 30, 1998 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and April 30, 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 9
Item 3. Quantitative and Qualitative Disclosure of Market Risk 15
PART II - OTHER INFORMATION
Item 5. Other Information. 16
Item 6. Exhibits and Reports on Form 8-K. 16
Signatures 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 1999 December 31,
(unaudited) 1998
-------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 903,126 $ 429,970
Accounts receivable, pledged 3,032,345 1,873,772
Costs and estimated earnings in excess of
billings on uncompleted contracts, pledged 5,025,776 5,072,788
Prepaid expenses 167,404 10,677
Deferred income taxes 595,000 595,000
Income taxes receivable 843,938 843,938
----------- -----------
TOTAL CURRENT ASSETS 10,567,589 8,826,145
----------- -----------
PROPERTY AND EQUIPMENT
Cost 6,330,011 6,265,709
Accumulated depreciation (4,222,093) (3,982,347)
----------- -----------
NET PROPERTY AND EQUIPMENT 2,107,918 2,283,362
----------- -----------
OTHER ASSETS
Software development costs, net of
accumulated amortization 4,845,830 4,463,729
Deposits 71,420 74,179
Cash surrender value of life insurance 17,028 17,028
----------- -----------
TOTAL OTHER ASSETS 4,934,278 4,554,936
----------- -----------
TOTAL ASSETS $17,609,785 $15,664,443
=========== ===========
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1999 December 31,
(unaudited) 1998
-------------- ------------
CURRENT LIABILITIES
Line of credit $ 2,511,093 $ 1,811,093
Accounts payable 263,090 227,750
Accrued expenses 2,989,541 2,734,200
Billings in excess of costs and estimated
earnings on uncompleted contracts 841,149 270,418
Income taxes payable 107,785 5,098
Current portion, long-term debt 204,456 204,456
----------- -----------
TOTAL CURRENT LIABILITIES 6,917,114 5,253,015
----------- -----------
LONG-TERM LIABILITIES
Long-term debt, less current portion 373,646 427,816
Deferred income taxes 1,355,000 1,355,000
Other liabilities 44 44
----------- -----------
TOTAL LONG-TERM LIABILITIES 1,728,690 1,782,860
----------- -----------
TOTAL LIABILITIES 8,645,804 7,035,875
----------- -----------
STOCKHOLDERS' EQUITY
Class A Preferred Shares, $.01 par value
5,000,00 shares authorized 609,882 issued
and outstanding and $2.50 per share
liquidation/dissolution preference 6,099 6,099
Common Shares, $.01 par value, 30,000,000
shares authorized, 4,193,753 and 4,130,103
issued and outstanding at March 31, 1999 and
December 31, 1998, respectively 41,937 41,301
Paid in capital 2,193,526 2,012,780
Retained earnings 6,722,419 6,568,388
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,963,981 8,628,568
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $17,609,785 $15,664,443
=========== ===========
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended
March 31, 1999 April 30, 1998
(unaudited) (unaudited)
-------------- --------------
REVENUES $ 9,090,881 $ 7,685,375
COST OF SALE 6,698,052 6,054,795
----------- -----------
GROSS PROFIT 2,392,829 1,630,580
GENERAL AND ADMINISTRATIVE EXPENSES 2,132,500 1,413,208
RESEARCH AND DEVELOPMENT COSTS 8,881 48,266
----------- -----------
OPERATING INCOME 251,448 169,106
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 11,291 8,609
Interest expense (7,482) (15,964)
Other, net 1,461 -
----------- ----------
TOTAL OTHER INCOME (EXPENSE) 5,270 (7,355)
----------- ----------
INCOME BEFORE INCOME TAXES 256,718 161,751
INCOME TAX EXPENSE 102,687 64,133
----------- ----------
NET INCOME 154,031 97,618
=========== ==========
EARNINGS PER SHARE - BASIC $ 0.04 $ 0.02
=========== ==========
EARNINGS PER SHARE - DILUTED $ 0.03 $ 0.02
=========== ==========
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
March 31, 1999 April 30, 1998
(unaudited) (unaudited)
-------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 154,031 $ 97,618
----------- ----------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 702,533 351,974
Changes in operating assets and liabilities:
Accounts receivable (1,158,573) 889,700
Costs and estimated earnings in excess
of billings on uncompleted contracts 47,012 (1,087,658)
Prepaid expenses (156,727) 375
Deposits 2,759 (5,405)
Accounts payable 35,340 (333,024)
Accrued expenses 255,341 269,521
Billings in excess of costs and estimated
earnings on uncompleted contracts 570,731 (702,700)
Income taxes payable 102,687 (184,637)
----------- ----------
Total adjustments 401,103 (801,854)
----------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 555,134 (704,236)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of capital assets (64,302) (321,176)
Cash paid for capitalized software development (844,888) (1,376,710)
----------- ----------
NET CASH USED BY INVESTING ACTIVITIES (909,190) (1,697,886)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 700,000 -
Principal payments on long-term debt (54,170) (133,334)
Proceeds from exercise of stock options and
warrants 181,382 167,238
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 827,212 33,904
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 473,156 (2,368,218)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 429,970 3,640,508
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 903,126 $1,272,290
=========== ==========
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information in response to the requirements of Article 10 of
Regulation S-X. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The condensed consolidated financial statements for the
three month periods ended March 31, 1999 and April 30, 1998 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 periods. 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 Exigent International, Inc.'s ("Exigent's" or the "Company's")
Annual Report on Form 10-K for the fiscal year ended December 31, 1998. The
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the entire fiscal
year.
Certain prior period amounts have been restated to correspond to the current
period presentation.
NOTE 2 - FISCAL YEAR CHANGE
The Company changed its fiscal year to correspond with a calendar year end,
effective December 31, 1998. Previously, the Company had a January 31 year-end.
The current fiscal quarter is therefore compared to the three months ended April
30, 1998.
NOTE 3 - LINE OF CREDIT
Software Technology, Inc. ("STI"), Exigent's primary subsidiary, had a
$3,000,000 line of credit available from a bank as of March 31, 1999 and
December 31, 1998. The line of credit note bears interest on the unpaid
principal balance at a rate per annum equal to the bank's prime rate or LIBOR
plus 2.5%. As of March 31, 1999 and December 31, 1998, the outstanding draws
against the line were $2,511,093 and $1,811,093, respectively. The interest rate
at March 31, 1999 and December 31, 1998 was 7.43% and 7.56%, 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 during the period
ended March 31, 1999 was 7.43%.
NOTE 4 - EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings per
share for the three months ended March 31, 1999 and April 30, 1998:
For the three months ended
March 31, 1999 April 30, 1998
-------------- ------------
Numerator:
Net income (numerator for basic and
diluted earnings per share) $ 154,031 $ 97,618
=========== ==========
Denominator:
Denominator for basic earnings per share-
weighted average common shares 4,167,878 3,944,694
Effect of dilutive securities:
Convertible preferred stock 609,882 658,777
Stock options and warrants 653,915 337,957
----------- ---------
Denominator for diluted earnings per share-
adjusted weighted average shares 5,431,675 4,941,428
----------- ---------
Basic earnings per share $ 0.04 $ 0.02
=========== ==========
Diluted earnings per share $ 0.03 $ 0.02
=========== ==========
Basic earnings per share for the three months ended April 30, 1998 was restated
due to an error in computation.
NOTE 5 - STOCKHOLDERS' EQUITY
The consolidated changes in stockholders' equity for the three months ended
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Additional
Common Stock Class A Preferred Paid in Retained
Shares Amount Shares Amount Capital Earnings Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1998 4,130,103 $ 41,301 609,882 $ 6,099 $2,012,780 $6,568,388 $8,628,568
Exercise of convertible securities 63,650 636 -- -- 180,746 -- 181,382
Net income 154,031 154,031
----------------------------------------------------------------------------------------
BALANCE MARCH 31, 1999 4,193,753 $ 41,937 609,882 $ 6,099 $2,193,526 $6,722,419 $8,963,981
========================================================================================
</TABLE>
Class A Preferred Stock converts 1:1 to Common Stock and has no preferential
treatment except for a liquidation preference.
<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 March 31, 1999 as compared with the fiscal year ended
December 31, 1998; and (ii) the consolidated results of operations for the three
months ended March 31, 1999 and April 30, 1998, of Exigent and its subsidiaries:
Software Technology, Inc. ("STI"), FotoTag, Inc. ("FotoTag") and Middleware
Solutions, Inc. ("M/Ware"). This discussion should be read together with
Exigent's Form 10-K for the fiscal year ended December 31, 1998.
General. In 1994, STI obtained its first significant commercial contracts from
Motorola, Inc. to provide satellite ground station software for a constellation
of satellites that will provide a direct link with portable handsets for
worldwide telephone service (the "Iridium" system). The Motorola multi-year
contract allowed STI to leverage its technology into the commercial arena. In
1996, STI was awarded a contract to provide similar software for the Global
Positioning Satellite (GPS) System. With these two contracts, STI is involved in
two premier satellite endeavors and numerous proprietary ones.
Although the recent quarters reflect a lull in the Company's commercial
satellite business, the Company continued to invest during these periods in the
advanced features for its OS/COMET(R) basic product as well as the next
generation NT version of OS/COMET. This investment has started to pay off with
the award of DataLynx, a commercial satellite project with Allied Signal
Technical Services for the Telemetry, Command and Control for the control center
and ground stations of the DataLynx Project and the delivery of Calypso Pro(TM),
a NT product, to a government customer in the first quarter of 1999. In
addition, the Company continues to invest in its strategic alliance with
Motorola for the Teledesic effort, with an anticipated start in the second or
third quarter of 1999.
STI has invested in excess of $6,000,000 over the last three years in its
premier software product OS/COMET. This investment facilitated the significant
contract awards that management believes would have been otherwise unattainable.
Continued expenditures for development of new products is expected, and the
Company has recently been heavily involved in developing proposals for new
commercial satellite constellations.
STI's government business continues at a strong pace with orders coming in from
both existing and new customers. The backlog as of March 31, 1999 for commercial
and government contracts was $55,195,058, of which $49,293,064 is unfunded. The
award of DataLynx represents a significant new commercial win for the Company,
representing software product sales in excess of $500,000 and a major role in
this new commercial venture.
Exigent has completed development of its commercial software product,
FotoTag(R), and invested approximately $1,100,000 over the past three fiscal
years for this product development. Management continues the marketing and
promotion of this product. FotoTag is currently being marketed worldwide to
address the growing need for airport security and baggage and passenger
reconciliation products.
The Company's new subsidiary, M/Ware, has been organized expressly for the
development and distribution of "shrink-wrapped" middleware software, including
Interplay(TM), and certain other products.
The Company believes that its investments in OS/COMET and its product family,
including Pluto(TM), Calypso(TM), Calypso Pro, the Integrated Control Center
(ICC)(TM) and OS/COMET Solo(TM), the Active Tracking Engine (ATE), FotoTag and
Interplay has positioned the Company well for the remainder of 1999 and beyond.
Liquidity. As of March 31, 1999, Exigent's ratio of current assets to current
liabilities decreased to 1.5 from 1.7 at December 31, 1998. This decrease was
due largely to a $700,000 draw down on the Company's line of credit to finance a
$1,158,573 increase in accounts receivable over the three months. The sources
and uses of cash are explained in detail below.
Exigent's cash portfolio (cash and cash equivalents) increased $473,156 during
the three months ended March 31, 1999. The increase was due to cash provided by
operating activities of $555,134, cash used in investing activities of $909,190
and cash provided by financing activities of $827,212. The increase in cash from
operating activities from December 31, 1998 to March 31, 1999 was primarily the
result of the sale of Company products in both the commercial as well as the
government sector of the business and an improvement in the payment cycle on
government projects. During this time, the Company invested approximately
$300,000 in the ongoing support of the strategic agreement with Motorola, Inc.
SATCOM projects. This investment is intended to help position Exigent for sales
to future commercial satellite projects. By comparison, Exigent's cash portfolio
decreased $2,368,218 for the three months ended April 30, 1998. The decrease was
due to cash used by operating activities of $704,236, cash used in investing
activities of $1,697,886 and cash provided by financing activities of $33,904.
In the three months ended March 31, 1999, Exigent acquired $64,302 of capital
assets compared to $321,176 in the three months ended April 30, 1998. Capital
needs are expected to continue, but cannot be quantified at this time, as
Exigent intends to remains current with computing technologies. This expansion
will be funded in part through operating leases set up with external leasing
companies. Currently, the Company has a lease line of credit through
Oliver-Allen Corporation with a funding limit of $770,000. The leases will
extend for a period of three years from each draw against the funding limit.
Through the three-month period ended March 31, 1999, Exigent had drawn down
approximately $307,013 against this lease line of credit. An increase to the
lease line is currently being discussed to finance future needs.
During the last three fiscal years the Company has made substantial investments
in the development of software products. The investments made for the three
months ended March 31, 1999 were significant but reduced from the prior year as
the Company rolled out several new products. In the three months ended March 31,
1999 and April 30, 1998, Exigent spent $844,888 and $1,376,710, respectively, in
capitalized software development costs primarily related to several products.
The decrease in the first three months of fiscal year 1999 resulted from the
completion and rollout of product additions for the OS/COMET product family
including Pluto, Calypso and the Integrated Control Center (ICC). The
development of its newest product, Interplay, is ongoing with an expected
completion date in the second quarter of 1999. M/Ware was organized expressly
for the development and distribution of "shrink-wrapped" middleware software and
certain other products. M/Ware will be responsible for Interplay as well as
other products. Investment in capitalized software development is expected to
continue at least through the second quarter at current levels.
As of March 31, 1999, Exigent had cumulatively borrowed $2,511,093 under the
line of credit to fund its operations. The Company reduced long-term debt by
$54,170 during the three months ended March 31, 1999 to $373,646 at March 31,
1999. Management believes existing cash, funds generated by operations, and the
available line of credit will be sufficient to fund Exigent's current operating
requirements at least through the fiscal year ending December 31, 1999.
Additional funds may be required to fulfill the development schedule for new
Exigent products and to finance any acquisitions. The Company is currently in
discussions with several institutions to obtain financing to enhance product
development requirements and implement the Company's strategic plan. There can
be no assurance that definitive arrangements relating to this funding will be
entered into on acceptable terms. Should such financing not be available, the
Company will prioritize its future development projects accordingly.
Results of Operations for the three months ended March 31, 1999 and April 30,
1998. Sales for the three months ended March 31, 1999 were $9,090,881, compared
with $7,685,374 for the three months ended April 30, 1998, an increase of 18.3%,
with the mix of government and commercial sales having changed significantly.
The breakdown between government and commercial sales for each of the
three-month periods is as follows:
March 31, 1999 April 30, 1998
---------------- ----------------
Government $7,564,444 83% $5,449,707 71%
Commercial 1,526,437 17% 2,235,667 29%
--------- --- ---------- ---
$9,090,881 100% $7,685,374 100%
========== ==== ========== ====
This revenue mix is expected to move back to a higher percentage of commercial
sales following the award of new commercial satellite projects.
Cost of sales as a percentage of revenue from services for the three months
ended March 31, 1999, at 78%, was fairly consistent with the percentage for the
three months ended April 30, 1998, at 79%.
Gross profit was up significantly at $2,392,829 (26.3% of sales) compared to
$1,630,580 (21.2% of sales) for the three months ended March 31, 1999 and April
30, 1998, respectively. This increase in gross profit was primarily the result
of a significant increase in product sales.
General and administrative expenses for the three months ended March 31, 1999
were $2,132,500, 50.9% or $719,292 greater than expenses of $1,413,208 for the
three months ended April 30, 1998. This increase was due primarily to the
presentation of the data for the quarter ended April 30, 1998. In 1998 both
revenue and expenses were presented using government approved projected rates
and in 1999 both are presented using actual expenses. After adjusting the
general and administrative expenses for the three months ended April 30, 1998 to
the same basis used for the three months ended March 31, 1999, the actual
increase was $335,133. This increase arose from an increase in marketing
expenses of $115,000 resulting from the release of three new products (OS/ICC,
Calypso and Pluto) and attendance at four tradeshows, including the largest of
the year, Satellite '99. This concentration of tradeshows during the first
quarter of the year was anticipated and is not expected to continue through the
remaining nine months at this rate. In addition, there was an increase in
professional fees of $35,000 associated with nonrecurring legal expenses and an
$85,000 increase in depreciation expense associated with the capital investment
in connection with facility renovations.
Research and development expenses for the three months ended March 31, 1999 were
significantly reduced from the first quarter of last year as the Company
concentrated on completing the development of several new products. Research and
development expenses are expected to increase during the second and third
quarters of 1999 as the Company begins the research required for its next
generation product.
Net income increased significantly at $152,031 (1.7% of sales) for the three
months ended March 31, 1999 versus $97,618 (1.3% of sales) for the three months
ended April 30, 1998. This increase was again due to the increase in product
sales. The award and start-up of the new DataLynx project had the largest impact
on the product sales for the quarter, with delivery and acceptance of Company
software products in excess of $500,000. In addition, the delivery of the new
Calypso product to a government customer generated approximately $187,500 of
product revenue.
OUTLOOK
General and administrative expenses are expected to stabilize at current levels
as the current staffing has positioned the Company to grow and support an
increased volume of business and employees. In addition, the current level of
expenditures included the cyclical cost associated with the concentration of
four trade shows in February and March 1999.
The Company made several minor changes in its employee benefits package during
the quarter ended March 31, 1999. Management believes that the benefits offered
by Exigent remain above the level of its competition and should help to retain
existing employees and to attract new employees. Overhead costs for benefits are
expected to decrease as a percentage of total labor for the fiscal year ending
December 31, 1999 as compared to the eleven months ended December 31, 1998 with
the changes made in the benefits offered. Management believes that it is
important to maintain the benefits at the current level, but to do so and hold
costs stable in the face of the increasing cost of health care will be a
management challenge.
The Company's current long-term business plan is to seek opportunities for
growth and diversification of its product and service offerings through internal
growth and acquisitions. To implement its long-term growth strategy, the Company
may need to raise capital through private or public debt and/or equity
financing(s). The Company's application to the NASDAQ Stock Market for listing
on the NASDAQ SmallCap Market was approved during the first quarter and trading
in both the Company Common Stock and Warrants began on March 1, 1999 under the
symbols "XGNT" and "XGNTW", respectively.
FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Company or events, or timing
of events, relating to the Company to differ materially from any future results,
performance or achievements of the Company or events, or timing of events,
relating to the Company expressed or implied by such forward-looking statements.
The more prominent known risks and uncertainties inherent in the Company's
business are presented in condensed form below. However, not all possible risks
and uncertainties to which the Company is subject are discussed herein, nor can
it be assumed that there are not other risks and uncertainties which may be more
significant to the Company. The reader is referred to the Company's S-3
Prospectus filed with the SEC on April 8, 1999 for a more detailed discussion of
these risks and uncertainties.
Risks Related to the Company
o Our major products may not be accepted by the market
o Our operating results may fluctuate significantly
o We receive our revenues from a limited number of customers
o Defects in our products may cause our revenues to decline
o The length of our sales cycle increases our costs and hinders our ability
to procure contracts
o We may not be able to protect our proprietary rights; we may infringe on
the proprietary rights of other persons
o We may not be able to hire qualified technical personnel; the highly
competitive market for technical personnel may increase our costs
o We may not be able to retain our key employees
o We may not be able to expand into the international market
o We may incur unexpected costs in connection with correcting or addressing
Year 2000 problems
o We may not be successful in our acquisition strategy
o Our anti-takeover provisions may hinder a potential change of control or
acquisition of the Company
o We may incur costs in excess of our revenues on certain of our contracts
o We may not be able to fund our future capital requirements
Risks Related to the Industry
o Our success is dependent on the continued growth of the government and
commercial satellite industry
o We may not be able to respond to rapid technological changes
o Intense competition may cause us to lose projects or result in decreased
revenues
o Changes in governmental regulation may cause us to lose revenues
YEAR 2000 ISSUES
Some existing computer programs will be unable to recognize dates properly in
the Year 2000 ("Y2K") and beyond. During 1997, Exigent conducted an informal
study of its products, systems and operations, including products under
development, to improve their business functionality, to identify those of its
computer hardware, software and process control systems that do not properly
recognize dates after December 31, 1999, and those that are linked to third
parties' systems. Based on this informal study, Exigent recognized that the
OS/COMET product required certain modifications to be Y2K compliant. Those
modifications have been made to the software and are available in the current
release, Version 3.5. Exigent has also initiated communications with certain
third parties whose computer systems' functionality could adversely impact the
Company. These communications, which the Company expects to complete by July
1999, will facilitate coordination of any necessary Y2K conversions and will,
additionally, permit Exigent to determine the extent to which the Company may be
vulnerable to the failure of third parties to address their own Y2K issues. The
Company expects to complete its review of all desk top computing resources by
September 30, 1999. Due to the fact that the Company believes it has secured
sufficient resources to address the Y2K issue as it relates to its own computer
systems and certain third parties whose computer systems' functionality could
adversely impact the Company, the Company does not believe that contingency
planning is warranted at this time. The results of its review of all desk top
computing resources, when completed, may reveal the need for contingency
planning at a later date. The Company will evaluate the need for contingency
planning based on the progress and findings of its review.
The costs of Exigent's Y2K compliance efforts are being funded with cash flows
from operations. Some of these costs relate solely to the modification of
existing systems, while others are for new systems that will improve business
functionality. In total, these costs are not expected to be substantially
different from the normal, recurring costs that are incurred for systems
development and implementation, in part due to the reallocation of internal
resources and the deferral of other projects. As a result, these costs are not
expected to have a material adverse effect on Exigent's overall results of
operations or cash flows.
The assessment of the costs of Exigent's Y2K compliance effort, and the
timetable for the Company's planned completion of its own Y2K modifications, are
management's best estimates. These estimates were based upon numerous
assumptions regarding future events, including assumptions as to the continued
availability of certain resources, and, in particular, personnel with expertise
in this area, and as to the ability of such personnel to locate and either
re-program or replace, and test, all affected computer hardware, software and
process control systems in accordance with the Company's planned schedule. There
can be no guarantee that these estimates will prove accurate, and actual results
could differ from those estimated if these assumptions prove inaccurate.
Based upon progress to date, however, Exigent believes that it is unlikely that
the foregoing factors will cause actual results to differ significantly from
those estimated. As to the systems of the third parties that are linked to
Exigent's, there can be no guarantee that those of such systems that are not now
Y2K-compliant will be timely converted to compliance. Additionally, there can be
no guarantee that third parties of business importance to Exigent will
successfully and timely reprogram or replace, and test, all of their own
computer hardware, software and process control systems.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
1. Exigent Warrants currently trading on the Chicago Stock Exchange as
XNTWS and on the NASDAQ SmallCap as XGNTW will expire on January 30, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Exhibit
- ------ -------
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
<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.
May 12, 1999 By: /s/ B.R. "Bernie" Smedley
- ----------------- -----------------------------------------------
Date B.R. "Bernie" Smedley, Chief Executive Officer
May 12, 1999 By: /s/ Jeffrey B. Weinress
- ----------------- -----------------------------------------------
Date Jeffery B. Weinress, Chief Financial Officer
(Principal Financial and Accounting Officer)
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