================================================================================
UNITED STATES
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: September 30, 2000
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.)
1830 Penn Street, Melbourne, Florida 32901
(Address of principal executive offices) (Zip code)
321-952-7550
(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 September 29, 2000 was 6,021,457.
================================================================================
<PAGE>
EXIGENT INTERNATIONAL, INC.
QUARTER ENDED SEPTEMBER 30, 2000
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Financial Statements. Page
----
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations for the Nine months Ended September 30, 2000 and 1999 5
Consolidated Statements of Operations for the Three months Ended September 30, 2000 and 1999 6
Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11
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
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
September 30, 2000
(unaudited) December 31, 1999
--------------------- -----------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,264,288 $ 574,368
Accounts receivable, pledged 2,155,148 2,616,727
Costs and estimated earnings in excess of
billings on uncompleted contracts, pledged 4,844,465 4,790,742
Prepaid expenses 176,930 42,492
Income taxes receivable 273,972 803,188
Deferred income taxes 336,000 336,000
--------------------- -----------------------
TOTAL CURRENT ASSETS 9,050,803 9,163,517
--------------------- -----------------------
PROPERTY AND EQUIPMENT
Cost 6,356,747 6,240,397
Accumulated depreciation (5,078,969) (4,699,750)
--------------------- -----------------------
PROPERTY AND EQUIPMENT, NET 1,277,778 1,540,647
--------------------- -----------------------
OTHER ASSETS
Software development costs, net 4,107,207 4,275,113
Capitalized patent costs, net 94,512 85,116
Goodwill, net 2,632,856 2,848,220
Deposits and other assets 144,662 103,193
--------------------- -----------------------
TOTAL OTHER ASSETS 6,979,237 7,311,642
--------------------- -----------------------
TOTAL ASSETS $ 17,307,818 $ 18,015,806
===================== =======================
</TABLE>
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
September 30, 2000
(unaudited) December 31, 1999
---------------------- -----------------------
CURRENT LIABILITIES
<S> <C>
Line of credit $ 980,834 $ 2,386,734
Accounts payable 936,609 715,976
Accrued payroll and other expenses 2,382,425 2,187,690
Billings in excess of costs and estimated earnings
on uncompleted contracts 551,902 891,557
Income taxes payable - 17,827
Current portion, long-term debt 205,873 1,256,817
Current portion, subordinated debt 250,000 250,000
---------------------- -----------------------
TOTAL CURRENT LIABILITIES 5,307,643 7,706,601
---------------------- -----------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 132,923 268,897
Subordinated debt, less current portion 562,500 750,000
Deferred income taxes 407,030 505,000
---------------------- -----------------------
TOTAL LONG-TERM LIABILITIES 1,102,453 1,523,897
---------------------- -----------------------
TOTAL LIABILITIES 6,410,096 9,230,498
---------------------- -----------------------
STOCKHOLDERS' EQUITY
Class A Preferred Shares, $.01 par value, 5,000,000 shares authorized,
15,132 and 68,841 issued and outstanding at September 30, 2000 and
December 31, 1999, respectively, at $2.50 per share
liquidation/dissolution preference 151 688
Common Shares, $.01 par value, 40,000,000 shares authorized, 6,021,457 and
4,845,149 issued and outstanding at September 30, 2000 and December 31,
1999, respectively 60,215 48,452
Paid in capital 5,804,163 2,646,445
Retained earnings 5,033,193 6,089,723
---------------------- -----------------------
TOTAL STOCKHOLDERS' EQUITY 10,897,722 8,785,308
---------------------- -----------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 17,307,818 $ 18,015,806
====================== =======================
</TABLE>
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the nine months ended
September 30, 2000 September 30, 1999
(unaudited) (unaudited)
---------------------- ----------------------
<S> <C> <C>
REVENUES $ 28,008,293 $ 27,411,683
COST OF SALES 21,551,170 20,188,462
---------------------- ----------------------
GROSS PROFIT 6,457,123 7,223,221
GENERAL AND ADMINISTRATIVE EXPENSES 7,392,346 6,439,644
RESEARCH AND DEVELOPMENT COSTS 21,332 189,368
RESTRUCTURING COSTS 422,803 -
AMORTIZATION OF GOODWILL 215,363 -
---------------------- ----------------------
OPERATING INCOME (LOSS) (1,594,721) 594,209
---------------------- ----------------------
OTHER INCOME (EXPENSE)
Interest income 78,926 20,196
Interest expense (107,090) (37,178)
Loss on disposal of fixed assets - (6,620)
Other, net 39,986 12,407
---------------------- ----------------------
TOTAL OTHER INCOME (EXPENSE) 11,822 (11,195)
---------------------- ----------------------
INCOME (LOSS) BEFORE INCOME TAXES (1,582,899) 583,014
INCOME TAX EXPENSE (BENEFIT) (526,370) 233,206
---------------------- ----------------------
NET INCOME (LOSS) $ (1,056,529) $ 349,808
====================== ======================
EARNINGS (LOSS) PER SHARE - BASIC $ (0.18) 0.08
====================== ======================
EARNINGS (LOSS) PER SHARE - DILUTED $ (0.18) 0.06
====================== ======================
</TABLE>
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the three months ended
September 30, 2000 September 30, 1999
(unaudited) (unaudited)
---------------------- ---------------------
<S> <C> <C>
REVENUE $ 8,704,022 $ 9,121,721
COST OF SALES 6,798,095 6,628,571
---------------------- ---------------------
GROSS PROFIT 1,905,927 2,493,150
GENERAL AND ADMINISTRATIVE EXPENSES 2,090,449 2,078,412
RESEARCH AND DEVELOPMENT COSTS 13,694 164,430
RESTRUCTURING COSTS - -
AMORTIZATION OF GOODWILL 71,788 -
---------------------- ---------------------
OPERATING INCOME (270,004) 250,308
---------------------- ---------------------
OTHER INCOME (EXPENSE)
Interest income 60,160 8,386
Interest expense (23,420) (12,106)
Loss on disposal of fixed assets - (3,815)
Other, net 32 6,980
---------------------- ---------------------
TOTAL OTHER INCOME (EXPENSE) 36,772 (555)
---------------------- ---------------------
INCOME (LOSS) BEFORE INCOME TAXES (233,232) 249,753
INCOME TAX EXPENSE - 99,902
---------------------- ---------------------
NET INCOME (LOSS) $ (233,232) $ 149,851
====================== =====================
EARNINGS (LOSS) PER SHARE - BASIC $ (0.04) $ 0.03
====================== =====================
EARNINGS (LOSS) PER SHARE - DILUTED $ (0.04) $ 0.03
====================== =====================
</TABLE>
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the nine months ended
September 30, 2000 September 30, 1999
(unaudited) (unaudited)
---------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (1,056,529) $ 349,808
---------------------- ----------------------
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 1,794,198 2,111,105
Accretion of unearned stock compensation 8,350 16,700
Loss on disposal of fixed assets - 6,620
Deferred income taxes (97,970) -
Changes in operating assets and liabilities:
Accounts receivable 461,579 (97,768)
Costs and estimated earnings in excess of
billings on uncompleted contracts (53,723) (511,466)
Prepaid expenses (134,438) (6,785)
Income taxes receivable 529,216 -
Deposits (41,469) (5,233)
Accounts payable 220,633 24,046
Accrued expenses 194,735 140,162
Billings in excess of costs and estimated earnings
on uncompleted contracts (339,655) 519,006
Income taxes payable (17,827) 220,560
Other liabilities - (44)
---------------------- ----------------------
Total adjustments 2,523,629 2,416,903
---------------------- ----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,467,100 2,766,711
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of capital assets (116,351) (46,091)
Cash paid for capitalized software development (1,031,709) (1,822,350)
Cash paid for capitalized patent costs (9,396) -
---------------------- ----------------------
NET CASH USED IN INVESTING ACTIVITIES (1,157,456) (1,868,441)
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit (1,405,900) (999,359)
Principal payments on long-term debt (1,374,418) (54,859)
Proceeds from exercise of stock options and warrants 3,160,594 399,176
---------------------- ----------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 380,276 (655,042)
---------------------- ----------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 689,920 243,228
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 574,368 429,970
---------------------- ----------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,264,288 $ 673,198
====================== ======================
</TABLE>
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 September 30, 2000 and 1999 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, 1999. The
results of operations for the nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the entire fiscal
year.
NOTE 2 - LINE OF CREDIT
Exigent Software Technology, Inc. ("ESTI"), Exigent's primary subsidiary, had a
$5,000,000 line of credit available from a bank as of September 30, 2000 and
December 31, 1999. 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 September 30, 2000 and December 31, 1999, the outstanding draws
against the line of credit were $980,834 and $2,386,734, respectively. The
interest rate at September 30, 2000 and December 31, 1999 was 9.12% and 8.29%,
respectively. All accounts receivable, equipment, furniture and fixtures of ESTI
are pledged as collateral on the line of credit.
The weighted average interest rate on short-term borrowings during the
nine-month period ended September 30, 2000 was 9.04%.
NOTE 3 - EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings
(loss) per share for the nine months ended September 30, 2000 and 1999:
<TABLE>
For the nine months ended
September 30, 2000 September 30, 1999
------------------------ ----------------------
Numerator:
Net income (loss) (numerator for basic
<S> <C> <C>
and diluted earnings per share) $ (1,056,529) $ 349,808
======================== ======================
Denominator:
Denominator for basic earnings per share-
weighted average common shares 5,759,294 4,378,687
Effect of dilutive securities:
Convertible preferred stock - 437,333
Stock options and warrants - 709,714
------------------------ ----------------------
Denominator for diluted earnings per share-
adjusted weighted average shares 5,759,294 5,525,734
------------------------ ----------------------
Basic earnings (loss) per share $ (0.18) $ 0.08
======================== ======================
Diluted earnings (loss) per share $ (0.18) $ 0.06
======================== ======================
</TABLE>
In computing diluted earnings (loss) per share for the nine months ended
September 30, 2000, 191,646 of common share equivalents were excluded from the
computation because their effects would have been anti-dilutive.
<PAGE>
The following tables set forth the computation of basic and diluted earnings
(loss) per share for the three months ended September 30, 2000 and 1999:
<TABLE>
For the three months ended
September 30, 2000 September 30, 1999
------------------------ ----------------------
------------------------ ----------------------
Numerator:
Net income (loss) (numerator for basic
<S> <C> <C>
and diluted earnings per share) $ (233,232) $ 149,851
======================== ======================
Denominator:
Denominator for basic earnings per share-
weighted average common shares 6,010,290 4,602,584
Effect of dilutive securities:
Convertible preferred stock - 251,701
Stock options and warrants - 583,810
------------------------ ----------------------
Denominator for diluted earnings per share-
adjusted weighted average shares 6,010,290 5,438,095
------------------------ ----------------------
Basic earnings (loss) per share $ (0.04) $ 0.03
======================== ======================
Diluted earnings (loss) per share $ (0.04) $ 0.03
======================== ======================
</TABLE>
In computing diluted earnings (loss) per share for the three months ended
September 30, 2000, 28,626 of common share equivalents were excluded from the
computation because their effects would have been anti-dilutive.
NOTE 4 - STOCKHOLDERS' EQUITY
The consolidated changes in stockholders' equity for the nine months ended
September 30, 2000 are as follows:
<TABLE>
Common Stock Class A Preferred Paid in Retained
Shares Amount Shares Amount Capital Earnings Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 2000 4,845,149 $48,452 68,841 $ 688 $2,646,445 $6,089,723 $ 8,785,308
Exercise of convertible options 397,973 3,980 - - 982,736 - 986,716
Exercise of convertible stock
warrants 724,626 7,246 - - 2,166,632 - 2,173,878
Class A preferred converted to
common 53,709 537 (53,709) (537) - - -
Accretion of unearned stock
compensation - - - - 8,350 - 8,350
Net loss - - - - - (1,056,530) (1,056,530)
-------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2000 6,021,457 $60,215 15,132 151 $5,804,163 $5,033,193 $10,897,722
===============================================================================
</TABLE>
<PAGE>
NOTE 5 - STOCK OPTIONS
Stock option activity, during the nine months ended September 30, 2000, is as
follows:
Weighted Average
Options Exercise Price
------------------------------------
Outstanding - as of December 31, 1999 2,408,272 $ 3.34
Granted 1,292,110 2.63
Exercised 372,151 2.49
Forfeited 600,028 3.19
------------------------------------
Outstanding - end of period 2,728,203 $ 3.15
====================================
Exercisable at end of period 1,068,717
Weighted-average fair value of
options granted during the
period $ 2.63
At September 30, 2000, the range of exercise prices and remaining contractual
life of outstanding options was $2.44 to $4.38 and 0.3 years to 9.88 years,
respectively, with the weighted average at $3.15 and 7.31 years.
NOTE 6 - ACQUISITIONS
On December 9, 1999, Exigent completed the acquisition of GEC North America
Corporation, ("GEC"), by exchanging cash and subordinated promissory notes for
all of the voting and non-voting shares of GEC common stock. The acquisition of
the assets and liabilities was accounted for using the purchase method of
accounting whereby the consideration paid of $3,525,694 was allocated based on
the fair values of the assets and liabilities acquired with the excess
consideration over the fair value of tangible assets recorded as intangible
assets (goodwill).
The Company's statement of operations for the quarter ended September 30, 2000
includes the operations of GEC, while the statement of operations for the period
ended September 30, 1999 does not. The following table represents the unaudited
pro forma results of operations for the nine months ended September 30, 1999
assuming the acquisition of GEC had occurred January 1, 1999. The results are
not necessarily indicative of future operations or what would have occurred had
the acquisition been consummated as of January 1, 1999.
Total revenue $ 31,714,334
Net income 564,666
EPS (diluted) $ 0.10
NOTE 7 - AMORTIZATION OF INTANGIBLES
The costs of capitalized software development are amortized over their estimated
useful lives of two to four years. Amortization is computed on the straight-line
method. The Company periodically reviews the capitalized software development
cost to ensure that future anticipated gross revenues related to the products
exceeds the unamortized cost.
<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 September 30, 2000 as compared with the fiscal year
ended December 31, 1999, (ii) the consolidated results of operations for the
nine months ended September 30, 2000 and 1999, and (iii) the consolidated
results of operations for the three months ended September 30, 2000 and 1999, of
Exigent International, Inc. ("the Company") and its subsidiaries: Exigent
Software Technology, Inc. ("ESTI"), Exigent Digital Telecom and Wireless
Networks, ("EDT&WN") and Exigent Solutions Group ("ESG"). This discussion should
be read together with Exigent's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
General. Exigent is a high-technology company with three core business areas:
command and control; information technology ("IT"); and digital wireless
communications, respectively. In each of these business areas, the Company
provides software products and engineering services. The Company, through ESTI,
has designed and deployed satellite command and control and communication
systems for more than twenty years. ESTI has provided ground control solutions
for dozens of commercial and government projects, ranging from a single
spacecraft to the largest satellite constellations. As worldwide demand for
satellite-based applications has increased, the Company has responded by
developing a suite of commercial-off-the-shelf ("COTS") products based on its
experience in building such systems. The Company's engineers also provide system
integration support for customers throughout the United States. The Company's
projects include some of the world's largest satellite endeavors, including
Iridium and the Global Positioning Satellite ("GPS") System, as well as numerous
proprietary projects.
Although the last year reflects a weakness in the commercial satellite business,
the Company did continue to invest during this period in the advanced features
for its OS/COMET(R) premier software product. The Company has invested in excess
of $8,000,000 over the last four years in this premier software product for
tracking, command and control. This investment has facilitated the contract
awards that management believes would have been otherwise unattainable. The
investment in the Company's flagship product, OS/COMET was completed in March,
2000 with no further investment planned in the near future. The Company's newest
product release, OS/COMET 4.0, was delivered to its first customer during the
first quarter of FY 2000 and provides a maintainable, scalable product for the
next generation of communication satellites. The OS/COMET product family is
available to address the command and control business of this diverse market,
from single satellites to large constellations of satellites.
ESTI's government services business continues with orders coming in from both
existing and new customers. The backlog as of September 30, 2000 for commercial
and government contracts was $34,506,386, of which $29,630,857 was unfunded.
The Company's IT business unit, ESG, has been organized expressly for
exploitation of the IT market in both the commercial and the government markets.
The GEC business, as well as IT development work currently being performed at
the Naval Research Laboratory ("NRL") are included in the ESG business area.
<PAGE>
The Company's newest business area is its EDT&WN business. As a result of the
Company's software-defined radio product ("SDR") Domain Manager Tool Kit being
selected by a Raytheon-lead consortium as the backbone for development of a new
generation of digital radio for the U.S. military in the 21st century, it
established a special business unit to pursue opportunities in this technology
in both government and commercial markets. In addition, the EDT&WN business unit
is pursuing several commercial opportunities in digital wireless technologies
for this rapidly expanding market. EDT&WN is also addressing distribution of
"shrink-wrapped" middleware software, including ActiveM and certain other
products as well as all FotoTag opportunities.
Liquidity. As of September 30, 2000, Exigent's ratio of current assets to
current liabilities increased to 1.7 from 1.2 at December 31, 1999. This
increase was due largely to an increase in cash and a decrease in the current
portion of long-term debt. The Company's current asset to current liability
ratio also increased as a result of a decrease in the outstanding balance on the
line of credit due to the capital received through the exercise of stock options
and warrants as well as the collection of accounts receivable and income tax
refunds. The sources and uses of cash are explained in detail below.
Exigent's cash portfolio (cash and cash equivalents) increased $689,920 during
the nine months ended September 30, 2000. The increase was due to cash provided
by financing activities of $380,276, cash used in investing activities of
$1,157,456 and cash provided by operating activities of $1,467,100. The increase
in cash from financing activities for the nine-month period ended September 30,
2000 was primarily the result of proceeds from the exercise of stock options and
warrants of $3,160,594 offset by payments on the current portion of long-term
debt of $1,374,418 and on the line of credit of $1,405,900. By comparison,
Exigent's cash portfolio increased $243,228 for the nine months ended September
30, 1999. This increase was due to cash provided by operating activities of
$2,766,711, cash used in investing activities of $1,868,441 and cash used in
financing activities of $655,042.
In the nine months ended September 30, 2000, Exigent acquired $116,351 of
capital assets compared to $46,091 in the nine months ended September 30, 1999.
Capital needs are expected to continue, but cannot be quantified at this time,
as Exigent intends to remain current with computing technologies. Currently, the
Company has a lease line of credit through Oliver-Allen Corporation to finance
any anticipated capital asset requirements.
During the last four fiscal years, the Company has made substantial investments
in the development of software products. The investments made for the nine
months ended September 30, 2000 although significant, have declined
significantly from the prior year as the Company introduced several new products
during the previous fiscal year and completed its investment in OS/COMET 4.0 in
March of 2000. In the nine months ended September 30, 2000 and 1999, Exigent
spent $1,031,709 and $1,822,350, respectively, in capitalized software
development costs. The decrease in the first nine months of fiscal year 2000
resulted from a reduced new product development effort with only one product
currently under development. This product is scheduled for completion during the
fourth quarter of FY 2000. Investment in capitalized software development will
continue to decline as this product is completed and released to customers.
<PAGE>
As of September 30, 2000, Exigent had cumulatively borrowed $980,834 under a
line of credit to fund its operations. The Company reduced long-term and
subordinated debt by $1,374,418 during the nine months ended September 30, 2000
to $695,423. 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,
2000. Additional funds will, however, be required to finance ESG and EDT&WN
growth as well as future strategic initiatives. The Company is currently in
discussions with several institutions to finance the Company's strategic plan,
any associated acquisitions as well as other strategic alternatives. There can
be no assurance that definitive arrangements relating to these alternatives will
be entered into on acceptable terms. Should such arrangements not be acceptable,
the Company will be required to prioritize its future strategic initiatives
accordingly.
Results of Operations for the nine months ended September 30, 2000 and 1999.
Revenues for the nine months ended September 30, 2000 were $28,008,293, compared
with $27,411,683 for the nine months ended September 30, 1999, an increase of
2.2%. Government revenues have increased 1.6% for the nine months ended
September 30, 2000 while commercial revenues have increased 5.7% when compared
to the nine months ended September 30, 1999, respectively. The breakdown between
government and commercial revenues for each of the nine-month periods is as
follows:
September 30, 2000 September 30, 1999
------------------------------ ----------------------------
Government $ 24,074,132 86% $ 23,689,661 86%
Commercial 3,934,161 14% 3,722,022 14%
---------------- -------- ---------------- ----------
$ 28,008,293 100% $ 27,411,683 100%
================ ======== ================ ==========
The future revenue mix is expected to shift to a higher percentage of commercial
sales with the deployment of our new digital wireless product, Domain Manager
Tool Kit ("DMTK"), as well as an increase in our commercial information
technology business.
Cost of sales as a percentage of revenue was 77% for the nine months ended
September 30, 2000, which was a increase from a percentage of 74% for the nine
months ended September 30, 1999. The change was due to the increase in services
revenue as a percentage of total revenue, which are generally at a lower margin,
in addition to a one-time sale of commercial services made at cost. General and
administrative ("G&A") expenses for the nine months ended September 30, 2000
were $8,051,844, 21% or $1,422,832 greater than expenses of $6,629,012 for the
nine months ended 1999. This increase was primarily the result of the
acquisition of GEC and its associated expenses equaling approximately
$1,450,000. In addition, the restructuring announced in March 2000 resulted in
one-time restructuring charges of $422,803.
<PAGE>
The Company posted a net loss of $1,056,529 (3.8% of revenue) for the nine
months ended September 30, 2000 as compared to income of $349,808 (1.3% of
revenue) for the nine months ended September 30, 1999. This loss was anticipated
as a result of the aforementioned restructuring charges as well as the continued
delay in the commercial satellite business due to capital market funding issues
. The current year loss before the expenses incurred for the restructuring was
$707,659, net of tax, of which the amortization of intangible assets contributed
$863,137, net of tax. Before the restructuring charge and amortization expense,
on a cash basis, the Company posted earnings of $155,478 or $0.03 per diluted
share for the nine months ended September 30, 2000.
Results of Operations for the three months ended September 30, 2000 and 1999.
Revenues for the three months ended September 30, 2000 were $8,704,022, compared
with $9,121,720 for the three months ended September 30, 1999, a decrease of
4.6%. Government revenues for the three months ended September 30, 2000
decreased 10.8%, while commercial revenues increased 53.9% when compared to the
three months ended September 30, 1999, respectively. The breakdown between
government and commercial revenues for each of the three-month periods is as
follows:
September 30, 2000 September 30, 1999
------------------------------ ----------------------------
Government $ 7,348,887 84% $ 8,241,450 90%
Commercial 1,355,135 16% 880,271 10%
------------------ -------- ----------------- -------
$ 8,704,022 100% $ 9,121,721 100%
================== ======== ================= =======
Cost of sales as a percentage of revenue was 78% for the three months ended
September 30, 2000, which increased from a percentage of 73% for the three
months ended September 30, 1999. This increase in the cost of sales as a
percentage of revenue can be attributed to the decrease in product revenue and
increase in services revenue. The gross margin in the services business is
historically lower than the product revenue. The gross margin is expected to
increase as the commercial services business as well as the product business
increases as a percentage of total revenue. G&A expenses for the three months
ended September 30, 2000 were $2,175,931, 3% or $66,911 less than expenses of
$2,242,842 for the three months ended 1999. This decrease reflects the actions
taken by the Company to reduce costs in March 2000 through its restructuring,
offset by the addition of GEC and its associated expenses.
The Company posted a net loss of $233,232 (2.7% of revenue) for the three months
ended September 30, 2000 as compared to income of $149,851 (1.6% of revenue) for
the three months ended September 30, 1999. The current quarter's loss was the
result of a delay in the completion and delivery of the DMTK product. Delivery
of DMTK is expected in the next quarter. The cash earnings for the three months
ended September 30, 2000 were $149,890 or $0.02 per diluted share.
OUTLOOK
G&A expenses are expected to remain at or close to the level experienced in the
past two quarters, net of R&D expenses, as the effects of the recent
restructuring are reflected. The current staffing, in addition to the
mutiplexing required of such staffing level is not adequate to keep up with the
positive growth anticipated in the next twelve to eighteen months. With the
increased emphasis on the deployment of new products, customer focus and sales
and business development, the Company is trying to address several rapidly
growing markets. However, the Company is having a problem retaining the staff
due to very high compensation being offered by other contractors. We are able to
hire in the open market but the competitive nature, particularly in the
Information Technology and Enterprise Engineering areas of our business is
hurting our revenue growth and associated earnings due to a higher than normal
turnover. Management is attempting to correct this situation while trying to
remain competitive in the pursuit of new business.
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Management believes that the benefit package offered by Exigent remains very
competitive and should help to retain the majority of the existing employees and
attract new employees. Company management also believes that while it is
important to maintain the benefits at a competitive level, to do so and hold
costs stable in the face of the increasing cost of health care will be an
ongoing management challenge.
The Company's current business plan is to seek opportunities for growth and
diversification of its product and service offerings through internal growth and
acquisitions as well as to pursue other strategic alternatives. There can be no
assurance that definitive arrangements relating to these alternatives will be
entered into on acceptable terms. Should such arrangements not be acceptable,
the Company will prioritize its opportunities in order to implement the business
plan representing the best interests of its shareholders.
FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES
This Quarterly Report on Form 10-Q includes and incorporates forward-looking
statements that are subject to a number of risks and uncertainties. All
statements, other than statements of historical facts included or incorporated
in this report, regarding our strategy, future operations, financial position,
estimated revenues, projected costs, prospects, plans and objectives of
management are forward-looking statements. Our forward-looking statements relate
to matters regarding our management, technology, governmental factors, economic
conditions, retention of employees, integration of acquisitions, and our
competition. When used herein, the words "will", "believe", "anticipate",
"intend", "estimate", "expect", "project" and similar expressions are intended
to identify forward-looking statements, although not all forward-looking
statements contain these identifying words. We cannot guarantee future results,
levels of activity, performance or achievements and investors should not place
undue reliance on our forward-looking statements. Our forward-looking statements
do not reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or strategic investments. Actual results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including the risks described in "Risk Factors" and
elsewhere. We do not assume any obligation to update any of the forward-looking
statements we make.
<PAGE>
RISK FACTORS
The following is a summary of certain factors that could cause future results to
differ materially from those expressed in these forward looking statements:
o A significant portion of our revenue is derived from contracts or
subcontracts funded by the U.S. government;
o Our contracts that are funded by the U.S. government are subject to
termination without cause by the government;
o Our contracts and subcontracts that are funded by the U.S. government are
subject to a competitive bidding process;
o Our contracts that are funded by the U.S. government are subject to the
Congressional budget and funding process;
o The estimated backlog under our government contracts is not necessarily
indicative of future revenues;
o Intense competition in the satellite ground system industry could harm our
financial performance;
o Our major products may not be accepted by the market;
o Hiring and retaining qualified technical personnel is difficult and getting
more expensive each month;
o We depend upon attracting and retaining a highly skilled professional
staff;
o We may not be able to adjust our fixed operating costs if our revenues
decline;
o Our success is dependent on the continued growth of the space industry; and
o Our operating results may suffer as a result of our dependence on a limited
number of client projects.
Please refer to the Company's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1999 that was filed with the Securities and Exchange
Commission for a more detailed discussion of these and other factors that could
impact future results.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
1. Exigent Warrants previously traded on the Chicago Stock Exchange as
XNTWS and on the NASDAQ SmallCap as XGNTW expired on January 30, 2000.
2. Stockholders who intend to submit proposals at the 2001 Annual Meeting
of Stockholders must notify the Company's Corporate Secretary of this
intention no later than December 31, 2000. Such proposals must
otherwise be in compliance with the Company's Certificate of
Incorporation, Bylaws and applicable laws, rules and regulations for
consideration at the 2001 Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Exhibit
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27 Financial Data Schedule
(b) The Company's Current Reports on Form 8-K:
A current report on Form 8-K was filed with the Securities and Exchange
Commission (the "Commission") on November 9, 2000 announcing the
engagement of CIBC World Markets to explore strategic alternatives on
behalf of the Company.
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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.
November 9, 2000 By: /s/ B. R. Smedley
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Date B.R. "Bernie" Smedley, Chief Executive Officer
November 9, 2000 By: /s/ Sally Ball
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Date Sally Ball, Chief Financial Officer
