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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: June 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 June 30, 2000 was 6,003,567.
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<PAGE>
EXIGENT INTERNATIONAL, INC.
QUARTER ENDED JUNE 30, 2000
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Financial Statements. Page
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations for the Six months Ended June 30, 2000 and 1999 5
Consolidated Statements of Operations for the Three months Ended June 30, 2000 and 1999 6
Consolidated Statements of Cash Flows for the Six months Ended June 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 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information. 16
Item 6. Exhibit 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>
June 30, 2000
(unaudited) December 31, 1999
---------------- -------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,396,458 $ 574,368
Accounts receivable, pledged 2,125,779 2,616,727
Costs and estimated earnings in excess of
billings on uncompleted contracts, pledged 5,835,676 4,790,742
Prepaid expenses 109,635 42,492
Income taxes receivable 1,429,186 803,188
Deferred income taxes 336,000 336,000
---------------- -------------------
TOTAL CURRENT ASSETS 11,232,734 9,163,517
---------------- -------------------
PROPERTY AND EQUIPMENT
Cost 6,298,755 6,240,397
Accumulated depreciation (4,953,758) (4,699,750)
---------------- -------------------
PROPERTY AND EQUIPMENT, NET 1,344,997 1,540,647
---------------- -------------------
OTHER ASSETS
Software development costs, net 4,327,680 4,275,113
Capitalized patent costs, net 98,917 85,116
Goodwill, net 2,704,644 2,848,220
Deposits and other assets 148,099 103,193
---------------- -------------------
TOTAL OTHER ASSETS 7,279,340 7,311,642
---------------- -------------------
TOTAL ASSETS $ 19,857,071 $ 18,015,806
================ ===================
</TABLE>
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
June 30, 2000
(unaudited) December 31, 1999
---------------- -------------------
CURRENT LIABILITIES
<S> <C> <C>
Line of credit $ 2,690,834 $ 2,386,734
Accounts payable 364,164 715,976
Accrued payroll and other expenses 2,611,149 2,187,690
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,236,713 891,557
Income taxes payable 84,637 17,827
Current portion, long-term debt 253,278 1,256,817
Current portion, subordinated debt 250,000 250,000
---------------- -------------------
TOTAL CURRENT LIABILITIES 7,490,775 7,706,601
---------------- -------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 144,371 268,897
Subordinated debt, less current portion 625,000 750,000
Deferred income taxes 505,000 505,000
---------------- -------------------
TOTAL LONG-TERM LIABILITIES 1,274,371 1,523,897
---------------- -------------------
TOTAL LIABILITIES 8,765,146 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
June 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, 6,003,567 and 4,845,149 issued and outstanding
at June 30, 2000 and December 31, 1999, respectively, 60,036 48,452
Paid in capital 5,765,312 2,646,445
Retained earnings 5,266,426 6,089,723
---------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 11,091,925 8,785,308
---------------- -------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 19,857,071 $ 18,015,806
================ ===================
</TABLE>
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the six months ended
June 30, 2000 June 30, 1999
(unaudited) (unaudited)
---------------- -------------------
<S> <C> <C>
REVENUES $ 19,304,270 $ 18,289,962
COST OF SALES 14,753,074 13,559,891
---------------- -------------------
GROSS PROFIT 4,551,196 4,730,071
GENERAL AND ADMINISTRATIVE EXPENSES 5,301,897 4,361,232
RESEARCH AND DEVELOPMENT COSTS 7,638 24,938
RESTRUCTURING COSTS 422,803 -
AMORTIZATION OF GOODWILL 143,575 -
---------------- -------------------
OPERATING INCOME (LOSS) (1,324,717) 343,901
---------------- -------------------
OTHER INCOME (EXPENSE)
Interest income 18,766 11,810
Interest expense (83,670) (25,072)
Gain (loss) on disposal of fixed assets - (2,805)
Other, net 39,954 5,427
---------------- -------------------
TOTAL OTHER INCOME (EXPENSE) (24,950) (10,640)
---------------- -------------------
INCOME (LOSS) BEFORE INCOME TAXES (1,349,667) 333,261
INCOME TAX EXPENSE (BENEFIT) (526,370) 133,304
---------------- -------------------
NET INCOME (LOSS) $ (823,297) $ 199,957
================ ===================
EARNINGS (LOSS) PER SHARE - BASIC $ (0.15) $ 0.05
================ ===================
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 5,650,764 4,269,453
================ ===================
EARNINGS (LOSS) PER SHARE - DILUTED $ (0.15) $ 0.04
================ ===================
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 5,650,764 5,536,436
================ ===================
</TABLE>
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the three months ended
June 30, 2000 June 30, 1999
(unaudited) (unaudited)
---------------- -------------------
<S> <C> <C>
REVENUE $ 8,994,275 $ 9,199,081
COST OF SALES 7,202,295 6,861,839
---------------- -------------------
GROSS PROFIT 1,791,980 2,337,242
GENERAL AND ADMINISTRATIVE EXPENSES 2,429,073 2,228,732
RESEARCH AND DEVELOPMENT COSTS 295 16,057
AMORTIZATION OF GOODWILL 71,788 -
---------------- -------------------
OPERATING INCOME (709,176) 92,453
---------------- -------------------
OTHER INCOME (EXPENSE)
Interest income 17,079 519
Interest expense (25,232) (17,590)
Loss (gain) on disposal of fixed assets - (2,805)
Other, net 38,666 3,966
---------------- -------------------
TOTAL OTHER INCOME (EXPENSE) 30,513 (15,910)
---------------- -------------------
INCOME BEFORE INCOME TAXES (678,663) 76,543
INCOME TAX EXPENSE (264,679) 30,617
---------------- -------------------
NET INCOME (LOSS) $ (413,984) $ 45,926
================ ===================
EARNINGS PER SHARE - BASIC $ (0.07) $ 0.01
================ ===================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 5,953,694 4,352,104
================ ===================
EARNINGS PER SHARE - DILUTED $ (0.07) $ 0.01
================ ===================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 5,953,694 5,629,783
================ ===================
</TABLE>
See accompanying notes.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the six months ended
June 30, 2000 June 30, 1999
(unaudited) (unaudited)
---------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (823,297) $ 199,957
---------------- -------------------
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 1,190,033 1,428,553
Accretion of unearned stock compensation 8,350 8,350
Loss on disposal of fixed assets - 2,805
Changes in operating assets and liabilities:
Accounts receivable 490,948 (1,264,158)
Costs and estimated earnings in excess of
billings on uncompleted contracts (1,044,934) 203,414
Prepaid expenses (67,142) (31,557)
Income taxes receivable (625,999) -
Deposits (44,906) 3,688
Accounts payable (351,811) (72,244)
Accrued expenses 423,459 304,222
Billings in excess of costs and estimated earnings
on uncompleted contracts 345,156 361,717
Income taxes payable 66,810 126,419
Other liabilities - (44)
---------------- -------------------
Total adjustments 389,964 1,071,165
---------------- -------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (433,333) 1,271,122
---------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of capital assets (58,358) (84,978)
Cash paid for capitalized software development (845,017) (1,300,091)
Cash paid for capitalized patent costs (13,801) -
---------------- -------------------
NET CASH USED BY INVESTING ACTIVITIES (917,176) (1,385,069)
---------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 304,100 400,000
Principal payments on long-term debt (1,253,065) (114,812)
Proceeds from exercise of stock options and warrants 3,121,564 257,586
---------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,172,599 542,774
---------------- -------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 822,090 428,827
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 574,368 429,970
---------------- -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,396,458 $ 858,797
================ ===================
</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 June 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 six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the entire fiscal year.
NOTE 2 - LINE OF CREDIT
Software Technology, Inc. ("STI"), Exigent's primary subsidiary, had a
$5,000,000 line of credit available from a bank as of June 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
June 30, 2000 and December 31, 1999, the outstanding draws against the line were
$2,690,834 and $2,386,734, respectively. The interest rate at June 30, 2000 and
December 31, 1999 was 9.15% and 8.29%, 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
three-month period ended June 30, 2000 was 9.00%.
NOTE 3 - EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings
(loss) per share for the six months ended June 30, 2000 and 1999:
For the six months ended
June 30, 2000 June 30, 1999
---------------- ---------------
Numerator:
Net income (loss) (numerator for basic
and diluted earnings per share) $ (823,297) $ 199,957
================ ===============
Denominator:
Denominator for basic earnings per share-
weighted average common shares 5,650,764 4,269,453
Effect of dilutive securities:
Convertible preferred stock - 526,439
Stock options and warrants - 740,544
---------------- ---------------
Denominator for diluted earnings per share-
adjusted weighted average shares 5,650,764 5,536,436
---------------- ---------------
Basic earnings (loss) per share $ (0.15) $ 0.05
================ ===============
Diluted earnings (loss) per share $ (0.15) $ 0.04
================ ===============
<PAGE>
In computing diluted earnings (loss) per share for the six months ended June 30,
2000, 266,756 of common share equivalents were excluded from the computation
because their effects would have been anti-dilutive.
The following tables set forth the computation of basic and diluted earnings
(loss) per share for the three months ended June 30, 2000 and 1999:
For the three months ended
June 30, 2000 June 30, 1999
----------------- ----------------
Numerator:
Net income (loss) (numerator for basic
and diluted earnings per share) $ (413,984) $ 45,926
================= ================
Denominator:
Denominator for basic earnings per share-
weighted average common shares 5,953,694 4,352,104
Effect of dilutive securities:
Convertible preferred stock - 463,856
Stock options and warrants - 813,823
----------------- ----------------
Denominator for diluted earnings per share-
adjusted weighted average shares 5,953,694 5,629,783
----------------- ----------------
Basic earnings (loss) per share $ (0.07) $ 0.01
================= ================
Diluted earnings (loss) per share $ (0.07) $ 0.01
================= ================
In computing diluted earnings (loss) per share for the three months ended June
30, 2000, 23,346 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 six months ended June
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> <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 380,083 3,801 - - 943,885 - 947,686
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 - - - - - (823,297) (823,297)
---------------------------------------------------------------------------
BALANCE JUNE 30, 2000 6,003,567 60,036 15,132 $ 151 $5,765,312 $5,266,426 $11,091,925
===========================================================================
</TABLE>
<PAGE>
NOTE 5 - STOCK OPTIONS
Stock option activity, during the six months ended June 30, 2000, is as follows:
Weighted Average
Options Exercise Price
------------------------------------
Outstanding - as of December 31, 1999 2,408,272 $ 3.34
Granted 40,000 2.96
Exercised 363,151 2.49
Forfeited 483,906 3.07
----------------
Outstanding - end of period 1,601,215 $ 3.60
====================================
Exercisable at end of period 1,093,114
Weighted-average fair value of
options granted during the
period $ 2.96
At June 30, 2000, the range of exercise prices and remaining contractual life of
outstanding options was $2.63 to $4.38 and 0.6 years to 9.98 years,
respectively, with the weighted average at $3.56 and 5.33 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 June 30, 2000
includes the operations of GEC, while the statement of operations for the period
ended June 30, 1999 does not. The following chart represents the unaudited pro
forma results of operations for the six months ended June 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 $ 21,276,419
Net income 365,475
EPS (diluted) $ 0.07
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 June 30, 2000 as compared with the fiscal year ended
December 31, 1999, and (ii) the consolidated results of operations for the three
months ended June 30, 2000 and 1999, of Exigent International, Inc. ("the
Company") and its subsidiaries: Software Technology, Inc. ("STI"), 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 STI,
has designed and deployed satellite command and control and telecommunications
systems for more than twenty years. We have 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 our
experience in building such systems. Our engineers also provide system
integration support for customers throughout the United States. Our 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. The newest version, OS/COMET 4.0, was
delivered to its first customer during the first quarter of FY 2000. 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.
STI's government services business continues at a pace with orders coming in
from both existing and new customers. The backlog as of June 30, 2000 for
commercial and government contracts was $36,692,508, of which $30,633,213 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.
The newest business area is Exigent's EDT&WN business. As a result of our
software-defined radio ("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, we 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 other opportunities in digital wireless technologies for this rapidly
expanding market. EDT&WN will address distribution of "shrink-wrapped"
middleware software, including ActiveM and certain other products as well as all
FotoTag opportunities.
Liquidity. As of June 30, 2000, Exigent's ratio of current assets to current
liabilities increased to 1.5 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 due to the capital received through the exercise of stock options
and warrants. The sources and uses of cash are explained in detail below.
Exigent's cash portfolio (cash and cash equivalents) increased $822,090 during
the six months ended June 30, 2000. The increase was due to cash provided by
financing activities of $2,172,599, cash used in investing activities of
$917,176 and cash used in operating activities of $433,333. The increase in cash
<PAGE>
from financing activities for the six-month period ended June 30, 2000 was
primarily the result of proceeds from the exercise of stock options and warrants
of $3,121,564. By comparison, Exigent's cash portfolio increased $428,827 for
the six months ended June 30, 1999. This increase was due to cash provided by
operating activities of $1,271,122, cash used in investing activities of
$1,385,069 and cash provided by financing activities of $542,774.
In the six months ended June 30, 2000, Exigent acquired $58,358 of capital
assets compared to $84,978 in the six months ended June 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 three fiscal years, the Company has made substantial investments
in the development of software products. The investments made for the six months
ended June 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 six months ended June 30, 2000 and 1999, Exigent spent $845,017 and
$1,300,091, respectively, in capitalized software development costs primarily
related to several products. The decrease in the first six months of fiscal year
2000 resulted from a reduced effort with only one product still under
development. This product is scheduled for completion during the third quarter
of FY 2000. Investment in capitalized software development will continue to
decline as this product is completed and released to customers.
As of June 30, 2000, Exigent had cumulatively borrowed $2,690,834 under a line
of credit to fund its operations. The Company reduced long-term and subordinated
debt by $1,253,065 during the six months ended June 30, 2000 to $769,371.
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 may, however, be required to finance future acquisitions. The
Company is currently in discussions with several institutions to finance the
Company's strategic plan and the associated acquisitions. 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 be required to prioritize its future acquisitions accordingly.
Results of Operations for the six months ended June 30, 2000 and 1999. Revenues
for the six months ended June 30, 2000 were $19,304,270, compared with
$18,289,962 for the six months ended June 30, 1999, an increase of 5.5%.
Government revenues as compared to commercial have increased 3% for the six
months ended June 30, 2000 while commercial revenues have decreased 3% when
compared to the six months ended June 30, 1999. The breakdown between government
and commercial revenues for each of the six-month periods is as follows:
June 30, 2000 June 30, 1999
----------------------------- --------------------------------
Government $ 16,725,245 87% $ 15,448,211 84%
Commercial 2,579,025 13% 2,841,751 16%
-------------- ------ ---------------- -----
$ 19,304,270 100% $ 18,289,962 100%
=============== ====== ================ =====
The future revenue mix is expected to consist of a higher percentage of
commercial sales with the deployment of our new digital wireless product, Domain
Manager Tool Kit ("DMTK"), as well as the increase in the commercial information
technology business.
Cost of sales as a percentage of revenue was 76% for the six months ended June
30, 2000, which was a slight increase from a percentage of 74% for the six
months ended June 30, 1999. The change was due to the increase in government
services revenue as a percent of total revenue in addition to a one-time sale of
commercial services made at cost. Government services revenue generally has a
lower gross margin than does commercial services revenue. General and
administrative ("G&A") expenses for the six months ended June 30, 2000 were
$5,301,897, 22% or $940,665 greater than expenses of $4,361,232 for the six
months ended 1999. This increase was primarily the result of the acquisition of
GEC and its associated expenses equaling approximately $800,000, as well as
establishing the STI President's office and the hiring of salespeople. In
addition, the restructuring announced in March 2000 resulted in one-time
termination charges of $422,803.
<PAGE>
The Company posted a net loss of $823,297 (4.3% of revenue) for the six months
ended June 30, 2000 as compared to income of $199,957 (1.1% of revenue) for the
six months ended June 30, 1999. This loss was anticipated as a result of the
continued delay in the commercial satellite business due to the capital market
funding issues and the aforementioned restructuring charges. The current period
loss before the expenses incurred for the restructuring was $565,390, net of tax
of which the amortization of intangible assets contributed $570,976, net of tax.
Before the restructuring charge and amortization expense, on a cash basis, the
Company was at a breakeven position for the six months ended June 30, 2000.
Results of Operations for the three months ended June 30, 2000 and 1999.
Revenues for the three months ended June 30, 2000 were $8,994,275, compared with
$9,199,081 for the three months ended June 30, 1999, a slight decrease of 2.2%.
Government revenues as compared to commercial for the three months ended June
30, 2000 have increased 3%, while commercial revenues have decreased 3% when
compared the three months ended June 30, 1999. The breakdown between government
and commercial revenues for each of the three-month periods is as follows:
June 30, 2000 June 30, 1999
----------------------------- --------------------------------
Government $ 8,032,453 89% $ 7,883,767 86%
Commercial 961,822 11% 1,315,314 14%
-------------- ------ ---------------- -----
$ 8,994,275 100% $ 9,199,081 100%
=============== ====== ================ =====
Cost of sales as a percentage of revenue was 80% for the three months ended June
30, 2000, which increased significantly from a percentage of 74% for the three
months ended June 30, 1999. This increase was due primarily to an increase in
the cost of health care expenses during this quarter as the Company was
transferring to a new policy. This increase is not expected to continue in the
upcoming quarters. The shift in our customer mix to a larger percentage of
revenue derived from government customers also contributed to the increase in
cost of goods sold as a percent of revenue. G&A expenses for the three months
ended June 30, 2000 were $2,429,073, 9% or $200,341 greater than expenses of
$2,228,732 for the three months ended 1999. This increase was primarily the
result of the acquisition of GEC and its associated expenses equaling
approximately $390,000, offset by a decrease in the Corporate expenses of
approximately $520,000 and an increase in sales and business development as well
as recruiting expenses and the establishment of the STI President's office of
approximately $300,000.
The Company posted a net loss of $413,984 (4.6% of revenue) for the three months
ended June 30, 2000 as compared to income of $45,926 (0.5% of revenue) for the
three months ended June 30, 1999. The current quarter's loss was the result of
the continued delay in the commercial satellite business and the slow start for
fiscal year 2000 in the commercial IT business.
OUTLOOK
G&A expenses are expected to remain at the level experienced in the second
quarter as the effects of the recent restructuring are reflected. The current
staffing, in addition to the mutiplexing required of such staff, positions the
Company for 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 positioned to address
three of the markets fastest growing sectors.
Management believes that the benefit package offered by Exigent remains very
competitive and should help to retain 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.
<PAGE>
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 additional capital through private or public debt and/or
equity financing(s). There can be no assurances that financing will be
attainable at a competitive rate or at all. Should the financing be
unattainable, 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.
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
expensive;
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.
<PAGE>
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 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on June 23, 2000. The
following matters were approved by the vote specified below:
<TABLE>
Proposal 1 - Election of Directors For Withhold
---------------------------------- --- --------
<S> <C> <C>
Gordon J. Comerford 4,096,143 1,478,226
Joseph S. Kraemer 4,098,821 1,475,548
Stephen S. Wolff 4,096,821 1,477,548
</TABLE>
<TABLE>
Proposal 2 For Against Abstain
---------- --- ------- -------
<S> <C> <C> <C>
Ratification of the selection of the firm 5,241,414 281,260 51,695
of Ernst & Young LLP as independent
Auditors for the fiscal year ending
December 31, 2000
</TABLE>
The text of the items referred to under this Item 4 is set forth in the Proxy
Statement dated May 8, 2000 previously filed with the Securities and Exchange
Commission and incorporated herein by reference.
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
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
------ -------
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 March 31, 2000 announcing a
restructuring plan.
A current report on Form 8-K was filed with the Commission on July 17,
2000 announcing that Glenn Dennis was named President of Exigent
Solutions Group, Inc.
<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.
August 2, 2000 By: /s/ B. R. Smedley
-------------- ------------------------------------------------
Date B.R. "Bernie" Smedley, Chief Executive Officer
August 2, 2000 By: /s/ Sally Ball
-------------- ------------------------------------------------
Date Sally Ball, Principal Accounting Officer
