10-Q 1 g69262e10-q.txt EXIGENT INTERNATIONAL 3/31/01 1 ================================================================================ 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: MARCH 31, 2001 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: 001-13519 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 March 31, 2001 was 6,044,401. ================================================================================ 2 EXIGENT INTERNATIONAL, INC. QUARTER ENDED MARCH 31, 2001 INDEX

2 3 PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS EXIGENT INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS ASSETS

See accompanying notes. 3 4 EXIGENT INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY

See accompanying notes. 4 5 EXIGENT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes. 5 6 EXIGENT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes. 6 7 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, 2001 and 2000 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, 2000. The results of operations for the three months ended March 31, 2001 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, has a $5,000,000 line of credit available from a bank as of March 31, 2001 and December 31, 2000. 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, 2001 and December 31, 2000, the outstanding draws against the line were $0 and $0, respectively. All accounts receivable, equipment, furniture and fixtures of ESTI are pledged as collateral on the line of credit. In addition, Exigent had a $1,000,000 line of credit available from a bank as of March 31, 2001 and December 31, 2000. The line bears interest on the unpaid balance inthe same manner as the line mentioned above. As of March 31, 2001 and December 31, 2000 there were no draws on the second line of credit. The investment in short term securities is pledged as collateral against the line of credit. NOTE 3 - EARNINGS PER SHARE The following tables set forth the computation of basic and diluted earnings (loss) per share for the three months ended March 31, 2001 and 2000:

7 8 In computing diluted earnings (loss) per share for the three months ended March 31, 2001 and 2000, 5,269 and 781,055, respectively of common share equivalents were excluded from the computation because their effects would have been antidilutive. NOTE 4 - STOCKHOLDERS' EQUITY The consolidated changes in stockholders' equity for the three months ended March 31, 2001 are as follows:

NOTE 5 - STOCK OPTIONS Stock option activity, during the three months ended March 31, 2001, is as follows:

At March 31, 2001, the range of exercise prices and weighted average remaining contractual life of outstanding options was $1.25 to $4.38 and 3.36 years to 9.55 years, respectively, with the weighted averages at $3.05 and 6.94 years. NOTE 6 - SUBSEQUENT EVENT On April 2, 2001, the Company entered into an Agreement and Plan of Merger with Harris Corporation, a Delaware corporation ("Harris") and Manatee Merger Corp., a Delaware corporation and a wholly owned subsidiary of Harris ("Manatee") (the "Merger Agreement"). Pursuant to the Merger Agreement, Manatee commenced, on April 17, 2001, an offer to purchase all outstanding shares of the Company's common stock, par value $0.01 per share (including the associated Series B 8 9 Junior Preferred Participating Stock Purchase Rights (the "Shares")). The offer is to purchase each Share at a price of $3.55 per Share, net to the seller, in cash (less any required withholding taxes), without interest thereon upon the terms and subject to the conditions set forth in the Offer to Purchase, dated April 17, 2001 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). The Merger Agreement provides that, among other things, as soon as practicable following consummation of the Offer and satisfaction of the other conditions set forth in the Merger Agreement and the relevant provisions of the Delaware General Corporation Law, Manatee shall be merged with and into the Company (the "Merger") with the Company (whose name will be changed to Harris-Exigent, Inc.) continuing as the surviving corporation. In the Merger, each outstanding Share (other than those Shares held by the Company or Harris or any of their respective subsidiaries and by stockholders who perfect and do not withdraw or otherwise lose their appraisal rights under Delaware law) will be converted into the right to receive the merger consideration, which will be $3.55 per Share, net to the seller in cash, without interest (less any required withholding taxes), or any other higher price paid in the Offer. 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, 2001 as compared with the fiscal year ended December 31, 2000, and (ii) the consolidated results of operations for the three months ended March 31, 2001 and 2000, of Exigent International, Inc. ("the Company") and its subsidiaries: Exigent Software Technology, Inc. ("ESTI"), Exigent Digital Telecom and Wireless Networks ("EDTWN") 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, 2000. GENERAL. Exigent is a high-technology company with three core business areas: command and control; information technology; and digital wireless communications. In each of these business areas, the Company provides software products and services. The Company, through ESTI, 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 the Global Positioning Satellite ("GPS") System, as well as numerous proprietary projects. 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, 2001 for commercial and government contracts was $30,511,606, of which $22,177,082 was unfunded. The Company's information technology ("IT") business unit, ESG, has been organized expressly for exploitation of the IT market in both the commercial and the government markets. The commercial business, as well as IT development work currently being performed at the Naval Research Laboratory ("NRL") are included in the ESG business area. The Company's wireless business EDTWN is addressing the evolving telecom and software-defined radio market. 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 addition, the EDTWN business unit is pursuing other opportunities in digital wireless technologies for this rapidly expanding market. 9 10 AGREEMENT AND PLAN OF MERGER See "Note 6. Subsequent Event" for a description of the Company's pending transaction with Harris and Manatee. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000. Sales for the three months ended March 31, 2001 were $8,750,060, compared with $10,309,995 for the three months ended March 31, 2000, a decrease of 15.1%, with the mix of government and commercial sales having remained relatively the same. The decrease in the revenue from Government customers is due largely to the loss of funding on the work associated with the Interim Control Module ("ICM") for NASA which had previously been directed through the Naval Research Laboratory ("NRL"). The decrease associated with the commercial revenue was related to revenue from the advanced engineering work performed on Teledesic which was booked during the same period in FY 2000. The breakdown between government and commercial sales for each of the three-month periods is as follows:

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 an expected increase in the commercial information technology business. Cost of sales as a percentage of revenue for the three months ended March 31, 2001, at 73%, was consistent with the percentage for the three months ended March 31, 2000, at 73%. General and administrative ("G&A") expenses for the three months ended March 31, 2001 were $2,822,138, 16% or $545,276 less than expenses of $3,367,414 for the three months ended 2000. This decrease was primarily the result of the one-time, nonrecurring termination charges of $422,803 which were incurred during the three months ended March 31, 2000. The Company posted a net loss of $516,377 (5.9% of revenue) for the three months ended March 31, 2001 as compared to a net loss of $409,313 (4.0% of revenue) for the three months ended March 31, 2000. This loss in the three months ended March 31, 2001 does not consider any potential tax benefit from the loss. LIQUIDITY. As of March 31, 2001, Exigent's ratio of current assets to current liabilities decreased to 1.9 from 2.0 at December 31, 2000. This decrease was due largely to an decrease in cash and an increase in accrued payroll reflecting two weeks of payroll at March 31, 2001 versus one week at December 31, 2000. The sources and uses of cash are explained in detail below. Exigent's cash portfolio (cash and cash equivalents) decreased $316,630 during the three months ended March 31, 2001. The decrease was due to cash used by financing activities of $60,164, cash used in investing activities of $56,501 and cash used in operating activities of $199,965. The decrease in cash from financing activities from December 31, 2000 to March 31, 2001 was primarily the result of payment on long-term debt of $72,558. By comparison, Exigent's cash portfolio increased $491,853 for the three months ended March 31, 2000. That increase was due to cash used by operating activities of $1,022,610, cash used in investing activities of $569,551 and cash provided by financing activities of $2,084,014. In the three months ended March 31, 2001, Exigent acquired $51,014 of capital assets compared to $22,831 in the three months ended March 31, 2000. Capital needs are expected to continue, with a budget planned for FY 2001 of $250,000, as Exigent intends to remain current with computing technologies. 10 11 During the last three fiscal years, the Company made substantial investments in the development of software products. The investments in these products was completed in the fourth quarter of fiscal year 2000. In the three months ended March 31, 2001 and 2000, Exigent spent $0 and $521,070, respectively, in capitalized software development costs primarily related to several products. Although the Company plans some enhancements to the products the investment in capitalized software is expected to remain very low. The Company reduced long-term and subordinated debt by $72,558 during the three months ended March 31, 2001 to $538,209. 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, 2001, however the Company is evaluating strategic alternatives for the future. In April, 2001 the Company entered into a definitive agreement with a company to sell all of the outstanding shares of Exigent. This process is being done through a tender offer and is expected to be completed within the next ninety days. Should the tender process not be successful the Company will proceed with the business plan previously developed which may include some Corporate restructuring and a prioritization of development projects. 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, issues regarding the pending acquisition of the Company by Harris, 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; 11 12 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; o Our operating results may suffer as a result of our dependence on a limited number of client projects; and o There can be no assurance that the tender / merger transaction with Harris Corporation will be consummated. Please refer to the Company's Annual Report on Form 10-K, for the fiscal year ended December 31, 2000 that was filed with the Securities and Exchange Commission for a more detailed discussion of these and other factors that could impact future results. 12 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK Not applicable. 13 14 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. The Warrants expired on January 30, 2000. 2. See "Note 6. Subsequent Event" for a description of the Company's pending transaction with Harris and Manatee. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits NUMBER EXHIBIT ------ ------- (b) The Company's Current Reports on Form 8-K: On April 10, 2001, the Company filed a Current Report on Form 8-K relating to the following matters: the Company entered into an Agreement and Plan of Merger with Harris Corporation and Manatee Merger Corp.; the Company's Board of Directors approved Amendment No. 2 to Rights Agreement between the Company and Registrar and Transfer Company, as successor rights agent, dated October 27, 1998, as amended; and Harris Corporation and Manatee Merger Corp. entered into a Voting and Tender Agreement with the Company's Chairman of the Board and Chief Executive Officer, Bernard R. Smedley. 14 15 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 15, 2001 By: /s/ B.R. SMEDLEY ------------ ---------------------------------------------- Date B.R. "Bernie" Smedley, Chief Executive Officer MAY 15, 2001 By: /s/ SALLY BALL ------------ ---------------------------------------------- Date Sally Ball, Chief Financial Officer 15

EXIGENT INTERNATIONAL INC 10-Q