June 7, 1999
RECOMMENDATION: BUY

Exigent International, Inc. (NASDAQ: XGNT)

Specialized Software Technology Company Trading At Significant Discount
to Peer Group; Comments on Recent Industry Developments;
Reiterating BUY Recommendation

Exchange Symbol.......................XGNT (NASDAQ)
Price of Common Stock (06/04/99)..............$4.38
30-Day Average Trading Volume................15,000
Shares Outstanding......................4.2 million
52-Week High/Low........................$7.00/$2.45

Address.............................1225 Evans Road
................................Melbourne, FL 32904 
Telephone............................(407) 952-7550
Chairman, President & CEO........Bernard R. Smedley
Senior VP, Finance & CFO.....Jeffery B. Weinress

Exigent International, Inc. ("XGNT") is a holding company focused on the development of innovative software products, specializing in satellite command and control systems. XGNT’s flagship OS/COMETÔ family of software products now commands and controls the two largest satellite constellations in the world: the IRIDIUM constellation of 66 Low Earth Orbit (LEO) satellites (plus 6 on-orbit spares), and the NAVSTAR Global Positioning System (GPS) constellation of 24 satellites, a US Air Force project. The commercial satellite industry is forecasted to grow from an estimated $45 billion in 1998 to approximately $100 billion in five years (governmental business adds to these levels), and industry sources anticipate in excess of 500 satellite missions pending through the year 2003. While satellite command and control systems represent only a small fraction of the total market (approximately $400 million in 1998), growth in the market for commercial-off-the-shelf (COTS) systems in which XGNT specializes should exceed overall market growth rates. XGNT has three operating subsidiaries: Software Technology, Inc. (STI), the main operating business, FotoTag, Inc. and Middleware Solutions, Inc. (two subsidiaries applying core STI technologies to the public transportation and Internet industries).

XGNT is well positioned to grow revenues and earnings from its current levels. XGNT’s expertise in large satellite constellation programs (IRIDIUM and NAVSTAR GPS) positions it well in upcoming constellation projects such as Teledesic, SkyBridge, Orbcomm, Globalstar and Ellipso. In fact, as a result of XGNT’s performance on the IRIDIUM program, XGNT was selected by Motorola as the preferred supplier of command and control software for Celestri (now part of the Teledesic program). XGNT has recently launched new products, the OS/ICC (Open System/Integrated Control Center) and Calypso product line, which will allow XGNT to compete more effectively in bidding situations where integrated hardware and software solutions, and low-end single-node solutions, are necessary. Despite recent setbacks to the Teledesic project, we believe XGNT is trading at a significant discount to its peer group, are initiating coverage with a BUY rating, and recommend purchase by investors tolerant of the risks associated with small-cap equity investments.

I. Large, Growing Market — Strong Governmental and Commercial Customer Base

• Commercial satellite business is expected to grow in excess of 15% annually over the next five years;
• Government business is expected to remain steady; the US Naval Research Laboratories (NRL) recently awarded XGNT a $60 million, 5-year contract; other US government agency business remains strong.
• XGNT has a long list of established customers including: Motorola, Boeing, Computer Sciences Corp., Lockheed Martin Mission Systems, GTE Perot Systems, the US Air Force, the US Navy, the Naval Research Lab and NASA.

II. Strong, Diversified Product Portfolio — Reducing Satellite Operator Manpower Costs

• XGNT’s suite of satellite ground control products, including OS/COMET, OS/COMET Solo, OS/ICC, Pluto and the Calypso and Calypso Pro product lines, InterPlay, a Message-Oriented Middleware solutions, and FotoTag, a Passenger-Baggage Reconciliation system, will enable XGNT to broaden its target markets;

III. XGNT is Trading at a Significant Discount to its Peer Group

• XGNT trades at a significant discount to the only "pure-play" comparable company, Integral Systems (NASDAQ: ISYS), and to general industry (software/computer integrated systems) comparables;
• XGNT, just recently moved up to the NASDAQ SmallCap Market, is under-followed, and relatively unknown to the institutional investor community; XGNT trades at less than 50% of expected 1999 revenues, and less than 10 times expected 1999 net income — significantly below comparable companies.
• We are initiating coverage on XGNT with a BUY recommendation, and have a 6-to-12-month price target range of $10 to $12 per share.

Exigent International, Inc. ("XGNT") is a holding company formed on March 25, 1996 in order to acquire and hold all of the issued and outstanding stock of XGNT’s predecessor company, Software Technology, Inc. (STI). STI, now XGNT’s primary subsidiary, was founded in 1978 to provide technical consulting to the Naval Research Laboratory (NRL). On January 30, 1997, XGNT completed its exchange of all of STI’s outstanding stock for common and Class A preferred stock in XGNT. XGNT has been traded on the NASDAQ SmallCap Market since March 1,1999.

Since its formation in 1978, STI has focused on the provision of satellite command and control and telecommunications services, custom and commercial off-the-shelf (COTS) software, systems engineering and software engineering services. XGNT develops systems for mission tasking systems, operational simulators, launch support systems, ground station support and data analysis and MIS centers. The Company also develops space-based flight systems and simulators. XGNT’s flagship OS/COMETÔ family of software products commands and controls the two largest satellite constellations in the world: the IRIDIUM constellation of 66 Low Earth Orbit (LEO) satellites (plus 6 on-orbit spares), and the NAVSTAR Global Positioning System (GPS) constellation of 24 satellites, a US Air Force project. IRIDIUM is a global wireless communications consortium led by Motorola that uses the 66 satellites to offer local calling and paging anywhere in the world. XGNT’s performance on the IRIDIUM project led Motorola to select XGNT as the preferred supplier of command and control software for the Celestri and future communications systems including Teledesic (a constellation of 288 satellites that will provide an "Internet in the Sky"). GPS is a US Air Force constellation providing all-weather positioning, navigation, data and nuclear detonation data worldwide to military and civilian aircraft, spacecraft, and land and marine applications.

XGNT has turned its relationship with a single government customer (the NRL) into a base of multiple government customers that is both long-term and stable. The Company’s client base is approximately 62% government clients and 38% private-sector clients. Government clients include the Naval Research Lab, the US Navy, the US Air Force, and NASA. Commercial clients include Motorola, Boeing, Computer Sciences Corp., Lockheed Martin Mission Systems, GTE and Perot Systems.

Recent Announcements Concerning Teledesic Projects: Last week XGNT announced that it was suspending activity on the Teledesic project (this action comes in response to Motorola’s recent announcement that it was suspending system engineering activity on the project as well). While this announcement has some negative implications on XGNT’s pending business on the Teledesic project (and, as mentioned in the press release, may result in a non-cash write-down of a contract receivable this quarter), we believe that there are some potential upside opportunities in the commercial side of their business which may result from the suspension of work with Motorola. Under the recently suspended agreement, XGNT was restricted with respect to their ability to work on other commercial satellite constellation projects. Now, XGNT is free to actively pursue other commercial projects, some of which are currently out-to-bid on the command and control software systems. While the disappointments associated with the IRIDIUM project are clearly having spill-over effects throughout the industry (i.e. Teledesic), there are other commercial projects, particularly internationally, that are less likely to be affected by them. Most industry insiders presently expect that the Teledesic project will be moving ahead again by the end of the year. Investors should also note that the government side of XGNT’s business, which represents a majority of revenues, continues to show solid growth.

In order to further capitalize on the Company’s technology and know-how, XGNT formed FotoTag, Inc. in 1996. FotoTag markets a passenger/baggage reconciliation system to airlines, airports, cruise lines, railroads and other commercial transportation companies. In 1998, XGNT formed Middleware Solutions in order to leverage its experience designing high-speed data communications systems. Middleware is an e-commerce company that markets inexpensive, high-performance, message-oriented middleware directly over the Internet.

XGNT’s Growth Strategy

XGNT is executing a four-part growth strategy to capitalize on its experience, its technology and recently introduced product lines:

• Leverage its unique expertise in managing large satellite constellations (IRIDUM and GPS) into future large constellation projects such as Teledesic (a 288-satellite project to provide Internet and other telecommunications services on a global basis), Ellipso, SkyBridge and others.

• Build on its success with OS/ICC and Calypso (both discussed below) to attract business in the single-node satellite and integrated hardware and software market segment. Historically, XGNT has not targeted, nor participated actively, in this growing segment of the market. Recent management additions, in connection with new products such as OS/COMET Solo, should enable XGNT’s participation in this market.
• Use its new government vendor status to expand gross margins in the government contract area of the business.
• Expand its core software development competencies into other industries requiring information technology, command and control of large, complex systems, i.e. Foto Tag for passenger/baggage reconciliation and Middleware Solutions, marketing computer middleware through e-commerce.

Satellite technology has the potential to impact the world in a way that rivals, and could surpass, the PC and the Internet. The Internet has brought about fundamental changes in business and communications, but these changes have happened primarily in developed countries. What is often overlooked is that outside of North America, Western Europe and the Pacific Rim, areas comprising under 40 percent of the world’s population, there has been little or no participation in the information age. According to the International Telecommunications Union, of the 1.5 billion households worldwide, 500 million have telephone service, 50 million are waiting for service, and another 250 million could afford service. More than 3.5 billion people have no telephone service. Satellites can bring these people into the information age much more quickly than any terrestrial system, with the resultant changes in business practices, international regulations, free trade, etc.

According to the Satellite Industry Association, there are currently 426 satellites in orbit, with another 500 satellites expected to launch through 2003 and another 1,200 by 2008. Company information and published reports indicate that this launch schedule will cause the global satellite communications industry to more than double from a $45 billion industry in 1998 to over $100 billion in revenue by 2003. This growth will be driven by the expansion of services available by satellite, including telephone service (Globalstar and IRIDIUM being the first two), Internet service, and radio service, as well as services only available by satellite (such as GPS, automated direction and overhead photography).

Historically, the satellite industry’s primary customer base has been governments. Over the last several years, however, satellites have greatly increased their power, capacity, switching capabilities and longevity. The greater power of the satellite has translated into a tremendous reduction in the size of the "dish" necessary to receive a signal. As the communications revolution comes to space, the growth of the satellite industry will come primarily from growth of consumer services. The leasing of transponder capacity, traditionally an indicator of business-to-business demand, generated $5.2 billion in 1996, and $6.1 billion in 1998. By contrast, subscription (consumer) services doubled from $10.6 billion in 1996 to $20.1 billion in 1998, and are expected to grow at an annual rate of 25 to 30 percent for the next several years.

These combined factors should enable a significant expansion in the number and variety of services available through satellites. We comment on some of them below:

Multimedia — Satellite technology, combined with the recent emergence of digital broadcasting, offers the potential to dramatically change TV broadcasting. Historically, satellite bandwidth was far too expensive to make it commercially viable, driving the rapid adoption of digital compression. Digital compression technology allows Direct-To-Home (DTH) broadcasts in a cost-effective manner. Published reports indicate that revenue in the multimedia/broadband satellite services sector is likely to grow to over $30 billion in 2008, up from under $100 million in 1998. Subscriber growth will likely grow from 10.6 million subscribers last year (1998) to 19.6 million by 2008.

Satellites also offer the potential for other multimedia applications such as true video on demand and interactive television. Satellites can provide bandwidth on demand that allows corporate networking, video conferencing and many other innovative applications. Satellite technology will be the most cost-effective way to meet the large demand for bandwidth in many areas of the world.

Telephony — The potential market for satellite telephone services worldwide is significant. According to industry research, 50 percent of the world’s population does not have any access to a telephone. By 2000, over 60 percent of the world’s population will still have no access to a ground-based wireless service, let alone any access to the Internet or other broadband services. Satellite technology, with its geographic coverage advantages, offers a technological solution to the limitations inherent in ground-based networks.

The use of satellite technology for phone use has already begun to emerge with the launch of the IRIDIUM service and soon-to-be-launched services such as Globalstar (NASDAQ: GSTR) (which plans to have 48 satellites active, 8 in-orbit spares and 8 on the ground), ICO Global Communications (NASDAQ: ICOGF) and SkyCell Services (NASDAQ: SKYC).

Although IRIDIUM has suffered a number of problems this year (slower than expected penetration and sales, technical problems that make for inconsistent service, poor marketing, and most recently, a change in senior management), industry reports project revenue from satellite telephone services to grow from $727 million in 1997 to $3.3 billion in 1999 and $31 billion by 2007. If Globalstar experiences difficulties similar to IRIDIUM, we would expect that to negatively impact the ability of other companies to obtain funding for their own projects, delaying launches and the introduction of competing services.

Internet — Revenue generated by satellite-provided broadband services is expected to swell from less than $100 million in 1998 to over $30 billion in 2008, with most of the growth occurring over the next 5 years. As it grows, satellite technology has tremendous potential to reduce costs and improve service in the area of Internet connectivity. Due to their wide areas of coverage (the "footprint") and recent technological improvements, satellites offer the ability to allocate and re-allocate Internet backbone, capacity and/or bandwidth instantaneously and as often as necessary. Also, in areas of the world with no fiber-optic infrastructure, satellites offer a very cost-effective method for making Internet connectivity available. Traditional transponder companies have begun leasing capacity to Internet Service Providers (ISPs) in areas without the terrestrial infrastructure and demand is growing at double, and in some areas, triple-digit rates. We expect that growth of demand for satellite capacity from will continue to increase as ISPs begin to use satellites to reduce the cost of leasing permanent lines. Teledesic is in the process of setting up a 288-satellite ‘Internet in the sky’ system, and is expected to begin service in 2003. Companies like Hughes subsidiary DirecPC, iBeam, Skyway and SkyCache are currently providing various types of Internet service.

Radio — There are currently several companies launching services utilizing satellite technology to deliver numerous (50+) channels of radio programming to very large areas. WorldSpace plans to begin service to Africa and the Middle East this year and then later this year or early next year, to Asia and Latin America. CD Radio, Inc. (NASDAQ: CDRD) and American Mobile Radio Corporation are two companies planning on rolling out service to North America, which we believe could revolutionize radio broadcasting.

We believe that XGNT will directly benefit from these trends. First, every satellite launched requires command and control software. Second, as satellites become more competitive providers of Internet, communications, and multimedia services, more large constellations will enter service. As XGNT’s historic expertise has been in large constellations, we would expect the Company to leverage this experience in several new projects since the recent introduction of OS/COMET Solo which is targeted at few or single-satellite offerings. As it becomes less expensive to put more powerful satellites into orbit, and more satellites are launched, competition will force satellite operators to become cost-conscious in ways they have not had to be before. XGNT’s products offer substantial savings for satellite operators. The Company’s COTS products makes its less expensive for satellite operators to obtain a ground control system, and the built-in automation tools in the Integrated Control Center software reduce the number of personnel necessary for operation of the ground control station.

Personnel costs are normally the most significant element of a ground station operating budget. The highly automated ICC software relieves the need for the operator to configure software and hardware for satellite passes. The software also monitors the satellite and ground telemetry for faults and it will automatically respond to any faults that it finds. This high degree of software automation combined with the drastic reduction of software customization translates into fewer personnel and a reduction in personnel costs of up to 30%.

STI — STI provides advanced technical solutions, including advanced software products to its government and private-sector customers. Its lead product is the OS/COMET family of products. OS/COMET is a COTS command and control product that consists of commonly used tools and software components for satellite ground control stations. The software is flexible and can be used to support a single satellite with its OS/COMET Solo edition, or a large constellation of satellites using the standard OS/COMET system. OS/COMET is currently operating on several satellite constellations, including the IRIDIUM constellation, the Air Force’s GPS, numerous US Navy Space Programs, and soon, the international space station. OS/COMET Solo is the entry level product in the family aimed at customers who are interested in flying a few satellites rather than constellations. This is a growing market and OS/COMET Solo will provide an affordable solution from a proven product family.

OS/ICC — OS/ICC (Open Systems/ Integrated Control Center) is a multi-vendor, general-purpose, scalable suite of services and equipment used through all phases of a satellite mission, from the early mission-planning and modeling, through the testing phase, and into management of a satellite in orbit. The software was designed to be reusable and automated. It can handle single-satellite projects or large constellations.

Calypso — Calypso, like OS/COMET, is a family of software products. The Calypso software family is a package of systems control and telemetry display programs. Significantly, it is the first product of its kind that will run in a Windows NT environment, as well as UNIX. Although UNIX is the dominant platform today, the Windows NT platform offers advantages that could easily make it the platform of choice in the future. The software package in Calypso is designed for single-satellite applications not requiring the more advanced or complex features of OS/COMET products.

Pluto — A satellite simulator tool kit that provides the core components necessary to create a virtual satellite. The software model can be used for various purposes, including developmental testing, operator training, mission rehearsal, pre-construction concept validation, system testing, etc. Frost & Sullivan, a consulting group located in Mountain View, California, found that Pluto’s target market has potential revenues totaling approximately $200 million over the next four years.

MiddleWare Solutions, Inc. — MiddleWare develops and commercializes message-oriented middleware ("MOM") products directly over the Internet or on CD through the mail. The first product from the Company is InterPlay for Windows, an advanced MOM publish/subscribe tool that provides an application-transparent messaging facility for ActiveX programming environments such as Microsoft’s Visual Basic, Visual C++, and C++ Builder. InterPlay is designed to make sophisticated networking available to applications developers in a cost-effective manner. MiddleWare is targeting software programmers developing large-volume commercial software such as business applications or games, as well as programmers working on in-house applications on any scale, from under ten to thousands. XGNT expects to begin generating revenues from MiddleWare during the second half of 1999.

FotoTag, Inc. — FotoTag is developing and commercializing a check-in and passenger/baggage reconciliation system for use by industries requiring the tracking of multiple objects. The software integrates with existing reservations, baggage handling and security systems to expedite passenger boarding, baggage handling and reconciliation and security operations. FotoTag uses standard barcode, smart card, and radio-frequency identification technology combined with compressed digital photography. Passenger and/or travel document images are captured and then associated with the checked baggage, travel documents and itinerary information from reservations systems. All of this information is freely transferable between workstations or self-ticketing kiosks using XGNT’s InterPlay Active Messaging System. XGNT expects to launch FotoTag in June and begin generating revenues from the product during the second half of 1999. FotoTag’s adoption by the airlines has been paced by the FAA requirement to utilize special hardware and software products to assure full security during passenger check-in and boarding.

Bernard R. Smedley is Chairman of the Board, President, CEO and COO of Exigent, as well as President of STI. Before joining XGNT, Mr. Smedley was the founding President and CEO of AirNet Communications, a cellular and PCS infrastructure products company, from 1994 to 1997. He held several management positions at Motorola before taking early retirement in 1994. During the 1980s, he developed the Cellular Infrastructure business from an engineering concept to annual sales exceeding a billion dollars. Mr. Smedley received his BA in Engineering from Washington and Jefferson College, and his BSEE from Carnegie-Mellon University.

Jack Daly age 58, is Executive Vice President and General Manager of Exigent's Government Systems Division. From 1965 to 1969, Mr. Daily was employed by Chrysler Space Division. From 1969 to 1981, Mr. Daily worked for the Miami Heart Institute Computer Service Division. In 1981, he joined Software Technology, Inc serving in a project management position leading software development activities associated with the Naval Research Laboratory's Space Science Division and the Naval Center for Space technology. In 1988, Mr. Daily moved into corporate management as Vice President and Director of Field Operations. In 1992, he became a Division Manager of Space Operations. Since 1996, Mr. Daily has served as head of the Government Systems Division. Mr. Daily has a B.S. in Mathematics from the University of Alabama and completed all course work for an M.S. in Management Science at the University of Miami.

Jeffery B. Weinress is Chief Financial Officer. He has worked for XGNT since December 1998. From 1997 to 1998, Mr. Weinress was Vice President, CFO, and Secretary of Avanir Pharmaceuticals. From 1996 to 1997, he was EVP and in 1997 was CFO for Omega Environmental, Inc. Prior to that, he was CFO of Energy America Incorporated from 1987 to 1995. He received his BA in Economics from Dartmouth College, his MA from Harvard University, and his MBA in Finance from Harvard Business School.

William K. Presley is Executive Vice President, Chief Technical Officer and a Director. He worked for STI prior to the formation of XGNT since 1983, and was a Director, Chairman of the Board, and on two occasions, interim President for STI. He received his BSEE degree from Auburn University.

Based upon our discussions with management, and a review of the market opportunities for XGNT’s products in development, we have generated a five-year forecast and an earnings model. We believe our revenue forecast and margin assumptions are sufficiently conservative and consistent with comparable company estimates. Readers should note that we have taken into consideration the recent suspension of activity related to Teledesic, and the potential implication on the commercial side of XGNT’s business.

Valuation: From our model, we generated valuation analyses using a discounted cash flow method, a terminal P/E multiple method and a terminal EBITDA multiple method. We believe we have been sufficiently (if not excessively) punitive in our discount rates, and are comfortable with the range of multiples being used. Regardless of the valuation methodology, XGNT’s share price appears to be significantly undervalued at its current level. We believe current fair value for XGNT to be in the range of $10 to $12 per share. We are initiating coverage of XGNT with a BUY rating, and recommend purchase of XGNT by investors tolerant of the risks associated with small-cap equity investments.

The company most closely comparable to XNGT is Integral Systems (NASDAQ: ISYS). Integral Systems is the only other publicly-traded independent provider of satellite ground control systems. On a P/E basis, Integral Systems trades at 51, 42 and 28 times its trailing 12 months, prospective 1999 and prospective 2000 earnings, versus 36, 10 and 5 times trailing 12 months, prospective 1999 and prospective 2000 earnings for XGNT. On a price to revenue basis, Integral Systems trades at almost 4 times its trailing 12 months revenues, whereas XGNT trades a approximately 2/3 of its LTM revenue. We believe XGNT trades at an excessive discount to ISYS, and we expect that valuation differential to narrow as XGNT raises its profile.

Risk Considerations

This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of Exigent International, Inc. For a complete description of risks and uncertainties to XGNT’s business, see the "Risk Factors" section in XGNT’s SEC filings, which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the Internet. Other potential risks include:

• Market risk: Investors should consider technical risks common to many small-cap or micro-cap stock investments, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
• Business risk: Competition in the satellite command and control systems industry can be characterized as intense. Many of XGNT’s competitors are also large customers. Additionally, XGNT’s current revenue base is concentrated among three major customers, including a commercial customer, a governmental contractor and a group of US government agencies.
• Liquidity risk: XGNT’s stock is thinly traded. The Company estimates that the public float is approximately 25% of the basic shares outstanding (or approximately 1.4 million shares). The average daily volume over the past 30 days has been approximately 18,000 shares. Additionally, XGNT has approximately 1 million warrants (Symbol: XGNTW) outstanding to purchase XGNT common stock at $3.00 per share, expiring January 31, 2000. For a complete description of XGNT’s capital structure, and the terms of the outstanding warrants, please refer the Company’s Form 10-K for the fiscal year ended December 31, 1998, which can be accessed from the SEC Edgar filings at www.SEC.gov.

For Additional Information

Contact SmallCaps Online LLC — 212-554-4158

Sources for Additional Information

The following are website addresses offering related information, and links to other sources of information.

www.XGNT.com Exigent’s corporate web site.

www.SmallCapsOnline.com SmallCapsOnline’s site for company information and research

www.sec.gov US Securities and Exchange Commission, with links to EDGAR filings

www.fcc.gov Federal Communications Commission homepage

www.iridium.com Iridium World Communications homepage

www.hughes.com Hughes Electronics homepage

www.loral.com Loral Space and Communications homepage

www.telecomweb.com Communications Today website

www.satbiznews.com Satellite Business News website

www.spacebusiness.com Space Business.com website

www.satellitetoday.com Satellite Today website

www.sia.org Satellite Industry Association

The information in this report has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCapsOnline LLC for the purchase or sale of any securities. SmallCapsOnline LLC or its affiliates have performed investment banking, consulting or other services for and may solicit investment banking, consulting or other business from, any company mentioned in this report. SmallCapsOnline LLC or its affiliates or persons associated with SmallCapsOnline LLC or its affiliates may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while this report is in circulation or posted on the SmallCapsOnline LLC website at www.SmallCapsOnline.com. This material or any portion thereof, may not be reproduced without prior permission from SmallCapsOnline LLC. SmallCapsOnline LLC is not responsible for the contents of this document that is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1999 by SmallCapsOnline LLC. All rights reserved.