SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-23585
EMERGENT INFORMATION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
California 33-0080929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4695 MacArthur Court, 8th Floor, Newport Beach, California 92660
(Address of principal executive offices) (Zip Code)
(949) 975-1487
(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 [ ]
As of November 14, 2001 19,175,787 shares of the Company's common stock, no
par value, were outstanding.
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2001
(unaudited) and December 31, 2000......................................... 3
Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2001 and 2000 (unaudited)..................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000 (unaudited).................................. 5
Notes to Condensed Consolidated Financial Statements (unaudited)........... 6-10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations...............................................................11-18
Item 3. Quantitative and Qualitative Disclosures About Market Risk................. 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................... 20
Item 2. Changes in Securities and Use of Proceeds.................................. 20
Item 3. Defaults Upon Senior Securities............................................ 20
Item 4. Submission of Matters to a Vote of Security Holders........................ 20
Item 5. Other Information.......................................................... 20
Item 6. Exhibits and Reports on Form 8-K...........................................21-23
Signature.......................................................................... 24
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2001 2000
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 1,454 $ 1,548
Accounts receivable, net................................... 10,203 8,337
Prepaid income taxes....................................... 2,497 3,784
Current deferred income tax................................ 359 14
Prepaid expenses and other assets.......................... 594 871
Net assets of discontinued operations, Emergent-East....... 29,111 51,321
-------- --------
Total current assets................................. 44,218 65,875
Property and equipment, net................................ 554 701
Deferred income taxes...................................... 1,309 --
Other assets............................................... 120 648
-------- --------
$ 46,201 $ 67,224
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 851 $ 1,110
Accrued compensation and related benefits................. 3,192 3,640
Accrued expenses.......................................... 1,556 341
Income taxes payable...................................... 777 --
Revolving line of credit.................................. 10,373 15,123
Net liabilities of discontinued operations,
Emergent-Central........................................ 1,222 2,334
-------- --------
Total current liabilities............................ 17,971 22,548
Long-term debt, net of discount of $3,097 and $3,490 at
September 30, 2001 and December 31, 2000, respectively.... 21,903 21,510
Interest rate swap, at fair value......................... 2,087 --
Other liabilities......................................... 349 256
-------- --------
$ 42,310 $ 44,314
Commitments and contingencies
Shareholders' equity:
Common stock............................................... 192 187
Additional paid-in capital................................. 48,486 48,076
Accumulated deficit........................................ (44,787) (25,353)
-------- --------
Total shareholders' equity........................... 3,891 22,910
-------- --------
$ 46,201 $ 67,224
======== ========
See accompanying notes to condensed consolidated financial statements.
3
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net revenue...................................... $ 11,391 $ 9,168 $ 33,927 $ 27,735
Cost of revenue.................................. 6,844 4,966 19,748 15,232
-------- -------- -------- --------
Gross margin.................................. 4,547 4,202 14,179 12,503
Selling, general and administrative expenses..... 2,837 3,587 8,826 10,300
-------- -------- -------- --------
Operating income.............................. 1,710 615 5,353 2,203
Interest and other expense, net.................. 333 132 1,216 249
Unrealized loss on interest rate swap............ 690 -- 974 --
-------- -------- -------- --------
Income from continuing operations before income
taxes......................................... 687 483 3,163 1,954
Income taxes..................................... 227 198 1,231 801
-------- -------- -------- --------
Income from continuing operations................ 460 285 1,932 1,153
-------- -------- -------- --------
Discontinued operations:
Loss from operations of discontinued
businesses, net of income taxes............... (4,706) (561) (6,267) (1,720)
Losses on disposal of discontinued businesses,
net of income taxes........................... (14,431) (30,607) (14,431) (30,607)
-------- -------- -------- --------
Loss from discontinued operations................ (19,137) (31,168) (20,698) (32,327)
-------- -------- -------- --------
Cumulative effect of adoption of FASB
Statement No. 133, net of income taxes........ -- -- (668) --
-------- -------- -------- --------
Net loss......................................... $(18,677) $(30,883) $(19,434) $(31,174)
======== ======== ======== ========
Income (loss) per share:
Income from continuing operations............. $ 0.02 $ 0.02 $ 0.11 $ 0.08
Loss from operations of discontinued
businesses, net of income taxes............ (0.25) (0.03) (0.33) (0.11)
Loss on disposal of discontinued businesses,
net of income taxes........................ (0.75) (1.88) (0.76) (1.89)
Cumulative effect of accounting change, net
of income taxes............................ -- -- (0.04) --
-------- -------- -------- --------
Net loss per share............................... $ (0.98) $ (1.89) $ (1.02) $ (1.92)
======== ======== ======== ========
Income (loss) per share - assuming dilution:
Income from continuing operations............. $ 0.02 $ 0.02 $ 0.11 $ 0.07
Loss from operations of discontinued
businesses, net of income taxes............ (0.25) (0.04) (0.33) (0.11)
Loss on disposal of discontinued businesses,
net of income taxes........................ (0.75) (1.87) (0.76) (1.87)
Cumulative effect of accounting change, net
of income taxes............................ -- -- (0.04) --
-------- -------- -------- --------
Net loss per share............................... $ (0.98) $ (1.89) $ (1.02) $ (1.91)
======== ======== ======== ========
Shares used in the computation of income
(loss) per share:
Basic......................................... 19,137 16,324 18,993 16,235
Diluted....................................... 19,152 16,348 19,027 16,408
See accompanying notes to condensed consolidated financial statements.
4
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months
Ended September 30,
-----------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................... $(19,434) $(31,174)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Loss from discontinued operations, net of income taxes ............... 20,698 32,327
Cumulative effect of adoption of FASB Statement No. 133, net of
income taxes ....................................................... 668 --
Loss on change in fair value of interest rate swap ................... 974 --
Amortization of discount on long-term debt ........................... 393 --
Depreciation and amortization ........................................ 193 48
Deferred income taxes ................................................ (1,209) (107)
Changes in operating assets and liabilities:
Accounts receivable, net ........................................... (1,866) (298)
Prepaid and accrued income taxes ................................... 2,063 (1,217)
Prepaid expenses and other assets .................................. 365 (413)
Trade accounts payable and accrued expenses ........................ (259) 454
Accrued compensation and related benefits .......................... (448) 162
Other liabilities .................................................. 1,309 (150)
-------- --------
Net cash provided by (used in) operating activities .............. 3,447 (368)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .................................... (47) --
Disposal of property and equipment ..................................... 440 --
Acquisitions, net of cash acquired ..................................... -- (13,726)
Repayments from shareholders ........................................... -- 1,744
-------- --------
Net cash provided by (used in) investing activities .............. 393 (11,982)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under credit facility ....................................... (4,750) --
Borrowings under credit facility ....................................... -- 11,106
Proceeds from issuance of common stock ................................. 415 --
-------- --------
Net cash provided by (used in) financing activities .............. (4,335) 11,106
-------- --------
Decrease in cash and cash equivalents from continuing operations . (495) (1,244)
Cash provided by discontinued operations ......................... 401 957
-------- --------
Net decrease in cash and cash equivalents ........................ (94) (287)
Cash and cash equivalents at beginning of period ....................... 1,548 900
-------- --------
Cash and cash equivalents at end of period ............................. $ 1,454 $ 613
======== ========
SUPPLEMENTAL INFORMATION--CASH PAID (RECEIVED) FOR:
Interest ............................................................... 3,183 2,689
Income taxes ........................................................... (5,114) 953
See accompanying notes to condensed consolidated financial statements.
5
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended September 30, 2001 and 2000
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements included herein are
unaudited; however, they contain all normal recurring accruals and adjustments
that, in the opinion of management, are necessary to present fairly the
consolidated financial position of Emergent Information Technologies, Inc. and
its wholly owned subsidiaries (collectively, the "Company") at September 30,
2001 the consolidated results of its operations for the three and nine months
ended September 30, 2001 and 2000 and its cash flows for the nine months ended
September 30, 2001 and 2000. All intercompany accounts and transactions have
been eliminated.
It should be understood that accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the three and nine months ended September 30, 2001 are not
necessarily indicative of the results to be expected for the full fiscal year.
The accompanying unaudited condensed consolidated financial statements
do not include footnotes and certain financial presentations normally required
under generally accepted accounting principles. Therefore, these financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto for the year ended December 31, 2000,
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on April 17, 2001.
Certain amounts in the unaudited condensed consolidated financial
statements for prior periods have been reclassified to conform to the current
period's presentation.
DISCONTINUED OPERATIONS
On November 19, 2001, the Company entered into an agreement to sell the
stock of Emergent-East, a business segment of the Company (see Note 3), to an
unrelated third party. Accordingly, this segment has been presented as a
discontinued operation for all periods presented in the accompanying condensed
consolidated financial statements. As a result, the Company's continuing
operations consist of a single business segment, which assists clients with the
procurement of government and commercial contracts.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, Business Combinations ("Statement No. 141"), and No. 142,
Goodwill and Other Intangible Assets ("Statement No. 142"), effective for fiscal
years beginning after December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with Statement Nos.
141 and 142. Other intangible assets will continue to be amortized over their
useful lives. The Company will adopt the new rules on accounting for goodwill
and other intangible assets in the first quarter of 2002. The adoption of
Statement Nos. 141 and 142 is not expected to have a material effect on the
results of operations, financial position or cash flows of the Company.
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets (Statement No. 144). Under Statement No. 144 assets held for sale will be
included in discontinued operations if the operations and cash flows will be, or
have been, eliminated from the ongoing operation of the component. The Company
is required to adopt Statement No. 144 in the first quarter of 2002 and is
currently assessing the financial statement impact, if any, of adoption.
6
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the Three and Nine Months Ended September 30, 2001 and 2000
NOTE 2. NET INCOME (LOSS) PER SHARE
The following table illustrates the number of shares used in the
computation of basic and diluted net income (loss) per share (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2001 2000 2001 2000
------ ------ ------ ------
Denominator for basic income (loss) per common
share-weighted average shares outstanding during
the period ..................................... 19,137 16,324 18,993 16,235
Incremental common shares attributable to dilutive
outstanding stock options ...................... 15 24 34 173
------ ------ ------ ------
Denominator for diluted income (loss) per common
share .......................................... 19,152 16,348 19,027 16,408
====== ====== ====== ======
NOTE 3. DISCONTINUED OPERATIONS
On November 19, 2001, the Company entered into an agreement to sell the
Company's interest in the common stock of Emergent-East (also known as
Government Services Group), a provider of system engineering, scientific
research, program management and technical support services. This business
segment, formed in 2000, was developed from the acquisitions of Decision-Science
Applications ("DSA"), Space Applications Corporation ("SAC"), System Simulations
Solutions ("S3I") and Kapos Associates Inc., ("KAI"). The sale, expected to
close in the fourth quarter of 2001, will be made to an independent third party
for approximately $38 million. Accordingly, the operating results of
Emergent-East, including provisions for estimated losses during the period from
October 1, 2001 through the estimated closing date, facility lease costs and
other costs expected to be incurred in connection with the sale, have been
accrued for as of September 30, 2001. Estimated expenses and operating losses
from the measurement date through the anticipated date of disposal amounted to
$13.7 million, net of income taxes of $2.0 million.
On August 2, 2000, the Company's Board of Directors adopted a plan to
discontinue the operations of Emergent-Central, a business segment of the
Company formed in 1999. Accordingly, the operating results of Emergent Central,
including provisions for estimated losses during the phase-out period, facility
lease costs and other shut down expenses expected to be incurred in connection
with the disposal, have been accrued as of September 30, 2000. Expenses and
operating losses from the measurement date, including the writeoff of the
segment's assets, through the closing date of disposal amounted to $3.4 million.
7
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the Three and Nine Months Ended September 30, 2001 and 2000
In the third quarter of 2001, the Company re-evaluated its estimated
costs to complete the shut down and recorded an additional accrual of $770,000,
net of tax of $379,000.
Following is summary financial information for the Company's
discontinued operations:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenue:
Emergent-Central .................................... $ -- $ -- $ -- $ 1,464
Emergent-East ....................................... 15,095 18,478 49,663 62,419
-------- -------- -------- --------
Total ........................................... $ 15,095 $ 18,478 $ 49,663 $ 63,883
======== ======== ======== ========
Income (loss) from operations of discontinued businesses:
Emergent-Central .................................... $ -- $ (1,525) $ -- $ (9,293)
Emergent-East ....................................... (7,024) 1,072 (9,637) 7,134
-------- -------- -------- --------
Loss before income taxes ................................ (7,024) (453) (9,637) (2,159)
Income tax (expense) benefit ............................ 2,318 (108) 3,370 439
-------- -------- -------- --------
Loss from operations of discontinued businesses ..... $ (4,706) $ (561) $ (6,267) $ (1,720)
======== ======== ======== ========
Loss on disposal of discontinued businesses:
Emergent-Central .................................... $ (1,149) $(34,116) $ (1,149) $(34,116)
Emergent-East ....................................... (15,692) -- (15,692) --
-------- -------- -------- --------
Loss on disposal of discontinued businesses before
income taxes ......................................... (16,841) (34,116) (16,841) (34,116)
Income tax benefit ...................................... 2,410 3,509 2,410 3,509
-------- -------- -------- --------
Loss from disposal of discontinued businesses ....... $(14,431) $(30,607) $(14,431) $(30,607)
======== ======== ======== ========
The net assets and liabilities of the discontinued businesses consisted
of the following at September 30, 2001:
East Central
------- -------
Cash ................................................ $ 87 $ --
Accounts receivable ................................. 13,776 --
Property and equipment .............................. 3,035 --
Goodwill and other intangibles ...................... 32,671 --
Other ............................................... 2,461 --
------- -------
Total assets of discontinued operations ......... 52,030 --
Accounts payable .................................... 718 --
Accrued compensation and related benefits ........... 3,813 --
Accrued expenses and other liabilities .............. 2,696 --
Reserves related to disposal of discontinued
businesses ........................................ 15,692 1,222
------- -------
Total liabilities of discontinued operations .... 22,919 1,222
------- -------
Net assets (liabilities) of discontinued operations . $29,111 $(1,222)
======= =======
8
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the Three and Nine Months Ended September 30, 2001 and 2000
NOTE 4. REVOLVING LINE OF CREDIT
The Company entered into a Second Amended and Restated Credit and
Security Agreement (the "Senior Facility"), dated December 29, 2000, by and
among the Company and its existing lending group, whereby the Amended and
Restated Credit Agreement dated June 7, 1999 (the "Original Facility") was
amended and restated to provide in part for an extension of the maturity date to
January 31, 2002, to reset financial covenants, to reduce the existing revolving
loan lending commitments to $22,700,000, and to permit the subordinated
indebtedness discussed in Note 5. Borrowings bear interest at the bank's prime
rate plus 1% (7% at September 30, 2001). The Senior Facility is secured by a
lien on all of the assets of the Company and its subsidiaries. Terms of the
Agreement require the Company to reduce the $22,700,000 in borrowing
availability under the Senior Facility to no more than $18,700,000 by the end of
2001. At September 30, 2001, outstanding borrowings under the Senior Facility
totaled $10,373,000.
As of September 30, 2001, the Company was not in compliance with certain
of its financial covenants. The Company has obtained waivers from the lenders
that waive the non-compliance. In the case of the Senior Facility through
December 14, 2001, and in the case of the Subordinated Debt Agreement, until the
Company reports its fourth quarter results. As of September 30, 2001, the
Company had $7,561,939 available under the Senior Facility.
On May 12, 2000 the Company entered into an interest rate swap agreement
to manage its interest rate risk exposure. The agreement requires the Company to
pay a fixed rate of 7.5225% on $20 million and in turn receive a variable rate
of interest of one-month LIBOR. The agreement expires on June 1, 2004.
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities (Statement No. 133)". The
Statement requires the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives are either offset against the
change in fair value of assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The adoption of Statement No.
133 as of January 1, 2001 resulted in the cumulative effect of an accounting
change of $668,000, net of tax benefit of $445,000, being recognized as expense
in the statement of operations.
During the three and nine months ended September 30, 2001, the Company
recognized a loss of $690,000 and $974,000, respectively, related to the change
in the fair value of the interest rate swap.
9
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the Three and Nine Months Ended September 30, 2001 and 2000
NOTE 5. LONG-TERM DEBT
The Company entered into a Note and Stock Purchase Agreement (the
"Subordinated Debt Agreement") dated December 29, 2000 with various investors
(the "Purchasers"). In consideration of a $25,000,000 investment, the Company
issued to the Purchasers (i) 13% Senior Subordinated Notes due in 2005 in the
aggregate principal amount of $25,000,000 (the "Notes"), and (ii) 2,250,000
shares of the common stock of the Company ("Common Stock") with a fair value of
$1,968,750. The Subordinated Debt Agreement contains financial and other
covenants, and requires payment of a premium if the Notes are prepaid within
three years of the Closing (including a reduced premium if repayment occurs in
connection with a change of control of the Company). As of September 30, 2001,
the Company was not in compliance with certain of the financial covenants
contained in the Subordinated Debt Agreement. The Company has obtained a waiver
from the Purchasers through the date the Company reports its fourth quarter
results. The Notes are not secured.
The value of the Common Stock issued and related financing costs of $3.5
million have been reflected as a discount on the Notes and are being amortized
over the term of the Notes. Interest expense related to the amortization of the
discount totaled $161,000 and $393,000 in the three and nine months ended
September 30, 2001, respectively.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
From time to time, the Company, through its management, may make
forward-looking public statements, such as statements concerning expected future
revenue or earnings or concerning projected plans, performance, contract
procurement as well as other estimates relating to future operations.
Forward-looking statements may be in reports filed under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), in press releases or informal
statements made with the approval of an authorized executive officer. The words
or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "projected," or similar expressions are intended to
identify "forward-looking statements" within the meaning of Section 21E of the
Exchange Act and Section 27A of the Securities Act of 1933, as amended, as
enacted by the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on
these forward-looking statements, which speak only as of the date on which they
are made. In addition, the Company wishes to advise readers that the factors
listed below, as well as other factors not currently identified by management,
could affect the Company's financial or other performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods or events in any
current statement.
The Company will not undertake and specifically declines any obligation
to publicly release any revisions, which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events which may
cause management to re-evaluate such forward-looking statements.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements of the Company made by or on behalf of the Company.
RECENT EVENTS
Discontinued Operations. On November 19, 2001, the Company entered into
a Stock Purchase and Sale Agreement with L-3 Communications Corporation,
pursuant to which L-3 agreed to acquire the stock of the Company's Emergent-East
subsidiary for $38 million, subject to certain adjustments. The Company expects
the transaction to close in the fourth quarter of 2001. Emergent-East provides
system engineering, scientific research, program management and technical
support services. Accordingly, the operating results of Emergent-East, including
provisions for estimated losses during the period from October 1, 2001 through
the estimated closing date, facility lease costs and other costs expected to be
incurred in connection with the sale, have been accrued for as of September 30,
2001. Estimated expenses and operating losses from the measurement date through
the anticipated date of disposal amounted to $13.7 million, net of income taxes
of $2.0 million.
On August 2, 2000, the Company's Board of Directors adopted a plan to
discontinue the operations of Emergent-Central, a business segment of the
Company formed in 1999, developed from the acquisitions of SIS and a portion of
DSA. Accordingly, the operating results of Emergent-Central, including
provisions for estimated losses during the phase-out period, facility lease
costs and other shut down expenses expected to be incurred in connection with
the disposal, have been accrued as of September 30, 2000. Expenses and operating
losses from the measurement date, including the write-off of the segment's
assets, through the closing date of disposal amounted to $3.4 million. In the
third quarter of 2001, the Company re-evaluated its estimated costs to complete
the shut down and recorded an additional accrual of $770,000, net of tax of
$379,000.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
Following is summary financial information for the Company's
discontinued operations:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenue:
Emergent-Central .................................... $ -- $ -- $ -- $ 1,464
Emergent-East ....................................... 15,095 18,478 49,663 62,419
-------- -------- -------- --------
Total ........................................... $ 15,095 $ 18,478 $ 49,663 $ 63,883
======== ======== ======== ========
Income (loss) from operations of discontinued businesses:
Emergent-Central .................................... $ -- $ (1,525) $ -- $ (9,293)
Emergent-East ....................................... (7,024) 1,072 (9,637) 7,134
-------- -------- -------- --------
Loss before income taxes ................................ (7,024) (453) (9,637) (2,159)
Income tax (expense) benefit ........................... 2,318 (108) 3,370 439
-------- -------- -------- --------
Loss from operations of discontinued businesses ..... $ (4,706) $ (561) $ (6,267) $ (1,720)
======== ======== ======== ========
Loss on disposal of discontinued businesses:
Emergent-Central .................................... $ (1,149) $(34,116) $ (1,149) $(34,116)
Emergent-East ....................................... (15,692) -- (15,692) --
-------- -------- -------- --------
Loss on disposal of discontinued businesses before
income taxes .......................................... (16,841) (34,116) (16,841) (34,116)
Income tax benefit ...................................... 2,410 3,509 2,410 3,509
-------- -------- -------- --------
Loss from disposal of discontinued businesses ....... $(14,431) $(30,607) $(14,431) $(30,607)
======== ======== ======== ========
The net assets and liabilities of the discontinued businesses consisted
of the following at September 30, 2001:
East Central
------- -------
Cash ................................................ $ 87 $ --
Accounts receivable ................................. 13,776 --
Property and equipment .............................. 3,035 --
Goodwill and other intangibles ...................... 32,671 --
Other ............................................... 2,461 --
------- -------
Total assets of discontinued operations ......... 52,030 --
Accounts payable .................................... 718 --
Accrued compensation and related benefits ........... 3,813 --
Accrued expenses and other liabilities .............. 2,696 --
Reserves related to disposal of discontinued
businesses ........................................ 15,692 1,222
------- -------
Total liabilities of discontinued operations .... 22,919 1,222
------- -------
Net assets (liabilities) of discontinued operations . $29,111 $(1,222)
======= =======
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
RESULTS OF CONTINUING OPERATIONS
Following the closure of Emergent-Central and the disposal of
Emergent-East, the continuing operations of the Company consist of Steven Myers
& Associates, Inc., (SM&A). SM&A is a provider of integrated proposal management
services through a proprietary proposal management strategy and process. In
conjunction with this process, SM&A typically assumes a leadership role and
places dedicated teams at client facilities to manage all aspects of the
competitive proposal development process. SM&A also leverages its success in
winning business for its clients and its involvement in the project life cycle
to extend its services beyond proposal development to SM&A's comprehensive
capabilities in the areas of information technology services, systems
engineering program integration, and other technical areas. SM&A has been
expanding its management consulting practice with both traditional aerospace and
defense as well as non-aerospace customers.
The following table sets forth certain historical operating results as a
percentage of net revenue for the periods noted.
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2001 2000 2001 2000
------ ------ ------ ------
Net revenue ................................ 100% 100% 100% 100%
Cost of revenue ............................ (60.1) (54.2) (58.2) (54.9)
------ ------ ------ ------
Gross margin ............................ 39.9 45.8 41.8 45.1
Selling, general and administrative expenses 24.9 39.1 26.0 37.1
------ ------ ------ ------
Operating income ........................... 15.0 6.7 15.8 8.0
====== ====== ====== ======
Income from continuing operations .......... 4.0 3.1 5.7 4.2
Loss from operations of discontinued
businesses ............................... (41.3) (6.1) (18.5) (6.2)
Loss on disposal of discontinued businesses (126.7) (333.9) (42.5) (110.4)
Cumulative effect of accounting change ..... -- -- (2.0) --
------ ------ ------ ------
Net loss ................................... (164.0) (336.9) (57.3) (112.4)
====== ====== ====== ======
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000
Revenue. Revenue increased $2.2 million, or 24.3% to $11.4 million for
the three months ended September 30, 2001 compared to $9.2 million for three
months ended September 30, 2000. The increase is primarily the result of an
increase in revenue of $3.9 million from the commercial services group. This
increase was offset by a decrease in proposal management revenue related to
lower procurement activities attributable to the new administration's defense
budget being approved later than expected.
Gross Margin. Gross margin increased $0.3 million, or 8.2%, to $4.5
million, for the three months ended September 30, 2001 as compared to $4.2
million for the three months ended September 30, 2000. As a percentage of
revenue, gross margin decreased to 39.9% compared to 45.8% for the prior year
period. The increase in gross margin is a result of increased revenue in the
commercial services group, while the reduction in the gross margin percentage
net reflects the lower margins generated by that group.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.8 million, or 20.9%, to $2.8 million for
the three months ended September 30, 2001, as compared to the corresponding
period of the prior year. As a percentage of revenue, selling, general and
administrative expenses decreased to 24.9% for the three months ended September
30, 2001, as compared to 39.1% for the prior year period. The decrease is the
result of the Company's continued cost reduction efforts offset by increased
expenses for personnel in the commercial services group to support the expected
increase in revenue from the Joint Strike Fighter ("JSF") program.
Operating Income. Operating income was $1.7 million for the three months
ended September 30, 2001 compared to $0.6 million for the three months ended
September 30, 2000, an increase of $1.1 million. As a percentage of revenue,
operating income increased to 15.0% for the three months ended September 30,
2001 from 6.7% in the prior year. Operating income increased due to the
increased revenue and the decreased Selling, General and Administrative
Expenses, as discussed above.
Interest and Other Expense, Net. Interest and other expense, net, was
$0.3 million for the three months ended September 30, 2001 compared to $0.1
million for the three months ended September 30, 2000. The increase primarily
results from increased interest expense of $0.4 million caused by a higher level
of debt at higher interest rates.
Unrealized Loss on Interest Rate Swap. A loss of $0.7 million resulted
from the change in the fair value of the Company's interest rate swap agreement.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000
Revenue. Revenue increased $6.2 million, or 22.3% to $33.9 million for
the nine months ended September 30, 2001 compared to $27.7 million for the nine
months ended September 30, 2000. The increase is primarily the result of an
increase in revenue of $11.5 million from the commercial services group. This
increase was offset by a decrease in proposal management revenue related to
lower procurement activities attributable to the new administration's defense
budget being approved later than expected.
Gross Margin. Gross margin increased $1.7 million, or 13.4%, to $14.2
million, for the nine months ended September 30, 2001 as compared to $12.5
million for the nine months ended September 30, 2000. As a percentage of net
revenue, gross margin decreased to 41.8% compared to 45.1% for the prior year
period. The increase in gross margin is a result of increased revenue in the
commercial services group, while the reduction in the gross margin percentage
net reflects the lower margins generated by that group.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.5 million, or 14.3%, to $8.8 million for
the nine months ended September 30, 2001, as compared to $10.3 million for the
nine months ended September 30, 2000. As a percentage of revenue, selling,
general and administrative expenses decreased to 26.0% for nine months ended
September 30, 2001, as compared to 37.1% for the prior year period. The decrease
is the result of the Company's continued cost reduction efforts offset by
increased expenses for personnel in the commercial services group to support the
expected increase in revenue from the Joint Strike Fighter ("JSF") program.
Operating Income. Operating income was $5.4 million for the nine months
ended September 30, 2001 compared to $2.2 million for the nine months ended
September 30, 2000, an increase of $3.2 million. As a percentage of net revenue,
operating income increased to 15.8% for nine months ended September 30, 2001
from 8.0% in the prior year. Operating income increased due to the increased
revenue and the decreased selling, general and administrative expenses, as
discussed above.
Interest and Other Expense, Net. Interest and other expense, net was
$1.2 million for the nine months ended September 30, 2001 compared to $.2
million for the nine months ended September 30, 2000. The increase primarily
results from increased interest expense of $1.3 million caused by a higher level
of debt at higher interest rates.
Unrealized Loss on Interest Rate Swap. A loss of $1.0 million resulted
from a change in the fair value of the Company's interest rate swap agreement.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities. For the nine months ended
September 30, 2001, net cash provided by operating activities of $3.4 million
reflected the Company's income from continuing operations, plus charges for
depreciation, amortization and other non-cash items and a decrease in working
capital.
Cash Provided by Investing Activities. For the nine months ended
September 30, 2001, net cash provided by investing activities was $0.4 million
which primarily related to proceeds from the disposal of certain property and
equipment.
Net Cash Used in Financing Activities. For the nine months ended
September 30, 2001, net cash of $4.3 million was used by financing activities
primarily for repayments made under the Company's credit facility, net of
proceed from the issuance of common stock (under Employee Stock Purchase Plan).
Debt and Liquidity. The Company entered into a Second Amended and
Restated Credit and Security Agreement (the "Senior Facility"), dated December
29, 2000, by and among the Company and its existing lending group, whereby the
Amended and Restated Credit Agreement dated June 7, 1999 (the "Original
Facility") was amended and restated to provide in part for an extension of the
maturity date to January 31, 2002, to reset financial covenants, to reduce the
existing revolving loan lending commitments to $22,700,000, and to permit the
subordinated indebtedness discussed below. Borrowings bear interest at the
bank's prime rate plus 1% (7% at September 30, 2001). The Senior Facility is
secured by a lien on all of the assets of the Company and its subsidiaries.
Terms of the Agreement require the Company to reduce the $22,700,000 in
borrowing availability under the Senior Facility to no more than $18,700,000 by
the end of 2001. At September 30, 2001, outstanding borrowings under the Senior
Facility totaled $10,373,000.
The Company has also entered into a Note and Stock Purchase Agreement
(the "Subordinated Debt Agreement") dated December 29, 2000 with various
investors (the "Purchasers"). In consideration of a $25,000,000 investment, the
Company issued to the Purchasers (i) 13% Senior Subordinated Notes due in 2005
in the aggregate principal amount of $25,000,000 (the "Notes"), and (ii)
2,250,000 shares of the common stock of the Company ("Common Stock") with a fair
value of $1,968,750. The Subordinated Debt Agreement contains financial and
other covenants and requires payment of a premium if the Notes are prepaid
within three years of the Closing (including a reduced premium if repayment
occurs in connection with a change of control of the Company). The Notes are not
secured.
At September 30, 2001, the Company was not in compliance with certain
financial covenants under the Senior Facility and the Subordinated Debt
Agreement. The Company has obtained waivers from the lenders that waive the
non-compliance. In the case of the Senior Facility through December 14, 2001,
and in the case of the Subordinated Debt Agreement, until the Company reports
its fourth quarter results.
Management expects to complete the sale of Emergent-East in the fourth
quarter of 2001 and to use the proceeds from the sale to pay off the outstanding
balance on the Senior Facility and the Subordinated Debt Agreement. The Company
believes that it will have sufficient working capital from the cash proceeds of
the sale and cash generated from operations to fund operations for at least the
next twelve months. In addition, the Company is in the process of securing a
working capital line of credit to provide additional liquidity to fund
anticipated revenue growth in 2002.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
RISK FACTORS
THE COMPANY'S BUSINESS DEPENDS SUBSTANTIALLY ON THE DEFENSE INDUSTRY
The proposal management business of SM&A depends substantially on U.S.
Government expenditures for defense products. Any decline in the future defense
expenditures could effect the opportunities available to the Company's clients
and, indirectly, on the Company. A number of trends may contribute to such a
decline, including:
- large weapon systems being replaced with smaller, more precise
high technology systems;
- multiple procurements for similar weapons being consolidated
into joint service procurements, such as the Joint Strike
Fighter program;
- threat scenarios evolving away from global conflicts to regional
conflicts; and
- the continuing draw down of U.S. military forces in response to
the end of the Cold War.
In the event expenditures for products of the type manufactured by the
Company's clients are reduced and not offset by other new programs or products,
there will be a reduction in the volume of contracts or subcontracts to be bid
upon by the Company's clients and, as a result, a reduction in the volume of
proposals managed by the Company. Unless offset, such reductions could
materially and adversely affect the Company's business, operating results and
financial condition.
THE COMPANY RELIES ON A RELATIVELY LIMITED NUMBER OF CLIENTS
The Company derives a significant portion of revenue from continuing
operations from a relatively limited number of clients. Clients typically retain
the Company's services as needed on an engagement basis rather than pursuant to
long-term contracts, and a client can usually terminate the engagement at any
time without a significant penalty. Moreover, there can be no assurance that
existing clients will continue to engage the Company for additional assignments
or do so at the same revenue levels. The loss of any significant client could
materially and adversely affect the Company's business, financial condition and
results of operations. In addition, the level of services required by an
individual client may diminish over the life of the relationship, and there can
be no assurance the Company will be successful in establishing relationships
with new clients as this occurs.
THE MARKETS IN WHICH THE COMPANY OPERATES ARE HIGHLY COMPETITIVE
The market for proposal management services in the procurement of
government and commercial contracts for aerospace and defense is a niche market
with a number of competitors. The Company is the largest provider of such
services and principally competes with numerous smaller proposal management
companies in this highly specialized industry. The Company also competes with
some of its clients' internal proposal development resources.
THE COMPANY RELIES HEAVILY UPON ITS KEY EMPLOYEES
The Company's success is highly dependent upon the efforts, abilities,
and business generation capabilities and project execution of its executive
officers, in particular those of Steven S. Myers, President, Chief Executive
Officer and Chairman of the Board. The loss of the services of Mr. Myers for any
reason could materially and adversely affect the Company's business, operating
results and financial condition.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY
The Company may experience significant fluctuations in future quarterly
operating results due to a number of factors, including the size, timing and
duration of client engagements.
THE STOCK PRICE IS SUBJECT TO SIGNIFICANT VOLATILITY
The Company's common stock was first publicly traded on January 29,
1998 after the Company's initial public offering at $12.00 per share. Between
January 29, 1998 and September 30, 2001, the closing sale price has ranged from
a low of $0.75 per share to a high of $31.13 per share. The market price of the
Company's common stock could continue to fluctuate substantially due to a
variety of factors, including:
- quarterly fluctuations in results of operations;
- adverse circumstances affecting the introduction or market
acceptance of new services offered by the Company;
- announcements of new services by competitors;
- loss of key employees;
- changes in the regulatory environment or market conditions
affecting the defense and aerospace industry;
- changes in earnings estimates and ratings by analysts;
- lack of market liquidity resulting from a relatively small
amount of public stock float;
- changes in generally accepted accounting principles;
- sales of common stock by existing holders;
- the announcement and market acceptance of proposed acquisitions
and dispositions; and
- financial performance for any period, resulting in the violation
of debt covenants with any of the Company's lenders which they
are not willing to amend or waive and subsequent loss of
available bank lines for working capital.
PRINCIPAL SHAREHOLDER HAS SIGNIFICANT CONTROL OVER THE COMPANY
Steven S. Myers, President, Chief Executive Officer and Chairman of the
Board, beneficially owns or controls approximately 38.68% of the Company's
outstanding common stock and will have the ability to control or significantly
influence the election of directors and the results of other matters submitted
to a vote of shareholders. Such concentration of ownership may have the effect
of delaying or preventing a change in control of the Company and may adversely
affect the voting or other rights of other holders of common stock. The
Company's board of directors is currently comprised entirely of individuals
nominated with the approval of Mr. Myers.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is interest
rate risk.
The interest rate the Company pays on its revolving line of credit is
subject to interest rate risk as it bears interest at the prevailing prime rate
plus 1%. The Company's long-term debt instruments carry fixed interest rates.
The Company estimates that a 10% increase in interest rates on the revolving
line of credit would result in a decrease in reported net income of
approximately $78,000 annually, based on the Company's current level of
borrowing.
On May 12, 2000, the Company entered into an interest rate swap
agreement whereby it pays a fixed rate of interest of 7.5225% on $20 million,
and receives a variable rate of interest based on one-month LIBOR. The Company
estimates that a 10% decrease in LIBOR would decrease reported net income by
approximately $72,000 annually.
This interest rate sensitivity analyses disregards the possibility that
rates can move in opposite directions and that gains from one category may or
may not be offset by losses from another category and vice versa.
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Amended and Restated Employee Stock Purchase Plan. Through the quarter ended
September 30, 2001, approximately 808,321 shares of Common Stock have been
purchased of the 950,000 available shares reserved for issuance under the ESPP.
Amended and Restated Employee Stock Option Plan. The Company's Common Stock
was listed for trading on the Nasdaq Stock Market from the date of the Company's
initial public offering of common stock until May 30, 2000 during which time
period the Options granted pursuant to the Company's Amended and Restated 1997
Stock Option Plan (the "Plan") and shares of Common Stock to be issued pursuant
to the exercise of such Options were exempt from qualification under the
Corporate Securities Law of 1968 because they were considered "covered
securities" as that term is defined under Section 18 of the Securities Act of
1933 (the "NMS Exemption"). However, as of May 30, 2000, the Company's Common
Stock became listed on the Nasdaq SmallCap Market and the NMS Exemption no
longer applied. As a result, the Company filed an application with the State of
California Department of Corporations for qualification of the securities. On
July 27, 2001, the Department of Corporations granted such qualification. Two
additional states required qualification of the Plan, that being Arizona and
Maryland. The Company acquired acceptance from both states on August 6, 2001 and
August 8, 2001, respectively.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Recent Events. On November 19, 2001, the Company entered into a Stock
Purchase and Sale Agreement with L-3 Communications Corporation, pursuant to
which L-3 agreed to acquire the stock of the Company's Emergent-East subsidiary
for $38 million, subject to certain adjustments. The Company expects the
transaction to close in the fourth quarter of 2001.
20
PART II - OTHER INFORMATION - (Continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with item 601 of Regulation S-K).
EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No.
- -----------
2.1 Agreement and Plan of Reorganization and Merger dated May 18, 1998,
by and among the Company, Space Applications Corporation, SAC
Acquisition, Inc. and the individual shareholders named therein
(filed on June 4, 1998 as Exhibit 2 to the Company's Current Report
on Form 8-K and incorporated herein by reference).
2.2 Agreement and Plan of Reorganization and Merger dated July 22, 1998,
by and among the Company, Decision-Science Applications, Inc., DSA
Acquisition, Inc. and the individual shareholders named therein
(filed on August 21 1998 as Exhibit 2.1 to the Company's Current
Report on Form 8-K and incorporated herein by reference).
2.3 Agreement and Plan of Reorganization and Merger dated March 30,
1999, by and among SM&A Corporation, Systems Integration Software,
Inc., SIS Acquisition, Inc. and the individuals named therein (filed
on May 17, 1999 as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999 and incorporated
herein by reference).
2.4 Stock Purchase Agreement dated as of September 20, 1999, by and
among SM&A Corporation (East), Kapos Associates Inc., Ervin Kapos,
June Kapos, Verona Oliver, and Cordellia Scruggs (filed on November
15, 1999 as Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999 and incorporated
herein by reference).
2.5 Agreement of Merger dated November 24, 1998 between Space
Applications Corporation and SM&A Corporation (East), effective date
December 31, 1998 (filed on March 31, 1999 as Exhibit 2.3 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998 and incorporated herein by reference).
3.1 Articles of Incorporation, as amended and restated (filed on January
27, 1998 as Exhibit 3.1 to the Registrant's Registration Statement
on Form S-1 (Registration No. 333-4075) and incorporated herein by
reference).
3.2 Bylaws of the Company, as amended and restated (filed on January 5,
1998 as Exhibit 3.2 to the Company's Registration Statement on Form
S-1 (Registration No. 333-4075) and incorporated herein by
reference).
3.3 Certificate of Ownership as filed with the California Secretary of
State on August 6, 1998 (filed on August 19, 1998 as Exhibit 3.1 to
the Company's Current Report on Form 8-K and incorporated herein by
reference).
3.4 Certificate of Determination of Preferences of Series L Preferred
Stock (filed in the Company's Annual Report on Form 10-K for the
year ending December 31, 2000 as Exhibit 3.4 filed on April 17, 2001
and incorporated herein by reference).
4.1 Registration and Antidilution Rights Agreement, dated December 29,
2000, by and among the Company and the Holders listed on the
signature pages thereto (filed on January 8, 2001 as Exhibit 99.5 to
the Company's Current Report on Form 8-K and incorporated by
reference herein).
21
EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No.
- -----------
4.2 Controlling Shareholder Agreement, dated December 29, 2000, by and
among the Company, Steven S. Myers as Common Stockholder, and the
Purchasers listed on the signature pages thereto (filed on January
8, 2001 as Exhibit 99.6 to the Company's Current Report on Form 8-K
and incorporated by reference herein).
4.3 Registration Rights Agreement dated May 29, 1998 by and among the
Company and certain shareholders of Space Applications Corporation
identified therein (filed on June 4, 1998 as Exhibit 2 to the
Company's Current Report on Form 8-K and incorporated herein by
reference).
4.4 Registration Rights Agreement dated August 20, 1998 by and among
Company and certain shareholders of Decision-Science Applications,
Inc. set forth therein (filed on August 21, 1998 as Exhibit 10.1 to
the Company's Current Report on Form 8-K and incorporated herein by
reference).
10.1 Amended and Restated 1997 Stock Option Plan and related form of
Stock Option Agreement (filed on Company's Current Report on Form
10-K filed on April 17, 2001 as Exhibit 10.1 and incorporated herein
by reference).
10.2 Amended and Restated Employee Stock Purchase Plan (filed on
Company's Current Report on Form 10-K filed on April 17, 2001 as
Exhibit 10.2 and incorporated herein by reference).
10.3 Form of Indemnification Agreement (filed on November 21, 1997 as
Exhibit 10.2 to the Company's Registration Statement on Form S-1
(Registration No. 3334075) and incorporated herein by reference).
10.4 Office Facilities Lease (filed on November 21, 1997 as Exhibit 10.3
to the Company's Registration Statement on Form S-1 (Registration
No. 333-4075) and incorporated herein by reference).
10.5 Second Amended and Restated Credit and Security Agreement, dated
December 29, 2000, by and among the Company, Mellon Bank, N.A., as
Agent, Wells Fargo Bank, N.A., as Co-Agent, and the Lenders listed
on the signature pages thereto (filed on January 8, 2001 as Exhibit
99.2 to the Company's Current Report on Form 8-K and incorporated by
reference herein).
10.6 Note and Stock Purchase Agreement, dated December 29, 2000, by and
among the Company, and the Guarantors and Purchasers listed on the
signature pages thereto (filed on January 8, 2001 as Exhibit 99.3 to
the Company's Current Report on Form 8-K and incorporated by
reference herein).
10.7 Subordination and Intercreditor Agreement, dated December 29, 2000,
by and among the persons listed on the signature pages thereto as
Subordinated Creditors, Libra Mezzanine Partners II-A, L.P. as agent
of the Subordinated Creditors, the Company, and Mellon Bank, N.A. as
agent for all Senior Lenders party to that certain Second Amended
and Restated Credit and Security Agreement of even date therewith
(filed on January 8, 2001 as Exhibit 99.4 to the Company's Current
Report on Form 8-K and incorporated by reference herein).
10.8 Management Agreement, dated December 29, 2000, by and between Libra
Mezzanine Partners II-A, L.P. and the Company (filed on January 8,
2001 as Exhibit 99.7 to the Company's Current Report on Form 8-K and
incorporated by reference herein).
10.10 Employment Agreement dated August 20, 1998 by and between
Decision-Science Applications, Inc. and Dana R. Raucher (filed on
August 21, 1998 as Exhibit 10.4 to the Company's Current Report on
Form 8-K and incorporated herein by reference).
22
EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No.
- -----------
10.11 Employment Agreement dated September 20, 1999, by and between Kapos
Associates Inc. and Ervin Kapos (filed on April 7, 2000 as Exhibit
10.18 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 and incorporated herein by reference).
10.12 Escrow Agreement dated September 20, 1999, among SM&A Corporation
(East), Kapos Associates Inc., Ervin Kapos and June Kapos and First
American Trust Company (filed on November 15, 1999 as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 and incorporated herein by reference).
10.13 Escrow Agreement dated March 30, 1999, among the Company, Systems
Integration Software, Inc., First American Trust Company and the
individuals names therein (filed on May 17, 1999 as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999 and incorporated herein by reference).
10.14 Escrow Agreement dated August 20, 1998 by and between
Decision-Science Applications, Inc., First American Trust Company
and certain shareholders identified therein (filed on August 21,
1998 as Exhibit 10.5 to the Company's Current Report on Form 8-K and
incorporated herein by reference).
10.15 Employment Agreement dated as of February 1, 2000 between the
Company and Steven S. Myers (filed on Company's Current Report on
Form 10-K filed on April 17, 2001 as Exhibit 10.17 and incorporated
herein by reference).
10.16 Asset Purchase Agreement dated January 11, 2001, by and between
Emergent Information Technologies, Inc., and Lynch & Company, Inc..
(filed on August 14, 2001 as Exhibit 10.16 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001
and incorporated herein by reference).
10.17 Asset Sale and Purchase Agreement dated March 23, 2001, by and
between Emergent Information Technologies, Inc., and ICCE
Technologies, Inc. (filed on August 14, 2001 as Exhibit 10.17 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 2001 and incorporated herein by reference).
*Filed herewith.
(b) Reports on Form 8-K
Not Applicable.
23
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EMERGENT INFORMATION TECHNOLOGIES, INC.
By: /s/ CATHY L. WOOD
-------------------------------------
Dated: November 19, 2001 Cathy L. Wood
Chief Financial Officer and Secretary
(Principal Accounting Officer)
24