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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the Quarter Ended March 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
0-10416
(Commission File Number)
INFODATA SYSTEMS INC.
(Exact name of small business issuer as specified in its charter)
12150 Monument Drive, Suite 400, Fairfax, Virginia 22033
(Address of registrant's principal executive office)
(703) 934-5205
(Registrant's telephone number)
New York 16-0954695
(State of Incorporation) (I.R.S. Employer
Identification No.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months and (2)
has been subject to such filing requirements for the past 90 days.
X Yes No
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The number of shares of common stock outstanding as of May 10, 1995, was
604,874.
Transitional Small Business Disclosure Format; Yes X No
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Page 1 of 15
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
INDEX
Page(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1995 and 1994 3
Condensed Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 4-5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements
March 31, 1995 and 1994 7-10
Item 2. Management's Discussion and Analysis 11-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURES 15
Page 2 of 15
PART I. FINANCIAL INFORMATION
ITEM 1.
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
March 31,
1995 1994
------ ------
Revenues $1,713 $1,791
Cost of revenues 1,123 1,123
----- -----
Gross profit 590 668
----- -----
Operating expenses:
Research & development 69 49
Selling, general and administrative 541 512
----- -----
610 561
----- -----
Operating income (loss) (20) 107
Interest income 31 6
Interest expense (7) (11)
----- -----
Income before income taxes 4 102
Provision for income taxes -- 2
----- -----
Net income $ 4 $ 100
===== =====
Per share data (primary and fully diluted):
Net income (loss) per common share $ (.04) $ 0.12
===== =====
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
Page 3 of 15
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts In Thousands)
(Unaudited)
March 31, December 31,
1995 1994
--------- ------------
Assets
Current Assets
Cash and cash equivalents $2,221 $1,695
Short term investments 80 80
Accounts receivable, net of
allowance of $30 810 1,437
Prepaid royalties 113 141
Other current assets 158 140
------ ------
Total current assets 3,382 3,493
------ ------
Property and equipment, at cost:
Furniture and equipment 1,889 1,870
Leasehold improvements 31 31
Less accumulated depreciation and
amortization (1,448) (1,380)
------ ------
472 521
Software development costs, net of accumulated
amortization of $1,747 and $1,634 389 499
------ ------
Total assets $4,243 $4,513
====== ======
<FN>
The accompanying notes are an integral part of these consolidated balance
sheets.
</FN>
Page 4 of 15
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
(Unaudited)
March 31, December 31,
1995 1994
--------- ------------
Liabilities and shareholders' equity
Current liabilities:
Current portion of capital lease obligations $ 150 $ 159
Current portion of note payable 31 37
Accounts payable 192 241
Accrued expenses 560 689
Deferred revenue 1,578 1,589
Current portion of deferred rent 33 33
----- -----
Total current liabilities 2,544 2,748
----- -----
Capital lease obligations 121 151
Note payable 61 69
Deferred rent 76 84
----- -----
Total liabilities 2,802 3,052
----- -----
Shareholders' equity:
Preferred stock 134 134
Common stock 18 18
Additional paid in capital 7,795 7,789
Treasury stock (2) (2)
Accumulated deficit (6,504) (6,478)
----- -----
Total shareholders' equity 1,441 1,461
----- -----
Total liabilities and shareholders' equity $4,243 $4,513
===== =====
<FN>
The accompanying notes are an integral part of these consolidated balance
sheets.
</FN>
Page 5 of 15
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in Thousands)
(Unaudited)
Three Months Ended
March 31,
1995 1994
------ ------
Cash flows from operating activities
Net income $ 4 $ 100
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 181 170
Changes in operating assets and liabilities:
Accounts receivable 627 (288)
Other current assets 10 3
Accounts payable (49) (61)
Accrued expenses (129) 2
Deferred revenue (11) 354
Deferred rent (8) (8)
----- -----
Net cash provided by operating activities 625 272
----- -----
Cash flows from investing activities
Software development costs capitalized (3) (32)
Purchases of property and equipment, net (19) (4)
----- -----
Net cash used in investing activities (22) (36)
----- -----
Cash flows from financing activities
Payments on capital lease obligations (39) (79)
Proceeds from capital lease obligations -- 60
Payments on note payable (14) (12)
Dividends (30) --
Proceeds from issuance of common stock 6 --
----- -----
Net cash used in financing activities (77) (31)
----- -----
Net increase in cash and cash equivalents 526 205
Cash and cash equivalents at beginning of period 1,695 866
----- -----
Cash and cash equivalents at end of period $2,221 $1,071
===== =====
Supplemental disclosure of cash flow information:
Cash paid for interest $ 7 $ 11
Cash paid for income taxes $ 9 $ 2
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
Page 6 of 15
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB
and Item 310(b) of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended March 31, 1995, are not necessarily indicative
of the results for the year ending December 31, 1995. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-KSB for the year ended December 31,
1994.
NOTE B -- ACCOUNTING POLICIES
Cash Equivalents and Short Term Investments
- - - - -------------------------------------------
All highly liquid investments with an original maturity of 180 days or less
at time of purchase are considered to be cash equivalents. At March 31, 1995
and December 31, 1994, the Company had included in short term investments
certificates of deposits totalling $80,000 which were restricted pursuant to
certain capital lease obligations.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The adoption of this statement did not have an effect on
the Company's financial position or results of operations.
Reclassification
- - - - ----------------
Certain 1994 expenses have been reclassified to conform to the 1995
presentation for comparison purposes.
NOTE C -- SOFTWARE DEVELOPMENT COSTS
Capitalization of software development costs begins upon the establishment
of technological feasibility. Capitalization ceases when the products are
available for general release to customers. The establishment of technolog-
ical feasibility and the continuing assessment of recoverability of capital-
ized software development costs requires considerable judgment by management
with respect to certain external factors, including, but not limited to,
anticipated future gross revenue, estimated economic life and changes in
software and hardware technologies.
Amortization expense is determined on an individual basis and is
computed as the greater of the amount calculated on a revenue basis
or straight-line basis over the economic life of the product,
Page 7 of 15
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
generally three to five years. Amortization of software development costs
is included in cost of revenues in the accompanying condensed consolidated
statements of operations.
The following summarizes the costs capitalized and related charges for
amortization during 1995 and 1994 in the accompanying financial statements.
Three Months Ended
March 31,
1995 1994
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Costs capitalized $ 3,000 $ 32,000
Amortization (113,000) (106,000)
------- -------
Net cost amortized $(110,000) $ (74,000)
======= ========
NOTE D -- INCOME TAXES
At March 31, 1995, the Company had approximately $5,594,000 in net operating
loss carryforwards for income tax reporting purposes. The operating loss
carryforwards expire in varying amounts from 1998 through 2008. In addition,
at March 31, 1995, the Company had $141,000 in research and development tax
credit carryforwards expiring in 1996 and 1997, and $66,000 in investment tax
credit carryforwards expiring in 1995 through 2000.
The significant components of net deferred tax (liabilities) assets are as
follows at March 31, 1995 and December 31, 1994.
March 31, December 31,
1995 1994
--------- ---------
Deferred tax liabilities:
Net software development costs $ (148,000) $ (189,000)
--------- ---------
Deferred tax assets:
Net operating loss carryforward 2,124,000 2,129,000
Investment tax credit and research and
development tax credit carryforwards 207,000 207,000
Other 54,000 92,000
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Total deferred tax assets 2,385,000 2,428,000
--------- ---------
Net deferred tax assets before
valuation allowance 2,237,000 2,239,000
Valuation allowance (2,237,000) (2,239,000)
--------- ---------
Net deferred tax assets $ -- $ --
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Page 8 of 15
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Under the provisions of SFAS No. 109, "Accounting for Income Taxes," the tax
effect of the net operating loss and investment tax credit carryforwards,
together with net temporary differences, represents a net deferred tax asset
against which management has fully reserved due to the uncertainty of future
taxable income. The carryforwards will be realized for financial reporting
purposes when utilized to offset future taxable income.
NOTE E -- REVERSE COMMON STOCK SPLIT
On April 15, 1994, the Company's shareholders authorized the Board of
Directors to effect a one for three reverse stock split of the Company's
common stock. Such action resulted in an increase in the par value of the
common stock from $0.01 to $0.03 per common share. The reverse stock split
became effective April 27, 1994, and reduced the Company's common stock
outstanding from 1,807,961 shares to 602,374 shares. The reverse stock split
impacted each then existing issued share of common stock, as well as any then
existing common stock issuable upon the conversion of outstanding convertible
preferred stock and the exercise of outstanding common stock options and
common stock warrants.
NOTE F -- NET INCOME (LOSS) PER COMMON SHARE
For the three months ended March 31, 1995 and 1994, the net income (loss) per
common share was based upon the weighted average number of common shares
outstanding of 605,000 and 602,000, respectively. Net income for the three
months ended March 31, 1995 and 1994, has been decreased for preferred stock
dividends of $30,000 to arrive at net income (loss) available to common
shareholders. For purposes of the calculation of primary net income (loss)
per common share for each period, no common stock equivalents were recognized
as their inclusion was either immaterial or anti-dilutive. The calculation
of fully diluted net income (loss) per common share for the three months
ended March 31, 1995 and 1994 which assumes the conversion of the preferred
stock and resultant elimination of preferred stock dividends was anti-
dilutive when compared to primary net income (loss) per share.
NOTE G -- CONVERTIBLE PREFERRED STOCK
Dividends on preferred stock are paid upon declaration by the Board of
Directors. Cash dividends of $30,000 ($0.225 per preferred share) were
declared in the first quarter of 1995. No cash dividends were paid for any
quarterly period beginning with the fourth quarter of 1992 and ending with
the second quarter of 1994; therefore, dividend arrearage on cumulative
preferred stock as of March 31, 1995, totalled $210,000 ($1.58 per preferred
share).
Page 9 of 15
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE H -- LINE OF CREDIT
In February, 1995, the Company entered into a working capital line of
credit with Crestar Bank. This loan facility provides the Company with a
$500,000 line of credit. Advances on the facility are based on eligible
billed accounts receivable less than 90 days in age. The facility expires in
April, 1996, and is contingent upon the Company meeting certain financial
covenants. During the three months ended March 31, 1995, the Company made
no borrowings under this line of credit.
Page 10 of 15
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS
Overview
- - - - --------
Infodata Systems Inc. (the "Company") has historically provided mainframe-
based software products and services which help business, government, and
educational institutions to automate collections of documents consisting of
large amounts of text. In the last several years, advances in computer
technology have resulted in a shift to a distributed computing environment in
which numerous databases or individual "server" computers can be accessed by
multiple "clients" such as workstations, personal computers or terminals. To
address the developing client/server technologies, the Company now provides
complete Electronic Document Management System (EDMS) solutions through the
sale of software solutions using third party products.
The Company offers what it believes are the best EDMS solutions in different
computing environments including client/server, mainframe and hybrid
combinations. The EDMS solution sale involves planning and implementation
services which integrate multiple technologies such as workflow, management
of electronically created documents, search and text retrieval, imaging and
other document technologies. As the Company integrates solutions into the
customer's business operations, it offers consulting and training to
familiarize the customer's personnel with the technology. The Company
provides follow on consulting for third party products from PC DOCS Inc.,
Lotus Development Corporation, Folio Corporation, Open Text Corporation and
Verity, Inc.
The Company has established and continues to establish alliances with UNIX
and PC based client/server providers as well as those companies offering
related technologies which the Company remarkets as a turnkey system or in
conjunction with consulting services provided by the Company's professional
consulting staff. The Company has a software laboratory in its facility
which is used to test and research new EDMS products to assure connectivity
with other EDMS components and across various computing platforms and
networking systems.
A major portion of the Company's activities to date are attributable to
INQUIRE(Registered Trademark)/Text, a proprietary computer software product,
which operates on IBM (or compatible) mainframe computers under all of the
large IBM operating systems - MVS with both TSO and CICS, and VM with CMS.
ViewScapes(Registered Trademark), the Company's graphical user interface which
operates in conjunction with INQUIRE/Text, operates on IBM or compatible PC's.
Using INQUIRE/Text, customers access such online document applications as
regulations and standards, policies and procedures, business intelligence,
records management, contracts, patents and trademarks, legislative bill
tracking, health management, environmental safety, and litigation support.
The Company continues to enhance and support INQUIRE/Text to assure customer
satisfaction, as a significant portion of the Company's revenues are derived
from maintenance of its INQUIRE/Text product.
Page 11 of 15
Results of Operations
- - - - ---------------------
Revenues for the three months ended March 31, 1995, totalled $1,713,000, a
decrease of $78,000 (4.4%) as compared to revenues for the three months
ended March 31, 1994. Total INQUIRE/Text-based revenue sources declined
$218,000 (13.5%) for the three months ended March 31, 1995, as compared to
the three months ended March 31, 1994. INQUIRE/Text product revenues and
maintenance revenues declined $187,000 (78.9%) and $107,000 (13.2%),
respectively, for the three months ended March 31, 1995, as compared to the
same period in 1994. These declines were partially offset by an increase in
INQUIRE/Text consulting service revenues of $76,000 (13.4%) for the three
months ended March 31, 1995, as compared to the same period in 1994.
Overall, client/server (non-mainframe related) based revenues increased
$140,000 (79.8%) for the three months ended March 31, 1995, as compared to
the same period in 1994. Client/server based revenues grew from 9.8% of total
revenues to 18.4% of total revenues for the three months ended March 31, 1994
and 1995, respectively. Reflecting the Company's expanded partnerships with
third party software vendors, client/server product revenues increased
$87,000 for the three months ended March 31, 1995, compared to the same
period in 1994. Increased client/server consulting services resulted in
$53,000 (31.0%) of additional revenues for the three months ended March 31,
1995, as compared to the three months ended March 31, 1994.
Gross margin (gross profit as a percentage of revenue) declined 2.9% for the
three months ended March 31, 1995, as compared to the same period in 1994,
from 37.3% to 34.4%. The reduction in gross margin is due to the decrease in
1995 sales of the Company's proprietary INQUIRE/Text product, partially offset
by: 1) increases in 1995 revenues from the sale of third party client/server
software products; 2) reduced 1995 staffing levels; and 3) the Company's
decision in September, 1994 to outsource its mainframe related data processing
services to a third party provider.
In accordance with SFAS No. 86, certain expenditures associated with the
enhancement of existing software products to create new products and
enhancements to existing products are capitalized and then amortized over
three to five years. Costs capitalized during the three months ended March
31, 1995 were $3,000, a decrease of $29,000 (90.6%) from the same period in
1994. The decrease is due to the completion of Release G of INQUIRE/Text in
late 1994; subsequent activities during the first quarter of 1995 have been
directed toward training in client/server related technologies. As a result,
research and development expenses increased $20,000 (40.8%) for the three
months ended March 31, 1995, as compared to the same period in 1994.
Selling, general and administrative expenses for the three month period ended
March 31, 1995, increased by $29,000 (5.7%) as compared to the three month
period ended March 31, 1994. Due to the shifting emphasis of the Company's
focus toward complete EDMS solutions, sales and marketing efforts were
expanded during the three months ended March 31, 1995, to provide increased
exposure of the Company's products and services to its potential customer
base. Participation in trade shows as well as additional sales and marketing
staff resulted in an increase in selling expenses of $76,000 (42.7%) for the
three months ended March 31, 1995, as compared to the three months ended
March 31, 1994. Corporate expense decreased $47,000 (14.0%) for the same
respective periods due to a one time accrual during the three months ended
March 31, 1994 of expenses relating to the lease termination of the Company's
Montvale, New Jersey branch office.
Page 12 of 15
As a result of the above, an operating loss of $20,000 was incurred for the
three months ended March 31, 1995, compared to operating income of $107,000
in the prior year's comparable quarter. Interest income increased from $6,000
for the three month period ended March 31, 1994, to $31,000 for the three
month period ended March 31, 1995, due to an increase in cash balances
available for investment which yielded higher returns. Interest expense for
the three months ended March 31, 1995, declined by $4,000 as compared to the
same period in 1994.
As a result of the above, the Company reported a net income of $4,000 for the
three months ended March 31, 1995, as compared to net income of $100,000 for
the three months ended March 31, 1994. Net loss per common share (after
preferred stock dividends) for the three months ended March 31, 1995 was
$0.04. Net income per common share (after preferred stock dividends) for the
three months ended March 31, 1994 was $0.12 (see Note F to the Condensed
Consolidated Financial Statements contained elsewhere in this report).
Effective January 1, 1994, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." Accordingly, deferred tax assets are to be recognized currently
to the extent the Company concludes, more likely than not, that future income
will be available for realization of the deferred tax assets. At March 31,
1995, the Company has net deferred tax assets of $2,237,000, for which
management has fully reserved.
Liquidity and Capital Resources
- - - - -------------------------------
As of March 31, 1995, the Company had $2,301,000 in cash and short term
investments compared to $1,775,000 in cash and short term investments as of
December 31, 1994 (see Note B to the Condensed Consolidated Financial
Statements contained elsewhere in this report).
At March 31, 1995, the Company had working capital of $838,000, as compared
to working capital of $745,000 at December 31, 1994. During the first quarter
of 1995, the Company purchased approximately $19,000 of property and
equipment, none of which was financed through capital lease transactions.
In February 1995, the Company entered into a working capital line of credit
with Crestar Bank. This loan facility provides the Company with a $500,000
line of credit bearing an interest rate which varies from prime plus 1/4% to
prime plus 1 1/4% based on the ratio of total liabilities to tangible net
worth and expires in April, 1996. During the three months ended March 31,
1995, the Company made no borrowings under this line of credit (see Note H to
the Condensed Consolidated Financial Statements contained elsewhere in this
report).
Net cash flow from all activities for the three months ended March 31, 1995,
was sufficient to fund the operations of the business. Based upon expectations
of future revenues from the Company's existing products and services,
management believes that available and projected resources will be sufficient
to meet its working capital requirements for the foreseeable future.
Page 13 of 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
11 Computation of net income (loss) per common share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 1995.
Page 14 of 15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
INFODATA SYSTEMS INC.
(Registrant)
Date: May 10, 1995 By: HARRY KAPLOWITZ
---------------
Harry Kaplowitz
President
Date: May 10, 1995 By: DAVID A. KARISH
---------------
David A. Karish
Senior Vice President and
Secretary/Treasurer
Page 15 of 15