U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-10416
----------------------------------------------------
INFODATA SYSTEMS INC.
(Exact Name of Small Business Issuer in its Charter)
VIRGINIA 16-0954695
(State of Incorporation) (I.R.S. Employer Identification No.)
12150 MONUMENT DRIVE, FAIRFAX, VIRGINIA 22033
(Address of Principal Executive Office) (Zip Code)
(703) 934-5205 (Issuer's Telephone Number)
--------------------------------------------------
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
None Not applicable
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK-$.03 PAR VALUE
---------------------------
(Title of Class)
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 (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes _X_ No ___
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Common Stock on May 5, 2000
as reported on the Nasdaq Small Cap market, was approximately $7,222,360.
Shares of Common Stock held by each director and officer and by each person
who owns 5% or more of the outstanding Common Stock have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the Company's Common Stock, par value
$0.03 per share, was 4,671,234 on May 8, 2000.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
INFODATA SYSTEMS INC. AND SUBSIDIARIES
INDEX
Page(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations 3
Three Months Ended March 31, 2000 and 1999
Condensed Consolidated Balance Sheets 4
March 31, 2000 and December 31, 1999
Consolidated Statements of Cash Flows 5
Three Months Ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis 9 - 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 15
2
ITEM 1.
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
March 31,
---------------------------
2000 1999
---------------------------
Revenues $ 2,728 $ 3,390
Cost of revenues 1,685 2,170
-------- --------
Gross profit 1,043 1,220
-------- --------
Operating expenses:
Research and development 82 235
Selling, general and administrative 1,176 1,256
-------- --------
1,258 1,491
-------- --------
Operating loss (215) (271)
Interest income 33 50
Net loss $ (182) $ (221)
======== ========
Net loss per share:
Basic and Diluted $ (0.04) $ (0.05)
======== ========
Weighted average shares outstanding 4,614 4,525
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
March 31, December 31
2000 1999
---------------------------
ASSETS
Current assets
Cash and cash equivalents $ 876 $ 929
Short-term investments 1,800 1,700
Accounts receivable, net of allowance of $56 1,573 1,358
Other current assets 99 93
--------- ---------
Total current assets 4,348 4,080
--------- ---------
Property and equipment, at cost:
Furniture and equipment 3,097 3,006
Less accumulated depreciation and amortization (2,833) (2,773)
--------- ---------
264 233
Intangibles, net of accumulated amortization of $3,512 and $3,450 327 247
Other assets 72 76
--------- ---------
Total assets $ 5,011 $ 4,636
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 366 $ 317
Accrued expenses 913 833
Deferred revenue 693 621
--------- ---------
Total current liabilities 1,972 1,771
Shareholders' equity
Common stock 138 136
Additional paid-in capital 20,047 19,693
Accumulated deficit (17,146) (16,964)
--------- ---------
Total shareholders' equity 3,039 2,865
--------- ---------
Total liabilities and shareholders' equity $ 5,011 $ 4,636
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
2000 1999
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (182) $ (221)
Adjustments to reconcile net loss to cash used in
operating activities:
Equity based compensation expense - 35
Depreciation and amortization 60 102
Intangibles amortization 62 141
Provision for doubtful accounts - 49
Changes in operating assets and liabilities:
Accounts receivable (215) (105)
Other assets (2) 32
Accounts payable 49 (241)
Accrued expenses 139 (56)
Deferred revenue 72 (149)
-------- --------
Net cash used in operating activities (17) (413)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (91) (54)
Purchases of short-term investments (1,100) (2,300)
Proceeds from maturity of short-term investments 1,000 1,680
-------- --------
Net cash used in investing activities (191) (674)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations - (6)
Issuance of common stock 155 16
-------- --------
Net cash provided by financing activities 155 10
-------- --------
Net decrease in cash and cash equivalents (53) (1,077)
Cash and cash equivalents at beginning of period 929 2,200
-------- --------
Cash and cash equivalents at end of period $ 876 $ 1,123
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
INFODATA SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited 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 adjustments) considered necessary
for a fair presentation have been included. Operating results for the three
month period ended March 31, 2000, are not necessarily indicative of the
results for the year ending December 31, 2000. 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, 1999.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
1) REVENUE RECOGNITION - The Company recognizes revenue from the sale of
software licenses in accordance with Statement of Positions No. 97-2,
"Software Revenue Recognition", as amended. Revenues from license
arrangements are recognized upon shipment of the product when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is
fixed and determinable and collectibility is probable. If an ongoing
vendor obligation exists under the license arrangement, revenue is
deferred based on vendor-specific objective evidence of the undelivered
element. If vendor-specific objective evidence does not exist for all
undelivered elements, all revenue is deferred until sufficient evidence
exists or all elements have been delivered. Revenues from annual
maintenance and support are deferred and recognized ratably over the
term of the contract. Revenues from consulting and training are
recognized when the services are performed and collectibility is
determined to be probable. Revenues from consulting and professional
services contracts are recognized on the percentage-of-completion method
for fixed price contracts and on the basis of hours incurred at contract
rates for time and materials contracts. Revenues from cost reimbursement
contracts are recognized as costs are incurred. Any amounts paid by
customers prior to the actual performance of services are recorded as
deferred revenue until earned, at which time the amounts are recognized
in accordance with the type of contract.
The Company also provides off-the-shelf hardware and software products
to the U.S. government under the GSA Schedule Contract and to commercial
companies. The related revenue is recognized when products are shipped
or when customers have accepted the products, depending on contractual
terms.
2) USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3) NEW ACCOUNTING PRONOUNCEMENTS - In December 1999, The Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB
101) which summarizes certain of the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in
financial statements. In March 2000 the SEC issued Staff Accounting
Bulletin No. 101A, which defers the effective date of SAB 101 from
January 1, 2000 to April 1, 2000. The initial adoption of this guidance
6
is not anticipated to have a material impact on the Company's results of
operations, cash flows or financial position, however, the guidance may
impact the way in which the Company will account for future
transactions.
NOTE C - LINE OF CREDIT
The Company maintains a line of credit with Merrill Lynch Business Financial
Services, Inc. for up to $1,000,000 based upon eligible receivables at a per
annum rate equal to the sum of 2.9% plus the 30 day commercial paper rate.
Currently, this per annum rate approximates prime 9.0% at March 31, 2000.
Advances on the facility are based on eligible accounts receivable less than
90 days old. The facility expires in October 2000. The Company did not have
any borrowings under the line of credit as of March 31, 2000.
NOTE D - SUPPLEMENTAL CASH FLOW INFORMATION
No cash was paid for income tax or interest in either period.
Supplemental disclosure of Cash Flows information:
Three Months Ended
March 31,
2000 1999
---- ----
Non-cash investing and financing activities:
Business acquisition in exchange for common stock $142 $ -
NOTE E - BUSINESS AQUISITIONS
On March 30, 2000, the Company acquired a business unit from Earth Satellite
Corporation specializing in providing software development services to the
U.S. intelligence community. The Company issued 40,000 shares of Common stock
with a per share fair value of $3.563, equal to the trading price of the
Company's Common stock on such a date. The fair value of the acquisition price
was $142,520 which was attributed to the business units sole contract. The
value of the contract is being amortized over its life of 18 months.
NOTE F - SEGMENT REPORTING
The table below presents information about reported segments for the three
month periods ended March 31, 2000 and 1999, as well as a reconciliation to
reported loss before income taxes. Management does not assign identifiable
assets to its segments.
7
INFODATA SYSTEMS INC
THREE MONTH ENDED
MARCH 31,2000
SEGMENT INFORMATION
(IN THOUSANDS)
Solutions Proprietary Third Party Total
Products
Revenues: $ 2,149 $ 504 $ 75 $ 2,728
Direct Cost: 1,044 45 74 1,163
-----------------------------------------------------------
Segment Profit: 1,105 459 1 1,565
-----------------------------------------------------------
Research and
Development: 82
Other
costs/income not
allocated to
segments,
primarily
general and
administrative: (1,698)
Interest Income: 33
---------------------
Net Loss: $ (182)
=====================
INFODATA SYSTEMS INC
THREE MONTH ENDED
MARCH 31,1999
SEGMENT INFORMATION
(IN THOUSANDS)
Solutions Proprietary Third Party Total
Products
Revenues: $ 1,861 $ 1,138 $ 391 $ 3,390
Direct Cost: 823 45 387 1,255
-----------------------------------------------------------
Segment Profit: 1,038 1,093 4 2,135
-----------------------------------------------------------
Research and
Development: 235
Other
costs/income not
allocated to
segments,
primarily
general and
administrative: (2,171)
Interest Income: 50
---------------------
Net Loss: $ (221)
=====================
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS RELATING TO PRODUCT DEVELOPMENT, FUTURE CONTRACTS,
REVENUE, THE ADEQUACY OF WORKING CAPITAL, AND YEAR 2000 ARE BASED ON CURRENT
EXPECTATIONS THAT INVOLVE UNCERTAINTIES AND RISKS ASSOCIATED WITH NEW PRODUCTS
AND SERVICE OFFERINGS INCLUDING, BUT NOT LIMITED TO, MARKET CONDITIONS,
SUCCESSFUL PRODUCT DEVELOPMENT, SERVICE INTRODUCTION AND ACCEPTANCE, THE
INTRODUCTION OF COMPETITIVE PRODUCTS, ECONOMIC CONDITIONS, AND THE TIMING OF
ORDERS AND CONTRACT INITIATION. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALY FROM CURRENT EXPECTATIONS. READERS ARE CAUTIONED NOT TO PUT UNDUE
RELIANCE ON FORWARD-LOOKING STATEMENTS. THE COMPANY DISCLAIMS ANY INTENT OR
OBLIGATION TO UPDATE PUBLICLY THESE FORWARD-LOOKING STATEMENTS, WHETHER AS A
RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
COMPANY OVERVIEW
The Company provides its customers with the design and implementation of
complex e-business systems for emerging B2B companies with short
time-to-market requirements and the design and development of web-based
knowledge management (KM) systems, and electronic document management (EDM)
systems. These products and services are provided in three market segments.
The segments consist of (i) business-to-business (B2B) web-site design
solutions, knowledge management consulting, or "e-Content" solutions
("Solutions"), (ii) sales of proprietary products such as Compose,
INQUIRE/text ("Proprietary Products"), and (iii) the sale of third party
software and hardware ("Third Party Products") on a limited basis. Solutions
includes web-based knowledge management systems integration, document
management analysis and implementation, web-site design, system architecture,
application development, and turnkey implementation of complex B2B web
infrastructures and consulting services surrounding the implementation of
proprietary products, and Third Party Products coupled with other related
services. Proprietary Products include INQUIRE/Text software sales, Compose,
Aerial and their associated maintenance. Third Party Products include software
and hardware with some related services. For the quarter ended March 31, 2000,
Solutions accounted for 79% of total revenue, Proprietary Products accounted
for 18% and Third Party accounted for the remaining 3%.
At March 31, 2000, the Company had a net operating loss ("NOL") aggregating
approximately $12,037,000 available to affect future taxable income. Under
Section 382 of the Internal Revenue Code of 1986, as amended ("Code"),
utilization of prior NOLs is subject to certain limitations following a change
in ownership. As a result of the AMBIA acquisition in July 1997, the Company
is subject to limitations on the use of its NOL. Accordingly, there can be no
assurance the Company will be able to utilize a significant amount of NOLs.
Due to uncertainty of taxable income to utilize the NOL, a full valuation
allowance has been established with respect to the deferred tax asset.
Revenues from consulting services are recognized as the work progresses. Any
amounts paid by customers prior to the actual performance of services are
recorded as deferred revenue until earned, at which time they are recognized
in accordance with the type of contract. Revenues from software licenses are
recorded in accordance with the provisions of the Statement of Position 97-2,
"Software Revenue Recognition", as amended. Revenues from customer support and
maintenance agreements are recognized over the period that support is
provided. Deferred revenue is recognized with respect to pre-payments of
maintenance agreements.
9
On March 30, 2000, the Company acquired a business unit from Earth Satellite
Corporation specializing in providing software development services to the
U.S. intelligence community. The acquisition of the business unit brings
additional customer and teaming contracts which expand the Company's presence
in the Intelligence community including a discipline known as Information
Warfare. In conjunction with this acquisition the Company issued 40,000 shares
of Common stock with a fair value of $142,520.
Deferred revenue at March 31, 2000 was $693,000. This related primarily to
amounts from maintenance revenues on the INQUIRE/Text product. The balance of
deferred revenue generally relates to consulting services. The margins that
will be realized on transactions involving deferred revenue depend on the type
of service rendered by the Company. Most of the Company's maintenance revenue
pertains to INQUIRE/Text, which is a mature software product. Deferred
revenues from consulting services carry lower gross margins than deferred
revenues on maintenance agreements.
The components of the Company's cost of revenue are dependent on the product
or service. For consulting, the most significant item is the direct labor cost
of the consultants. Other cost components include subcontractor costs,
non-labor direct costs such as travel and associated indirect costs (e.g.,
office rent, administration, etc.) allocated to the consulting engagement.
Indirect costs are allocated based on head count and utilized office space.
For Third Party Products, the cost of revenue includes the cost incurred by
the Company to acquire the product, shipping and delivery charges, associated
taxes, customization work done by the Company, and any special packaging costs
incurred. The cost of maintenance revenue includes the customer service and
software engineering personnel supporting the product and an allocation of
associated indirect costs. For Proprietary Products, the Company includes
shipping, delivery, packaging, production, the direct labor of personnel
involved in delivering the product and any associated expenses involved with
the installation.
The Company's future operating results may vary significantly and are
difficult to predict due to a number of factors, of which many are beyond our
control. These factors include, the demand for our services and products, the
level of product and price competition, the length of the consulting services
sales cycle, the delay or deferral of customer implementation, the success of
our direct sales force and indirect distribution channels, the mix of products
and services sold, the timing of new hires, the ability of the Company to
control costs, and general domestic economic and political conditions which
could have an adverse effect on the Company's ability to meet its operating
goals.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999
REVENUES
The Company derives revenues from three segments, Solutions, Proprietary
Products and Third Party Products. Solutions revenue includes consulting
services for both commercial and government customers. Proprietary Product
revenue includes the sale of INQUIRE/Text products and services and related
maintenance, and sales of the Company's plug-in based software products. Third
Party Products include software and hardware sold to both government and
commercial customers. Total revenue decreased by $ 662,000, or 20%, for the
three months ended March 31, 2000 as compared to the corresponding period of
the prior year. Revenues for each period consisted of the following:
10
(Dollar Amounts in Thousands)
MARCH 31, 2000 MARCH 31, 1999 INCREASE (DECREASE) %
-------------- -------------- ---------------------
SOLUTIONS
Business Solutions $ 1,282 $ 1,091 18%
Intelligence 763 646 18%
Inquire 104 124 (16%)
---------------------------------------------------------------
Total Solutions Revenue $ 2,149 $ 1,861 15%
===============================================================
PROPRIETARY PRODUCTS
Compose and Others 198 757 (74%)
Inquire/text 306 381 (20%)
---------------------------------------------------------------
Total Proprietary Products Revenue $ 504 $ 1,138 (56%)
===============================================================
TOTAL THIRD PARTY PRODUCTS Revenue $ 75 $ 391 (81%)
===============================================================
Total Revenue $ 2,728 $ 3,390 (20%)
===============================================================
Revenues from Solutions increased overall by $288,000 or 15%, from $1,861,000
for the three months ended March 31, 1999 to $2,149,000 for the three month
period ended March 31, 2000. The Business Solutions unit within the Solutions
segment increased by $191,000, or 18%, from $1,091,000 for the three months
ended March 31, 1999 to $1,282,000 for the three months ended March 31, 2000
due to increases in consulting services. In the first quarter ended March 31,
2000, loss of revenue of $217,000 for training and Mountain view consulting
due to the deemphasis of those operations was more than offset by $437,000 of
e-commerce B2B revenue. Excluding training and Mountain view revenues the
Business Solutions revenue increased by $ 408,000, or 48%, from $854,000 for
the three months ended March 31, 1999 to $1,262,000 for the first quarter
ended March 31, 2000. The Intelligence Solutions unit within the Solutions
segment increased by $117,000, or 18%, from $646,000 for the three months
ended March 31, 1999 to $763,000 for the three months ended March 31, 2000 due
to an increase in classified government work. The Inquire Solutions unit
within the Solutions segment decreased by $20,000, or 16%, from $124,000 for
the three months ended March 31, 1999 to $104,000 for the first quarter ended
March 31, 2000 due to a decline in INQUIRE/Text maintenance and Inquire
consulting services.
Proprietary Product revenue decreased by $634,000, or 56% from $1,138,000 for
the three months ended March 31, 1999 to $504,000 for the three months ended
March 31, 2000. In the first quarter in 1999, revenue from the Adobe license
of $ 500,000 was earned and there was no equivalent revenue in the first
quarter ended March 31, 2000. There were declines in Aerial, Re:mark and other
related products partially offset by an increase in Compose and related
maintenance. The Company expects that INQUIRE/Text related revenue will
continue to decline over time as customers move applications off mainframes.
Third Party Product sales decreased by $316,000, or 81%, from $ 391,000 for
the three months ended March 31,1999 to $75,000 for the three months ended
March 31, 2000. Revenues decreased as the Company's decision to refocus a
majority of its business away from sales of lower gross margin products.
11
GROSS PROFIT
Gross profit decreased by $177,000, or 15%, from $1,220,000 for the three
months ended March 31, 1999 to $1,043,000 for the three months ended March 31,
2000. The reason for the decline is attributed to the non-recurring licensing
fee of $ 500,000 from Adobe for the first quarter ended March 31, 1999 coupled
with a marginal decline in proprietary products (Compose, Aerial, Re:mark) and
INQUIRE/Text maintenance revenue which have high gross margins.
Gross margin as a percent of revenues increased from 36% for the three months
ended March 31, 1999 to 38% for the three months ended March 31, 2000. The
nominal increase in gross margin of 2% is attributed to higher profit margins
on various consulting service fixed price contracts.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased $153,000, or 65%, from $235,000
for the three months ended March 31, 1999 to $82,000 for the three months
ended March 31, 2000. The decrease was attributed to the Company's decision to
reduce development of its proprietary products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $80,000, or 6%, from
$1,256,000 for the three months ended March 31, 1999 to $1,176,000 for the
three months ended March 31, 2000. The decrease was due to a reduction in
selling costs and in administrative personnel.
INTEREST INCOME AND EXPENSE
Net interest income decreased $17,000 or 34%, from $50,000 for the three
months ended March 31, 1999 to $33,000 for the three months ended March 31,
2000. The reduction in net interest income is due to lower cash balances and
short-term investments in the first quarter ended March 31, 2000 compared to
the same quarter ended March 31, 1999. There were no borrowings and the
Company incurred no interest expense in either period. The Company has
invested in short-term money market instruments and commercial paper.
NET LOSS
As a result of the above, the net loss decreased by $39,000, or 18%, from
$221,000 for the three months ended March 31, 1999 to $182,000 for the three
months ended March 31, 2000. The primary reason for the decrease is due to the
better utilization in consulting personnel, decreases in Selling and
Administrative and Research and Development costs, lower direct costs coupled
with higher gross margins which more than offset the decline in segment
profitability.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash, cash equivalents and short-term
investments of $2,676,000. Net working capital at March 31, 2000 amounted to
$2,376,000 as compared to $2,309,000 at March 31, 1999. The Company had no
borrowings as of March 31, 2000. The Company maintains a line of credit with
Merrill Lynch Business Financial Services, Inc. ("MLBFS") for up to $1,000,000
based upon eligible receivables. Interest on any outstanding debt under this
line is calculated at a per annum rate equal to the sum of 2.9% plus the
30-day commercial paper rate. Currently, this per annum rate approximates
prime. This facility expires in October 2000. The line of credit is contingent
upon the Company continuing to meet certain general funding requirements,
including the absence of any material adverse change in the Company's business
or financial condition, the continued accuracy of the Company's
representations and warranties and the provision of quarterly and monthly
financial information. The Company is currently in compliance with these
funding requirements.
12
Net cash used in operating activities for the three months ended March 31,
2000 of $17,000 was due to the Company's net loss for the period of $182,000,
and an increase in accounts receivable of $215,000. This was partially offset
by an increase in accounts payable and accrued expenses of $188,000,
depreciation and amortization expenses of $122,000, and an increase in
deferred revenue of $72,000.
Net cash used in investing activities for the three months ended March 31,
2000 of $191,000 was due to a net increase in short-term investments of
$100,000 and the purchase of fixed assets of $91,000.
Net cash provided by financing activities for the three months ended March 31,
2000 of $155,000 due to the issuance of common stock to employees exercising
stock options.
Net cash flow from operating activities for the three months ended March 31,
2000 was not sufficient to fund the operations of the business. However,
management believes that available working capital will be sufficient to meet
its requirements for the next twelve months. The Company's actual cash
requirements may vary materially from those now planned and will depend upon
numerous factors, including the general market acceptance of the Company's
products and services, the growth of the Company's marketing channels, the
technological advances and activities of competitors, and other factors.
CONTINGENCIES
Costs charged to cost-type U.S. government contracts are subject to annual
audit by the Defense Contract Audit Agency or other duly authorized
representatives of the Federal government. No audits have been completed for
any periods commencing after 1994. Audits for years 1995 through 1998 began on
April 5, 2000 in the second quarter, and in the opinion of management,
adjustments resulting from the completion of such audits and future audits are
not expected to have a material impact on the Company's financial position or
results of future operations.
From time to time, the Company is subject to claims arising in the ordinary
course of business. In the opinion of management, no such matter, individually
or in the aggregate, exists which is expected to have a material effect on the
results of operations, cash flows or financial position of the Company.
IMPACT OF THE YEAR 2000
To date, the Company has experienced no significant adverse effects related to
the Year 2000 computer issue. All important internal information technology
systems made a seamless transition into the Year 2000 and there were no
notable problems with equipment or systems which may have been effected by
Year 2000 problems. The Company is not aware of any significant Year 2000
problems at any of its customers nor has the Company noted any disruption in
its supply chain related to Year 2000 issues.
The Company implemented a comprehensive project plan to identify internal and
external information technology and non-information technology systems which
required modification or upgrade to be made Year 2000 compliant. An inventory
and assessment of these systems was completed by the third quarter of 1999.
Remediation and testing of non-Year 2000 compliant systems was also completed
during the fourth quarter of 1999. The Company developed and tested
contingency plans which identified workarounds in the event of a malfunction
of a system designated as a priority system at the inventory stage. In
addition, the Company identified suppliers of key goods and services to all
business areas, requested information about their Year 2000 readiness, and
audited certain key suppliers for Year 2000 readiness.
13
The Company had spent approximately $23,800 primarily for capital expenditures
as of December 31, 1999 to become Year 2000 compliant. These expenditures are
for external costs and do not include costs of Company employees who
implemented the comprehensive project plan described above. As of March 31,
2000 the Company has not incurred any additional external costs and has not
experienced any problems associated with Year 2000. However, the Company
believes that if any additional resources are required to address Year 2000
issues they will not be material. However, there can be no assurance that
currently unidentified Year 2000 issues, if any, will not arise, especially in
areas outside the Company; that these issues will not have a material adverse
effect on the Company; or, that additional resources needed to address these
issues will not be material.
14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
(a) EXHIBITS
EXHIBIT NO. DOCUMENT
27 Financial Data Schedule
(b) REPORTS ON FORM 8 - K. No reports on Form 8-K were filed during the
three month period ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
INFODATA SYSTEMS INC.
BY: /s/STEVEN M. SAMOWICH
---------------------
Steven M. Samowich
President and CEO
Date: May 11, 2000
BY: /s/GARY I. GORDON
-----------------
Gary I. Gordon
Principal Accounting Officer