U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-10416
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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)
VIRGINIA 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. Yes [X] No [ ]
The number of shares of common stock outstanding as of August 4, 1997 was
2,720,207.
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)
Condensed Consolidated Statements of Operations
Three Months Ended June 30, 1997 and 1996 3
Condensed Consolidated Statements of Operations
Six Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 5-6
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis 9-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
PART I--FINANCIAL INFORMATION
ITEM 1
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
June 30,
1997 1996
---------------------------
Revenues............................................ $1,956 $2,360
Cost of revenues.................................... 1,066 1,410
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Gross profit........................................ 890 950
------- -------
Operating expenses:
Research and development............................ 578 199
Selling, general and administrative................. 1,295 623
------- -------
1,873 822
------- -------
Operating income (loss):............................ (983) 128
Interest income..................................... 15 27
Interest expense.................................... (5) (3)
------- -------
Income (loss) before income taxes................... (973) 152
Provision for income taxes.......................... -- 4
------- -------
Net income (loss)................................... $ (973) $ 148
======= =======
Preferred dividends................................. -- (28)
Income (loss) applicable to common shares........... $ (973) $ 120
======= =======
Per share data (primary and fully diluted):
Net income (loss) per common share $ (.37) $ .06
======= =======
Weighted average shares outstanding................. 2,625 2,017
======= =======
The accompanying notes are an integral part of these consolidated statements.
3
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Six Months Ended
June 30,
1997 1996
---------------------------
Revenues............................................ $ 3,997 $ 4,853
Cost of revenues.................................... 2,416 3,078
-------- -------
Gross profit........................................ 1,581 1,775
-------- -------
Operating expenses:
Research and development............................ 945 256
Selling, general and administrative................. 2,502 1,268
-------- -------
3,447 1,524
-------- -------
Operating income (loss):............................ (1,866) 251
Interest income..................................... 40 47
Interest expense.................................... (7) (7)
-------- -------
Income (loss) before income taxes................... (1,833) 291
Provision for income taxes.......................... (5) 7
-------- -------
Net income (loss)................................... $ (1,828) $ 284
========= ========
Preferred dividends................................. - (58)
Income (loss) applicable to common shares........... $ (1,828) $ 226
========= ========
Per share data (primary and fully diluted):
Net income (loss) per common share $ (.69) $ .11
========= ========
Weighted average shares outstanding................. 2,653 1,973
========= ========
The accompanying notes are an integral part of these consolidated statements.
4
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
June 30, December 31,
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 629 $ 1,266
Short-term investments........................................... 419 947
Accounts receivable, net of allowance of $80 and $30 1,076 1,522
Other current assets............................................. 308 185
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Total current assets.................................... 2,432 3,920
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Property and equipment, at cost:
Furniture and equipment.......................................... 2,644 2,373
Less accumulated depreciation and amortization (2,053) (1,897)
-------- --------
591 476
Goodwill, net............................................................. 259 274
Other assets.............................................................. 153 137
Software development costs, net........................................... 63 84
-------- --------
Total assets.............................................................. $ 3,498 $ 4,891
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
5
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited)
June 30, December 31,
1997 1996
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 37 $ 46
Short-term debt ....................................................... 176 --
Accounts payable....................................................... 430 327
Accrued expenses....................................................... 880 823
Deferred revenue....................................................... 1,070 1,079
Current portion of deferred rent....................................... 33 33
-------- --------
Total current liabilities.............................................. 2,626 2,308
Capital lease obligations.............................................. 19 33
Deferred revenue....................................................... 75 75
Deferred rent.......................................................... 3 19
-------- --------
Total liabilities ..................................................... 2,723 2,435
-------- --------
Shareholders' equity:
Common stock........................................................... 69 68
Additional paid-in capital............................................. 9,201 9,055
Accumulated deficit.................................................... (8,495) (6,667)
-------- --------
Total shareholders' equity............................................. 775 2,456
-------- --------
Total liabilities and shareholders' equity $ 3,498 $ 4,891
======== ========
The accompanying notes are an integral part of the consolidated balance
sheets.
6
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Six Months Ended
June 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................................. $ (1,828) $ 284
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 156 131
Software amortization...................................... 21 21
Goodwill and other intangible amortization 24 23
Other...................................................... -- --
Changes in operating assets and liabilities:
Accounts receivable........................................ 446 339
Other current assets....................................... (123) (7)
Other assets .............................................. (25) --
Accounts payable........................................... 53 (163)
Accrued expenses........................................... 57 145
Deferred revenue........................................... (9) (269)
Deferred rent.............................................. (16) (22)
-------- --------
Net cash (used in) provided by operating activities.. (1,244) 482
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net(used in)............. (221) (73)
Business acquisition.......................................... -- (12)
Proceeds from maturity of short term investments.............. 528 29
-------- --------
Net cash provided by (used in) investing activities.. 307 (56)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations......................... (23) (67)
Payments of notes payable..................................... -- (2)
Net proceeds from short-term borrowings 176 --
Preferred stock dividends..................................... -- (59)
Issuance of common stock ..................... 147 --
-------- --------
Net cash provided by (used in) financing activities.. 300 (128)
-------- --------
Net change in cash and cash equivalents....................... (637) 298
Cash and cash equivalents at beginning of period 1,266 1,476
-------- --------
Cash and cash equivalents at end of period $ 629 $ 1,774
======== ========
The accompanying notes are an integral part of these consolidated statements.
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 and
six month periods ended June 30, 1997, are not necessarily indicative of the
results for the year ending December 31, 1997. 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, 1996.
NOTE B--NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 128, "Earnings per Share",
changes the reporting requirements for earnings per share (EPS) for publicly
traded companies by replacing primary EPS with basic EPS and changing the
disclosures associated with this change. The Company is required to adopt this
standard for its December 31, 1997 year-end and is currently evaluating the
impact of this standard.
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. The facility expires in
November 1997, and is contingent upon the Company meeting certain financial
covenants. The Company has outstanding borrowings of $176,000 at June 30, 1997
under this line of credit.
NOTE D--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense was $5,000 and $7,000 for the periods ended
June 30, 1997 and 1996, respectively. No cash was paid for income taxes in
either period.
NOTE E--SUBSEQUENT EVENT
On July 22, 1997, the Company acquired all of the stock of AMBIA Corporation
for 400,000 shares of the Company's common stock. The acquisition was
accomplished by means of a merger of a wholly-owned subsidiary of the Company
into AMBIA. AMBIA develops, markets and sells software products and consulting
services, which are complementary to those being developed, marketed and sold
by the Company.
NOTE F--RISKS AND UNCERTAINTIES
The Company is developing the Virtual File Cabinet(TM) (VFCTM), a family of
new proprietary software products. The Company has incurred significant costs
related to these products and will continue to incur these costs in the
future. Although management expects to generate revenues from this line of
products in the future, no revenues were generated from the VFC products in
the first six months of 1997. Also, there can be no assurance as to the amount
of VFC revenues in the future. Management has identified potential contingency
plans to mitigate
8
the Company's future liquidity risk and believes that such plans will be
effective. Furthermore, the Board of Directors and management have initiated
discussions with various sources regarding additional financing to support the
VFC business.
In 1996, a customer asserted that the Company did not perform on a contract
and sought a $90,000 refund. The Company vigorously denies the assertion and
management believes that based upon the current facts it is not probable that
a loss will incur. Accordingly, no accrual has been made for this claim at
June 30, 1997.
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
REVENUES
Revenues for the three and six months ended June 30, 1997 totaled $1,956,000
and $3,997,000, respectively, reflecting decreases of $404,000 (17%) and
$856,000 (18%) from the three and six month periods ended June 30, 1996,
respectively. The Company's revenues have been derived from three sources:
INQUIRE(R) related services, products and maintenance; services and products
provided to the intelligence community; and other client/server products and
services.
INQUIRE related revenue decreased $175,798 (20%) and $132,055 (8%) for the
three and six months ended June 30, 1997, respectively, as compared to the
same time period in 1996. The Company expects that INQUIRE related maintenance
revenues will continue to decline over time due to the maturity of the market.
Intelligence related revenues increased $163,453 (26%) and $271,533 (21%) for
the three and six months ended June 30, 1997, respectively, as compared to the
same time period in 1996. The increase is due to significant growth in
client/server consulting and product sales, partially offset by a decline in
INQUIRE related consulting to the intelligence community.
Client/server product and service revenues including training decreased
$392,036 (45%) for the three-month period ended June 30, 1997 and $996,388
(52%) for the six-month period ended June 30, 1997. This reflects the shift of
sales and engineering resources from services to the development and marketing
of Virtual File Cabinet (TM) (VFC(TM)). The Company expects to see an
improvement in these service revenues beginning later in 1997 as sales and
technical resources are replenished.
GROSS PROFIT
Gross profit decreased to $890,000 and $1,581,000 for the three and six months
ended June 30, 1997, respectively. This compares to a gross profit of $950,000
and $1,775,000 for the same periods ended June 30, 1996, respectively. The
decreases are due to a decline in revenues in client/server products and
services. As discussed above, key sales and engineering resources were shifted
to the Company's VFC products from the client/server area. The Company is
seeking to replace these resources by the end of the third quarter of 1997.
The Company expects to see an improvement in revenues and gross profits
beginning later in 1997.
RESEARCH AND DEVELOPMENT EXPENSE
The Company continues to invest heavily in the development of VFC. This
resulted in research and development expense increases of $379,000 (190%) and
$689,000 (269%) for the three and six months ended June 30, 1997,
respectively, compared to the three and six-month expenses ended June 30,
1996, respectively. The Company expects this investment to increase throughout
1997 and beyond as VFC product enhancements and capabilities are added.
9
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $1,295,000 and
$2,502,000 for the three and six months ended June 30, 1997, respectively,
from $623,000 and $1,268,000 for the same periods ended June 30, 1996,
respectively. The increase for this period is due almost entirely to an
expansion of the sales and marketing staff and an increase in the marketing
expenses associated with VFC. The Company expects these expenses to increase
throughout 1997 as new versions of VFC are released, new sales channels are
established and potential markets are explored.
INTEREST INCOME AND EXPENSE
Interest income was $15,000 and $40,000 for the three and six month periods
ended June 30, 1997, respectively, and $27,000 and $47,000 for the same
periods ended June 30, 1996, respectively. The decrease was due to lower
balances of cash, cash equivalents and short-term investments during the three
and six month periods ended June 30, 1997 than in the same periods in 1996.
The Company invested only in short-term, highly liquid instruments. Interest
expense increased to $5,000 from $3,000 for the three month period ended June
30, 1997 compared to the same period in 1996. This was due to the utilization
of a line of credit during the second quarter of 1997. Interest expense of
$7,000 for the six months ended June 30, 1997 remained unchanged as compared
to the same period in 1996. This expense consists primarily of interest on
certain capital equipment leases that expire during 1998.
NET INCOME OR LOSS
As a result of the above, the Company reported a net loss of $973,000 and
$1,828,000 for the three and six months ended June 30, 1997, respectively, as
compared to net income of $148,000 and $284,000 for the same periods last
year.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had $1,048,000 in cash, cash equivalents and
short-term investments compared to $2,213,000 as of December 31, 1996.
At June 30, 1997, the Company had a deficit in working capital of $194,000, as
compared to working capital of $1,612,000 at December 31, 1996. The decrease
in working capital is due primarily to losses incurred during the first two
quarters of 1997.
Net cash flow from operating activities for the six months ended June 30, 1997
was not sufficient to fund the operations of the business. However, based upon
the Company's expectations of future revenue from both the Company's existing
products and services and based upon new revenues expected to be generated by
the AMBIA acquisition (see Note E to the Condensed Consolidated Financial
Statements contained elsewhere in this report) and VFC, management believes
that available and projected resources will be sufficient to meet its working
capital requirements for the foreseeable future. Management is in discussions
to procure additional financing to support the VFC business and to mitigate
any future liquidity risk (see Note F to the Condensed Consolidated Financial
Statements contained elsewhere in this report).
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. The facility expires in
November 1997. As of June 30, 1997, the Company had outstanding borrowings of
$176,000 under this line of credit.
On July 22, 1997, the Company acquired all of the stock of AMBIA Corporation
for 400,000 shares of the Company's common stock. The acquisition was
accomplished by means of a merger of a wholly-owned subsidiary of the Company
into AMBIA. AMBIA develops, markets and sells software products and consulting
services, which are complementary to those being developed, marketed and sold
by the Company.
10
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-QSB RELATING
TO PRODUCT DEVELOPMENT AND REVENUE AND THE ADEQUACY OF WORKING
CAPITAL ARE BASED ON CURRENT EXPECTATIONS THAT INVOLVE
UNCERTAINTIES AND RISKS ASSOCIATED WITH NEW PRODUCTS INCLUDING, BUT
NOT LIMITED TO, MARKET CONDITIONS, SUCCESSFUL PRODUCT DEVELOPMENT
AND ACCEPTANCE, THE INTRODUCTION OF COMPETITIVE PRODUCTS, ECONOMIC
CONDITIONS, AND THE TIMING OF ORDERS FOR PRODUCTS. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM CURRENT EXPECTATIONS.
READERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON FORWARD-LOOKING
STATEMENTS. THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO
UP-DATE PUBLICLY THESE FORWARD-LOOKING STATEMENTS, WHETHER AS A
RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit No. Document
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27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the
three months ended June 30, 1997. The Company filed a Form 8-K on August
6, 1997, relating to the acquisition of AMBIA Corporation on July 22,
1997.
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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/HARRY KAPLOWITZ
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Date: August 14, 1997 Harry Kaplowitz
President
BY: /s/CHRISTOPHER P. DETTMAR
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Christopher P. Dettmar
Chief Financial Officer
12