U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
[ ] 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 as specified in its charter)
Virginia 16-0954695
(State of Incorporation) (I.R.S. Employer Identification No.)
12150 MONUMENT DRIVE, FAIRFAX, VIRGINIA 22033
(Address of registrant's principal executive office)
Registrant's telephone number (703) 934-5205
Securities registered pursuant to Section 12(b) of the Exchange Act: None.
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock-$.03 Par Value Per Share
---------------------------
(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
____
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The revenues for the fiscal year ending December 31, 1995, are $7,049,000.
As of March 20, 1996, there were 732,668 common shares outstanding. As of
March 20, 1996, the aggregate market value (computed by reference to the
average bid and asked prices on such date) of voting common shares held by
non-affiliates was approximately $4,762,342.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of the Form 10-KSB is incorporated
by reference from the registrant's definitive proxy statement or amendment
hereto which will be filed not later than 120 days after the end of the fiscal
year covered by this report.
PART I
Item 1. Description of Business
Infodata Systems Inc. (the "Company" or "Infodata") specializes in
providing complex information solutions to large commercial organizations and
Federal, state and local governmental agencies. "Complex information
solutions" include integration services and software products. Infodata's
integration services enable the storage, retrieval, control, and dissemination
of documents, images, multimedia, and other unstructured information across
departments, enterprises, and the global Internet. Infodata's existing
commercial customer base and target market includes the Fortune 1000, banks
and financial services firms, utilities and hospitals. The Company also
derives significant revenues from various agencies of the United States
government which accounted for 37% and 44% of total revenues for the years
ended December 31, 1995 and 1994. All of these organizations share a common
problem - managing complex, unstructured information across the enterprise.
The Company has been a pioneer in providing electronic document
management solutions. Prior to 1994, substantially all of the Company's
business was derived from the sale, support, and maintenance of its
INQUIRE/Text full text database management system - a leader in the IBM and
IBM-compatible mainframe text retrieval marketplace.
During 1994, Infodata successfully shifted its focus to providing a
broader range of document management solutions deliverable through
client/server technology. The Company's shift into the client/server arena
accelerated with the acquisition of the business and certain assets of Merex,
Inc., ("Merex") in October, 1995 (see Note 2 to the consolidated financial
statements of the Company). Merex, a document systems solutions and
integration firm, brought experienced management and staff, a diverse client
base, and an established market reputation to Infodata.
Infodata's legacy experience and recent successes in the client/server
arena, and Merex's project experience in client/server document management
technology, combine to produce an organization uniquely focused on solving
complex information/document management problems. Management believes that
Infodata's desktop-to-mainframe know-how also positions the Company to exploit
the mainframe's resurgence as a server in the client/server environment,
including Intranets and the Internet.
Services offered by the Company include requirements definition,
feasibility studies, process analysis, systems design, software development,
implementation, documentation, and training. These services are delivered
using a well-defined project management methodology. Most projects involve the
integration of multiple commercial-off-the-shelf software products such as
full text retrieval engines, document management systems, and Web browsers.
Services are provided by highly skilled software engineers and project
managers who are adept at dealing with the rapidly changing technologies
necessary to construct the best possible solutions for customers.
Infodata sells its own software products and those of third-party
developers with which it maintains close relationships. In addition to
INQUIRE/Text, Infodata's own products include MxImage, an integrated
client/server imaging, cataloging, and storage management system. The Company,
in conjunction with its own service offerings, is a value-added reseller of
partner products under agreements with Verity, Inc., Fulcrum Technologies, PC
DOCS Inc., Documentum, Inc., Adobe Systems, Inc., and Lotus Development
Corporation.
Infodata sells products and services through its own direct sales force
to leads generated from its partners and its own marketing efforts. Marketing
activities include selected trade shows, seminars, and direct mail. The
Company quickly identifies potential customers and then salespersons and
senior technical managers team to present the Company's qualifications and
approach to solving the customer's complex information problem.
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Frequently, projects start as prototypes or pilots where concepts are
proven to the customer's satisfaction. These initial projects are then
followed by more substantial implementations. The Company performs under time
and materials, fixed price, and cost-based contracts. Infodata has a high rate
of repeat business which management believes is a result of the high degree of
customer satisfaction with its services and solutions.
There are four components to the Company's business, all of which
interact to provide differentiation from its competitors. The components
consist of products and three markets for consulting services - commercial
customers, the United States intelligence community, and other Federal, state
and local government agencies.
The market sectors are distinct but related through a common objective of
achieving solutions to complex information problems. For example, the
intelligence community is frequently ahead of the commercial and other
government agency arenas in terms of adopting new technologies. Therefore, the
Company benefits from technology transfer from the intelligence community to
other customers. On the other hand, certain commercial concepts may not have
taken root in the intelligence community despite similar needs. The Company
focuses on exploiting these similarities of interests to leverage projects
from one sector to another.
The three consulting sectors - commercial, intelligence, and other
government - provide real-world experience from which product concepts are
generated. Management believes Infodata will derive increased volume from its
product based business existing solutions are cross-marketed among the
sectors.
The Company competes with larger service firms, such as the consulting
divisions of the major accounting firms, prime contractors, and systems
integrators, many of which have substantially greater financial resources than
the Company. A primary competitive advantage for Infodata is its total
business focus on document/complex information systems as compared to the more
diffuse approach of its competitors. The Company has chosen to deliver high
quality results in a specialized, but rapidly growing, niche which cuts across
all industries and segments of the economy as the need to manage and find
complex information in the form of images, documents, and other objects is a
universal one.
The Company is focusing attention on Internet-based solutions,
particularly those internal to organizations, known as Intranets. Infodata has
completed several projects incorporating a variety of state-of-the-art
technologies which are presented to the users through the customer's Intranet.
In addition, Infodata's mainframe legacy product, INQUIRE/Text, is adaptable
to operating as a large server for Intranet/Internet information
dissemination. This enables current INQUIRE/Text customers to leverage their
existing collections of information by making them available on their
Intranets, and allows Infodata to offer solutions involving the latest in
client/server technologies coupled with the use of the mainframe in the role
of server.
The Company continues to invest in software development involving
INQUIRE/Text in order to respond to its customers which provide a base of
maintenance revenues. Research and development expense for the years ended
December 31, 1995 and 1994 was $187,000 and $408,000, respectively. While
software development projects have been limited in the last several years, the
Company expects to devote more resources to software product development as
marketable ideas arise from its consulting services. In some cases, early
adopter customers fund new product concepts; in other cases the Company has
the financial resources to invest when it is convinced it can effectively
market the product suggested by its consulting projects.
The Company employed a total of 74 full time employees and no part time
employees at December 31, 1995.
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Infodata's principal offices are located at 12150 Monument Drive,
Fairfax, VA 22033. Its telephone number is 703-934-5205 and fax number is
703-934-7154. Infodata's Internet e-mail address is info@infodata.com and the
Company maintains a World Wide Web home page at http://www.infodata.com.
Item 2. Description of Property
The Company leases approximately 21,000 square feet of professional
office space located at its Headquarters Office in Fairfax, Virginia (see
Note 8 to the Consolidated Financial Statements contained elsewhere in this
report).
Item 3. Legal Proceedings
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 4a. Executive Officers
The following information relates to Executive Officers of the Registrant
as of March 20, 1996:
Name Age Position
Harry Kaplowitz 52 President and Director
Robert J. Loane 57 Senior Vice President
Richard M. Tworek 39 Senior Vice President
Mr. Kaplowitz is a founder of the Company and was elected Vice President
in 1973, Executive Vice President and Director in 1980. In 1989, he was
promoted to President and Chief Operating Officer of the Company's INQUIRE
Group. In 1990, he was named President of the Company. From January 1991 to
January 1993, he served as Chairman of the Board of Directors of the Company.
Dr. Loane joined the Company in 1968, was elected Vice President in 1978
and Senior Vice President in 1980. He is the Company's Chief Scientist.
Mr. Tworek joined the Company in October, 1995 and was elected Senior
Vice President. He was the founder and president of Merex, Inc. Since 1989,
Merex designed and implemented large, complex client/server document systems
and offered its own products as part of the solution.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Infodata's Common Stock has been quoted on the NASDAQ SmallCap Market
under the symbol "INFD" since September 16, 1994. The Company's Common Stock
was previously traded on the NASDAQ National Market. Market makers of the
Company's Common Stock include Herzog, Heine, Geduld, Inc.; Mayer and
Schweizter Inc.; M. Rimson & Co., Inc.; and Patterson Travis Inc.
The table below shows the range of closing bid prices for the Common
Stock for the quarters indicated.
1995 1994
High Low High Low
First Quarter $6.00 $3.00 $3.56 $1.69
Second Quarter 4.25 3.375 3.75 2.72
Third Quarter 6.00 3.25 4.00 3.25
Fourth Quarter 4.75 3.50 7.00 3.25
The market quotations reflected above are inter-dealer prices, without
retail mark-up, mark-down or commissions and may not represent actual
transactions.
The Company has not paid cash dividends on its Common Stock and presently
has no intention to do so. It believes that execution of its operating plan
requires the Company to retain available funds to support future business
activities. Payment of cash dividends on Common Stock in the future will be
dependent upon the earnings and financial condition of the Company, and other
factors which the Board of Directors may deem appropriate. See Note 7 to the
1995 Consolidated Financial Statements, contained elsewhere in this report,
for information relating to cash dividends pertaining to Preferred Stock.
As of March 20, 1996, there were approximately 683 shareholders of record.
Item 6. Management's Discussion and Analysis
Results of Operations
Summary
Over the last two years, the Company's focus has shifted from sales of
its proprietary mainframe software product, INQUIRE/Text, to providing
document management solutions in the client/server environment. INQUIRE/Text
will continue to play a role both from continuing maintenance revenues and as
a mainframe server (including the Internet/Intranet). It is expected, however,
that stand-alone sales of INQUIRE/Text will be minimal, and revenues derived
from INQUIRE/Text will, over time, decline as a percentage of aggregate
revenues. Revenues derived from INQUIRE/Text represented 77.1% of total
revenues in 1995, compared with 85.4% in 1994. During the fourth quarter of
1995, INQUIRE/Text revenues declined further to 57.4% of total fourth quarter
revenues.
During the fourth quarter of 1995, the drop in INQUIRE/Text-related
revenues was more than offset by government and commercial client/server based
consulting unrelated to INQUIRE/Text, and by the acquisition of the assets of
Merex, Inc. on October 11, 1995 (see Note 2 to the financial statements). The
Merex acquisition had a positive impact on total revenues but a negative
impact on operating income due to the costs of the integration of Merex and
certain lower margin Merex government contracts. All of the costs of combining
the two organizations were recognized by December 31, 1995.
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Revenues
Total revenues decreased $453,000 (6%) for the year ended December 31,
1995 compared to the prior year. The primary cause was a $971,000 decline in
INQUIRE/Text related revenue from the prior year, primarily reflecting reduced
product license fees. The Company expects that INQUIRE/Text related revenues
will continue to decline over time as the product ages.
During 1995, client/server related consulting revenue increased 79% to
$1,364,000 from $763,000 in the prior year. The acquisition of Merex in
October 1995 resulted in approximately $550,000 in client/server consulting
revenue during the fourth quarter of 1995 which represents most of the
increase. Total fourth quarter revenues increased from $1,837,000 in 1994 to
$2,156,000 in 1995.
Gross Profit
Gross profit decreased to $2,883,000 (41% ) from $3,415,000 (45%) at
December 31, 1995 and 1994, respectively. The decrease was due in part to the
effect of a 6% decline in revenues and also certain lower margin government
contracts acquired from Merex. The Company changed its methodology for
overhead allocation in 1995 to more accurately reflect certain indirect costs
of revenues which resulted in a reclassification of the 1994 statement of
operations from a gross profit of 40% to a revised 45% but had no effect on
operating income.
Research and Development Expense
Research and development expense was $187,000 and $408,000 for the years
ended December 31, 1995 and 1994, respectively. The principal cause of the
decrease was cost reduction due to outsourcing of mainframe related computer
costs in the fourth quarter of 1994 which had a full year impact on 1995. The
Company believes that substantially all of the impact of cost reduction has
been realized and research and development expense is likely to increase in
1996 and beyond as new products are developed.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2,657,000 and
$2,482,000 for the years ended December 31, 1995 and 1994, respectively. The
increase was due in part to the costs of building a sales force and associated
marketings, an increase in consulting fees relating to execution of the
Company's strategic plan to expand into client/server based consulting, and
the impact of integration costs arising from the Merex acquisition. As a
percent of total revenue, these expenses increased to 38% from 33% in the
prior year.
Interest Income and Expense
Interest income was $119,000 and $46,000 for the years ended December 31,
1995 and 1994, respectively. The increase was primarily due to a higher
average balance of cash and cash equivalents in 1995 over 1994. The company
invested only in short term, highly liquid money market instruments. Interest
expense decreased to $24,000 in 1995 from $42,000 in the prior year. The
expense is primarily related to certain capital equipment leases which expire
through 1998.
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Net Income
Net income was $131,000 and $518,000 for the years ended December 31,
1995 and 1994, respectively. The decrease in earnings was due to the factors
discussed above. The Company expects the Merex acquisition to favorably impact
net income in 1996.
New Accounting Pronouncements
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" establishes financial accounting and reporting
standards for stock-based employee compensation plans, including stock options
and restricted stock. Effective for the Company's 1996 financial statements,
this pronouncement encourages the use of a fair value based method of
accounting for employee stock options which measures compensation cost at the
grant date based on the value of the award and is recognized over the service
period. The statement still allows the valuation method currently used by the
Company, which results in no compensation expense. Management expects to
continue to use this method of accounting for its stock options and will
provide the additional disclosures required under the new standard.
Liquidity and Capital Resources
The Company generated cash flow from operating activities of $208,000 in
1995 compared to $1,314,000 for the prior year. The decrease was due to the
drop in net income discussed earlier and an increase in receivables.
Receivables increased significantly at December 31, 1995 compared to the prior
year due in part to a historically slower collection rate for the acquisition
related receivables and in part from several fixed price contracts with
significant balances which will be collected in early 1996.
Cash used in investing activities was $87,000 for the year ended December
31, 1995 compared to $122,000 for the prior year. The primary cause for the
decrease was the absence of significant costs related to capitalized software
but offset by purchases of property and equipment and payment of direct costs
related to the Merex acquisition. The Company had no commitments for material
capital expenditures as of December 31, 1995.
Cash used in financing activities was $370,000 for the year ended
December 31, 1995 compared to $333,000 for the prior year. During 1995, the
Company retired $155,000 of debt assumed in the Merex acquisition and paid
$120,000 in dividends to preferred shareholders. Offsetting these cash
outflows was a $110,000 decrease in principal payments on capital lease
obligations due to maturities during 1995 and proceeds of $47,000 from
exercise of common stock options . The Company expects payments on capital
leases in 1996 to be substantially the same as 1995.
Working capital was $1,220,000 and $745,000 at December 31, 1995 and
1994, respectively. The current ratio increased to 1.52 from 1.27 over the
same period. The Company's long term liabilities at December 31, 1995
consisted of $192,000 of deferred revenue relating to maintenance contracts
which represents a non-cash liability and $134,000 related to deferred rent
and capital equipment obligations which will require cash outlay.
The Company believes cash and cash equivalents on hand and cash flows
from operating activities will be sufficient to fund operations for the next
twelve months. However, the Company maintains a $500,000 line of credit with a
bank from which no borrowings were made in 1995 and no balance is currently
outstanding. In the longer term, the Company believes it has adequate
financial flexibility to increase its borrowing capacity and access the public
markets to accommodate its growth strategy.
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Item 7. Financial Statements
The consolidated financial statements required hereunder are listed under
Item 13(a) below.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Pursuant to General Instruction E(3) of Form 10K-SB, the information
called for by this Item regarding directors is hereby incorporated by
reference from the Company's definitive proxy statement or amendment hereto to
be filed pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this report. Information regarding the Company's
executive officers is set forth under Item 4a of this Form 10K-SB.
Item 10. Executive Compensation
Pursuant to General Instruction E(3) of Form 10K-SB, the information call
for by this Item is hereby incorporated by reference from the Company's
definitive proxy statement or amendment hereto to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
Item 11. Security Ownership of Beneficial Owners and Management
Pursuant to General Instruction E(3) of Form 10K-SB, the information call
for by this Item is hereby incorporated by reference from the Company's
definitive proxy statement or amendment hereto to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
Item 12. Certain Relationships and Related Transactions
Pursuant to General Instruction E(3) of Form 10K-SB, the information call
for by this Item is hereby incorporated by reference from the Company's
definitive proxy statement or amendment hereto to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Financial Statements. The financial statements and exhibits required
by Item 7 and this Item 13 of Form 10K-SB are listed below.
Report of Independent Public Accountants
Consolidated Statements of Operations - Each of the
two years in the period ended December 31, 1995
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Shareholders' Equity - Each of
the two years ended December 31, 1995
Consolidated Statements of Cash Flows - Each of the two
years in the period ended December 31, 1995
Notes to Consolidated Financial Statements - December 31, 1995
(b) Reports on Form 8-K.On October 27, 1995, the Company filed a Current
Report on Form 8-K, dated October 11, 1995, as amended on December 26, 1996,
to report under Item 2 thereof the Company's acquisition of the assets of
Merex, Inc. And to include, under Items 7(a) and 7(b) thereof, the financial
statements and pro forma financial information relating to such acquisition
transaction.
-8-
EXHIBIT INDEX
Exhibit Number Description
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3(a) Certificate of Incorporation (incorporated herein by reference
to exhibit A to the Registrant's proxy statement dated
April 10, 1995)
(b) By-Laws (incorporated herein by reference to exhibit B to the
Registrant's proxy statement dated April 10, 1995)
10(a) Executive Separation Agreement between the Registrant and Harry
Kaplowitz (incorporated herein by reference to exhibit 10(a)
to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993)
(b) Executive Separation Agreement between the Registrant and
Robert Loane (incorporated herein by reference to exhibit
10(b) to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993)
(c) Stay Incentive Bonus Agreement between the Registrant and David
Karish (incorporated herein by reference to exhibit 10(c) to
the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1994)
(d) Incentive Stock Option Plan (incorporated herein by reference
to exhibit 10(d) to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1993)
(e) Incentive Stock Option Agreement between the Registrant and
Robert J. Loane dated March 24, 1993 (incorporated herein
by reference to exhibit 10(e) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December
31, 1994)
(f) Incentive Stock Option Agreement between the Registrant and
David A. Karish dated March 24, 1993 (incorporated herein
by reference to exhibit 10(f) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December
31, 1994)
(g) Incentive Stock Option Agreement between the Registrant and
Harry Kaplowitz dated March 24, 1993 (incorporated herein
by reference to exhibit 10(g) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December
31, 1994)
(h) Incentive Stock Option Agreement between the Registrant and
Richard T. Bueschel dated March 24, 1993 (incorporated
herein by reference to exhibit 10(h) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(i) Incentive Stock Option Agreement between the Registrant and
Robert M. Leopold dated March 24, 1993 (incorporated
herein by reference to exhibit 10(i) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(j) Incentive Stock Option Agreement between the Registrant and
Isaac M. Pollak dated March 24, 1993 (incorporated herein
by reference to exhibit 10(j) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December
31, 1994)
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Exhibit Number Description
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(k) Incentive Stock Option Agreement between the Registrant and
Millard H. Pryor dated March 24, 1993 (incorporated herein
by reference to exhibit 10(k) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December
31, 1994)
(l) Incentive Stock Option Agreement between the Registrant and
Laurence C. Glazer dated October 5, 1993 (incorporated
herein by reference to exhibit 10(l) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(m) Incentive Stock Option Agreement between the Registrant and
Richard T. Bueschel dated December 8, 1993 (incorporated
herein by reference to exhibit 10(m) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(n) Incentive Stock Option Agreement between the Registrant and
Robert M. Leopold dated March 17, 1994 (incorporated
herein by reference to exhibit 10(n) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(o) Incentive Stock Option Agreement between the Registrant and
David A. Karish dated July 28, 1994 (incorporated herein
by reference to exhibit 10(o) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December
31, 1994)
(p) Incentive Stock Option Agreement between the Registrant and
Harry Kaplowitz dated July 28, 1994 (incorporated herein
by reference to exhibit 10(p) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December
31, 1994)
(q) Incentive Stock Option Agreement between the Registrant and
Richard T. Bueschel dated July 28, 1994 (incorporated
herein by reference to exhibit 10(q) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(r) Incentive Stock Option Agreement between the Registrant and
Laurence C. Glazer dated July 28, 1994 (incorporated
herein by reference to exhibit 10(r) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(s) Incentive Stock Option Agreement between the Registrant and
Robert M. Leopold dated July 28, 1994 (incorporated herein
by reference to exhibit 10(s) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December
31, 1994)
(t) Incentive Stock Option Agreement between the Registrant and
Isaac M. Pollak dated July 28, 1994 (incorporated herein
by reference to exhibit 10(t) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December
31, 1994)
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Exhibit Nummber Description
- --------------- -----------
(u) Incentive Stock Option Agreement between the Registrant and
Millard H. Pryor dated July 28, 1994 (incorporated herein
by reference to exhibit 10(u) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December
31, 1994)
(v) Incentive Stock Option Agreement between the Registrant and
Robert Loane dated December 13, 1994 (incorporated herein
by reference to exhibit 10(v) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December
31, 1994)
(w) Incentive Stock Option Agreement between the Registrant and
David A. Karish dated December 13, 1994 (incorporated
herein by reference to exhibit 10(w) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(x) Incentive Stock Option Agreement between the Registrant and
Harry Kaplowitz dated December 13, 1994 (incorporated
herein by reference to exhibit 10(x) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(y) Incentive Stock Option Agreement between the Registrant and
David Van Daele dated December 27, 1994 (incorporated
herein by reference to exhibit 10(y) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(z) Non-Qualified Stock Option Plan (incorporated herein by
reference to exhibit 10(z) to the registrant's annual report
on Form 10-KSB for the fiscal year ended December 31,
1994)
(aa) Non-Qualified Stock Option Agreement between Registrant and
Richard T. Bueschel dated November 1, 1994 (incorporated
herein by reference to exhibit 10(aa) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(bb) Non-Qualified Stock Option Agreement between Registrant and
Robert M. Leopold dated November 1, 1994 (incorporated
herein by reference to exhibit 10(bb) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(cc) Stock Warrant Purchase Plan (incorporated herein by reference
to exhibit 10(cc) to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994)
(dd) Office Building Lease, dated April 12, 1993, for One Monument
Drive (incorporated herein by reference to exhibit 10(dd) to
the registrant's annual report on Form 10-KSB for the
fiscal year ended December 31, 1994)
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Exhibit Nummber Description
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(ee) Lease for Data Processing Services Agreement, dated July 29,
1994, between the Registrant and Financial Technologies,
Inc. relating to data processing services (incorporated
herein by reference to exhibit 10(ee) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
(ff) Commercial Note dated February 23, 1995 between the Registrant
and Crestar Bank (incorporated herein by reference to
exhibit 10(ff) to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994)
(gg) 1995 Stock Option Plan (incorporated herein by reference to
exhibit D to the Registrant's proxy statement dated April
10, 1995)
(hh) Non-Qualified Stock Option Agreement between Registrant and
Millard H. Pryor dated May 23,1995
(ii) Non-Qualified Stock Option Agreement between Registrant and
Laurence C. Glazer dated May 23, 1995
(jj) Non-Qualified Stock Option Agreement between Registrant and
Isaac M. Pollak dated May 23, 1995
(kk) Employment Agreement between Registrant and Richard M. Tworek
dated October 11, 1995
(ll) Employment Agreement between Registrant and Andrew M. Fregly
dated October 11, 1995
(mm) Asset Purchase Agreement and Plan of Reorganization, dated as
of October 6, 1995, among Infodata Systems Inc., Merex,
Inc., Richard M. Tworek, Mary Margaret Styer and Andrew M.
Fregly (incorporated herein by reference to the
Registrant's Form 8-K dated October 11, 1995)
21 Subsidiaries of the Registrant (incorporated herein by
reference to exhibit 22 to the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended December 31,
1994)
-12-
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
-------------------
President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and on the dates indicated.
SIGNATURE TITLE DATE
/s/Richard T. Bueschel Chairman of the Board March 28 , 1996
- ------------------------
/s/Laurence C. Glazer Director March 28 , 1996
- ------------------------
/s/Harry Kaplowitz President and Director March 28 , 1996
- ------------------------
/s/Robert M. Leopold Director March 28 , 1996
- ------------------------
/s/Isaac M. Pollak Director March 28 , 1996
- ------------------------
/s/Millard Pryor Director March 28 , 1996
- ------------------------
-13-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
Report of Independent Public Accountants F-1
Consolidated Statements of Operations - Each of the F-2
two years in the period ended December 31, 1995
Consolidated Balance Sheets - December 31, 1995 and 1994 F-3-F-4
Consolidated Statements of Shareholders' Equity - Each of F-5
the two years ended December 31, 1995
Consolidated Statements of Cash Flows - Each of the two F-6
years in the period ended December 31, 1995
Notes to Consolidated Financial Statements - December 31, 1995 F-7-F-15
-14
Report of Independent Public Accountants
To Infodata Systems Inc.:
We have audited the accompanying consolidated balance sheets of Infodata
Systems Inc. (a Virginia corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Infodata Systems
Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Washington, D.C. Arthur Andersen LLP
March 1, 1996
F-1
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollar Amounts in Thousands, Except Per Share Data)
Year Ended December 31,
1995 1994
---- ----
Revenues $7,049 $7,502
Cost of revenues.................................. 4,166 4,087
------- -------
Gross profit...................................... 2,883 3,415
------- -------
Operating expenses
Research and development.. .................... 187 408
Selling, general and administrative: .......... 2,657 2,482
------- -------
2,844 2,890
Operating income................................. 39 525
------- -------
Interest income.................................. 119 46
Interest expense................................. (24) (42)
------- -------
Income before income taxes. .................... 134 529
Provision for income taxes....................... 3 11
------- -------
Net income....................................... $ 131 $518
======== ========
Preferred dividends.............................. 120 120
Net income available to common shareholders...... $ 11 $ 398
======== ========
Per share:
Net income per common and equivalent share.... $ .02 $ .63
======== ========
F-2
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar Amounts in Thousands)
Assets
December 31,
1995 1994
------ ------
Current assets:
Cash and cash equivalents....................... $1,476 $1,725
Short term investments..... .................... 33 80
Accounts receivable, net of allowance of $30
in 1995 and 1994.... 1,901 1,437
Prepaid royalties..... ......................... 18 141
Other current assets............................ 146 140
------ ------
Total current assets.............. ............ 3,574 3,523
------ ------
Property and equipment, at cost:
Furniture and equipment......................... 2,046 1,901
Less accumulated depreciation and amortization.. (1,633) (1,380)
------- -------
413 521
Goodwill, net of amortization of $6 in 1995..... 264 --
Other assets.................................... 68 --
Software development costs, net of accumulated
amortization of $2,010 and $1,634 in 1995 and 1994. 126 499
-------- -------
Total assets.................................... $4,445 $4,543
-------- -------
F-3
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar Amounts in Thousands)
Liabilities and shareholders' equity
December 31,
1995 1994
------- ------
Current liabilities:
Current portion of capital lease obligations... $ 106 $ 159
Current portion of note payable................ 2 37
Accounts payable ............................. 335 241
Accrued expenses 677 689
Deferred revenue ............................. 1,171 1,589
Preferred dividend payable..................... 30 30
Current portion of deferred rent............... 33 33
------ ------
Total current liabilities.................... 2,354 2,778
------ ------
Capital lease obligations....................... 82 151
Deferred revenue................................ 192 --
Note payable.................................... -- 69
Deferred rent................................... 52 84
------ ------
Total liabilities............................. 2,680 3,082
------ ------
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, $1.00 par value, 500,000
shares authorized; 131,500 and 133,500
issued and outstanding
($1,523 and $1,545 involuntary
liquidation preference)in 1995 and 1994,
respectively.................................. 132 134
Common stock, $.03 par value, 3,333,333
shares authorized; 732,668 and 602,374
shares issued and outstanding in 1995
and 1994...................................... 22 18
Additional paid-in capital..................... 8,078 7,787
Accumulated deficit........ ................... (6,467) (6,478)
------- -------
Total shareholders' equity..................... 1,765 1,461
------- -------
Total liabilities and shareholders' equity..... $4,445 $4,543
------- -------
F-4
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(Dollar Amounts in Thousands)
Additional
Preferred Stock Common Stock Paid-In Accumulated Shareholders
Shares Amount Shares Amount Capital Deficit Equity
------ ------ ------ ------ ------- ---------- -------------
Balance at December 31, 1993...... 133,500 $134 602,654 $18 $7,788 $(6,936) $1,004
Redemption of partial shares..... -- -- (280) -- (1) -- (1)
Dividends on preferred stock..... -- -- -- -- -- (60) (60)
Net income....................... -- -- -- -- -- 518 518
------- ---- ------- --- ----- ------- -------
Balance at December 31, 1994 133,500 134 602,374 18 7,787 (6,478) 1,461
Conversion of preferred stock for
common stock..................... (2,000) (2) 2,573 -- 2 -- --
Issuance of shares for business
acquisition...................... -- -- 105,000 3 233 -- 236
Issuance of shares for services.. -- -- 4,000 -- 9 -- 9
Exercise of stock options........ -- -- 18,721 1 47 -- 48
Dividends on preferred stock..... -- -- -- -- -- (120) (120)
Net income....................... -- -- -- -- -- 131 131
------- ---- ------- ----- ------ ------- ------
Balance at December 31, 1995...... 131,500 $132 732,668 $22 $8,078 $(6,467) $1,765
------- ---- ------- ----- ------ ------- -------
F-5
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
Year Ended December 31,
1995 1994
----- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $131 $518
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 275 400
Software amortization......................................... 373 283
Goodwill and other intangible amortization.................... 10 --
Cancellation of note payable.................................. (85) --
Investment discount amortization.............................. 7 --
Write-down of leased assets................................... 20 --
Changes in operating assets and liabilities:
Accounts receivable........................................ (464) (83)
Prepaid royalties and other current assets................. 117 159
Accounts payable........................................... 94 (56)
Accrued expenses........................................... (12) 161
Deferred revenue........................................... (226) (36)
Deferred rent.............................................. (32) (32)
----- ------
Net cash provided by operating activities............... 208 1,314
----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Software development costs capitalized........................... (3) (165)
Purchases of property and equipment, net......................... (84) (4)
Purchases of short term investments.............................. -- (5)
Business acquisition............................................. (47) --
Proceeds from maturity of short term investments................. 47 52
---- ----
Net cash used in investing activities................... (87) (122)
----- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations............................ (122) (232)
Payments of notes payable........................................ (21) (70)
Retirement of acquisition-related note payable................... (155) --
Dividends........................................................ (120) (30)
Issuance of common stock......................................... 48 --
Payments on fractional common stock elimination.................. -- (1)
------ ------
Net cash used in financing activities................... (370) (333)
------ ------
Net (decrease) increase in cash and cash equivalents............. (249) 859
Cash and cash equivalents at beginning of year................... 1,725 866
----- -----
Cash and cash equivalents at end of year......................... $1,476 $1,725
------- -------
F-6
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1995 and 1994
NOTE 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of Infodata Systems Inc. and its wholly-owned subsidiaries, Infodata Systems
International Inc. and Infodata Research and Development Corporation. These
entities are collectively referred to herein as the "Company". All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain reclassifications have been made to 1994 balances to conform to
the current year presentation.
Nature of Business
The Company provides complete Electronic Document Management System
("EDMS") solutions through the sale of products and software integration
services. Sales to the United States government represent a significant
portion of the Company's revenue.
Use of Estimates
The Company has made a number of estimates and assumptions relating to
the reporting of assets and liabilities, the disclosure of contingent
liabilities and the reporting of revenues and expenses to prepare these
financial statements in conformity with Generally Accepted Accounting
Principles. Actual results could differ from those estimates.
Revenue Recognition
Software Licenses -- The Company recognizes revenue from sales of
software licenses upon delivery of the software product to the customer, or
upon customer acceptance if a trial period exists.
Post Contract Customer Support and Software Services -- Revenues from
post contract support, including revenue bundled with the initial license fee,
are recognized ratably over the period customer support services are provided.
Software services revenue is recognized as performed.
Consulting and Professional Service Contracts -- Revenues from consulting
and professional service contracts are recognized on the
percentage-of-completion method for fixed price agreements and on the basis of
hours incurred at contract rates for time and material agreements. Revenues
from cost reimbursement contracts are recognized as costs are incurred.
Revenues from foreign customers totaled approximately $594,000 and
$758,000 for the years ended December 31, 1995 and 1994, respectively.
F-7
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1995 and 1994
Cash Equivalents and Short Term Investments
All highly liquid investments with an original maturity of 90 days or
less at time of purchase are considered to be cash equivalents. At December
31, 1995 and 1994, the Company had $1,269,000 and $752,000, respectively, of
cash equivalents invested in commercial paper. At December 31, 1995 and 1994,
the Company had certificates of deposit included in short term investments
totaling $33,000 and $80,000, respectively, which were restricted pursuant to
certain capital lease obligations.
Supplemental Disclosures of Cash Flow Information
Cash payments for interest totaled $22,000 and $42,000 in 1995 and 1994,
respectively. Cash payments for income taxes totaled $7,000 and $2,000 in 1995
and 1994, respectively.
In 1994, the Company incurred capital lease obligations totaling $60,000,
for various computer and office equipment.
In connection with the transaction with the Open Text Corporation
discussed in Note 6, prepaid royalties carried at $0 and $141,000 at December
31, 1995 and 1994, respectively, are included on the accompanying consolidated
balance sheet. These prepaid royalties were financed in-part through the
issuance of a non-interest bearing note payable with balances totaling $0 and
$100,000 at December 31, 1995 and 1994, respectively.
Property and Equipment
Property and equipment is depreciated using the straight-line method over
estimated useful lives ranging from three to six years. Leasehold improvements
are amortized over the shorter of the useful life of the asset or the lease
term.
Goodwill
Goodwill is amortized using the straight-line method over a life of 10
years. On a periodic basis, the expected future undiscounted cash flows are
compared with the carrying value of goodwill to test for potential impairment.
The amount of goodwill impairment, if any, would be measured based on the
projected discounted cash flows using a discount rate reflecting the Company's
average cost of funds. The Company believes that this policy is consistent
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and that adoption of this statement will not have a material impact on the
Company's financial position or results of future operations.
Research and Development
Research and development costs are expensed as incurred.
F-8
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1995 and 1994
Net Income Per Common Share
For the year ended December 31, 1995, the weighted average number of
common and common equivalent shares used in the calculation of net income per
share was approximately 627,000. In 1994, the modified treasury stock method
was used in calculating primary and fully-diluted net income per share due to
the fact that the weighted average outstanding common stock options and common
stock warrants exceeded 20% of the common shares outstanding. The weighted
average number of common and common equivalent shares outstanding, which was
utilized in the calculation of net income per share totaled approximately
658,000 for the year ended December 31, 1994. Net income for the years ended
December 31, 1995 and 1994 have been decreased for preferred stock dividends
of $120,000 to arrive at net income available to common shareholders. As
required under the modified treasury stock method, $17,000 of net interest
income, net of income taxes, has been added to net income for the year ended
December 31, 1994, to arrive at net income available to common shareholders.
With regard to the calculation of fully-diluted net income per share for the
year ended December 31, 1994, the calculation of common stock equivalents
under the modified treasury stock method coupled with the assumption of the
conversion of the preferred stock and resultant elimination of preferred stock
dividends is antidilutive when compared to primary net income per share.
Conversion of the preferred stock and resultant elimination of preferred
stock dividends is antidilutive when compared to primary net income per share
for the year ended December 31, 1995.
Significant Customers
Sales to United States government agencies totaled approximately
$2,586,000 and $3,289,000 in 1995 and 1994, respectively. As of December 31,
1995 and 1994, accounts receivable due from United States government agencies
amounted to approximately $678,000 and $753,000, respectively.
NOTE 2. Business Acquisition
On October 11, 1995, the Company consummated its purchase of
substantially all of the assets and the assumption of certain liabilities of
Merex, Inc. ("Merex") in consideration for 105,000 shares of the Company's
common stock (restricted as to sale) with a fair value estimated by the
Company's Board of Directors at $2.25 per share. The total acquisition cost
was approximately $319,000 including direct costs of acquisition.
Approximately $60,000 was allocated to acquired identified intangibles,
$270,000 to goodwill including purchase accounting adjustments of
approximately $25,000 relating to termination of the Merex office lease. Merex
was engaged in the business of marketing and delivering of electronic document
management solutions to businesses and the government.
The unaudited proforma financial information presented below reflects the
acquisition of Merex as if the acquisition had occurred on January 1, 1994.
These results are not necessarily indicative of future operating results or of
what would have occurred had the acquisitions been consummated at that time:
F-9
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1995 and 1994
(Unaudited)
December 31,
1995 1994
---- ----
Rev $8,888 $9,675
Net income 89 659
Less Preferred
Dividends (120) (120)
Net income (loss)
available to
common shareholders (31) 539
Earnings (loss)
per share $(0.05) $ 0.73
NOTE 3. 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
technological feasibility and the continuing assessment of recoverability of
capitalized 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 product 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, generally three to five years. Amortization of
software development costs is included in cost of revenues in the accompanying
consolidated statements of operations.
The following summarizes costs capitalized and related charges for
amortization during 1995 and 1994 in the accompanying consolidated financial
statements:
Years ended December 31,
1995 1994
---- ----
Costs capitalized........ $3,000 $165,000
Amortization............. (376,000) (448,000)
---------- ----------
Net cost amortized....... $(373,000) $(283,000)
---------- ----------
Periodically, the Company reviews the estimated lives of and amounts
assigned to software development costs. In light of changing technology, the
Company makes revisions to estimated lives and adjusts amounts assigned as
appropriate. The Company will extend the remaining amortization period at
December 31, 1995 through 1998 to reflect the continued longevity of the
INQUIRE product as reflected by the substantial revenue stream associated with
maintenance renewals. The impact of such revision in estimated remaining
useful life will increase net income by approximately $22,000 in 1996.
NOTE 4. Income Taxes
At December 31, 1995, the Company had approximately $5,201,000 in net
operating loss carry-forwards for income tax reporting purposes. The operating
loss carry forwards expire in varying amounts from 1998 through 2008. In
addition, at December 31, 1995, the Company had $141,000 in research and
development tax credit carry-forwards expiring in 1996 and 1997, and $66,000
in investment tax credit carry forwards expiring in 1996 through 2000.
F-10
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1995 and 1994
The actual income tax expense attributable to pretax income for the year
ended December 31, 1995 and December 31, 1994, respectively, differed from the
amount computed by applying the U.S. Federal statutory rate of 34 percent as a
result of the following:
1995 1994
---- ----
Tax at statutory rate..................... $ 46,000 $ 180,000
Benefit of operating loss carry-forwards.. (55,000) (190,000)
Miscellaneous items....................... 9,000 10,000
Alternative Minimum Tax................... 3,000 11,000
--------- -----------
$3,000 $11,000
--------- -----------
The 1995 and 1994 provision for income taxes relates solely to the
currently payable federal alternative minimum tax.
The significant components of net deferred tax (liabilities) assets are
as follows as of December 31, 1995 and 1994.
1995 1994
---- ----
Deferred tax liabilities:
Net software development costs............... $(48,000) $(189,000)
Other........................................ (10,000) --
--------- ----------
(58,000) (189,000)
Deferred tax assets:
Net operating loss carry-forward............. 1,974,000 2,129,000
Investment tax credit and research and
development tax credits carry forward........ 207,000 207,000
Other........................................ 55,000 92,000
---------- -----------
2,236,000 2,428,000
Net deferred tax asset before valuation
allowance..................................... 2,178,000 2,239,000
Valuation allowance............................ (2,178,000) (2,239,000)
----------- ------------
Net deferred tax asset...................... $ -- $ --
----------- ------------
Under the provisions of SFAS No. 109, the tax effect of the net operating
loss and investment tax credit carry-forwards, 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
carry-forwards will be benefited for financial reporting purposes when
utilized to offset future taxable income.
F-11
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1995 and 1994
NOTE 5. Disclosures About Fair Value of Financial Instruments
Financial instruments are defined as cash, evidence of an ownership
interest in an entity or a contract that imposes an obligation to deliver cash
or other financial instruments to a second party. The carrying amounts of
current assets and current liabilities approximate fair value due to the short
maturity of these instruments.
NOTE 6. Notes Payable
During 1993, the Company entered into an agreement with Open Text
Corporation ("OTC") whereby the Company acted as a reseller of OTC's text
retrieval software. Under the terms of the agreement, the Company incurred a
note payable for certain non-refundable royalties. Due to the Company's
concern with OTC's product performance and timely delivery of new releases,
and the attendant customer dissatisfaction, the Company terminated the
reseller agreement during the second quarter of 1995 and negotiated
cancellation of the remaining balance of the note during the third quarter of
1995.
In February, 1995, the Company entered into a working capital line of
credit with a regional bank. This loan facility provides the Company with a
$500,000 line of credit. Advances on the facility are based upon eligible
billed accounts receivable less than 90 days in age. The facility expires in
April, 1996, and is contingent upon the company meeting certain financial
covenants, which have been met. There were no borrowings on the line of credit
during 1995.
NOTE 7. Shareholders' Equity
Preferred Stock
As of December 31, 1995, 131,500 shares of convertible preferred
stock were outstanding. These preferred shares have the following provisions:
Cumulative, preferential dividends are to be paid quarterly, if declared
by the Board of Directors at an annual rate of 9% ($.90 per share)
The option to convert one share of preferred stock for 1.111 common
shares
Full voting rights, to the extent of common shares that would be held
upon conversion
Preference in the distribution of corporate assets up to $10.00 per share
plus cumulative unpaid dividends
All or part (at least 25%) of the preferred stock is redeemable at the
option of the Company at a price of $10.00 per share
Dividends on preferred stock are paid upon declaration by the Board of
Directors. Cash dividends of $120,000 ($0.90 per preferred share) were
declared during 1995 and $60,000 ($0.45 per share) in 1994. 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 December 31, 1995, totaled approximately
$208,000 ($1.58 per preferred share).
F-12
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1995 and 1994
Options and Warrants
In April 1995, the Company's shareholders approved the adoption of the
1995 Stock Option Plan (the "1995-Plan") which consolidates and is the
successor to the Company's Incentive Stock Option Plan approved by
shareholders in 1991 and the Non-Qualified Stock Option Plan approved in 1992
(together, the "Predecessor Plans"). Options have been granted to employees as
well as members of the Board of Directors. The 1995 Plan also provides for the
automatic granting of a fixed number of options each year to members of the
Compensation Committee of the Company's Board of Directors, and increases the
total issuance upon the exercise of options from the 333,333 shares previously
authorized to 433,333 shares.
Under the 1995 Plan, options may be granted at prices not less than 100%
of the fair market value of the common stock at the date of the grant. Options
vest over varying years of service. Vested options are exercisable until the
earlier of ten years from the date of grant or three months after termination
of employment for options granted under the Predecessor Plans, five years from
the date of grant or one month after termination of employment for options
issued under the 1995 Plan. At December 31, 1995, 185,500 options to purchase
shares of common stock were exercisable.
As of December 31, 1995, warrants remained outstanding for the right to
purchase 6,667 shares of common stock issued to certain members of the Board
of Directors and to certain non-affiliated parties. These warrants, which are
exercisable for seven years from date of grant, are exercisable upon grant.
Warrants to purchase an additional 3,333 shares of common stock are authorized
for future issuance.
As of December 31, 1995, the Company has reserved a total of
approximately 589,000 shares of common stock for future issuance arising from
the conversion of preferred stock, exercise of stock options, and exercise of
stock warrants.
A summary of option and warrant activity under the 1995 Plan and the
Predecessor Plans is presented below:
Number of Equivalent Shares
Incentive Stock Non-Qualified
Option Stock Options Warrants
Outstanding at December 31, 1993... 182,200 16,667 6,667
Granted........................... 90,231 34,000 --
Exercised......................... -- -- --
Expired or canceled............... (46,940) (13,333) --
-------- -------- -------
Outstanding at December 31, 1994... 225,491 37,334 6,667
Granted........................... 12,500 6,000 --
Exercised......................... (18,721) -- --
Expired or canceled............... (61,187) -- --
-------- -------- ------
Outstanding at December 31, 1995... 158,083 43,334 6,667
------- ------ ------
Exercise price............ $2.53 to $13.11 $3.06 to $4.88 $5.07 to $6.38
F-13
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1995 and 1994
SFAS No. 123, "Accounting for Stock-Based Compensation" establishes
financial accounting and reporting standards for stock-based employee
compensation plans, including stock options and restricted stock. Effective
for the Company's 1996 financial statements, this pronouncement encourages the
use of a fair value based method of accounting for employee stock options
which measures compensation cost at the grant date based on the value of the
award and is recognized over the service period. The statement still allows
the intrinsic value method used by the Company. Management expects to maintain
the same method of accounting for its stock options and will provide the
necessary additional disclosures.
NOTE 8. Commitments and Contingencies
Capital Lease Obligations
The Company leases certain fixed assets under long-term capital lease
agreements. These assets are included in the accompanying consolidated balance
sheets as follows:
December 31,
1995 1994
---- ----
Property and equipment............ $580,000 $633,000
Less accumulated depreciation
and amortization................ (403,000) (345,000)
--------- ---------
$177,000 $288,000
--------- ---------
Depreciation and amortization of these assets, computed using the
straight-line method over the shorter of the useful lives of the assets or the
term of the lease obligation.
The future maturities of capital lease obligations as of December 31,
1995, are as follows:
1996.............................................. $117,000
1997.............................................. 52,000
1998.............................................. 28,000
1999.............................................. 6,000
--------
Total minimum payments........................ 203,000
Less amount representing interest................ (15,000)
---------
Present value of minimum lease payments........... 188,000
Less current portion.............................. (106,000)
---------
Long-term portion................................. $82,000
---------
Operating Leases
Effective August 1, 1993, the Company entered into a lease for its
corporate headquarters facility in Fairfax, Virginia. This lease expires July
31, 1998. Under the terms of the lease, the landlord provided various
incentives, which have been deferred and classified as deferred rent in the
accompanying consolidated balance sheets. This amount will be amortized over
the life of the lease.
F-14
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1995 and 1994
During 1995 and 1994, the Company incurred an annual rent expense of
$297,000 and $294,000 for office facilities. Commitments under the Fairfax,
Virginia office facilities lease amount to approximately $300,000 annually.
Effective September, 1994, the Company entered into a three year
agreement with a third party to procure outside mainframe-related data
processing services. The Company incurred $84,000 in expenses in 1994 relating
to the termination of an operating lease for equipment entered into in May
1992, and migration expenses resulting from the outsourcing. The new agreement
is non-cancelable over the first two years and becomes cancelable beginning in
the third year with a penalty equal to $4,000 times the number of months
remaining in the third year. The minimum annual commitment under this
agreement amounts to $120,000.
Employee Benefit Plans
In 1988, the Company established an employee benefit plan (the "Benefit
Plan") which qualifies under Section 401-(k) of the Internal Revenue Code. The
Benefit Plan allows salaried employees to contribute a part of their
compensation toward their retirement on a tax deferred basis. Company
contributions equate to 10% of the employee's contribution to the Benefit Plan
and totaled approximately $23,000 in 1995 and $15,000 in 1994. In addition to
the aforementioned contributions, the Company, at the sole discretion of its
Board of Directors, may make profit sharing contributions into the Benefit
Plan; no contributions were made in 1995 or 1994.
Contingencies
From time to time, the Company receives complaints from former employees
concerning personnel issues. In the opinion of management, the ultimate
outcome of any present matters will not have a material impact on the
Company's financial position or future results of operations.
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 September 30, 1987, and in the opinion of
management, adjustments resulting from the completion of such audits are not
expected to have a material impact on the Companys financial position or
future results of operations.
Related Party Transactions
The Company incurred management consulting fees of approximately $168,000
and $90,000 in 1995 and 1994, respectively, for services rendered by certain
Directors of the Company. Amounts payable to such Directors was $15,000 and
$-0- at December 31, 1995 and 1994, respectively.
The Company issued 4,000 shares of restricted common stock to a Director
in consideration for services rendered during 1995.
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