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, 1996
[ ] 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.
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(Exact name of small business issuer as specified in its charter)
12150 Monument Drive, Suite 400, Fairfax, Virginia 22033
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(Address of registrant's principal executive office)
(703) 934-5205
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(REGISTRANT'S TELEPHONE NUMBER)
Virginia 16-0954695
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(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 8, 1996 was
1,075,400.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
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, 1996 and 1995 3
Condensed Consolidated Statements of Operations
Six Months Ended June 30, 1996 and 1995 4
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 5-6
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 7
Notes to Condensed Consolidated Financial Statements
June 30, 1996 and 1995 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
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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,
1996 1995
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Revenues.......................................... $2,360 $1,770
Cost of revenues.................................. 1,410 986
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Gross profit...................................... 950 784
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Operating expenses
Research and development......................... 199 58
Selling, general and administrative.............. 623 714
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822 772
Operating income (loss):......................... 128 12
Interest income.................................. 27 34
Interest expense................................. (3) (6)
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Income before income taxes....................... 152 40
Provision for income taxes....................... 4 1
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Net income....................................... $ 148 $ 39
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Preferred dividends.............................. (28) (30)
Income (loss) applicable to common shares $ 120 $ 9
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Per share data (primary and fully diluted):
Net income (loss) per common share........... $ .06 $ .01
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Weighted average shares outstanding (Note C)..... 2,017 1,412
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The accompanying notes are an integral part of these consolidated statements.
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Six Months Ended
June 30,
1996 1995
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Revenues......................................... $4,853 $3,483
Cost of revenues................................. 3,078 1,986
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Gross profit..................................... 1,775 1,497
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Operating expenses
Research and development......................... 256 127
Selling, general and administrative.............. 1,268 1,378
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1,524 1,505
Operating income (loss):......................... 251 (8)
Interest income.................................. 47 65
Interest expense................................. (7) (13)
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Income before income taxes....................... 291 44
Provision for income taxes....................... 7 1
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Net income....................................... $ 284 $ 43
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Preferred dividends.............................. (58) (60)
Income (loss) applicable to common shares $ 226 $ (17)
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Per share data (primary and fully diluted):
Net income (loss) per common share........... $ .11 $ (.01)
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Weighted average shares outstanding (Note C) .... 1,973 1,412
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The accompanying notes are an integral part of these consolidated statements.
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
June 30, December 31,
1996 1995
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ASSETS
Current assets:
Cash and cash equivalents.................. $1,774 $1,476
Short term investments..................... 3 33
Accounts receivable, net of
allowance of $80 and $30.................. 1,562 1,901
Prepaid royalties.......................... 3 18
Other current assets....................... 107 146
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Total current assets................. 3,449 3,574
Property and equipment, at cost:
Furniture and equipment.................... 2,169 2,046
Less accumulated depreciation and
amortization.............................. (1,763) (1,633)
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406 413
Goodwill, net..................................... 257 264
Other assets...................................... 129 68
Software development costs, net................... 105 126
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Total assets...................................... $4,346 $4,445
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited)
June 30, December 31,
1996 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations..... $ 66 $ 106
Accounts payable................................. 253 335
Current portion of note payable.................. --- 2
Accrued expenses................................. 795 677
Deferred revenue ............................... 1,095 1,171
Preferred dividend payable....................... 28 30
Current portion of deferred rent................. 33 33
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Total current liabilities........................ 2,270 2,354
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Capital lease obligations........................ 55 82
Deferred revenue................................. --- 192
Deferred rent.................................... 29 52
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Total liabilities ............................... 2,354 2,680
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Shareholders' equity:
Preferred stock.................................. 26 132
Common stock..................................... 61 22
Additional paid-in capital....................... 8,833 8,078
Accumulated deficit.............................. (6,928) (6,467)
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Total shareholders' equity....................... 1,992 1,765
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Total liabilities and shareholders' equity....... $4,346 $4,445
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The accompanying notes are an integral part of these consolidated balance
sheets.
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Six Months Ended
June 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 284 $ 43
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 131 137
Software amortization.......................... 21 226
Goodwill and other intangible amortization..... 23 --
Other.......................................... -- --
Changes in operating assets and liabilities:
Accounts receivable............................ 339 849
Prepaid royalties and other current assets..... (7) 89
Accounts payable............................... (163) (96)
Accrued expenses............................... 145 (71)
Deferred revenue............................... (269) (413)
Deferred rent.................................. (22) (16)
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Net cash provided by operating activities... 482 748
CASH FLOWS FROM INVESTING ACTIVITIES:
Software development costs capitalized............ -- (3)
Purchases of property and equipment, net.......... (73) (44)
Business acquisition.............................. (12) --
Proceeds from maturity of short term investments.. 29 --
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Net cash used in investing activities....... (56) (47)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations............. (67) (80)
Payments of notes payable......................... (2) (21)
Preferred stock dividends......................... (59) (60)
Issuance of common stock.......................... -- 6
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Net cash used in financing activities....... (128) (155)
Net increase in cash and cash equivalents......... 298 546
Cash and cash equivalents at beginning of period.. 1,476 1,695
Cash and cash equivalents at end of period........ $1,774 $2,241
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
NOTES TO 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, 1996, are not necessarily indicative of the
results for the year ending December 31, 1996. 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, 1995.
NOTE B--LINE OF CREDIT
The Company declined an offer to renew its $500,000 line of credit which
expired in June 1996. No borrowings were made during the term of the
agreement. The Company believes it has sufficient working capital to fund its
operations without an active line of credit, but is currently engaged in
discussions with several lenders.
NOTE C--COMMON STOCK SPLIT
On July 30, 1996 the Company's board of directors approved a two-for-one
common stock split in the form of a 100% stock distribution. The distribution
will be made on August 26, 1996 to common shareholders of record as of August
12, 1996. The stated par value per share of common stock was not changed from
$.03 and the authorized shares of common stock increased from 3,333,333 to
6,666,666. Accordingly, the $30,413 par value of the additional shares to be
issued was transferred from additional paid-in capital to common stock, and
all share and per share amounts have been restated to retroactively reflect
the stock split.
NOTE D--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense was $7,000 and $13,000 for the periods ended
June 30, 1996 and 1995, respectively. No cash was paid for income taxes in
either period.
NOTE E--CONVERSION OF PREFERRED STOCK
During the three months ended June 30, 1996, 5,500 shares of the Company's
preferred stock were converted into 8,251 shares of the Company's common stock
including accumulated but unpaid dividends for the September 1992 through June
1994 period.
During July 1996, the remaining shares of the Company's preferred stock were
converted into shares of the Company's common stock. As a result, at July 30,
1996, there were no outstanding shares of preferred stock.
On June 26, 1996, the Company entered into an agreement with the University of
Rochester in which the University agreed to convert its 100,000 shares of the
Company's outstanding preferred stock into 129,629 shares of the Company's
common stock and 20,416 additional shares of the Company's common stock in
satisfaction of accumulated but unpaid dividends for the September 1992
through June 1994 period.
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ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
REVENUES
Revenues for the three and six months ended June 30, 1996 totaled $2,360,000
and $4,853,000, respectively, reflecting increases of $590,000 (33%) and
$1,370,000 (39%) over the three and six month periods ended June 30, 1995,
respectively. For the same periods, client/server related revenues totaled
$1,057,000 and $2,267,000, respectively, reflecting increases of $853,000
(418%) and $1,748,000 (336%) over the prior year's comparable quarters. These
increases are primarily due to revenues related to several new client/server
contracts. The Company also acquired the assets of Merex Inc. during the
fourth quarter of 1995. In addition to having a positive impact on total
revenues, the Merex acquisition had a positive impact on operating income
during the first six months of 1996.
Overall, INQUIRE/Text related revenues from products and services decreased
$263,000 (17%) and $378,000 (13%) for the three and six months ended June 30,
1996, respectively, as compared to 1995, although product license fees
increased during the first six months of 1996. The Company expects that
INQUIRE/Text related revenues may continue to decline over time.
GROSS PROFIT
Gross profit increased to $950,000 and $1,775,000 for the three and six months
ended June 30, 1996, respectively, from $784,000 and $1,497,000 for the same
periods ended June 30, 1995. The increase for the second quarter of 1996 is
due primarily to the increase in revenues from new client/server contracts.
For the first half of 1996, the increase is due to the previously mentioned
new client/server contracts and from the completion of a high margin, fixed
price contract and an increase in revenues from INQUIRE/Text product license
fees during the first quarter of 1996. The decline in gross margin percentage
for the six months ended June 30, 1996 is due primarily to a significant new
client/server contract that was substantially completed during the first
quarter and that was bid with a low margin to expedite the Company's
penetration of the client/server market.
In the fourth quarter of 1995, the Company changed its methodology for
overhead allocation to more accurately reflect certain indirect costs of
revenues which resulted in a reclassification of the statement of operations
for the three and six months ending June 30, 1995 from a gross profit margin
of 37% and 36% to a revised 44% and 43%, respectively, but had no effect on
operating income.
RESEARCH AND DEVELOPMENT EXPENSE
Beginning in the first quarter of 1996, key consulting personnel were assigned
to the development of new software tools and products intended to enhance
document sharing across the Internet and on company Intranets and to provide
access to legacy text repositories via Web browsers. This resulted in research
and development expense of $199,000 and $256,000 for the three and six months
ended June 30, 1996, respectively, reflecting increases of $141,000 and
$129,000 over the three and six months ended June 30, 1995, respectively. The
Company believes that research and development expense is likely to increase
for the remainder of 1996 and beyond as new products are developed.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $623,000 and
$1,268,000 for the three and six months ended June 30, 1996, respectively,
from $714,000 and $1,378,000 for the same periods ended June 30, 1995,
respectively. These expenses decreased as a percent of total revenue from 40%
to 26% for both the three and six month periods ended June 30, 1995 and 1996,
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respectively. During the three month period ending June 30, 1996, the Company
increased its allowance for doubtful accounts by $50,000 to reflect the risk
associated with the increase in revenues. Exclusive of this charge, selling
general and administrative expenses would have decreased to $573,000 and
$1,218,000 for the three and six months ended June 30, 1996. In June 1996, the
Company increased its sales and marketing staff and expects that sales and
marketing expenses will increase for the remainder of 1996.
INTEREST INCOME AND EXPENSE
Interest income was $27,000 and $47,000 for the three and six months ended
June 30, 1996, respectively, and $34,000 and $65,000 for the same periods
ended June 30, 1995, respectively. The decrease was primarily due to lower
interest rates and a lower average balance of cash and cash equivalents during
the three and six months ended June 30, 1996 over the same periods in 1995.
The Company invested only in short-term, highly liquid money market
instruments. Interest expense decreased from $6,000 to $3,000 for the three
months ended June 30, 1995 and 1996, respectively, and decreased from $13,000
to $7,000 for the six months ended June 30, 1995 and 1996, respectively. The
expense is primarily related to certain capital equipment leases which expire
through 1998.
NET INCOME
As a result of the above, the Company reported net income of $148,000 and
$284,000 for the three and six months ended June 30, 1996 as compared to
$39,000 and $43,000 for the same periods last year.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had $1,777,000 in cash and short-term
investments compared to $1,509,000 as of December 31, 1995.
At June 30, 1996, the Company had working capital of $1,179,000, as compared
to working capital of $1,220,000 at December 31, 1995. The decrease in working
capital is due primarily to an increase in other non-current assets.
The Company declined an offer to renew its $500,000 line of credit which
expired in June 1996. No borrowings were made during the term of the
agreement. The Company believes it has sufficient working capital to fund its
operations without an active line of credit, but may require additional
working capital upon the successful launch of proposed new products and is
therefore engaged in discussions for a more favorable line of credit.
Net cash flow from operating activities for the six months ended June 30, 1996
was sufficient to fund the operations of the business. Based upon the
expectation of future revenues from the Company's existing products and
services, management believes that available and projected resources will be
sufficient to meet its working capital requirements for the foreseeable
future.
During the third quarter of 1996, the Company declared a two-for-one stock
split to be distributed on August 26, 1996, to shareholders of record as of
August 12, 1996 (see Note C to the Condensed Consolidated Financial Statements
contained elsewhere in this report).
During July 1996, the remaining shares of the Company's preferred stock were
converted into shares of the Company's common stock. As a result, at July 30,
1996, there were no outstanding shares of preferred stock.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following exhibit is filed herewith:
Exhibit No. Document
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3 Articles of Amendment of Articles of Incorporation
of the Registrant.
(b) REPORTS OF FORM 8-K. No reports on Form 8-K were filed during the three
months ended June 30, 1996. The Company filed Forms 8-K on July 8, 1996 and
August 1, 1996.
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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 12, 1996 Harry Kaplowitz
President
BY:/s/PAUL T. HARLEY
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Paul T. Harley
Controller