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 September 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.)
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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 November 6, 1996 was
2,194,735
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 September 30, 1996 and 1995 3
Condensed Consolidated Statements of Operations
Nine Months Ended September 30, 1996 and 1995 4
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 5-6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 7
Notes to Condensed Consolidated Financial Statements
September 30, 1996 and 1995 8-9
Item 2. Management's Discussion and Analysis 10-11
PART II. OTHER INFORMATION
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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
September 30,
1996 1995
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Revenues.................................. $2,502 $1,410
Cost of revenues.......................... 1,334 705
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Gross profit.............................. 1,168 705
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Operating expenses
Research and development................... 281 79
Selling, general and administrative........ 739 681
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1,020 760
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Operating income (loss):................... 148 (55)
Interest income............................ 23 30
Interest expense........................... (2) (5)
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Income before income taxes................. 169 (30)
Provision for income taxes................. - -
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Net income................................. $ 169 $ (30)
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Preferred dividends........................ - (30)
Income (loss) applicable to common shares $ 169 $ (60)
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Per share data (primary and fully diluted):
Net income (loss) per common share.... $ .08 $ (.04)
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Weighted average shares outstanding (Note C). 2,149 1,419
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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)
Nine Months Ended
September 30,
1996 1995
Revenues................................... $7,355 $4,893
Cost of revenues........................... 4,412 2,691
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Gross profit............................... 2,943 2,202
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Operating expenses
Research and development................... 537 206
Selling, general and administrative........ 2,007 2,059
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2,544 2,265
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Operating income (loss):.................. 399 (63)
Interest income........................... 70 95
Interest expense.......................... (9) (18)
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Income before income taxes................ 460 14
Provision for income taxes................ 7 -
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Net income................................ $ 453 $ 14
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Preferred dividends....................... (58) (90)
Income (loss) applicable to common shares $ 395 $ (76)
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Per share data (primary and fully diluted):
Net income (loss) per common share.... $ .19 $ (.05)
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Weighted average shares outstanding (Note C) 2,085 1,414
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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)
September 30, December 31,
1996 1995
Assets
Current assets:
Cash and cash equivalents.................. $1,536 $1,476
Short term investments.................... 3 33
Accounts receivable, net of allowance of
$80 and $30............................. 2,086 1,901
Prepaid royalties......................... - 18
Other current assets...................... 118 146
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Total current assets................ 3,743 3,574
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Property and equipment, at cost:
Furniture and equipment................. 2,269 2,046
Less accumulated depreciation and
amortization.......................... (1,828) (1,633)
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441 413
Goodwill, net................................... 285 264
Other assets.................................... 122 68
Software development costs,net.................. 94 126
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Total assets.................................... $4,685 $4,445
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollar Amounts in Thousands)
(Unaudited)
September 30, December 31,
1996 1995
Liabilities and shareholders' equity
Current liabilities:
Current portion of capital lease obligations........ $ 59 $ 106
Accounts payable ................................. 250 335
Current portion of note payable.................... --- 2
Accrued expenses................................... 887 677
Deferred revenue ................................. 1,078 1,171
Preferred dividend payable......................... --- 30
Current portion of deferred rent................... 33 33
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Total current liabilities.......................... 2,307 2,354
Capital lease obligations.......................... 43 82
Deferred revenue................................... --- 192
Deferred rent...................................... 21 52
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Total liabilities ................................. 2,371 2,680
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Shareholders' equity:
Preferred stock.................................... --- 132
Common stock........................................ 66 44
Additional paid-in capital......................... 9,007 8,056
Accumulated deficit................................ (6,759) (6,467)
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Total shareholders' equity.......................... 2,314 1,765
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Total liabilities and shareholders' equity......... $4,685 $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)
Nine Months Ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 453 $ 14
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 195 177
Software amortization............................. 32 339
Goodwill and other intangible amortization........ 34 --
Cancellation of debt on note payable.............. -- (85)
Other............................................. (6) --
Changes in operating assets and liabilities:
Accounts receivable............................... (185) 774
Prepaid royalties and other current assets........ (20) 115
Accounts payable.................................. (122) (62)
Accrued expenses.................................. 196 (87)
Deferred revenue.................................. (285) (642)
Deferred rent..................................... (31) (24)
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Net cash provided by operating activities........ 261 519
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CASH FLOWS FROM INVESTING ACTIVITIES:
Software development costs capitalized............ -- (4)
Purchases of property and equipment, net.......... (200) (64)
Business acquisition.............................. (12) --
Purchases of short term investments............... -- (2)
Proceeds from maturity of short term investments.. 29 --
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Net cash used in investing activities............ (183) (70)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations............. (84) (131)
Payments of notes payable......................... (2) (21)
Preferred stock dividends......................... (87) (90)
Issuance of common stock.......................... 155 49
Other............................................. -- (12)
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Net cash used in financing activities............ (18) (205)
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Net increase in cash and cash equivalents......... 60 244
Cash and cash equivalents at beginning of period.. 1,476 1,695
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Cash and cash equivalents at end of period........ $1,536 $1,939
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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
nine month periods ended September 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 there to included
in the Company's annual report on Form 10-KSB for the year ended December 31,
1995.
NOTE B--Line of Credit
In November 1996, the Company received approval for a working capital line of
credit with Merrill Lynch Business Financial Services Inc., subject to
completion of all loan documents. This loan facility will provide the Company
with a $1,000,000 line of credit 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. Advances on the facility are based on eligible billed
accounts receivable less than 90 days in age. The facility expires in one
year, and is contingent upon the Company meeting certain financial covenants.
The Company has made no borrowings under this line of credit.
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
was 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 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 $9,000 and $18,000 for the periods ended
September 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.
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
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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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ITEM 2--Management's Discussion and Analysis
Results of Operations
Revenues
Revenues for the three and nine months ended September 30, 1996 totaled
$2,502,000 and $7,355,000, respectively, reflecting increases of $1,093,000
(77%) and $2,462,000 (50%) over the three and nine month periods ended
September 30, 1995, respectively. For the same periods, client/server related
revenues totaled $1,434,000 and $3,701,000, respectively, reflecting increases
of $1,256,000 (708%) and $3,004,000 (431%) over the prior year's comparable
quarters. These increases are primarily due to revenues related to new
client/server contracts and third party client/server product sales. In
addition, the Company acquired the assets of Merex Inc. during the fourth
quarter of 1995 which has had a positive impact on total revenues and
operating income during the first nine months of 1996.
Overall, INQUIRE/Text related revenues from products and services decreased
$164,000 (13%) and $542,000 (13%) for the three and nine months ended
September 30, 1996, respectively, as compared to 1995, although product
license fees increased during the first nine months of 1996. The Company
expects that INQUIRE/Text related revenues may continue to decline over time.
Gross Profit
Gross profit increased to $1,168,000 and $2,943,000 for the three and nine
months ended September 30, 1996, respectively, from $705,000 and $2,202,000
for the same periods ended September 30, 1995. The increase for the third
quarter of 1996 is due primarily to an increase in revenues from new
client/server contracts, an increase in client/server product sales and an
increase in revenue from INQUIRE/Text product license fees. For the first nine
months of 1996, the increase is due to increases in new client/server
contracts, client/server product sales and INQUIRE/Text product license fees
and from the completion of a high margin, fixed price contract during the
first quarter. The decline in gross margin percentage for the nine months
ended September 30, 1996 is due primarily to an increase in third party
client/server product sales with a lower margin, a decline in INQUIRE/Text
maintenance revenues and 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 nine months ending September 30, 1995 from a gross profit
margin of 41% and 37% to a revised 50% and 45%, 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 $281,000 and $537,000 for the three and nine months
ended September 30, 1996, respectively, reflecting increases of $202,000 and
$331,000 over the three and nine months ended September 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.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $739,000 for the
three months ending September 30, 1996 and decreased to $2,007,000 for the
nine months ended September 30, 1996 from $681,000 and $2,059,000 for the same
periods ended September 30, 1995, respectively. The increase for the three
months ending September 30, 1996 is due primarily to an increase in sales and
marketing staff. These expenses decreased as a percent of total revenue from
48% to 30% for the three month period ended September 30, 1995 and 1996,
respectively, and decreased from 42% to 27% for the nine month period ended
September 30, 1995 and 1996, respectively. During the second quarter of 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
$1,957,000 for the nine months ended September 30, 1996. In the third quarter
of 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 $23,000 and $70,000 for the three and nine months ended
September 30, 1996, respectively, and $30,000 and $95,000 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 nine months ended September 30, 1996 over the same periods in
1995. The Company invested only in short-term, highly liquid money market
instruments. Interest expense decreased from $5,000 to $2,000 for the three
months ended September 30, 1995 and 1996, respectively, and decreased from
$18,000 to $9,000 for the nine months ended September 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 $169,000 and
$453,000 for the three and nine months ended September 30, 1996 as compared to
a net loss of $30,000 and a net income of $14,000 for the same periods last
year.
Liquidity and Capital Resources
As of September 30, 1996, the Company had $1,539,000 in cash and short-term
investments compared to $1,509,000 as of December 31, 1995.
At September 30, 1996, the Company had working capital of $1,436,000, as
compared to working capital of $1,220,000 at December 31, 1995. The increase
in working capital is due primarily to increased net income offset in part by
purchases of computer hardware and software.
Net cash flow from operating activities for the nine months ended September
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.
In November 1996, the Company received approval for a working capital line of
credit with Merrill Lynch Business Financial Services Inc., subject to
completion of all loan documents. This loan facility will provide the Company
with a $1,000,000 line of credit 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. Advances on the facility are based on eligible billed
accounts receivable less than 90 days in age. The facility expires in one
year, and is contingent upon the Company meeting certain financial covenants.
The Company has made no borrowings under this line of credit.
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During the third quarter of 1996, the Company declared a two-for-one stock
split that was 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. (see Note E to the
Notes to Consolidated Financial Statements contained elsewhere in the report.)
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PART II. OTHER INFORMATION
Item 2. Changes in Securities
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
was 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 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibit is filed herewith:
Exhibit No Description
3 Articles of Amendment of Articles of Incorporation
(b) Forms 8-K.
During the three months ending September 30, 1996, the Company filed reports
on Form 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.
Date: November 8, 1996 By: /s/HARRY KAPLOWITZ
Harry Kaplowitz
President
By:/s/PAUL T. HARLEY
Paul T. Harley
Controller
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