SECURITIES AND EXCHANGE COMMISSION
Washington, DC
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
Commission file number 0-28284
INFONAUTICS, INC.
(exact name of registrant as specified in its charter)
Pennsylvania 23-2707366
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(State or other jurisdiction (IRS Employer ID No.)
of incorporation of organization)
900 West Valley Road, Suite 1000, Wayne, Pa 19087
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(Address of principal executive offices)
(610) 971-8840
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at March 31, 2000
----- -----------------------------
Class A Common Stock, no par value 12,075,483
Class B Common Stock, no par value 100,000
INFONAUTICS, INC.
INDEX
Page Number
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31,
2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 2000 and
March 31, 1999 4
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 2000 and March 31, 1999 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II: OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
2
INFONAUTICS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 14,563,368 $ 3,739,024
Receivables:
Trade, less allowance for doubtful accounts of $99,800 in 2000
and 1999 756,669 637,316
Due from affiliate -- 13,500,000
Other 193,972 513,231
Prepaid expenses and other assets 245,797 267,230
------------ ------------
Total current assets 15,759,806 18,656,801
Property and equipment, net 567,884 492,438
Investments in affiliates 8,386,613 10,885,773
Intangible and other assets 214,616 26,415
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Total assets $ 24,928,919 $ 30,061,427
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 919,404 $ 916,292
Due to affiliate 646,695 --
Accrued expenses 920,182 2,438,515
Accrued royalties -- 75,606
Deferred revenue 834,979 858,159
Convertible debt 3,043,046 2,857,322
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Total current liabilities 6,364,306 7,145,894
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Total liabilities 6,364,306 7,145,894
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Commitments and contingencies
Shareholders' equity (deficit):
Class A common stock, no par value; 25,000,000 shares authorized; one vote
per share; 12,075,483 and 11,757,076 shares issued and
outstanding at March 31, 2000 and December 31, 1999, respectively -- --
Class B common stock, no par value; 100,000 shares authorized,
issued and outstanding -- --
Additional paid-in capital 59,258,546 58,316,564
Accumulated deficit (40,693,933) (35,401,031)
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Total shareholders' equity 18,564,613 22,915,533
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Total liabilities and shareholders' equity $ 24,928,919 $ 30,061,427
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
INFONAUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2000 1999
------------ ------------
Revenues $ 3,041,137 $ 5,231,028
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Costs and expenses:
Cost of revenues 803,627 1,709,119
Customer support expenses 19,727 272,031
Technical operations and development expenses 1,430,113 2,216,562
Sales and marketing expenses 2,883,446 2,804,552
General and administrative expenses 703,339 751,574
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Total costs and expenses 5,840,252 7,753,838
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Loss from operations (2,799,115) (2,522,810)
Equity in net losses of unconsolidated affiliate (2,499,160) --
Interest income (expense), net 5,373 (287,330)
------------ ------------
Net loss (5,292,902) (2,810,140)
Redemption of preferred stock in excess of carrying amount -- (74,875)
Net loss attributable to common shareholders $ (5,292,902) $ (2,885,015)
============ ============
Loss per common share- basic and diluted $ (.44) $ (.25)
============ ============
Weighted average shares
outstanding- basic and diluted 12,034,300 11,647,200
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
INFONAUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $ (5,292,902) $ (2,810,140)
Adjustments to reconcile net loss to cash provided by (used
in) operating activities:
Depreciation and amortization 133,747 349,306
Amortization of discount on debt 133,224 296,415
Accretion on convertible debt 52,500 --
Provision for losses on accounts receivable -- 21,800
Amortization of deferred compensation -- 31,250
Equity in investee losses 2,499,160 --
Changes in operating assets and liabilities:
Receivables:
Trade (119,353) 220,106
Other 319,259 (51,045)
Prepaid and other assets 12,676 170,369
Accounts payable 163,769 (244,342)
Due to affiliate 646,695 --
Accrued expenses (32,980) (300,313)
Accrued royalties (75,606) 310,081
Deferred revenue (23,180) (722,343)
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Net cash used in operating activities (1,582,991) (2,728,856)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (198,637) (62,254)
Receipts from disposition of businesses, net 11,853,990 --
Purchases of intangibles (70,000) --
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Net cash provided by (used in) investing activities 11,585,353 (62,254)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 821,982 84,999
Repurchase of preferred stock -- (333,358)
Proceeds from long term borrowings -- 3,000,000
Payments on capital lease obligations -- (84,999)
------------ ------------
Net cash provided by financing activities 821,982 2,666,642
------------ ------------
Net increase (decrease) in cash and cash equivalents 10,824,344 (124,468)
Cash and cash equivalents, beginning of period 3,739,024 3,267,811
Cash and cash equivalents, end of period $ 14,563,368 $ 3,143,343
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
INFONAUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS AND PRESENTATION:
The unaudited consolidated financial statements of Infonautics, Inc. (including
its subsidiaries, "Infonautics," and the "Company) presented herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission for quarterly reports on Form 10-Q.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. It is
suggested that these financial statements be read in conjunction with the
financial statements for the year ended December 31, 1999 and the notes thereto
included in the Company's 1999 Annual Report on Form 10-K.
The financial information in this report reflects, in the opinion of management,
all adjustments of a normal recurring nature necessary to present fairly the
results for the interim period. Quarterly operating results may not be
indicative of results which would be expected for the full year.
2. THE COMPANY AND OUR RECENT TRANSACTION:
Infonautics, Inc. is a provider of personalized information agents and
Internet sites. The Infonautics Network of web properties includes the free,
advertising supported Sleuth Center content notification sites featuring
Company Sleuth, Sports Sleuth, Job Sleuth, Entertainment Sleuth, Mobile
Sleuth and Shopping Sleuth. The Infonautics Network also includes search and
reference sites consisting of the subscriber based Electric Library and the
free Encyclopedia.com, eLibrary Tracker and Newsdirectory.com.
On December 15, 1999, Infonautics completed a transaction in which Infonautics
contributed its Electric Library K-12 and public library contracts, assets,
liabilities and related commitments into what is now bigchalk.com, Inc.
("bigchalk.com"), an Internet education company, in exchange for $16.5 million
in cash and a 30.89 percent interest in bigchalk.com. Infonautics collected the
$13.5 million note receivable from the transaction in January 2000.
Infonautics continues to develop and market its Sleuth Center sites. The Company
also retained the rights to market Electric Library to end-users (subject to an
option granted to bigchalk.com to purchase the end-user business).
3. INVESTMENT IN AFFILIATES:
During January 2000, the Company's equity interest in bigchalk.com was diluted
to from 30.89% to 30.28% of the outstanding common stock as a result of a
private financing closed by bigchalk.com. For the three months ended March 31,
2000, the Company expensed $2,499,000 as its equity in the unaudited losses of
bigchalk.com for the corresponding quarter.
The Company also incurred $696,241 of content royalties and $240,083 of
technical services fees to bigchalk.com during the three months ended March 31,
2000. These costs were the result of our content and technical services
agreements with bigchalk.com. At March 31, 2000, $646,695 is due to bigchalk.com
for these content royalties and technical services fees.
The unaudited statement of operations of bigchalk.com for the three months ended
March 31, 2000 is as follows, in millions:
Net revenues $ 8
Gross profit 3
Loss from
continuing operations (8)
Net loss (8)
6
4. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
The Company collected a note receivable for $13,500,000 in January 2000 on the
transaction with bigchalk.com. Related expenses of $1,646,010, which had been in
accrued expenses as December 31, 1999, were paid in the quarter ended March 31,
2000.
Interest expense of $28,000 and $52,500 was accrued on the February 1999
convertible debt instrument during the three months ended March 31, 1999 and
2000, respectively. Approximately $197,000 was recognized during the three
months ended March 31, 1999 as amortization of the discount associated with the
beneficial conversion feature on the convertible debt.
Approximately $800,000 was recorded in February 1999 as an additional discount
on debt related to the valuation of warrants issued in connection with the
convertible debt. During the three months ended March 31, 1999 and 2000, $71,000
and $133,225 of this discount was amortized and recorded as interest expense,
respectively.
Cash paid for interest expense was $20,342 and $4,933, for 1999 and 2000
respectively.
In connection with the repurchase of 283 shares of Series A Convertible
Preferred Stock made under the July 1998 financing, the Company charged
additional paid-in capital in the first quarter of 1999 for approximately
$75,000, which represents the excess of the redemption price over the
accreted carrying value of the Series A Preferred Stock.
The Company issued common stock in February 2000, as part of a purchase of
intangibles, with a fair value of approximately $120,000.
Gross barter income and expenses of $151,500 and $55,000 are included in revenue
and marketing expenses for the quarters ended March 31, 2000 and 1999,
respectively.
5. Commitments and Contingencies:
Marketing Agreement:
The Company entered into a marketing agreement in March 1998, in which we agreed
to pay $4.0 million in placement fees to America Online for anchor placements of
our Electric Library site. In March 2000, the Company made the final required
payment of $500,000 due under this agreement. At March 31, 2000, accrued
expenses included $136,119 related to this agreement for additional fees
calculated in accordance with the contract. Included in prepaid expenses was
$169,743, representing one month of fixed placement fees paid in March 2000.
Letter of Credit:
The Company had an outstanding letter of credit which expired on March 31,
2000. This letter of credit, in the amount of $110,000, collateralized our
obligations to a third party under a leasing arrangement.
Leases:
In April 2000, the Company entered a lease agreement to occupy office space for
a term of three years. The lease terms provide for up to six free months of
rent, commencing in July 2000, followed by annual commitments of $286,500,
$301,500 and $316,500 for 2001, 2002 and 2003, respectively. The Company expects
to occupy the space in July 2000, and begin payments in January 2001.
7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
This Report on Form 10-Q contains, in addition to historical information,
forward-looking statements by the Company with regard to its expectations as
to financial results and other aspects of its business that involve risks and
uncertainties and may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Words such as
"may," "should," "anticipate," "believe," "plan," "estimate," "expect" and
"intend," and other similar expressions are intended to identify
forward-looking statements. These include, for example, statements regarding
the sufficiency of the Company's liquidity, including cash resources and
capital, the number of registered users and subscribers, gross margins,
current and future expenses and costs, future revenues and shortfalls in
revenue, use of system resources and marketing effects, growth and expansion
plans, sales and marketing plans, changes in our marketing partners, capital
expenditures, seasonality, operating results, licensing and service contracts
with bigchalk.com, Inc., and the transaction with bigchalk.com, Inc, Such
statements are based on management's current expectations and are subject to
a number of uncertainties and risks that could cause actual results to differ
materially from those described in the forward-looking statements. Factors
that may cause such a difference include, but are not limited to, the risks
set forth in the Company's filing with the Securities and Exchange
Commission. All forward-looking statements included in this document are
based on information available to the Company as of the date of this
document, and the Company assumes no obligation to update these cautionary
statements or any forward-looking statements.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1999
PRO FORMA RESULTS OF OPERATIONS:
The pro forma results of operations reflected here are based on available
information and certain information and assumptions that the Company's
management believes are reasonable. As a result of the transaction with
bigchalk.com and Bell & Howell Company, the following pro forma information for
the three months ended March 31, 1999 has been prepared for comparative purposes
to the ongoing operations of the Company:
Revenues $1,996,000
Costs and Expenses 3,037,000
Loss from Operations (1,041,000)
REVENUES. Total revenues were $3,041,000 for the three months ended March 31,
2000, and $5,231,000 for the three months ended March 31, 1999. Pro forma
revenues for the three months ended March 31, 1999 were $1,996,000.
End-user subscription revenue, a continuing market for us, accounted for
$2,401,000 or 79% of revenue for the three months ended March 31, 2000 and
$1,767,000 or 89% of pro forma revenue for the three months ended March 31,
1999. The increase in the total revenues is primarily a result of the increasing
number of subscribers, as we had approximately 100,000 Electric Library
subscribers at March 31, 2000 compared to approximately 75,000 at March 31,
1999.
Advertising and other e-commerce revenues, a continuing market for us, were
$634,000, or 21% of revenues for the three months ended March 31, 2000 and
$140,000, or 7% of pro forma revenues for the three months ended March 31, 1999.
Barter revenue accounted for $152,000 of this revenue in 2000 and $55,000 in
1999. These revenues consist of advertising revenues from advertising that are
displayed on the Infonautics Network sites. Since March 31, 1999, we have
introduced new sites which are available to sell advertising on, such as Sports
Sleuth, Job Sleuth, Shopping Sleuth and Entertainment Sleuth. E-commerce
revenues include referral revenues from partners who pay us for selling trial
offers for their products (typically magazine or newspaper subscriptions),
revenues from co-branding of our sites, and revenues from participation in
affiliate networks. Direct marketing fee revenues consist of e-mails that are
sent to our users with advertising promotions.
Reseller revenue was approximately $6,000 for the three months ended March 31,
2000, compared to approximately $89,000 for the three months ended March 31,
1999. All reseller contracts have expired and we are no longer pursuing the
reseller business.
Educational revenue accounted for $2,705,000 or 52% of revenue for the three
months ended March 31, 1999. There were no educational revenues in 2000, as all
educational contracts are now owned by bigchalk.com.
E-commerce online publishing revenue was $223,000 or 4% of revenue in the three
months ended March 31, 1999. There were no revenues from E-commerce online
publishing in 2000, as we sold this business to Bell & Howell
8
Information and Learning Company as part of our bigchalk.com transaction.
Extranet and intranet knowledge management services (IntelliBank) revenue was
$115,000, or 2% of revenue in the three months ended March 31, 1999. There were
no IntelliBank revenues in 2000 as we have discontinued that business.
Other revenue was $192,000, for the three months ended March 31, 1999. Other
revenue consisted primarily of sales of Electric Library through international
partners, which was transferred to bigchalk.com.
At March 31, 2000 we had deferred revenue of approximately $835,000, compared to
$858,000 at December 31, 1999. The deferred revenue consists of revenue to be
recognized from annual end-user subscriptions. We would expect deferred revenue
to remain at this level unless the number of annual end-user subscriptions
increased significantly.
COST OF REVENUES. The principal elements of our cost of revenues during 2000 are
royalty and license fees on end-user revenues paid to bigchalk.com, which is
currently the sole provider of content, hardware and software, and communication
costs associated with the delivery of the Electric Library services. Cost of
revenues was $804,000 for the three months ended March 31, 2000 compared to
$1,709,000 for the three months ended March 31, 1999. Cost of revenues in the
first quarter of 2000 decreased due to the decrease in revenues as a result of
the sale of the educational and international contracts to bigchalk.com.
Additionally, the percentage of cost of revenues decreased as a result of change
in the product mix, as the advertising and e-commerce revenues make up a greater
portion of revenues in 2000, and there are no royalty or license fees on these
revenues.
CUSTOMER SUPPORT. Customer support expenses consist primarily of costs
associated with the staffing of professionals responsible for assisting users
with technical and product issues and monitoring customer feedback. Customer
support expenses were $20,000 for the three months ended March 31, 2000,
compared to $272,000 for the three months ended March 31, 1999, a 93% decrease.
As a percentage of revenue, customer support expenses for the first quarter were
less than 1% in 2000 and 5% in 1999. The decrease in 2000 resulted primarily
from lower staffing levels as a result of the bigchalk.com transaction. We
anticipate continuing to make increasing customer support expenditures,
including hiring customer support personnel, as we improve our customer service
for all products on the Infonautics Network.
TECHNICAL OPERATIONS AND DEVELOPMENT. Technical operations and development
expenses consist primarily of costs associated with maintaining our service,
data center operations, hardware expenses and data conversion costs as well as
the design, programming, testing, documentation and support of our new and
existing sites. To date, all of our costs for technical operations and
development have been expensed as incurred. Technical operations and development
expenses were $1,430,000 or 47% of total revenues for the three months ended
March 31, 2000, compared to $2,217,000 or 42% of total revenues for the three
months ended March 31, 1999. A significant portion of these development costs in
2000 have resulted from the technical services agreement with bigchalk.com,
requiring a percentage of Electric Library end-user revenues to be paid to
bigchalk.com for use of the Electric Library technical support and datacenter
operations. The absolute dollar decrease was largely due to the bigchalk.com
transaction, as many of our personnel and costs associated with those personnel
were included in the sale to bigchalk.com. However, we expect that the level of
technical operations and development expenses may increase quarter over quarter
as we develop new and enhanced sites and upgrades to the current sites which may
include the use of outside consultants and additional hiring.
SALES AND MARKETING. Sales and marketing costs consist primarily of costs
related to compensation, attendance at conferences and trade shows, marketing
programs, advertising and promotion. Sales and marketing expenses were
$2,883,000 for the three months ended March 31, 2000, compared to $2,805,000 for
the three months ended March 31, 1999, representing a 3% increase. The principal
reasons for the increase in absolute dollars was a Sport Sleuth marketing
campaign in March 2000, which cost approximately $1 million. This cost was
partially offset by a decrease in sales personnel costs as a result of the
bigchalk.com transaction. Additionally, during 1999, we were
9
implementing cost reduction efforts in our marketing programs. As a percentage
of revenue, sales and marketing costs were 95% and 54% for the three months
ended March 31, 2000 and 1999, respectively. We currently have no plans for a
significant marketing program similar to the first quarter of 2000. The
marketing of the Electric Library end-user business has been and will continue
to be limited. We use affiliate and other marketing programs to acquire
registered users. We may accelerate these programs which could increase the cost
of acquisition. Additionally, we will no longer incur the trade show, conference
and other costs of marketing to the educational market as a result of our
bigchalk.com transaction.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of expenses for administration, office operations, finance and general
management activities, including legal, accounting and other professional fees.
General and administrative expenses were $703,000 for the three months ended
March 31, 2000, compared to $752,000 for the three months ended March 31, 1999.
We do not anticipate that general and administrative expenses will increase
significantly in the second quarter unless we consider or enter into any
strategic alliances or transactions, or hire additional management.
INCOME (LOSS) IN EQUITY INVESTMENT. The loss in equity investment consists of
our share of the results of operations of bigchalk.com. The loss of equity in
the investment was $2,499,000 during the first quarter of 2000. There were no
such costs during 1999. As of March 31, 2000, we held a 30.28% interest in the
common stock of bigchalk.com. We expect that bigchalk.com will continue to
generate net losses in 2000 as it develops its business and expands market
share.
INTEREST INCOME (EXPENSE), NET. We recorded net interest income of $5,000 in
the three months ended March 31, 2000, as compared to net interest expense of
$287,000 in the three months ended March 31, 1999. Approximately $196,000 of
interest income was earned in the current quarter. Offsetting this income was
$191,000 in interest expense primarily arising from interest accrued upon the
convertible debt issued on February 11, 1999, and the amortization of the
debt discount (which is due to the warrant valuation and beneficial
conversion feature of the convertible debt). Approximately $300,000 of
interest expense was incurred in the prior year quarter as a result of the
amortization of the debt discount and interest expense related to the
convertible debentures. Interest expense in the second quarter of 2000 is
expected to remain consistent as we will continue to incur interest expense
for the amortization of the debt discount and interest incurred on the
debenture, and interest income will decrease as our cash balances decrease.
INCOME TAXES. We have incurred net operating losses since inception and
accordingly, have not recorded an income tax benefit for these losses.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have funded our operations and capital requirements through proceeds
from the private sale of equity securities, our initial public offering,
proceeds from the transaction with Bell & Howell Company and bigchalk.com,
proceeds from the issuance of preferred stock, utilization of an accounts
receivable purchase agreement, and, to a lesser extent, operating leases.
We had cash, cash equivalents and investments of approximately $14,563,000 at
March 31, 2000, as compared to $3,739,000 at December 31, 1999, an increase of
$10,824,000. We collected a $13.5 million receivable note arising from the Bell
& Howell and bigchalk.com transaction in January. We monitor our cash and
investment balances regularly and invest excess funds in short-term money market
funds, corporate bonds and commercial paper.
We had working capital of approximately $9.4 million at March 31, 2000, which
includes $3 million of convertible debt which is due to be paid or converted in
August 2000.
We used cash in operations of approximately $1,583,000 for the three months
ended March 31, 2000 compared with $2,729,000 for the comparable period in
10
1999. This decrease in cash used is primarily a result of the timing of payables
as well as a decrease in costs related to the sale of the educational and online
publishing businesses during the fourth quarter of 1999.
Net cash provided by investing activities was $11,585,000 for the three months
ended March 31, 2000, reflecting the collection of the note receivable from the
transaction with bigchalk.com net of related fees. This compares to cash
provided used in investing activities of $62,000 for the three months ended
March 31, 1999. Net cash used for capital expenditures was $199,000 and $62,000,
respectively, for the three months ended March 31, 2000 and 1999. Net cash used
for the purchase of intangibles related to Newsdirectory.com was $70,000 for the
three months ended March 31, 2000.
Our principal commitments at March 31, 2000 consisted of obligations under the
bigchalk.com service and license agreements. In addition, in April 2000, we
entered into a 42-month facility lease agreement (see Note 5 in Item 1).
Capital expenditures have been, and future expenditures are anticipated to be,
primarily for facilities and equipment to support the expansion of our
operations and systems. We expect that our capital expenditures will increase as
the number of sites on the Infonautics Network increases. As of March 31, 2000,
we had commitments for less than $100,000 in capital expenditures for equipment
to support the increased customer base. We anticipate that our planned purchases
of capital equipment, a move to new offices and the related expenses will
require additional expenditures of approximately $1,000,000 for the remainder of
2000, a portion of which we may finance through equipment leases, or a working
capital line of credit. We have obtained financing for some of this equipment
through an equipment lease, however, there can be no guarantee we will obtain
future lease financing.
Net cash provided by financing activities was $822,000 in the three months ended
March 31, 2000, compared to $2,667,000 in the three months ended March 31, 1999.
During 2000, we received funds through the exercise of stock options of former
employees who were hired by bigchalk.com and had until March 30, 2000 to
exercise options. In February 1999, we raised an additional $3 million through
the issuance of convertible debt.
We currently anticipate that the cash balances and cash from operations, will be
sufficient to meet our anticipated needs for at least the next twelve months. We
may need to raise additional funds in the future in order to fund more
aggressive marketing or growth, to develop new or enhanced services, to respond
to competitive pressures or to make acquisitions. Any required additional
financing may not be available on terms favorable to us, or at all, and may
result in dilution to our shareholders.
SEASONALITY
During the summer months, and possibly during other times of the year such as
major holidays, Internet usage often declines. As a result, our sites may
experience reduced user traffic. For example, our experience with Electric
Library shows that new user registrations and usage of the site declines during
the summer months and around the year-end holidays. Our experience with Company
Sleuth shows that new user registrations and usage of the site declines at about
the same times. Not all of our sites may experience the same seasonal effects
and some, Shopping Sleuth, for example, might experience increased usage during
the gift-buying season around the year-end holidays. Seasonality may also affect
advertising and affiliate performance which could in turn affect our sites'
performance.
11
PART II. OTHER INFORMATION
Item 5. Other Information
On January 10, 2000, we entered into a Stockholders Agreement with
bigchalk.com, Inc. and Bell & Howell Information and Learning Company, as well
as with the investors in a private placement of bigchalk.com preferred stock and
common stock. The Stockholders Agreement specifies the rights and obligations of
the bigchalk.com founders, Infonautics and Bell & Howell Information and
Learning Company, as well as the private placement investors. Under the
agreement, we have, among other rights, limited registration rights for our
bigchalk.com stock. We, along with the other investors, are also subject to
certain lock-up provisions as specified in the Stockholders Agreement.
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits:
3.1 - Form of Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File
No. 333-2428) as amended in part by the Exhibit 3.1 attached to this
Form 10-Q)
10.20 - Stockholders Agreement dated January 10, 2000 between the
Company, bigchalk.com, Inc., Bell & Howell Information and Learning
Company, TBG Information Investors LLC, Core Learning Group LLC, Core
Learning Group - BC, LLC, APA Excelsior V, L.P.., Patricof Private
Investment Club II, L.P., Frank A. Bonsal, Jr., WS Investment Company
99B, Alan K. Austin, The San Domenico Trust, Timothy J. Sparks, and
Daniel K. Yuen
27.0 - Financial Data Schedule
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements 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.
INFONAUTICS, INC.
Date: May 15, 2000 /s/ David Van Riper Morris
----------------------------
David Van Riper Morris
Chief Executive Officer
Date: May 15, 2000 /s/ Federica F. O'Brien
----------------------------
Federica F. O'Brien
Principal Financial
and Accounting Officer
13