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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-10416
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INFODATA SYSTEMS INC.
(Exact Name of Small Business Issuer in its Charter)
VIRGINIA 16-0954695
(State of Incorporation) (I.R.S. Employer Identification No.)
12150 MONUMENT DRIVE, FAIRFAX, VIRGINIA 22033
(Address of Principal Executive Office) (Zip Code)
(703) 934-5205 (Issuer's Telephone Number)
--------------------------------------------------
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
None Not applicable
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK-$.03 PAR VALUE
---------------------------
(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
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Common Stock on July 13, 2000
as reported on the Nasdaq Small Cap market, was approximately $7,565,000. Shares
of Common Stock held by each director and officer and by each person who owns 5%
or more of the outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of outstanding shares of the Company's Common Stock, par value $0.03
per share, was 4,682,103 on July 13, 2000.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
INDEX
Page(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations 3
Three Months Ended June 30, 2000 and 1999
Consolidated Statements of Operations 4
Six Months Ended June 30, 2000 and 1999
Condensed Consolidated Balance Sheets 5
June 30, 2000 and December 31, 1999
Consolidated Statements of Cash Flows 6
Six Months Ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis 11-18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 19
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PART I. FINANCIAL INFORMATION
ITEM 1.
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
------------------------------
2000 1999
----------- ------------
Revenues $3,660 $ 2,284
Cost of revenues 2,761 1,955
------ -------
Gross profit 899 329
------ -------
Operating expenses:
Research and development 62 346
Selling, general and administrative 1,029 1,530
Goodwill impairment -- 1,941
------ -------
1,091 3,817
------ -------
Operating loss (192) (3,488)
Interest income 30 58
Interest expense (2) --
------ -------
Net loss $ (164) $(3,430)
====== =======
Net loss per share:
Basic and diluted $(0.04) $ (0.76)
====== =======
Weighted average shares outstanding 4,674 4,534
====== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------------------
2000 1999
----------- ------------
Revenues $6,388 $ 5,674
Cost of revenues 4,446 4,125
------ -------
Gross profit 1,942 1,549
------ -------
Operating expenses:
Research and development 144 581
Selling, general and administrative 2,205 2,786
Goodwill impairment -- 1,941
------ -------
2,349 5,308
------ -------
Operating loss (407) (3,759)
Interest income 63 108
Interest expense (2) --
------ -------
Net loss $ (346) $(3,651)
====== =======
Net loss per share:
Basic and diluted $(0.07) $ (0.81)
====== =======
Weighted average shares outstanding 4,644 4,529
====== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
----------------- -----------------
ASSETS
- ------
Current assets
Cash and cash equivalents $ 348 $ 929
Short-term investments 1,200 1,700
Accounts receivable, net of allowance of $56 2,920 1,358
Other current assets 84 93
-------- --------
Total current assets 4,552 4,080
-------- --------
Property and equipment, at cost:
Furniture and equipment 3,201 3,006
Less accumulated depreciation and amortization (2,886) (2,773)
-------- --------
315 233
Intangibles, net of accumulated amortization of $3,590 and $3,450 258 247
Other assets 68 76
-------- --------
Total assets $ 5,193 $ 4,636
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts payable $ 757 $ 317
Accrued expenses 1,056 833
Deferred revenue 482 621
-------- --------
Total current liabilities 2,295 1,771
Shareholders' equity
Common stock 138 136
Additional paid-in capital 20,070 19,693
Accumulated deficit (17,310) (16,964)
-------- --------
Total shareholders' equity 2,898 2,865
-------- --------
Total liabilities and shareholders' equity $ 5,193 $ 4,636
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2000 1999
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (346) $(3,651)
Adjustments to reconcile net loss to cash used in
operating activities:
Equity stock compensation -- 38
Depreciation and amortization 113 191
Goodwill impairment -- 1,941
Goodwill and other intangible amortization 140 289
Provision for doubtful accounts -- (29)
Changes in operating assets and liabilities:
Accounts receivable (1,562) 920
Other assets 17 46
Accounts payable 440 (85)
Accrued expenses 282 40
Deferred revenue (139) (470)
------- -------
Net cash used in operating activities (1,055) (770)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (195) (151)
Purchases of short-term investments (1,200) (3,489)
Proceeds from maturity of short-term investments 1,700 2,970
Business acquisition (9) --
------- -------
Net cash provided by (used in) investing activities 296 (670)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations -- (6)
Issuance of common stock 178 97
------- -------
Net cash provided by financing activities 178 91
------- -------
Net decrease in cash and cash equivalents (581) (1,349)
Cash and cash equivalents at beginning of period 929 2,200
------- -------
Cash and cash equivalents at end of period $ 348 $ 851
======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited 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, the accompanying unaudited financial statements
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 adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three-month and six-month periods ended June 30, 2000, are not
necessarily indicative of the results for the year ending December 31, 2000. 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, 1999.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
1) Revenue Recognition - The Company recognizes revenue from the sale of
software licenses in accordance with Statement of Positions No. 97-2,
"Software Revenue Recognition", as amended. Revenues from license
arrangements are recognized upon shipment of the product when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed
and determinable and collection is probable. If an ongoing vendor
obligation exists under the license arrangement, revenue is deferred based
on vendor-specific objective evidence of the undelivered element. If
vendor-specific objective evidence does not exist for all undelivered
elements, all revenue is deferred until sufficient evidence exists or all
elements have been delivered. Revenues from annual maintenance and support
are deferred and recognized ratably over the term of the contract. Revenues
from consulting and training are recognized when the services are performed
and collection is determined to be probable. Revenues from consulting and
professional services contracts are recognized on the
percentage-of-completion method for fixed price contracts and on the basis
of hours incurred at contract rates for time and materials contracts.
Revenues from cost reimbursement contracts are recognized as costs are
incurred. Any amounts paid by customers prior to the actual performance of
services are recorded as deferred revenue until earned, at which time the
amounts are recognized in accordance with the type of contract.
The Company also provides off-the-shelf hardware and software products to
the U.S. government under the GSA Schedule Contract and to commercial
companies. The related revenue is recognized when products are shipped or
when customers have accepted the products, depending on contractual terms.
2) Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3) New Accounting Pronouncements - In December 1999, the Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB
101) which summarizes certain of the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in
financial statements. On June 26, 2000, the SEC issued SAB No. 101B, which
deferred the effective date of SAB 101 to October 1, 2000. The initial
adoption of this guidance
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is not anticipated to have a material impact on the Company's results of
operations, cash flows or financial position, however, the guidance may
impact the way in which the Company will account for future transactions.
NOTE C - LINE OF CREDIT
The Company maintains a line of credit with Merrill Lynch Business Financial
Services, Inc. for up to $1,000,000 based upon eligible receivables at a per
annum rate equal to the sum of 2.9% plus the 30 day commercial paper rate.
Currently, this per annum rate approximates the prime rate (9.5% at June 30,
2000). Advances on the facility are based on eligible accounts receivable less
than 90 days old. The facility expires in October 2000. As of June 30, 2000 the
Company had no borrowings under the line of credit. The Company had $1,000,000
available under its line. The line of credit is contingent upon the Company
continuing to meet certain general funding requirements, including the absence
of any material adverse change in the Company's business or financial condition,
the continued accuracy of the Company's representations and warranties and the
provision of quarterly and monthly financial information. The Company is
currently in compliance with these funding requirements.
NOTE D - SUPPLEMENTAL CASH FLOW INFORMATION
No cash was paid for income tax or interest in either period.
Supplemental disclosure of Cash Flows information:
Six Months Ended
June 30,
2000 1999
---- ----
Non-cash investing and financing activities:
Business acquisition in exchange for common stock $142 $ -
NOTE E - BUSINESS AQUISITIONS
On March 30, 2000, the Company acquired a business unit from Earth Satellite
Corporation specializing in providing software development services to the U.S.
intelligence community. The Company issued 40,000 shares of Common Stock with a
per share fair value of $3.563, equal to the trading price of the Company's
Common Stock on that date. The final acquisition cost was approximately
$151,190, including $8,670 of direct cost attributed to the acquisition. The
purchase price was attributed to the business unit's sole contract. The final
acquisition value of the contract is being amortized over its life of 18 months.
NOTE F - SEGMENT REPORTING
The table below presents information about reported segments for the three and
six months ended June 30, 2000 and 1999, as well as a reconciliation to reported
loss before income taxes. Management does not assign identifiable assets to its
segments.
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INFODATA SYSTEMS INC.
THREE MONTHS ENDED
JUNE 30, 2000
SEGMENT INFORMATION
(IN THOUSANDS)
PROPRIETARY
SOLUTIONS PRODUCTS THIRD PARTY TOTAL
Revenues: $ 2,811 $ 428 $ 421 $ 3,660
Direct Cost: 1,452 55 388 1,895
-----------------------------------------------------------------------------------------------
Segment Profit: $ 1,359 $ 373 $ 33 $ 1,765
===============================================================================================
Research and Development: (62)
Other costs/income not
allocated to segments,
primarily general and
administrative: (1,897)
Interest Income: 30
---------------------
Net Loss: $ (164)
=====================
INFODATA SYSTEMS INC.
THREE MONTHS ENDED
JUNE 30, 1999
SEGMENT INFORMATION
(IN THOUSANDS)
PROPRIETARY
SOLUTIONS PRODUCTS THIRD PARTY TOTAL
Revenues: $ 1,286 $ 528 $ 470 $ 2,284
Direct Cost: 674 36 446 1,156
-----------------------------------------------------------------------------------------------
Segment Profit: 612 492 24 1,128
-----------------------------------------------------------------------------------------------
Research and Development: (346)
Other costs/income not
allocated to segments,
primarily general and
administrative: (2,329)
Goodwill impairment (1,941)
Interest Income: 58
----------------------
Net Loss: $ (3,430)
======================
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INFODATA SYSTEMS INC.
SIX MONTHS ENDED
JUNE 30, 2000
SEGMENT INFORMATION
(IN THOUSANDS)
PROPRIETARY
SOLUTIONS PRODUCTS THIRD PARTY TOTAL
Revenues: $ 4,960 $ 932 $ 496 $ 6,388
Direct Cost: 2,496 100 462 3,058
-----------------------------------------------------------------------------------------------
Segment Profit: $ 2,464 $ 832 $ 34 $ 3,330
===============================================================================================
Research and Development: (144)
Other costs/income not
allocated to segments,
primarily general and
administrative: (3,595)
Interest Income: 63
----------------------
Net Loss: $ (346)
======================
INFODATA SYSTEMS INC.
SIX MONTHS ENDED
JUNE 30, 1999
SEGMENT INFORMATION
(IN THOUSANDS)
PROPRIETARY
SOLUTIONS PRODUCTS THIRD PARTY TOTAL
Revenues: $ 3,147 $ 1,666 $ 861 $ 5,674
Direct Cost: 1,497 81 833 2,411
-----------------------------------------------------------------------------------------------
Segment Profit: 1,650 1,585 28 3,263
===============================================================================================
Research and Development: (581)
Other costs/income not
allocated to segments,
primarily general and
administrative: (4,500)
Goodwill impairment (1,941)
Interest Income: 108
----------------------
Net Loss: $ (3,651)
======================
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS RELATING TO PRODUCT DEVELOPMENT, FUTURE CONTRACTS,
REVENUE, AND THE ADEQUACY OF WORKING CAPITAL ARE BASED ON CURRENT EXPECTATIONS
THAT INVOLVE UNCERTAINTIES AND RISKS ASSOCIATED WITH NEW PRODUCTS AND SERVICE
OFFERINGS INCLUDING, BUT NOT LIMITED TO, MARKET CONDITIONS, SUCCESSFUL PRODUCT
DEVELOPMENT, SERVICE INTRODUCTION AND ACCEPTANCE, THE INTRODUCTION OF
COMPETITIVE PRODUCTS, ECONOMIC CONDITIONS, AND THE TIMING OF ORDERS AND CONTRACT
INITIATION. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALY FROM CURRENT
EXPECTATIONS. READERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON FORWARD-LOOKING
STATEMENTS. THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE PUBLICLY
THESE FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
Company Overview
The Company provides its customers with complex information technology solutions
and design and implementation of complex e-business systems for emerging B2B
companies with short time-to-market requirements and the design and development
of web-based knowledge management (KM) systems, and electronic document
management (EDM) systems. These products and services are provided in three
market segments. The segments consist of (i) business-to-business (B2B) web-site
design solutions, knowledge management consulting, or "e-Content" solutions
("Solutions"), (ii) sales of proprietary products such as Compose, INQUIRE/text
("Proprietary Products"), and (iii) the sale of third party software and
hardware ("Third Party Products") on a limited basis. Solutions includes
web-based knowledge management systems integration, document management analysis
and implementation, web-site design, system architecture, application
development, and turnkey implementation of complex B2B web infrastructures and
consulting services surrounding the implementation of proprietary products, and
Third Party Products coupled with other related services. Proprietary Products
include INQUIRE/Text software sales, Compose, Aerial and their associated
maintenance. Third Party Products include software and hardware with some
related services. For the quarter ended June 30, 2000, Solutions accounted for
77% of total revenue, Proprietary Products accounted for 12% and Third Party
accounted for the remaining 11%.
At June 30, 2000, the Company had a net operating loss ("NOL") aggregating
approximately $12,201,000 available to affect future taxable income. Under
Section 382 of the Internal Revenue Code of 1986, as amended ("Code"),
utilization of prior NOLs is subject to certain limitations following a change
in ownership. As a result of the AMBIA acquisition in July 1997, the Company is
subject to limitations on the use of its NOL. Accordingly, there can be no
assurance the Company will be able to utilize a significant amount of NOLs. Due
to uncertainty of taxable income to utilize the NOL, a full valuation allowance
has been established with respect to the deferred tax asset.
Revenues from consulting services are recognized as services are performed. Any
amounts paid by customers prior to the actual performance of services are
recorded as deferred revenue until earned, at which time they are recognized in
accordance with the type of contract. Revenues from software licenses are
recorded in accordance with the provisions of the AICPA Statement of Position
97-2, "Software Revenue Recognition", as amended. Revenues from customer support
and maintenance agreements are recognized over the period that support is
provided. Deferred revenue is recognized with respect to pre-payments of
maintenance agreements.
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On March 30, 2000, the Company acquired a business unit from Earth Satellite
Corporation specializing in providing software development services to the U.S.
intelligence community. The acquisition of the business unit brings additional
customer and teaming contracts which expand the Company's presence in the
Intelligence community including a discipline known as Information Warfare. In
conjunction with this acquisition the Company issued 40,000 shares of Common
Stock with a fair value of $142,520. During the second quarter the Company
incurred additional direct costs associated with the acquisition in the amount
of $8,670. The final acquisition cost was $151,190.
Deferred revenue at June 30, 2000 was $482,000. This related primarily to
amounts from maintenance revenues on the INQUIRE/Text product. The balance of
deferred revenue generally relates to consulting services. The margins that will
be realized on transactions involving deferred revenue depend on the type of
service rendered by the Company. Most of the Company's maintenance revenue
pertains to INQUIRE/Text, which is a mature software product. Deferred revenues
from consulting services carry lower gross margins than deferred revenues on
maintenance agreements.
The components of the Company's cost of revenue are dependent on the product or
service. For consulting, the most significant item is the direct labor cost of
the consultants. Other cost components include subcontractor costs, non-labor
direct costs such as travel and associated indirect costs (e.g., office rent,
administration, etc.) allocated to the consulting engagement. Indirect costs are
allocated based on head count and utilized office space. For Third Party
Products, the cost of revenue includes the cost incurred by the Company to
acquire the product, shipping and delivery charges, associated taxes,
customization work done by the Company, and any special packaging costs
incurred. The cost of maintenance revenue includes the customer service and
software engineering personnel supporting the product and an allocation of
associated indirect costs. For Proprietary Products, the Company includes
shipping, delivery, packaging, production, the direct labor of personnel
involved in delivering the product and any associated expenses involved with the
installation.
The Company's future operating results may vary significantly and are difficult
to predict due to a number of factors, of which many are beyond our control.
These factors include the demand for our services and products, the level of
product and price competition, the length of the consulting services sales
cycle, the delay or deferral of customer implementation, the success of our
direct sales force and indirect distribution channels, the mix of products and
services sold, the timing of new hires, the ability of the Company to control
costs, and general domestic economic and political conditions which could have
an adverse effect on the Company's ability to meet its operating goals.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
Revenues
The Company derives revenues from three segments, Solutions, Proprietary
Products and Third Party Products. Solutions revenue includes consulting
services for both commercial and government customers. Proprietary Product
revenue includes the sale of INQUIRE/Text products and services and related
maintenance, and sales of the Company's plug-in based software products. Third
Party Products include software and hardware sold to both government and
commercial customers. Total revenue increased by $ 1,376,000, or 60%, for the
three months ended June 30, 2000 as compared to the corresponding period of the
prior year. Revenues for each period consisted of the following:
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(Dollar Amounts in Thousands)
JUNE 30, 2000 JUNE 30, 1999 INCREASE (DECREASE) %
------------- ------------- ---------------------
SOLUTIONS
---------
Business Solutions $ 1,929 $ 439 339%
Intelligence 804 701 15%
Inquire 78 146 (47%)
-------------------------------------------------------------------------
Total Solutions Revenue $ 2,811 $ 1,286 119%
=========================================================================
PROPRIETARY PRODUCTS
--------------------
Compose and Others $ 168 $ 184 (9%)
INQUIRE/Text 260 344 (24%)
-------------------------------------------------------------------------
Total Proprietary Products Revenue $ 428 $ 528 (19%)
=========================================================================
TOTAL THIRD PARTY PRODUCTS
--------------------------
Revenue $ 421 $ 470 (10%)
=========================================================================
Total Revenue $ 3,660 $ 2,284 60%
=========================================================================
Revenues from Solutions increased overall by $1,525,000, or 119%, from
$1,286,000 for the three months ended June 30, 1999 to $2,811,000 for the three
month period ended June 30, 2000. The Business Solutions unit within the
Solutions segment increased by $1,490,000, or 339%, from $439,000 for the three
months ended June 30, 1999 to $1,929,000 for the three months ended June 30,
2000 due to increases in consulting services. In the second quarter ended June
30, 2000 loss of revenue of $115,000 for training and Mountain view consulting
due to the de-emphasis of those operations was more than offset by $813,000 of
e-commerce B2B revenue. Excluding training and Mountain View revenues the
Business Solutions revenue increased by $ 1,605,000, or 535%, from $300,000 for
the three months ended June 30, 1999 to $1,905,000 for the second quarter ended
June 30, 2000. The Intelligence Solutions unit within the Solutions segment
increased by $103,000, or 15%, from $701,000 for the three months ended June 30,
1999 to $804,000 for the three months ended June 30, 2000, due to an increase in
classified government work. The Inquire Solutions unit within the Solutions
segment decreased by $68,000, or 47%, from $146,000 for the three months ended
June 30, 1999 to $78,000 for the second quarter ended June 30, 2000 due to a
decline in INQUIRE/Text maintenance and Inquire consulting services.
Proprietary Product revenue decreased by $100,000, or 19%, from $528,000 for the
three months ended June 30, 1999 to $428,000 for the three months ended June 30,
2000. There were declines in Aerial, Re:mark and other related products
partially offset by an increase in Compose and related maintenance. The Company
expects that INQUIRE/Text related revenue should continue to decline over time
as customers move applications off mainframes.
Third Party Product sales decreased by $49,000, or 10%, from $470,000 for the
three months ended June 30,1999 to $421,000 for the three months ended June 30,
2000. Revenues decreased as the Company's decision to refocus a majority of its
business away from sales of lower gross margin products.
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Gross Profit
Gross profit increased by $570,000 or 173%, from $329,000 for the three months
ended June 30, 1999 to $899,000 for the three months ended June 30, 2000. The
increase in gross profit is attributed to increases in consulting services
offset by the decline in high margin INQUIRE/Text maintenance revenues.
Gross margin as a percent of revenues increased from 14% for the three months
ended June 30, 1999 to 25% for the three months ended June 30, 2000. The
increase in gross margin is attributed to higher profit margins on various
consulting service fixed price contracts.
Research and Development Expenses
Research and development expenses decreased $284,000, or 82%, from $346,000 for
the three months ended June 30, 1999 to $62,000 for the three months ended June
30, 2000. The decrease was attributed to the Company's continued decision to
reduce development of its proprietary products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $501,000, or 33%, from
$1,530,000 for the three months ended June 30, 1999 to $1,029,000 for the three
months ended June 30, 2000. The decrease was due to a reduction in selling costs
and in administrative personnel.
Goodwill Impairment
During the quarter ended June 30, 1999, the Company incurred a non-cash
writedown of $1,941,000 in goodwill as a result of its July 1997 purchase of
AMBIA Corporation (Mountain View). No such writedowns were effected during the
quarter ended June 30, 2000.
Interest Income and Expense
Net interest income decreased $28,000, or 48%, from $58,000 for the three months
ended June 30, 1999 to $30,000 for the three months ended June 30, 2000. The
reduction in net interest income is due to lower cash balances and short-term
investments in the second quarter ended June 30, 2000 compared to the same
quarter ended June 30, 1999. The Company incurred nominal interest expense in
the second quarter due to borrowings on the line of credit. As of June 30, 2000,
the Company had no borrowings under the line of credit. The Company has invested
in short-term money market instruments.
Net Loss
As a result of the above, the net loss decreased by $3,266,000, or 95%, from
$3,430,000 for the three months ended June 30, 1999 to $164,000 for the three
months ended June 30, 2000.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Revenues
Total revenue increased by $ 714,000, or 13%, for the six months ended June 30,
2000 as compared to the corresponding period of the prior year. Revenues for
each period consisted of the following:
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(Dollar Amounts in Thousands)
JUNE 30, 2000 JUNE 30, 1999 INCREASE (DECREASE) %
------------- ------------- ---------------------
SOLUTIONS
---------
Business Solutions $ 3,211 $ 1,530 110%
Intelligence 1,567 1,347 16%
Inquire 182 270 (33%)
-------------------------------------------------------------------------
Total Solutions Revenue $ 4,960 $ 3,147 58%
=========================================================================
PROPRIETARY PRODUCTS
--------------------
Compose and Others $ 366 $ 941 (61%)
INQUIRE/Text 566 725 (22%)
-------------------------------------------------------------------------
Total Proprietary Products
Revenue $ 932 $ 1,666 (44%)
=========================================================================
TOTAL THIRD PARTY PRODUCTS
--------------------------
Revenue $ 496 $ 861 (42%)
=========================================================================
Total Revenue $ 6,388 $ 5,674 13%
=========================================================================
Revenues from Solutions increased overall by $1,813,000, or 58%, from $3,147,000
for the six months ended June 30, 1999 to $4,960,000 for the six month period
ended June 30, 2000. The Business Solutions unit within the Solutions segment
increased by $1,681,000, or 110%, from $1,530,000 for the six months ended June
30, 1999 to $3,211,000 for the six months ended June 30, 2000 due to increases
in consulting services. In the second quarter ended June 30, 2000, loss of
revenue of $332,000 for training and Mountain View consulting due to the
de-emphasis of those operations was more than offset by $1,250,000 of e-commerce
B2B revenue. Excluding training and Mountain view revenues the Business
Solutions revenue increased by $ 2,013,000, or 174%, from $1,154,000 for the six
months ended June 30, 1999 to $3,167,000 for the second quarter ended June 30,
2000. The Intelligence Solutions unit within the Solutions segment increased by
$220,000, or 16%, from $1,347,000 for the six months ended June 30, 1999 to
$1,567,000 for the six months ended June 30, 2000 due to an increase in
classified government work. The Inquire Solutions unit within the Solutions
segment decreased by $88,000, or 33%, from $270,000 for the six months ended
June 30, 1999 to $182,000 for the second quarter ended June 30, 2000 due to a
decline in INQUIRE/Text maintenance and Inquire consulting services.
Proprietary Product revenue decreased by $734,000, or 44%, from $1,666,000 for
the six months ended June 30, 1999 to $932,000 for the six months ended June 30,
2000. In the first quarter in 1999, revenue from the Adobe license of $500,000
was earned and there was no equivalent revenue in the first six months of 2000.
There were declines in Aerial, Re:mark and other related products partially
offset by an increase in Compose and related maintenance. The Company expects
that INQUIRE/Text related revenue should continue to decline over time as
customers move applications off mainframes.
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Third Party Product sales decreased by $365,000, or 42%, from $861,000 for the
six months ended June 30,1999 to $496,000 for the six months ended June 30,
2000. Revenues decreased as the Company's decision to refocus a majority of its
business away from sales of lower gross margin products.
Gross Profit
Gross profit increased by $393,000, or 25%, from $1,549,000 for the six months
ended June 30, 1999 to $1,942,000 for the six months ended June 30, 2000. The
increase in gross profit is attributed to increases in consulting revenues
offset by the decline in high margin INQUIRE/Text maintenance revenues.
Gross margin as a percent of revenues increased from 27 % for the six months
ended June 30, 1999 to 30% for the six months ended June 30, 2000. The increase
in gross margin is attributed to higher profit margins on various consulting
service fixed price contracts.
Research and Development Expenses
Research and development expenses decreased $437,000, or 75%, from $581,000 for
the six months ended June 30, 1999 to $144,000 for the six months ended June 30,
2000. The decrease was attributed to the Company's decision to reduce
development of its proprietary products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $581,000, or 21%, from
$2,786,000 for the six months ended June 30, 1999 to $2,205,000 for the six
months ended June 30, 2000. The decrease was due to a reduction in selling costs
and in administrative personnel.
Interest Income and Expense
Net interest income decreased $45,000 or 42%, from $108,000 for the six months
ended June 30, 1999 to $63,000 for the six months ended June 30, 2000. The
reduction in net interest income is due to lower cash balances and short-term
investments for the first six months ended June 30, 2000 compared to the same
period in 1999. The Company incurred nominal interest expense in the first six
months ended June 30, 2000 due to borrowings on the line of credit. As of June
30, 2000 the Company had no borrowings under its line of credit. The Company has
invested in short-term money market instruments and commercial paper.
Goodwill Impairment
During the quarter ended June 30, 1999, the Company incurred a non-cash
writedown of $1,941,000 in goodwill as a result of its July 1997 purchase of
AMBIA Corporation (Mountain View). No such writedowns were effected during the
quarter ended June 30, 2000.
Net Loss
As a result of the above, the net loss decreased by $3,306,000 or 91%, from
$3,651,000 for the six months ended June 30, 1999 to $346,000 for the six months
ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash, cash equivalents and short-term
investments of $1,548,000. Net working capital at June 30, 2000 amounted to
$2,257,000 as compared to $2,309,000 at June 30, 1999. The Company had no
borrowings in the second quarter ended June 30, 2000. The Company maintains a
line of credit with Merrill Lynch Business Financial Services, Inc. ("MLBFS")
for up to $1,000,000 based upon eligible receivables. Interest on any
outstanding debt under this line is calculated 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. This facility expires in October 2000. The line of
credit is contingent upon the Company continuing to meet certain
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general funding requirements, including the absence of any material adverse
change in the Company's business or financial condition, the continued accuracy
of the Company's representations and warranties and the provision of quarterly
and monthly financial information. The Company is currently in compliance with
these funding requirements.
Net cash used in operating activities for the three months ended June 30, 2000
of $1,055,000 was due to the Company's net loss for the period of $346,000, and
an increase in accounts receivable of $1,562,000. This was partially offset by
an increase in accounts payable and accrued expenses of $722,000, depreciation
and amortization expenses of $253,000, and a decrease in deferred revenue of
$139,000.
Net cash provided by investing activities for the three months ended June 30,
2000 of $296,000 was due to a net decrease in short-term investments of
$500,000, the purchase of fixed assets of $195,000, and business acquisition
costs of $9,000 attributed to the purchase of a business unit from Earth
Satellite Corporation.
Net cash provided by financing activities for the three months ended June 30,
2000 of $178,000 was due to the issuance of common stock to employees exercising
stock options and participating in the employee stock purchase plan.
Net cash flow from operating activities for the three months ended June 30, 2000
was not sufficient to fund the operations of the business. However, management
believes that available working capital will be sufficient to meet its
requirements for the next twelve months. The Company's actual cash requirements
may vary materially from those now planned and will depend upon numerous
factors, including the general market acceptance of the Company's products and
services, the growth of the Company's marketing channels, the technological
advances and activities of competitors, and other factors.
Contingencies
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 1994. On April 5, 2000, audits began for years 1995 through 1998, and in
the opinion of management, adjustments resulting from the completion of such
audits and future audits are not expected to have a material impact on the
Company's financial position or results of future operations. As of June 30,
2000, the audit has not been completed.
From time to time, the Company is subject to claims arising in the ordinary
course of business. In the opinion of management, no such matter, individually
or in the aggregate, exists which is expected to have a material effect on the
results of operations, cash flows or financial position of the Company.
IMPACT OF THE YEAR 2000
To date, the Company has experienced no significant adverse effects related to
the Year 2000 computer issue. The Company had spent approximately $23,800
primarily for capital expenditures as of December 31, 1999 to become Year 2000
compliant. As of June 30, 2000, the Company has not incurred any additional
external costs and has not experienced any problems associated with Year 2000.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 31, 2000. A total
of 4,622,377 shares of Common Stock were outstanding and entitled to vote at the
Annual Meeting.
The only proposal voted upon by stockholders was the election of directors. The
following persons were nominated and elected by the votes indicated to serve as
members of the Board of Directors for one year or until their successors are
elected and qualified: Richard T. Bueschel (3,439,295 shares for and 713,998
shares withheld), Alan S. Fisher (4,094,192 shares for and 59,101 shares
withheld), Laurence C. Glazer (3,428,418 shares for and 724,875 shares
withheld), Robert M. Leopold (3,428,418 shares for and 724,875 shares withheld),
Isaac M. Pollack (3,428,368 shares for and 724,925 shares withheld), Millard H.
Pryor, Jr. (4,094,192 shares for and 59,101 shares withheld) and Steven M.
Samowich (4,113,889 shares for and 39,404 shares withheld).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
(a) EXHIBITS
EXHIBIT NO. DOCUMENT
27 Financial Data Schedule
(b) REPORTS ON FORM 8 - K. The Company filed a Form 8 - K on June 21, 2000
stating that it had been selected by a U.S. Government Agency as the prime
contractor to provide a complex intelligence management system.
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: STEVEN M. SAMOWICH
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Steven M. Samowich
President and CEO
Date: August 2, 2000
BY: GARY I. GORDON
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Gary I. Gordon
Principal Accounting Officer
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