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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, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
0-10416
(Commission File Number)
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INFODATA SYSTEMS INC.
(Exact name of small business issuer as specified in its charter)
12150 Monument Drive, Suite 400, Fairfax, Virginia 22033
(Address of registrant's principal executive office)
(703) 934-5205
(Registrant's telephone number)
Virginia 16-0954695
(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 10, 1995, was
746,296
Transitional Small Business Disclosure Format; Yes [ ] No [X]
Page 1 of 15
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<PAGE>
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, 1995 and 1994 3
Condensed Consolidated Statements of Operations
Nine Months Ended September 30, 1995 and 1994 4
Condensed Consolidated Balance Sheets
September 30, 1995 and December 31, 1994 5-6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994 7
Notes to Condensed Consolidated Financial Statements
September 30, 1995 and 1994 8-10
Item 2. Management's Discussion and Analysis 11-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
(a) Exhibits
SIGNATURES 15
Page 2 of 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1.
<TABLE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts In Thousands, Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
------------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues $1,410 $1,903
Cost of revenues 834 1,179
------- -------
Gross profit 576 724
------- -------
Operating expenses:
Research & development 79 101
Selling, general and administrative 552 456
------- -------
631 557
------- -------
Operating income (Loss) (55) 167
Interest income 30 12
Interest expense (5) (10)
------- -------
Income (Loss) before income taxes (30) 169
Provision for income taxes - 4
------- -------
Net income (Loss) $ (30) $ 165
======= =======
Pershare data (primary and fully diluted):
Income applicable to common shares:
Net income (Loss) (30) 165
Preferred stock dividends (30) (30)
-------
Income applicable to common shares $ (60) $ 135
=======
Net income per share $ (.10) $ .21
======= =======
Weighted average common and common
equivalent shares outstanding 608 632
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 3 of 15
<PAGE>
<TABLE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts In Thousands, Except Per Share Data)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues $4,893 $5,664
Cost of revenues 3,077 3,424
------- -------
Gross profit 1,816 2,240
------- -------
Operating expenses:
Research & development 206 304
Selling, general and administrative 1,673 1,502
------- -------
1,879 1,806
------- -------
Operating income (loss) (63) 434
Interest income 95 28
Interest expense (18) (33)
------- -------
Income before income taxes 14 429
Provision for income taxes - 9
------- -------
Net income $ 14 $ 420
======= =======
Pershare data (primary and fully diluted):
Income(loss) applicable to common shares:
Net income 14 420
Preferred stock dividends (90) (90)
------- -------
Income(loss) applicable to common shares $ (76) $ 330
======= =======
Net income(loss) per share $ (.12) $ .53
======= =======
Weighted average common and common
equivalent shares outstanding 606 617
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 4 of 15
<PAGE>
<TABLE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts In Thousands)
(Unaudited)
<CAPTION>
September 30, December 31,
1995 1994
----------- -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $1,939 $1,695
Short term investments 82 80
Accounts receivable, net of
allowance of $30 663 1,437
Prepaid royalties -- 141
Other current assets 166 140
------- -------
Total current assets 2,850 3,493
------- -------
Property and equipment, at cost:
Furniture and equipment 1,849 1,870
Leasehold improvements 32 31
Less accumulated depreciation and
amortization (1,499) (1,380)
------- -------
382 521
Software development costs, net of accumulated
amortization of $1,973 and $1,634 165 499
Other Assets 12 -
------- -------
Total assets $3,409 $4,513
======= =======
The accompanying notes are an integral part of these consolidated balance
sheets.
Page 5 of 15
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
(Unaudited)
September 30, December 31,
1995 1994
----------- -----------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Current portion of capital lease obligations $ 104 $ 159
Current portion of note payable - 37
Accounts payable 179 241
Accrued expenses 549 689
Deferred revenue 947 1,589
Current portion of deferred rent 33 33
Preferred dividend payable 30 -
------- -------
Total current liabilities 1,842 2,748
Capital lease obligations 74 151
Note payable - 69
Deferred rent 60 84
------- -------
Total liabilities 1,976 3,052
------- -------
Shareholders' equity:
Preferred stock 134 134
Common stock 18 18
Additional paid-in capital 7,836 7,789
Treasury stock (2) (2)
Accumulated deficit (6,553) (6,478)
------- -------
Total shareholders' equity 1,433 1,461
------- -------
Total liabilities and shareholders' equity $3,409 $4,513
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
Page 6 of 15
<PAGE>
<TABLE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 14 $ 420
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 516 508
Cancellation of Debt on note payable (85) -
Changes in operating assets and liabilities:
Accounts receivable 774 131
Other current assets 115 86
Accounts payable (62) (102)
Accrued expenses (117) 148
Deferred revenue (642) (356)
Deferred rent (24) (24)
------- -------
Net cash provided by operating activities 489 811
------- -------
Cash flows from investing activities
Software development costs capitalized (4) (86)
Purchases of property and equipment, net (64) (37)
Purchases of short term investments ( 2) (5)
Proceeds from sale of short term investments - 51
------- -------
Net cash used in investing activities (70) (77)
------- -------
Cash flows from financing activities
Payments on capital lease obligations (131) (193)
Proceeds from capital lease obligations -- 60
Payments on note payable (21) (54)
Proceeds from issuance of note payable -- 44
Dividends on preferred stock (60) (30)
Proceeds from issuance of common stock 49 -
Other (12) (1)
------- -------
Net cash used in financing activities (175) (174)
------- -------
Net increase in cash and cash equivalents 244 560
Cash and cash equivalents at beginning of period 1,695 886
------- -------
Cash and cash equivalents at end of period $1,939 $1,426
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 17 $ 34
Cash paid for income taxes $ 7 $ 2
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 7 of 15
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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, 1995, are not necessarily indicative of
the results for the year ending December 31, 1995. 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,
1994.
NOTE B -- ACCOUNTING POLICIES
CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
All highly liquid investments with an original maturity of 90 days or less at
time of purchase are considered to be cash equivalents. At September 30, 1995
and December 31, 1994, the Company had included in short term investments
certificates of deposit totalling $82,000 and $80,000, respectively, which
were restricted pursuant to certain capital lease obligations.
RECLASSIFICATION
Certain 1994 expenses have been reclassified to conform to the 1995
presentation for comparison purposes.
NOTE C -- SOFTWARE DEVELOPMENT COSTS
Capitalization of software development costs begins upon the establishment of
technological feasibility. Capitalization ceases when the products are
available for general release to customers. The establishment of technological
feasibility and the continuing assessment of recoverability of capitalized
software development costs requires considerable judgment by management with
respect to certain external factors, including, but not limited to,
anticipated future gross revenue, estimated economic life and changes in
software and hardware technologies.
Amortization expense is determined on an individual basis and is computed as
the greater of the amount calculated on a revenue basis or straight-line basis
over the economic life of the product, generally three to five years.
Amortization of software development costs is included in cost of revenues in
the accompanying condensed consolidated statements of operations.
Page 8 of 15
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The following summarizes the costs capitalized and related charges for
amortization during 1995 and 1994 in the accompanying financial statements.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ------------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Costs capitalized $ -- $ 19,000 $ 4,000 $ 86,000
Amortization (113,000) (105,000) (339,000) (317,000)
---------- ---------- ---------- ----------
Net cost amortized $(113,000) $ (86,000) $(335,000) $(231,000)
---------- ---------- ---------- ----------
</TABLE>
NOTE D -- REVERSE COMMON STOCK SPLIT
On April 15, 1994, the Company's shareholders authorized the Board of
Directors to effect a one for three reverse stock split of the Company's
common stock. Such action resulted in an increase in the par value of the
common stock from $0.01 to $0.03 per common share. The reverse stock split
became effective April 27, 1994, and reduced the Company's common stock
outstanding from 1,807,961 shares to 602,374 shares. The reverse stock split
impacted each then existing issued share of common stock, as well as any then
existing common stock issuable upon the conversion of outstanding convertible
preferred stock and the exercise of outstanding common stock options and
common stock warrants.
NOTE E -- CONVERTIBLE PREFERRED STOCK
Dividends on preferred stock are paid upon declaration by the Board of
Directors. Cash dividends of $90,000 ($0.675 per preferred share) were
declared in the first three quarters of 1995. No cash dividends were paid for
any quarterly period beginning with the fourth quarter of 1992 and ending with
the second quarter of 1994; therefore, dividend arrearage on cumulative
preferred stock as of September 30, 1995, totalled $210,000 ($1.58 per
preferred share).
NOTE F -- LINE OF CREDIT
In February, 1995, the Company entered into a working capital line of credit
with Crestar Bank. This loan facility provides the Company with a $500,000
line of credit. Advances on the facility are based on eligible billed accounts
receivable less than 90 days in age. The facility expires in April, 1996, and
is contingent upon the Company meeting certain financial covenants. During the
three and nine months ended September 30, 1995, the Company made no borrowings
under this line of credit.
Page 9 of 15
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE G -- PREPAID ROYALTY WRITE-OFF
During June, 1993 the Company entered into an agreement with Open Text
Corporation ("OTC") whereby the Company was to act as a reseller of OTC's text
retrieval and display software. Under this agreement, the Company committed to
$250,000 of non-refundable royalties to OTC, of which $85,000 remained unpaid
at June 30, 1995 under the terms of a note payable to OTC. Because of the
Company's concern with OTC's product performance and timely delivery of new
releases, and the attendant customer dissatisfaction, the Company concluded
during the second quarter of 1995 that its alliance with OTC was no longer
viable and terminated the reseller agreement. As a result, the Company
wrote-off a related $108,000 prepaid royalty balance during the three months
ended June 30, 1995 as a charge to cost of revenues. The note payable to OTC
was cancelled effective September 30, 1995 and resulted in an $85,000
reduction in cost of revenues during the third quarter. The Company is
vigorously seeking recovery for all costs incurred resulting from OTC's
failure to perform in accordance with the reseller agreement.
NOTE H -- SUBSEQUENT EVENT
On October 11, 1995, the Company consummated its purchase of substantially all
of the assets and the assumption of certain liabilities of Merex, Inc.
("Merex") in consideration for up to 125,000 shares of the Company's common
stock. Merex is engaged in the business of marketing and delivery of
electronic document management solutions to businesses and the government.
Page 10 of 15
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS
OVERVIEW
Infodata Systems Inc. (the "Company") provides complete Electronic Document
Management Systems (EDMS) solutions which help business, government, medical,
and educational institutions to automate collections of documents consisting
of large amounts of text, images, and other data. The Company offers what it
believes are the best EDMS solutions in different computing environments
including client/server, mainframe and hybrid combinations, and the Internet.
The EDMS solution sale involves planning and implementation services which
integrate multiple technologies such as workflow, management of electronically
created documents, search and text retrieval, imaging and other document
technologies. As the Company integrates solutions into the customer's business
operations, it offers consulting and training to familiarize the customer's
personnel with the technology. The Company provides follow-on consulting for
many third party products including those provided by PC DOCS Inc., Lotus
Development Corporation, Folio Corporation, Verity, Inc and Documentum Inc.
The Company has established and continues to establish alliances with UNIX and
PC based client/server software providers whose products the Company remarkets
as a turnkey system or in conjunction with consulting services provided by the
Company's professional consulting staff. The Company has a software laboratory
in its facility which is used to test and research new EDMS products to assure
connectivity with other EDMS components and across various computing platforms
and networking systems. Through this laboratory, internal EDMS projects are
developed, implemented and tested for Company use and eventual addition to the
Company's product and service applications offerings.
A major portion of the Company's activities to date are attributable to
INQUIRE(R)/Text, a proprietary computer software product, which operates on
IBM (or compatible) mainframe computers. ViewScapes(R), the Company's
graphical user interface which operates in conjunction with INQUIRE/Text,
operates on IBM or compatible PC's. Using INQUIRE/Text, customers access such
online document applications as regulations and standards, policies and
procedures, business intelligence, records management, contracts, patents and
trademarks, legislative bill tracking, health management, environmental
safety, and litigation support. The Company continues to enhance and support
INQUIRE/Text to assure customer satisfaction, as a significant portion of the
Company's revenues are derived from maintenance of its INQUIRE/Text product
and related consulting services.
In order to strengthen its ability to deliver quality EDMS solutions by
broadening its customer base and acquiring additional staff, the Company
purchased substantially all the assets and assumed certain liabilities of
Merex, Inc on October 11, 1995. Merex will operate as a division of the
Company and continue to provide EDMS solutions to businesses and the
government.
Page 11 of 15
<PAGE>
RESULTS OF OPERATIONS
Revenues for the three and nine months ended September 30, 1995 totalled
$1,410,000 and $4,893,000, respectively, representing decreases of $493,000
(25.9%) and $771,000 (13.6%) from the three and nine month periods ended
September 30, 1994, respectively. Total INQUIRE/Text-based revenue sources
declined $328,000 (21.0%) during the three months ended September 30, 1995 and
$692,000 (14.2%) for the nine months ended September 30, 1995, as compared to
the same periods in 1994. It is expected that maintenance revenues based on
INQUIRE/Text may continue to decline over time.
Client/server (non-mainframe) related revenues decreased $165,000 (48.2%) for
the three months ended September 30, 1995 as compared to 1994 and decreased
$78,000 (10.1%) for the nine months ended September 30, 1995 compared to 1994.
Overall, client/server related technologies provided 12.6% of total revenues
for the three months ended September 30, 1995, a decrease from 18.0% as
compared to the same period in 1994. Client/server related technologies
provided 14.2% of total revenues for the nine months ended September 30, 1995,
an increase from 13.7% as compared to the same period in 1994. While
client/server revenues were weak during the three months ended September 30,
1995, successful proposal activities during the period resulted in additional
backlog of over $2,000,000 which will serve to increase revenues in the
future.
In the second quarter of 1995, the Company charged to cost of revenues
$108,000 of prepaid royalties, relating to a 1993 reseller agreement with Open
Text Corporation. During the third quarter of 1995, the Company negotiated
cancellation of an $85,000 note payable to the Open Text Corporation in
connection with the prepaid royalties. The effect of the second quarter charge
and the third quarter reversal was a net $23,000 charge. The Company is
vigorously seeking recovery for all costs incurred in connection with its
reseller agreement with Open Text Corporation (see Note G to the Condensed
Consolidated Financial Statements contained elsewhere in this report).
Selling, general and administrative expenses for the three and nine months
ended September 30, 1995, increased $96,000 (21.0%) and $171,000 (11.4%),
respectively, compared to the same periods in 1994. Due to the continued shift
of the Company's focus toward complete EDMS solutions, sales and marketing
efforts were expanded during the three and nine months ended September 30,
1995, to provide increased exposure of the Company's expanded product line and
related services to its existing and potential customer base. Participation in
trade shows, increased market research and additional sales and marketing
staff resulted in increases in selling expenses for the three and nine months
ended September 30, 1995, over the same periods in 1994. Corporate expense
decreased for the three and nine months ended September 30, 1995, due to
expenses relating to the 1994 lease termination of the Company's Montvale, New
Jersey branch office and 1994 termination and migration fees resulting from
the Company's decision to outsource its data processing services. During the
third quarter of 1995, the Company reversed approximately $55,000 of prior
period accruals for employee benefits and litigation contingencies that were
considered reasonably possible expenses when recorded and subsequently have
become remote based upon more definitive information.
Page 12 of 15
<PAGE>
As a result of the above, the Company reported a net loss of $30,000 and net
income of $14,000 for the three and nine months ended September 30, 1995,
respectively, compared to net income of $165,000 and $420,000 for the
comparable periods in 1994. Net income (loss) per common share (after
preferred stock dividends) for the three months ended September 30, 1995 and
1994, was $(.10) and $0.21, respectively. Net loss per common share (after
preferred stock dividends) was $(.12) for the nine months ended September 30,
1995, compared to net income per common share (after preferred stock
dividends) of $0.53 for the nine months ended September 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995, the Company had $2,021,000 in cash and short term
investments compared to $1,775,000 in cash and short term investments as of
December 31, 1994 (see Note B to the Condensed Consolidated Financial
Statements contained elsewhere in this report).
At September 30, 1995, the Company had working capital of $1,008,000, as
compared to working capital of $745,000 at December 31, 1994. During the first
three quarters of 1995, the Company purchased approximately $64,000 of
property and equipment.
In February 1995, the Company entered into a working capital line of credit
with Crestar Bank. This loan facility provides the Company with a $500,000
line of credit which expires in April, 1996. During the nine months ended
September 30, 1995, the Company made no borrowings under this line of credit
(see Note H to the Condensed Consolidated Financial Statements contained
elsewhere in this report).
Net cash flow from operating activities for the nine months ended September
30, 1995, was sufficient to fund the operations of the business. Based upon
expectations 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.
Page 13 of 15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 1995. The Company filed a current report on Form 8-K on
October 27, 1995 to report its acquisition of Merex, Inc.
Page 14 of 15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INFODATA SYSTEMS INC.
(Registrant)
Date: November 13, 1995 By: /s/Harry Kaplowitz
-------------------
Harry Kaplowitz
President
Page 15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,939
<SECURITIES> 82
<RECEIVABLES> 693
<ALLOWANCES> 30
<INVENTORY> 0
<CURRENT-ASSETS> 2,850
<PP&E> 1,881
<DEPRECIATION> 1,499
<TOTAL-ASSETS> 3,409
<CURRENT-LIABILITIES> 1,842
<BONDS> 0
<COMMON> 18
0
134
<OTHER-SE> 1,281
<TOTAL-LIABILITY-AND-EQUITY> 3,409
<SALES> 4,893
<TOTAL-REVENUES> 4,893
<CGS> 3,077
<TOTAL-COSTS> 4,956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 14
<INCOME-TAX> 0
<INCOME-CONTINUING> 14
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
