U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
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, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-10416
------------------------
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.)
--------------------------
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 12, 1997 was
2,742,377
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
<TABLE>
INDEX
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Page(s)
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations 3
Three Months Ended September 30, 1997 and 1996
Condensed Consolidated Statements of Operations 3
Nine Months Ended September 30, 1997 and 1996
Condensed Consolidated Balance Sheets 4
September 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Cash Flows 5
Nine Months Ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 6
September 30, 1997 and 1996
Item 2. Management's Discussion and Analysis 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 13
</TABLE>
2
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<TABLE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts In Thousands, Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 3,062 $ 2,502 $ 7,058 $ 7,355
Cost of revenues 1,622 1,334 4,037 4,412
-------- -------- -------- --------
Gross profit 1,440 1,168 3,021 2,943
-------- -------- -------- --------
Operating expenses:
Research and development 751 281 1,696 537
Selling, general and administrative 1,418 739 3,920 2,007
-------- -------- -------- --------
2,169 1,020 5,616 2,544
-------- -------- -------- --------
Operating income (loss) (729) 148 (2,595) 399
Interest income 14 23 54 70
Interest expense (11) (2) (18) (9)
-------- -------- -------- --------
Income before income taxes (726) 169 (2,559) 460
Provision for income taxes - - (5) 7
-------- -------- -------- --------
Net income $ (726) $ 169 $(2,554) $ 453
======== ======== ======== ========
Preferred dividends - - - 58
Net income available to common
shareholders $ (726) $ 169 $(2,554) $ 395
======== ======== ======== ========
Per share:
Net income (loss) per common
and equivalent share $ (0.23) $ 0.08 $ (0.83) $ 0.19
======== ======== ======== ========
Weighted average shares(*) 3,127 2,149 3,094 2,085
<FN>
(*) All share and per share amounts retroactively reflect a 2-for-1 Common Stock Split in the form of a 100%
stock distribution made on August 26, 1996 to shareholders of record as of August 12, 1996.
</FN>
</TABLE>
The accompanying notes are an integral part of theses consolidated statements.
3
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
<TABLE>
Consolidated Balance Sheets
(Dollar Amounts in Thousands)
(Unaudited)
ASSETS
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 432 $ 1,266
Short term investments 425 947
Accounts receivable, net of allowance of
$80 and $30 2,085 1,522
Other current assets 234 185
--------- ---------
Total current assets 3,176 3,920
--------- ---------
Property and equipment, at cost:
Furniture and equipment 2,713 2,373
Less accumulated depreciation and
amortization (2,136) (1,897)
--------- ---------
577 476
Goodwill, net 2,624 274
Other assets 105 137
Software development costs, net 52 84
--------- ---------
Total assets $ 6,534 $ 4,891
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Current Liabilities
Current portion of capital lease obligations $ 30 $ 46
Current portion of note payable 958 -
Accounts payable 1,130 327
Accrued expenses 822 823
Deferred revenue 1,070 1,079
Current portion of deferred rent 33 33
--------- ---------
Total current liabilities 4,043 2,308
--------- ---------
Capital lease obligations 12 33
Deferred revenue 75 75
Deferred rent - 19
--------- ---------
Total liabilities 4,130 2,435
Shareholders' equity
Common stock 82 68
Additional paid-in capital 11,543 9,055
Accumulated deficit (9,221) (6,667)
--------- ---------
Total shareholders' equity 2,404 2,456
--------- ---------
Total liabilities and shareholders' equity $ 6,534 $ 4,891
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $(2,554) $ 453
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 239 195
Software amortization 31 32
Goodwill and other intangible amortization (2,341) 34
Other - (6)
Changes in operating assets and liabilities:
Accounts receivable (562) (185)
Prepaid royalties and other current assets (49) (20)
Other Assets 32
Accounts payable 803 (122)
Accrued expenses (8) 196
Deferred revenue (8) (285)
Deferred rent (19) (31)
-------- --------
Net cash provided by operating activities (4,436) 261
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (340) (200)
Business acquisition - (12)
Proceeds from maturity of short term investments 522 29
-------- --------
Net cash used in investing activities 182 (183)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (37) (84)
Proceeds from short-term borrowing 1,280
Payments of notes payable (324) (2)
Preferred stock dividends - (87)
Issuance of common stock 2,501 155
-------- --------
Net cash used in financing activities 3,420 (18)
-------- --------
Net increase in cash and cash equivalents (834) 60
Cash and cash equivalents at beginning of period 1,266 1,476
-------- --------
Cash and cash equivalents at end of period $ 432 $1,536
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
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INFODATA SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
nine month periods ended September 30, 1997, are not necessarily indicative of
the results for the year ended December 31, 1997. 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,
1996.
NOTE B - NEW ACCOUNTING PRONOUNCEMENTS
Statement of Accounting Standards No. 128, "Earnings per Share", changes the
reporting requirements for earnings per share (EPS) for publicly traded
companies by replacing primary EPS with basic EPS and changing the disclosures
associated with this change. The Company is required to adopt this standard
for its December 31, 1997 year-end and is currently evaluating the impact of
this standard.
Statement of Accounting Standards No. 130, "Reporting Comprehensive Income",
establishes standards for the reporting and display of comprehensive income.
In a full set of general purpose financial statements. The Company is required
to adopt this standard for its December 31, 1997 year-end and is currently
evaluating the impact of this standard.
Statement of Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", requires that public business enterprises
report certain information about operating segments. The Company is required
to adopt this standard for its December 31, 1997 year-end and is currently
evaluating the impact of this standard.
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
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sum of 2.9% plus the 30 day commercial paper rate. Currently, this per annum
rate approximates prime. The facility expires in November 1997, and management
expects that the line will be renewed for another year. The line of credit is
contingent upon the Company continuing to meet certain financial covenants.
The Company has outstanding borrowings of $958,000 at September 30, 1997 under
this line of credit.
NOTE D - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense was $18,000 and $9,000 for the nine-month
periods ended September 30, 1997 and 1996, respectively. No cash was paid for
income taxes in either period.
NOTE E - BUSINESS ACQUISITION
On July 22, 1997, the Company acquired all of the common stock of AMBIA
Corporation in consideration for 400,000 shares of the Company's common stock
(restricted as to sale) with a fair value as determined by the Company's Board
of Directors at $5.425 per share. The total acquisition cost was approximately
$2,300,000 including the direct costs of the acquisition. Approximately
$25,000 was allocated to acquired tangible assets, $60,000 to acquired
intangible assets, and $2,213,000 to goodwill. The acquisition was treated as
a purchase and was accomplished by means of a merger of a wholly owned
subsidiary of the Company into AMBIA. AMBIA develops, markets and sells
software products and consulting services, which are complimentary to those
being developed, marketed and sold by the Company.
The unaudited proforma financial information presented below reflects the
acquisition of AMBIA as if the acquisition had occurred on January 1, 1996.
These results are not necessarily indicative of future operating results or of
what would have occurred had the acquisition been consummated at that time.
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
(Unaudited)
September 30,
1997 1996
---- ----
<S> <C> <C>
Revenue . . . . . . . . . . $ 7,983 $ 7,355
Net income . . . . . . . . . (2,670) 395
Earnings (loss) per share. . ( .83) .19
</TABLE>
NOTE F - SUBSEQUENT EVENTS
On October 24, 1997, the Company signed a non-binding letter of intent (LOI)
with Adobe Systems Inc. to cross-license and market certain technologies. The
LOI
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contemplates that the Company will perform certain development functions in
connection with the licensing of these technologies. Management expects to
collect approximately $1.5 million in license and service fees during the next
six months from this transaction.
On November 5, 1997, the Company named James Ungerleider, former American
Management Systems, Inc. Vice President, as President and Chief Executive
Officer to be effective November 24, 1997. At that time, Harry Kaplowitz, the
current President will become Executive Vice President.
NOTE G - RISKS AND UNCERTAINTIES
The Company is developing the Virtual File Cabinet (TM) (VFC), a family of new
proprietary software products. The Company has incurred significant costs
related to these products and will continue to incur these costs in the
future. Revenue for VFC products commenced during July of 1997. There can be
no assurance as to the amount of VFC revenues in the future, although
management believes revenues should increase steadily over time. Management
has identified potential contingency plans to mitigate the Company's future
liquidity risk and believes that such plans will be effective. Furthermore,
the Company is in negotiations regarding additional financing to support the
VFC business.
In 1996, a customer asserted that the Company did not perform on a contract
and sought a $90,000 refund. The Company vigorously denies the assertion and
management believes that based upon the current facts it is not probable that
a loss will occur. Accordingly, no accrual has been made for this claim at
September 30, 1997.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
REVENUES
Revenues for the three and nine months ended September 30, 1997 totaled
$3,062,000 and $7,058,000, respectively, reflecting an increase of $560,000
(22%) for the three month period ended September 30, 1997 and a $297,000 (4%)
decrease for the nine month period ended September 30, 1997. The Company's
revenues have been derived from three sources: (i) consulting services and
third party products sold to commercial and federal government customers; (ii)
consulting services and products provided to the intelligence community; and
(iii) INQUIRE related products, services, and maintenance.
Revenues from consulting services and third party products as well as training
increased $261,000 (28%) for the three month period ended September 30, 1997
and decreased $735,000
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(26%) for the nine month period ended September 30, 1997 over similar periods
in 1996. The year-to-date decrease is due primarily to the shift of
engineering resources from services to the development of VFC. In the three
month period ended September 30, 1997, the Company began to see the effects of
the replenishment of these resources.
Intelligence related revenues increased $7,000 (1%) and $278,000 (13%) for the
three and nine months ended September 30, 1997, respectively, as compared to
the same time periods in 1996. The increase is due to significant growth in
client/server consulting, partially offset by a decline in INQUIRE related
consulting to the intelligence community.
INQUIRE related revenue increased $14,000 (2%) for the three month period
ended September 30, 1997 and decreased $118,000 (5%) for the nine month period
ended September 30, 1997 as compared to the same time periods in 1996. The
Company expects that INQUIRE related maintenance and other revenues will
continue to decline over time due to the maturity of the market.
GROSS PROFIT
Gross profit increased to $1,440,000 and $3,021,000 for the three and nine
months ended September 30, 1997, respectively. This compares to a gross profit
of $1,168,000 and $2,943,000 for the same periods ended September 30, 1996,
respectively. The increases are due to significantly higher revenues during
the third quarter of 1997, and the addition of AMBIA. Gross profit as a
percent of revenue was consistent for the three months ended September 30,
1997 compared to the same period in 1996.
RESEARCH AND DEVELOPMENT EXPENSE
The Company continues to invest heavily in the development of VFC. This
resulted in research and development expense increases of $470,000 (167%) and
$1,159,000 (216%) for the three and nine months ended September 30, 1997,
respectively, compared to the three and nine month expenses ended September
30, 1996. The Company expects this investment to increase throughout 1997 and
beyond as VFC product enhancements and capabilities are added.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $1,418,000 and
$3,920,000 for the three and six months ended September 30, 1997,
respectively, from $739,000 and $2,007,000 for the same periods ended
September 30, 1996. This increase is due primarily to an expansion of the
sales and marketing staff and an increase in the
9
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marketing expenses associated with VFC. The Company expects these expenses to
increase throughout 1997 as new versions of VFC are released, new sales
channels are established and potential markets are explored.
INTEREST INCOME AND EXPENSE
Interest income was $14,000 and $54,000 for the three and nine month periods
ended September 30, 1997, respectively, and $23,000 and $70,000 for the same
periods ended September 30, 1997. The decrease was due to lower balances of
cash, cash equivalents, and short term investments during the three and nine
month periods ended September 30, 1997 than in the same periods in 1996. The
Company invested only in short-term, highly liquid instruments. Interest
expense increased to $11,000 from $2,000 for the three month period ended
September 30, 1997 compared to the same period in 1996. Interest expense for
the nine month period ended September 30, 1997 increased to $18,000 from
$9,000 compared to the nine month period ended September 30, 1996. This was
due to the increased utilization of a line of credit during the third quarter
of 1997. The expense consists primarily of interest charged on amounts
borrowed for the development of VFC.
NET INCOME OR LOSS
As a result of the above, the Company reported a net loss of $726,000 and
$2,554,000 for the three and nine months ended September 30, 1997,
respectively, as compared to net income of $169,000 and $453,000 for the same
periods in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had $857,000 in cash, cash equivalents, and
short- term investments compared to $2,213,000 as of December 31, 1996.
At September 30, 1997, the Company had a deficit in working capital of
$868,000, as compared to working capital of $1,612,000 at December 31, 1996.
The decrease in working capital is due primarily to losses incurred during the
first three quarters of 1997.
Net cash flow from operating activities for the nine months ended September
30, 1997 was not sufficient to fund the operations of the business. However,
based upon the Company's expectations of future revenue from both the
Company's existing products and services and based upon new revenue generated
by the AMBIA acquisition (see Note E to the Condensed Consolidated Financial
Statements contained elsewhere in this report), the cross licensing
transaction with Adobe Systems Inc. (see NOTE F to the Condensed Consolidated
Financial Statements contained elsewhere in this report), and VFC, management
believes that available and projected resources will be sufficient to meet its
working capital requirements for the foreseeable future. Management is in
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negotiations to procure additional financing to support the VFC business and
to mitigate any future liquidity risk (see Note G to the Condensed
Consolidated Financial Statements contained elsewhere in this report).
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 prime. The facility expires in
November 1997, and management expects that the line will be renewed for
another year. The line of credit is contingent upon the Company continuing to
meet certain financial covenants. The Company has outstanding borrowings of
$958,000 at September 30, 1997 under this line of credit.
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-QSB RELATING TO PRODUCT
DEVELOPMENT AND REVENUE AND THE ADEQUACY OF WORKING CAPITAL ARE BASED ON
CURRENT EXPECTATIONS THAT INVOLVE UNCERTAINTIES AND RISKS ASSOCIATED WITH NEW
PRODUCTS INCLUDING, BUT NOT LIMITED TO, MARKET CONDITIONS, SUCCESSFUL PRODUCT
DEVELOPMENT AND ACCEPTANCE, THE INTRODUCTION OF COMPETITIVE PRODUCTS, ECONOMIC
CONDITIONS, AND THE TIMING OF ORDERS FOR PRODUCTS. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER MATERIALLY 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
(a) EXHIBITS
<CAPTION>
EXHIBIT NO. DOCUMENT
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<S> <C>
2 Agreement of Merger and
Plan Of Reorganization
dated as of July 22, 1997,
by and among Infodata
Systems, Inc., AMBIA
Corporation, Alan Fisher
and Razi Mohiuddin,
Software Partners, Inc.,
and AMBIA Acquisition
Corporation. (Incorporated
11
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by reference from current
report on Form 8-K dated
August 6, 1997)
27 Financial Data Schedule
</TABLE>
(a) REPORTS ON FORM 8-K. The Company filed a Form 8-K on August 6, 1997 and a
Form 8-K/A on October 6, 1997, both related to the acquisition of AMBIA
Corporation on July 22, 1997.
12
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
INFODATA SYSTEMS INC.
BY:/s/HARRY KAPLOWITZ
---------------------
Date: November 13, 1997 Harry Kaplowitz
President
BY: /s/CHRISTOPHER P. DETTMAR
-----------------------------
Christopher P. Dettmar
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000050420
<NAME> INFODATA SYSTEMS INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 432
<SECURITIES> 425
<RECEIVABLES> 2,399
<ALLOWANCES> 80
<INVENTORY> 0
<CURRENT-ASSETS> 3,176
<PP&E> 5,494
<DEPRECIATION> 2,136
<TOTAL-ASSETS> 6,534
<CURRENT-LIABILITIES> 4,043
<BONDS> 87
0
0
<COMMON> 82
<OTHER-SE> 2,322
<TOTAL-LIABILITY-AND-EQUITY> 6,534
<SALES> 7,058
<TOTAL-REVENUES> 7,058
<CGS> 4,037
<TOTAL-COSTS> 3,920
<OTHER-EXPENSES> 1,642
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<INCOME-PRETAX> (2,559)
<INCOME-TAX> (5)
<INCOME-CONTINUING> (2,554)
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<EXTRAORDINARY> 0
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<NET-INCOME> (2,554)
<EPS-PRIMARY> (0.83)
<EPS-DILUTED> (0.83)
</TABLE>
