U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-10416
INFODATA SYSTEMS INC.
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(Exact name of small business issuer as specified in its charter)
VIRGINIA 16-0954695
(State of Incorporation) (I.R.S. Employer Identification No.)
12150 MONUMENT DRIVE, FAIRFAX, VIRGINIA 22033
(Address of registrant's principal executive office)
(703) 934-5205 (Issuer's Telephone Number)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
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None Not applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK-$.03 PAR VALUE
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(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 ____
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The registrant's revenues for the fiscal year ending December 31, 1998 are
$14,242,000.
As of March 19, 1999, there were 4,526,747 common shares outstanding. As of
March 19, 1999, the aggregate market value (computed by reference to the
average bid and asked prices on such date) of voting common shares held by
non-affiliates was approximately $10,269,000.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of the Form 10-KSB is incorporated by
reference from the registrant's definitive proxy statement or amendment hereto
which will be filed not later than 120 days after the end of the fiscal year
covered by this report.
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PART I
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-KSB RELATING TO PRODUCT
DEVELOPMENT, FUTURE CONTRACTS, REVENUE, THE ADEQUACY OF WORKING CAPITAL, AND
YEAR 2000 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.
ITEM 1. DESCRIPTION OF BUSINESS
Infodata Systems Inc. ("Infodata" or the "Company") designs, develops, and
delivers solutions that enable enterprises to share, maintain, and retrieve
electronic documents and their components. The Company provides consulting
services, systems integration services and products in the area of knowledge
management to corporate and government workgroups, departments and
enterprises. Revenues are generated from three segments. They are consulting
services and training (Solutions), sales of proprietary products (Proprietary
Products), and the sale of third party software and hardware (Third Party
Products). The Company is in the process of implementing a refocused business
strategy with an emphasis on providing consulting and systems integration
services. Infodata's other business lines will be focused on supporting the
core consulting services business.
During its history, the Company has developed and sold its own products and
served as a consultant in the areas of information management, document
solutions and knowledge management. The Company has shifted its focus over the
years as the information technology industry has changed. During this period,
Infodata has successfully produced solutions involving mainframe computing
systems, client/server systems and now both intranets and the Internet. In the
past three years, the Company made two acquisitions to help broaden and update
its product and service offerings: Merex Inc. ("Merex"), acquired in October
1995, and AMBIA Corporation ("AMBIA"), acquired in July 1997. Merex provided a
staff experienced in Internet and client-server document technologies, and
AMBIA provided both an experienced technical staff and products focusing on
document creation, collaboration, and presentation. The Company now provides a
range of services, including training, customer support, and consulting to
ensure customers achieve the full benefits of the Company's expertise.
SOLUTIONS
The Solutions business consists of consulting, systems integration, and
training. Consulting includes requirements studies, the identification and
analysis of appropriate document management systems, and the implementation of
such systems which may include either the Company's Proprietary Products or
Third Party Products. These services are performed for both corporate entities
and governmental units. The training is directed toward both groups and
individuals on products offered by Infodata, Adobe, and other companies in the
document management field. The Company seeks to obtain greater synergy from
the training area by tying it into consulting engagements and/or product
sales. Solutions represent the largest segment of the Company's business.
PROPRIETARY PRODUCTS
Proprietary Products include the Company's Adobe Acrobat plug-in products,
namely, Compose, Re:mark, Aerial and Signet; INQUIRE/Text software sales,
WebINQUIRE, the Virtual File Cabinet, CORRControl, and the maintenance
associated with each of these products. Compose is a suite of plug-in tools
for Adobe Acrobat Exchange that automate and streamline a variety of document
production tasks, such as the creation of tables of contents, hyperlinks,
document indexes, and other document navigation features. Re:mark is a plug-in
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product for Adobe Acrobat software that enables users to mark up, redline and
review documents electronically in a workgroup setting. By annotating any
document in portable document format (PDF), Re:mark enables users to type text
on the document page, draw on the document, indicate approval of the document
itself or specific sections, attach any file anywhere in the document,
consolidate comments from multiple reviews, personalize comments and set
annotation security. Redlining features include highlighting, strike-through
and "sticky notes." Annotations may be shared among users. Aerial is a plug-in
product that enables Adobe Acrobat to print any document that needs to be
formatted for printing on multiple pages that are then pieced together to form
one page, such as a large spreadsheet or a CAD drawing. Aerial also enables
Adobe Acrobat to format tables into spreadsheets, and converts PDF to a text
format that can be edited with Microsoft Word or other word processors. Signet
is a security solution for Web or CD-ROM publishers who want to permit only
authorized users to read their documents. Signet allows publishers to control
the time and circumstances of the expiration of users' privileges.
INQUIRE/Text is a full-text retrieval product used for storing, indexing,
retrieving, and managing large collections of documents on IBM and
IBM-compatible mainframes. INQUIRE/Text software is widely used by major
companies, utilities, hospitals, and government agencies for automating
document-centered applications such as on-line manuals, legislative tracking
and regulatory compliance, library management, litigation support, medical
records, and government and military intelligence. The system has been
installed at over 350 sites. WebINQUIRE is an extension product that provides
Web browser access to INQUIRE/Text collections. It enables users to utilize
their mainframe as an intranet superserver with all the search capabilities of
INQUIRE/Text. WebINQUIRE permits users to store documents created using
desktop software on a mainframe computer, retrieve documents from the
mainframe and edit them on their desktop using desktop applications, such as
Microsoft Excel and Microsoft Word. In addition, WebINQUIRE's search formats
and views can be easily customized. Although WebINQUIRE and other INQUIRE/Text
options carry a high gross margin, they are not expected to amount to a
significant percentage of the Company's future revenues. CORRControl is an
application that automates and streamlines correspondence processing and
management. The Company developed the Virtual File Cabinet (VFC) over the past
two years. After a critical review of the status of VFC during 1998, the
Company determined that the revenue and gross profits generated by the product
could not justify Infodata's emphasis on it. As a result, VFC was
de-emphasized. For the year 1999, the Company has forecast no revenue for the
VFC product.
THIRD PARTY PRODUCTS
Third Party Products include software and hardware. By offering products from
companies such as Documentum, Adobe and Verity, the Company is able to provide
a wide variety of solutions and tailor them to each customer's needs. It is a
goal of the Company to obtain increasing amounts of consulting business in
conjunction with the sale of Third Party Products.
INDUSTRY BACKGROUND
The knowledge management industry continues to grow rapidly and offer a great
deal of opportunity. According to the research firm IDC, the electronic
document management systems (EDMS) software market will exceed $1 billion by
the year 2002, and will drive another $6 billion in services, maintenance and
application revenue. Document management products were originally introduced
to solve problems associated with the production of complex and
mission-critical documentation. These documents are characterized not only by
complex content, such as graphs, images, and text, but also by a heavily
controlled or regulated process by which documents are written and reviewed.
These document management systems have been expensive to procure and difficult
to install and implement because they require unique user interfaces and
customized workflow. Companies with the expertise to identify, analyze,
recommend and implement document management solutions are increasingly in
demand as the industry evolves.
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STRATEGY
The Company intends to leverage its knowledge of the document management
industry into increasing revenues from large and complex Solutions
engagements. To do this, the Company plans to expand its sales and marketing
efforts and focus these efforts on the Solutions business. Plans are also
being implemented to align training and product sales with the Solutions
business to gain greater synergy from the various business segments. Finally,
the Company is aggressively pursuing additional business through its business
partners such as Documentum, Adobe and Verity. The Company plans to develop
other business partnerships and may consider business acquisitions if they
complement Infodata's strategy.
SALES AND MARKETING
The Company recently added three people, including a Vice President of Sales
and a Vice President of Marketing, to its marketing and sales force to help
grow the Solutions business. It is the intention of the Company to use both
direct and indirect sales methods to obtain new business. The Company
generates awareness of, and interest in, its services through direct calls,
trade shows, and the distribution of marketing materials.
CUSTOMERS
The Company targets both commercial and government markets. Many major
companies and government organizations use the Company's products and
consulting services. Sales to government customers represented approximately
60% of revenues in 1998 and approximately 53% in 1997; however, no one
customer accounted for more than 10% of the Company's revenues in either
period.
Certain of the Company's contracts with government organizations are
competitively awarded after a formal bid and proposal competition among
qualified bidders. These government contracts may be either cost-reimbursement
contracts (both cost-plus-fixed-fee and cost-plus-award-fee), time and
materials contracts, and fixed price contracts. Cost-plus-fixed-fee contracts
provide for the reimbursement of incurred costs during contract performance,
to the extent that such costs are allowable and allocable, and the payment of
a fixed fee. The size of the fee is limited by federal guidelines to a set
proportion of the contract value. Cost-plus-award-fee contracts typically
provide for the reimbursement of costs and fee based upon a periodic
evaluation of the Company's performance against specified criteria. Under time
and materials contracts, the Company agrees to provide certain categories of
labor that satisfy established education and experience qualifications at a
fixed hourly rate. In these cases, the Company bears the risk that costs may
exceed the fixed hourly rate, and the Company realizes all of the benefits or
detriment resulting from decreases or increases in the cost per hour of
performing the work. Under fixed-price contracts, the Company agrees to
perform certain work for a fixed price and, accordingly, realizes all the
benefit or detriment resulting from decreases or increases in the cost of
performing the work.
The Company's government contracts contain standard termination clauses that
permit the government to terminate the contracts at any time, without cause,
for the convenience of the government. The Company has not had any contracts
terminated for convenience. In addition, government contracts require
compliance with various procurement regulations. The adoption of new or
modified procurement regulations could materially adversely affect the Company
or increase its costs of competing for or performing government contracts. Any
violation of these regulations could result in the termination of the
contracts, imposition of fines, and/or debarment from award of additional
government contracts. Most government contracts are also subject to
modification or termination in the event of changes in funding, and the
Company's contractual costs and revenue are subject to adjustment as a result
of audits by the DCAA and other government auditors. The DCAA routinely audits
cost-reimbursement contracts to verify that costs have been properly charged
to the government. Further, government contract awards may be subject to
protest by competitors. Many of the Company's government contracts require the
Company and certain of its employees to maintain security clearances complying
with the requirements of various government agencies.
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RESEARCH AND DEVELOPMENT
The Company reduced its research and development expenses during 1998 in
conjunction with the de-emphasis of the Virtual File Cabinet. Research and
development efforts since then have been directed towards product upgrades and
refinements.
COMPETITION
The market for the Company's products and services is intensely competitive
and subject to rapid change caused by technological advances, new product
introductions and other marketing activities of industry participants. The
Company currently encounters direct and indirect competition from a number of
public and private companies, such as Booz Allen, KPMG, and Arthur Andersen
Consulting. Competitors may have longer operating histories, significantly
greater financial, marketing, service, support, technical and other resources,
better name recognition and a larger installed customer base than the Company.
As a result, such competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or to devote
greater resources to the development, promotion and sale of their products and
services than the Company.
The Company believes that the competitive factors affecting the market for its
products and services include vendor and product reputation, the ability to
attract and retain quality personnel, product quality, performance and price,
product salability, product functionality and features, product ease-of-use,
and the quality of customer support services and training. The relative
importance of each of these factors depends upon the specific customer
involved. While the Company believes it competes favorably in each of these
areas, there can be no assurance that it will continue to do so. Moreover, the
Company's present or future competitors may be able to develop products or
services comparable or superior to those offered by the Company, offer lower
priced products or services or adapt more quickly than the Company to new
technologies or evolving customer requirements. In order to be successful, the
Company must respond to technological change, customer requirements and
competitors' current products, services, and innovations. There can be no
assurance that the Company will be able to compete effectively in its market
or that competition will not have a material adverse effect on its business,
operating results and financial condition.
PROPRIETARY RIGHTS
The Company has a registered service mark to protect its proprietary rights in
the name Infodata and it has registered trademarks with respect to the marks
INQUIRE and AMBIA. The Company also has registered trademarks for its VFC,
Aerial, Re:mark and Compose products. In addition, the Company has filed a
trademark application in order to protect its Virtual File Cabinet name. The
Company relies primarily on a combination of copyrights and trademarks, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. For example, the Company licenses rather than sells its
software. The licenses impose certain restrictions on the licensees' ability
to utilize the software. In addition, the Company seeks to avoid disclosure of
its trade secrets, including, but not limited to, (i) requiring those persons
with access to the Company's proprietary information to execute
confidentiality agreements with the Company and (ii) restricting access to the
Company's source codes. Trade secret and copyright laws afford only limited
protection. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy the Company's products or to obtain
and use information that the Company regards as proprietary. Although the
Company may apply for certain patents, the Company presently has no patents or
patent applications pending. Policing unauthorized use of the Company's
products is difficult, and while the Company may be unable to determine the
extent to which piracy of its software products exists, software piracy can be
expected to be a persistent problem. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to as great an
extent as the laws of the United States. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not develop similar technology independently.
There can be no assurance that third parties will not claim infringement by
the Company with respect to current or future products. The Company expects
software product developers to be increasingly subject to infringement claims
as the number of products and competitors in the Company's industry segment
grows and the functionality of products in different industry segments
overlaps. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require the
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Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all, which could have a material adverse effect upon the
Company's business, operating results and financial condition. In addition,
the Company also relies on certain software that it licenses from third
parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions. There
can be no assurance that such firms will remain in business, that they will
continue to support their products or that their products will otherwise
continue to be available to the Company on commercially reasonable terms.
EMPLOYEES
As of March 19, 1999, the Company had a total of 83 employees, of which 54
were technical professionals, 9 comprised the sales and marketing staff, and
the remainder was involved in management, corporate security, administration,
contracts, and accounting. The Company's employees are not represented by any
unions and the Company has not experienced any work stoppages.
YEAR 2000
The Company currently has a program underway to ensure that all significant
computer systems are substantially Year 2000 compliant by December 31, 1999.
The program is divided into three major components: (1) identification of all
information technology systems ("IT Systems") and non-information technology
systems ("Non-IT Systems") that are not Year 2000 compliant; (2) repair or
replacement of any identified non-compliant systems; and (3) testing of the
repaired or replaced systems. The Company uses commercially developed
software, the majority of which is upgraded through existing maintenance
contracts. The Company also develops software for sale and or license to
customers and uses some of these software products internally.
Part (1), identification, of the Year 2000 program has been substantially
completed. Part (2), repair or replacement, has been substantially completed.
The majority of all software and systems have been found to be Year 2000
compliant. For those systems not originally Year 2000 compliant, most
significantly, the Company's accounting system, the Company received updated
software which it has successfully installed and begun testing. Internal
products were either developed to be Year 2000 compliant or have been upgraded
for compliance. Part (3), testing, started during the quarter ended December
31, 1998. The Company anticipates that initial testing will conclude by March
31, 1999. Additional testing will continue after this time should it be
warranted.
The Company has contacted key suppliers and business partners about the Year
2000 issue. While no assurances can be given that key suppliers and business
partners will remedy their own Year 2000 issues, the Company has not
identified any material impact on its ability to continue normal operations
with suppliers or third parties who fail to address this issue.
The actual costs associated with the implementation of the Company's Year 2000
program have been insignificant to the Company's operations and financial
condition.
The Company will continue to monitor and evaluate the impact of the Year 2000
issue on its operations. Until the Company is into the final testing part of
its program, the risks from potential Year 2000 failures cannot be fully
assessed. Due to this situation, the Company has not finalized its contingency
plans. However, these plans will be developed as potential Year 2000 failures
are identified in the final testing stages.
The Company could be negatively impacted if some of its own customers are not
Year 2000 compliant. For example, should the federal government's systems not
be Year 2000 compliant, this could lead to delayed payments. The Company
continues to seek assurances that customer systems are either Year 2000
compliant or the customer is working towards compliance prior to year end.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 25,950 square feet of professional office space for its
headquarters and operations in Fairfax, Virginia. The term of the lease is
through July 31, 2003. Payments under the lease were approximately $490,000 in
1998, are expected to be $560,000 in 1999, and will increase to approximately
$619,000 by 2003.
The Company also maintains an office of approximately 3,400 square feet in
Mountain View, California. The term of the lease is through May 31, 2001.
Payments under the lease were approximately $160,000 in 1998, are expected to
be $179,000 in 1999, and will increase to approximately $187,000 by 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company is presently not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS
The following information relates to executive officers of the Registrant as
of March 19, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
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<S> <C> <C>
Steven M. Samowich 48 President and Chief Executive Officer
Harry Kaplowitz 55 Executive Vice President
Richard M. Tworek 42 Executive Vice President and Chief
Technology Officer
Christopher P. Dettmar 45 Chief Financial Officer
Robert J. Loane 60 Senior Vice President
Razi Mohiuddin 37 Vice President
Curtis D. Carlson 34 Secretary
</TABLE>
Steven M. Samowich has been the President, Chief Executive Officer, and a
director of the Company since November 1998. From January 1997 to October
1998, he served as Vice President and General Manager of the Time Data Systems
Division of Simplex Time Recorder Company. From December 1995 through 1996,
Mr. Samowich was the North American General Manager of Sales, Marketing &
Services for Visix software and from 1984 to 1995 he was with Computervision
where he served as its National Sales Manager from 1993 to 1995. Mr. Samowich
holds a BA and an MBA from the University of Pittsburgh.
Harry Kaplowitz, a founder of the Company, has been an Executive Vice
President of the Company since November 1997 and a director since 1980. From
1991 to January 1993, Mr. Kaplowitz served as Chairman of the Board of
Directors and from 1991 to November 1997 he served as President of the
Company. From 1980 to 1989, he served as Executive Vice President of the
Company. From 1973 to 1980, he was a Vice President of the Company. Mr.
Kaplowitz has a BS in Electrical Engineering from the Massachusetts Institute
of Technology and an MBA from the Wharton Graduate School.
Richard M. Tworek has been an Executive Vice President of the Company since
October 1995, a director since July 1996 and Chief Technology Officer since
April 1997. Mr. Tworek was the founder of Merex and served as its President
from April 1987 to October 1995. Mr. Tworek holds a BS in Mathematics from
Eastern Michigan University and an MS (equivalent) in Nuclear Engineering from
the U.S. Navy Nuclear Power School.
Christopher P. Dettmar has been Chief Financial Officer of the Company since
May 1997. From November 1993 to April 1997, he served as Vice President, Chief
Financial Officer and a director of TWS, Inc. and its predecessor company,
Encompass, Inc., both of which are telecommunications service firms. From
November 1989 to November 1993, he served as Vice President, Chief Operating
Officer and a director of the Hunter Companies, an asset management and
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commercial real estate brokerage firm. From 1984 to 1989, Mr. Dettmar served
as a regional controller with Cincinnati Bell Information Systems and from
1979 to 1983, he worked for Price Waterhouse & Co. He is a certified public
accountant, holds a BS in Commerce from the University of Virginia and an MBA
from the Pennsylvania State University.
Dr. Robert J. Loane has been Senior Vice President of the Company since 1981.
He is the principal architect and developer of the INQUIRE family of products
and in now involved with the architecture of future products and provides
consulting services to many of the Company's customers. Dr. Loane has a PhD in
Computer Sciences from Princeton University and a BEE from Cornell University.
Razi Mohiuddin has been a Vice President of the Company since February 1998
and a manager of the Company's West Coast facilities since July 1997. From
1988 to July 1997, he served as Vice President of Software Partners, Inc., a
firm that developed products for online services, and was the parent of AMBIA,
and from 1995 to July 1997, Mr. Mohiuddin also served as Vice President,
Engineering, of AMBIA. In 1994, Mr. Mohiuddin co-founded ONSALE, Inc., a
publicly held Web-based service that specializes in selling computers and
consumer electronics using auctions, markdowns, and other close-out
techniques. Mr. Mohiuddin has a BS in Computer Science from the University of
Illinois, Chicago.
Curtis D. Carlson has been the Secretary of the Company since February 1998.
From 1991 until joining the Company in August 1994, Mr. Carlson was associated
with the Federal Systems Division of International Business Machines (IBM)
Corporation and served in the Business Practices and Contracts function
supporting the U.S. Navy and Radiation-Hardened Semiconductor business areas.
Since 1992, Mr. Carlson has been on the Board of Directors of Synergy One
Federal Credit Union, and served as its Chairman from April 1994 to April
1998. He has a BS in Finance from Rochester Institute of Technology and is
completing coursework at Virginia Polytechnic Institute and State University
for his MBA.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Infodata's Common Stock has been quoted on the NASDAQ SmallCap Market under
the symbol "INFD" since September 16, 1994. The Company's Common Stock was
previously traded on the NASDAQ National Market. Market makers of the
Company's Common Stock include Herzog, Heine, Geduld, Inc., Mayer and
Schweizter Inc., and Patterson Travis Inc.
The table below shows the range of closing bid prices for the Common Stock for
the quarters indicated.
<TABLE>
<CAPTION>
1998 1997
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $11.00 $4.75 $12.63 $6.75
Second Quarter 5.34 4.25 8.63 6.00
Third Quarter 4.25 2.41 10.38 7.00
Fourth Quarter 3.25 2.25 12.75 8.50
</TABLE>
The market quotations reflected above are inter-dealer prices, without retail
mark-up, markdown or commissions and may not represent actual transactions.
The Company has not paid cash dividends on its Common Stock and presently has
no intention to do so. It believes that execution of its operating plan
requires the Company to retain available funds to support future business
activities. Payment of cash dividends on Common Stock in the future will be
dependent upon the earnings and financial condition of the Company, and other
factors, which the Board of Directors may deem appropriate.
As of March 19, 1999, there were approximately 1,500 holders of record of the
Company's Common Stock.
On July 22, 1997, the Company issued an aggregate of 400,000 shares of Common
Stock to Alan Fisher and Razi Mohiuddin, the former shareholders of AMBIA, as
consideration for the purchase of all of the outstanding shares of capital
stock of AMBIA, pursuant to an Agreement of Merger and Plan of Reorganization.
The Company relied on Section 4(2) of the Securities Act as the basis for an
exemption from registration because the transaction did not involve any public
offering.
On October 11, 1995, the Company issued an aggregate of 210,000 shares to
Richard Tworek, Mary Margaret Styer and Andrew Fregly, the shareholders of
Merex, as consideration for the acquisition of Merex pursuant to an Asset
Purchase Agreement and Plan of Reorganization. The Company relied on Section
4(2) of the Securities Act as the basis for an exemption from registration
because the transaction did not involve any public offering.
The Company has agreed to issue shares of Common Stock on a quarterly basis to
each of Richard Bueschel, Laurence Glazer, Robert Leopold, Millard Pryor, Jr.,
Isaac Pollak and Alan Fisher, the non-employee directors of the Company, as
payment of consulting fees for 1997 in the amount of $10,000 per non-employee
director. For the year ended December 31, 1998, each non-employee director was
entitled to 2,926 shares of Common Stock. Certificates evidencing such shares
and the number of shares to which the non-employee directors will be entitled
for the last quarter of 1998 were issued in January 1999. The Company is
relying on Section 4(2) of the Securities Act as the basis for an exemption
from registration because these shares will be issued by the Company solely to
its non-employee directors, and thus will not involve any public offering.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS RELATING TO PRODUCT DEVELOPMENT, FUTURE CONTRACTS,
REVENUE, THE ADEQUACY OF WORKING CAPITAL, AND YEAR 2000 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 consulting services, systems integration, and products in
the area of knowledge management. These products and services are provided to
corporate and government workgroups, departments and enterprises in three
market segments. The segments include consulting services and training
(Solutions), sales of proprietary products (Proprietary Products), and the
sale of third party software and hardware (Third Party Products). Solutions
includes systems integration, document management analysis and implementation,
training, consulting services surrounding the implementation of the Company's
Proprietary Products and Third Party Products, and other related services.
Proprietary Products include INQUIRE/Text software sales, Compose, Re:mark,
Virtual File Cabinet, Aerial, Signet and their associated maintenance. Third
Party Products include software and hardware primarily with some related
services. For the year 1998, Solutions accounted for 44% of total revenue;
Proprietary Products accounted for 30%, and Third Party Products accounted for
the remaining 26%. Revenues in each segment of the Company's business
increased over 1997 with total revenues increasing 34% for the year ended
December 31, 1998.
The Company is in the process of implementing a business strategy focused on
providing consulting services and systems integration in the area of knowledge
management. The Company's other business lines are also being refocused to
support the core consulting services business. Over the past five years, the
Company has worked to reposition itself from a supplier of mainframe products
and services to a solutions-based provider of services, systems integration,
mainframe software and web-based software in the area of knowledge management.
Starting in mid-1998, the Company identified consulting as its primary area of
focus. The Company anticipates that the benefit of the renewed focus will not
be fully realized until the latter part of 1999 and beyond. One goal of this
renewed focus is to maximize the synergy among the three lines of business. A
number of the Company's sales transactions in 1998 involved consulting
projects supported by third party sales. In 1999, the Company anticipates that
it will continue to pursue these types of complementary transactions.
In December 1997, the Company entered into two agreements with Adobe Systems,
Inc. ("Adobe") to modify certain of the Company's proprietary technologies so
that they can be incorporated into future Adobe products and to cross license
the resultant technologies. Under these agreements, Infodata is to receive
license fees in the amount of $1 million and approximately $900,000 in
consulting fees to modify the technologies. The Company recognized revenue
under this agreement in the amount of $350,000 and $1,023,000 in 1997 and
1998, respectively. The revenue recognized in 1998 included $500,000
recognized in the fourth quarter of 1998 when certain amounts prepaid by Adobe
became non-refundable. As of December 31, 1998, the Company had substantially
completed all of its obligations under the agreements. The Company anticipates
that Adobe will accept the final product in the first half of 1999, at which
time remaining amounts will become due and/or non-refundable under the
-10-
<PAGE>
agreements. However, if Adobe fails to accept the final product, the
additional amounts will not be paid or will be required to be refunded. The
Company anticipates that Adobe will accept this final product.
Starting in 1996, the Company began to invest in the development of the
Virtual File Cabinet ("VFC") software product. Development intensified in
1997, and the product was introduced to the market in 1997. Refinements to the
product continued through the first half of 1998. During the latter half of
1998, the Company determined that the revenue and profits generated by the VFC
product could not justify the Company's continued emphasis on it. As a result,
the sales, marketing and development effort related to VFC was decreased.
Based on this, and the growth potential of the consulting business, Infodata
refocused its strategy towards its consulting and systems integration
businesses. Portions of VFC were embedded in the product licensed to Adobe
Systems. Other than this, the Company has forecasted no revenue for the VFC
product in 1999. The Company continues to support its plug-in based products,
Compose, Aerial and Signet. On February 9, 1999, the Company announced the
release of an upgraded version of Compose.
On July 22, 1997, the Company acquired all of the Common Stock of AMBIA in
consideration for 400,000 shares of the Company's Common Stock with a fair
value of $7.75 per share, which was equivalent to the trading price of the
Company's Common Stock on such date. As a result of the acquisition,
outstanding options to purchase 390,000 shares of AMBIA Common Stock were
converted into options to acquire approximately 35,000 shares of the Company's
Common Stock at an exercise price of $1.69 per share. The fair value of the
options is recorded as part of the acquisition cost. The total acquisition
cost was approximately $3,461,000, including the direct costs of the
acquisition. Approximately $3,196,000 was allocated to goodwill, $121,000 was
allocated to acquired tangible assets and $144,000 was allocated to acquired
intangible assets. The acquired intangible assets and goodwill are being
amortized over two years and seven years, respectively. AMBIA is accounted for
as a consolidated subsidiary of the Company from the date of acquisition.
At December 31, 1998, the Company had a net operating loss ("NOL") aggregating
approximately $9,708,000 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, 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 the work progresses. 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
recognized upon delivery or upon acceptance by the customer. Revenues from
post 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. Deferred revenue at December 31,
1998 was $1,152,000. This related primarily to amounts from Adobe and 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 depend on the product or
service. For consulting, the most significant item is the direct labor cost of
the consultants. Other cost components include any subcontractor costs, any
non-labor direct costs such as travel and any associated indirect costs (e.g.,
office rent, administration, etc.) allocated to the consulting engagement.
Indirect costs are allocated based on head count and square footage of office
-11-
<PAGE>
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, any customization work done by the Company, and any special
packaging costs incurred prior to shipment. The cost of maintenance revenue
includes the customer service and software engineering personnel supporting
the product and an allocation of associated indirect costs based on head count
and square footage of office space. 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.
Future operating results will depend on many factors, including the demand for
the Company's products, the effectiveness of the Company's efforts to
integrate various products it has developed or acquired and to achieve the
desired levels of sales from such product integration, the level of product
and price competition, the length of the Company's sales cycle, seasonality of
individual customer buying patterns, the size and timing of individual
transactions, the delay or deferral of customer purchases and implementations,
the budget cycles of the Company's customers, the timing of new product
introductions and product enhancements by the Company and its competitors, the
mix of sales by products, services and distribution channels, acquisitions by
competitors, the ability of the Company to develop and market new products and
control costs, and general domestic economic and political conditions.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
REVENUES
Total revenue increased by $3,598,000, or 34%, from $10,644,000 for the year
ended December 31, 1997 to $14,242,000 for the year ended December 31, 1998.
The Company derived revenues from Solutions, Proprietary Products and Third
Party Products. Solutions include commercial and government consulting,
INQUIRE consulting, and training. Proprietary Product revenue includes the
sale of INQUIRE/Text-related products and services and maintenance related
thereto, and sales of the Company's plug-in-based software products. Third
Party Products include software and hardware sold to both the government and
commercial entities. Revenues from Solutions increased by $773,000, or 14%,
from $5,549,000 for the year ended December 31, 1997 to $6,322,000 for the
year ended December 31, 1998. The increase was primarily due to growth in
commercial and government consulting along with the addition of consulting
revenue from the Mountain View operation, which was acquired as part of AMBIA
in 1997. Proprietary Product revenue increased by $1,063,000, or 33%, from
$3,180,000 for the year ended December 31, 1997 to $4,243,000 for the year
ended December 31, 1998. This increase came from growth in the sales of
Compose and Re:mark, partially offset by a decline in INQUIRE/Text maintenance
revenue. Approximately $500,000 of this increase resulted from the one-time
licensing transaction with Adobe. Under the agreement with Adobe, the Company
anticipates that it will be able to recognize another $500,000 in revenue from
this licensing transaction in the first half of 1999. The Company expects that
INQUIRE/Text-related revenues will continue to decline over time as customers
move applications off mainframes. Third Party Product sales are undertaken on
both a stand-alone basis and as a way to attract consulting business. For the
year ended December 31, 1998, Third Party Product revenues increased
$1,762,000 from $1,915,000 in 1997 to $3,677,000 in 1998.
GROSS PROFIT
Gross profit decreased by $103,000, or 2%, from $4,482,000 for the year ended
December 31, 1997 to $4,379,000 for the year ended December 31, 1998. The
decrease in gross profit was due primarily to a significant increase in the
costs of Third Party Product revenues, which more than offset the increase in
revenues.
-12-
<PAGE>
Gross margin as a percent of revenues decreased by 11% from 42% for the year
ended December 31, 1997 to 31% for the year ended December 31, 1998. The
decline was due to the growth of lower-margin Third Party Product sales and
the decrease in INQUIRE/Text product and maintenance revenue during 1998
partially offset by the Adobe transaction.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased $707,000, or 29%, from $2,472,000
for the year ended December 31, 1997 to $1,765,000 for the year ended December
31, 1998. The principal cause of the decrease was the reduced spending
involving the Company's VFC product. Certain technical personnel previously
involved in research and development projects were redeployed to consulting
projects.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $897,000, or 16%, from
$5,499,000 for the year ended December 31, 1997 to $4,602,000 for the year
ended December 31, 1998. The decrease was due primarily to decreases in the
sales staff and in marketing expenditures related to the Company's VFC
product.
INTEREST INCOME AND EXPENSE
Interest income increased $141,000, or 224%, from $63,000 for the year ended
December 31, 1997 to $204,000 for the year ended December 31, 1998. The
increase was due to higher balances of cash, cash equivalents, and short-term
investments during the year ended December 31, 1998. These higher balances
were the result of the Company's sale of 1,600,000 shares of Common Stock in
an underwritten public offering effective February 17, 1998. The Company
invested in short-term, highly liquid money market instruments and commercial
paper.
Interest expense decreased $30,000, or 68%, from $44,000 for the year ended
December 31, 1997 to $14,000 for the year ended December 31, 1998. The
decrease was due to the decreased utilization of a line of credit during the
year ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash, cash equivalents and short-term
investments of $4,873,000 and working capital of $4,365,000. The Company had
no borrowings as of December 31, 1998. The Company maintains a line of credit
with Merrill Lynch Business Financial Services, Inc. for up to $1,000,000
based upon eligible receivables. Interest on this debt 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. The facility expires in
April 1999. The Company is currently negotiating an extension to April 2000.
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
annual and quarterly financial information. The Company is currently in
compliance with these funding requirements.
Net cash used in operating activities for the year ended December 31, 1998 of
$1,124,000 was due to the Company's net loss for the period of $1,798,000, a
decrease in accounts payable of $696,000, and a decrease in deferred revenue
of $440,000, partially offset by all depreciation and amortization expenses
including goodwill of $1,010,000, an increase in accounts receivable, prepaid
expenses, and other current assets of $363,000, an increase in other assets of
$190,000 and an increase in accrued expenses of $139,000.
-13-
<PAGE>
Net cash used in investing activities of $2,875,000 for the year ended
December 31, 1998 was derived primarily from the investment of cash in
short-term investments and the purchase of property and equipment. Short-term
investments increased $2,669,000. Approximately $206,000 in net property and
equipment was purchased.
Net cash provided by financing activities of $5,915,000 arose primarily from
the proceeds of a Common Stock issuance of $6,838,000 partially offset by the
payments of notes payable in the amount of $880,000 for the year ended
December 31, 1998.
Net cash flow from operating activities for the year ended December 31, 1998
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 upcoming year. 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 new and existing
products and services, the growth of the Company's marketing channels, the
technological advances and activities of competitors, and other factors.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements required hereunder are listed under Item
13(a) below.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None in the fourth quarter of 1998.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Pursuant to General Instruction E(3) of Form 10-KSB, the information called
for by Item 9 is hereby incorporated by reference from the Company's
definitive proxy statement or amendment hereto to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report. Information regarding the Company's executive officers
is set forth under Item 4a of this Form 10-KSB.
ITEM 10. EXECUTIVE COMPENSATION
Pursuant to General Instruction E(3) of Form 10-KSB, the information called
for by Item 10 is hereby incorporated by reference from the Company's
definitive proxy statement or amendment hereto to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction E(3) of Form 10-KSB, the information called
for by Item 11 is hereby incorporated by reference from the Company's
definitive proxy statement or amendment hereto to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction E(3) of Form 10-KSB, the information called
for by Item 12 is hereby incorporated by reference from the Company's
definitive proxy statement or amendment hereto to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
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<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS. The financial statements and exhibits required by
Item 7 and this Item 13 of Form 10-KSB are listed below.
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS: PAGE
------------------------------------------- ----
<S> <C>
Reports of Independent Public Accountants...................................... 19-20
Consolidated Statements of Operations - Each of the two years
in the period ended December 31, 1998......................................... 21
Consolidated Balance Sheets - December 31, 1998 and 1997 ..................... 22-23
Consolidated Statements of Shareholders' Equity for each of the two years
in the period ended December 31, 1998......................................... 24
Consolidated Statements of Cash Flows for each of the two years
in the period ended December 31, 1998......................................... 25
Notes to Consolidated Financial Statements - December 31, 1998 and 1997 ...... 26-36
</TABLE>
(b) REPORTS ON FORM 8-K.
The Company did not file any Current Reports on Form 8-K during the quarter
ended December 31, 1998.
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
2.1 Plan and Agreement of Merger, dated as of March 10, 1995, by
and between Infodata Systems Inc. and Virginia Infodata
Systems Inc. (incorporated herein by reference to Exhibit
2.1 to the Company's Registration Statement on Form SB-2
(Registration No. 333-42611) dated December 18, 1997, as
amended).
2.2 Asset Purchase Agreement and Plan of Reorganization, dated
as of October 6, 1995, among the Company, Merex, Inc. and
Richard M. Tworek, Mary Margaret Styer and Andrew M. Fregly
(incorporated by reference to the Company's Current Report
on Form 8-K dated October 11, 1995).
2.3 Agreement of Merger and Plan of Reorganization, dated as of
July 22, 1997, by and among the Company, AMBIA Corporation,
Alan Fisher and Razi Mohiuddin, Software Partners, Inc. and
AMBIA Acquisition Corporation (incorporated by reference to
the Company's Current Report on Form 8-K dated August 6,
1997 and Form 8-K/A dated October 6, 1997).
3.1 Articles of Incorporation (incorporated by reference to
Exhibit A of the Company's Proxy Statement dated April 10,
1995).
3.2 Articles of Amendment of Articles of Incorporation of the
Company, dated as of August 12, 1996 (incorporated herein by
reference to Exhibit 3.2 of the Company's Registration
Statement on Form SB-2 (Registration No. 333-42611) dated
December 18, 1997, as amended).
3.3 By-Laws (incorporated by reference to Exhibit B to the
Company's Proxy Statement dated April 10, 1995).
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<PAGE>
4.1 Form of Underwriters' Purchase Option (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form SB-2 (Registration No. 333-42611) dated
December 18, 1997, as amended).
10.1 Cross License Agreement, dated as of December 3, 1997, as
amended, by and between the Company and Adobe Systems
Incorporated (incorporated herein by reference to Exhibit
10.1 to the Company's Registration Statement on Form SB-2
(Registration No. 333-42611) dated December 18, 1997, as
amended).
10.2 Office Building Lease, dated as of April 12, 1993, by and
between the Company and Monument Fairfax Associates for One
Monument Drive (incorporated by reference to Exhibit 10(dd)
to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994).
10.3 Lease Agreement, dated as of July 20, 1993, between The
Landmark and Software Partners, Inc. for 2013 Landings
Drive, Mountain View, California (incorporated herein by
reference to Exhibit 10.3 to the Company's Registration
Statement on Form SB-2 (Registration No. 333-42611) dated
December 18, 1997, as amended).
10.4 Lease for Data Processing Service Agreement, dated as of
July 29, 1994, between the Company and Financial
Technologies Inc. (incorporated by reference to Exhibit
10(ee) to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994).
10.5 Executive Separation Agreement, dated as of October 20,
1986, between the Company and Harry Kaplowitz (incorporated
by reference to Exhibit 10(a) to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1993).
10.6 Executive Separation Agreement, dated as of October 20,
1986, between the Company and Robert Loane (incorporated by
reference to Exhibit 10(b) to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993).
10.7 Employment and Non-Compete Agreement, dated as of July 22,
1997, as amended, between the Company, AMBIA Corporation and
Razi Mohiuddin (incorporated herein by reference to Exhibit
10.7 to the Company's Registration Statement on Form SB-2
(Registration No. 333-42611) dated December 18, 1997, as
amended).
10.8 Employment and Non-Compete Agreement, dated as of October
11, 1995, as amended, between the Company and Richard M.
Tworek (incorporated herein by reference to Exhibit 10.8 to
the Company's Registration Statement on Form SB-2
(Registration No. 333-42611) dated December 18, 1997, as
amended).
10.9 Letter Employment Agreement, dated as of November 5, 1997,
as amended, between the Company and James A. Ungerleider
(incorporated herein by reference to Exhibit 10.9 to the
Company's Registration Statement on Form SB-2 (Registration
No. 333-42611) dated December 18, 1997, as amended).
10.10 Note, Loan and Security Agreement, dated as of October 31,
1997, between the Company and Merrill Lynch Business
Financial Services Inc. (incorporated herein by reference to
Exhibit 10.10 to the Company's Registration Statement on
Form SB-2 (Registration No. 333-42611) dated December 18,
1997, as amended).
10.11 Loan and Registration Right Agreement, dated as of October
3, 1996, between the Company and Richard M. Tworek
(incorporated herein by reference to Exhibit 10.11 to the
Company's Registration Statement on Form SB-2 (Registration
No. 333-42611) dated December 18, 1997, as amended).
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<PAGE>
10.12 1995 Stock Option Plan (incorporated by reference to Exhibit
4(a) to the Company's Registration Statement on Form S-8,
dated as of June 13, 1995).
10.13 1997 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 4(a) to the Company's Registration
Statement on Form S-8 dated as of June 27, 1997).
10.14 Letter Agreement, dated as of December 14, 1997, extending
the Employment and Non-Compete Agreement between the Company
and Richard M. Tworek (incorporated herein by reference to
Exhibit 10.14 to the Company's Registration Statement on
Form SB-2 (Registration No. 333-42611) dated December 18,
1997, as amended).
10.15 Agreement on Confidential Information, Inventions and Ideas,
dated as of December 17, 1997, between the Company and James
Ungerleider (incorporated herein by reference to Exhibit
10.15 to the Company's Registration Statement on Form SB-2
(Registration No. 333-42611) dated December 18, 1997, as
amended).
10.16 Consulting Agreement, dated as of October 24, 1997, between
the Company and Adobe Systems Incorporated (incorporated
herein by reference to Exhibit 10.16 to the Company's
Registration Statement on Form SB-2 (Registration No.
333-42611) dated December 18, 1997, as amended).
10.17 Letter Employment Agreement, dated as of October 29, 1998,
between the Company and Steven M. Samowich.
10.18 Agreement on Confidential Information, Inventions, Ideas,
dated as of November 4, 1998, between the Company and Steven
M. Samowich.
21 Subsidiaries of the Company (incorporated herein by
reference to Exhibit 21.1 to the Company's Registration
Statement on Form SB-2 (Registration No. 333-42611) dated
December 18, 1997, as amended).
23.1 Consent of Arthur Andersen, LLP
23.2 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
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<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act , the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: March 30, 1999 INFODATA SYSTEMS INC.
BY: /s/STEVEN M. SAMOWICH
---------------------
Steven M. Samowich
President and Chief Executive Officer
In accordance with the Exchange Act , this report has been signed below by the
following persons on behalf of the registrant and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/RICHARD T. BUESCHEL Chairman of the Board March 30, 1999
----------------------
Richard T. Bueschel
/s/CHRISTOPHER P. DETTMAR Chief Financial Officer (Principal March 30, 1999
------------------------- Accounting and Financial Officer)
Christopher P. Dettmar
/s/ALAN S. FISHER Director March 30, 1999
-----------------
Alan S. Fisher
/s/LAURENCE C. GLAZER Director March 30, 1999
---------------------
Laurence C. Glazer
/s/HARRY KAPLOWITZ Executive Vice President and Director March 30, 1999
------------------
Harry Kaplowitz
/s/ROBERT M. LEOPOLD Director March 30, 1999
--------------------
Robert M. Leopold
/s/ISAAC M. POLLAK Director March 30, 1999
------------------
Isaac M. Pollak
/s/MILLARD H. PRYOR, JR. Director March 30, 1999
------------------------
Millard H. Pryor, Jr.
/s/RICHARD M. TWOREK Executive Vice President and Director March 30, 1999
--------------------
Richard M. Tworek
/s/STEVEN M. SAMOWICH President, Chief Executive Officer and March 30, 1999
--------------------- Director (Principal Executive Officer)
Steven M. Samowich
</TABLE>
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Infodata Systems Inc.
In our opinion, the accompanying consolidated balance sheet as of December 31,
1998 and the related consolidated statements of operations, of shareholder's
equity and of cash flows present fairly, in all material respects, the
financial position of Infodata Systems Inc. and its subsidiaries at December
31, 1998, and the results of their operations and their cash flows for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these statements in accordance
with generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/PricewaterhouseCoopers LLP
McLean, Virginia
March 12, 1999
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Infodata Systems Inc.
We have audited the accompanying consolidated balance sheets of Infodata
Systems Inc. (a Virginia corporation) and subsidiaries as of December 31, 1997
and the related consolidated statements of operations, shareholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Infodata Systems Inc. and
subsidiaries as of December 31, 1997 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/Arthur Andersen LLP
Washington, D.C.
March 6, 1998
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<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
---- ----
<S> <C> <C>
Revenues .......................................................... $14,242 $10,644
Cost of revenues .................................................. 9,863 6,162
-------- --------
Gross profit .................................................... 4,379 4,482
-------- --------
Operating expenses:
Research and development ........................................ 1,765 2,472
-------- --------
Selling, general and administrative ............................. 4,602 5,499
-------- --------
6,367 7,971
-------- --------
Operating loss .................................................. (1,988) (3,489)
-
Interest income ................................................... 204 63
Interest expense .................................................. (14) (44)
-------- --------
Loss before income taxes .......................................... (1,798) (3,470)
Provision for income taxes ........................................ - (5)
-------- --------
Net loss .......................................................... $(1,798) $(3,465)
======== ========
Net loss per share:
Basic ........................................................... $ (0.42) $ (1.39)
======== ========
Diluted ......................................................... $ (0.42) $ (1.39)
======== ========
Weighted average shares outstanding ............................... 4,237 2,498
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 2,200 $ 284
Short-term marketable securities ........................ 2,673 4
Accounts receivable, net of allowance of $95 in 1998
and $42 in 1997 ....................................... 2,356 2,772
Other current assets .................................... 166 174
-------- --------
Total current assets .................................. 7,395 3,234
-------- --------
Property and equipment:
Furniture and equipment ................................. 2,861 2,817
Less accumulated depreciation and amortization .......... (2,442) (2,220)
-------- --------
419 597
Goodwill, net of accumulated amortization of $899 in 1998 and
$326 in 1997 ............................................ 2,798 3,371
Other assets .............................................. 171 351
-------- --------
Total assets .............................................. $10,783 $ 7,553
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-22-
<PAGE>
30INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations ............ $ 6 $ 32
Short-term debt ......................................... - 880
Accounts payable ........................................ 786 1,482
Accrued expenses ........................................ 1,086 928
Deferred revenue ........................................ 1,152 1,611
--------- ---------
Total current liabilities ............................. 3,030 4,933
--------- ---------
Shareholders' equity:
Preferred stock, $1.00 par value, 340,000 shares
authorized, none issued and outstanding ............... -- --
Common Stock, $.03 par value, 12,000,000 shares
authorized; 4,507,117 and 2,754,784 shares issued and
outstanding in 1998 and 1997, respectively ............ 135 82
Additional paid-in capital .............................. 19,548 12,670
Accumulated deficit ..................................... (11,930) (10,132)
--------- ---------
Total shareholders' equity ................................ 7,753 2,620
--------- ---------
Total liabilities and shareholders' equity ................ $ 10,783 $ 7,553
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-23-
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------ ------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 ....................... 2,277,865 $ 68 $ 9,055 $ (6,667) $ 2,456
Employee stock purchase plan .................... 3,952 -- 26 -- 26
AMBIA acquisition ............................... 400,000 12 3,339 3,351
Exercise of stock options ....................... 72,967 2 239 -- 241
Other ........................................... -- -- 11 11
Net loss ........................................ -- -- -- (3,465) (3,465)
---------- ---- -------- --------- --------
Balance at December 31, 1997 .................... 2,754,784 82 12,670 (10,132) 2,620
Employee stock purchase plan .................... 41,202 1 101 -- 102
Issuance of common stock in
public offering, .............................. 1,650,000 50 6,490 -- 6,540
Stock issued to Board of Directors
for services .................................. 5,988 -- 55 -- 55
Exercise of stock options and
warrants ...................................... 60,143 2 194 -- 196
Options issued to consultant for
services ...................................... -- -- 55 -- 55
Shares reacquired and cancelled ................. (5,000) -- (17) -- (17)
Net loss ........................................ -- -- -- (1,798) (1,798)
---------- ---- -------- --------- --------
Balance at December 31, 1998 .................... 4,507,117 $135 $19,548 ($11,930) $ 7,753
========== ==== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-24-
<PAGE>
INFODATA SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss ....................................................... $ (1,798) $ (3,465)
Adjustments to reconcile net loss to net cash used in operating
activities:
Common Stock issued to Board ............................... 55 -
Depreciation and amortization ................................ 384 323
Goodwill and other intangible amortization ................... 626 308
Increase in allowance for doubtful accounts ................ 53 -
Changes in operating assets and liabilities:
Accounts receivable ........................................ 363 (1,249)
Other assets and prepaid expenses .......................... 190 (161)
Accounts payable ......................................... (696) 1,155
Accrued expenses ........................................... 139 72
Deferred revenue ........................................... (440) 438
--------- ---------
Net cash used in operating activities .................... (1,124) (2,579)
--------- ---------
Cash Flows From Investing Activities:
Purchases of property and equipment ............................ (206) (457)
Purchases of short-term investments .......................... (13,669) -
Proceeds from maturity of short-term investments ............... 11,000 943
--------- ---------
Net cash (used in) provided by investing activities .......... (2,875) 486
--------- ---------
Cash Flows From Financing Activities:
Payments on capital lease obligations .......................... (26) (47)
Net (repayments) borrowings under short-term debt .............. (880) 880
Issuance of common stock, net .................................. 6,838 278
Repurchase of common stock ................................... (17) -
--------- ---------
Net cash provided by financing activities .................. 5,915 1,111
--------- ---------
Net increase (decrease) in cash and cash equivalents ............. 1,916 (982)
Cash and cash equivalents at beginning of period ................. 284 1,266
--------- ---------
Cash and cash equivalents at end of period ....................... $ 2,200 $ 284
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-25-
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company provides complete Electronic Document Management System ("EDMS")
solutions through the sale of products and software integration services,
predominantly through sales to the U.S. government agencies and to a lesser
extent commercial and international customers. In addition, AMBIA, Inc.
("AMBIA"), a wholly-owned subsidiary, develops, markets, and sells software
products and consulting services.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Infodata Systems Inc. and its wholly owned subsidiaries, Infodata Systems
International Inc., Infodata Research and Development Corporation, and AMBIA.
These entities are collectively referred to herein as the "Company". All
significant inter-company accounts and transactions have been eliminated in
consolidation.
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.
REVENUE RECOGNITION
The Company recognizes revenue from software licenses under Statement of
Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by
Statement of Position 98-4, "Deferral of the Effective Date of Certain
Provisions of SOP 97-2" ("SOP 98-4"). SOP 97-2 and SOP 98-4 provide guidance
on recognizing revenue on software transactions and superseded SOP 91-1
"Software Revenue Recognition." The adoption of SOP 97-2 and SOP 98-4,
effective January 1, 1998, did not have a material impact on the Company's
current revenue recognition practices. Under SOP 97-2 and SOP 98-4, the
Company recognizes revenue from software licenses upon delivery of the
software product to the customer or upon customer acceptance, if a trial
period exists. Revenues from post contract support, including revenue bundled
with the initial license fee, are recognized ratably over the period that
customer support services are provided. Software service revenue is recognized
as performed. 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.
Related revenue is recognized when products are shipped or when customers have
accepted the products, depending on contractual terms.
Revenues from foreign customers totaled approximately $453,000 and $382,000
for the years ended December 31, 1998 and 1997, respectively.
-26-
<PAGE>
CASH AND CASH EQUIVALENTS
Highly liquid investments with an original maturity of three months or less
are classified as cash equivalents. These investments consist of income
producing securities, which are readily convertible to cash and are stated at
cost, which approximates fair value.
SHORT-TERM INVESTMENTS
In addition to cash equivalents, the Company has investments in debt
securities (certificates of deposit and commercial paper) with original
maturities of greater than three months that are classified as short-term
investments. These investments are carried at amortized cost plus accrued
interest. Accrued interest on these investments as of December 31, 1998 was
$53,000.
At December 31, 1997, certificates of deposit included in short-term
investments totaled approximately $4,000, which were restricted pursuant to
certain capital lease obligations.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest totaled $51,000 and $37,000 in 1998 and 1997,
respectively.
PROPERTY AND EQUIPMENT
Property and equipment is depreciated using the straight-line method.
Depreciation on equipment and furniture is computed using the estimated useful
lives of the assets, which range from three to six years. Leasehold
improvements are amortized over the shorter of the useful life of the asset or
the lease term.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including software development
cost, goodwill, and property and equipment, for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be fully recoverable. To determine recoverability of its long-lived
assets, the Company evaluates the probability that future undiscounted net
cash flows, without interest charges, will be less than the carrying amount of
the assets. The Company has determined that as of December 31, 1998 and 1997,
there have been no impairment in the carrying value of long-lived assets.
GOODWILL
Goodwill arising from an acquisition of Merex in 1995 is being amortized using
the straight-line method over a life of ten years. Goodwill arising from the
acquisition of AMBIA in 1997 is being amortized using the straight-line method
over seven years.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
-27-
<PAGE>
EARNINGS PER SHARE
Basic earnings per share are based on the weighted average number of common
shares outstanding. Diluted earnings per share are based on the weighted
average number of common shares outstanding and all dilutive potential common
shares outstanding. Dilutive equivalent shares consist of stock options and
warrants using the treasury stock method.
Due to the loss in 1998 and 1997, the effect of options and warrants has not
been considered on dilutive earnings per share as it would have been
antidilutive.
SIGNIFICANT CUSTOMERS
The Company's primary customer is the federal government, and the Company has
a concentration of credit risk associated with its accounts receivable. The
Company does not believe the likelihood of a loss arising from such
concentration is significant. The Company performs ongoing credit evaluations
of its customers.
Sales to U.S. government agencies totaled approximately $8,550,000 and
$5,640,000 in 1998 and 1997, respectively. As of December 31, 1998 and 1997,
accounts receivable due from U.S. government agencies were approximately
$693,000 and $1,304,000, respectively. During 1998, the Company recorded
significant sales with Adobe Systems Incorporated of approximately $1,023,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash, short-term investments, accounts
receivable, and accounts payable. The carrying amounts of financial
instruments approximate fair value due to the short maturity of these
instruments.
SEGMENT INFORMATION
In 1998, Infodata adopted Statement of Financial Accounting Standards (SFAS)
131, Disclosures about Segments of an Enterprise and Related Information. SFAS
131 requires that the internal organization that is used by management for
making operating decisions and assessing performance be used as the source of
the Company's reportable segments. SFAS 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS 131 did not affect results of operations or financial position but did
affect the disclosure of segment information (see Note 11).
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 will require all
derivatives to be recorded on the face of the balance sheet at fair value. The
Company does not expect SFAS 133 to have a significant impact on its financial
statements.
In 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, "Software
Revenue Recognition, with Respect to Certain Transactions." The Company does
not anticipate that the adoption of SOP 98-9 will have a material impact on
the Company's revenue recognition practices.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
-28-
<PAGE>
NOTE 2. BUSINESS ACQUISITION
On July 22, 1997, the Company consummated its purchase of substantially all of
the assets and the assumption of certain liabilities of AMBIA, in
consideration for 400,000 shares of the Company's Common Stock (restricted as
to sale) with a fair value estimated by the Company's Board of Directors at
$7.75 per share. As a result of the acquisition, outstanding options to
purchase 390,000 shares of AMBIA Common Stock were converted into options to
acquire 34,665 shares of the Company's Common Stock at an exercise price of
$1.69 per share. The fair value of the options is recorded as part of the
acquisition cost. The total acquisition cost was approximately $3,461,000
including the direct costs of the acquisition. Approximately $121,000 was
allocated to acquired tangible assets, $144,000 to acquired intangible assets,
and $3,196,000 to goodwill. The acquired intangible assets and goodwill are
being amortized over two years and seven years, respectively. 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 complementary to
those being developed, marketed and sold by the Company.
The unaudited pro forma financial information presented below reflects the
acquisition of AMBIA as if the acquisition had occurred on January 1, 1997.
These results are not necessarily indicative of the future operating results
or of what would have occurred had the acquisition been consummated at that
time.
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1997
-----------------
(Unaudited)
<S> <C>
Revenue...................................... $11,569,000
Net loss..................................... (3,581,000)
Net loss per share .......................... $ (1.32)
</TABLE>
NOTE 3. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
December 31
1998 1997
---- ----
<S> <C> <C>
U.S. government:
Amounts billed $ 693,000 $1,304,000
Recoverable costs and accrued profit
on progress completed but not billed 976,000 367,000
----------- -----------
1,669,000 1,671,000
----------- -----------
Commercial customers:
Amounts billed 466,000 983,000
Recoverable costs and accrued profit
on progress completed but not billed 316,000 160,000
----------- -----------
782,000 1,143,000
----------- -----------
Less allowance for doubtful accounts (95,000) (42,000)
----------- -----------
Total $2,356,000 $2,772,000
=========== ===========
</TABLE>
-29-
<PAGE>
NOTE 4. 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 require 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 product 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
consolidated statements of operations. There were no software development
costs capitalized for the years ended December 31, 1998 and 1997 as the costs
incurred between technical feasibility and general availability were not
significant.
NOTE 5. INCOME TAXES
At December 31, 1998, the Company had approximately $9,708,000 in net
operating loss carryforwards for income tax reporting purposes. The operating
loss carryforwards expire in varying amounts from 1999 through 2012. In
addition, at December 31, 1998, the Company had $55,000 in investment tax
credit carryforwards expiring in 1999 through 2000.
The actual income tax expense attributable to pretax income for the year ended
December 31, 1998, and December 31, 1997, respectively, differed from the
amount computed by applying the Federal statutory rate of 34% as a result of
the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Tax at statutory rate.......................... $(678,000) $(1,178,000)
Change in valuation allowance.................. 523,000 1,076,000
Nondeductible amortization..................... 217,000 92,000
Other.......................................... (62,000) 10,000
---------- ------------
$ - $ -
========== ============
</TABLE>
The significant components of net deferred tax (liabilities) assets are as
follows as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax liabilities:
Net software development costs ................... $ (42,000) $ (16,000)
Deferred tax assets:
Net operating loss carryforward .................. 3,686,000 3,206,000
Investment tax credit and research and
development tax credits carryforward ........... 55,000 55,000
Other............................................. 180,000 111,000
------------ ------------
Valuation allowance ................................ (3,879,000) (3,356,000)
------------ ------------
Net deferred tax asset ............................. $ - $ -
============ ============
</TABLE>
Under the provisions of SFAS 109, "Accounting for Income Taxes," the tax
effect of the net operating loss and investment tax credit carryforwards,
together with net temporary differences, represents a net deferred tax asset
against which management has fully reserved due to the uncertainty of future
taxable income.
-3-
<PAGE>
NOTE 6. SHORT-TERM DEBT
In November 1996, the Company entered into a working capital line of credit
with Merrill Lynch Business Financial Services Inc. This loan facility
provides the Company with up to a $1,000,000 line of credit at a per annum
rate equal to 2.9 percent over the 30-day commercial paper rate. Currently,
this per annum rate approximates the prime rate (4.83% at December 31, 1998).
Advances on the facility are based on eligible billed accounts receivable less
than 90 days old. The facility presently expires in April 1999. However, the
Company is currently negotiating an extension to April 2000. As of December
31, 1998, the Company had no amounts borrowed against this line of credit. At
December 31, 1998, the Company had $846,366 available under the facility. At
December 31, 1997, the Company had an outstanding balance of $880,000 borrowed
under the line of credit.
NOTE 7. SHAREHOLDERS' EQUITY
COMMON STOCK
On February 20, 1998, the Company consummated an underwritten public stock
offering that was declared effective on February 17, 1998. The gross proceeds
were $8,000,000, which consisted of 1,600,000 shares priced at $5.00 per
share. The expenses of the stock offering (including the underwriters' fee,
legal fees, accounting fees, blue sky fees, registration costs, printing and
engraving costs, and other miscellaneous fees) were approximately $1,710,000.
On April 2, 1998, the underwriters informed the Company of their intent to
exercise an over-allotment option they had been granted to the extent of
50,000 shares, resulting in an additional $250,000 in gross proceeds. Net
proceeds were approximately $6,540,000.
STOCK OPTIONS AND WARRANTS
As a result of the acquisition of AMBIA, each outstanding option ("AMBIA Stock
Option") to purchase shares of AMBIA Common Stock under the former AMBIA
Equity Incentive Plan (as defined in the Merger Agreement) was converted into
an option ("Replacement Option") to acquire, on the same terms and conditions
as were applicable under such AMBIA Stock Option, 4/45 of a share of Common
Stock of the Company, at an exercise price of $1.69 per share with the same
expiration date as each such AMBIA Stock Option. Replacement Options to
purchase a total of 34,665 shares of the Company's Common Stock were granted
to replace the previously granted AMBIA Stock Options. Pursuant to the Merger
Agreement, each Replacement Option is to be treated as a non-qualified stock
option and, if possible, as granted pursuant to the terms and conditions of
the 1995 Plan and the AMBIA Stock Option agreement entered into by AMBIA and
the participant in the AMBIA Equity Incentive Plan. The 34,665 shares of the
Company's Common Stock underlying the outstanding Replacement Options are not
included in the 2,011,000 shares presently authorized under the 1995 Stock
Option Plan.
In April 1995, the Company's shareholders approved the adoption of the 1995
Stock Option Plan (the "1995 Plan"), which (i) consolidated the Company's 1991
Incentive Stock Option Plan and 1992 Non-Qualified Stock Option Plan and (ii)
provided for the automatic grant of stock options to the members of the
Compensation Committee of the Company's Board of Directors. A total of
2,011,000 shares of Common Stock have been authorized for issuance under
options granted and to be granted under the 1995 Plan at exercise prices which
will not be less than 100% of the fair market value of the underlying shares
on the date of grant of the option. Options vest over varying years of
service. Vested options are exercisable until the earlier of ten years from
the date of grant or three months after termination of employment for options
granted under either the 1991 Incentive Stock Option Plan or the 1992
Non-Qualified Stock Option Plan. Options granted under the 1995 Plan are
exercisable until the earlier of ten years from the date of grant or one month
after termination of employment.
-31-
<PAGE>
During 1987, the Board of Directors adopted a Stock Warrant Purchase Plan. The
stock subject to this plan is authorized but unissued shares of Common Stock.
On January 1, 1997, the Stock Warrant Purchase Plan expired. Outstanding
warrants for the right to purchase shares of Common Stock consisted of 4,666
shares as of December 31, 1997.
As of December 31, 1998, the Company had reserved a total of approximately
1,682,747 shares of Common Stock for future issuance upon the exercise of
stock options.
A summary of option activity under the 1995 Plan, the Predecessor Plans, and
the former AMBIA Equity Incentive Plan is presented below:
<TABLE>
<CAPTION>
Weighted Average
Number of Option Price Option Price
Shares Per Share Per Share
------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 655,134 $1.085-$7.875 $3.342
Granted 548,817 $7.063-$11.188 $9.116
Exercised (72,977) $1.085-$10.313 $3.322
Expired/Canceled (40,949) $1.690-$11.188 $5.299
--------------------------------------------
Outstanding at December 31, 1997 1,090,025 $1.085-$11.000 $5.956
Granted 1,232,988 $2.250-$9.500 $4.450
Exercised (55,477) $1.085-7.063 $3.072
Expired/Canceled (1,231,744) $1.090-$11.000 $6.636
--------------------------------------------
Outstanding at December 31, 1998 1,035,792 $1.085-$11.000 $3.563
--------------------------------------------
Exercisable, December 31, 1997 637,787 $1.085-$11.000 $4.620
Exercisable, December 31, 1998 570,996 $1.085-$9.250 $3.210
</TABLE>
<TABLE>
<CAPTION>
Outstanding and Exercisable by Price Range as of 12/31/98
Options Outstanding Options Exercisable
Range of Number Weighted Weighted Number Weighted
Exercise Prices Outstanding Average Average Exercisable Average
As of Remaining Exercise As of Exercise
12/31/98 Contractual Price 12/31/98 Price
Life
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.0850 $2.2000 229,520 5.01 $1.598 221,528 $1.595
$2.2500 $2.6250 75,613 6.73 $2.557 31,113 $2.570
$2.8750 $2.8750 358,899 8.77 $2.875 45,094 $2.875
$3.4219 $7.0000 256,218 4.77 $4.079 233,052 $4.134
$7.0630 $11.0000 115,542 3.28 $9.121 40,209 $7.211
--------- ---- ------ ------- ------
$1.0850 $11.0000 1,035,792 6.26 $3.563 570,996 $3.210
</TABLE>
The Company adopted the disclosure requirements of SFAS 123, "Accounting for
Stock-Based Compensation", effective for the Company's December 31, 1996,
financial statements. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, compensation cost
has been recognized for its stock plans based on the intrinsic value of the
stock option at date of grant (i.e., the difference between the exercise price
and the fair value of the Company's stock). Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of SFAS 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below.
-32-
<PAGE>
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net loss as reported $(1,798,000) $(3,465,000)
Pro forma compensation expense (266,000) (709,000)
------------ ------------
Pro forma net loss $(2,064,000) $(4,174,000)
</TABLE>
Net loss per share:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Basic, as reported $(0.42) $(1.39)
Basic, pro forma $(0.49) $(1.67)
Diluted, as reported $(0.42) $(1.39)
Diluted, pro forma $(0.49) $(1.67)
</TABLE>
The weighted average fair value of options granted in 1998 and 1997 was $3.93
and $5.37, respectively. The fair value of each option is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1998 and 1997: no dividend yield and expected
life of five years, and expected volatility of 56 percent and 63 percent for
1998 and 1997, respectively. The risk-free interest rate for 1998 and 1997 was
5.5 percent and 6.0 percent, respectively.
In July 1998 outstanding options with exercise prices in excess of $3.50 per
share, held by employees other than executives and directors, were amended to
provide for an exercise price of $3.50 per share. In December 1998 outstanding
options with exercise prices in excess of $2.875 per share, held by employees
including certain executives, were amended to provide for an exercise price of
$2.875 per share. All other terms of the existing options remained unchanged.
A total of 508,000 options were amended in 1998. Also in December 1998, the
Board of Directors offered to amend options held by certain other executives
to provide for an exercise price of $2.875 per share in exchange for the
cancellation of 25 percent of the adjusted options. In February and March
1999, approximately 115,000 shares were exchanged pursuant to this offer for
86,000 shares with an exercise price of $2.875.
In May 1998, the Company issued a warrant with an estimated fair value of
$55,000 to purchase 50,000 shares of Common Stock at an exercise price of
$7.00 per share in exchange for certain investor relations services to be
provided through 2001. As of December 31, 1998, these warrants had not been
exercised.
NOTE 8. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASE OBLIGATIONS
The Company leases certain fixed assets under long-term capital lease
agreements. These assets are included in the accompanying consolidated balance
sheets as property and equipment. Depreciation and amortization of these
assets is computed using the straight-line method over the shorter of the
useful lives of the assets or the term of the lease obligation.
The future payments of capital lease obligations as of December 31, 1998, are
as follows:
<TABLE>
<S> <C>
1999 $ 6,152
Less amounts representing interest (52)
--------
Present value of minimum lease payments 6,100
Less current portion (6,100)
--------
Long term portion $ -
========
</TABLE>
-33-
<PAGE>
OPERATING LEASES
The Company has entered into a lease for its corporate headquarters facility
in Fairfax, Virginia. This lease originally expired on July 31, 1998 ("Base
Lease") but was renewed in November 1997 and now expires on July 31, 2003.
Under the terms of the Base Lease, the landlord provided various incentives,
which have been deferred and classified as deferred rent in the accompanying
consolidated balance sheets. These amounts have been amortized over the life
of the Base Lease.
Upon the completion of the AMBIA acquisition in July 1997, the Company assumed
responsibility for the lease of its office in Mountain View, California. This
lease originally expired on May 31, 1998, but was renewed in March 1998 and
now expires on May 31, 2001.
Future minimum lease payments under non-cancelable leases as of December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
1999 $742,000
2000 764,000
2001 674,000
2002 613,000
2003 363,000
----------
$3,156,000
==========
</TABLE>
Rent expense charged to operations for the years ended December 31, 1998 and
1997 amounted to $590,000 and $370,000, respectively.
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 September 30, 1991. Currently, audits for years
prior to 1995 are being conducted, 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.
NOTE 9. EMPLOYEE BENEFIT PLAN
In 1988, the Company established an employee benefit plan (the "Benefit Plan")
which qualifies under Section 401(k) of the Internal Revenue Code. The Benefit
Plan allows salaried employees to contribute a part of their compensation
toward their retirement on a tax-deferred basis. Required Company
contributions equate to 10% of the employee's contribution to the Benefit Plan
and totaled approximately $51,000 in 1998 and $41,000 in 1997. In addition to
the aforementioned contributions, the Company, at the sole discretion of its
Board of Directors, may make profit-sharing contributions to the Benefit Plan.
No contributions were made in 1998 or 1997.
As adopted by the Company and approved by its shareholders in May 1997, the
Company established an employee stock purchase plan for all eligible employees
to purchase shares of its Common Stock at 85% of the lower of the fair market
value on the first or the last day of each three-month offering period.
Employees may authorize the Company to withhold up to 15% of their
compensation during any offering period, subject to certain limitations. The
1997 Employee Stock Purchase Plan authorizes up to 200,000 shares to be
issued. During fiscal 1998 and 1997, shares totaling 31,269 and 9,852,
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<PAGE>
respectively, were issued under the plan at a weighted average price of $3.23
and $7.54 per share, respectively. At December 31, 1998, 158,879 shares were
reserved for future issuance.
NOTE 10. RELATED-PARTY TRANSACTIONS
The Company incurred management consulting fees of approximately $220,000 and
$210,000 in 1998 and 1997, respectively, for services rendered by certain
directors of the Company. Amounts payable for these services to companies
employing these directors were $15,000 and $17,500 at December 31, 1998 and
1997, respectively.
In October 1996, the Company executed a note receivable from an officer and
shareholder for $70,000 due on September 30, 1999 with quarterly interest
payments at an annual rate of 1% over prime (approximately 9.25% at December
31, 1998) adjusted quarterly.
In 1998 the Company issued 5,988 shares of Common Stock valued at $55,000
(based on the market value on date of issuance) to members of the Board of
Directors in consideration for their services. In 1998 the Company repurchased
5,000 common shares from the departing Chief Executive Officer for $25,000.
These shares were recorded at $17,000 (quoted market price on date of
repurchase).
NOTE 11. SEGMENT REPORTING
In 1998, Infodata adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." Under SFAS 131 the Company has determined
that it operates in three segments: (1) Solutions, (2) Proprietary Products,
and (3) Third Party Products.
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies." In 1998 Infodata evaluated its
Solutions segment on the basis of revenues less direct costs. The Proprietary
and Third Party Products segments are evaluated on the basis of revenues less
direct costs and indirect costs are not allocated to these segments to
evaluate performance. In 1997, the Company did not evaluate its operations on
an individual segment basis. For comparative purposes, the Company has
prepared segment information on the basis used in 1998. However, because of
changes in which the Company accumulated management information, it was
determined to be impractical to determine that portion of indirect costs
applicable to the Solutions segment. The Company does not internally report
assets on a segment basis.
-35-
<PAGE>
The table below presents information about reported segments for the years
ending December 31, 1997 and 1998, as well as reconciliation to reported loss
before income taxes.
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------------
Solutions Third Party Proprietary Total
Products Products
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 6,322,000 $ 3,677,000 $ 4,243,000 $14,242,000
Direct costs 2,991,000 3,240,000 171,000 6,402,000
Indirect costs 2,251,000 - - 2,251,000
----------- ----------- ----------- ------------
Segmental profit 1,080,000 437,000 4,072,000 5,589,000
=========== =========== =========== ============
Research and development (1,765,000)
Other costs not allocated to
segments, primarily selling,
general and administrative (5,812,000)
Interest net 190,000
------------
Loss before income taxes $(1,798,000)
============
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------
Solutions Third Party Proprietary Total
Products Products
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 5,549,000 $ 1,915,000 $ 3,180,000 $10,644,000
Direct costs 2,687,000 1,622,000 221,000 4,530,000
Indirect costs - - - -(1)
----------- ----------- ----------- ------------
Segmental profit 2,862,000(1) 293,000 2,959,000 6,114,000
=========== =========== =========== ============
Research and development (2,472,000)
Other costs not allocated to
segments, primarily selling,
general and administrative (7,131,000)
Interest net 19,000
------------
Loss before income taxes $(3,470,000)
============
<FN>
(1) As noted above, segmental profit for Solutions in 1997 does not include
an allocation of indirect costs. Accordingly, this amount is not
considered to be comparable to the segmental profit for Solutions in
1998. #68133
</FN>
</TABLE>
-36-
EXHIBIT 10.17
INFODATA SYSTEMS INC. EMPLOYMENT AGREEMENT
ON CONFIDENTIAL INFORMATION, INVENTIONS AND IDEAS
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into between
Infodata Systems Inc. ("Infodata") and the undersigned employee ("me", "my" or
"I"). To induce Infodata to employ me and in consideration of my employment or
continued employment at will by Infodata, the sufficiency of which
consideration I expressly acknowledge, Infodata and I, intending to be legally
bound, hereby agree as follows:
1.0 EMPLOYMENT RELATIONSHIP.
1.1 NATURE OF EMPLOYMENT. The employment relationship between Infodata
and me is one of an "employment at will." This means that the offer of
employment is not for a definite period of time and that after the employment
relationship is established by my acceptance of this offer, either party may
terminate this relationship at any time and for any reason which is not
specifically prohibited by state or federal laws. This condition of employment
may not be varied or modified except in writing and signed by an officer of
Infodata. Nothing found in any policy manual, policy statement, letter, or
other writing I may receive from, or that may be issued by, Infodata, or that
may be contained in any oral statement made on behalf of Infodata, shall vary
or modify this condition of employment unless the phrase "employment at will"
is specifically referred to and specifically modified, varied, or canceled. In
addition, nothing contained therein, or in other written or verbal
communications from Infodata, such as a statement referring to the manner in
which my salary and/or other benefits will be paid or accrued (E.G., salary
paid on a monthly or annual basis, or vacation to accrue at a certain rate for
each of the first two years of employment) or any stock option shall in any
way modify, vary, or supersede the previously stated "employment at will"
relationship between me and Infodata, in the event I accept Infodata's offer
of employment.
1.2 INTELLECTUAL PROPERTY. I recognize that it is essential to
Infodata's success for Infodata to acquire all rights arising from the
development, discoveries or improvements made by me hereunder and for Infodata
to protect all trade secret and other confidential information that comes to
my knowledge during the course of my employment.
1.3 NO CONFLICT. I represent and warrant that I am not subject to any
contractual obligations that can either prevent me from performing my duties
under this Agreement, or give rise to any claim of damages as a result of my
affiliation with Infodata.
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<PAGE>
1.4 PRIOR PROPRIETARY INFORMATION. I agree not to disclose to Infodata
or use in Infodata's business any information or material relating to the
business of any third person and intended by that person not to be disclosed
to Infodata.
1.5 NO "MOONLIGHTING". During my employment with Infodata, I agree not
to accept or continue in any job, consulting work, directorship, or employment
other than with Infodata, without the prior written approval of an officer of
Infodata.
1.6 COMPUTER SECURITY. During my employment with Infodata, I agree
only to use computer resources (both on and off Infodata's premises) for which
I have been granted access and then only to the extent authorized. I agree to
comply with Infodata's policies and procedures concerning computer security.
1.7 ELECTRONIC MAIL POLICY. I understand that Infodata maintains an
electronic mail system and related facilities for the purpose of business
communications. I acknowledge that Infodata retains the right to review any
and all electronic mail communications, with or without notice, at any time.
2.0 CONFIDENTIAL INFORMATION.
2.1 ACKNOWLEDGEMENT. During my employment with Infodata, I acknowledge
I will have access to Confidential Information, as defined in Section 2.3
below, and will occupy a position of trust and confidence with respect to
Infodata's affairs and business.
2.2 OBLIGATIONS. I agrees to take the following steps to preserve the
confidential and proprietary nature of Confidential Information.
(a) NON-DISCLOSURE. During and after my employment with
Infodata, I will not use, disclose or transfer any Confidential Information
other than as authorized by Infodata within the scope of my duties with
Infodata, and will not use in any way other than in Infodata's business any
Confidential Information, including information or material received by
Infodata from others and intended to be kept in confidence by its recipients.
I understand that I am not allowed to sell, license or otherwise exploit any
products (including software in any form) which embody or otherwise exploit in
whole or in part any Confidential Information.
(b) DISCLOSURE PREVENTION. I will take all reasonable
precautions to prevent the inadvertent or accidental exposure of Confidential
Information.
(c) REMOVAL. I will not remove transmit or transport any
Confidential Information from Infodata's premises or make copies of such
materials, except for use in Infodata's business, without the express written
permission of an officer of Infodata.
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<PAGE>
(d) RETURN. I will return to Infodata all Confidential
Information and copies thereof at any time upon the request of Infodata, and
in any event and without such request, prior to the termination of my
employment by Infodata. I agree not to retain any tangible or intangible
copies of any Confidential Information after my termination of employment for
any reason.
2.3 CONFIDENTIAL INFORMATION. The following materials and information,
whether having existed, now existing, or to be developed or created during the
term of my employment by Infodata (herein referred to collectively as the
"Confidential Information") are covered by this Agreement and acknowledged by
me to be valuable, special and unique assets of Infodata, the disclosure of
any aspect of which may be materially damaging.
(a) SOFTWARE. All information relating to existing software
products and software in various stages of research and development which are
not generally known to the public or within the computer industry or trade in
which Infodata competes (such as know-how, design specifications, algorithms,
technical formulas, engineering data, special effects, benchmark test results,
methodologies, procedures, techniques, and information processing processes)
and the physical embodiments of such information (such as drawings,
specification sheets, design notes, source code, object code, load modules,
schematics, flow charts, logic diagrams, procedural diagrams, coding sheets,
work sheets, documentation, annotations, printouts, studies, manuals,
proposals and any other written or machine-readable manuals, proposals and any
other written or machine readable expressions of such information as are fixed
in any tangible media).
(b) OTHER PRODUCTS AND SERVICES. All information relating to
consulting, research and development and other proprietary products or
services, whether existing or in various stages of research and development,
which are not generally known to the public or within the computer industry or
trade in which Infodata competes (such as know-how, specifications, technical
data, images, special engineering data, processes, techniques, methodologies,
and strategies) and the physical embodiments of such information (such as
photographs, schematics, specification sheets, instruction manuals, course
materials, training aids, video cassettes, transparencies, slides, taped
recordings of presentations, proposals, printouts, studies, contracts,
maintenance manuals, documentation, and any other written or machine-readable
expressions of such information as are fixed in any tangible media).
(c) BUSINESS PROCEDURES. All information concerning or relating
to the way Infodata conducts its business which is not generally known to the
public (such as internal business procedures, policies, practices, controls,
internal telephone numbers, plans, licensing techniques and practices,
supplier, subcontractor and prime contractor names and contracts and other
vendor information, computer system passwords and other computer security
controls, financial information, distributor information, and employee data)
and the physical embodiments of such information (such as check lists,
samples, services and operational manuals, contracts, proposals, print-outs,
correspondence, forms, listings, ledgers, financial statements, financial
-3-
<PAGE>
reports, financial and operational analyses, financial and operational
studies, management reports of every kind, databases, employment records
pertaining to employees other than me, and any other written or
machine-readable expressions of such information as are fixed in any tangible
media).
(d) MARKETING PLANS AND CUSTOMER LISTS. All information
pertaining to Infodata's marketing plans and strategies; forecasts and
projections; marketing practices, procedures and policies; financial data;
discounts; margins; costs; credit terms; pricing practices, procedures and
policies; goals and objectives; quoting practices, procedures and policies;
and customer data including customer lists, contracts, representatives,
requirements and needs, specifications, data provided by or about prospective
existing or past customers and contract terms applicable to such customers,
and the physical embodiments of such information (such as license agreements,
consulting agreements, customer lists, print-outs, databases, marketing plans,
marketing reports, strategic business plans, marketing analyses and management
reports, seminar and class attendee rosters, trade show or exhibit attendee
listings, listings of potential customers and leads, and any other written or
machine-readable expressions of such information as are fixed in any tangible
media).
(e) NOT GENERALLY KNOWN. Any information in addition to the
foregoing which is not generally known to the public or within the industry or
trade in which Infodata competes, and the physical embodiments of such
information in any tangible form, whether written or machine-readable in
nature.
2.4 GENERAL KNOWLEDGE. Neither the general skills, knowledge and
experience gained during my employment with Infodata, nor information publicly
available or generally known within the industry or trade in which Infodata
competes are considered to be Confidential Information.
2.5 INFORMATION DISCLOSED REMAINS INFODATA PROPERTY. I agree and
acknowledge that all ideas, concepts, information, and written material
disclosed to me by Infodata, or acquired from a customer or prospective
customer of Infodata are and shall remain the sole and exclusive property and
Confidential Information of Infodata or such customers, and are disclosed in
confidence by Infodata or permitted to be acquired from such customers in
reliance on my agreement to maintain them in confidence and not to use any
such property and Confidential Information to the detriment of Infodata, or
use or disclose them to any other person except in furtherance of Infodata's
business and for the benefit of the Infodata.
3.0 NON-COMPETITION COVENANT.
3.1 COMPETITOR DEFINED. The term "Competitor" shall refer to any
person, firm, corporation, partnership or other business entity engaged in or
about to become engaged in the production, licensing, sale or marketing of any
product or service:
-4-
<PAGE>
(i) which is similar to or directly competitive with Infodata's
proprietary computer software, research and development
activities or consulting services with which I have been
directly concerned through my work for Infodata during the
preceding two (2) years; or
(ii) with respect to which I have acquired Confidential
Information.
3.2 RESTRICTIVE COVENANT. As a material inducement to Infodata to
enter into this Agreement, I covenant and agree that, during my employment
with Infodata and for a period of one (1) year following the termination of my
employment, whether such termination be with or without cause, I shall not
enter the employ of any Competitor, nor engage during such period, directly or
indirectly, voluntarily or involuntarily, as an individual, principal, agent,
officer, employee, independent contractor, partner, lender, director or in any
other capacity, anywhere in the United States, in any actions to solicit,
divert or take away any client (as set forth in Section 5.0 below), consultant
or supplier of Infodata, or otherwise compete with Infodata in the sale or
licensing, of any products or services that are competitive with the products
or services developed or marketed by Infodata in the United States.
3.3 EMPLOYEE ACKNOWLEDGEMENTS AND AGREEMENTS. I acknowledge that this
covenant in Section 3.2 has a unique, very substantial and immeasurable value
to Infodata. I acknowledge and agree that the software developed by Infodata
is or is intended to be marketed and licensed to customers worldwide,
including domestically throughout the United States. I further acknowledge and
agree to the reasonableness of this covenant not to compete and the
reasonableness of the geographic area and duration of time which are a part of
said covenant. I also acknowledge and agree that this covenant will not impair
me from becoming gainfully employed, or otherwise earning a livelihood
following termination of my employment with Infodata.
4.0 NON-SOLICITATION OF EMPLOYEES.
I acknowledge that any attempt on my part to induce others to leave
Infodata's employ, or any effort by me to interfere with Infodata's
relationship with its other employees would be harmful and damaging to
Infodata. I agree that during the term of employment and for a period of one
(1) year thereafter, I will not in any way, directly or indirectly (i) induce
or attempt to induce any employee of Infodata to quit employment with
Infodata; or (ii) otherwise interfere with or disrupt Infodata's relationship
with its employees.
5.0 SOLICITATION OR ACCEPTANCE OF EMPLOYMENT FROM INFODATA CLIENTS.
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<PAGE>
For a period of one (1) year after the termination of my employment with
Infodata, I agree I will not, directly or indirectly, either as an individual,
principal, independent contractor, partner, employee, agent, officer, lender
or director, or in any other capacity, solicit or accept employment from any
Infodata "client" which:
a. Contracted with Infodata for my consulting services within
one (1) year preceding the termination of my employment with
Infodata.
b. Met me for the purpose of contracting with Infodata for my
consulting services within three (3) months preceding the
termination of my employment with Infodata; or
c I was involved in developing a proposal for Infodata to
provide consulting services within one (1) year preceding
the termination of my employment with Infodata.
The term "Client" includes all affiliated and subsidiary companies,
successors, and assigns of the Infodata client corporation or organization as
of the date of my termination of employment with Infodata.
6.0 ENFORCEMENT.
I acknowledge that in the event of the unauthorized use or disclosure of
any Confidential Information or materials by me, Infodata's business interests
will be irreparably injured, the full extent of Infodata's damages will be
impossible to ascertain, monetary damages will not be an adequate remedy for
Infodata, and Infodata will be entitled to enforce this Agreement by an
injunction or other equitable relief, without the necessity of posting bond or
security, which I expressly waive. I understand that Infodata may waive some
of the requirements expressed in this Agreement, but that such a waiver to be
effective must be made in writing by an officer of Infodata and will not in
any way be deemed a waiver of Infodata's right to enforce any other
requirements or provisions of this Agreement. I agree that each of my
obligations specified in this Agreement is a separate and independent covenant
that shall survive any termination of this Agreement and that the
unenforceability of any of them shall not preclude the enforcement of any
other covenants in this Agreement.
7.0 INNOVATIONS.
7.1 ASSIGNMENT OF INNOVATIONS. Infodata shall have the unlimited and
exclusive rights in any products, designs, layouts, specifications,
developments, notes, improvements, innovations, inventions, formulas,
processes, techniques, know-how, data, discoveries, Confidential Information
or other work developed by me in the performance of my work for Infodata,
whether now existing or later developed for Infodata (all of the foregoing
being referenced in this Agreement, collectively as "Innovations"). I hereby
-6-
<PAGE>
assign to Infodata, without further consideration or royalty, all my right,
title and interest in any Innovations and ideas, patentable or not, that I
make, reduce to practice, learn or conceive, alone or with others, during the
period of time in which I am employed by Infodata and that relate in any way
to the actual or prospective business of Infodata. I shall maintain notebooks
and other records adequate to describe my Innovations to others conversant
with the technology and to establish the date and circumstances of my
discovery or creation. I agree to disclose routinely to Infodata all
Innovations covered by this Agreement, and I will, upon request, execute
specific assignments and take any action necessary to enable Infodata to
secure patents, copyrights or otherwise secure its proprietary rights in such
Innovations.
7.2 POWER OF ATTORNEY. In the event Infodata is unable to secure my
signature on any document necessary to apply for, prosecute, obtain or enforce
any patent, copyright or other right or protection relating to any Innovation
in any country of the world, whether due to death, mental or physical
incapacity or any other cause, I hereby irrevocably designate and appoint
Infodata and its Secretary as my agent and attorney-in-fact, to act for and in
my behalf and stead, for the limited purpose of executing and filing any such
document and doing all other lawfully permitted acts to further the
prosecution, issuance and enforcement of patents, copyrights or other
protections which employ or are based on Innovations with the same force and
effect as if executed and delivered by me. This power of attorney shall not be
affected by my subsequent death or incapacity.
8.0 WRITTEN MATERIALS.
8.1 OWNERSHIP. I acknowledge and agree that all writings, including
without limitation, software program code, logic diagrams, flow charts,
decision charts, drawings, procedural diagrams, coding sheets, manuals,
documentation and written, literary, graphic, sound or artistic works of any
kind produced by me in the course of my work for Infodata are works produced
for hire and the sole and exclusive property of Infodata including, without
limitation, any copyrights subsisting in those writings; but to the extent any
such writing may not, by operation of law or otherwise, be a work made for
hire, I hereby assign to Infodata the ownership of copyright in such works,
whether published or unpublished form the moment any such works were created
and fixed in any form of tangible media. I further agree upon request to
execute such specific assignments or instruments and take any action necessary
to enable Infodata to secure its copyright rights in such works.
8.2 MORAL RIGHTS. I understand that the term "moral rights" means any
rights of paternity or integrity, including any right to claim authorship of a
copyrightable work, to object to a modification of such copyrightable work,
and any similar right existing under the judicial or statutory law of any
country in the world or under any treaty, regardless of whether or not such
right is denominated or generally referred to as a "moral right." I forever
hereby waive and agree never to assert any moral rights I may have in any
-7-
<PAGE>
copyrightable work that is assigned to Infodata as a result of Section 8.1
hereof, even after any termination of my employment with Infodata.
9.0 WAIVER OF BREACH.
Any waiver by either party of compliance with any provision of this
Agreement by the other shall not operate or be construed as a waiver of any
other provision of this Agreement, or of any subsequent breach by such party
of a provision of this Agreement. No waiver by the Infodata shall be valid
unless in writing and signed by a duly authorized officer of Infodata.
10.0 GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the Commonwealth
of Virginia, without regard to conflict of law provisions.
11.0 SEVERABILITY.
Should any provision of this Agreement not be enforceable in any
jurisdiction, the remainder of the Agreement shall not be affected thereby. If
the scope of any of the restrictions in Sections 3, 4, or 5 are determined by
a court of competent jurisdiction to be too broad to permit enforcement of
such restrictions to their full extent, then such restrictions shall be
construed or rewritten (blue-lined) so as to be enforceable to the maximum
extent permitted by law and I hereby consent, to the extent I may lawfully do
so, to the judicial modification of the scope of any such restrictions in any
proceeding brought to enforce them.
12.0 ASSIGNMENT.
My rights, interests and benefits hereunder shall not be assigned,
transferred, pledged, or hypothecated in any way by me. The rights and
obligations of the Infodata under this Agreement shall inure to the benefit of
and be binding upon the successors of Infodata. If Infodata shall at any time
be merged or consolidated with or into another corporation, or if
substantially all the assets of Infodata are transferred to another
corporation, the provisions of this Agreement shall be binding on and shall
inure to the benefit of the corporation resulting from such merger or
consolidation or to which such assets shall be transferred.
13.0 HEADINGS AND PRONOUNS.
Headings and subheadings and paragraphs are for convenience of reference
only and shall not be of any effect in construing the meanings of the
paragraphs and subparagraphs. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the person, persons, entity or entities may require.
-8-
<PAGE>
14.0 PUBLICATION.
I agree not to submit any writing for publication or deliver any speech
that contains any information relating to the business of Infodata, unless I
receive advance written clearance from an authorized representative of
Infodata.
15.0 CONFLICTING OBLIGATIONS AND RIGHTS.
I agree to inform Infodata of any apparent conflicts between my work for
Infodata and (a) any obligations I may have to preserve the confidentiality of
another's proprietary information or materials or (b) any rights I claim to
any inventions or ideas before using the same on Infodata's behalf. Otherwise,
Infodata may conclude that no such conflict exists and I agree thereafter to
make no such claim against Infodata. Infodata shall receive such disclosures
in confidence and consistent with the objectives of avoiding any conflict of
obligations and rights or the appearance of any conflict of interest.
-9-
<PAGE>
16.0 ENTIRE AGREEMENT.
This is my entire agreement with Infodata with respect to its subject
matter as of its date, superseding any prior or contemporaneous, oral or
written, express or implied negotiations, representations, understandings or
agreements.
17.0 FURTHER ACKNOWLEDGEMENT.
I understand and accept the terms set forth in this Agreement,
including, but not limited to, the condition that my employment is NOT for any
definite period of time, but may be terminated by me or by Infodata at any
time and for any reason which is not specifically prohibited by state or
federal law. I further understand that my employment may be terminated by
Infodata, in its sole discretion, if I have misstated, misrepresented or
omitted any material fact in my application for employment or in any related
documentation or information provided by me, whether verbally or in writing,
to Infodata.
By my signature below, I acknowledge that I have reviewed this Agreement
carefully and understand that the covenants and obligations it contains are
binding on me.
INFODATA SYSTEMS INC. AGREED TO BY EMPLOYEE
/s/EVA FRANKLIN /s/STEVEN SAMOWICH
--------------- ------------------
Signature Signature
EVA FRANKLIN STEVEN SAMOWICH
--------------- ------------------
Print Name Print Name
11/4/98 11/4/98
--------------- ------------------
Date Date
EXHIBIT 10.18
October 29, 1998
Mr. Steven M. Samowich
5 Brimstone Lane
Acton, MA 01720
Dear Steve:
We are pleased to that you will be joining Infodata Systems Inc. as President
and Chief Executive Officer effective November 3, 1998. In this position, you
will report to the Board of Directors and its Chairman, Richard T. Bueschel.
You will perform such duties as are consistent with these titles, and any
other duties reasonably assigned by the board. You will also be appointed to
serve on the Board of Directors.
As the Company's Chief Executive Officer, your annual base salary will be
$251,400 per year, payable biweekly. You will participate in an annual
incentive bonus plan of forty percent (40%) of base salary with no cap (with a
guaranteed minimum of $45,000 for 1999). This bonus will be based upon
mutually agreed performance achievements against both personal management
objectives (20%) for the year and selected company financial performance
measures (80%). If you exceed the financial measures your bonus will be
increased more than proportionally. We will agree on these measures during
your first sixty days of employment. In recognition of your leadership at
Infodata, you will be awarded options to acquire 220,000 shares of Infodata
stock at a price of $3.00 per share, which will vest to you as follows:
12.5% six months from the start of your employment, and 6.25% every
three months thereafter.
This vesting is contingent on your continued employment on those respective
dates.
The level of your salary will be reviewed annually by the Board. You will, of
course, be eligible to participate in the Company's Stock Option grant program
going forward. The amounts of any such future grants are subject to the
approval of the Board of Directors. In addition, you will receive a $31,923
hiring bonus. We will also pay $25,000 toward the expenses incidental to the
sale of your house and $5,000 of your moving expenses.
You will be entitled to three weeks of vacation annually and will participate
in the Company's benefit plans available to our other senior executives,
including health insurance, 401(k) plan, and other programs. Infodata will
provide you with a life insurance policy with a death benefit of $1,000,000,
long-term disability insurance that pays a benefit of $10,000 per month
tax-free and will pay for an annual medical examination.
<PAGE>
It is understood that your employment at Infodata is terminable-at-will and is
not for any definite term. However, Infodata agrees that in the event that
your employment is terminated by the Company, other than for cause, you will
continue to be paid your base salary for a period of twelve months. A
termination for cause will be defined as a termination by the Company of your
employment due to (a) the failure or refusal of the Employee to follow the
lawful directives of the Board or designee (except due to sickness, injury, or
disabilities), which directives are substantially consistent with Employee's
employment responsibilities hereunder, (b) gross inattention to duty, (c)
willful, reckless, or grossly negligent act (or omission to act) by Employee,
in connection with the performance of his duties, including failure to follow
the policies and procedures of the Company, (d) a material breach of this
Agreement by Employee, or (e) the commission by Employee of a felony or other
crime involving moral turpitude or the commission by Employee of an act of
financial dishonesty against the Company.
Please confirm your acceptance of this offer and its terms by signing below
and returning a signed copy of this agreement to me.
As I am sure you already know from the time we have been together, we are
excited about your coming to Infodata and leading the next steps in our growth
and business performance. On behalf of our entire board, we look forward to
working together in the years ahead. I will plan on seeing you on Wednesday,
November 4, 1998. I have changed the all-hands meeting to a reception at
4:00pm for you to meet the employees in an informal setting.
Sincerely
/s/RICHARD T. BUESCHE
----------------------
Richard T. Bueschel
Chairman of the Board,
Infodata Systems Inc.
Accepted:
/s/STEVEN M. SAMOWICH
---------------------
Steven M. Samowich
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-KSB, into the Company's previously filed
Registration Statement File No. 33-60197 and Registration Statement File No.
333-56351.
Washington, D.C. /s/Arthur Andersen LLP
March 31, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-56351 and 033-60197) of Infodata Systems,
Inc. of our report dated March 12, 1999 on the consolidated financial
statements of Infodata Systems, Inc. as of December 31, 1998 and for the year
then ended appearing in this Annual Report on Form 10-KSB.
/s/PricewaterhouseCoopers LLP
McLean, Virginia
March 30, 1999
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