U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-10416
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INFODATA SYSTEMS INC.
(Exact Name of Small Business Issuer in its Charter)
VIRGINIA 16-0954695
(State of Incorporation) (I.R.S. Employer Identification No.)
12150 MONUMENT DRIVE, FAIRFAX, VIRGINIA 22033
(Address of Principal Executive Office) (Zip Code)
(703) 934-5205 (Issuer's Telephone Number)
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SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
None Not applicable
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK-$.03 PAR VALUE
---------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Common Stock on May 5, 1999
as reported on the Nasdaq Small Cap market, was approximately $7,337,000.
Shares of Common Stock held by each director and officer and by each person
who owns 5% or more of the outstanding Common Stock have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the Company's Common Stock, par value
$0.03 per share, was 4,532,952 on May 5, 1999.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
INDEX
Page(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations 3
Three Months Ended March 31, 1999 and 1998
Condensed Consolidated Balance Sheets 4
March 31, 1999 and December 31, 1998
Consolidated Statements of Cash Flows 5
Three Months Ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis 8 - 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1.
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
---------------------------
<S> <C> <C>
Revenues $ 3,390 $ 2,910
Cost of revenues 2,170 1,772
Gross profit 1,220 1,138
Operating expenses:
Research and development 235 604
Selling, general and administrative 1,256 1,275
1,491 1,879
Operating loss (271) (741)
Interest income 50 49
Interest expense -- (13)
Net loss $ (221) $ (705)
======== ========
Net loss per share:
Basic $ (0.05) $ (0.20)
======== ========
Diluted $ (0.05) $ (0.20)
======== ========
Weighted average shares outstanding 4,525 3,477
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31
1999 1998
---------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,123 $ 2,200
Short-term investments 3,293 2,673
Accounts receivable, net of allowance of $144 and $95 2,412 2,356
Other current assets 140 166
--------- ---------
Total current assets 6,968 7,395
--------- ---------
Property and equipment, at cost:
Furniture and equipment 2,920 2,861
Less accumulated depreciation and amortization (2,549) (2,442)
--------- ---------
371 419
Goodwill, net of accumulated amortization of $1,040 and $899 2,657 2,798
--------- ---------
Other assets 165 171
--------- ---------
Total assets $ 10,161 $ 10,783
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 545 $ 786
Accrued expenses 970 1,092
Deferred revenue 1,003 1,152
--------- ---------
Total current liabilities 2,518 3,030
Shareholders' equity
Common stock 135 135
Additional paid-in capital 19,659 19,548
Accumulated deficit (12,151) (11,930)
--------- ---------
Total shareholders' equity 7,643 7,753
--------- ---------
Total liabilities and shareholders' equity $ 10,161 $ 10,783
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (221) $ (705)
Adjustments to reconcile net loss to cash used in
operating activities:
Equity stock compensation 35 --
Depreciation and amortization 102 97
Goodwill and other intangible amortization 141 143
Increase in allowance for doubtful accounts 49 --
Changes in operating assets and liabilities:
Accounts receivable (105) 567
Other assets 32 168
Accounts payable (241) (1,130)
Accrued expenses (56) (72)
Deferred revenue (149) (3)
-------- --------
Net cash used in operating activities (413) (935)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (54) (31)
Purchases of short-term investments (2,300) --
Proceeds from maturity of short-term investments 1,680 --
-------- --------
Net cash used in investing activities (674) (31)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (6) (8)
Net repayments from short-term debt -- (880)
Issuance of common stock 16 6,779
Net cash provided by financing activities 10 5,891
-------- --------
Net (decrease) increase in cash and cash equivalents (1,077) 4,925
Cash and cash equivalents at beginning of period 2,200 284
-------- --------
Cash and cash equivalents at end of period $ 1,123 $ 5,209
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the three
month period ended March 31, 1999, are not necessarily indicative of the
results for the year ending December 31, 1999. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
1) 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"). 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.
2) USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3) NEW ACCOUNTING PRONOUNCEMENTS - In 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.
NOTE C - LINE OF CREDIT
6
<PAGE>
The Company maintains a line of credit with Merrill Lynch Business Financial
Services, Inc. for up to $1,000,000 based upon eligible receivables at a per
annum rate equal to the sum of 2.9% plus the 30 day commercial paper rate.
Currently, this per annum rate approximates prime. The facility expires in
April 2000. The Company did not have any borrowings under the line of credit
as of March 31, 1999.
NOTE D - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense was $0 and $13,000 for the three-month periods
ended March 31, 1999 and 1998, respectively. No cash was paid for income tax
in either period.
NOTE E - RISKS AND UNCERTAINTIES
The Company's operations are subject to certain risks and uncertainties. This
includes the uncertainty of future operating results, fluctuations in
quarterly results, a change in the mix of products and services, a decline in
INQUIRE/Text sales, lengthy sales and implementation cycles, rapid
technological changes and product obsolescence, both technical hiring and
market competition, risks associated with sales channels, and a dependence on
government contracts and security clearances.
NOTE F - SEGMENT REPORTING
The table below presents information about reported segments for the three
months ended March 31, 1999 and 1998, as well as a reconciliation to reported
loss before income taxes.
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------------------
Solutions Third Party Proprietary Total
Products Products
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,861,000 $ 391,000 $ 1,138,000 $ 3,390,000
Direct costs 823,000 387,000 45,000 1,255,000
Indirect costs 710,000 - - 710,000
------------ ------------ ------------ ------------
Segmental profit $ 328,000 $ 4,000 $ 1,093,000 1,425,000
============ ============ ============ ============
Research and development (235,000)
Other costs not allocated to
segments, primarily selling,
general and administrative (1,461,000)
Interest income 50,000
------------
Loss before income taxes $ (221,000)
============
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
---------------------------------------------------------------
Solutions Third Party Proprietary Total
Products Products
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,892,000 $ 223,000 $ 795,000 $ 2,910,000
Direct costs 845,000 210,000 23,000 1,078,000
Indirect costs 499,000 - - 499,000
------------ ------------ ------------ ------------
Segmental profit $ 548,000 $ 13,000 $ 772,000 1,333,000
============ ============ ============ ============
Research and development (604,000)
Other costs not allocated to
segments, primarily selling,
general and administrative (1,470,000)
Interest income - net 36,000
------------
Loss before income taxes $ (705,000)
============
</TABLE>
7
<PAGE>
ITEM 2. 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 are 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 three months ended March 31, 1999, Solutions accounted for
55% of total revenue, Proprietary Products accounted for 34%, and Third Party
Products accounted for the remaining 11%.
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 at least the
latter part of 1999. 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 received license
fees in the amount of $1 million and approximately $900,000 in consulting fees
to modify the technologies. The Company recognized revenue due under this
agreement in the amount of $567,000 during the quarter ended March 31, 1999
when all contractual obligations related to the completion of the contract
were completed.
8
<PAGE>
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.
Research and development expenditures were also reduced. 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.
At March 31, 1999, the Company had a net operating loss ("NOL") carryforwards
for income tax reporting purposes aggregating approximately $9,929,000
available to affect future taxable income. Under Section 382 of the Internal
Revenue Code of 1986, as amended ("Code"), utilization of prior NOLs is
subject to certain limitations following a change in ownership. As a result of
the AMBIA acquisition in 1997, the Company is subject to limitations on the
use of its NOL. Accordingly, there can be no assurance the Company will be
able to utilize a significant amount of NOLs. Due to uncertainty of taxable
income to utilize the NOL, a full valuation allowance has been established
with respect to the deferred tax asset.
Revenues from consulting services are recognized as 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 March 31, 1999 was $1,003,000. This related primarily to
amounts from maintenance revenues on the INQUIRE/Text product. The balance of
deferred revenue generally relates to consulting services. The margins that
will be realized on transactions involving deferred revenue depend on the type
of service rendered by the Company. Most of the Company's maintenance revenue
pertains to INQUIRE/Text, which is a mature software product. Deferred
revenues from consulting services carry lower gross margins than deferred
revenues on maintenance agreements.
The components of the Company's cost of revenue 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
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.
9
<PAGE>
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.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998
REVENUES
Total revenue increased by $480,000, or 16%, from $2,910,000 for the three
months ended March 31, 1998 to $3,390,000 for the three months ended March 31,
1999. The Company derived revenues from three segments, Solutions, Proprietary
Products and Third Party Products. The Solutions segment includes consulting
services for both commercial and government customers along with training.
Proprietary Products include the Company's plug-in software products and
INQUIRE/Text product sales and their related maintenance. Third Party Products
includes both software and hardware sold to government and commercial
entities. Revenues from Solutions decreased by $31,000, or 2%, from $1,892,000
for the three months ended March 31, 1998 to $1,861,000 for the three month
period ended March 31, 1999. The decrease was due to a decline in training
revenue of $81,000 partially offset by an increase in consulting services of
$50,000. Consulting services for the quarter ended March 31, 1999, increased
by 3% over the same quarter in 1998. Proprietary Product revenue increased by
$343,000, or 43% from $795,000 for the three months ended March 31, 1998 to
$1,138,000 for the three months ended March 31, 1999. The increase was due to
a one-time $500,000 license fee from Adobe partially offset by declines in
INQUIRE maintenance revenue and INQUIRE/Text software sales. The Company
expects that INQUIRE/Text-related revenue 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. Third Party Product revenue increased by $168,000, or 75%, from
$223,000 for the three months ended March 31, 1998 to $391,000 for the three
months ended March 31, 1999.
GROSS PROFIT
Gross profit increased by $82,000, or 7%, from $1,138,000 for the three months
ended March 31, 1998 to $1,220,000 for the three months ended March 31, 1999.
This increase was due primarily to the increase in revenue.
Gross margin as a percent of revenues decreased from 39% for the three months
ended March 31, 1998 to 36% for the three months ended March 31, 1999. The
decrease was due to the growth in Third Party Product sales, which have a
smaller gross margin than Solutions or Proprietary Products.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased $369,000, or 61%, from $604,000
for the three months ended March 31, 1998 to $235,000 for the three months
ended March 31, 1999. The decrease was due to the conclusion in 1998 of
10
<PAGE>
development on the Company's Virtual File Cabinet (VFC) product.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $19,000, or 1%, from
$1,275,000 for the three months ended March 31, 1998 to $1,256,000 for the
three months ended March 31, 1999. The decrease was due to reductions in sales
and marketing expenditures associated with the Company's VFC product.
INTEREST INCOME AND EXPENSE
Net interest income increased $14,000 or 39%, from $36,000 for the three
months ended March 31, 1998 to $50,000 for the three months ended March 31,
1999. The increase was due to higher average cash balances and short-term
investments during the first quarter of 1999 than during the first quarter of
1998. In addition, there were no borrowings during the three months ended
March 31, 1999. For the three-month period ended March 31, 1998, interest
expense of $13,000 was incurred. Cash, cash equivalents, and short-term
investment balances increased significantly as the result of a public stock
offering in February 1998. The Company invested in short-term money market
instruments and commercial paper.
NET LOSS
Net loss decreased $484,000, from $705,000 for the three months ended March
31, 1998 to $221,000 for the three months ended March 31, 1999. The decrease
was due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, The Company had cash, cash equivalents and short-term
investments of $4,416,000 and a working capital surplus of $4,450,000. The
Company had no borrowings as of March 31, 1999. The Company maintains a line
of credit with Merrill Lynch Business Financial Services, Inc. ("MLBFS")for up
to $1,000,000 based upon eligible receivables. Interest on any outstanding
debt under this line is calculated at a per annum rate equal to the sum of
2.9% plus the 30-day commercial paper rate. Currently, this per annum rate
approximates prime. This facility expires in 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 quarterly and
monthly financial information. The Company is currently in compliance with
these funding requirements. During the first quarter of 1998, the Company paid
off the line of credit in full and has not borrowed against it since then.
Net cash used in operating activities for the three months ended March 31,
1999 of $413,000 was due to the Company's net loss for the period of $221,000,
an increase in accounts receivable of $105,000, and a decrease in accounts
payable, accrued expenses and deferred revenue of $446,000, partially offset
by non-cash items of depreciation and amortization expenses of $243,000,
equity stock compensation of $35,000, and an increase in our allowance for
doubtful accounts of $49,000.
Net cash used in investing activities for the three months ended March 31,
1999 of $674,000 was due to a net increase in short-term investments of
$620,000 and the purchase of fixed assets of $54,000.
Net cash provided by financing activities for the three months ended March 31,
1999 of $10,000 was due to the issuance of common stock of $16,000, partially
offset by payments made on capital lease obligations of $6,000.
11
<PAGE>
Net cash flow from operating activities for the three months ended March 31,
1999 was not sufficient to fund the operations of the business. However,
management believes that available working capital will be sufficient to meet
its requirements for the next twelve months. The Company's actual cash
requirements may vary materially from those now planned and will depend upon
numerous factors, including the general market acceptance of the Company's
products and services, the growth of the Company's marketing channels, the
technological advances and activities of competitors, and other factors.
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 June
30, 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.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
(a) EXHIBITS
EXHIBIT NO. DOCUMENT
27 Financial Data Schedule
(b) REPORTS ON FORM 8 - K. No reports on Form 8-K were filed during the
three month period ended March 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
INFODATA SYSTEMS INC.
BY: /s/STEVEN M. SAMOWICH
---------------------
Steven M. Samowich
President and CEO
Date: May 11, 1999
BY: /s/CHRISTOPHER P. DETTMAR
-------------------------
Christopher P. Dettmar
Chief Financial Officer
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