SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934.
For the transition period from to
-------------- ----------------
Commission file number 2-86360
INFORMEDICS, INC.
(Exact name of small business issuer as specified in its charter)
Oregon 93-0750571
- -------------------------------------------------------------------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
4000 Kruse Way Place
Bldg 3, Suite 300
Lake Oswego, Oregon 97035
--------------------------------------
(Address of principal executive offices)
Issuer's telephone number: (503) 697-3000
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
Number of shares of Informedics, Inc. $.01 par value common stock outstanding as
of February 28, 1997: 2,650,307.
<PAGE>
INFORMEDICS, INC.
Part I - Financial Information
The information included herein is unaudited. However, such information reflects
all adjustments (consisting solely of normal, recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the results
of operations for the interim periods. The interim financial information and
notes thereto should be read in conjunction with the Company's latest annual
report on Form 10-KSB. The results of operations for the three months ended
January 31, 1997 are not necessarily indicative of results to be expected for
the entire year.
<PAGE>
INFORMEDICS, INC.
STATEMENTS OF OPERATIONS
Three Months Ended January 31,
---------------------------------------
1997 1996
--------------- ----------------
REVENUE:
Product Sales $ 149,761 $ 426,880
Customer Service and Support 695,935 857,301
---------- ----------
Total Revenue 845,696 1,284,181
---------- ----------
COSTS AND EXPENSES:
Cost of Products Sold 28,211 233,825
Cost of Customer Service and Support 501,086 720,790
Selling & Administrative Expenses 485,147 628,061
Depreciation & Amortization 101,610 87,198
---------- ----------
Total Costs and Expenses 1,116,054 1,669,874
---------- ----------
Operating Loss (270,358) (385,693)
---------- ----------
OTHER INCOME (EXPENSE):
Interest Expense (3,835) (7)
Interest Income 8,680 4,104
Other Income 3,669 (214)
---------- ----------
Total Other Income 8,514 3,883
---------- ----------
LOSS BEFORE INCOME TAXES (261,844) (381,810)
INCOME TAX BENEFIT - (145,963)
---------- ----------
NET LOSS $ (261,844) $ (235,847)
========== ==========
Weighted Average Number of Common
Shares Outstanding and Common Stock
Equivalents Outstanding 2,650,307 2,643,404
========== ==========
LOSS PER SHARE $ (0.10) $ (0.09)
========== ==========
See Note to Financial Statements.
<PAGE>
INFORMEDICS, INC.
BALANCE SHEETS
ASSETS
January 31, 1997 October 31, 1996
---------------- ----------------
CURRENT ASSETS:
Cash $ 370,220 $ 323,217
Accounts Receivable, less allowance
for doubtful accounts of $ 31,462 in
1997 and $ 28,439 in 1996 581,882 681,303
Inventories 18,426 23,833
Prepaid Expenses and Other Current Assets 38,702 36,150
Deferred Income Taxes 165,282 182,483
Current Portion of Long-Term 11,928 11,928
Receivable
Current Portion of Notes Receivable 60,161 54,095
---------- ----------
Total Current Assets 1,246,601 1,313,009
---------- ----------
FIXED ASSETS:
Furniture and Fixtures 134,282 134,282
Machinery and Equipment 583,447 583,961
Automobiles 29,138 29,138
Leasehold Improvements 24,100 20,442
Other Fixed Assets 136,805 136,805
---------- ----------
907,772 904,628
Less accumulated depreciation
and amortization 707,860 672,300
---------- ----------
Total Fixed Assets 199,912 232,328
---------- ----------
OTHER ASSETS:
Long-Term Account Receivable 39,760 42,742
Notes Receivable 289,537 305,415
Software Development Costs,
less accumulated amortization
of $603,404 in 1997 and
$542,884 in 1996 270,053 305,102
Covenants Not to Compete,
less accumulated amortization
of $483,556 in 1997
and $479,698 in 1996 10,489 14,348
Deferred Income Taxes, less valuation
reserve of $98,393 in 1997 630,261 613,060
Other 39,299 41,816
---------- ----------
Total Other Assets 1,279,399 1,322,483
---------- ----------
TOTAL ASSETS $2,725,912 $2,867,820
========== ==========
See Note to Financial Statements
<PAGE>
INFORMEDICS, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
January 31, 1997 October 31, 1996
---------------- ----------------
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses:
Trade Accounts $ 99,156 $ 115,543
Customer Deposits 11,255 4,120
Accrued Wages, Payroll Taxes and
Employee Benefits 137,045 175,285
Other Accrued Liabilities 7,925 767
Revolving Line of Credit - 125,000
Deferred Revenue 1,566,782 1,274,687
Current Portion of Deferred Rent 13,033 13,033
Current Portion of Deferred Gain
on Sale of Assets 21,398 19,615
---------- ----------
Total Current Liabilities 1,856,594 1,728,050
LONG-TERM OBLIGATIONS:
Deferred Rent 27,153 30,411
Deferred Gain on Sale of Assets 82,025 87,375
---------- ----------
Total Current Liabilities and
Long-Term Obligations 1,965,772 1,845,836
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $ .01 par value:
authorized 5,000,000 shares;
no shares outstanding - -
Common Stock, $.01 par value:
authorized 15,000,000 shares;
shares outstanding: 2,650,307
in 1997 and 1996 26,503 26,503
Capital in Excess of Par Value 1,914,213 1,914,213
Note Receivable from Stockholder (22,000) (22,000)
Accumulated Deficit (1,158,576) (896,732)
---------- ----------
Total Stockholders' Equity 760,140 1,021,984
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,725,912 $2,867,820
========== ==========
See Note to Financial Statements.
<PAGE>
INFORMEDICS, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended January 31,
---------------------------------------
1997 1996
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (261,844) $ (235,847)
ADJUSTMENTS TO RECONCILE NET
LOSS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Depreciation and Amortization 101,610 87,198
Provision for losses on accounts
receivable 3,023 28,000
Deferred Income Taxes - (146,623)
Tax benefits from stock options exercised - 650
Gain on sale of assets (3,567) -
Changes in Assets and Liabilities:
Accounts Receivable 99,380 (97,257)
Income taxes receivable - 29,087
Inventories 5,407 36
Prepaid Expenses and Other Current Assets (2,552) 27,432
Accounts Payable and Accrued Expenses (40,334) 30,905
Notes Receivable 9,499
Deferred Revenue 292,095 484,235
Deferred Rent (3,258) (3,258)
----------- -----------
Net cash provided by operating activities 199,459 204,558
----------- -----------
INVESTING ACTIVITIES:
Property additions (4,815) (55,609)
Capitalized software development costs (25,158) (110,566)
Other 2,517 3,436
----------- -----------
Net cash used for investing activities (27,456) (162,739)
----------- -----------
FINANCING ACTIVITIES:
Decrease in revolving line of credit (125,000) -
Proceeds from issuance of common stock - 2,545
----------- -----------
Net cash provided by (used for)
financing activities (125,000) 2,545
----------- -----------
NET INCREASE IN CASH 47,003 44,364
CASH AT BEGINNING OF QUARTER 323,217 534,260
----------- -----------
CASH AT END OF QUARTER $ 370,220 $ 578,624
=========== ===========
<PAGE>
INFORMEDICS, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended January 31,
---------------------------------------
1997 1996
--------------- ----------------
Supplemental Disclosures of Cash Flow
Information:
Cash paid for:
Interest $ 3,835 $ 7
Income Taxes Received - (29,077)
See Note to Financial Statements.
<PAGE>
INFORMEDICS, INC.
NOTE TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Industry Segment
----------------
The Company derives its revenue solely from the sales and servicing of
microcomputer software and related hardware.
Inventories
-----------
Inventories are stated at the lower of cost or market. Specific
identification is used to determine the costs of hardware and software
inventory.
Fixed Assets
------------
Fixed Assets are stated at cost, less accumulated depreciation and
amortization. The costs of fixed assets are depreciated over the estimated
useful lives (two to five years) of the assets using the straight-line
method. Leasehold improvements are amortized over the term of the lease
(five years).
Customer Service and Support Revenue
------------------------------------
Customer service and support revenue represents revenue earned from
hardware and software maintenance contracts, training, installation of new
systems, and general software support and programming services provided to
customers. Under renewable maintenance contracts, the Company provides, for
a term of generally not more than one year, essentially all maintenance and
repairs resulting from the normal and intended use of its products.
Deferred revenue on maintenance contracts is amortized by the straight-line
method over the life of the contracts.
Revenue Recognition
-------------------
Revenue from sales of software and hardware is generally recorded when the
product is shipped. Revenue from custom software products, which are
marketed to customers primarily under perpetual license arrangements, is
recorded at the time the product is installed and accepted by the customer.
Revenue from services other than maintenance contracts is recognized as
performed.
Income Taxes
------------
Income taxes are accounted for using the methodology established by
Statement of Financial Accounting Standards (SFAS) No.109, "Accounting for
Income Taxes", which requires an asset and a liability approach to
financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future. A valuation allowance is
established when necessary to reduce deferred tax assets to amounts
expected to be realized based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable income.
Income tax expense is the tax payable or refundable for the period, plus or
minus the change during the period in deferred tax assets and liabilities.
<PAGE>
INFORMEDICS, INC.
NOTE TO FINANCIAL STATEMENTS
Software Development Costs
--------------------------
Certain software development costs are being capitalized and amortized over
the estimated economic life of the software, on a straight-line method,
commencing when each product or enhancement is available for general
release. Amortization using the straight-line method for the three-month
periods ended January 31, 1997 and 1996 was $60,520 and $20,173,
respectively.
Covenants Not to Compete
------------------------
Covenants not to compete are stated at the estimated value of the
consideration given for the covenants (including the present value of any
future payments to be made under each agreement), less accumulated
amortization. The costs of the covenants are being amortized over four or
seven years, using the straight-line method. Amortization for the
three-month periods ended January 31, 1997 and 1996 was $3,859 and $19,291,
respectively.
Loss Per Share
--------------
Loss per share is computed on the basis of weighted average number of
shares outstanding plus common stock equivalents which would arise from the
exercise of stock options and warrants. Common stock equivalents are
excluded from the calculation of net loss per share for the three months
ended January 31, 1997 and 1996, as they are antidilutive.
Cash and Cash Equivalents
-------------------------
The Company considers cash on hand, deposits in bank and highly liquid debt
instruments purchased with original maturity dates of three months or less,
as cash.
Accounting Changes
------------------
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation". This statement establishes an alternative method
of accounting that requires recognizing as expense the fair value of
employee stock options and other stock-based awards at the grant date. SFAS
No. 123 also allows the continuation of the current accounting treatment
under which the Company does not recognize compensation expense for the
stock options it awards to employees. Since the Company is electing to
retain its current method, it will be required to present pro forma
disclosures in its 1997 annual financial statements as if the fair value
based method had been applied.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the current
year presentation. These reclassifications have no effect on net income.
<PAGE>
INFORMEDICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS. THOSE
STATEMENTS INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES, WHICH COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATION STATED, INCLUDING THE
FOLLOWING: SLOWER THAN EXPECTED SALES OF INFORMEDICS' PRODUCTS, DETERIORATION OF
BUSINESS CONDITIONS GENERALLY OR SPECIFICALLY IN THE HEALTH-CARE INDUSTRY,
REGULATORY CHANGES INVOLVING HEALTH CARE, COMPETITIVE FACTORS AND PRICE
PRESSURES.
Highlights
On October 31, 1996, the Company sold certain assets of its ClinicManager
product line. As expected, the sale resulted in improved operating results as
the Company reduced its operating loss from $385,693 in the first quarter of
1996 to $270,358 in the first quarter of 1997.
The elimination of the ClinicManager product line from the Company's revenue
base resulted in a decrease in product sales and in customer service and support
revenue. Total revenue decreased from $1,284,181 for the first quarter of 1996
to $845,696 for the first quarter of 1997.
During the first quarter of 1997, the Company continued to invest a large
portion of its revenue in the development of its software products. In the first
quarter of 1997, the Company spent $282,875 or 33% of revenue for the
development of new software, the enhancement and maintenance of existing
software, and improvements to the Company's software development processes to
comply with FDA regulations. In the first quarter of 1996, the Company spent
$388,338 or 30% of revenue for similar development activities. Of the total
costs incurred, the Company capitalized $25,158 in first quarter 1997, compared
to $110,566 in first quarter 1996.
During the first quarter of 1997, the Company paid off its revolving line of
credit, which had a balance of $125,000 at October 31, 1996. In addition, the
Company's cash position increased from $323,217 at October 31, 1996 to $370,220
at January 31, 1997.
During the first quarter of 1997, the Company established a valuation reserve of
$98,393 for its deferred income tax assets, which offset the income tax benefit
for the quarter. As a result, the net loss for first quarter 1997 was higher
than the net loss for first quarter 1996.
On February 12, 1997, the National Association of Securities Dealers (NASD)
moved the trading of the Company's stock from the Nasdaq SmallCap Market to the
NASD Bulletin Board. The move initiated by Nasdaq resulted from the Company's
inability to meet the Nasdaq listing standard of a minimum bid price of $1.00
per share. All of the Company's current market makers trade securities through
the NASD Bulletin Board and management anticipates that these market makers will
continue to trade the Company's stock.
Results of Operations - Material Changes
The decrease of $277,119 in product sales for first quarter 1997 as compared to
first quarter 1996 resulted from the loss of revenue from the ClinicManager
product line and a decrease in the number of laboratory systems sold. The
decrease in the number of laboratory systems sold in first quarter 1997 resulted
from a turnover in the Company's sales staff. During the second quarter of 1997,
the Company expects to hire additional salespersons in order to increase product
sales in future periods. Management believes that product sales for 1997 will
continue to lag 1996 results until the new sales of its IntraMed.net product
line exceed previous ClinicManager sales levels.
<PAGE>
INFORMEDICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The decrease in customer service and support revenue of $161,366 for first
quarter 1997 as compared to first quarter 1996 resulted from the loss of revenue
from the ClinicManager product line of $104,764 and from a decrease in the
number of customers who purchased the Company's hardware support services. The
decrease in the number of customers who purchased the Company's hardware support
services resulted from customers purchasing hardware with extended on-site
warranties and from customers who elect to service the hardware with in-house
personnel or local hardware support vendors.
The decrease of $205,614 in the cost of products sold in first quarter 1997 as
compared to first quarter 1996 resulted from a decrease in hardware sales of
$242,968. The decrease in hardware sales resulted from a loss of revenue from
the ClinicManager product line, a decrease in the number of laboratory systems
sold and a decrease in hardware sales related to the Company's lab order entry
product line as Quest Diagnostics, Inc. elected to purchase its hardware from
another vendor.
The decrease of $219,704 or 30% in cost of customer service and support resulted
from a reduction in staff and other costs as a result of the sale of the
ClinicManager product line. Management anticipates that cost of customer service
and support for the remainder of 1997 will be less than comparable periods in
1996.
The decrease of $142,914 or 23% in selling and administration expense in first
quarter 1997 resulted from a reduction in staff and other costs as a result of
the sale of the ClinicManager product line. In addition, a turnover in the
Company's sales staff resulted in fewer salespersons on staff in first quarter
1997 when compared to first quarter 1996. The reduction in sales staff in 1997
resulted in lower wages and benefits for first quarter 1997 when compared to
first quarter 1996. Although selling and administration expenses were less in
first quarter 1997 than in first quarter 1996, management anticipates that these
expenses will increase during the remainder of 1997 as the Company plans to
expand its sales and marketing efforts of its IntraMed.net and LifeLine product
lines.
Liquidity - Capital Resources
The Company's cash position grew from $323,217 on October 31, 1996 to $370,220
on January 31, 1997. The net cash provided by operating activities during first
quarter 1997 of $199,459 was sufficient to cover the net cash used to acquire
additional assets, fund the development of the Company's software and pay off
the revolving line of credit. Based upon the anticipation of higher product
sales and reduced operating expenses, management believes that the Company's
current cash position and available funds under its revolving line of credit
agreement will be sufficient to fund its operating and investment activities for
the remainder of fiscal 1997.
Continuing losses and an increase in the deferred revenue liability on January
31, 1997, when compared to October 31, 1996, resulted in a negative working
capital of $609,993 on January 31, 1997 as compared to a negative working
capital of $415,041 on October 31, 1996. Excluding the deferred revenue
liability, which is a liability for future services, the Company's working
capital on January 31, 1997 was $956,789, compared to $859,646 on October 31,
1996.
Capital expenditures for property additions were $4,815 in first quarter 1997
compared to $55,609 in first quarter 1996. The decrease resulted from
management's decision to reduce capital expenditures in 1997. Management
anticipates that capital expenditures for property additions for the remainder
of 1997 will continue to be less than 1996 amounts.
The Company has a $700,000 uncommitted revolving line of credit with the
Company's bank. At January 31, 1997, the Company had paid off the balance of the
revolving line of credit. All of the assets of the Company are pledged as
security for the line of credit. Terms of the revolving line of credit require
the Company to maintain certain financial ratios. As of the date of this
Quarterly Report, the Company has maintained the required ratios. The Company is
in the process of renewing the line of credit, which expires April 15, 1997.
Management anticipates that the line of credit will be renewed under the same
terms and conditions.
<PAGE>
INFORMEDICS, INC.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10(a)* Employment Agreement between the Company and Gerald P.
Kelly, dated August 9, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K. On November 15,1996, the Company filed Form
8-K, dated October 31, 1996. In the Form 8-K, the Company
reported that it sold certain assets of its ClinicManager product
line to Adaptive Health Systems of Washington, Inc.
- -----------------------------
* Management contract or compensatory plan or arrangement.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
INFORMEDICS, INC.
(Registrant)
Date: March 13, 1997 By: /s/ John Tortorici
-------------------
John Tortorici,
Chairman and Chief
Executive Officer
Date: March 13, 1997 By: /s/ Dale E. Conner
-------------------
Dale E. Conner,
Vice President and
Chief Financial Officer
<PAGE>
FORM 10-QSB
Exhibit Index
Exhibit
- -------
10(a) Employment Agreement between the Company and
Gerald P. Kelly, dated August 9, 1996.
27 Financial Data Schedule
Exhibit 10(a)
TO: Ron Witcosky
FROM: Jerry Kelly
SUBJECT: Employment Agreement
DATED: August 9, 1996
Since we are both very busy and it is taking some time to finalize my employment
agreement and compensation plan, I thought it would be a good idea to get the
highlights of what we agreed to on paper before we both forget what they are.
Following is a recap of the major elements that we agreed to.
1. Salary: $125,000 annual (FYI, this has been put in place by Dale).
2. Bonus opportunity: $25,000 annual, based on achieving select goals and
performance criteria. I have sent you some ideas in this area
3. Stock option: 50,000 shares.
4. Employment agreement term: Two years with salary and family insurance
benefits guaranteed unless termination for willful misconduct.
5. Severance package (following employment agreement term): One year salary
and family insurance benefits.
Please let me know if the above is consistent with your understanding. Thanks.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INFORMEDICS,
INC.'S FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY REPORT ON FORM 10-QSB FOR
THE PERIOD ENDED JANUARY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JAN-31-1997
<CASH> 370,220
<SECURITIES> 0
<RECEIVABLES> 613,344
<ALLOWANCES> 31,462
<INVENTORY> 18,426
<CURRENT-ASSETS> 1,246,601
<PP&E> 907,772
<DEPRECIATION> 707,860
<TOTAL-ASSETS> 2,725,912
<CURRENT-LIABILITIES> 1,856,594
<BONDS> 0
0
0
<COMMON> 26,503
<OTHER-SE> 733,637
<TOTAL-LIABILITY-AND-EQUITY> 2,725,912
<SALES> 149,761
<TOTAL-REVENUES> 845,696
<CGS> 28,211
<TOTAL-COSTS> 529,297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,835
<INCOME-PRETAX> (261,844)
<INCOME-TAX> 0
<INCOME-CONTINUING> (261,844)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (261,844)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
