<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
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Commission file Number: 0-26962
A.D.A.M. Software, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as
Specified in its charter)
Georgia 58-1878070
- ------------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1600 RiverEdge Parkway, Suite 800
Atlanta, Georgia 30328
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(Address of principal executive offices)
(Zip Code)
770-980-0888
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 12, 1997 there were 4,901,897 shares of the Registrant's Common
Stock, par value $.01 per share, outstanding excluding shares held in treasury
by the Registrant.
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A.D.A.M. Software, Inc.
Index
Part I - Financial Information
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ITEM 1. Financial Statements
Condensed Balance Sheet at
June 30, 1997 and March 31, 1997............................... 3
Condensed Statement of Operations
for the Three Months Ended
June 30, 1997 and 1996......................................... 4
Condensed Statement of Cash
Flows for the Three Months
Ended June 30, 1997 and 1996................................... 5
Notes to Condensed Financial Statements........................ 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 8
Part II - Other Information
ITEM 6. Exhibits and Reports on Form 8-K...............................10
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Part I:FINANCIAL INFORMATION A.D.A.M. Software, Inc.
FINANCIAL STATEMENTS Condensed Balance Sheet
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<CAPTION>
June 30, March 31,
1997 1997
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(unaudited)
ASSETS (in thousands, except share data)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,353 $ 2,422
Short-term investments 7,964 8,546
Accounts receivable (net of allowances
of $356 and $459, respectively) 715 638
Inventories 447 375
Prepaids and other 144 108
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Total current assets 10,623 12,089
Property and equipment, net 630 729
Software development costs, net 559 487
Restricted certificate of deposit 357 357
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$12,169 $13,662
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 175 $ 434
Deferred revenue 120 --
Other accrued expenses 849 1,673
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Total current liabilities 1,144 2,107
Convertible preferred stock, no par value; 10,000,000 shares authorized;
0 Series A shares issued and outstanding -- --
Common Stock, $.01 par value; 20,000,000 authorized; 5,274,647 and
5,274,647 shares issued and outstanding 52 52
Other shareholders' equity 10,973 11,503
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$12,169 $13,662
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The accompanying notes are an integral part of these financial statements.
3
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A.D.A.M. Software, Inc.
Condensed Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
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1997 1996
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(in thousands, except share data)
<S> <C> <C>
Net revenues $ 1,737 $ 1,050
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Cost and expenses
Cost of revenues 243 331
Sales and marketing 766 1,310
Product development 375 878
General and administrative 295 608
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1,679 3,127
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Operating income (loss) 58 (2,077)
Interest income 143 369
Interest expense (3) (7)
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Income (loss) before income taxes 198 (1,715)
Income taxes -- --
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Net income (loss) $ 198 $(1,715)
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Net income (loss) per common share $ 0.04 $ (0.33)
======= =======
Weighted average number of common shares
and common share equivalents outstanding 5,108 5,249
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</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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A.D.A.M. Software, Inc.
Condensed Statement of Cash Flow
(unaudited)
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<CAPTION>
Three Months Ended June 30,
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1997 1996
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(in thousands)
<S> <C> <C>
Net cash used in operating activities $ (701) $(1,178)
Investing activities
Purchases of property and equipment 2 (76)
Purchase of short-term investments (7,964) (8,046)
Proceeds from sale of short term investments 8,462 7,910
Software development costs (140) (3)
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Net cash provided (used) in investing activities 360 (215)
Financing activities
Repayment of debt -- (250)
Purchase of treasury shares (729) --
Proceeds from exercise of common stock options -- 60
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Net cash used by financing activities (729) (190)
Decrease in cash and cash equivalents (1,070) (1,583)
Cash and cash equivalents, beginning of period 2,423 5,352
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Cash and cash equivalents, end of period $ 1,353 $ 3,769
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</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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A.D.A.M. Software, Inc.
Notes to the Condensed Financial Statements (Unaudited)
June 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information, the general instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
March 31, 1998. For further information, refer to the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended March 31, 1997, which include audited financial statements for the year
ended March 31, 1997.
2. SHORT-TERM INVESTMENTS
At June 30, 1997 the Company held certain short-term investments in marketable
debt and equity securities which it classified as held-to-maturity.
Held-to-maturity securities represent those securities that the Company has both
the positive intent and ability to hold to maturity, and are carried at
amortized cost. Securities with a maturity date within one year are classified
as short-term investments as a part of Current Assets and are stated at fair
value plus accrued interest. Net unrealized losses on held-to-maturity
securities have not been recognized in the accompanying financial statements.
There were no realized gains or losses for the three month periods ended
June 30, 1997 and 1996.
3. INVENTORIES
Inventories consist principally of computer software media and related shipping
supplies and are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
The components of inventory are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
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1997 1996
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Raw Materials $170 $204
Finished Goods 277 176
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$447 $380
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4. INCOME (LOSS)LOSS PER COMMON SHARE
Net income (loss) per common share is computed by dividing net income (loss)
applicable to common stock by the weighted average number of outstanding
6
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A.D.A.M. Software, Inc.
Notes to the Condensed Financial Statements (Unaudited)
June 30, 1997
(continued)
shares of common stock during the applicable periods. Common stock equivalents
consisting of the Company's stock options and warrants are included in the
calculation of net income (loss) per common share if their effect is dilutive.
5. LEGAL PROCEEDINGS
On April 25, 1996 the Company and certain of its officers and directors were
named in a class action lawsuit. The complaint alleges violations of Section 11,
12(2) and 15 of the Securities Act of 1933, violations of the Georgia Securities
Act and negligent misrepresentation arising out of alleged disclosure
deficiencies in connection with the Company's initial public offering which was
completed on November 10, 1995. The complaint seeks compensatory damages and
reimbursements for plaintiff's fees and expenses. The Company and its officers
and directors have been and intend to continue to defend vigorously against the
allegations. The Company cannot estimate the impact of the outcome of the
lawsuit on the financial condition or results of operations.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Cash and cash equivalents include cash on hand and on deposit and highly liquid
investment investments with an original maturity of three months or less. Cash
payments for the three months ended June 30, 1997 and 1996 include interest of
approximately $3,300 and $4,700, respectively.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following information should be read in conjunction with the financial
statements and the notes thereto and in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
A.D.A.M. Software, Inc. ("A.D.A.M." or the "Company") creates, publishes and
markets educational multimedia software products, services, content and
Internet-ready applications that provide anatomical, medical, scientific and
health-related information for the academic, consumer and healthcare markets.
A.D.A.M. products incorporate internally developed, original medical
illustrations with text, audio, photography, animation and video in easy-to-use,
interactive software applications.
RESULTS OF OPERATIONS
REVENUES. Total net revenues increased 65% to $1,737,000 for the three months
ended June 30, 1997 compared to $1,050,000 for the three months ended June 30,
1996, due to 1996 being adversely affected by consumer product returns and
allowances, royalty payments from the sale of consumer product distribution
rights in 1997, and the release and related sales of the Company's flagship
academic product, ADAM Interactive Anatomy, in the quarter ended June 30, 1997.
COST OF REVENUES. Cost of revenues decreased 27% to $243,000 for the three
months ended June 30, 1997 from $331,000 for the three months ended June 30,
1996. The decrease is mainly due to the Company's assignment of consumer
product distribution rights, resulting in the Company no longer selling
significant product directly to the consumer. As a percentage of total net
revenues, cost of revenues decreased to 14% for the three months ended
June 30, 1997 from 32% for the three months ended June 30, 1996, primarily due
to increased sales of the Company's higher priced, newly released flagship
academic product, ADAM Interactive Anatomy, during the three months ended
June 30, 1997 as compared with lower priced ADAM Comprehensive sales during the
period ended June 30, 1996, as well as third party licensing of consumer
product distribution previously mentioned.
SALES AND MARKETING. Sales and marketing expenses decreased 42% to $766,000 for
the three months ended June 30, 1997 compared to $1,310,000 for the three months
ended June 30, 1996. Sales and marketing expenses for the three months ended
June 30, 1996 included approximately $664,000 in marketing and advertising costs
associated with the promotion, distribution, and sale of consumer products, the
majority of which have been absorbed in the three months ended June 30, 1997 by
the Company's third party consumer product licensee. As a percentage of total
net revenues, sales and marketing expenses decreased to 44% for the three months
ended June 30, 1997 compared to 125% for the three months ended June 30, 1996.
PRODUCT DEVELOPMENT. Product development expenses decreased 57% to $375,000 for
the three months ended June 30, 1997 from $878,000 for the three months ended
June 30, 1996. The decrease in product development costs primarily resulted from
increases, totaling approximately $136,000, in the amount of development costs
capitalized during the three months ended June 30, 1997, in addition to
decreases of approximately $200,000 in compensation and consulting costs.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (concluded)
As a percentage of total net revenues, product development expenses increased to
22% for the three months ended June 30, 1997 compared to 84% for the three
months ended June 30, 1996.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 51% to
$295,000 for the three months ended June 30, 1997 from $608,000 for the three
months ended June 30, 1996 primarily due to decreased rent and compensation
costs resulting from the Company's restructuring at the end of the second fiscal
quarter of 1997, and also decreased professional fees. As a percentage of total
net revenues, general and administrative expenses decreased to 17% for the
three months ended June 30, 1997 compared to 58% for the three months ended
June 30, 1996.
As a result of the above factors, operating income (loss) increased $2,135,000
to a profit of $58,000 for the three months ended June 30, 1997 from a loss of
$2,077,000 for the three months ended June 30, 1996.
The Company had net income of $198,000 or 4 cents per share for the three months
ended June 30, 1997, compared with a net loss of $1,715,000 or 33 cents per
share for the three months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had cash and short-term investments of
$9,317,000 and working capital of $9,479,000.
The Company uses its working capital to finance ongoing operations, fund the
development and introduction of new products and acquire capital equipment.
The Company expects that cash flows from operations and existing cash and
short-term investments will be adequate to meet the Company's cash requirements
for the short and long term, i.e. twelve months or less and one to two years,
respectively.
9
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27- Financial Data Schedule (for Electronic Filing purposes
only)
(b) Reports on Form 8-K
None
10
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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.
A.D.A.M. SOFTWARE, INC.
DATE 8/14/97 Robert S. Cramer
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Robert S. Cramer
Chairman and CEO
Michael S. Fisher
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Michael S. Fisher
Secretary and Director of
Finance
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ADAM SOFTWARE, INC. FOR THE THREE MONTHS ENDED JUNE 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,353
<SECURITIES> 7,964
<RECEIVABLES> 715
<ALLOWANCES> 356
<INVENTORY> 447
<CURRENT-ASSETS> 10,623
<PP&E> 630
<DEPRECIATION> 2,495
<TOTAL-ASSETS> 12,169
<CURRENT-LIABILITIES> 1,144
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 10,973
<TOTAL-LIABILITY-AND-EQUITY> 12,169
<SALES> 1,737
<TOTAL-REVENUES> 1,737
<CGS> 243
<TOTAL-COSTS> 1,679
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 198
<INCOME-TAX> 0
<INCOME-CONTINUING> 198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 198
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
