<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 0-19813
INFONOW CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-3083360
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3131 SO. VAUGHN WAY, SUITE 134, AURORA, CO 80014
(Address of principal executive offices) (Zip Code)
(303) 368-4646
(Registrant's telephone number, including area code)
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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of May 5, 1996.
Common Stock, $0.001 par value 3,107,275
------------------------------ ---------
Class Number of Shares
<PAGE>
INFONOW CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Condensed Balance Sheets -- March 31, 1996
(Unaudited) and December 31, 1995 1
Unaudited Condensed Statements of
Operations -- For the Three Months
Ended March 31, 1996 and March 31, 1995 2
Unaudited Condensed Statements of Cash
Flows -- For the Three Months
Ended March 31, 1996 and March 31, 1995 3
Notes to Unaudited Condensed Financial
Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 5
PART II. OTHER INFORMATION 7
SIGNATURES 9
<PAGE>
INFONOW CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 205,024 $ 231,781
Accounts receivable, net 535,632 494,918
Other current assets 8,847 34,809
------------ -----------
Total current assets 749,503 761,508
Property and Equipment, net 308,441 336,050
Goodwill, net of accumulated
amortization of $140,949 and $87,820
at March 31, 1996 and December 31,
1995, respectively 3,046,826 3,099,955
------------ -----------
Other assets and deferred charges 384,411 18,381
------------ -----------
Total assets $ 4,489,181 $ 4,215,894
------------ -----------
------------ -----------
CURRENT LIABILITIES:
Accounts payable and accrued
expenses $ 788,216 $ 435,591
Notes payable - current portion 37,674 43,202
Related party payables 150,000 -
Unearned revenue 75,935 123,386
Capital lease obligation - current 3,647 3,514
------------ -----------
Total current liabilities 1,055,472 605,693
------------ -----------
CAPITAL LEASE OBLIGATION 12,981 14,039
NOTES PAYABLE 162,924 172,440
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDER'S EQUITY
Preferred stock, $.001 par value,
2,000,000 shares authorized, none
issued - -
Common stock, $.001 par value;
15,000,000 shares authorized,
3,107,275 and 3,183,567 shares
issued and outstanding at March
31, 1996 and December 31, 1995,
respectively 3,198 3,184
Treasury stock - -
Additional paid-in capital 19,498,523 19,478,118
Accumulated deficit (16,243,917) (16,057,580)
------------ -----------
Total stockholder's equity 3,257,804 3,423,722
------------ -----------
Total liabilities and stockholder's
equity $ 4,489,181 $ 4,215,894
------------ -----------
------------ -----------
The accompanying notes to financial statements
are an integral part of these consolidated balance sheets
1
<PAGE>
INFONOW CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1996 1995
--------- ---------
SALES $ 743,333 $ 55,248
OPERATING EXPENSES:
Cost of sales 183,950 32,008
Selling, general and administrative 741,757 284,980
Research and development - 11,728
--------- ---------
Total operating expenses 925,707 328,716
--------- ---------
Net loss from operations (182,374) (273,468)
OTHER INCOME (EXPENSE):
Loss on disposition of assets - (40,664)
Interest income (expense), net (3,963) (8,627)
--------- ---------
NET LOSS $(186,337) $(322,759)
--------- ---------
--------- ---------
NET LOSS PER COMMON SHARE $ (0.06) $ (1.33)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,139,327 242,863
--------- ---------
--------- ---------
The accompanying notes to financial statements
are an integral part of these statements
2
<PAGE>
INFONOW CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1996 1995
--------- ----------
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $ (186,337) $ (322,759)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 107,497 37,559
Compensation expense related to stock
options and stock warrant issuances 29
Loss on asset dispositions 40,664
Changes in operating assets and liabilities:
Accounts receivable (40,714) (11,377)
Other current assets 25,962 4,205
Other assets and deferred charges (25,749) (5,736)
Accounts payable and accrued liabilities (97,378) 29,056
Payables to officers, directors
and related parties 150,000 8,496
Unearned revenue (47,451) -
--------- ---------
Net cash flows used in operating
activities (114,170) (219,863)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchase of property and equipment (17,037) -
Proceeds from sale of property - 22,241
--------- ---------
Net cash flow used in investing
activities (17,037) 22,241
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants 20,419 -
Payment of capital lease obligation (925) -
Proceeds from notes payable 150,000 179,802
Payment of notes payable (65,044) -
--------- ---------
Net cash flows from financing activities 104,450 179,802
--------- ---------
Net increase (decrease) in cash and cash
equivalents (26,757) (17,820)
--------- ---------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 231,781 17,976
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 205,024 $ 156
---------- ---------
---------- ---------
Supplemental Information:
Cash paid during period for interest $ 5,236 $ 8,627
The accompanying notes to condensed financial statements
are an integral part of these condensed statements
3
<PAGE>
INFONOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods.
The financial statements as of December 31, 1995 have been derived
from audited financial statements, the report on which included an
explanatory paragraph describing uncertainties concerning the Company's
ability to continue as a going concern. The financial statements
should be read in conjunction with the financial statements and notes
thereto contained in the Company's Form 10-K for the fiscal year ended
December 31, 1995. The results of operations for the three months ended
March 31, 1996 are not necessarily indicative of the results that will
be achieved for the entire fiscal year ending December 31, 1996.
Note 2 - SUPPLEMENTAL CASH FLOW DISCLOSURES
During the three months ended March 31, 1996, the Company completed a
noncash transaction with Environmental Research Institute, Inc.
("ESRI"), in which the company received computer equipment and software
licenses in exchange for an obligation of $350,000 to be paid to ESRI
which has been recorded as an accrued expense. There were no non cash
transactions recorded during the three month period ending March 31,
1995.
Note 3 - RELATED PARTY TRANSACTIONS
On March 29, 1996, the company executed a promissory note to the Chief
Financial Officer of the Company in the amount of $100,000 secured by
all the receivables of the Company. The note is due in March 1997
bearing interest at prime plus 2.75%. The note can be converted into
common stock of the Company at $3.00 per share at the option of the
note holder at any time prior to maturity.
In a separate transaction, a Vice-President of the Company has advanced
$50,000 to the Company as a short term non-interest bearing loan.
4
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company was originally formed to engage in the development and
marketing of an electronic distribution system using CD-ROM technology for
software programs and other products. During 1995, the Company ceased all
activities in this business and shifted its strategy towards providing
Internet-based turn-key applications and services to large business and
governmental organizations. As part of this strategy change, the Company
acquired Cimarron International, Inc., a multimedia production company and
Navigist, Inc., a network engineering consulting company in 1995. The Company
intends to continue the operations of Cimarron and Navigist and has formed a
third business unit, Internet Products, which will pursue opportunities on
the Internet utilizing the skills of both Cimarron and Navigist. The Internet
Product Group's first product offering will be the FindNow system, which will
provide locator and mapping services to large corporate web sites. This
system is currently under development and is expected to be substantially
complete with commercial operation to begin during the second quarter of
1996, or shortly thereafter.
RESULTS OF OPERATIONS
As discussed in the Company's report on Form 10-K for the fiscal year ended
December 31, 1995, the Company's business changed substantially in 1995. The
results of operations for the quarter ended March 31, 1995 relate to the
Company's CD-ROM software distribution operations prior to the acquisition of
Cimarron and Navigist. The results for the quarter ended March 31, 1996
reflect the acquisitions of Cimarron and Navigist, the formation of the
Company's Internet Products Group, and include no revenues or expenses from
the Company's previous CD-ROM software distribution business as all
operations in this business were discontinued in the third quarter of 1995.
QUARTER ENDED MARCH 31, 1996 COMPARED TO THE QUARTER ENDED MARCH 31, 1995
Total sales increased by $688,085, or 1,245%. The majority of the
increase was due to the operations of Cimarron and Navigist which were
acquired in May 1995 and August 1995, respectively. These operations provided
approximately $278,000 and $354,000 in revenues from Cimarron and Navigist,
respectively during the first quarter of 1996. In addition, during the first
quarter of 1996, the Company's newly-formed Internet Products Group
contributed approximately $110,000 in sales from revenues recognized in
conjunction with the FindNow system which is being developed for a unit of
VISA International. These new revenues were offset by decreases of $55,248 in
revenues from the Company's previous business of selling software distributed
via CD-ROM. The Company ceased all activity in this business during the
quarter ending September 30, 1995.
The net loss of the Company decreased by approximately 42%, or $136,422
due to a combination of increased sales from the operations of Cimarron and
Navigist, an improvement in gross margins from 42% in 1995 to 75% of sales in
1996, and a reduction in selling general and administrative expenses as a
percent of sales when compared with the first quarter of 1995. In addition,
the Company recorded a loss of $40,644 on the disposal of assets in the first
quarter of 1995 with no corresponding loss recorded in the first quarter of
1996.
The Company's gross margins have improved primarily due to the
replacement of revenues generated from the sales of software distributed on
CD-ROM with the sales of multimedia and slide presentations and network
engineering services. Profit margins in the Company's prior business was
dependent upon completing a relatively large number of small transactions in
order to generate sufficient revenues to offset operating costs. The
company's current business involves providing Internet and Intranet
applications development and services, multimedia and slide presentations,
and network engineering consulting on a project basis. These projects are
sold on a fixed fee or time and expense basis and are priced to generate
gross margins on a stand alone basis, and are therefore less dependent on
sales volume to generate gross margin percentages. Although the revenues
recognized from the Company's
5
<PAGE>
Internet Products Group during the first quarter are project based, the
Company anticipates that future revenues from its Internet Products Group may
also contain continuing service fees, either on a fixed monthly, or
transaction basis which may affect the gross margin levels depending on the
structure of the arrangements ultimately consummated with customers.
Selling, general and administrative expenses of the Company increased
160% to $741,757 as a result of added costs of operations from the
acquisitions of Navigist and Cimarron and the Company's newly formed Internet
Products Group. However, this increase in expenses was more than offset by
the increase in sales compared to the first quarter of 1995 resulting in
selling general and administrative expenses as a percent of sales declining
from 515% in 1995 to 100% in 1996.
As part of its efforts in developing the FindNow system, the Company
capitalized $350,000 in hardware and commercial software and approximately
$18,500 in direct internal costs related to the development of this system
which have been recorded as "Other assets and deferred charges" on the
Company's balance sheet.These costs will be amortized over the estimated
useful life of three years. The company recorded $9,722 in amortization
expense for the quarter ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES; NEED FOR ADDITIONAL FINANCING
The Company had cash and equivalents of $205,024 compared to $156 at the
end of the first quarter of 1995 and $231,781 as of December 31, 1995.
Although operating results have improved compared to the first quarter of
1995 and the quarter ended December 31, 1995, the Company has sustained
continued operating losses and expects to do so for most of fiscal year 1996.
The Company used cash of $114,170 in its operations during the quarter ended
March 31, 1996.
The Company has a working capital deficit of $305,969 as of the end of the
first quarter of 1996 compared to a working capital surplus of $155,815 at
the beginning of the quarter. This change relates, in part to approximately
$150,000 in short term financing from two officers of the Company. The two
loans, totalling $150,000, are intended to provide "bridge" capital until the
Company is able to complete a private placement. In addition, the Company
also recorded a short term obligation of $350,000 related to computer
hardware and software licenses obtained from ESRI in connection with the
development of the Company's FindNow system. A cash payment of $50,000 was
made towards this obligation during the first quarter of 1996. These
transactions increased current liabilities by $500,000 while current assets
remained substantially unchanged.
The Company is continually reviewing its needs for working capital
during 1996 and beyond, and as a result, the Company believes that it will
require additional cash to fund operations in 1996 in order to continue
operations as currently planned. The Company has initiated a private
placement intended to raise approximately $1,340,000. The proceeds will be
used to further enhance the FindNow system, increase sales and customer
support resources in the Internet Products Group and provide for general
corporate working capital. The Company believes the proceeds from this
private placement would be sufficient to meet its capital needs for 12 months
following such a private placement assuming that additional revenues are
generated from the successful completion of the FindNow system and the
Company is successful in adding new customers to its FindNow system. The
Company is currently in discussions with a number of potential clients for
its FindNow system. However, as of May 15, 1995, only one customer had
contracted with the Company to utilize the FindNow system. Although the
Company believes that it has a viable market for its FindNow product based on
initial contact with prospective customers, there can be no assurance that
the Company will be able to generate sufficient revenues to cover operating
costs of the Internet Products group or corporate administrative costs.
The Company also believes that it may receive proceeds from exercise of
warrants based on verbal indication from certain warrantholders that they
desire to exercise warrants held by them. If these warrants
6
<PAGE>
are exercised, they would provide approximately $185,000 in proceeds to the
Company. However, as of the date of this report, the transaction had not
occurred and there can be no assurances that this transaction will occur or,
if exercised, that the actual number of warrants exercised would result in
proceeds equalling $185,000 to the Company.
The Company has also taken steps to minimize the operating cash needs
including reductions in operating expenses. In addition, voluntary salary
deferrals for certain of its officers which amounted to $46,859 at the end of
the quarter ended March 31, 1996 have been put in place. These amounts are
currently scheduled to be repaid during the third and fourth quarters of
1996. Without additional financing, or additional changes in the Company's
operations, the Company believes that it has sufficient working capital to
continue operations into the third quarter of 1996. In the event that the
Company is unable to obtain additional funding, the Company believes that it
can make additional changes in its operations to further reduce the Company's
cash requirements. However, the Company believes that these changes would
reduce its chances of successfully marketing its FindNow system and that
there are no assurances that the Company could continue as a going concern
even with additional cost reduction measures. Accordingly, there is an
explanatory paragraph in the auditors report describing uncertainties
concerning the Company's ability to continue as a going concern included in
the Company's audited financial statements dated December 31, 1995.
FORWARD LOOKING STATEMENTS AND RELATED BUSINESS RISKS AND ASSUMPTIONS
This discussion and analysis contains certain forward looking statements
which the Company intends that such statements be subject to the safe harbor
provision of the Securities Act of 1933 and the Securities Exchange Act of
1934. The Company's forward-looking statements include the plans and
objectives of management for future operations and relate to: (i) the ability
of the Company to generate future sales of the Company's FindNow system; (ii)
the Company's ability to successfully complete the development of the FindNow
system within the desired technical specifications; (iii) market acceptance
of the FindNow system; (iv) success of the Company in forecasting and meeting
the demand of the customers of the FindNow system, including maintaining
technical performance of the system as new FindNow customers are added; (v)
ability to maintain pricing and thereby maintain adequate profit margins on
its products and services; (vi) ability to retain qualified technical
personnel; (vii) ability of the company to maintain current pricing and sales
volume in its operations of Cimarron and Navigist, and (viii) ability to
control development costs of FindNow system within current budgeted levels.
Further, the Company's inability to successfully complete development and
contracts with additional customers for it's FindNow system would have a
material adverse effect on the Company's operations and would cause
forward-looking statements presented herein to be inaccurate.
The foregoing assumptions are based on judgments with respect to, among
other things, future economic, competitive and market conditions, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the Company's ability to control.
There are also other risks which could cause the Company's revenues or costs
to vary markedly from prior results. Accordingly, although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any such assumption could prove to be inaccurate and therefore
there can be no assurance that the results contemplated in forward-looking
statements will be realized and any statements should not be regarded as a
representation by the Company or any other person that the Company's
objectives or plans will be achieved.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 21, 1996 the shareholders approved an increase in the
number of authorized shares available for issuance under the 1990 stock
option plan from 62,908 to 1,000,000 through a shareholder consent
representing 1,630,351 of the 3,198,567 shares outstanding at that date.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Reports on Form 8-K
None
b. Exhibits - Included as exhibits are the items listed on the
Exhibit Index. The Registrant will furnish a copy of any of the exhibits
listed below upon payment of $5.00 per exhibit to cover the costs to the
Registrant of furnishing such exhibit.
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
------- ------- -------------
3.1 Certificate of Incorporation of
InfoNow Corporation. (Incorporated by
Reference to Exhibit 3.1 of Registration
No. 33-43035 on Form S-1).
3.3 By-Laws of InfoNow Corporation (Incorporated
by Reference to Exhibit 3.3 of Registration
No. 33-43035 on Form S-1).
4.1 Form of Common Stock Certificate for the
Registrant's common stock, $.001 par value
per share (Incorporated by Reference to
Exhibit 4.1 of Registration No. 33-43035 on
Form S-1).
27.1* Financial Data Schedule
* Filed herewith
** Confidential treatment was granted with respect to certain portions of
this document.
8
<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.
Dated: May 15, 1996
INFONOW CORPORATION
(Registrant)
/s/ Michael W. Johnson
--------------------------------------
Michael W. Johnson
President and Chief Executive Officer
(Principal Financial Officer)
/s/ Kevin D. Andrew
--------------------------------------
Kevin D. Andrew
Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INFONOW'S QUARTERLY REPORT TO STOCKHOLDERS FOR THE QUARTER ENDED MARCH
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 205,024
<SECURITIES> 0
<RECEIVABLES> 535,632
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,847
<PP&E> 572,148
<DEPRECIATION> 263,707
<TOTAL-ASSETS> 4,489,181
<CURRENT-LIABILITIES> 1,055,472
<BONDS> 175,909
3,198
0
<COMMON> 0
<OTHER-SE> 3,301,465
<TOTAL-LIABILITY-AND-EQUITY> 4,489,181
<SALES> 743,333
<TOTAL-REVENUES> 743,333
<CGS> 183,950
<TOTAL-COSTS> 183,950
<OTHER-EXPENSES> 741,757
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,963)
<INCOME-PRETAX> (186,337)
<INCOME-TAX> 0
<INCOME-CONTINUING> (186,337)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186,337)
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
