<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 0-21596
MDL INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3167497
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14600 Catalina Street San Leandro, CA 94577
(Address of Principal Executive Offices) (Zip Code)
(510) 895-1313
(Registrant's Telephone Number, Including Area Code)
--------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
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 periods 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
--- ---
Applicable Only to Corporate Issuers
Number of shares outstanding of each of the issuer's classes of common stock, as
of November 6, 1996;
Common Stock, $.01 Par Value - 8,747,250 shares
<PAGE> 2
INDEX
MDL INFORMATION SYSTEMS, INC.
PART I. FINANCIAL INFORMATION PAGE
NUMBER
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets--
September 30, 1996 and March 31, 1996 3
Condensed consolidated statements of operations --
Three months and six months ended September 30, 1996 and 1995 4
Condensed consolidated statements of cash flows --
Six months ended September 30, 1996 and 1995 5
Notes to condensed consolidated financial statements--
September 30, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-13
PART II. OTHER INFORMATION
Items 1-3,5 Not applicable 14
Item 4 Submission of matters to a vote of security holders 14-15
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURE 16
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
MDL INFORMATION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 MARCH 31, 1996
------------------ --------------
(UNAUDITED) (a)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 10,754 $ 15,134
Marketable securities 5,255
Accounts receivable, net 16,887 19,542
Prepaid expenses and other assets 1,600 1,733
-------- --------
Total current assets 34,496 36,409
Property and equipment, net 4,187 2,864
Capitalized software development costs, net 14,593 14,983
Deferred tax asset 2,556 2,556
Other assets 2,457 320
-------- --------
Total assets $ 58,289 $ 57,132
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable $ 1,900 $ 1,900
Accounts payable 1,633 1,429
Accrued compensation 1,436 3,219
Accrued royalties 2,314 1,590
Other accrued liabilities 1,877 1,496
Deferred revenues 8,322 10,913
-------- --------
Total current liabilities 17,482 20,547
Stockholders' equity:
Common stock, $.01 par value 87 85
Paid-in capital in excess of par 18,210 16,426
Retained earnings 23,314 20,486
Cumulative translation adjustment (804) (412)
-------- --------
Total stockholders' equity 40,807 36,585
-------- --------
Total liabilities and stockholders' equity $ 58,289 $ 57,132
======== ========
</TABLE>
(a) The balance sheet at March 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to financial statements.
3
<PAGE> 4
MDL INFORMATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
License and other $ 7,649 $ 7,290 $ 16,030 $ 13,018
Database 3,533 2,692 6,663 5,543
Maintenance 4,237 4,038 9,216 8,606
----------- ----------- ----------- -----------
Total revenues 15,419 14,020 31,909 27,167
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of revenues 2,935 2,408 5,758 4,555
Product development 3,422 2,419 7,361 5,060
Sales, marketing and customer service 6,622 6,225 13,218 12,336
General and administrative 1,462 1,005 2,824 2,027
----------- ----------- ----------- -----------
Total costs and expenses 14,441 12,057 29,161 23,978
----------- ----------- ----------- -----------
Income from operations 978 1,963 2,748 3,189
----------- ----------- ----------- -----------
Other income (expense):
Interest income (expense) 136 (17) 202 (47)
Other 83 59 451 290
----------- ----------- ----------- -----------
Total other income, net 219 42 653 243
----------- ----------- ----------- -----------
Income before income taxes 1,197 2,005 3,401 3,432
Provision for income taxes (101) (218) (573) (586)
----------- ----------- ----------- -----------
Net income $ 1,096 $ 1,787 $ 2,828 $ 2,846
=========== =========== =========== ===========
Net income per common share $ 0.11 $ 0.19 $ 0.29 $ 0.31
=========== =========== =========== ===========
Shares used in computing net income
per common share 9,686,831 9,178,975 9,660,548 9,057,040
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
MDL INFORMATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------
1996 1995
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 3,201 $ 3,503
Cash flows used in investing activities:
Purchase of short-term investments (6,855)
Proceeds from sales of marketable securities 1,600
Purchase of property and equipment (2,112) (867)
Capitalized software development costs (2,000) (3,022)
-------- -------
Net cash used in investing activities (9,367) (3,889)
-------- -------
Cash flows provided by financing activities:
Exercise of stock options 1,786 838
-------- -------
Net cash provided by financing activities 1,786 838
-------- -------
Increase/(decrease) in cash and cash equivalents (4,380) 452
-------- -------
Cash and cash equivalents at beginning of period 15,134 4,889
-------- -------
Cash and cash equivalents at end of period $ 10,754 $ 5,341
======== =======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
MDL INFORMATION SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 1996
NOTE A - BASIS OF PRESENTATION
MDL Information Systems, Inc. and its subsidiaries (collectively referred to as
"MDL" or the "Company") supply scientific information management software,
chemical information databases and related services to the pharmaceutical,
chemical, agrochemical and biotechnology industries.
The accompanying unaudited condensed and consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. 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 and six month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending March 31, 1997. The accompanying financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended March 31, 1996.
These financial statements reflect the consolidation of MDL Information Systems,
Inc. and its subsidiaries at September 30, 1996 and March 31, 1996, the
consolidated results of operations for the three and six months ended September
30, 1996 and 1995, and the consolidated cash flows for the six months ended
September 30, 1996 and 1995. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to reflect current presentation of financial information.
NOTE B - NET INCOME PER COMMON SHARE
Net income per share was computed using the weighted average number of common
shares outstanding and dilutive common equivalent shares attributable to stock
options. (see Exhibit 11.1)
NOTE C - SUBSEQUENT EVENT
On October 1, 1996 the Company paid the prior owners of the OHS database $2.1
million, consisting of $1.9 million of principal and $195 thousand of interest.
6
<PAGE> 7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q may contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results in any such forward-looking statements. Factors that might cause or
contribute to such a difference include, but are not limited to, those discussed
herein under the caption "Business Risks" and elsewhere in this Report as well
as potential fluctuations in quarterly results, product development,
technological change, competition, foreign sales, dependence upon key personnel,
management of growth and general economic and market conditions. A discussion of
such risk can be found in the Company's fiscal 1996 Annual Report on Form 10-K
under the caption "Risk Factors."
The Company is engaged in the development, marketing and support of scientific
information management software, chemical information databases and related
services. The Company's first product was MACCS. After introducing MACCS, the
Company continued to develop and introduce new products, including REACCS,
MACCS-II and CPSS, as well as a number of chemical information databases. In
September 1991, commercial shipments of ISIS (Integrated Scientific Information
System) commenced. ISIS offers an integrated client-server-based management
system for sharing scientific information throughout an organization. In March
1996, the Company released ISIS 2.0, a major upgrade to ISIS. The Company
continues to invest in ISIS.
BUSINESS RISKS
The market for integrated, client-server-based software is new and emerging. A
number of the Company's customers currently do not have in place the computing
or networking environments necessary to fully utilize ISIS. Consequently,
widespread adoption of ISIS will depend, in part, on customers purchasing and
installing client-server computing and networking capabilities. There can be no
assurance as to whether or when such systems will be installed on a widespread
basis. Although the ISIS software has been licensed to a significant number of
the Company's customers, many of those customers have licensed a limited number
of seats for evaluation purposes, and there can be no assurance that ISIS will
achieve any further degree of market acceptance. If ISIS does not achieve any
further degree of market acceptance, the Company's business, operating results
and financial condition will be materially adversely affected.
The Company's quarterly operating results have in the past and may in the future
vary significantly depending upon such factors as the timing of new product
introductions, changes in pricing policies by the Company and its competitors,
market acceptance of new products and enhanced versions of existing products,
the capital expenditure budgets of its customers and lengthy sales cycles.
Although a significant portion of the Company's revenues in each quarter result
from orders received in that quarter, the majority of the Company's expense
levels are fixed, based on expectations of future revenues. In addition, a
substantial amount of the Company's quarterly revenues have typically been
recorded in the third month of the quarter with a concentration of such revenues
in the last half of that month. The timing of the closing of large license
agreements increases the risk of quarter-to-quarter revenue and net income
fluctuations. As a result, if revenue is not realized as expected, the Company's
operating results will be materially adversely affected. The Company's
7
<PAGE> 8
quarterly revenues and operating results have also varied due to seasonal
factors. The Company believes that this seasonality is a result of its customers
postponing capital expenditures until the end of their fiscal year, which in
most cases corresponds to the Company's fiscal quarter ending December 31. Due
to all of the foregoing, it is likely that in some quarterly reporting periods
the Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's common stock
would likely be adversely affected. The Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance.
OVERVIEW/NET INCOME
Net income for the quarter ended September 30, 1996 was $1.1 million or $.11 per
share compared to net income of $1.8 million or $.19 per share for the quarter
ended September 30, 1995. The decrease in net income resulted from a 10%
increase in total revenues offset by a 20% increase in operating costs and
expenses.
Net income for the six months ended September 30, 1996 was $2.8 million or $.29
per share compared to net income of $2.8 million or $.31 per share for the six
months ended September 30, 1995. Total revenues for the six month period ended
September 30, 1996 were up 17% over 1995 while operating costs and expenses
increased by 22%.
At September 30, 1996 the Company employed 362 people as compared to 334 at
September 30, 1995.
8
<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues, certain items
in the consolidated statements of operations of the Company for the three and
six months ended September 30, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
%REV %REV %REV %REV
<S> <C> <C> <C> <C>
Revenues:
License and other 50% 52% 50% 48%
Database 23 19 21 20
Maintenance 27 29 29 32
---- ---- ---- ----
Total revenues 100% 100% 100% 100%
---- ---- ---- ----
Costs and Expenses:
Cost of revenues 19% 17% 18% 17%
Product development 22 17 23 19
Sales, marketing & customer service 44 45 41 45
General and administrative 9 7 9 7
---- ---- ---- ----
Total costs and expenses 94 86 91 88
---- ---- ---- ----
Income from operations 6 14 9 12
---- ---- ---- ----
Other income (expense):
Interest income, net 1 1
Other 1 1 1
---- ---- ----
Total other income, net 2 2 1
---- ---- ----
Income before income taxes 8 14 11 13
Provision for income taxes (1) (1) (2) (2)
---- ---- ---- ----
Net income 7% 13% 9% 11%
==== ==== ==== ====
</TABLE>
9
<PAGE> 10
REVENUES:
Total revenues for the quarter ended September 30, 1996 were $15.4 million, a
10% increase over the $14.0 million reported for the quarter ended September 30,
1995. For the six months ended September 30, 1996, total revenues were $31.9
million, a 17% increase over the $27.2 million reported for the six months ended
September 30, 1995. The increase from quarter to quarter was primarily due to a
31% increase in database revenues and a 47% increase in Professional Services
revenues offsetting a 3% decline in the licensing of software products. The
increase in the six month period was primarily due to a 69% increase in
Professional Services revenues, a 20% increase in database revenues and a 16%
increase in total ISIS revenues.
License and other revenues increased by 5% to $7.6 million for the quarter ended
September 30, 1996 from $7.3 million for the quarter ended September 30, 1995.
License and other revenues increased by 23% to $16.0 million for the six months
ended September 30, 1996 from $13.0 million for the six months ended September
30, 1995. In the quarter ended September 30, 1996, license revenues were $5.2
million, down 14% from the $6.1 million recorded in the comparable quarter ended
September 30, 1995. Professional Services revenues were $1.6 million in the
quarter ended September 30, 1996, an increase of 47% over the $1.1 million
recorded in comparable period in 1995. In the six month period ended September
30, 1996 ISIS license revenues increased by 8% to $11.7 million over the $10.9
million recorded in the comparable period ended in 1995. Professional services
revenues were $3.2 million in the six months ended September 30, 1996, an
increase of 69% over the $1.9 million recorded in the comparable period ended
September 30, 1995. ISIS license revenues for the quarter and six months ended
September 30, 1996 were 69% and 73% of total license and other revenues,
respectively, compared to 84% and 83% for the same periods ended September 30,
1995.
Database revenues increased by 31% to $3.5 million for the quarter ended
September 30, 1996 from $2.7 million for the quarter ended September 30, 1995.
Database revenues increased by 20% to $6.7 million for the six months ended
September 30, 1996 from $5.5 million for the six months ended September 30,
1995. These increases were primarily due to increased new sales and renewals of
the ACD, MDDR, CIRX and OHS database products. Database renewals represented 65%
and 69% of the total database revenues for the quarter and six months ended
September 30, 1996, respectively, as compared to 64% and 67% for the same
periods ended September 30, 1995. Database renewals are expected continue to
contribute a significant percentage of total database revenues in future
periods.
Maintenance revenues increased by 5% to $4.2 million for the quarter ended
September 30, 1996 from $4.0 million for the quarter ended September 30, 1995.
Maintenance revenues increased by 7% to $9.2 million for the six months ended
September 30, 1996 from $8.6 million for the six months ended September 30,
1995. These increases were due to an increase in ISIS maintenance offset by
declining maintenance revenues from the MACCS and REACCS product lines. In the
quarter and six months ended September 30, 1996, 62% and 59%, respectively, of
maintenance revenues were recognized under contracts for the support of ISIS as
compared to 48% and 45% for the same periods ended September 30, 1995. The
Company expects ISIS maintenance revenues to continue to increase as the Company
enters into new contracts and customers deploy more ISIS seats. Maintenance
revenues related to the MACCS and REACCS product lines are expected to continue
10
<PAGE> 11
to decline. Total maintenance revenues in future periods will depend on the mix
of these revenue sources.
Revenues from foreign sales of licenses and services include revenues
denominated in foreign currencies sold through the Company's foreign
subsidiaries and export revenues denominated in United States dollars sold
through the Company's distributors in Asia. Geographical distribution of total
revenues was as follows:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------ ------------------ ------------------
$ REV % REV $ REV % REV $ REV % REV $ REV % REV
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Region:
United States 8,431 55% 6,805 49% 15,061 47% 11,875 44%
Europe 5,303 34% 5,215 37% 12,061 38% 11,252 41%
Asia/Pacific 1,685 11% 2,000 14% 4,787 15% 4,040 15%
----- --- ------ --- ------ --- ------ ---
15,419 100% 14,020 100% 31,909 100% 27,167 194%
====== === ====== === ====== === ====== ===
</TABLE>
The geographical results vary significantly quarter to quarter and are expected
to vary significantly in the future due to the size of the Company's orders and
the length of its sales cycle. The Company expects that revenues from foreign
operations and export sales will continue to account for a significant
percentage of its total revenues, and although the Company has entered into
foreign currency hedging arrangements to minimize its risk of loss, fluctuations
in foreign currency exchange rates could affect the Company's results of
operations in the future.
COSTS AND EXPENSES:
COST OF REVENUES
Cost of revenues increased by 22% to $2.9 million in the quarter ended September
30, 1996 from $2.4 million in the quarter ended September 30, 1995. Cost of
revenues increased by 26% to $5.8 million in the six months ended September 30,
1996 from $4.6 million in the six months ended September 30, 1995. Cost of
revenues includes the amortization of previously capitalized software
development costs, royalties on software and database licenses, the amortization
of acquired technology, and other costs associated with revenues. Amortization
of capitalized software development was $1.0 million and $2.0 million in the
quarter and six months ended September 30, 1996, respectively, compared to $1.2
million and $2.4 million in the same periods ended September 30, 1995. Royalty
costs were $1.1 million and $1.9 million for the quarter and six months ended
September 30, 1996, respectively, as compared to $740 thousand and $1.3 million
for the same periods ended September 30, 1995. The increase in royalty costs was
due to higher sales of royalty bearing products. Other costs increased due to
the production and shipment of ISIS 2.0 and SCREEN 1.0 the growth in
Professional Services revenues.
PRODUCT DEVELOPMENT
The Company believes that a significant level of investment in product
development is essential to market leadership. Product development expense for
any period represents total product
11
<PAGE> 12
development expenditures less capitalized software development costs for such
period. Total product development expenditures increased by 16% to $4.4 million
in the quarter ended September 30, 1996 from $3.8 million in the quarter ended
September 30, 1995. Total product development expenditures increased by 20% to
$9.4 million for the six months ended September 30, 1996 from $7.8 million for
the six months ended September 30, 1995. This increase was due to higher
salaries and bonus accruals in the development group. Development headcount at
September 30, 1996 was 129 compared to 131 at September 30, 1995. The Company
anticipates that it will continue to commit substantial resources to product
development in the future.
The Company capitalizes software development costs based on development budgets
and begins to capitalize costs upon the establishment of technological
feasibility. The Company capitalized $1.0 million and $2.0 million of software
development costs for the quarter and six months ended September 30, 1996,
respectively, compared to $1.4 million and $2.8 million for the same periods
ended September 30, 1995. The decrease in the amount capitalized in fiscal 1997
is due to the completion of ISIS 2.0, which was released in March 1996.
SALES, MARKETING AND CUSTOMER SERVICE
Sales, marketing and customer service expenses, which include sales commissions
and bonuses, increased by 6% to $6.6 million in the quarter ended September 30,
1996 from $6.2 million in the quarter ended September 30, 1995. Sales, marketing
and customer service increased by 7% to $13.2 million in the six months ended
September 30, 1996 from $12.3 million in the six months ended September 30,
1995. The increase was primarily due to increases in headcount (from 159 at
September 30, 1995 to 178 at September 30, 1996) and higher salaries, bonuses
and commissions earned in connection with increased revenues.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased by 46% to $1.5 million for the
quarter ended September 30, 1996 from $1.0 million for the quarter ended
September 30, 1995. General and administrative expenses increased by 39% to $2.8
million for the six months ended September 30, 1996 from $2.0 million for the
six months ended September 30, 1995. The increase for both periods are
attributed to higher headcount, a concerted effort to upgrade the Company's
infrastructure and the addition in February 1996 of a new management position,
President and Chief Operating Officer. General and administrative headcount was
55 and 44 people at September 30, 1996 and 1995, respectively.
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income and expense, miscellaneous
income and expense and the realized gains and losses on foreign currency
denominated transactions. Total other income (expense) was $219 thousand and
$653 thousand for the quarter and six months ended September 30, 1996,
respectively, as compared to $42 thousand and $243 thousand for the same periods
ended September 30, 1995. The Company realized foreign currency exchange gains
of $81 thousand and $442 thousand for the quarter and six months ended September
30, 1996, respectively, as compared to $41 thousand and $258 thousand for the
same periods ended September 30, 1995. Net interest income was $136 thousand and
$202 thousand for the quarter and six months ended September 30,
12
<PAGE> 13
1996 as compared to net interest expense of $(17) thousand and $(47) thousand
for the same periods ended September 30, 1995.
PROVISION FOR INCOME TAXES
The provision for income taxes was $101 thousand and $218 thousand for the
quarters ended September 30, 1996 and 1995, respectively. The provision for
income taxes was $573 thousand and $586 thousand for the six months ended
September 30, 1996 and 1995, respectively. The provision for these periods
relates primarily to foreign income and withholding tax. As of March 31, 1996,
the Company had available for federal income tax purposes approximately $21.1
million of net operating loss carryforwards which will expire beginning in the
year ending 2009 through 2011 if not used to offset future taxable income.
The Company has adopted, for all periods presented, Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires an
asset and liability approach for financial accounting and reporting for income
taxes. Under SFAS 109, the Company recorded a $2.6 million tax benefit in the
fourth quarter of fiscal 1996 which represents the portion of the Company's
deferred tax assets that management expects will be realized. Current accounting
standards require the recognition of such tax benefits when it becomes more
likely than not that they will be realized. On this basis, the Company intends
to evaluate the amount recognized during future periods based on current and
projected operating results.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had $10.8 million of cash and cash
equivalents, $5.3 million of marketable securities and $17.0 million of working
capital. Net cash provided by operating activities was $3.2 million and $3.5
million for the six months ended September 30, 1996 and 1995, respectively. The
Company used $2.1 million and $867 thousand in the six months ended September
30, 1996 and 1995, respectively, for the purchase of property and equipment,
principally computer hardware, peripherals and in-house software upgrades. The
Company expects that future purchases of property and equipment will likely be
proportional to the Company's employee base.
The Company has secured a line of credit with a bank that permits aggregate
borrowings of up to $5.0 million, subject to the balance of eligible accounts
receivable. The interest rate on such borrowings is prime plus 1/4% and the line
matures in June 1997. The Company believes that existing cash resources, amounts
available under the line of credit and expected cash flows from operations will
be sufficient to fund the Company's cash needs for at least the foreseeable
future. The Company paid the former owners of the OHS database $2.1 million on
October 1, 1996. This payment included $1.9 million of principal, $195 thousand
of interest and finalized the OHS purchase. The Company expects its liquidity
needs for the next twelve months to be consistent with historical requirements.
At some point, the Company may require additional funds to support its working
capital requirements or for other purposes and may seek to raise such additional
funds through public or private equity financings or from other sources. There
can be no assurance that additional financing will be available or that, if
available, such financing will be obtainable on terms favorable to the Company.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 1: Legal Proceedings - Not Applicable
Item 2: Changes in Securities - Not Applicable
Item 3: Defaults Upon Senior Securities - Not Applicable
Item 4: Submission of Matters to a Vote of Security Holders -
On August 7, 1996, the Company held its 1996 Annual Meeting of
Stockholders at the Company's headquarters in San Leandro, California.
As of June 7, 1996 record date established for the annual
meeting, there were 8,645,189 shares of Common Stock issued and outstanding, all
of which were entitled to vote. Present in person or by proxy at the meeting
were stockholders representing 7,083,642 shares. Such shares represented 82%, a
quorum, of the total number of shares outstanding and entitled to vote. All of
the proposals, and all nominees to the board of directors were approved by the
stockholders.
The Company's stockholders voted on the following matters:
(1) Election of six directors. All directors proposed by management were
elected for a period of one year.
<TABLE>
<CAPTION>
NAME OF # OF VOTES # OF VOTES # OF VOTES # OF # OF BROKER
NOMINEE FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES
- ------- --- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Steven D. Goldby 6,968,532 - 115,110 - -
Thomas D. Jones 6,968,532 - 115,110 - -
Peter W. Booth 6,967,532 - 116,110 - -
Donald E. O'Neill 6,968,007 - 115,635 - -
David N. Strohm 6,968,632 - 115,010 - -
Pedro M. Cuatrecasas 6,967,832 - 115,810 - -
</TABLE>
(2) Ratification of appointment of independent public auditors. The
stockholders ratified the appointment of Ernst & Young, LLP as the
Company's independent auditors for the fiscal year ended March 31, 1997.
6,954,087 votes were cast in favor of the appointment, 127,805 votes cast
against and 1,750 abstentions.
(3) Approve an amendment to the Company's 1993 Stock Option and Restricted
Stock Plan to increase the number of Common Stock reserved for issuance
thereunder by 850,000 shares and to limit the number of shares for which any one
individual may be granted stock options each year under the 1993 Plan to a
maximum of 500,000 shares. The stockholders approved the amendment to the
Company's 1993 Stock Option and Restricted Stock Plan. 3,231,429 votes were cast
in favor of the amendment, 2,761,203 votes cast against, there were 91,520
abstentions and 999,490 broker non votes.
14
<PAGE> 15
(4) Approve an amendment to the Company's 1993 Stock Option and Restricted
Stock Plan to increase to 5,000 from 2,000 the annual grant to be made to
non-employee directors under the Automatic Grant Program and to approve a
shorter vesting schedule. The stockholders approved the amendment to the
Company's 1993 Stock Option and Restricted Stock Plan. 4,618,571 votes were cast
in favor of the amendment, 2,295,138 votes cast against, there were 92,800
abstentions and 77,133 broker non votes.
Item 5: Other Information - Not Applicable
Item 6: Exhibits and Reports on Form 8-K
(A) EXHIBITS
EXHIBIT
NUMBER:
- -------
11.1 Computation of Earnings Per Common Share
27.1 Financial Data Schedule
(B) REPORT ON FORM 8-K - Not applicable
15
<PAGE> 16
SIGNATURE
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.
MDL INFORMATION SYSTEMS, INC.
(Registrant)
Date: November 6, 1996 /s/ John J. Hanlon
_______________________________________
John J. Hanlon, Senior Vice President - Finance
(Principal Financial Officer)
16
<PAGE> 1
EXHIBIT 11.1
MDL INFORMATION SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $1,096 $1,787 $2,828 $2,846
====== ====== ====== ======
Weighted average number of common shares
outstanding 8,693 8,285 8,640 8,259
Assuming exercise of stock options reduced by the
number of shares which could have been purchased
with the proceeds from exercise of such options 994 894 1,021 798
------ ------ ------ ------
Shares used in computing net income per
common share 9,687 9,179 9,661 9,057
====== ====== ====== ======
Net income per common share $ 0.11 $ 0.19 $ 0.29 $ 0.31
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 10,754
<SECURITIES> 5,255
<RECEIVABLES> 16,887
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,600
<PP&E> 15,736
<DEPRECIATION> 11,549
<TOTAL-ASSETS> 58,289
<CURRENT-LIABILITIES> 17,482
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 40,720
<TOTAL-LIABILITY-AND-EQUITY> 58,289
<SALES> 31,909
<TOTAL-REVENUES> 31,909
<CGS> 5,758
<TOTAL-COSTS> 5,758
<OTHER-EXPENSES> 23,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,401
<INCOME-TAX> (573)
<INCOME-CONTINUING> 2,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,828
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
