<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
- - ----- 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 0-28284
INFONAUTICS, INC.
(exact name of registrant as specified in its charter)
Pennsylvania 23-2702366
------------ ----------
(State of other jurisdiction (IRS Employer ID No.)
of incorporation of organization)
900 West Valley Road, Suite 1000, Wayne, Pa 19087
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(Address of principal executive offices)
(610) 971-8840
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(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. Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at March 31, 1996
----- -----------------------------
Class A Common Stock, no par value 5,935,748
Class B Common Stock, no par value 100,000
1
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INFONAUTICS, INC.
INDEX
Page Number
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) as of March 31,
1996 and December 31, 1995 3
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 1996 and March 31, 1995 4
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 1996 and March 31, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
2
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INFONAUTICS, INC.
Consolidated Balance Sheets
(unaudited)
March 31, December 31,
1996 1995
------------ -------------
Assets
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . $ 10,974,019 $ 962,010
Receivables:
Trade. . . . . . . . . . . . . . . . . . . ... 127,800 125,345
Other. . . . . . . . . . . . . . . . . . . . . 52,291 250,000
Prepaid expenses and other assets. . . . . . . . . 129,588 92,210
------------ ------------
Total current assets. . . . . . . . . . . 11,283,698 1,429,565
Property and equipment, net. . . . . . . . . . . . . 845,882 816,261
Prepaid and other assets . . . . . . . . . . . . . . 157,969 156,635
Deferred financing costs . . . . . . . . . . . . . . 114,410 130,000
------------ ------------
Total assets. . . . . . . . . . . . . . . . $12,401,959 $ 2,532,461
------------ ------------
------------ ------------
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Note payable - funding agreement . . . . . . . . . -- 94,245
Accounts payable . . . . . . . . . . . . . . . . . 669,055 756,169
Due to officer . . . . . . . . . . . . . . . . . . -- 48,500
Accrued expenses . . . . . . . . . . . . . . . . . 1,379,776 1,544,172
Deferred revenue . . . . . . . . . . . . . . . . . 656,000 500,000
------------ ------------
Total current liabilities . . . . . . . . . 2,704,831 2,943,086
Note payable - funding agreement . . . . . . . . . . -- 138,192
------------ ------------
Total liabilities . . . . . . . . . . . . . 2,704,831 3,081,278
------------ ------------
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, no par value. . . . . . . . . . . -- --
Class A common stock, no par value; 25,000,000
shares authorized; one vote per share;
5,935,748 shares issued and outstanding at
March 31, 1996 and December 31,1995. . . . . . -- --
Class B common stock, no par value; 100,000
shares authorized, issued and outstanding;
50 votes per share . . . . . . . . . . . . . . -- --
Class C common stock, no par value; 2,000,000
shares authorized; 1,201,086 shares issued
and outstanding at March 31, 1996. . . . . . -- --
Additional paid-in capital . . . . . . . . . . . . 24,743,678 11,313,997
Deferred compensation. . . . . . . . . . . . . . . (468,750) --
Accumulated deficit. . . . . . . . . . . . . . . . (14,520,656) (11,505,336)
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9,754,272 (191,339)
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Less notes and stock subscription receivables. . . (57,144) (357,478)
------------ ------------
Total shareholders' equity (deficit). . . . 9,697,128 (548,817)
------------ ------------
Total liabilities and shareholders' equity. $ 12,401,959 $ 2,532,461
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements.
3
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INFONAUTICS, INC.
Consolidated Statements Of Operations
(unaudited)
Three months ended March 31,
----------------------------
1996 1995
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Revenues . . . . . . . . . . . . . . . . . . . . . . $ 190,141 $ 25,453
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Costs and expenses:
Cost of revenues.. . . . . . . . . . . . . . . 97,689 13,363
Customer support expenses. . . . . . . . . . . 68,906 17,540
Development expenses . . . . . . . . . . . . . 1,355,385 538,946
Sales and marketing expenses . . . . . . . . . 920,176 184,834
General and administrative expenses. . . . . . 771,667 276,330
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Total costs and expenses. . . . . . . . . . 3,213,823 1,031,013
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Loss from operations.... . . . . . . . . . . . . . . (3,023,682) (1,005,560)
Interest income (expense), net . . . . . . . . . . . 8,362 (7,791)
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Net loss. . . . . . . . . . . . . . . . . . $(3,015,320) $(1,013,351)
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Net loss per common equivalent share . . . . . . . . $ (0.50) $ (0.17)
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Weighted average number of common and equivalent
shares outstanding . . . . . . . . . . . . . . . . 6,062,289 6,062,289
------------ ------------
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The accompanying notes are an integral part of the financial statements.
4
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INFONAUTICS, INC.
Consolidated Statements Of Cash Flows
(unaudited)
Three months ended March 31,
-----------------------------
1996 1995
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Cash flows from operating activities:
Net Loss . . . . . . . . . . . . . . . . . . . . . (3,015,320) (1,013,351)
Adjustments to reconcile net loss to cash provided
by (used in) operating activities:
Depreciation and amortization. . . . . . . . . 129,816 63,012
Amortization of deferred compensation. . . . . 31,250 --
Changes in operating assets & liabilities:
Receivables:
Trade . . . . . . . . . . . . . . . . . . (2,455) (25,454)
Other . . . . . . . . . . . . . . . . . . 197,709 (53,324)
Prepaid expenses and other assets . . . . . (37,378) 42,826
Prepaid licensing fee . . . . . . . . . . . 2,852 (39,618)
Other assets. . . . . . . . . . . . . . . . (4,186) 13,410
Accounts payable. . . . . . . . . . . . . . (87,114) (42,876)
Accrued expenses. . . . . . . . . . . . . . (148,806) 238,049
Deferred revenue. . . . . . . . . . . . . . 156,000 (14,000)
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Net cash used in operating activities . (2,777,632) (831,326)
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Cash flows from investing activities:
Purchases of property and equipment. . . . . . . . (159,437) (89,122)
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Net cash used in investing activities . (159,437) (89,122)
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Cash flows from financing activities:
Proceeds from issuance of common stock, net. . . . 13,230,015 310,000
Payments under note payable - funding agreement. . (232,437) --
Proceeds from long-term borrowings and note
payable. . . . . . . . . . . . . . . . . . . . . -- 31,000
Repayment of loans to officer. . . . . . . . . . . (48,500) (12,125)
------------ ------------
Net cash provided by financing
activities . . . . . . . . . . . . . 12,949,078 328,875
------------ ------------
Net increase/(decrease) in cash and
cash equivalents . . . . . . . . . . 10,012,009 (591,573)
Cash and cash equivalents, beginning of period . . . 962,010 718,364
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Cash and cash equivalents, end of period . . . . . . $10,974,019 $ 126,791
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information and noncash investing and
financing activities:
Cash paid for interest expense . . . . . . . . 58,916 2,326
Noncash items:
Issuance of stock for note and
subscription receivable . . . . . . . . . -- 54,000
The accompanying notes are an integral part of the financial statements.
5
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INFONAUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements of Infonautics, Inc. (the "Company") presented
herein have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission for
quarterly reports on Form 10-Q. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes, however, that
the disclosures in this Report are adequate to make the information presented
not misleading. It is suggested that these financial statements be read in
conjunction with the financial statements for the year ended December 31,
1995 and the notes thereto included in the Company's Registration Statement
on Form S-1 (No. 333-2428).
The financial information in this Report reflects, in the opinion of
management, all adjustments of a normal recurring nature necessary to present
fairly the results for the interim period. Quarterly operating results may
not be indicative of results which would be expected for the full year.
2. Private Placement and Initial Public Offering
On February 26, 1996, the Company completed a private placement in which it
issued 1,201,086 shares of Class C Common Stock with proceeds to the Company of
approximately $12.9 million, which is net of approximately $0.8 million of
offering expenses.
In May 1996, the Company completed an initial public offering of 2,250,000
shares of its Class A Common Stock at $14.00 per share. The proceeds to the
Company, net of underwriting discounts, commissions and offering expenses were
approximately $28.5 million.
Concurrent with the closing of the initial public offering, all outstanding
shares of Class C Common Stock were converted into an equal number shares of
Class A Common Stock.
3. Shareholders' Equity
In February 1996, the Board of Directors of the Company authorized the
following, which were subsequently approved by the shareholders in April
1996: (i) an amendment to the Company's Articles of Incorporation, changing
the name of the Company from Infonautics Corporation to Infonautics, Inc.;
(ii) an increase in the number of authorized shares of Class A Common Stock
to 25,000,000; (iii) a 2-for-1 stock split in the form of a stock dividend;
(iv) a 500,000 increase in the number of shares of Class A common Stock that
may be issued under the 1994 Omnibus Stock Option Plan and (v) the adoption
of the 1996 Equity Compensation Plan, which provides for the issuance of a
maximum of 500,000 shares of Class A Common Stock pursuant to grants of
stock options, stock appreciation rights, restricted stock or performance
units.
6
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4. Net Loss Per Common Equivalent
The net loss per common equivalent share is computed based upon the
weighted average number of common shares outstanding during the period.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
Topic 4-D, all common shares and common equivalent shares issued by the
Company during the twelve-month period prior to the Company's initial public
offering have been included in the calculation as if they were outstanding,
using the treasury stock method, for all periods presented, at the initial
public offering price of $14.00 per share.
7
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Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
This Report contains, in addition to historical information, forward
looking statements that involve risks and uncertainties. These forward looking
statements include statements regarding the Company's growth and expansion plans
and the sufficiency of the Company's liquidity and capital. Such statements are
based on management's current expectations and are subject to a number of
uncertainties and risks that could cause actual results to differ materially
from those described in the forward-looking statements. Factors that may cause
such a difference include, but are not limited to, those described under "Risk
Factors" in the Company's Prospectus dated April 29, 1996, issued in connection
with the Company's Registration Statement on Form S-1 (333-2428).
Results of Operations
Revenues
Revenue increased from $25,000 for the three months ended March 31, 1995
to $190,000 for the three months ended March 31, 1996. Substantially all
revenue is attributable to subscription and hourly usage fees of the Homework
Helper service on Prodigy that was introduced by the Company during the first
quarter of 1995. The increase in Homework Helper revenues is due to an
expansion of the Company's subscriber base resulting from Prodigy's marketing
of the service to its existing subscriber base since March 1995.
As of March 31, 1996, the Company has recorded deferred revenue of
$656,000, compared to $500,000 at December 31, 1995. No deferred revenue had
been recorded as of March 31, 1995. Deferred revenue is primarily related to
two agreements; a marketing agreement and an agreement to license the
Company's core technology.
Costs and Expenses
Cost of Revenues. Cost of revenues consists primarily of royalties and
license fees paid to providers of content, hardware and software, as well as
communication costs associated with the delivery of the online services. Cost of
revenues were $98,000 for the three months ended March 31, 1996, as compared to
$13,000 for the same period in 1995.
Customer Support. Customer support expenses consist primarily of costs
associated with the staffing of professionals responsible for assisting users
with technical and product issues and monitoring customer feedback. Customer
support expenses were $69,000 for the three months ended March 31, 1996, as
compared to $18,000 for the same period in 1995. This increase primarily
reflects costs incurred to increase the size of the support staff from two
employees at March 31, 1995 to six employees at March 31, 1996 to support an
increased number of users.
8
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Development. Development expenses consist primarily of costs associated
with the design, programming, testing, documentation and support of the
Company's new and existing software and services. Development expenses were
$1,355,000 for the three months ended March 31, 1996, as compared to $539,000
for the same period in 1995. This increase is largely due to the growth of the
development staff in order to support increased development activities, most
importantly, completion of the Company's Internet service, Electric Library. The
staff grew from nine employees at March 31, 1995 to 21 employees as of March 31,
1996. The Company anticipates further increasing staff and making significant
expenditures to develop new and enhanced services and products.
Sales and Marketing. Sales and marketing costs consist primarily of costs
related to compensation, attendance at conferences and trade shows,
advertising, promotion and other marketing programs. Sales and marketing
expenses were $920,000 for the three months ended March 31, 1996, as compared to
$185,000 for the same period in 1995. This increase was a result of the
continued efforts to increase sales and expand distribution channels.
Promotional marketing programs increased, mainly to support the introduction of
Electric Library, and the number of sales and marketing personnel grew. The
staff increased from two employees at March 31,1995 to 11 employees as of March
31, 1996. The Company anticipates further increasing the size of its sales and
marketing staff and expects to incur significant increased expenditures for
promotional and advertising activities.
General and Administrative. General and administrative expenses consist
primarily of expenses for administration, office operations, finance and general
management activities, including legal, accounting and other professional fees.
General and administrative expenses were $772,000 for the three months ended
March 31, 1996, as compared to $276,000 for the same period in 1995. The
increases in general and administrative expense were due to the expansion of
internal staffing and increase in professional service fees to support the
Company's expanded operations. The Company anticipates that general and
administrative expenses will continue to increase as the Company hires
additional personnel and incurs additional costs related to being a public
company, such as expenses related to directors' and officers' insurance,
investor relations programs and increased professional fees.
Interest income (expense), net
Interest income (expense), net consists of interest earned on cash and cash
equivalents, offset by interest expense on equipment financing, debt and a loan
from an officer. Interest income (expense), net increased to $8,000 from
$(7,000), for the three months ended March 31, 1996 and 1995, respectively.
During the first quarter of 1996, the Company paid off its loan from officer and
debt. Also in the first quarter, $12.9 million of net proceeds received by the
Company from its private placement of Class C Common Stock that was completed in
the first quarter were invested in money market accounts. With these proceeds,
and the proceeds from the initial public offering which the Company received on
May 3, 1996, the Company expects to see an increase in interest income over
prior periods.
9
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Provision for Income Taxes
The Company has no provision for income taxes for the first quarter of 1996
and 1995 since it incurred net losses.
Liquidity and Capital Resources
The Company's cash and cash equivalent balance was $10,974,000 at March 31,
1996, as compared to $962,000 at December 31, 1995. Net cash used in operations
was $(2,832,000) for the three months ended March 31, 1996, as compared to
$(831,000) used for operations for the same period in 1995. The increase in net
cash used in operations was primarily attributable to the increased net loss.
Net cash used in investing activities was $159,000 for the three months
ended March 31, 1996, as compared to $89,000 for the same period in 1995.
Investing activities consisted primarily of purchases of property and
equipment.
Net cash provided by financing activities was $13,003,000 for the three
months ended March 31, 1996, as compared to $329,000 for the same period in
1995. This increase resulted from the sale, in February 1996, of Class C Common
Stock in a private placement which generated proceeds of $12.9 million, net of
offering expenses.
The Company completed an initial public offering in May 1996 and received
proceeds totaling $29,250,000. The Company estimates that it has incurred
approximately $700,000 in initial public offering expenses that will be paid out
of these proceeds.
Assuming that there is no significant change in the Company's business, the
Company believes that cash-flow from operations together with existing cash
balances and proceeds from the initial public offering will be sufficient to
meet its working capital requirements for at least the next twelve months.
10
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
The shareholders approved the following actions by partial
written consent on February 6, 1996: (i) an amendment to the Company's
Articles of Incorporation in connection with the Company's private placement of
Class C Common Stock and (ii) an increase in the number of shares of Class A
Common Stock that may be issued under the Company's 1994 Omnibus Stock Option
Plan to 550,000 shares.
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits:
11.1 Computation of net income (loss) per common share for the
three months ended March 31, 1996 and 1995.
(b) Reports on Form 8-K:
None.
11
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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.
INFONAUTICS, INC.
Date: June 6, 1996 /s/ Marvin I. Weinberger
----------------------------
Marvin I. Weinberger
Chief Executive Officer
Date: June 6, 1996 /s/ Ronald A. Berg
----------------------------
Ronald A. Berg
Vice President-Finance and
Administration, Chief Financial Officer
(Principal Financial
and Accounting Officer)
12
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INFONAUTICS, INC.
Computation of Earnings Per Share
THREE MONTHS OF ENDED MARCH 31,
1996 1995
-------------------------------------
Net loss applicable to
common shares ($3,015,320) ($1,013,351)
----------- -----------
----------- -----------
Weighted average number
of shares outstanding
during the period 3,963,466 3,963,466
Incremental shares
calculated per
SAB Topic 4:D 2,098,823 2,098,823
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Total weighted average
number of common and
equivalent shares
outstanding 6,062,289 6,062,289
----------- -----------
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Net loss per common
equivalent share ($0.50) ($0.17)
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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ITEM 1 FINANCIAL STATEMENTS ITEM 4 N AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,974,019
<SECURITIES> 0
<RECEIVABLES> 127,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,283,698
<PP&E> 1,326,640
<DEPRECIATION> 480,758
<TOTAL-ASSETS> 12,401,959
<CURRENT-LIABILITIES> 2,704,831
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,697,128
<TOTAL-LIABILITY-AND-EQUITY> 12,401,959
<SALES> 190,141
<TOTAL-REVENUES> 190,141
<CGS> 0
<TOTAL-COSTS> 3,213,823
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,916
<INCOME-PRETAX> (3,015,320)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,015,320)
<EPS-PRIMARY> (.50)
<EPS-DILUTED> (.50)
</TABLE>
