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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, 1999
---------------
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 23-2707366
------------ ----------
(State or 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
--------------
(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 X No
----- -----
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, 1999
----- -----------------------------
Class A Common Stock, no par value 11,562,435
Class B Common Stock, no par value 100,000
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INFONAUTICS, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
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<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31,
1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 1999 and March 31, 1998 4
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 1999 and March 31, 1998 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
PART II: OTHER INFORMATION
Item 2. Changes in Securities 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INFONAUTICS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 3,143,343 $ 3,267,811
Receivables:
Trade, less allowance for doubtful accounts
of $87,540 in 1999 and $65,740 in 1998 ............................... 3,055,305 2,934,597
Other .................................................................... 356,166 305,121
Prepaid royalties .......................................................... 344,435 397,849
Prepaid expenses and other assets .......................................... 363,443 446,492
------------ ------------
Total current assets ............................................... 7,262,692 7,351,870
Property and equipment, net .................................................... 2,285,565 2,572,617
Other assets ................................................................... 233,978 267,885
------------ ------------
Total assets ....................................................... $ 9,782,235 $ 10,192,372
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of obligations under capital lease ......................... $ 294,623 $ 356,898
Accounts payable ........................................................... 1,685,256 1,929,598
Accrued expenses ........................................................... 1,184,621 1,484,934
Accrued royalties .......................................................... 1,644,750 1,334,669
Deferred revenue ........................................................... 7,409,282 7,807,016
------------ ------------
Total current liabilities .......................................... 12,218,532 12,913,115
Noncurrent portion of obligations under capital lease .......................... 24,485 47,209
Noncurrent portion of deferred revenue ......................................... 568,261 530,256
Convertible debt ............................................................... 2,127,843 --
------------ ------------
Total liabilities .................................................. 14,939,121 13,490,580
------------ ------------
Commitments and contingencies
Shareholders' equity (deficit):
Series A Convertible Preferred Stock, no par value, 5,000 shares authorized,
0 and 283 shares issued and outstanding
at March 31, 1999 and December 31, 1998 ................................ -- 258,483
Class A common stock, no par value; 25,000,000
shares authorized; one vote per share; 11,562,435
and 11,522,692 shares issued and outstanding at
March 31, 1999 and December 31, 1998, respectively ........................ -- --
Class B common stock, no par value; 100,000 shares
authorized, issued and outstanding; ....................................... -- --
Additional paid-in capital ................................................. 57,845,134 56,666,439
Deferred compensation ...................................................... (93,750) (125,000)
Accumulated deficit ........................................................ (62,908,270) (60,098,130)
------------ ------------
Total shareholders' equity (deficit) ............................... (5,156,886) (3,298,208)
------------ ------------
Total liabilities and shareholders' equity (deficit) ............... $ 9,782,235 $ 10,192,372
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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INFONAUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Revenues ................................................. $ 5,231,028 $ 2,583,627
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Costs and expenses:
Cost of revenues .................................... 1,709,119 876,263
Customer support expenses ........................... 272,031 225,255
Technical operations and development expenses ....... 2,216,562 1,784,480
Sales and marketing expenses ........................ 2,804,552 2,960,545
General and administrative expenses ................. 751,574 1,517,910
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Total costs and expenses ....................... 7,753,838 7,364,453
------------ -----------
Loss from operations ..................................... (2,522,810) (4,780,826)
Interest income (expense), net ........................... (287,330) 108,810
------------ -----------
Net loss ....................................... (2,810,140) (4,672,016)
Redemption of preferred stock in excess of carrying amount (74,875) --
------------ -----------
Net loss attributable to common shareholders ............. $ (2,885,015) $(4,672,016)
------------ -----------
Loss per common share- basic and diluted ................. $ (.25) $ (.49)
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Weighted average shares
outstanding- basic and diluted ....................... 11,647,200 9,493,000
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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INFONAUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................................... $ (2,810,140) $(4,672,016)
Adjustments to reconcile net loss to cash provided by (used
in) operating activities:
Depreciation and amortization ............................. 349,306 447,027
Amortization of discount on debt .......................... 296,415 --
Provision for losses on accounts receivable ............... 21,800 --
Amortization of deferred compensation ..................... 31,250 31,250
Severance and related costs ............................... -- 398,525
Changes in operating assets and liabilities:
Receivables:
Trade ................................................. 220,106 123,673
Other ................................................. (51,045) (82,084)
Prepaid and other assets ................................... 170,369 (1,493,736)
Accounts payable ........................................... (244,342) (475,359)
Accrued expenses ........................................... (300,313) 468,441
Accrued royalties .......................................... 310,081 116,916
Deferred revenue ........................................... (722,343) 80,180
------------ -----------
Net cash used in operating activities ................ (2,728,856) (5,057,183)
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment .......................... (62,254) (326,270)
Purchases of short-term investments .......................... -- (2,926,384)
Proceeds from maturity of short-term investments ............. -- 10,184,000
------------ -----------
Net cash provided by (used in) investing activities .. (62,254) 6,931,346
------------ -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock ................... 84,999 --
Repurchase of preferred stock ................................ (333,358) --
Proceeds from long term borrowings ........................... 3,000,000 --
Payments on capital lease obligations ........................ (84,999) (92,120)
------------ -----------
Net cash provided by (used in) financing activities .. 2,666,642 (92,120)
------------ -----------
Net increase (decrease) in cash and cash equivalents ............ (124,468) 1,782,043
Cash and cash equivalents, beginning of period ................... 3,267,811 2,301,933
------------ -----------
Cash and cash equivalents, end of period ......................... $ 3,143,343 $ 4,083,976
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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INFONAUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The unaudited consolidated financial statements of Infonautics, Inc.
(together with its subsidiaries, 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. It is
suggested that these financial statements be read in conjunction with the
financial statements for the year ended December 31, 1998 and the notes thereto
included in the Company's 1998 Annual Report on Form 10-K.
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. Basic and Diluted EPS:
The Company calculates earnings per share (EPS) in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which requires public companies to present basic earnings per share and,
if applicable, diluted earnings per share, instead of primary and fully diluted
EPS. Basic EPS is a per share measure of an entity's performance computed by
dividing income (loss) available to common stockholders (the numerator) by the
weighted average number of common shares outstanding during the period (the
denominator). Diluted earnings per share measures the entity's performance
taking into consideration common shares outstanding (as computed under basic
EPS) and dilutive potential common shares, such as stock options. However,
entities with a net loss do not include common stock equivalents in the
computation of diluted EPS, as the effect would be anti-dilutive.
Basic and diluted EPS are equal, as common stock equivalents are not
included as inclusion of such shares would have an anti-dilutive effect.
3. Related Party Transaction:
An amount of $145,000 is included in other receivables at March 31, 1999,
for the net amount due to the Company arising pursuant to a 1998 agreement with
the former Chairman of the Board, Chief Executive Officer and founder of the
Company.
The Company recognized severance and related expenses of approximately
$500,000 in the first quarter of 1998 related to the agreement.
4. Supplemental Disclosure of Cash Flow Information:
At March 31, 1999, included in accounts receivable and deferred revenue was
approximately $2.2 million representing that portion of subscription revenue
from long-term agreements which have been billed, but not yet received or
recognized as income.
Approximately $370,000 was recorded as of March 31, 1999 as a discount for
the issuance of convertible debt below market pursuant to the agreement
described in Note 5. During the first quarter ended March 31, 1999, $197,000 of
this discount was amortized into interest expense. Interest expense of $28,000
was accrued on the convertible debt.
Also, approximately $800,000 was recorded as of March 31, 1999 as an
additional discount on debt related to the valuation of warrants issued in
connection with the
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convertible debt. Through March 31, 1999, $71,000 of this additional discount
has been amortized and recorded as interest expense.
In connection with the repurchase of 283 shares of Series A Convertible
Preferred Stock described in Note 6, the Company charged additional paid in
capital for approximately $75,000, which represents the excess of the redemption
price over the Series A Preferred Stock accreted carrying value.
5. Convertible Debentures:
On February 11, 1999, the Company entered into a Securities Purchase
Agreement with an investor under which it agreed to issue convertible debentures
in the amount of $3,000,000 and warrants to purchase 522,449 shares of Class A
Common Stock, no par value per share, of the Company.
The debentures bear interest at a rate of 7% and mature on August 11, 2000.
The Debentures are convertible after 90 days from February 11, 1999 into that
number of shares of Common Stock of the Company equal to the principal amount of
the debentures to be converted divided by $4.13, subject to adjustment pursuant
to the terms of the debentures. In connection with this, a discount on
convertible debt of approximately $370,000 was recorded upon the issuance.
During the quarter ended March 31, 1999, $197,000 of this discount was amortized
into interest expense. The balance of this discount is to be amortized during
the second quarter of 1999.
The warrants may be exercised at any time during the five year period
following their issuance at an exercise price of $5.97 per share, which is equal
to 130% of the closing bid price of the Company's Common Stock on February 10,
1999. In connection with the issuance of the warrants, the company recorded
approximately $800,000 to additional paid in capital as an additional discount
to the debt. This discount is being amortized ratably over the term of the debt
which is eighteen months. Through March 31, 1999, $71,000 of this discount has
been amortized.
6. Shareholders' Equity (Deficit):
On July 22, 1998, the Company issued 3,000 shares of Series A Convertible
Preferred Stock and warrants to purchase 200,000 shares of Common Stock
resulting in net proceeds, after expenses, of approximately $2,950,000. In
November 1998, the holder of the Series A Convertible Preferred Stock exercised
its conversion rights for 2,717 shares of the preferred stock outstanding, and
received 1,902,778 shares of Class A Common Stock. This conversion increased
additional paid in capital by $2,479,149. On February 11, 1999, the Company
repurchased 283 shares of Series A Preferred Stock which were previously issued
on July 22, 1998 for $333,358. The Company and the holder have agreed not to
engage in additional financing under the July 1998 agreement. The exercise price
of the 200,000 warrants is as follows: $5.15 per share for 100,000 warrants and
$6.25 for the remaining 100,000 warrants. All the warrants have a five year
term.
7. Commitments and Contingencies:
Marketing Agreement:
The Company entered into a marketing agreement in March 1998, in which the
Company has agreed to pay $4.0 million in placement fees, with $1,200,000 paid
in 1998. In March 1999, the payment schedule was revised as follows: $223,333
paid in March 1999 upon the execution of the amendment, monthly payments of
$223,333 due through July, 1999, and $500,000 due in August, 1999, November,
1999, and February, 2000. Included in accrued expenses as of March 31, 1999 is
$410,000 resulting from this agreement. The fees are being amortized on a
straight-line basis as of the launch in May 1998, over the term of the two year
agreement, with $500,000 amortized during the quarter ended March
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31, 1999.
8. Subsequent event:
Accounts receivable purchase line:
The Company entered into an accounts receivable purchase agreement in May
1999, to sell its receivables to a bank, with recourse. Pursuant to the terms of
the agreement the bank may purchase up to $3,000,000 of the Company's
receivables. The bank will retain a reserve of at least 20% of any purchased
receivable, refunding this amount when the receivable is collected. There is a
1.5% per month finance charge of the average daily account balance and the
Company will pay a fee of .75% of each purchased receivable. This agreement is
collateralized by substantially all the Company's assets and either party may
cancel the agreement at any time.
8
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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 by the Company with regard to its expectations as to
financial results and other aspects of its business that involve risks and
uncertainties and may constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Words such as "may,"
"should," "anticipate," "believe," "plan," "estimate," "expect" and "intend,"
and other similar expressions are intended to identify forward-looking
statements. These include statements regarding the sufficiency of the Company's
liquidity, including cash resources, capital and utilization of the accounts
receivable purchase agreement, the number of subscribers, gross margins, current
and future expenses, future revenues and shortfalls in revenues, contract
pricing and pricing uncertainty, use of system resources and marketing effects,
growth and expansion plans, sales and marketing plans, changes in number of
sales personnel, capital expenditures, the effects of the AOL Agreement on the
Company, Year 2000 expenses, seasonality, Electric Schoolhouse, and operating
results. 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, the
risks set forth in the Company's filings with the Securities and Exchange
Commission. The Company does not intend to update these cautionary statements or
any forward-looking statements.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1998
REVENUES. Total revenues were $5,231,000 for the three months ended March 31,
1999, and $2,584,000 for the three months ended March 31, 1998.
Educational revenue accounted for $2,705,000 or 52% of revenue for the three
months ended March 31, 1999 and $1,149,000 or 44% of revenue for the three
months ended March 31, 1998. The Company had over 3,600 educational contracts at
March 31, 1999, compared to approximately 1,770 at March 31, 1998. The 3,600
contracts cover approximately 15,000 institutions.
End-user revenue accounted for $1,767,000 or 34% of revenue for the three months
ended March 31, 1999 and $1,040,000 or 40% of revenue for the three months ended
March 31, 1998. The Company had approximately 75,000 subscribers at March 31,
1999 compared to approximately 50,000 at March 31, 1998.
E-commerce online publishing (formerly content management and custom archive
services) revenue was $223,000 or 4% of revenue in the three months ended March
31, 1999, compared to $156,000, or 6% of revenue in the three months ended March
31, 1998. Content management and custom archive services revenue was generated
from primarily archive services. The Company had 11 archive customers at March
31, 1999 compared to 6 at March 31, 1998.
Extranet and intranet knowledge management services (IntelliBank) revenue was
$115,000, or 2% of revenue in the three months ended March 31, 1999, compared to
$183,000, or 7% of revenue for the three months ended March 31, 1998. The
Company recognized extranet and intranet knowledge management services revenue
in 1999 from archive service contracts that expire in 1999.
Other revenue was $421,000, or 8% of revenue for the three months ended March
31, 1999, compared to $56,000, or 3% of revenue for the three months ended March
31, 1998. Other revenue consists of sales of the Electric Library through
international partners and
9
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through partners in the US, and Company Sleuth advertising revenue.
At March 31, 1999 the Company had deferred revenue of approximately $7.98
million, down from $8.3 million at December 31, 1998. The deferred revenues
include revenue to be recognized from educational contracts, annual end-user
subscriptions and contracted archive services. Deferred revenue at March 31,
1999 consists of $6,308,000 related to educational subscriptions, $1,056,000
related to end-user subscriptions, $491,000 related to international contracts
and $123,000 related to other contracts.
COST OF REVENUES. The principal elements of the Company's cost of revenues are
royalty and license fees paid to providers of content, hardware and software,
communication costs associated with the delivery of the online services, as well
as performance based bounties paid to Web sites to obtain trials. Cost of
revenues was $1,709,000 for the three months ended March 31, 1999, compared to
$876,000 for the three months ended March 31, 1998. Cost of revenues as a
percentage of revenue for the three months ended March 31, 1999 and 1998 was 33%
and 34%, respectively. Cost of revenues in the first quarter of 1999 increased
due to bounties paid to web sites. This increase was partially offset by
decreases due to the mix of revenues and lower overall royalty percentages
compared to the first quarter of 1998.
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 $272,000 for the three months ended March 31, 1999,
compared to $225,000 for the three months ended March 31, 1998, a 21% increase.
As a percentage of revenue, customer support expenses for the first quarter were
5% in 1999 and 9% in 1998. The absolute dollar increase in 1999 resulted
primarily from higher staffing levels and the continuing need for the Company to
provide additional support to its growing customer base. The customer support
expenses, as a percentage of revenues, declined in 1999, as the staffing levels
were able to support a greater number of users. The Company anticipates
continuing to make increasing customer support expenditures as the Company
provides service to an increased number of subscribers.
TECHNICAL OPERATIONS AND DEVELOPMENT. Technical operations and development
expenses consist primarily of costs associated with maintaining the Company's
service, data center operations, hardware expenses and data conversion costs as
well as the design, programming, testing, documentation and support of the
Company's new and existing software, services and databases. To date, all of the
Company's costs for technical operations and development have been expensed as
incurred. Technical operations and development expenses were $2,217,000 or 42%
of total revenues for the three months ended March 31, 1999, compared to
$1,784,000 or 69% of total revenues for the three months ended March 31, 1998.
The absolute dollar increase was largely due to the Company's shifting of
resources, with a greater focus on product development and enhancements. The
increased expenses supported new product development and improvements and
upgrades to the Company's existing services. The level of technical operations
and development expenses may continue to increase as the Company continues to
make significant expenditures as it develops new and enhanced services and
upgrades to the current services, but should decline as a percentage of sales,
as revenues are expected to grow faster than technical operations and
development expenditures. The Company's overall effort to increase the content
available under its Electric Library service may result in an increase in data
preparation costs, which to date have not been material. Data preparation costs
are deferred and expensed over the minimum useful life of the content. The
Company believes that a possible reduction of content or the increase in data
preparation costs will not have a material adverse effect on the Company.
However, there can be no assurance that there will be no material adverse effect
on the Company.
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 costs are expensed
when incurred and
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revenue from sales is deferred over the term of the subscription or contract.
Sales and marketing expenses were $2,805,000 for the three months ended March
31, 1999, compared to $2,961,000 for the three months ended March 31, 1998,
representing a 5% decrease. The principal reasons for the decrease in absolute
dollars was the Company's decision to decrease marketing efforts for certain
products and services. As a percentage of revenue, sales and marketing costs
were 54% and 115% for the three months ended March 31, 1999 and 1998,
respectively. The Company does not anticipate significantly increasing its sales
force during 1999.
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 $752,000 for the three months ended
March 31, 1999, compared to $1,518,000 for the three months ended March 31,
1998. Included in the three months ended March 31, 1998, was a one time charge
of approximately $500,000 for separation and related costs in connection with
the resignation of the former Chairman of the Board, Chief Executive Officer and
founder of the Company. The Company does not anticipate that general and
administrative expenses will increase significantly.
INTEREST INCOME (EXPENSE), NET. The Company incurred net interest expense of
$287,000 in the three months ended March 31, 1999, as compared to net
interest income of $109,000 in the three months ended March 31, 1998.
Approximately $300,000 of interest expense was incurred in the current
quarter as a result of the amortization of the debt discount (which is due to
the warrant valuation and beneficial conversion feature) and interest expense
related to the convertible debentures issued on February 11, 1999. Interest
expense in the second quarter of 1999 is expected to increase as the Company
will continue to incur interest expense for the amortization of debt
discount, interest incurred on the debenture, and for utilization of the
accounts receivable purchase line. Interest income decreased from $148,000 to
$33,000 during the same period as the amount of investments decreased.
INCOME TAXES. The Company has incurred net operating losses since inception and
accordingly, has not recorded an income tax benefit for these losses.
LIQUIDITY AND CAPITAL RESOURCES
To date the Company has funded its operations and capital requirements through
proceeds from the private sale of equity securities, its initial public
offering, proceeds from the issuance of preferred stock and, to a lesser extent,
operating leases. In February 1999, the Company also raised funds through
issuance of convertible debt. In May 1999, the Company entered into an accounts
receivable purchase agreement with a bank. The Company intends to utilize this
arrangement to minimize the effects of seasonality on the Company's cash
collections. For the next twelve months, the Company believes it will be able to
fund its operations through existing cash and cash generated through operations,
including utilizing the accounts receivable purchase agreement.
The Company had cash, cash equivalents and investments of approximately
$3,143,000 at March 31, 1999, as compared to $3,268,000 at December 31, 1998, a
decrease of $125,000. The Company raised $3.0 million in July 1998 through
convertible preferred stock and another $3.0 million in February 1999 through
convertible debt, to supplement its working capital. The Company monitors its
cash and investment balances regularly and invests excess funds in short-term
money market funds, corporate bonds and commercial paper.
Working capital requirements are financed through a combination of internally
generated cash flow from operating activities, which fluctuate significantly
during the year due to the seasonal nature of the Company's business, managing
terms with vendors and to date equity financing.
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The Company's liquidity and capital resources may be affected by a number of
factors and risks (many of which are beyond the control of the Company),
including, but not limited to, the availability of cash flows from operations,
managing terms with vendors, and the availability of equity or working capital,
each of which may fluctuate from time to time and are subject to change on short
notice. If any such sources of liquidity were unavailable or substantially
reduced, the Company would explore other sources of liquidity. There can be no
assurance other sources of liquidity would be available or available on terms
acceptable to the Company. The rate of use by the Company of its cash resources
will depend, however, on numerous factors, including but not limited to the rate
of increases in end-user and educational subscribers and online publishing
contracts. The Company's current and future expense levels are based largely on
the Company's estimates of future revenues and are to a certain extent fixed.
The Company has recently decreased certain expenses, and may not be able to
significantly decrease expenses further. Additionally, the Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. However, any projection of future cash needs and cash flows is
subject to substantial uncertainty. If the cash and cash equivalents balance and
cash generated by operations is insufficient to satisfy the Company's liquidity
requirements, the Company may be required to sell additional debt or equity
securities, or seek other financing. The sale of additional equity or debt
securities, if available, could result in dilution to the Company's shareholders
and an increase in interest expense. There can be no assurance, however, that
the Company will be successful in such efforts or that additional funds will be
available on acceptable terms, if at all. There can be no assurance that the
bank will purchase any receivables offered under the accounts receivable
purchase agreement. In the event the Company does not meet its expected cash
flows and the efforts to raise financing are unsuccessful, this would have a
material adverse effect on the Company.
The Company used cash in operations of approximately $2,729,000 for the three
months ended March 31, 1999 compared with $5,057,000 for the comparable period
in 1998. This decrease in cash used is primarily a result of a decrease in net
loss of approximately $1.9 million.
Net cash used in investing activities was $62,000 for the three months ended
March 31, 1999. This compares to cash provided by investing activities of
$6,931,000 for the three months ended March 31, 1998. The cash provided in the
three months ended March 31, 1998 is a result of investments maturing during the
year which were not reinvested. Net cash used for capital expenditures was
$62,000 and $326,000, respectively, for the three months ended March 31, 1999
and 1998. There was no cash provided by or used in investment purchases and
proceeds for the three months ended March 31, 1999. Net cash provided by
investment purchases and proceeds was $7,258,000, net, for the three months
ended March 31, 1998.
The Company's principal commitments at March 31, 1999 consisted of commitments
under royalty licenses and other agreements, as well as obligations under
operating and capital leases. In connection with the America Online, Inc. (AOL)
Agreement entered into during March 1998, the Company has agreed to pay AOL $4.0
million in placement fees. The Company paid $1.2 million to AOL in 1998. In
March 1999, AOL and the Company amended the AOL Agreement to revise the payment
schedule for placement fees. The Company paid $223,333 at execution of the
amendment. The Company's revised payment terms require monthly payments of
$223,333 through July 1999, and $500,000 due in August 1999, $500,000 in
November 1999, and $500,000 due in February 2000. Included in accrued
liabilities is $410,000 as of March 31, 1999. In addition to the placement fees,
AOL will receive additional fees based on a sliding scale of end-user revenues.
There can be no assurance that this agreement will generate adequate revenues to
cover the associated expenditures and any significant shortfall would have a
material adverse effect on the Company.
12
<PAGE>
Capital expenditures have been, and future expenditures are anticipated to be,
primarily for facilities and equipment to support the expansion of the Company's
operations and systems. The Company expects that its capital expenditures will
increase as the number of Electric Library subscribers and archive hosting
contracts increase. As of March 31, 1999, the Company had commitments for less
than $250,000 in capital expenditures for equipment to support the increased
customer base. The Company has financed this purchase through an equipment
lease. Although the Company anticipates that its planned purchases of capital
equipment and leasehold improvements will require additional expenditures of
less than $250,000 for 1999, there can be no guarantee the Company will obtain
future lease financing. The Company does not anticipate that any Year 2000
issues will require any significant expenditures.
Net cash provided by financing activities was $2,667,000 in the three months
ended March 31, 1999, compared to cash used in financing activities of $92,000
in the three months ended March 31, 1998. In February 1999, the Company raised
an additional $3 million through the issuance of convertible debt.
At March 31, 1999, the Company had available cash, cash equivalents and
investments of approximately $3,143,000. The Company has a working capital
deficiency of approximately $4,956,000. This working capital deficiency includes
deferred revenue of $7,409,000. The Company will change its planned expenditures
or take additional cost cutting measures, if its expected rate of revenue and
subscriber growth is not achieved. If the cash and cash equivalents balance and
cash generated by operations and utilization of the accounts receivable purchase
line is insufficient to satisfy the Company's liquidity requirements, the
Company may be required to sell additional debt or equity securities. The sale
of additional equity or debt securities, if available, could result in dilution
to the Company's shareholders and an increase in interest expense. There can be
no assurance, however, that the Company will be successful in such efforts or
that additional funds will be available on acceptable terms, if at all. In the
event the Company does not meet its expected cash flows and the efforts to raise
financing are unsuccessful this would have a material adverse effect on the
Company.
YEAR 2000 COMPLIANCE
The Year 2000 problem arises because many currently installed computer systems
and software programs accept only two-digit (rather than four-digit) entries to
define the applicable year and as a result are not able to distinguish 21st
century dates from 20th century dates. Commencing in the year 2000, this could
result in a systems failure or miscalculations causing disruptions of
operations, including, among other things, an inability to provide services,
process transactions, send invoices or engage in similar normal business
activities. The Company's review of its Year 2000 compliance covers the
information technology systems used in the Company's operations ("IT Systems"),
the Company's non-IT Systems, such as building security, voice mail and other
systems and the computer hardware and software systems used by the Company's
customers who use the Company's products and services ("Products"). The
Company's Year 2000 compliance effort has already covered or will cover the
following phases: (i) identification of all Products, IT Systems, and non-IT
Systems; (ii) identification of and communication with the Company's significant
suppliers, customers, vendors and business partners whose failure to remedy
their own Year 2000 problems will affect the Company; (iii) assessment of repair
or replacement requirements; (iv) repair or replacement; (v) testing; (vi)
implementation; and (vii) creation of contingency plans in the event of Year
2000 failures. The project is being managed internally and the Company currently
plans to complete its Year 2000 compliance by the second quarter of 1999.
The Company has completed a preliminary assessment of all current versions of
its Products and believes they are Year 2000 compliant. Even so, the assessment
of whether a system or device in which a Product is embedded will operate
correctly for an end-user
13
<PAGE>
depends in large part on the Year 2000 compliance of the system or device's
other components, many of which are supplied by parties other than the Company.
The supplier of the Company's current financial and accounting software has
informed the Company that a fully Year 2000 compliant version of such software
is available. The Company is in the process of completing the implementation and
testing of such financial and accounting software on its IT Systems and
Products. The supplier of the Company's credit card processing services and
related software has made certain contractual representations to the Company
that the supplier will comply with all applicable Visa and MasterCard rules and
regulations as they relate to credit card processing and Year 2000 compliance.
Further, the Company relies, both domestically and internationally, upon various
vendors, governmental agencies, utility companies, telecommunications service
companies, delivery service companies and other service providers who are
outside of the Company's control. There is no assurance that such parties will
not suffer a Year 2000 business disruption, which could have a material adverse
effect on the Company's financial condition and results of operations.
To date, the Company has not incurred any material expenditures in connection
with identifying or evaluating Year 2000 compliance issues. The estimated total
cost of the Year 2000 compliance effort is less than $250,000. Most of its
expenses have related to the opportunity cost of time spent by employees of the
Company evaluating prior and current versions of the Products, and Year 2000
compliance matters generally. At this time, the Company does not possess the
information necessary to estimate the potential impact of Year 2000 compliance
issues relating to its other IT-Systems, non-IT Systems, prior or current
versions of its Products, its suppliers, its vendors, its business partners, its
customers, and other parties. Such impact, including the effect of a Year 2000
business disruption, could have a material adverse effect on the Company's
financial condition and results of operations.
The magnitude of the Company's Year 2000 problem (if any), the costs to complete
its Year 2000 program and the dates on which the Company believes it will be
Year 2000 compliant are based on management's best estimates and current
knowledge. These estimates were derived using numerous assumptions, including,
but not limited to, continued availability of resources and third party
compliance plans. However, there can be no assurance that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the ability to identify and correct all Year 2000 impacted areas,
the availability and cost of personnel, and the availability and cost of third
party Year 2000 solutions.
The audit, analysis and assessment phase of the Company's Year 2000 compliance
effort is based on numerous assumptions, one of the most significant of which
has to do with the percentage of non-compliant systems and program code of all
systems and program code. The Year 2000 compliance effort assumes that the
percentage of non-compliant code will be consistent with general software
industry practices, and as such, the timing to address this percentage of code
is the basis for the Company's estimated completion of its Year 2000 compliance
effort by the second quarter of 1999. Any significant differences between the
assumptions and actual percentage of non-compliant code will have an impact on
the estimated completion date and the costs of the Year 2000 compliance effort.
Because the Company anticipates having all critical systems Year 2000 compliant
no later than the end of the second quarter of 1999, it has not yet developed a
contingency plan. If Year 2000 compliance issues are discovered by the end of
the second quarter 1999, the Company then will develop a contingency plan
relating to such issues.
ELECTRIC SCHOOLHOUSE
In February 1998, the Company entered into an agreement with Marvin I.
Weinberger, the
14
<PAGE>
former Chairman of the Board, Chief Executive Officer and founder of the
Company, pursuant to which he resigned as Chairman and Chief Executive Officer
of the Company to become the Chief Executive Officer of a newly formed company
called Electric Schoolhouse, LLC that will pursue the Company's Electric
Schoolhouse project. Performance of certain obligations under the February 1998
agreement remains to be completed, and the Company continues to attempt to
finalize with Electric Schoolhouse, LLC performance of these obligations. These
obligations include, for example, the Company's 10% equity interest in Electric
Schoolhouse, LLC, which as a result of capital restructuring by Electric
Schoolhouse, LLC may result in the Company owning less than a 10% equity
interest, and the issuance by the Company of 125,000 shares of Class A Common
Stock to Mr. Weinberger. In addition, under the February 1998 agreement,
Electric Schoolhouse, LLC is obligated to repay the Company for certain expenses
and costs. The Company is attempting to finalize a revised repayment schedule
with Electric Schoolhouse, LLC for the collection of these amounts, repayment of
which was originally due on September 30, 1998 under the February 1998 agreement
and remains outstanding. The Company has agreed in substance to net the amounts
due to and due from Electric Schoolhouse, LLC, leaving approximately $171,000 to
be repaid to the Company.
SEASONALITY
The Company experiences certain elements of seasonality related to the annual
school terms. A significant number of schools align their payments and
subscription start dates for the March and October timeframe. As a result, the
Company expects seasonally strong cash collections in the third and fourth
quarters. Additionally, new sales commitments, or bookings, tend to be slower
when schools are not in session, primarily during the summer months.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On February 11, 1999, the Company entered into a Securities Purchase
Agreement with RGC International Investors, LDC ("RGC") under which it agreed to
issue convertible debentures in the amount of $3,000,000 and warrants to
purchase 522,449 shares of Class A Common Stock, no par value per share, of the
Company. Additionally, on February 11, 1999, the Company repurchased 283 shares
of Series A Preferred Stock from RGC, at a purchase price of $333,358, which
were previously issued to RGC on July 22, 1998. The Company and RGC have agreed
not to engage in additional financing under the July 1998 agreement.
The debentures bear interest at a rate of 7% per annum commencing on
February 11, 1999 and mature on August 11, 2000. The debentures are convertible
after 90 days from the closing date into that number of shares of Class A Common
Stock of the Company equal to the principal amount of the debentures to be
converted divided by $4.13, subject to adjustment pursuant to the terms of the
debentures.
The warrants may be exercised at any time during the five year period
following their issuance at an exercise price of $5.97 per share, which is equal
to 130% of the closing bid price of the Company's Common Stock on February 10,
1999. The Company has agreed to register under the Securities Act of 1933, as
amended, the resale of the Common Stock to be issued upon conversion of the
debentures or exercise of the warrants.
Item 5. Other Information
Effective January 31, 1999, the Company and Israel J. Melman, a director of
the Company, mutually agreed to terminate his consulting agreement with the
Company. The consulting agreement with Mr. Melman called for him to provide
consulting services to
15
<PAGE>
the Company for a monthly consulting fee of $3,000. The consulting agreement was
subsequently amended to provide for payment of the consulting fee in Company
stock in lieu of cash. Upon the termination of Mr. Melman's consulting
agreement, the Company paid Mr. Melman 3,918 shares of Class A Common Stock for
the final six months of the consulting agreement.
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits:
10.1 - Amendment Number 1 to Interactive Marketing Agreement
between America Online, Inc. and Infonautics Corporation dated March
2, 1999.
10.2 - Amendment No. 2 to Consulting Agreement between Israel
Melman and Infonautics, Inc. effective August 1, 1998.
10.3 - Agreement of Termination between Israel Melman and
Infonautics, Inc. dated February 26, 1999.
10.4 - Securities Purchase Agreement, dated as of February 11,
1999, between Infonautics, Inc. and RGC International Investors, LDC
(incorporated by reference as exhibit 99.1 to the Company's Current
Report on Form 8-K filed February 24, 1999 ("Form 8-K")).
10.5 - Registration Rights Agreement, dated as of February 11,
1999, between Infonautics, Inc. and RGC International Investors, LDC
(incorporated by reference as exhibit 99.2 to the Company's Form 8-K).
27.0 - Financial Data Schedule
(b) Reports on Form 8-K:
On January 21, 1999, the Registrant filed with the Securities and
Exchange Commission a current report on Form 8-K reporting, among
other things, that its stock would be listed on the Nasdaq SmallCap
Market beginning January 5, 1999, the retention of Allen & Company
Incorporated to assist the Registrant with strategic alternatives, and
steps with respect to operating expenses.
On February 11, 1999, the Registrant filed with the Securities and
Exchange Commission a current Report on Form 8-K reporting a
Securities Purchase Agreement with RGC International Investors, LDC to
issue Convertible Debentures in the amount of $3,000,000, and warrants
to purchase 522,449 shares of class A common stock of the Company.
16
<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.
INFONAUTICS, INC.
Date: May 14, 1999 /s/ David Van Riper Morris
----------------------------
David Van Riper Morris
Chief Executive Officer
Date: May 14, 1999 /s/ Federica F. O'Brien
----------------------------
Federica F. O'Brien
Director of Financial Reporting,
Acting Chief Financial Officer
(Principal Financial
and Accounting Officer)
17
<PAGE>
Exhibit 10.1
AMENDMENT NUMBER 1
TO
INTERACTIVE MARKETING AGREEMENT
This Amendment Number 1 (this "Amendment") to that certain Interactive
Marketing Agreement dated March 10, 1998 (the "Agreement"), by and between
AMERICA ONLINE, INC. ("AOL"), a Delaware corporation with its principal offices
at 22000 AOL Way, Dulles, VA 20166, and INFONAUTICS CORPORATION, A WHOLLY-OWNED
SUBSIDIARY OF INFONAUTICS, INC. ("Infonautics") with its principal offices at
900 West Valley Road, Suite 1000, Wayne, Pennsylvania 19087-1830, is made this
2nd day of March, 1999 (the "Execution Date"). Defined terms used herein but not
defined shall be as defined in the Agreement.
For valuable mutual consideration, the receipt of which is hereby
acknowledged, and intending to be legally bound, the Parties hereto agree to
amend the Agreement as follows:
1. SECTION 3.1, PLACEMENT FEES: This section shall be deleted in its entirety
and replaced with the following: "AOL acknowledges the receipt of One
Million Two Hundred Thousand Dollars ($1,200,000) from Infonautics (i) as
payment in full by Infonautics of its obligations under Sections 3.1(i) and
3.1(ii) of the Agreement for the period beginning on the Commercial Launch
date and ending October 31, 1998 prior to this Amendment and (ii) as
payment in part by Infonautics of its obligation to make the November 1,
1998 quarterly payment due under Section 3.1 prior to this Amendment.
Infonautics shall make its remaining placement fee payments to AOL as
follows: Infonautics shall pay AOL the sum of Two Hundred Twenty Three
Thousand, Three Hundred and Thirty Three Dollars ($223,333) within two (2)
days of execution of this Amendment No. 1. Thereafter, on the first of
every month beginning with March, 1999 and ending with July, 1999,
Infonautics shall be invoiced in the amount of Two Hundred Twenty Three
Thousand, Three Hundred and Thirty Three Dollars ($223,333), payable to AOL
net thirty (30) days from the invoice date. On August 1, 1999, November 1,
1999, and February 1, 2000 Infonautics shall be invoiced in the amount of
Five Hundred Thousand Dollars ($500,000), payable net thirty (30) days from
the invoice date. If any payment is not made within thirty (30) days of the
invoice date, then the amount due shall immediately and without notice
increase by five percent (5%) of the outstanding balance."
2. SECTION 4.1, TERM: The fourth sentence of this section shall be deleted in
its entirety and replaced with the following: "'Full Contract Terms' shall
mean Infonautics shall continue to pay to AOL placement fees in the amount
of either (i) Five Hundred Thousand Dollars ($500,000) per quarter or (ii)
Two Hundred Twenty Three Thousand Three Hundred Thirty Three Dollars
($223,333) per month based on the then-current payments at the time of
implementation of such Full Contract Terms, as specified in Section 3.1.
All other terms and provisions of this Agreement shall apply during any
such Renewal Term."
3. AGREEMENT. Except as specifically amended hereby, the Agreement remains in
full force and effect.
4. COUNTERPARTS. This Amendment may be executed in counterparts, each of which
will be deemed an original and all of which together will constitute one
and the same document.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
day and year first written above.
AMERICA ONLINE, INC. INFONAUTICS CORPORATION
By: /s/ David M. Colburn By: /s/ Van Morris
Print Name: David M. Colburn Print Name: Van Morris
Title: Sr. Vice President Title: President
<PAGE>
Exhibit 10.2
AMENDMENT NO. 2 TO CONSULTING AGREEMENT
This Amendment No. 2 (this "Amendment") to Consulting Agreement is
entered into as of the 1st day of August, 1998, between INFONAUTICS, INC., a
Pennsylvania corporation formerly known as Infonautics Corporation (the
"Corporation"), and ISRAEL MELMAN ("Melman").
WHEREAS, the parties entered into a Consulting Agreement effective as
of July 1, 1994 that was amended by Amendment No. 1 thereto effective as of
August 1, 1996 (the "Agreement");
WHEREAS, the parties desire to amend the Agreement effective as of
August 1, 1998 to provide that the consulting fee shall be payable semiannually
in shares of the Corporation's Class A Common Stock and to amend the termination
provisions of the Agreement on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and intending to be legally bound hereby, the parties agree as follows:
1. Paragraph 2 of the Agreement is hereby amended and restated to read
in its entirety as follows:
"2. COMPENSATION. In consideration of the consulting services
rendered by Melman to the Corporation hereunder, the Corporation shall
pay to Melman a consulting fee equal to that number of shares (rounded
to the nearest whole share) of Class A Common Stock that is calculated
by dividing $18,000 by the Fair Market Value of the Corporation's
Class A Common Stock on the applicable Determination Date (each as
hereinafter defined), regardless of whether the Corporation requires
Melman to perform any specific consulting services during the
applicable semiannual period. The consulting fee shall be payable
semiannually, commencing January 31, 1998 (the initial Determination
Date). The consulting fee is the entire compensation to which Melman
is entitled for
<PAGE>
performance of the consulting services under this Agreement. For
purpose of this Agreement, if the Corporation's Class A Common Stock
is traded in a public market "Fair Market Value" shall mean, if the
principal trading market for the Corporation's Class A Common Stock is
a national securities exchange or the National Market segment of The
Nasdaq Stock Market, the last reported sale price thereof on the
Determination Date or (if there were no trades on the date) the latest
preceding date upon which a sale was reported, or, if the
Corporation's Class A Common Stock is not principally traded on such
exchange or market, the mean between the last reported "bid" and
"asked" prices thereof on the Determination Date, as reported on
Nasdaq or, if not so reported, as reported by the National Daily
Quotation Bureau, Inc. or as reported in a customary financial
reporting service, as applicable and as the Board of Directors or a
Committee thereof determines. For purposes of this Agreement, if the
Corporation's Class A Common Stock is not traded in a public market or
subject to reported transactions or "bid" or "ask" quotations as set
forth above "Fair Market Value" shall be as determined by the Board of
Directors or a Committee thereof. For purpose of this Agreement, the
Determination Date shall be January 31 or July 31 for the semiannual
period following the rendering of consulting services by Melman.
2. Paragraph 7 of the Agreement is hereby amended and restated to read in
its entirety as follows:
"7. TERMINATION.
(a) Melman's engagement as a consultant to the Corporation
and the term of this Agreement shall commence on the date hereof and shall
continue until July 31, 2000. This Agreement may be renewed for successive
additional periods of one year each by mutual agreement of the parties at least
90 days prior to the expiration of the applicable period.
(b) This agreement and all of Melman's rights hereunder
shall terminate upon the death of Melman, and neither Melman nor his estate
shall have any further rights hereunder, except for any expense reimbursements
through the date of death."
3. All references to "this Agreement" in the Agreement shall refer to the
Agreement, as amended by this Amendment.
4. Except as amended hereby, the Agreement shall remain in full force and
effect. The parties ratify and confirm the Agreement as amended hereby.
IN WITNESS WHEREOF, the parties have executed this Amendment No.
2 on
<PAGE>
the date first written above.
INFONAUTICS, INC.
By: /s/ Israel Melman
----------------------------- Israel Melman
Name:
Title:
<PAGE>
Exhibit 10.3
AGREEMENT OF TERMINATION
This Agreement of Termination (this "Termination") is entered into as of
the 26th day of February, 1999 between INFONAUTICS, INC., a Pennsylvania
corporation formerly known as Infonautics Corporation (the "Corporation"), and
ISRAEL MELMAN ("Melman").
WHEREAS, the parties entered into a Consulting Agreement effective as of
July 1, 1994 that was amended by Amendment No. 1 thereto effective as of August
1, 1996 and Amendment No. 2 thereto effective as of August 1, 1998 (the
"Agreement");
WHEREAS, Melman has requested the termination of the Agreement effective as
of January 31, 1999 and the parties have agreed to such termination and the
Corporation has agreed to provide for final compensation to Melman thereunder.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and intending to be legally bound hereby, the parties agree as follows:
1. The Agreement is hereby terminated and ended, and shall be of no
further force and effect.
2. As consideration for Melman's consulting services to the Corporation
under the terms of the Agreement and as full and final payment thereunder,
Melman shall be paid a consulting fee equal to 3,918 shares of Class A Common
Stock of the Corporation. Except as set forth in this Paragraph 2 of this
Termination, the Corporation shall have no further obligation to Melman under
the Agreement.
3. Melman remises, releases and forever discharges the Corporation and
its successors and assigns, from any and all rights, claims, demands,
agreements, contracts, covenants, promises, actions, suits, causes of action,
obligations, bonds, variances, controversies, debts, costs, sums of money,
expenses, accounts, damages, judgments, losses and liabilities of whatever kind
or nature, in law or in equity or otherwise, whether known or unknown which
Melman ever had, now has, or shall in the future have, or which its successors,
assigns or representatives shall or may in the future have, for any reason
whatsoever arising out of or relating to the Agreement.
4. This Termination may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Termination on the date
first written above.
INFONAUTICS, INC.
By: /s/ Gerard J. Lewis, Jr. /s/ Israel Melman
Title: VP + General Counsel ISRAEL MELMAN
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,143,343
<SECURITIES> 0
<RECEIVABLES> 3,142,845
<ALLOWANCES> 87,540
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<CURRENT-ASSETS> 7,262,692
<PP&E> 5,882,024
<DEPRECIATION> 3,596,459
<TOTAL-ASSETS> 9,782,235
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<BONDS> 2,127,843
0
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<TOTAL-LIABILITY-AND-EQUITY> 9,782,235
<SALES> 5,231,028
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<TOTAL-COSTS> 7,753,838
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