-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K3Ng7smr4vdhvU/LvmLn17yFmO+4jUZMg/Z7GsWnqKxDVEJJqhdbnXPukS6ndhOj BFCNohK2oj1jGO3TsdK60Q== 0000950144-97-001473.txt : 19970307 0000950144-97-001473.hdr.sgml : 19970307 ACCESSION NUMBER: 0000950144-97-001473 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: A D A M SOFTWARE INC CENTRAL INDEX KEY: 0000863650 STANDARD INDUSTRIAL CLASSIFICATION: 7372 IRS NUMBER: 581878070 STATE OF INCORPORATION: GA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26962 FILM NUMBER: 97535956 BUSINESS ADDRESS: STREET 1: 1600 RIVEREDGE PARKWAY STREET 2: STE 800 CITY: ATLANTA STATE: GA ZIP: 30328 BUSINESS PHONE: 7709800888 MAIL ADDRESS: STREET 1: 1600 RIVEREDGE PKWY STREET 2: STE 800 CITY: ATLANTA STATE: GA ZIP: 30328 10-Q 1 A.D.A.M. SOFTWARE INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO FORM 10-Q SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: December 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from --------------------- Commission file Number: 0-26962 A.D.A.M. Software, Inc. ------------------------------------------------------------------ (Exact Name of Registrant as Specified in its charter) Georgia 58-1878070 ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1600 RiverEdge Parkway, Suite 800 Atlanta, Georgia 30328 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) 770-980-0888 -------------------------------- (Registrant's telephone number, including area code) N/A ------------------------------------------------------------- (Former name or former address, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. There are 5,254,647 shares of common stock, par value $.01 per share, outstanding as of February 12, 1997. 2 A.D.A.M. Software, Inc. Index Part I - Financial Information
ITEM 1. Financial Statements Condensed Balance Sheet at December 31, 1996 and March 31, 1996.......................................................................... 3 Condensed Statement of Operations for the Three and Nine Months Ended December 31, 1996 and 1995.................................................................................... 4 Condensed Statement of Cash Flows for the Nine Months Ended December 31, 1996 and 1995.............................................................................. 5 Notes to Condensed Financial Statements....................................................................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................. 9 Part II - Other Information ITEM 6. Exhibits and Reports on Form 8-K.............................................................................. 12
3 PART I: FINANCIAL INFORMATION A.D.A.M. Software, Inc. FINANCIAL STATEMENTS Condensed Balance Sheet (in thousands, except share data)
December 31, March 31, 1996 1996 ---- ---- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,813 $ 5,352 Short-term investments 9,996 10,981 Accounts receivable (net of allowances of $712 and $766, respectively) 607 448 Inventories 448 433 Prepaids and other 113 115 ------- ------- Total current assets 12,977 17,329 Property and equipment, net 771 889 Software development costs, net 247 105 Restricted certificate of deposit 457 548 ------- ------- $14,452 $18,871 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 544 $ 526 Deferred revenue 340 - Other accrued expenses 1,119 1,199 Notes payable and other current obligations - 250 ------- ------- Total current liabilities 2,003 1,975 Long-term obligations - - ------- ------- 2,003 1,975 Convertible preferred stock, no par value; 10,000,000 shares authorized; 0 Series A shares issued and outstanding - - Common Stock, $.01 par value; 20,000,000 authorized; 5,254,647 and 5,234,647 shares issued and outstanding 52 52 Other shareholders' equity 12,397 16,844 ------- ------- $14,452 $18,871 ======= =======
The accompanying notes are an integral part of these financial statements. 3 4 A.D.A.M. Software, Inc. Condensed Statement of Operations (in thousands, except share data) (unaudited)
Three Months Ended Nine Months Ended December 31, December 31, -------------------- ------------------ 1996 1995 1996 1995 ---- ---- ---- ---- Net revenues $1,503 $2,017 $ 3,464 $ 5,896 ------ ------ ------- ------- Cost and expenses Cost of revenues 274 316 929 1,113 Sales and marketing 1,064 1,062 3,499 2,954 Product development 400 701 1,939 2,079 General and administrative 565 502 1,869 1,331 Restructuring charge - - 490 - ------ ------ ------- ------- 2,303 2,581 8,726 7,477 ------ ------ ------- ------- Operating loss (800) (564) (5,262) (1,581) Interest income 164 137 723 177 Interest expense (1) (62) (9) (308) ------ ------ ------- ------- Loss before income taxes (637) (489) (4,548) (1,712) Income Taxes - - - - ------ ------ ------- ------- Loss before extraordinary item (637) (489) (4,548) (1,712) Extraordinary loss from early extinguishment of debt, net of income tax benefit of $29 - (46) - (46) ------ ------ ------- ------- Net loss $ (637) $ (535) $(4,548) $(1,758) Net loss per common share $(0.12) $(0.13) $ (0.87) $ (0.56) ====== ====== ======= ======= Weighted average number of common shares and common share equivalents outstanding 5,255 4,102 5,252 3,151 ====== ====== ======= ======= Unaudited pro forma and supplemental earnings per share Pro forma net loss per common share $(0.18) $ (0.52) ====== ======= Pro forma weighted average number of common shares outstanding 3,747 3,369 ====== ======= Supplemental pro forma net loss per common share (0.12) (0.41) ====== ======= Supplemental pro forma weighted average number of common shares outstanding 3,927 3,513 ====== =======
The accompanying notes are an integral part of these financial statements. 4 5 A.D.A.M. Software, Inc. Condensed Statement of Cash Flow (in thousands) (unaudited)
Nine Months Ended December 31, ------------------------------ 1996 1995 --------- --------- Net cash used in operating activities $ (3,994) $ (1,495) Investing activities Purchases of property and equipment (223) (185) Purchase of short-term investments (15,059) (11,875) Proceeds from sale of short term investments 16,043 - Redemption of restricted certificate of deposit 91 137 Software development costs (247) (93) -------- -------- Net cash used in investing activities 605 (12,016) Financing activities Repayment of debt (250) (2,442) Proceeds from issuance of mandatorily redeemable preferred stock, net of issuance costs - 3,928 Issuance of debt - Repurchase of common stock (1,000) Proceeds from exercise of common stock options 100 1,187 Proceeds from issuance of common stock - 16,489 -------- -------- Net cash provided by financing activities (150) 18,162 Increase in cash and cash equivalents (3,539) 4,651 Cash and cash equivalents, beginning of period 5,352 940 -------- -------- Cash and cash equivalents, end of period $ 1,813 $ 5,591 ======== ========
The accompanying notes are an integral part of these financial statements. 5 6 A.D.A.M. Software, Inc. Notes to the Condensed Financial Statements (Unaudited) December 31, 1996 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the general instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended December 31, 1996 are not necessarily indicative of the results that may be expected for the year ended March 31, 1997. For further information, refer to the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 1996, which include audited financial statements for the year ended March 31, 1996. 2. SHORT-TERM INVESTMENTS At December 31, 1996 the Company held certain short-term investments in marketable debt and equity securities which it classified as held-to-maturity. Held-to-maturity securities represent those securities that the Company has both the positive intent and ability to hold to maturity, and are carried at amortized cost. Securities with a maturity date within one year are classified as short-term investments as a part of Current Assets and are stated at fair value plus accrued interest. Net unrealized losses on held-to-maturity securities have not been recognized in the accompanying financial statements. There were no realized gains or losses for the three and nine month periods ended December 31, 1996 and 1995. 3. INVENTORIES Inventories consist principally of computer software media and related shipping supplies and are stated at the lower of specific cost or market. Cost is determined using the first-in, first-out method. The components of inventory are summarized as follows (in thousands):
December 31, ------------------ 1996 1995 ----- ----- Raw Materials $ 232 $ 315 Finished Goods 216 224 ----- ----- $ 448 $ 539 ===== =====
4. LOSS PER COMMON SHARE Net loss per common share is computed by dividing net loss applicable to common stock by the weighted average number of outstanding shares of common stock during the applicable periods. The loss per common share for the three months and nine months ended December 31, 1995 gives effect to the accretion of discount on mandatory redeemable preferred stock. The Company's stock options and warrants are excluded from the calculations of net loss per common share due to their anti-dilutive effect. 6 7 A.D.A.M. Software, Inc. Notes to the Condensed Financial Statements (Unaudited) December 31, 1996 (continued) Pro forma net loss per share has been included to give effect to the conversion of the Company's outstanding convertible preferred stock upon consummation of the initial public offering. Pro forma net loss per share is computed using the weighted average number of common shares and common share equivalents outstanding during 1996. The number of pro forma weighted average shares outstanding during 1996 is based on the number of weighted average shares outstanding in each period after giving effect to the estimated number of additional shares (approximately 289,000) that would have been outstanding upon conversion of the mandatorily redeemable preferred stock. The Company's stock options and warrants are excluded from the calculation of pro forma net loss per share due to their anti-dilutive effect. Supplemental pro forma net loss per share for 1996 is computed using the pro forma weighted average number of shares of common stock and common stock equivalents increased by the estimated number of additional shares to repay certain indebtedness. This payment was effected after consummation of the initial public offering. Pro forma net loss is decreased to give effect to the reduction in interest costs of approximately $53,000 and $279,000 for the three months and nine months ended December 31, 1995, respectively. 5. LEGAL PROCEEDINGS On April 25, 1996 the Company and certain of its officers and directors were named in a class action lawsuit. The complaint alleges violations of Section 11, 12(2) and 15 of the Securities Act of 1933, violations of the Georgia Securities Act and negligent misrepresentation arising out of alleged disclosure deficiencies in connection with the Company's initial public offering which was completed on November 10, 1995. The complaint seeks compensatory damages and reimbursements for plaintiff's fees and expenses. The Company and its officers and directors intend to defend vigorously against the allegations. The Company cannot estimate the impact of the outcome of the lawsuit on the financial condition or results of operations. 6. SUPPLEMENTAL CASH FLOW INFORMATION Cash and cash equivalents include cash on hand and on deposit and highly liquid investment investments with an original maturity of three months or less. Cash payments for the nine months ended December 30, 1996 and 1995 include interest of approximately $500 and $282,000, respectively. 7 8 A.D.A.M. Software, Inc. Notes to the Condensed Financial Statements (Unaudited) December 31, 1996 (continued) Noncash investing and financing activities having an impact on the balance sheet are as follows:
Nine Months Ended December 31, ------------------- 1996 1995 ---- ---- Preferred stock accretion.............. $ - $ 244 Conversion of convertible preferred stock to common............. - 763 Issuance of common stock warrants...... - 135
8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following information should be read in conjunction with the financial statements and the notes thereto and in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996. A.D.A.M. Software, Inc. ("A.D.A.M." or the "Company") creates, publishes and markets educational multimedia software products, services, content and Internet-ready applications that provide anatomical, medical, scientific and health-related information for the academic, consumer and healthcare markets. A.D.A.M. products incorporate internally developed, original medical illustrations with text, audio, photography, animation and video in easy-to-use, interactive software applications. On January 28, 1997 the Company announced that its Chief Financial Officer, Robert DiProva, had resigned as part of ongoing cost cutting and streamlining initiatives. The Company also announced that Michael Fisher (formerly A.D.A.M.'s Controller) would assume the duties of Chief Financial Officer, with a new title of Director of Finance. In addition, Joseph Fuller, Vice President of Business Development, had tendered his resignation to pursue other interests. Fuller's responsibilities have been absorbed by A.D.A.M.'s Sales and Marketing organization. RESULTS OF OPERATIONS REVENUES. Total net revenues decreased 25% to $1,503,000 for the three months ended December 31, 1996 compared to $2,017,000 for the three months ended December 31, 1995, as a result of decreased unit shipments of consumer product and significantly reduced pricing not offset by increases in unit volumes of academic product sold. For the three months ended December 31, 1996, sales of the Company's consumer products decreased 29% to $710,000 and sales of academic products decreased 22% to $769,000, compared to $998,000 and $980,000, respectively, for the three months ended December 31, 1995. For the nine months ended December 31, 1996, total net revenues decreased 41% to $3,464,000 compared to $5,896,000 for the nine months ended December 31, 1995 due to decreased unit shipments of consumer product, and significantly reduced pricing not offset by increases in unit volumes of academic product sold. The Company deferred recognition of $342,000 of revenue related to upgrade rights granted to purchasers of certain products during the nine month period ended December 31, 1996. For the nine months ended December 31, 1996, the Company's consumer product sales decreased 38% to $1,451,000 and academic product sales decreased 42% to $1,952,000 compared to the nine months ended December 31, 1995. COST OF REVENUES. Cost of revenues decreased 13% to $274,000 for the three months ended December 31, 1996 from $316,000 for the three months ended December 31, 1995. For the nine months ended December 31, 1996, cost of revenues decreased 17% to $929,000 compared to $1,113,000 for the nine months ended December 31, 1995. The decreases in cost of revenues primarily resulted from decreases in net revenues and amortization of capitalized software costs for the three and nine months ended December 31, 1996, offset by increases in customer support costs and inventory valuation allowances in the current year's three and nine month periods. As a percentage of total net revenues, cost of revenues increased to 18% for the three months ended December 31, 1996 from 16% for the three months ended December 31, 1995, primarily due to implementation of significantly lower pricing on academic products. For the nine months ended December 31, 1996, as a percentage of total net revenue, cost of revenues increased to 27% compared to 19% for the nine months ended December 31, 1995 primarily due to improved packaging costs for consumer products and write down of inventory value for potential obsolescence. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) SALES AND MARKETING. Sales and marketing expenses were essentially unchanged at $1,064,000 for the three months ended December 31, 1996 compared to $1,062,000 for the three months ended December 31, 1995. Sales and marketing expenses for the three months ended December 31, 1996 included increases in travel and trade show expenses associated with the introduction of the Company's new products and increased compensation costs, offset by reductions of consulting, shipping, outside commissions, marketing co-op, and marketing supplies expenses. For the nine months ended December 31, 1996, sales and marketing expenses increased 18% to $3,499,000 compared to $2,954,000 for the nine months ended December 31, 1995 due to increased compensation as a result of higher commission and bonus payments, travel and trade show expense as a result of increased attendance, and direct mail costs. As a percentage of total net revenues, sales and marketing expenses increased to 71% and 101%, respectively for the three months and nine months ended December 31, 1996 compared to 53% and 50%, respectively for the three months and nine months ended December 31, 1995. PRODUCT DEVELOPMENT. Product development expenses decreased 43% to $400,000 for the three months ended December 31, 1996 from $701,000 for the three months ended December 31, 1995, and decreased 7% to $1,939,000 for the nine months ended December 31, 1996 compared to $2,079,000 for the nine months ended December 31, 1995. The decrease in product development costs primarily resulted from increases in the amount of development costs capitalized during the three and nine months ended December 31, 1996, partially offset by increased content acquisition and localization expenditures. As a percentage of total net revenues, product development expenses increased to 27% and 56% for the three months and nine months ended December 31, 1996, respectively compared to 35% and 35% for the three months and nine months ended December 31, 1995. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 13% to $565,000 for the three months ended December 31, 1996 from $502,000 for the three months ended December 31, 1995 primarily as a result of increased professional fees, partially offset by reduction of bad debt expense. For the nine months ended December 31, 1996, general and administrative expenses increased 40% to $1,869,000 compared to $1,331,000 the nine months ended December 31, 1995 as a result of increased professional fees, including increased legal and accounting activity as a result of becoming a publicly reporting Company, and bad debt expense. As a percentage of total net revenues, general and administrative expenses increased to 38% and 54%, respectively for the three and nine months ended December 31, 1996 compared to 25% and 23% for the three months and nine months ended December 31, 1995. RESTRUCTURING CHARGE. The Company recorded a restructuring charge of $490,000 in the quarter ended September 30, 1996 which consisted primarily of severance benefits and, to a lesser extent, space reduction costs associated with the Company's cost reduction program implemented in September. As a result of the above factors, operating loss increased $236,000 to ($800,000) for the three months ended December 31, 1996 from ($564,000) for the three months ended December 31, 1995. For the nine months ended December 31, 1996, operating loss increased $3,681,000 to ($5,262,000) from ($1,581,000) for the nine months ended December 31, 1995. The Company had a net loss of ($637,000) or 12 cents per share for the three months ended December 31, 1996, compared with a net loss of ($535,000) or 13 cents per share for the three months ended December 31, 1995. For the nine months ended December 31, 1996, the Company had a net loss of ($4,548,000) or 87 cents per share compared with a net loss of ($1,758,000) or 56 cents per share for the nine months ended December 31, 1995. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (concluded) LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1996, the Company had cash and short-term investments of $11,809,000 and working capital of $10,974,000. At December 31, 1996 the Company had used approximately $2,250,000 of the net proceeds from its initial public offering to repay outstanding indebtedness, consisting of all principal and accrued interest outstanding under the subordinated bridge notes issued to certain investors in fiscal 1995, the Company's term loan with a bank and a third party advance. The Company uses its working capital to finance ongoing operations, fund the development and introduction of new products and acquire capital equipment. The Company expects that cash flows from operations and existing cash and short-term investments will be adequate to meet the Company's cash requirements for the short and long term, i.e. twelve months or less and one to two years, respectively. 11 12 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27- Financial Data Schedule (for Electronic Filing purposes only) (b) Reports on Form 8-K None 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. A.D.A.M. SOFTWARE, INC. DATE 2/14/97 /s/ Robert A. DiProva ----------------- ----------------------- Robert A. DiProva Chief Financial Officer 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ADAM SOFTWARE, INC. FOR THE NINE MONTHS ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS MAR-31-1997 DEC-31-1996 1,813 9,996 1,319 712 448 12,977 2,265 1,494 14,452 2,003 0 0 0 52 12,397 14,452 3,464 3,464 929 8,726 0 0 9 (4,548) 0 (4,548) 0 0 0 (4,548) (0.87) (0.87)
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