-----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, NQT1ssnkvzkhWqDjJ3ItUpHS0epHZyK2jw7M0yk/SLP+NJfagshX/9wfDfqkoWxs s4ILLDjPzqRBomL+gvIQgg== 0001047469-99-006266.txt : 19990217 0001047469-99-006266.hdr.sgml : 19990217 ACCESSION NUMBER: 0001047469-99-006266 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: A D A M SOFTWARE INC CENTRAL INDEX KEY: 0000863650 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 581878070 STATE OF INCORPORATION: GA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26962 FILM NUMBER: 99543116 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 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-Q /X/ QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: DECEMBER 31, 1998 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. As of February 10, 1999 there were 4,438,507 shares of the Registrant's Common Stock, par value $.01 per share, outstanding (excluding shares held in treasury by the Registrant). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A.D.A.M. SOFTWARE, INC. INDEX PART I--FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheet at December 31, 1998 and March 31, 1998........................................... 3 Condensed Statement of Operations for the Three and Nine Months Ended December 31, 1998 and 1997..................................................... 4 Condensed Statement of Cash Flows for the Nine Months Ended December 31, 1998 and 1997............................................... 5 Notes to Condensed Financial Statements........................................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 8
PART II--OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................................... 13
2 PART I: FINANCIAL INFORMATION FINANCIAL STATEMENTS A.D.A.M. SOFTWARE, INC. CONDENSED BALANCE SHEET
DECEMBER 31, MARCH 31, 1998 1998 ------------ ----------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents............................................................. $ 1,300 $ 704 Short-term investments................................................................ 5,527 7,664 Accounts receivable (net of allowances of $227 and $162, respectively)................ 1,134 1,239 Inventories........................................................................... 409 467 Prepaids and other.................................................................... 136 124 ------------ ----------- Total current assets.............................................................. 8,506 10,198 Property and equipment, net............................................................. 474 496 Software development costs, net......................................................... 667 689 Restricted certificate of deposit....................................................... 524 517 ------------ ----------- $ 10,171 $ 11,900 ------------ ----------- ------------ ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable...................................................................... $ 346 $ 318 Other accrued expenses................................................................ 515 869 ------------ ----------- Total current liabilities............................................................... 861 1,187 Convertible preferred stock, no par value; 10,000,000 shares authorized; no shares issued and outstanding................................................................ -- -- Common Stock, $.01 par value; 20,000,000 authorized; 5,280,747 and 5,274,647 shares issued and outstanding................................................................ 53 52 Other shareholders' equity.............................................................. 9,257 10,661 ------------ ----------- $ 10,171 $ 11,900 ------------ ----------- ------------ -----------
The accompanying notes are an integral part of these condensed financial statements. 3 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, -------------------- -------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Net revenues............................................................... $ 1,113 $ 1,801 $ 4,264 $ 5,312 --------- --------- --------- --------- Cost and expenses Cost of revenues......................................................... 286 312 1,017 872 Sales and marketing...................................................... 610 648 2,061 2,169 Product development...................................................... 427 345 1,112 1,132 General and administrative............................................... 463 351 1,041 929 --------- --------- --------- --------- 1,786 1,656 5,231 5,102 --------- --------- --------- --------- Operating income (loss).................................................... (673) 145 (967) 210 Interest income.......................................................... 94 127 316 399 --------- --------- --------- --------- Income (loss) before income taxes.......................................... (579) 272 (651) 609 Income Taxes............................................................. -- 75 -- 75 --------- --------- --------- --------- Net income (loss).......................................................... $ (579) $ 197 $ (651) $ 534 --------- --------- --------- --------- --------- --------- --------- --------- Basic and diluted net income (loss) per common share....................... $ (0.13) $ 0.04 $ (0.14) $ 0.10 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average number of common shares and common share equivalents outstanding.............................................................. 4,447 5,167 4,559 5,253 --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these condensed financial statements. 4 A.D.A.M. SOFTWARE, INC. CONDENSED STATEMENT OF CASH FLOW (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, -------------------- 1998 1997 --------- --------- Net cash used in operating activities........................................................ $ (163) $ (447) --------- --------- Investing activities Purchases of property and equipment........................................................ (243) (90) Purchase of short-term investments......................................................... (18,720) (19,926) Proceeds from sale of short term investments............................................... 20,858 20,802 Software development costs................................................................. (383) (418) --------- --------- Net cash provided by investing activities.................................................... 1,512 368 Financing activities Purchase of treasury shares................................................................ (766) (864) Proceeds from exercise of common stock options............................................. 13 -- --------- --------- Net cash used by financing activities...................................................... (753) (864) Increase (decrease) in cash and cash equivalents............................................. 596 (943) Cash and cash equivalents, beginning of period............................................... 704 2,422 --------- --------- Cash and cash equivalents, end of period..................................................... $ 1,300 $ 1,479 --------- --------- --------- ---------
The accompanying notes are an integral part of these condensed financial statements. 5 A.D.A.M. SOFTWARE, INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1998 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, 1998 are not necessarily indicative of the results that may be expected for the year ended March 31, 1999. 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, 1998, which includes audited financial statements for the year ended March 31, 1998. 2. SHORT-TERM INVESTMENTS At December 31, 1998 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 months ended December 31, 1998 and 1997. 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):
12/31/98 3/31/98 ----------- ----------- Raw Materials............................................................. $ 226 $ 256 Finished Goods............................................................ 183 211 ----- ----- $ 409 $ 467 ----- ----- ----- -----
4. EARNINGS PER SHARE The Company computes basic earnings per share based upon the weighted average number of issued common shares for each period. Diluted earnings per share is based upon the addition of the effect of common stock equivalents (stock options) to the denominator of the basic earnings per share calculation, using the treasury stock method. 5. LEGAL PROCEEDINGS On April 25, 1996, a class action lawsuit in Fulton County Superior Court in Atlanta, Georgia was filed against the Company and certain of its then officers and directors. The complaint alleges violations of sections 11, 12(2) and 15 of the Securities Act of 1933, violations of the Georgia Securities Act and 6 A.D.A.M. SOFTWARE, INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) DECEMBER 31, 1998 5. LEGAL PROCEEDINGS (CONTINUED) 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. A motion to dismiss is pending and the Company and its officers and directors are vigorously defending against the allegations. 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. There were no cash payments of interest for the nine months ended December 31, 1998 and 1997. 7. COMPREHENSIVE INCOME The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130) to be effective for fiscal years beginning after December 15, 1997. This statement requires that all items which are to be recognized as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as net income (loss). The Company's comprehensive income (loss) is the same as its net income (loss). 7 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, 1998. 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. RESULTS OF OPERATIONS REVENUES. Net revenues decreased $688,000, or 38%, to $1,113,000 for the three months ended December 31, 1998 compared to $1,801,000 for the three months ended December 31, 1997, primarily due to revenue of $750,000 from a single, one-time licensing agreement recorded as international market revenue during the three months ended December 31, 1997. Excluding revenue from such licensing agreement, revenue for the three months ended December 31, 1998 increased $62,000, or 6%, compared to the three months ended December 31, 1997. International revenues, excluding the December 1997 licensing agreement, decreased approximately $101,000, or 50%, from $204,000 for the three months ended December 31, 1997 to $103,000 for the three months ended December 31, 1998 primarily as a result of the Company's restructuring of distribution channels for that market. Including revenue from the December 1997 licensing agreement, international revenues decreased $851,000, or 89%, to $103,000 for the three months ended December 31, 1998 from $954,000 for the three months ended December 31, 1997. Domestic education market revenues for the three months ended December 31, 1998 increased approximately $122,000, or 20%, to $748,000 from $626,000 for the three months ended December 31, 1997 due to higher purchasing levels by educational institutions. Net revenues decreased $1,048,000, or 20%, to $4,264,000 for the nine months ended December 31, 1998 compared to $5,312,000 for the nine months ended December 31, 1997. Excluding revenue from the December 1997 licensing agreement, net revenues decreased approximately $298,000, or 7%, to $4,264,000 for the nine months ended December 31, 1998 from $4,562,000 for the nine months ended December 31, 1997 primarily due to lower international, domestic education and consumer market revenues. Excluding revenue from the December 1997 licensing agreement, international revenues decreased approximately $408,000, or 58%, to $289,000 for the nine months ended December 31, 1998 from $697,000 for the nine months ended December 31, 1997 as a result of the Company's restructuring of distribution channels for that market. Including revenue from the December 1997 licensing agreement, international revenue decreased $1,158,000, or 80%, to $289,000 for the nine months ended December 31, 1998 from $1,447,000 for the nine months ended December 31, 1997. Domestic education revenue decreased by $171,000, or 5%, to $3,057,000 for the nine months ended December 31, 1998 from $3,228,000 for the nine months ended December 31, 1997 due to reduced revenues from the Company's maturing flagship academic product, ADAM Interactive Anatomy, which was released in April, 1997. Consumer product revenues decreased approximately $95,000, or 38%, to $154,000 for the nine months ended December 31, 1998 from $249,000 for the nine months ended December 31, 1997 due to reductions in end-user demand resulting from aging of those products. These reductions in international, domestic education, and consumer market revenues were partially offset by an increase in revenue from legal and healthcare professional markets of $469,000, or 176%, to $736,000 for the nine months ended December 31, 1998 from $267,000 for the nine months ended December 31, 1997 as a result of the Company's focus on and initiatives to leverage content into those markets. 8 COST OF REVENUES. Cost of revenues decreased $26,000, or 8%, to $286,000 for the three months ended December 31, 1998 from $312,000 for the three months ended December 31, 1997 due to a decrease in royalty expenses attributable to the ADAM Interactive Physiology products and lower inventory raw materials and warehousing costs of $14,000. These decreases were partially offset by increased amortization of capitalized software totaling $49,000 for the three months ended December 31, 1998. As a percentage of net revenues, cost of revenues increased to 26% for the three months ended December 31, 1998 from 17% for the three months ended December 31, 1997. For the nine months ended December 31, 1998, cost of revenues increased $145,000, or 17%, to $1,017,000 compared to $872,000 for the nine months ended December 31, 1997 due to increased royalty and amortization expenses. Amortization of capitalized software development costs increased $164,000 for the nine month period ended December 31, 1998 due to the completion and release of products throughout fiscal 1998 which reflect full periods of amortization in the nine months ended December 31, 1998. As a percentage of net revenues, cost of revenues increased to 24% for the nine months ended December 31, 1998 compared to 16% for the nine months ended December 31, 1997. SALES AND MARKETING. Sales and marketing expenses decreased $38,000, or 6%, to $610,000 for the three months ended December 31, 1998 compared to $648,000 for the three months ended December 31, 1997. Sales and marketing expenses for the three month period ended December 31, 1997 included significant expenses to launch the Company's newly released academic flagship product, ADAM Interactive Anatomy, and the Company did not expend such amounts during the corresponding period in fiscal 1999. This expense reduction for the three month period ended December 31, 1998 was partially offset by approximately $35,000 of costs associated with the Company's increased focus on the healthcare market and licensing of its products. As a percentage of net revenues, sales and marketing expenses increased to 55% for the three month period ended December 31, 1998, compared to 36% for the three month period ended December 31, 1997. For the nine months ended December 31, 1998, sales and marketing expenses decreased $108,000, or 5%, to $2,061,000 compared to $2,169,000 for the nine months ended December 31, 1997. Sales and marketing expenses for the nine month period ended December 31, 1997 included significant expenses to launch the Company's newly released academic flagship product, ADAM Interactive Anatomy, and the Company did not expend such amounts during the corresponding period in fiscal 1999. This expense reduction for the nine month period ended December 31, 1998 was partially offset by approximately $250,000 of costs associated with the Company's increased focus on the healthcare market and licensing of its products. As a percentage of net revenues, sales and marketing expenses increased to 48% for the nine month period ended December 31, 1998 compared to 41% for the nine month period ended December 31, 1997. PRODUCT DEVELOPMENT. Product development expenses increased $82,000, or 24%, to $427,000 for the three months ended December 31, 1998 from $345,000 for the three months ended December 31, 1997 primarily due to decreased capitalization of software development costs. This reflects the Company's change in focus from application programming used in traditional software products toward research and development of tools, processes and content to be used in leveraging the Company's licensing strategies. Total capitalization of software development costs decreased $69,000 for the three months ended December 31, 1998 from the three months ended December 31, 1997. As a percentage of revenues, product development expenses increased to 38% for the three months ended December 31, 1998 from 19% for the three months ended December 31, 1997. Product development costs decreased $20,000, or 2%, to $1,112,000 for the nine months ended December 31, 1998 compared to $1,132,000 for the nine months ended December 31, 1997 primarily due to decreased compensation and consulting costs, partially offset by increased content acquisition costs for a contemplated biology series product. Total capitalization of software development costs increased $16,000 for the nine months ended December 31, 1998 compared to the nine months ended December 31, 1997. As 9 a percentage of net revenues, product development expenses increased to 26% for the nine months ended December 31, 1998 compared to 21% for the nine months ended December 31, 1997. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $112,000, or 32%, to $463,000 for the three months ended December 31, 1998 from $351,000 for the three months ended December 31, 1997 primarily due to an increase in the provision required for bad debt during fiscal 1999 and increased professional fees. General and administrative expenses increased $112,000, or 12%, to $1,041,000 compared to $929,000 for the nine months ended December 31, 1998 and 1997, respectively. Significant increases in professional fees resulted from increased licensing activity and consultation costs regarding business strategy evaluation. Increased investor relation costs were due to increased public reporting costs. These increases were partially offset by compensation related adjustments during the nine month periods ended December 31, 1998 and 1997. As a percentage of total net revenues, general and administrative expenses increased to 42% and 24% for the three months and nine months ended December 31, 1998, respectively, compared to 19% and 17% for the three months and nine months ended December 31, 1997. OPERATING INCOME. As a result of the factors described above, operating income decreased $818,000 to a loss of $673,000 for the three months ended December 31, 1998 from a profit of $145,000 for the three months ended December 31, 1997. Operating income decreased $1,177,000 to a loss of $967,000 from income of $210,000 for the nine months ended December 31, 1998 and 1997, respectively. NET (LOSS) INCOME. The Company had a net loss of ($579,000) or 13 cents per share for the three months ended December 31, 1998, compared with net income of $197,000 or 4 cents per share for the three months ended December 31, 1997. The Company had a net loss of ($651,000) or 14 cents per share compared with net income of $534,000 or 10 cents per share for the nine months ended December 31, 1998 and 1997, respectively. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1998, the Company had cash and short-term investments of $6,827,000 and working capital of $7,645,000. The Company uses its working capital to finance ongoing operations, fund the development and introduction of new products and acquire capital equipment. As of December 31, 1998, the Company has repurchased 847,240 shares of common stock on the open market at an average price of approximately $2.58 per common share for an aggregate purchase price of approximately $2,186,000. Repurchased shares represent approximately 16.0% of the shares of common stock issued and outstanding as of December 31, 1998. The Company has been authorized by its Board of Directors to purchase up to 25% of the common shares issued and outstanding. 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, including its stock repurchase plans, for the next twenty-four months. YEAR 2000 COMPLIANCE The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. The Company's computer equipment and software and devices with imbedded technology that are time-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. 10 The Company has an initiative to ensure that its computer equipment and software will function properly with respect to dates in the Year 2000 and thereafter. The term "computer equipment and software" includes systems for product development, production and testing, accounting, data processing, telephone/PBX, contact management, and other miscellaneous systems as well as other systems not traditionally thought of as "computer-related" technologies such as fax machines, copiers, or other miscellaneous equipment and software. These systems may contain imbedded technology, which complicate the Company's Year 2000 identification, assessment, remediation, and testing efforts. Based upon its identification and assessment efforts to date, the Company believes that its mission critical systems either are currently, or are committed by their vendors to be Year 2000 compliant. The Company plans to avail itself of any remedies developed by its systems vendors and/or publishers that address current Year 2000 deficiencies, including currently known deficiencies or those discovered prior to Year 2000. In addition, in the ordinary course of replacing computer equipment and software, the Company will attempt to obtain replacements that are Year 2000 compliant. By utilizing its internal resources to ongoingly assess, test, and remediate potential and discovered Year 2000 issues, the Company believes that it is on schedule and current with its current initiative. Products developed by the Company have been internally tested for Year 2000 compliance by its Quality Assurance team. All internally developed products have been confirmed as Year 2000 compliant; however, two products acquired by the Company from Mosby, Inc. during fiscal 1998 are not Year 2000 compliant. The Company has not reached a decision with regard to remedying the two products, nor has it reached a decision with regard to continued sale of those products beyond fiscal 1999. The Company expects to reach a decision in March 1999. Through December 31, 1998, the Company has sold approximately $59,000, or 8,915 units of the non-compliant products. The Company estimates total exposure to remedy to be not greater than $25,000. The Company believes that the cost of its Year 2000 identification, assessment, remediation and testing efforts will not exceed $50,000, which expenditures will be funded from operating cash flows. Such amount represents less than 5% of the actual and anticipated information system equipment, software technology, and product production expenditures for fiscal 1999 and 2000. The Company estimates that it has spent approximately $7,500 as of December 31, 1998 on quality assurance testing of its products. Other non-Year 2000 product production and system technology efforts have not been materially delayed or impacted by the Year 2000 initiative. The Company presently believes that the Year 2000 issue will not pose significant operational problems for the Company. However, if all Year 2000 issues are not properly identified, there can be no assurance that the Year 2000 issue will not materially adversely impact the Company's results of operations or adversely affect the Company's relationships with customers, vendors or others. Additionally, there can be no assurance that the Year 2000 issues of other entities will not have a material adverse impact on the Company's systems or results of operations. The Company has not yet begun a comprehensive analysis of the operational problems and costs (including loss of revenues) that would be reasonably likely to result from the failure by the Company and certain third parties to complete efforts necessary to achieve Year 2000 compliance on a timely basis. A contingency plan has not been developed for dealing with the most reasonably likely worst case scenario and such scenario has not yet been clearly identified. The Company currently plans to complete such analysis and contingency planning by September 30, 1999. The costs of the Company's Year 2000 identification, assessment, remediation and testing efforts and the dates on which the Company believes it will complete such efforts are based upon management's best estimates, which were derived using numerous assumptions regarding future events, including the availability of certain resources and other factors. There can be no assurance that these estimates will prove to be accurate and actual results could differ materially from those currently anticipated. Specific factors that could cause such material differences include, but are not limited to, the ability to identify, assess, and remediate and test all relevant computer codes and embedded technology, and similar uncertainties. In addition, variability of definitions of "compliance with Year 2000" and the myriad of different products and 11 services, and combinations thereof, sold by the Company may lead to claims whose impact on the Company is not currently estimable. No assurance can be given that the aggregate cost of defending and resolving such claims, if any, will not materially adversely affect the Company's results of operations. Although some of the Company's agreements and contracts with third parties contain provisions requiring such parties to indemnify the Company under some circumstances, there can be no assurance that such indemnification arrangements will cover all of the Company's liabilities and costs related to claims by third parties related to the Year 2000 issue. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (FAS 131) to be effective for fiscal years beginning after December 15, 1997. This Statement requires a company to report financial and descriptive information about its operating segments, on the same basis used internally by management. This Statement will not affect the financial position, results of operations, or cash flows of the Company. However, the Statement has the potential of increasing the amount of information disclosed by the Company in future annual and interim financial reports. 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 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. By: /s/ ROBERT S. CRAMER ----------------------------------------- Robert S. Cramer CHAIRMAN AND CEO DATE 2/16/99 (PRINCIPAL EXECUTIVE OFFICER) By: /s/ MICHAEL S. FISHER ----------------------------------------- Michael S. Fisher SECRETARY AND DIRECTOR OF FINANCE (PRINCIPAL FINANCIAL OFFICER)
14 EX-27.1 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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS MAR-31-1999 APR-01-1998 DEC-31-1998 1,300 5,527 1,361 227 409 8,506 2,188 1,714 10,171 861 0 0 0 53 9,257 10,171 4,264 4,264 1,017 5,231 0 0 0 (651) 0 (651) 0 0 0 (651) (.14) (.14)
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