U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
Commission File Number 0-22196
INNODATA CORPORATION
(Exact name of small business issuer
as specified in its charter)
DELAWARE 13-3475943
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
95 ROCKWELL PLACE
BROOKLYN, NY 11217
(Address of principal executive offices)
(718) 855-0044
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or 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
--- ---
State the number of shares outstanding of each of the issuer's common equity,
as of the latest practicable date: As of July 31, 1996 there were 4,523,710
shares of common stock outstanding.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 2-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See pages 7-9
PART ll. OTHER INFORMATION
See page 10
<PAGE>
INNODATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 1,461,835
Accounts receivable-net 4,703,488
Short-term investments (at market) 1,006,673
Prepaid expenses and other current assets 1,149,909
Deferred income taxes 72,000
-----------
Total current assets 8,393,905
FIXED ASSETS-net 3,565,012
GOODWILL-net 1,203,746
OTHER ASSETS 465,555
-----------
TOTAL $13,628,218
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings, including current portion of
acquisition notes payable $ 419,890
Accounts payable and accrued expenses 1,003,279
Accrued salaries and wages 970,338
Taxes, other than income taxes 205,810
-----------
Total current liabilities 2,599,317
-----------
ACQUISITION NOTES PAYABLE-Long-term portion 251,656
-----------
DEFERRED INCOME TAXES PAYABLE 453,000
-----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized, 20,000,000 shares;
issued, 4,543,298 shares 45,433
Additional paid-in capital 8,730,429
Retained earnings 1,692,260
-----------
10,468,122
Less: treasury stock-41,500 shares at cost (143,877)
-----------
Total stockholders' equity 10,324,245
-----------
TOTAL $13,628,218
===========
<FN>
See notes to unaudited condensed consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
REVENUES $10,840,679 $9,660,700
----------- ----------
OPERATING COSTS AND EXPENSES:
Direct operating expenses 8,033,998 6,614,903
Selling and administrative expenses 2,285,753 1,966,359
Interest expense 19,610 9,337
Interest and dividend income (62,444) (76,447)
----------- ----------
Total 10,276,917 8,514,152
----------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 563,762 1,146,548
PROVISION FOR INCOME TAXES 225,000 458,000
----------- ----------
NET INCOME $ 338,762 $ 688,548
=========== ==========
INCOME PER SHARE $.07 $.15
==== ====
<FN>
See notes to unaudited condensed consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
REVENUES $5,250,261 $5,218,972
---------- ----------
OPERATING COSTS AND EXPENSES:
Direct operating expenses 4,144,712 3,616,472
Selling and administrative expenses 1,097,873 1,012,636
Interest expense 14,732 3,329
Interest and dividend income (28,250) (33,005)
---------- ----------
Total 5,229,067 4,599,432
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 21,194 619,540
PROVISION FOR INCOME TAXES 8,000 247,000
---------- ----------
NET INCOME $ 13,194 $ 372,540
========== ==========
INCOME PER SHARE $ - $.08
==== ====
<FN>
See notes to unaudited condensed consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
OPERATING ACTIVITIES:
Net income $ 338,762 $ 688,548
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 711,904 426,568
Deferred income taxes 100,000 -
Changes in operating assets and liabilities:
Accounts receivable 395,293 (1,634,435)
Prepaid expenses and other current assets (468,835) (147,607)
Other assets (264,543) 44,178
Accounts payable and accrued expenses 488,560 (23,826)
Taxes, other than income taxes 11,698 80,311
Income taxes (726,194) 242,770
----------- -----------
Net cash provided by (used in)
operating activities 586,645 (323,493)
----------- -----------
INVESTING ACTIVITIES:
Expenditures for fixed assets (600,217) (509,199)
Payments in connection with acquisiti (410,646) -
Redemption of short-term investments 240,000 -
----------- -----------
Net cash used in investing activities (770,863) (509,199)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from short-term debt 212,285 -
Purchase of treasury stock - (89,148)
Proceeds from exercise of stock options 46,311 -
Payments of long-term debt (179,197) (91,666)
----------- -----------
Net cash provided by (used in)
financing activities 79,399 (180,814)
----------- -----------
DECREASE IN CASH (104,819) (1,013,506)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,566,654 2,363,868
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 1,461,835 $ 1,350,362
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 17,223 $ 10,057
=========== ===========
Income taxes $ 891,128 $ 215,230
=========== ===========
<FN>
See notes to unaudited condensed consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
as of June 30, 1996, and the results of operations for the six and three month
periods ended June 30, 1996 and 1995 and of cash flows for the six months
ended June 30, 1996 and 1995. The results of operations for the six months
ended June 30, 1996 are not necessarily indicative of results that may be
expected for any other interim period or for the full year.
These financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended December 31, 1995
included in the Company's Annual Report on Form 10-KSB. The accounting
policies used in preparing these financial statements are the same as those
described in the December 31, 1995 financial statements.
2. On January 2, 1996, the Company acquired certain assets of
International Imaging, Inc. ("II"). II is located in Azusa, California and
provides imaging and document management systems and scanning/conversion
services. The purchase price consisted of $40,000 cash and 50,000 shares of
the Company's restricted common stock valued at $153,125. The Company also
paid approximately $300,000 of II's outstanding lease obligations. II's
revenues for the year ended December 31, 1995 were in excess of $1,000,000.
3. In January 1996, options to purchase 16,025 shares of the Company's Common
Stock were exercised by certain employees pursuant to the Company's stock
option plan.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
INNODATA is a worldwide electronic publishing services company specializing in
superior quality data conversion for Internet, CD-ROM, print and online
database publishers around the globe. Services include all the necessary
steps for product development and data capture: the highest accuracy data
entry (99.995%+), OCR, SGML and custom coding, hypertext linking, imaging and
document management systems, page composition, copyediting, indexing and
abstracting, and applications programming. The Company also offers medical
transcription services to health-care providers through its Statline division.
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues increased 1% to $5,250,261 for the three months ended June 30, 1996
compared to $5,218,972 for the similar period in 1995. During the second
quarter of 1996 and 1995, one customer comprised of twelve affiliated
companies accounted for 24% and 26% of the Company's revenues, respectively.
No other customer accounted for 10% or more of the Company's revenues.
Direct operating expenses were $4,144,712 in the second quarter of 1996 and
$3,616,472 in the second quarter of 1995, an increase of 15% in 1996 from
1995. Direct operating expenses as a percentage of revenues increased to 79%
in the 1996 quarter compared with 69% in 1995. The increase in direct
operating expenses as a percentage of revenues in 1996 was due principally to
higher fixed costs in the Company's imaging services division as a percentage
of its revenues, and increased labor costs in the Philippines of approximately
$200,000 resulting from a collective bargaining agreement that became
effective on April 1, 1996. Direct operating expenses include primarily
direct payroll, telecommunications, freight, computer services and supplies
and occupancy.
Selling and administrative expenses were $1,097,873 and $1,012,636 in the
second quarter of 1996 and 1995, respectively, representing an increase of 8%
in 1996 from 1995. Selling and administrative expenses as a percentage of
revenues were 21% in 1996 compared with 19% in 1995. The dollar increase
primarily reflects the expansion of the Company's management team, and also
reflects the added overhead and sales related expenses of International
Imaging acquired during 1996. Selling and administrative expenses include
management salaries, sales and marketing salaries, clerical and administrative
salaries, rent and utilities not included in direct costs, advertising and
marketing costs, travel expense, and administrative overhead.
Net income was $13,194 and $372,540 in the second quarter of 1996 and 1995,
respectively. Net income was reduced significantly in 1996 due to the
increased costs discussed above with no commensurate increase in revenues.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues increased 12% to $10,840,679 for the six months ended June 30, 1996
compared to $9,660,700 for the similar period in 1995. During the six months
ended June 30, 1996 and 1995, one customer comprised of twelve affiliated
companies accounted for 27% and 26% of the Company's revenues, respectively,
and in 1996, one other customer accounted for 10% of revenues. No other
customer accounted for 10% or more of the Company's revenues.
Direct operating expenses were $8,033,998 for the six months ended June 30,
1996 and $6,614,903 for the similar period in 1995, an increase of 21%
in 1996 from 1995. Direct operating expensesas a percentage of revenues
increased to 74% in the 1996 period compared with 68% in 1995. The
increase in direct operating expenses as a percentage of revenues in 1996
was due principally to higher fixed costs in the Company's imaging services
division as a percentage of its revenues, and increased labor costs in the
Philippines of approximately $200,000 resulting from a collective
bargaining agreement that became effective on April 1, 1996.
Selling and administrative expenses were $2,285,753 and $1,966,359 for the six
months ended June 30, 1996 and 1995, respectively, representing an increase of
16% in 1996 from 1995. Selling and administrative expenses as a percentage of
revenues was 21% in 1996 compared with 20% in 1995. The dollar increase
primarily reflects the expansion of the Company's sales and marketing,
including additional employees, and also reflects the added overhead and sales
related expenses of International Imaging acquired during 1996.
Net income was $338,762 and $688,548 for the six months ended June 30, 1996
and 1995, respectively. Net income was reduced significantly as the increased
revenues in 1996 were offset by significantly increased direct operating
expenses and selling and administrative expenses as described above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $586,645 was provided by operating activities for the six months
ended June 30, 1996, while net cash of $323,493 was used for the six
months ended June 30, 1995, principally resulting from increased collections
of accounts receivable during the six months ended June 30, 1996. Net cash
of $770,863 and $509,199 was used in investing activities in 1996 and 1995,
respectively, for the purpose of purchasing fixed assets in both years, and
additionally in 1996, for payments in connection with the acquisition of
International Imaging. These outlays were partially offset by the redemption
of certain short-term investments in 1996. Net cash of $79,399 was
provided by financing activities in the 1996 period, while net cash of
$180,814 was used in financing activities in 1995. In 1996, the Company
received proceeds from short-term borrowings.
In April 1996, the Company entered into a collective bargaining agreement with
a union covering non-management employees in the Philippines. The agreement
is expected to increase labor costs approximately 10%. Management expects to
reduce the impact of this increase through efficiencies in the production
process and from certain price increases. Further, to continue to achieve
growth in revenues, the Company is opening another facility in India and is
enhancing its management team by hiring additional executive management
personnel. In January 1996, the Company's Imaging Services division and
Statline transcription division joined the Company's Brooklyn based production
employees in a new facility in Hackensack, New Jersey that serves as the
Company's worldwide telecommunications, customer service and technical support
hub. The aforementioned costs are expected to reduce the earnings in 1996;
however, management believes these investments are critical to assure greater
returns and continued growth in the future.
The Company has a commitment to purchase a perpetual license for certain
production process software for cash totaling $300,000 and 50,000 shares of
the Company's common stock. Payment is contingent upon the successful
completion and testing of the software, expected to occur during 1996. As of
July 31, 1996, the Company was required to pay $110,000 and issue 15,000
shares of its common stock.
It is currently the Company's intention to open a production facility in
India. In addition, the Company expects to make capital expenditures on an
ongoing basis for the expansion of its existing production facilities in the
Philippines and Sri Lanka and for additional equipment for its United States
operations. The Company estimates these capital expenditures will aggregate
approximately $1,500,000 during 1996, and it expects to obtain lease financing
for its equipment to the extent available. The Company has a line of credit
with a bank in the amount of $500,000.
INFLATION, SEASONALITY AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's
operations. The Company generally performs its work for its customers on a
task by task at-will basis, or under short-term contracts or contracts which
are subject to numerous termination provisions. The Company has flexibility
in its pricing due to the absence of long-term contracts. The Company's
revenues are not affected by seasonality.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities. Not Applicable
Item 3. Defaults upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable
Item 5. Other Information. None
Item 6. (a) Exhibits. None
(b) Form 8-K Report. None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INNODATA CORPORATION
Date: 8/12/96 /s/
-------------------------
Todd Solomon
President
Chief Executive Officer
Date: 8/12/96 /s/
-------------------------
Martin Kaye
Chief Financial Officer
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