U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
Commission File Number 0-22196
INNODATA CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
13-3475943
(I.R.S. Employer 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 classes of
common equity, as of the latest practicable date: As of April 30, 1998 there
were 1,473,819 shares of common stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
- -------- ----------------------
Item 1. Financial Statements
---------------------
See pages 2-5
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
See pages 6-7
PART ll. OTHER INFORMATION
- --------- ------------------
See page 8
<PAGE>
INNODATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(Unaudited)
-----------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 2,770,998
Accounts receivable-net 3,038,806
Prepaid expenses and other current assets 676,054
Deferred income taxes 136,000
-----------
Total current assets 6,621,858
FIXED ASSETS-net 2,817,848
GOODWILL-net 403,176
OTHER ASSETS 572,530
-----------
TOTAL $10,415,412
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 126,157
Accounts payable and accrued expenses 1,373,823
Accrued salaries and wages 821,549
Estimated loss on foreign currency contracts (Note 2) 1,400,000
Taxes, other than income taxes 332,164
-----------
Total current liabilities 4,053,693
-----------
LONG-TERM DEBT, less current portion 65,418
-----------
DEFERRED INCOME TAXES 667,000
-----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized, 20,000,000 shares;
issued, 1,521,736 shares 15,217
Additional paid-in capital 8,870,731
Deficit (3,035,678)
-----------
5,850,270
Less: treasury stock-at cost; 47,917 shares (220,969)
-----------
Total stockholders' equity 5,629,301
-----------
TOTAL $10,415,412
===========
<FN>
See notes to unaudited condensed consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
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<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
REVENUES $4,599,568 $4,662,465
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OPERATING COSTS AND EXPENSES:
Direct operating expenses 3,079,682 4,013,642
Selling and administrative expenses 1,104,503 1,352,160
Interest expense 19,127 9,008
Interest income (17,284) (22,873)
---------- ----------
Total 4,186,028 5,351,937
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INCOME (LOSS) BEFORE BENEFIT FROM
INCOME TAXES 413,540 (689,472)
BENEFIT FROM INCOME TAXES - (240,000)
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NET INCOME (LOSS) $ 413,540 $ (449,472)
========== ==========
BASIC AND DILUTED INCOME (LOSS) PER SHARE $.28 $(.30)
==== =====
<FN>
See notes to unaudited condensed consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
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<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
OPERATING ACTIVITIES:
Net income (loss) $ 413,540 $ (449,472)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 260,349 340,103
Deferred income taxes - (240,000)
Changes in operating assets and liabilities
Accounts receivable 150,114 117,396
Prepaid expenses and other current assets 149,532 (4,470)
Other assets 16,664 24,986
Accounts payable and accrued expenses 46,320 211,861
Taxes, other than income taxes (24,844) 107,927
---------- ----------
Net cash provided by operating activities 1,011,675 108,331
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INVESTING ACTIVITIES:
Expenditures for fixed assets (161,678) (245,488)
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FINANCING ACTIVITIES:
Purchase of treasury stock (38,372) -
Payments of long-term debt (10,479) (49,902)
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Net cash used in financing activities (48,851) (49,902)
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INCREASE (DECREASE) IN CASH 801,146 (187,059)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,969,852 2,097,193
---------- ----------
CASH AND EQUIVALENTS, END OF PERIOD $2,770,998 $1,910,134
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 19,127 $ 9,088
Income taxes $ 5,194 $ 175
========== ==========
<FN>
See notes to unaudited condensed consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(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 March 31, 1998, and the results of operations and of cash flows for the
three months ended March 31, 1998 and 1997. The results of operations for the
three months ended March 31, 1998 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, 1997 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, 1997 financial statements.
2. The Company reached an agreement in principle regarding foreign
currency forward contracts which were the source of a previously reported
dispute with a bank in the Philippines. The Company expects to sign this
agreement shortly. If signed, the agreement would result in a reduction of the
estimated liability previously provided by $500,000 which would be recognized
as income in the second quarter of 1998.
3. The Company's stockholders approved a one-for-three reverse stock split
which became effective on March 25, 1998. All share and per share information
reflects such split.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
INNODATA is a leading provider of Internet and on-line publishing
services, providing all the necessary steps for product development and data
capture and conversion to enable its customers to publish vast amounts of
information via the Internet and on-line. Innodata's customers represent an
array of major secondary electronic publishers of legal, scientific,
educational and medical information, as well as document-intensive companies
repurposing their proprietary information into electronic resources that can
be referenced via web-centric applications.
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenues decreased 1% to $4,599,568 for the three months ended March 31,
1998 compared to $4,662,465 for the similar period in 1997. The decrease in
revenues was due principally to an increase in Internet and online publishing
services offset by a reduction of approximately $350,000 in journal and book
pagination services due to the closing of that business in 1997. During the
first quarter of 1998 and 1997, one customer comprised of twelve affiliated
companies accounted for 19% and 13% of the Company's revenues, respectively,
and in 1997, one other customer accounted for 11% of revenues. No other
customer accounted for 10% or more of the Company's revenues.
Direct operating expenses were $3,079,682 in the first quarter of 1998
and $4,013,642 in the first quarter of 1997, a decrease of 23% in 1998 from
1997. Direct operating expenses as a percentage of revenues decreased to 67%
in the 1998 quarter compared with 86% in 1997. The decrease in direct
operating expenses as a percentage of revenues in 1998 was due principally to
a significant reduction in the value of pesos in the Philippines and the
elimination of journal and book page making services. Direct operating
expenses include primarily direct payroll, telecommunications, freight,
computer services, supplies and occupancy.
Selling and administrative expenses were $1,104,503 and $1,352,160 in the
first quarter of 1998 and 1997, respectively, representing a decrease of 18%
in 1998 from 1997. Selling and administrative expenses as a percentage of
revenues were 24% in the 1998 quarter compared with 29% in the 1997 quarter.
The decrease primarily reflects the elimination of pagination services.
Selling and administrative expenses include management salaries, sales and
marketing salaries, clerical and administrative salaries, rent and utilities
not included in direct costs, marketing costs and administrative overhead.
Net income (loss) was $413,540 and $(449,472) for the first quarter of
1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1,011,675 for the three
months ended March 31, 1998 and $108,331 for the 1997 period. The increase in
1998 was due to profitable operations. Net cash used in investing activities
was $161,678 for the three months ended March 31, 1998 and $245,488 in 1997.
Net cash used in financing activities was $48,851 and $49,902 for the three
months ended March 31, 1998 and 1997, respectively.
The Company opened its new production facility in India in 1997. The
Company expects to make capital expenditures for this facility as well as for
its existing production facilities in the Philippines and Sri Lanka, and for
additional equipment for its U.S. operations. The Company estimates these
capital expenditures will aggregate approximately $1,000,000 during the next
12 months.
The Company has a line of credit with a bank in the amount of $2 million.
The line is collateralized by the assets of the Company. Interest is charged
at 2% above the bank's prime rate and is due on demand. The line is believed
to be sufficient for the Company's cash requirements.
The Company has initiated a program to prepare computer systems and
applications for the Year 2000. The Company expects to incur internal staff
costs as well as consulting and other expenses related to infrastructure and
facilities enhancements necessary to prepare the systems for the Year 2000. A
portion of such costs are not likely to be incremental costs to the Company,
but rather will represent the redeployment of existing information technology
resources. The Company is also communicating with customers and suppliers with
whom it conducts business to help identify and resolve the Year 2000 issue. It
is possible that if all aspects of the Year 2000 issues are not adequately
resolved by these parties, the Company's future business operations and, in
turn, its financial position and results of operations could be negatively
impacted. Management has not yet quantified the Year 2000 compliance and other
related expenses, however, management believes these costs will not have a
material affect on its financial position.
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
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Item 1. Legal Proceedings. Not Applicable
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Item 2. Changes in Securities. Not Applicable
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Item 3. Defaults upon Senior Securities. Not Applicable
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Item 4. Submission of Matters to a Vote of Security Holders. Not
-------------------------------------------------------
Applicable
Item 5. Other Information. None
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Item 6. (a) Exhibits.
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Exhibit 27. Financial Data Schedule
(b) There were no reports on Form 8-K filed during the first
quarter of 1998.
<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: 5/13/98 /s/
------- ------------------------
Jack Abuhoff
President
Chief Executive Officer
Date: 5/13/98 /s/
------- ------------------------
Martin Kaye
Executive Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,770,998
<SECURITIES> 0
<RECEIVABLES> 3,038,806
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,621,858
<PP&E> 2,817,848
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,415,412
<CURRENT-LIABILITIES> 4,053,693
<BONDS> 0
0
0
<COMMON> 15,217
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,415,412
<SALES> 0
<TOTAL-REVENUES> 4,599,568
<CGS> 0
<TOTAL-COSTS> 4,186,028
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,127
<INCOME-PRETAX> 413,540
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413,540
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
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