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, 1999
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.)
THREE UNIVERSITY PLAZA
HACKENSACK, NEW JERSEY 07601
(Address of principal executive offices)
(201) 488-1200
(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, 1999 there were
1,496,587 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 6-8
PART ll. OTHER INFORMATION
- --------- ------------------
See page 9
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INNODATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 3,765,593
Accounts receivable-net 3,624,363
Prepaid expenses and other current assets 767,317
Deferred income taxes 376,000
-----------
Total current assets 8,533,273
FIXED ASSETS-net 3,053,496
OTHER ASSETS 287,547
-----------
TOTAL $11,874,316
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 43,738
Accounts payable and accrued expenses 1,721,382
Accrued salaries and wages 1,171,555
Income and other taxes 649,488
-----------
Total current liabilities 3,586,163
-----------
LONG-TERM DEBT, less current portion 18,436
-----------
DEFERRED INCOME TAXES PAYABLE 425,000
-----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized, 20,000,000 shares;
issued, 1,540,068 shares 15,401
Additional paid-in capital 8,959,141
Deficit (908,856)
-----------
8,065,686
Less: treasury stock - at cost; 48,083 shares (220,969)
-----------
Total stockholders' equity 7,844,717
-----------
TOTAL $11,874,316
===========
<FN>
See notes to unaudited condensed consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
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<CAPTION>
<S> <C> <C>
1999 1998
REVENUES $5,611,075 $4,599,568
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OPERATING COSTS AND EXPENSES:
Direct operating expenses 3,455,828 3,079,682
Selling and administrative expenses 1,700,789 1,104,503
Interest (income) expense - net (29,774) 1,843
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Total 5,126,843 4,186,028
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INCOME BEFORE
INCOME TAXES 484,232 413,540
PROVISION FOR INCOME TAXES 193,550 -
---------- ----------
NET INCOME $ 290,682 $ 413,540
========== ==========
BASIC INCOME PER SHARE $.20 $.28
==== ====
DILUTED INCOME PER SHARE $.18 $.28
==== ====
<FN>
See notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
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<CAPTION>
<S> <C> <C>
1999 1998
OPERATING ACTIVITIES:
Net income $ 290,682 $ 413,540
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 332,528 260,349
Changes in operating assets and liabilities
Accounts receivable (680,941) 150,114
Prepaid expenses and other current assets (232,190) 149,532
Other assets 89,551 16,664
Accounts payable and accrued expenses 747,982 46,320
Income and other taxes 190,180 (24,844)
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Net cash provided by operating activities 737,792 1,011,675
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INVESTING ACTIVITIES:
Expenditures for fixed assets (489,099) (161,678)
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FINANCING ACTIVITIES:
Purchase of treasury stock - (38,372)
Payments of long-term debt (18,633) (10,479)
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Net cash used in financing activities (18,633) (48,851)
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INCREASE IN CASH 230,060 801,146
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 3,535,533 1,969,852
---------- ----------
CASH AND EQUIVALENTS, END OF PERIOD $3,765,593 $2,770,998
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,147 $ 19,127
========== ==========
Income taxes $ 30,000 $ 5,194
========== ==========
<FN>
See notes to unaudited condensed consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(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, 1999, and the results of operations and of cash flows for the three
months ended March 31, 1999 and 1998. The results of operations for the three
months ended March 31, 1999 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 three months ended March 31, 1999 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, 1998 financial statements.
2. The three months ended March 31, 1998 has no provision for taxes due to
the utilization of net operating loss carryforwards.
3. Segment Information.
The Company's operations are classified in two business segments; Internet and
on-line data conversion and content management services and document imaging
services.
Internet and on-line data conversion and content management services provide all
the necessary steps for product development and data conversion to enable its
customers to disseminate vast amounts of information both on-line and via the
Internet. Its customers represent an array of major 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.
The document imaging services segment provides high volume backfile and
day-forward conversion of business documents, technical manuals, engineering
drawings, aperture cards, roll film, and microfiche, providing high quality
computer accessible images and indexing.
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
Revenues
- ---------------------------------
Internet and on-line services $5,194,345 $4,247,066
Document imaging services 416,730 352,502
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Total consolidated $5,611,075 $4,599,568
========== ==========
Income (loss) before income taxes
- ---------------------------------
Internet and on-line services $ 701,490 $ 561,499
Document imaging services (217,258) (147,959)
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Total consolidated $ 484,232 $ 413,540
========== ==========
</TABLE>
<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 both
on-line and via the Internet. 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, 1999 AND 1998
Revenues increased 22% to $5,611,075 for the three months ended March 31,
1999 compared to $4,599,568 for the similar period in 1998. Revenues from the
Internet and on-line data conversion and content management services segment
increased to $5,194,345 in 1999 from $4,247,066 in 1998, or 22%, principally
from new customers. During 1999 and 1998, one customer that is comprised of
twelve affiliated companies, accounted for 11% and 21% of the Company's Internet
and on-line data conversion and content management services revenues,
respectively. One other customer accounted for 25% of such revenues in 1999. No
other customer accounted for 10% or more of such revenues. Further, in 1999 and
1998, export revenues, all of which were derived from European customers,
accounted for 24% and 20%, respectively, of such revenues. Revenues from the
document imaging services segment increased to $416,730 in 1999 from $352,502 in
1998. During 1999 four customers accounted for 27%, 17%, 15% and 10% of the
Company's document imaging service revenues, respectively. During the same
period in 1998, five other customers accounted for 25%, 19%, 12%, 11% and 10% of
such revenues. No other customer accounted for 10% or more of such revenues.
Direct operating expenses were $3,455,828 in the first quarter of 1999 and
$3,079,682 in the first quarter of 1998, an increase of 12%. Direct operating
expenses for the Internet and on-line data conversion and content management
services increased to $3,085,900 in 1999 from $2,753,574 in 1998, or 12%. Direct
operating expenses as a percentage of revenues were 62% in 1999 and 67% in 1998.
The decrease as a percentage of revenues was due primarily to fixed costs that
did not increase proportionately with the increased revenues, partially offset
by a stronger Philippine peso in 1999. Direct operating expenses in the
document imaging services segment increased to $369,928 in 1999 from $326,108 in
1998. The increase in 1999 was due principally to increased labor costs. Direct
operating expenses include primarily direct payroll, telecommunications,
freight, computer services, supplies and occupancy.
Selling and administrative expenses were $1,700,789 and $1,104,503 in the
first quarter of 1999 and 1998, respectively, representing an increase of 54% in
1999 from 1998. Selling and administrative expenses as a percentage of revenues
were 30% in the 1999 quarter compared with 24% in the 1998 quarter. The
increase primarily reflects the payroll costs of additional sales and
administrative personnel hired at the end of the second quarter and in the third
quarter of 1998, and increased commissions on the revenue increase. 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.
In 1999, the Internet and on-line data conversion and content management
services segment realized income before income taxes of $701,490, while the
document imaging services segment incurred a loss of $217,258. In 1998, the
Internet and on-line data conversion and content management services segment
realized income before income taxes of $561,499, while the document imaging
services segment incurred a loss of $147,959.
The Company provided no income taxes in 1998 due to a utilization of net
operating loss carryforwards that were not recognized as tax benefits in 1997
for losses incurred in that year.
As a result of the aforementioned items, the Company realized net income of
$290,682 in 1999 and $413,540 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $737,792 for the three months
ended March 31, 1999 and $1,011,675 for the 1998 period. Net cash used in
investing activities for the purchase of fixed assets for its production
facilities was $489,099 for the three months ended March 31, 1999 and $161,678
in 1998. Net cash used in financing activities was $18,633 and $48,851 for the
three months ended March 31, 1999 and 1998, respectively.
The Company expects to make capital expenditures of approximately
$2,000,000 for its production facilities in 1999, which is expected to be funded
from operations and, if necessary, the line of credit discussed below.
The Company has a line of credit with a bank in the amount of $1 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 relies on certain hardware, software and operating systems
(collectively, "Systems") for production, financial reporting and general
administration. The Company has been evaluating these Systems to identify
potential Year 2000 compliance problems and has been planning appropriate
remedial efforts and testing, where required. In addition, it has been
evaluating its external interfaces with customers and service suppliers to
coordinate Year 2000 compliance.
The Company has planned to replace older, non-compliant Systems components
as a means by which to obtain Year 2000 compliance and to obtain increased
functionality and efficiency. These new Systems components will cost
approximately $500,000, most of which will be capitalized as fixed assets. All
such historical costs have been funded out of existing cash and cash flows from
operations, and the Company expects that future costs will be funded similarly.
The Company has obtained compliance statements from each of its significant
service suppliers, most of which have provided positive assurances regarding
their compliance.
Based on currently available information, the Company expects to attain
Year 2000 compliance and institute appropriate final testing of its
modifications and replacements no later than June 30, 1999. The foregoing
notwithstanding, the Company plans to have in place contingency plans to deal
with the possibility that any component of the Systems fails to pass final
testing by such date. Such contingency plans may include, without limitation,
implementing substitute production Systems and obtaining services from
substitute vendors. The Company does not anticipate that the cost of effecting
Year 2000 compliance will have a material impact on the Company's financial
condition or results of operations. Nevertheless, achieving Year 2000
compliance is dependent upon many factors, some of which are not completely
within the Company's control. Should either one or more of the Company's
critical Systems components or one or more of its critical vendors, including
those vendors providing services in foreign countries in which the Company has
operations, fail to achieve Year 2000 compliance, the Company's business and its
results of operations could be adversely affected.
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 significantly affected by seasonality.
Disclosures in this Form 10-QSB contain certain forward-looking statements,
including without limitation, statements concerning the Company's operations,
economic performance and financial condition, including in particular, Year 2000
and market risk information. These forward-looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The words "believe," "expect," "anticipate" and other similar expressions
generally identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
their dates. These forward-looking statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties,
including without limitation, changes in external market factors, changes in the
Company's business or growth strategy or an inability to execute its strategy
due to changes in its industry or the economy generally, the emergence of new or
growing competitors, various other competitive factors and other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission, including the Company's Forms 10-KSB, S-3
and S-8. Actual results could differ materially from the results referred to in
the forward-looking statements. In light of these risks and uncertainties, there
can be no assurance that the results referred to in the forward-looking
statements contained in this Form 10-QSB will in fact occur.
<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
-----------------------
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
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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 1999.
<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
/s/ 5/12/99
- -------------------------- -------
Jack Abuhoff
President
Chief Executive Officer
/s/ 5/12/99
- -------------------------- -------
Martin Kaye
Executive Vice President
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> INNODATA CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,765,593
<SECURITIES> 0
<RECEIVABLES> 3,624,363
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,533,273
<PP&E> 3,053,496
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<TOTAL-ASSETS> 11,874,316
<CURRENT-LIABILITIES> 3,586,163
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0
0
<COMMON> 15,401
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<INCOME-TAX> 193,550
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