U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File Number 0-22196
INNODATA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation)
13-3475943
(I.R.S. Employer
Identification No.)
Three University Plaza
Hackensack, NJ 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 common equity, as
of the latest practicable date: As of November 1, 2000 there were 5,122,386
shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 3-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See pages 7-11
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See page 12
PART ll. OTHER INFORMATION
See page 13
INNODATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, December 31,
2000 1999
--------------- --------------
Derived from
audited
financial
Unaudited statements
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 4,332,581 $ 3,380,242
Accounts receivable-net 6,117,232 5,247,428
Prepaid expenses and other current assets 611,014 396,743
Deferred income taxes 748,000 540,000
------------- -------------
Total current assets 11,808,827 9,564,413
PROPERTY AND EQUIPMENT - net 7,069,036 4,891,992
OTHER ASSETS 1,215,956 1,189,472
------------- -------------
TOTAL $ 20,093,819 $ 15,645,877
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ - $ 19,629
Accounts payable and accrued expenses 1,995,243 1,553,585
Accrued salaries and wages 2,488,086 1,529,753
Income and other taxes 1,300,125 495,628
------------- -------------
Total current liabilities 5,783,454 3,598,595
------------- -------------
LONG-TERM DEBT, less current portion - 5,188
------------- -------------
DEFERRED INCOME TAXES PAYABLE 238,000 390,000
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized,
20,000,000 shares; issued, 5,235,636
and 5,133,943 shares at September 30,
2000 and December 31, 1999, respectively 52,357 51,339
Additional paid-in capital 11,172,256 10,908,538
Retained earnings 3,068,721 913,186
------------- -------------
14,293,334 11,873,063
Less: treasury stock - at cost; 144,249 shares (220,969) (220,969)
------------- -------------
Total stockholders' equity 14,072,365 11,652,094
------------- -------------
TOTAL $ 20,093,819 $ 15,645,877
============= =============
See notes to unaudited condensed consolidated financial statements
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INNODATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
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2000 1999
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REVENUES $13,039,189 $7,072,658
----------- ----------
OPERATING COSTS AND EXPENSES:
Direct operating expenses 9,226,370 4,707,098
Selling and administrative expenses 1,732,425 1,607,176
Interest income - net (16,761) (22,099)
----------- ----------
Total 10,942,034 6,292,175
----------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,097,155 780,483
PROVISION FOR INCOME TAXES 629,000 195,000
----------- ----------
NET INCOME $ 1,468,155 $ 585,483
=========== ==========
BASIC INCOME PER SHARE $.29 $.12
=========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,083,450 4,760,505
=========== ==========
DILUTED INCOME PER SHARE $.25 $.11
=========== ==========
ADJUSTED DILUTIVE SHARES OUTSTANDING 5,883,009 5,562,726
=========== ==========
See notes to unaudited condensed consolidated financial statements
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INNODATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
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2000 1999
----------- -----------
REVENUES $31,590,202 $19,709,688
----------- -----------
OPERATING COSTS AND EXPENSES:
Direct operating expenses 23,655,288 12,313,614
Selling and administrative expenses 4,908,516 4,920,670
Interest income - net (53,137) (77,601)
----------- -----------
Total 28,510,667 17,156,683
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,079,535 2,553,005
PROVISION FOR INCOME TAXES 924,000 708,550
----------- -----------
NET INCOME $ 2,155,535 $ 1,844,455
=========== ===========
BASIC INCOME PER SHARE $.43 $.40
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,047,829 4,577,153
=========== ===========
DILUTED INCOME PER SHARE $.37 $.35
=========== ===========
ADJUSTED DILUTIVE SHARES OUTSTANDING 5,764,100 5,203,281
=========== ===========
See notes to unaudited condensed consolidated financial statements
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INNODATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
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2000 1999
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OPERATING ACTIVITIES: $ 2,155,535 $ 1,844,455
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,126,199 1,172,934
Deferred income taxes (360,000) -
Changes in operating assets and liabilities:
Accounts receivable (869,804) (2,523,232)
Prepaid expenses and other current assets (349,271) (688,048)
Other assets (94,884) 91,328
Accounts payable and accrued expenses 441,658 (405,417)
Accrued salaries and wages 958,333 956,606
Income and other taxes 804,497 480,207
----------- -----------
Net cash provided by operating activities 4,812,263 928,833
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (4,099,843) (2,696,195)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 264,736 807,184
Payments of long-term debt (24,817) (48,429)
----------- ----------
Net cash provided by financing activities 239,919 758,755
----------- ----------
INCREASE (DECREASE) IN CASH 952,339 (1,008,607)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 3,380,242 3,535,533
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 4,332,581 $ 2,526,926
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 36,173 $ 4,645
=========== ===========
Income taxes $ 350,000 $ 278,000
=========== ===========
See notes to unaudited condensed consolidated financial statements
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INNODATA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(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 September 30, 2000, the results of operations for the three and nine month
periods ended September 30, 2000 and 1999, and of cash flows for the nine months
ended September 30, 2000 and 1999. The results of operations for the nine months
ended September 30, 2000 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, 1999 included in
the Company's Annual Report on Form 10-K. The accounting policies used in
preparing these financial statements are the same as those described in the
December 31, 1999 financial statements.
2. During the nine months ended September 30, 2000, options to purchase
101,693 shares of the Company's common stock were exercised, resulting in
proceeds of $264,736.
3. In the nine months ended September 30, 2000, the Company granted options
to purchase 338,600 shares of its common stock at $6.25 to $9.00 per share, and
in October 2000, granted options to purchase 350,000 shares of its common stock.
4. Basic earnings per share is based on the weighted average number of
common shares outstanding without consideration of potential common stock.
Diluted earnings per share is based on the weighted average number of common and
potential common shares outstanding. The difference between weighted average
common shares outstanding and adjusted dilutive shares outstanding represents
the dilutive effect of outstanding warrants and options.
5. On November 7, 2000 the Company declared a 2 for 1 stock split in the
form of a stock dividend, payable on December 1, 2000 to stockholders of record
on November 21, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company
Innodata is a leading provider of digital content outsourcing services.
The Company offers a "single solution" for companies needing to create
high-value, large-scale Web content. The Company's digital content outsourcing
services include strategic and technical consulting for content initiatives
across multiple digital channels; content architecture services; data
conversion; metadata creation; and digital content management. Its goal is to
help its clients meet the challenge posed by the Internet - to publish massive
quantities of high value-added information on the Web. Innodata does this by
creating customized solutions for each of its clients, freeing them to focus on
their own core businesses.
Innodata's clients range from leading Global 1000 companies and new media
companies to some of the largest and most prestigious publishers of digital
content. The Company recently entered into several key strategic client
partnerships that may contribute significantly to revenue growth in the current
and upcoming years.
Innodata's clients are predominantly located in North America and Europe.
Innodata services these clients principally through a North American Solutions
Center located in New Jersey. In addition, Innodata operates production
facilities strategically located in Asia.
On June 19, 2000, Innodata officially inaugurated its new "XML Content
Factory" located in Mandaue, the Philippines. The plant features a variety of
proprietary and third party editing and content management tools for creating
large volume, high quality information repositories based on Extensible Markup
Language (XML) technology.
Results of Operations
Three Months Ended September 30, 2000 and 1999
Revenues increased 84% to $13,039,189 for the three months ended September
30, 2000 compared to $7,072,658 for the similar period in 1999, principally
resulting from a strategic alliance agreement which accounted for approximately
57% of the Company's revenues in the current period. One other client accounted
for 22% of the Company's revenues during 1999. No other client accounted for
10% or more of such revenues. Further, in 2000 and 1999, export revenues,
substantially all of which were derived from European clients, accounted for 11%
and 17%, respectively, of the Company's revenues.
Direct operating expenses were $9,226,370 in the third quarter of 2000 and
$4,707,098 in the third quarter of 1999, an increase of 96%. Direct operating
expenses as a percentage of revenues were 71% in 2000 and 67% in 1999. The
dollar increase in 2000 is principally due to costs incurred for the increased
revenues. Direct operating expenses as a percent of revenues increased by 4
percentage points in 2000, resulting from additional costs incurred principally
for the new XML Content Factory (including start-up costs) (which accounted for
approximately 10 percentage points), offset by a decline in the value of the
foreign currencies of countries in which the Company's production facilities are
located (which resulted in a cost reduction of approximately 6 percentage
points).
Selling and administrative expenses were $1,732,425 and $1,607,176 in the
third quarter of 2000 and 1999, respectively. Selling and administrative
expenses as a percentage of revenues decreased to 13% in the 2000 quarter from
23% in the 1999 quarter due primarily to an increase in revenues without a
corresponding increase in such expenses. Selling and administrative expenses
primarily include management and administrative salaries, sales and marketing
costs, and administrative overhead.
In 2000, the Company's effective income tax rate increased to 30% from 25%
for the three months ended September 30, 1999. The increase is primarily
attributable to an increase in taxable income in tax jurisdictions in which a
tax holiday is not available to the Company.
As a result of the aforementioned items, the Company realized net income of
$1,468,155 in 2000 and $585,483 in 1999.
Nine Months Ended September 30, 2000 and 1999
Revenues increased 60% to $31,590,202 for the nine months ended September
30, 2000 compared to $19,709,688 for the similar period in 1999, principally
resulting from a strategic alliance agreement which accounted for approximately
44% of the Company's revenues in the current period. One other client accounted
for 23% of the Company's revenues during 1999. No other client accounted for
10% or more of such revenues. Further, in 2000 and 1999, export revenues, all
of which were derived from European clients, accounted for 11% and 13%,
respectively, of the Company's revenues.
Direct operating expenses were $23,655,288 during the first nine months of
2000 and $12,313,614 for the comparable period in 1999, an increase of 92%.
Direct operating expenses as a percentage of revenues were 75% in 2000 and 62%
in 1999. The dollar increase in 2000 is principally due to costs incurred for
the increased revenues. Direct operating expenses as a percent of revenues
increased by 13 percentage points for the nine months ended September 30, 2000,
resulting from additional costs incurred principally for the new XML Content
Factory (including start-up costs) (which accounted for approximately 17
percentage points), offset by a decline in the value of the foreign currencies
of countries in which the Company's production facilities are located (which
resulted in a cost reduction of approximately 4 percentage points).
Selling and administrative expenses were $4,908,516 and $4,920,670 in the
first nine months of 2000 and 1999, respectively. Selling and administrative
expenses as a percentage of revenues were 16% in the 2000 period compared with
25% in the 1999 period due primarily to the increase in revenues without a
corresponding increase in such expenses.
As a result of the aforementioned items, the Company realized net income of
$2,155,535 in 2000 and $1,844,455 in 1999.
Liquidity and Capital Resources
Selected measures of liquidity and capital resources are as follows:
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September 30, 2000 December 31, 1999
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Cash and Cash Equivalents $4,333,000 $3,380,000
Working Capital $6,025,000 $5,966,000
Stockholders' Equity Per Common Share* $2.76 $2.34
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*Represents total stockholders' equity divided by the actual number of
common shares outstanding (which excludes treasury stock).
Net Cash Provided By Operating Activities
During the nine months ended September 30, 2000, net cash provided by
operating activities was $4,812,000 as compared to $929,000 in the 1999
comparative period. The increase was primarily due to:
- an increase of approximately $593,000 in non-cash charges to net income,
resulting principally from a $953,000 increase in depreciation and amortization
net of $360,000 in non-cash credits;
- an increase in net collections of accounts receivable, primarily due to
timing of collections;
- an increase in accounts payable and accrued expenses, primarily due to the
timing of payments and the increased growth of operations; and
- an increase in accrued salaries and wages, primarily due to increased
production headcount and payroll;
Partially offset by:
- an increase in prepaid expenses and other current assets primarily
attributable to the growth of operations and the new facility.
Net Cash Used in Investing Activities
In the nine months ended September 30, 2000, the Company spent
approximately $4,100,000 for capital expenditures, compared to approximately
$2,696,000 in the nine months ended September 30, 1999. During the nine months
ended September 30, 2000, the Company spent approximately $2.8 million for
capital expenditures in connection with the creation of its new XML Content
Factory. Such capital costs consist primarily of network and cabling costs,
computer servers and storage, software licenses, leasehold improvement costs,
and peripheral equipment.
Management presently expects to make capital expenditures of between $7
million and $9 million during the next 9 months. Such capital expenditures
include costs required to complete the XML Content Factory infrastructure; costs
of exercising the option to purchase presently leased computer workstations;
anticipated costs to renovate and re-engineer the Company's Manila facility
infrastructure; capital investment in additional production technologies; and
normal ongoing capital investments.
Capital expenditures in the comparable period in 1999 were primarily
utilized for expansion of production capacity required to meet the growth in
revenues, and for the replacement of computer equipment not Year 2000 compliant.
Net Cash Provided By Financing Activities
In the nine months ended September 30, 2000, net cash provided by financing
activities totaled approximately $240,000 compared to $759,000 in the comparable
period in 1999. The change was primarily due to a decrease in proceeds from the
exercise of stock options.
Availability of Funds
The Company has a line of credit with a bank in the amount of $3 million,
none of which was borrowed at October 31, 2000. The line is collateralized by
accounts receivable. Interest is charged at 1/2% above the bank's prime rate and
is due on demand.
Management believes that existing cash, internally generated funds and
short term bank borrowings will be sufficient for reasonably anticipated working
capital and capital expenditure requirements during the next 12 months. The
Company funds its foreign expenditures from its U.S. corporate headquarters on
an as-needed basis.
Inflation, Seasonality and Prevailing Economic Conditions
To date, inflation has not had a significant impact on the Company's
operations. The Company's revenues are not significantly affected by
seasonality.
Disclosures in this Form 10-Q contain certain forward-looking statements,
including without limitation, statements concerning the Company's operations,
economic performance and financial condition. 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, the ability of the Company's customers to continue to execute
their business plans which give rise to increased requirements for digital
content services, 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.
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-Q will in fact occur.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate change market risk with respect to
its credit facility with a financial institution which is priced based on the
prime rate of interest. At September 30, 2000, there were no borrowings under
the credit facility. Changes in the prime interest rate during fiscal 2000 will
have a positive or negative effect on the Company's interest expense. Such
exposure will increase accordingly should the Company maintain higher levels of
borrowing during 2000.
The Company has operations in foreign countries. While it is exposed to foreign
currency fluctuations, the Company presently has no financial instruments in
foreign currency and does not maintain funds in foreign currency beyond those
necessary for operations.
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.
Exhibit 27. Financial Data Schedule
(b) Form 8-K Report. None
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
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Date: November 10, 2000 /s/
--------------------------
Jack Abuhoff
President
Chief Executive Officer
Date: November 10, 2000 /s/
---------------------------
Martin Kaye
Executive Vice President
Chief Financial Officer
Date: November 10, 2000 /s/
---------------------------
Stephen Agress
Vice President - Finance
Principal Accounting Officer
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