SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20509
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ................. to ................
Commission File number 0 - 24326
---------
Ovid Technologies, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 13 - 3333107
-------- ------------
(State or other jurisdiction of ( IRS Employer Identification No.)
incorporation or organization)
333 Seventh Avenue, New York, New York 10001
--------------------------------------------
(Address of principal executive offices - Zip code)
(212) 563-3006
--------------
(Registrant's telephone number, including area code)
-------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was
required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes .....X..... No .............
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class of Stock No. of Shares Outstanding Date
--------------- -------------------------- ----
Common 5,757,150 July 31, 1996
<PAGE>
OVID TECHNOLOGIES, INC.
INDEX
-----------
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1996 3
Condensed Consolidated Statements of Operations for
the three months ended June 30, 1995 and 1996 4
Condensed Consolidated Statements of Operations for
the six months ended June 30, 1995 and 1996 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1995 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matter to a Vote of Securities Holders 11
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Computation of Net Income Per Common Share 12
Exhibit 27 - Financial Data Schedule
2
<PAGE>
OVID TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
_______________
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS: 1995 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 1,775 $ 260
Short-term investments - held to maturity.......... 3,637 5,268
Accounts receivable, less allowance for doubtful
accounts of $488 and $670 for 1995 and 1996,
respectively..................................... 7,855 8,906
Prepaid and other current assets................... 682 416
Deferred income taxes.............................. 185 177
Income taxes receivable............................ 748 380
--------- ---------
Total current assets............................ 14,882 15,407
Equipment and leasehold improvements, net.......... 2,977 3,039
Full-text database, net............................ 1,570 1,702
Deferred income taxes.............................. 355 350
Deposits and other assets.......................... 330 328
--------- ---------
Total assets................................... $20,114 $20,826
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable................................... $ 2,702 $ 1,883
Accrued expenses................................... 2,146 2,599
Customer deposits.................................. 734 746
Income taxes payable............................... 465 684
Unearned revenue................................... 2,376 2,263
Obligation under database subscriptions............ 538 537
--------- ---------
Total current liabilities....................... 8,961 8,712
--------- ---------
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued..................... -- --
Common stock, $.01 par value; 10,000,000 shares
authorized; 5,699,580 and 5,745,100 shares issued
and outstanding for 1995 and 1996, respectively... 57 57
Additional paid-in capital......................... 8,058 8,096
Retained earnings.................................. 3,036 3,979
Foreign currency translation adjustment............ 2 (18)
--------- ---------
Total stockholders' equity...................... 11,153 12,114
--------- ---------
Total liabilities and stockholders' equity.... $20,114 $20,826
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
for the three months ended June 30,
_________
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Revenues:
Database subscriptions and software...... $6,564 $8,062
Maintenance and other 479 670
--------- ---------
Total revenues....................... 7,043 8,732
--------- ---------
Cost of revenues:
Database subscriptions and software....... 1,851 2,806
Maintenance and other..................... 68 58
--------- ---------
Total cost ofrevenues................. 1,919 2,864
--------- ---------
Gross profit.......................... 5,124 5,868
Operating expenses:
Sales and marketing....................... 1,390 2,004
Product development ...................... 1,484 1,374
General and administrative................ 1,260 1,371
--------- ---------
Total operating expenses.............. 4,134 4,749
--------- ---------
Income from operations................ 990 1,119
Interest income and other, net............ 46 63
--------- ---------
Income before provision for income
taxes............................... 1,036 1,182
Provision for income taxes................ 414 472
--------- ---------
Net income............................ $ 622 $ 710
========= =========
Net income per common share........... $ .09 $ .10
========= =========
Weighted average number of shares of
common stock and common stock
equivalents............................. 7,154,641 7,288,858
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
for the six months ended June 30,
_________
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Revenues:
Database subscriptions and software........ $12,662 $14,650
Maintenance and other ..................... 991 1,332
--------- ---------
Total revenues.......................... 13,653 15,982
--------- ---------
Cost of revenues:
Database subscriptions and software........ 3,716 5,167
Maintenance and other...................... 172 105
--------- ---------
Total cost of revenues.................. 3,888 5,272
--------- ---------
Gross profit............................ 9,765 10,710
Operating expenses:
Sales and marketing........................ 2,733 3,819
Product development........................ 2,965 2,740
General and administrative................. 2,549 2,695
--------- ---------
Total operating expenses................ 8,247 9,254
--------- ---------
Income from operations.................. 1,518 1,456
Interest income and other, net.............. 79 116
--------- ---------
Income before provision for income taxes 1,597 1,572
Provision for income taxes.................. 638 629
--------- ---------
Net income.............................. $ 959 $ 943
========= =========
Net income per common share............. $ .13 $ .13
========= =========
Weighted average number of shares of common
stock and common stock equivalents...... 7,129,618 7,235,228
========= =========
</TABLE>
The accompanying notes are integral part of the condensed consolidated financial
statements.
5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
for the six months ended June 30,
_________
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income............................... $ 959 $ 943
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......... 843 1,091
Provision for doubtful accounts....... 125 180
Deferred income tax expense........... -- 13
Changes in assets and liabilities:
Increase in accounts receivable, net of
unearned revenue................ (2,289) (1,345)
(Increase) in full text database costs.. -- (411)
(Increase) decrease in other assets..... (145) 637
Increase (decrease) in accounts payable. 968 (819)
Increase in other liabilities........... 183 663
--------- ---------
Cash provided by operating activities. 644 952
--------- ---------
Cash flows from investing activities:
Purchase of short-term investments............ (6,053) (10,346)
Redemption of short-term investments at maturity 7,033 8,715
Capital expenditures.......................... (1,028) (874)
--------- ---------
Cash used in investing activities.... (48) (2,505)
--------- ---------
Cash flows from financing activities:
Proceeds from the exercise of stock options... 25 38
Distribution to S-Corporation stockholder..... (275) --
--------- ---------
Cash (used in) provided by financing
activities........................ (250) 38
--------- ---------
Increase (decrease) in cash and cash
equivalents.................................. 346 (1,515)
Cash and cash equivalents, beginning of period 100 1,775
--------- ---------
Cash and cash equivalents, end of period...... $ 446 $ 260
========= =========
</TABLE>
The accompanying notes are integral part of the condensed consolidated
financial statements.
6
<PAGE>
OVID TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------
1. Basis of Presentation:
These condensed consolidated financial statements should be read in
conjunction with the Company's Form 10-K dated March 28, 1996, as
amended, and the historical consolidated financial statements and
related notes included therein. In the opinion of management, the
accompanying unaudited condensed financial statements include all
adjustments, consisting of only normal recurring accruals, necessary
to present fairly the condensed consolidated financial position,
results of operations and cash flows of the Company. Certain
information and footnote disclosure normally included in financial
statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities
and Exchange Commission rules and regulations. Quarterly operating
results are not necessarily indicative of the results which would be
expected for the full year.
2. Recently Issued Pronouncements
In October 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123, "Accounting For Stock-Based Compensation". The
Statement allows companies to measure compensation costs in
connection with employee stock compensated plans using a fair-value
based method or to continue to use an intrinsic-value based method,
which generally does not result in compensation cost. The Company
currently plans to continue using the intrinsic-value based method as
set forth in Accounting Principles Board Opinion No. 25 "Accounting
For Stock Issued to Employee's".
On January 1, 1996, the Company adopted the provisions of SFAS No.
121, "Accounting For The Impairment of Long-Lived Assets And For
Long-Lived Assets to Be Disposed Of", which was issued by the FASB in
March 1996. This statement requires that long-lived assets and
certain identifiable intangibles held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
There was no effect upon adoption to the Company's consolidated
results of operations, cash flows or financial position.
3. Line-of-credit Agreement
Effective February 13, 1996, the Company entered into a
line-of-credit agreement for $1.0 million collateralized by the
Company's assets, bearing interest at the banks' prime rate plus 1%.
There is no specified expiration date for the agreement; however, the
agreement is cancelable in writing by either party at any time. There
have been no borrowings under this agreement.
4. Amendment to the Company's 1993 Stock Option Plan
At the Company's Annual Meeting of Stockholders held on June 12,
1996, the Company's stockholders approved an amendment to the
Company's 1993 Stock Option Plan which increased the aggregate number
of shares of Common Stock that may be issued thereunder from 450,000
shares to 750,000 shares.
7
<PAGE>
OVID TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1996 as compared to
Three and Six Months Ended June 30, 1995
REVENUES
For the three months ended June 30, 1996, the Company's total revenues
increased 24% to $8.7 million versus $7.0 million for the comparable period in
1995. For the first six months of 1996, total revenues increased to $16.0
million, an increase of 17%, from $13.7 million during the first half of 1995.
Although the revenue growth was worldwide, network sales in North America,
Japan and western Europe were particularly strong during the first six months
of 1996.
Revenues from database subscriptions and software increased to $8.1 million in
the second quarter of 1996 from $6.6 million during the same period of 1995.
These same revenues grew to $14.7 million during the six months ended June 30,
1996 from $12.7 million during the comparable period in 1995. This revenue
growth was primarily attributable to an increase in the sale of network
configurations to large medical and academic institutions in North America and
an increase in sales outside of North America, primarily, Japan, Australia and
western Europe.
Maintenance revenues increased 40% to $0.7 million for the three months ended
June 30, 1996, from $0.5 million for the same period in 1995. During the six
months ended June 30, 1996, maintenance revenues increased 34% to $1.3 million
from $1.0 million for the comparable period in 1995. The increase in
maintenance revenues is directly attributable to the increase in network
sales, which have mandatory maintenance charges of 17% of the first year's
software fees.
COST OF REVENUES
Cost of revenues increased 49% to $2.9 million for the second quarter of 1996
from $1.9 million in the same period in 1995. As a percent of revenues, total
cost of revenues increased to 33% for the second quarter of 1996 from 27% for
the second quarter of 1995. For the six months ended June 30, 1996, total cost
of revenues increased 36% to $5.3 million for the first half of 1996 from $3.9
million for the same period in 1995. As a percentage of total revenues, cost
of revenues increased to 33% in the first six months of 1996 from 28% in the
comparable period in 1995. The increases in cost of revenues as a percentage
of total revenues were primarily due to an increase in cost of sales of
database subscriptions.
The cost of database subscriptions and software as a percentage of
corresponding revenues increased to 35% for the second quarter of 1996 from
28% in the second quarter of 1995. For the six months ended June 30, 1996,
total cost of database subscriptions and software increased 35% for the first
half of 1996 from 29% in the comparable period in 1995. The increase was
primarily due to an increase in royalty expense (due to sales of database
subscriptions paying higher royalties to their providers).
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 44% to $2.0 million during the second
quarter of 1996 from $1.4 million for the same period in 1995. As a percentage
of total revenues, sales and marketing expenses increased to 23% during the
second quarter of 1996 from 20% during the comparable quarter in 1995. Sales
and marketing increased to $3.8 million in the first half of 1996 from $2.7
million during the same period in 1995, an increase of 40%. As a percentage of
total revenues, sales and marketing expenses increased to 24% in the first six
months of 1996 from 20% during the first six months of 1995. Increase in sales
and marketing expense is attributable to an increased sales presence in North
American academic markets and in several markets outside North America,
primarily western Europe and Australia. The Company expects the increase in
sales and marketing investment will facilitate continued sales growth in the
future. Consequently, the Company expects that sales and marketing expenses
will decrease as a percentage of sales over time.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses decreased 7% to $1.4 million during the second
quarter of 1996 from $1.5 million during the same period in 1995. For the
first half of 1996, product development expenses decreased 8% to $2.7 million
for the six months ended June 30, 1996 from $3.0 million for the same period
in 1995. As a percentage of total revenues, product development expenses
decreased to 16% in the second quarter 1996 from 21% in the same period 1995,
and decreased to 17% for the first six months in 1996 from 22% for the same
period in 1995. The decrease in product development expenses is related to the
shut down of the Company's Albany production facility and decreased costs in
1996 associated with the Company's move in 1995 to Salt Lake City, offset by
1996 increases to full-text development and production costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 9% to $1.4 million in the second
quarter of 1996 from $1.3 million during the same period in 1995. As a
percentage of total revenues, general and administrative expenses decreased to
16% in the second quarter ended June 30, 1996 from 18% for June 30, 1995.
General and administrative expenses increased 6% to $2.7 million during the
first half of 1996 from $2.5 million during the same period in 1995. As a
percentage of total revenues, general and administrative expenses decreased to
17% in the six months ended June 30, 1996 from 19% for the comparable period
in 1995. The percent decrease is primarily attributable to the ability of the
Company to increase revenues through new sales and database subscription
renewals while controlling the growth of general expenses.
PROVISION FOR INCOME TAXES
The Company recorded a tax provision of $629,000 for the first half of 1996 as
compared to $638,000 for the same period in 1995. This represents a 40%
effective tax rate for both 1996 and 1995.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had cash and cash equivalents of
approximately $260,000, and working capital of $6.7 million. Operating
activities provided the Company with $1.0 million in cash during the first six
months of 1996 as compared to $.6 million during the same period in 1995. The
Company's days revenue in accounts receivable, which typically ranges from
80-100 days, is expected to continue and is not expected to significantly
impact the Company's liquidity.
The Company's investing activities used cash of $2.5 million during the first
six months of 1996, compared to using cash of $48,000 during the same period
in 1995. The primary use of cash in 1996 was the purchase $10.3 million of
short term investments less $8.7 million of redemptions. During the first half
of 1995, the primary source of cash was the redemption of $7.0 million of
short term investments less $6.1 million of purchases. The Company's ongoing
strategy is to invest excess cash in short-term investments.
The Company's financing activities provided $38,000 from the exercise of stock
options for the six months ended June 30, 1996 as compared to $250,000 used in
the same period of 1995 related to a distribution to the Company's then S
Corporation stockholder. Effective February 13, 1996, the Company entered into
a line-of-credit agreement for $1.0 million collateralized by the Company's
assets, bearing interest at the banks' prime rate plus 1%. There is no
specified expiration date for the agreement; however, the agreement is
cancelable in writing by either party at any time. There have been no
borrowings under this agreement.
The Company has no major current capital investment commitments and believes
that its available cash and cash flow from operations will be sufficient to
finance its planned operations and capital requirements for the foreseeable
future. The Company anticipates capital expenditures through the second half
of 1996 to continue at the current rate.
10
<PAGE>
OVID TECHNOLOGIES, INC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
(a) The Company's Annual Meeting of Stockholders was held on
June 12, 1996 (the "Annual Meeting").
(b) The following matters were voted upon and approved by
the Company's stockholders at the Annual Meeting:
(i) The election of five directors to serve for the
ensuing year. The following nominees were elected as directors of the Company
(with the Company's stockholders having voted as set forth below):
Nominee Vote for Withheld Authority to Vote
Mark L. Nelson 5,366,615 8,491
Deborah M. Hull 5,366,415 8,691
Martin F. Kahn 5,366,615 8,491
Harry Diakoff 5,366,415 8,691
John J. Hanley 5,366,615 8,491
(ii) The approval to amend the Corporation's 1993 Stock
Option Plan to increase the number of shares which may be issued thereunder.
The Company's stockholders voted as follows:
FOR: 4,844,073 AGAINST: 90,522 ABSTENTIONS: 2,325 NON-VOTES: 438,186
(iii) The ratification of the appointment of Coopers &
Lybrand L.L.P. as the Company's independent certified public accountants for
the fiscal year ending December 31, 1996. The Company's stockholders voted as
follows:
FOR: 5,368,455 AGAINST: 4,951 ABSTENTIONS: 1,700 NON-VOTES: 0
11
<PAGE>
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.
Ovid Technologies, Inc.
----------------------
(Registrant)
August 13, 1996
- - - --------------- --------------------------
Deborah M. Hull
Chief Operating Officer
August 13, 1996
- - - --------------- --------------------------
Jerry P. McAuliffe
Chief Financial Officer
12
<PAGE>
Exhibit 11
OVID TECHNOLOGIES, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
_________
<TABLE>
<CAPTION>
Three Months Three Months Six Six
Ended Ended Months Ended Months Ended
6/30/96 6/30/95 6/30/96 6/30/95
<S> <C> <C> <C> <C>
Net Income......................... $710,000 $622,000 $943,000 $959,000
======== ======== ======== ========
Shares used in calculation of net
income per share of common
stock:
Weighted average shares of
common stock outstanding 5,732,131 5,481,227 5,722,472 5,458,386
Dilutive effect of stock options
after the application of the
treasury stock method 1,556,727 1,673,414 1,512,756 1,671,232
--------- --------- --------- ---------
Net income per share of
common stock 7,288,858 7,154,641 7,235,228 7,129,618
========= ========= ========= =========
$.10 $.09 $.13 $.13
==== ==== ==== ====
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 260
<SECURITIES> 5,268
<RECEIVABLES> 9,576
<ALLOWANCES> 670
<INVENTORY> 0
<CURRENT-ASSETS> 15,407
<PP&E> 6,544
<DEPRECIATION> 3,505
<TOTAL-ASSETS> 20,826
<CURRENT-LIABILITIES> 8,712
<BONDS> 0
0
0
<COMMON> 57
<OTHER-SE> 8,096
<TOTAL-LIABILITY-AND-EQUITY> 20,826
<SALES> 8,732
<TOTAL-REVENUES> 8,732
<CGS> 2,864
<TOTAL-COSTS> 4,749
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> 1,182
<INCOME-TAX> 472
<INCOME-CONTINUING> 710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 710
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
