<PAGE>
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 September 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
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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 5,837,432 10/31/96
<PAGE>
OVID TECHNOLOGIES, INC.
INDEX
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Page
PART I - FINANCIAL INFORMATION ----
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of
December 31, 1995 and September 30, 1996 3
Condensed Consolidated Statements of Operations for
the three months ended September 30, 1995 and 1996 4
Condensed Consolidated Statements of Operations for
the nine months ended September 30, 1995 and 1996 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Computation of Net Income Per Common Share 11
2
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
---------------
DECEMBER 31, SEPTEMBER 30,
1995 1996
---- ----
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....................................... $ 1,775 $ 975
Short-term investments - held to maturity....................... 3,637 5,277
Accounts receivable, less allowance for doubtful accounts
of $488 and $627 for 1995 and 1996, respectively.............. 7,855 9,656
Prepaid and other current assets................................ 682 406
Deferred income taxes........................................... 185 115
Income tax receivable........................................... 748 --
-------- --------
Total current assets......................................... 14,882 16,429
Equipment and leasehold improvements, net....................... 2,977 2,872
Full-text database, net......................................... 1,570 1,967
Deferred income taxes........................................... 355 295
Deposits and other assets....................................... 330 328
-------- --------
Total assets................................................ $20,114 $21,891
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable................................................ $ 2,702 $ 1,732
Accrued expenses................................................ 2,146 3,064
Customer deposits............................................... 734 667
Income taxes payable............................................ 465 449
Unearned revenue................................................ 2,376 2,465
Obligation under database subscriptions......................... 538 590
-------- --------
Total current liabilities.................................... $ 8,961 $ 8,967
-------- -------
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 5,828,100 shares issued and
outstanding for 1995 and 1996, respectively.................... 57 58
Additional paid-in capital...................................... 8,058 8,147
Retained earnings............................................... 3,036 4,725
Foreign currency translation adjustment......................... 2 (6)
-------- --------
Total stockholders' equity................................... 11,153 12,924
-------- --------
Total liabilities and stockholders' equity................. $20,114 $21,891
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
---------
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Revenues:
Database subscriptions and software............... $ 6,964 $ 7,493
Maintenance and other............................. 533 714
------- -------
Total revenues................................ 7,497 8,207
------- -------
Cost of revenues:
Database subscriptions and software............... 2,346 2,647
Maintenance and other............................. 65 31
------- -------
Total cost of revenues........................ 2,411 2,678
------- -------
Gross profit.................................. 5,086 5,529
Operating expenses:
Sales and marketing............................... 1,414 1,709
Product development............................... 1,338 1,353
General and administrative........................ 1,195 1,293
------- -------
Total operating expenses 3,947 4,355
------- -------
Income from operations........................ 1,139 1,174
Interest income and other, net.................... 54 69
------- -------
Income before provision for income taxes...... 1,193 1,243
Provision for income taxes........................ 475 497
------- -------
Net income.................................... $ 718 $ 746
======= =======
Net income per common share................... $ .10 $ .10
======= =======
Weighted average number of shares of
common stock and common stock equivalents........ 7,214,570 7,265,449
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Revenues:
Database subscriptions and software................ $19,626 $22,143
Maintenance and other.............................. 1,524 2,046
------- -------
Total revenues.................................. 21,150 24,189
------- -------
Cost of revenues:
Database subscriptions and software................ 6,062 7,814
Maintenance and other.............................. 237 136
------- -------
Total cost of revenues.......................... 6,299 7,950
------- -------
Gross profit.................................... 14,851 16,239
Operating expenses:
Sales and marketing................................ 4,147 5,528
Product development................................ 4,303 4,093
General and administrative......................... 3,744 3,988
------- -------
Total operating expenses........................ 12,194 13,609
------- -------
Income from operations.......................... 2,657 2,630
Interest income and other, net...................... 133 185
------- -------
Income before provision for income taxes........... 2,790 2,815
Provision for income taxes.......................... 1,113 1,126
------- -------
Net income........................................ $ 1,677 $ 1,689
======= =======
Net income per common share....................... $ .24 $ .24
======= =======
Weighted average number of shares of common stock
and common stock equivalents.................... 7,130,634 7,162,299
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 1,677 $ 1,689
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 1,305 1,685
Change in deferred tax asset and liability...... -- 130
Provision for doubtful accounts................. 135 139
Increase in full text database cost.......... -- (815)
Increase in accounts receivable, net of
unearned revenue............................ (1,682) (1,852)
(Increase) decrease in other assets.......... (175) 278
Decrease in income tax receivable............ -- 748
Increase (decrease) in accounts payable...... 747 (970)
(Decrease) increase in other liabilities..... (232) 880
------- -------
Cash provided by operating activities...... 1,775 1,912
------- -------
Cash flows from investing activities:
Purchase of short-term investments.................. (9,134) (15,594)
Redemption of short-term investments at maturity.... 10,079 13,955
Capital expenditures................................ (1,480) (1,163)
------- -------
Cash used in investing activities......... (535) (2,802)
------- -------
Cash flows from financing activities: -- --
Proceeds from the exercise of stock options......... 84 90
Distribution to S-Corporation stockholder........... (275) --
------- -------
Cash (used in) provided by financing
activities............................... (191) 90
------- -------
Increase (decrease) in cash and cash
equivalents................................. 1,049 (800)
Cash and cash equivalents, beginning of period...... 100 1,775
------- -------
Cash and cash equivalents, end of period............ $ 1,149 $ 975
======= =======
</TABLE>
The accompanying notes are an 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 condensed 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 Employees".
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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
REVENUES
For the three months ended September 30, 1996, the Company's total revenues
increased 9% to $8.2 million versus $7.5 million for the comparable period in
1995. For the first nine months of 1996, total revenues increased to $24.2
million, an increase of 14%, from $21.2 million during the first nine months of
1995. Although the revenue growth was worldwide, network sales in North
America, Japan and Australia were particularly strong during the first nine
months of 1996.
Revenues from database subscriptions and software increased to $7.5 million in
the third quarter of 1996 from $7.0 million during the same period of 1995.
These same revenues grew to $22.1 million during the nine months ended
September 30, 1996 from $19.6 million during the comparable period in 1995.
This revenue growth was primarily attributable to an increase in sales of
network configurations to 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 34% to $0.7 million for the three months ended
September 30, 1996 from $0.5 million for the same period in 1995. During the
nine months ended September 30, 1996, maintenance revenues increased 34% to
$2.0 million from $1.5 million for the comparable period in fiscal 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, partially offset by the decrease in hardware maintenance
fees resulting from decreased hardware sales.
COST OF REVENUES
Cost of revenues increased 11% to $2.7 million in the third quarter of 1996
from $2.4 million for the same period in 1995. As a percent of total revenues,
total cost of revenues increased to 33% for the third quarter of 1996 from 32%
for the third quarter of 1995. For the nine months ended September 30, 1996,
total cost of revenues increased 26% to $8.0 million for the first nine months
from $6.3 million for the same period in 1995. As a percentage of total
revenues, total cost of revenues increased to 33% in the first nine months of
1996 from 30% 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 third quarter of 1996 from 34%
in the third quarter of 1995. For the nine months ended September 30, 1996,
total cost of database subscriptions and software as a percentage of
corresponding revenue increased to 35% for the first nine months of 1996 from
31% in the comparable period in 1995. The increases were 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.
GROSS PROFIT
Gross profit was $5.5 million for the quarter ended September 30, 1996,
compared with $5.1 million for the same period in 1995, representing 67% and
68% of total revenues, respectively. Gross profit was $16.2 million during the
nine months ended September 30, 1996, compared with $14.9 million for the same
period in 1995, representing 67% and 70% of total revenues, respectively.
Changes in gross margin from period to period have resulted primarily from
changes in the cost of revenues within each category of revenues, as discussed
above.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 21% to $1.7 million during the third
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 21% during the
third quarter of 1996 from 19% during the comparable quarter in 1995. Sales and
marketing increased to $5.5 million in the first nine months of 1996 from $4.1
million during the same period in 1995, an increase of 33%. As a percentage of
total revenues, sales and marketing expenses increased to 23% in the first nine
months of 1996 from 20% during the first nine months of 1995. The increases in
sales and marketing expenses are 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 increased 1% to $1.4 million during the third
quarter of 1996 from $1.3 million during the same period in 1995. As a
percentage of total revenues, product development expenses decreased to 16% in
the third quarter 1996 from 18% in the same period for 1995. For the first nine
months of 1996, product development expenses decreased 5% to $4.1 million as
compared to $4.3 million for the same period in 1995. As a percentage of total
revenues, product development expenses decreased to 17% for the first nine
months in 1996 from 20% for the first nine months 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. The Company expects product development
expenses, in the aggregate, to increase; however, these expenses are expected
to decrease as a percentage of total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 8% to $1.3 million in the third
quarter of 1996 from $1.2 million during the same period in 1995. As a
percentage of total revenues, general and administrative expenses remained the
same at 16% in the third quarter for both 1996 and 1995. General and
administrative expenses increased 7% to $4.0 million during the first nine
months of 1996 from $3.7 million during the same period in 1995. As a
percentage of total revenues, general and administrative expenses decreased to
16% in the nine months ended September 30, 1996 from 18% for the comparable
period in 1995. The 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. The Company expects
this trend to continue in the future.
PROVISION FOR INCOME TAXES
The Company recorded a tax provision of $1.1 million for both 1996 and 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 September 30, 1996, the Company had cash and cash equivalents of
approximately $975,000 and working capital of approximately $7.5 million.
Operating activities provided the Company with $1.9 million in cash during the
first nine months of 1996 as compared to $1.8 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 $2.8 million during the first
nine months of 1996, compared to using cash of $535,000 during the same period
in 1995. The primary use of cash in 1996 was the purchase of $1.2 million of
capital equipment and the purchase of $15.6 million of short term investments
less $14.0 million of redemptions. During the first nine months of 1995, the
primary use of cash was the purchase of capital expenditures of $1.5 million,
partially offset by the purchase of $9.1 million and redemption of $10.0
million of short term investments. The Company's ongoing strategy is to invest
excess cash in short-term investments.
The Company's financing activities provided $90,000 from the exercise of stock
options for the nine months ended September 30, 1996 as compared to $191,000
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 intends to aggressively pursue an initiative to license the rights
to electronically distribute a significant amount of scientific, technical and
medical related journals. Licensing the content as well as the necessary
investment in production will require significant capital resources. However,
it is the current belief of the Company that these activities can be financed
by its available cash and short-term investments and expected future cash flows
from operations.
10
<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)
November 13, 1996 /s/ DEBORAH M. HULL
- ------------------------- -------------------
Deborah M. Hull
Chief Operating Officer
November 13, 1996 /s/ JERRY P. McAULIFFE
- ---------------------- ----------------------
Jerry P. McAuliffe
Chief Financial Officer
11
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
OVID TECHNOLOGIES, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
---------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
9/30/95 9/30/96 9/30/95 9/30/96
(Historical) (Historical) (Historical) (Historical)
<S> <C> <C> <C> <C>
Net Income ................................. $718,000 $746,000 $1,677,000 $1,689,000
======== ======== ========== ==========
Shares used in calculation
of net income per share of
common stock:
Weighted average shares of
common stock outstanding .............. 5,555,081 5,787,439 5,494,382 5,744,281
Dilutive effect of stock options
after the application of the
treasury stock method .................... 1,659,489 1,478,010 1,636,252 1,418,018
--------- --------- --------- ---------
7,214,570 7,265,449 7,130,634 7,162,299
========= ========= ========= =========
Net income per share
of common stock ................. $ .10 $ .10 $ .24 $ .24
======= ======== ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 975
<SECURITIES> 5,277
<RECEIVABLES> 10,283
<ALLOWANCES> 627
<INVENTORY> 0
<CURRENT-ASSETS> 16,429
<PP&E> 7,645
<DEPRECIATION> 4,773
<TOTAL-ASSETS> 21,891
<CURRENT-LIABILITIES> 8,967
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 8,147
<TOTAL-LIABILITY-AND-EQUITY> 21,891
<SALES> 8,207
<TOTAL-REVENUES> 8,207
<CGS> 2,678
<TOTAL-COSTS> 4,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> 1,243
<INCOME-TAX> 497
<INCOME-CONTINUING> 746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 746
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
