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 March 31, 1996
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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.
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(Exact name of registrant as specified in its charter)
Delaware 13 - 3333107
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(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 5,725,300 May 9, 1996
<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 March 31, 1996 3
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1995 and 1996 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1995 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
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 9
<PAGE>
OVID TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited)
<TABLE>
December 31, March 31,
1995 1996
---- ----
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 1,775 $ 697
Short-term investments - held to maturity 3,637 4,682
Accounts receivable, less allowance for
doubtful accounts of $488 and $568 for 1995
and 1996, respectively 7,855 7,235
Prepaid and other current assets 682 404
Deferred income taxes 185 185
Income taxes receivable 748 694
----------- -------
Total current assets 14,882 13,897
Equipment and leasehold improvements, net 2,977 3,020
Full-text database, net 1,570 1,554
Deferred income taxes 355 355
Deposits and other assets 330 391
---------- -------
Total assets $20,114 $19,217
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $2,702 $2,190
Accrued expenses 2,146 1,625
Customer deposits 734 828
Income taxes payable 465 545
Unearned revenue 2,376 2,086
Obligation under database subscriptions 538 517
-------- ------
Total current liabilities 8,961 7,791
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 5,723,300 shares issued and
outstanding for 1995 and 1996, respectively 57 57
Additional paid-in capital 8,058 8,092
Retained earnings 3,036 3,269
Foreign currency translation adjustment 2 8
-------- ------
Total stockholders' equity 11,153 11,426
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Total liabilities and stockholders' equity $20,114 $19,217
======= =======
</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 March 31,
---------
<TABLE>
1995 1996
---- ----
<S> <C> <C>
Revenues:
Database subscriptions and software $6,098 $6,588
Maintenance 470 662
Hardware 42 --
----- -----
Total revenues 6,610 7,250
----- -----
Cost of revenues:
Database subscriptions and software 1,865 2,361
Maintenance 63 47
Hardware 41 --
----- -----
Total cost of revenues 1,969 2,408
----- -----
Gross profit 4,641 4,842
Operating expenses:
Sales and marketing 1,343 1,815
Product development 1,481 1,366
General and administrative 1,289 1,324
----- -----
Total operating expenses 4,113 4,505
----- -----
Income from operations 528 337
Interest income and other, net 33 53
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Income before provision for income taxes 561 390
Provision for income taxes 224 157
---- -----
Net income $ 337 $ 233
====== ======
Net income per common share $ .05 $ .03
====== ======
Weighted average number of shares of common stock and
common stock equivalents 7,182 7,175
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
(Unaudited)
for the three months ended March 31,
----------
<TABLE>
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 337 $ 233
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 401 513
Provision for doubtful accounts 50 80
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net of unearned revenue (1,132) 250
(Increase) in full-text database costs -- (111)
(Increase) decrease in other assets (28) 217
Increase (decrease) in accounts payable 1,352 (512)
Decrease in other liabilities (728) (307)
--------- -----
Cash provided by operating activities 252 362
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Cash flows from investing activities:
Purchase of short-term investments (3,008) (6,162)
Redemption of short-term investments at maturity 4,025 5,117
Capital expenditures (594) (429)
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Cash provided by (used in) investing activities 423 (1,474)
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Cash flows from financing activities:
Proceeds from the exercise of stock options -- 34
Distribution to S Corporation stockholder (10) --
Cash (used in) provided by financing activities (10) 34
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Increase (decrease) in cash and cash equivalents 665 (1,078)
Cash and cash equivalents, beginning of the period 100 1,775
--------- -------
Cash and cash equivalents, end of the period $ 765 $ 697
======== =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
OVID TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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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
expiration set for the agreement; however, it is cancelable in writing
by either parties at any time. There have been no borrowings under this
agreement.
6
<PAGE>
OVID TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996, as compared to
Three Months Ended March 31, 1995
----------------
REVENUES
For the three months ended March 31, 1996, the Company's total revenues
increased 10% to $7.3 million versus $6.6 million for the comparable period in
1995.
Revenues from database subscriptions and software increased 8% to $6.6 million
in the first quarter of 1996 from $6.1 million during the same period of 1995.
This revenue growth was primarily attributable to an increase in academic sales
in North America and overseas.
Maintenance revenues increased 41% to $0.7 million for the three months ended
March 31, 1996 from $0.5 million for the same period in 1995. The increase in
maintenance revenues is directly attributable to the increase in network sales
over the last year, 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 22% to $2.4 million in the first quarter of 1996 from
$2.0 million for the same period in 1995. As a percent of revenues, total cost
of revenues increased to 33% for the first quarter of 1996 from 30% for the
comparable period in 1995.
The cost of database subscriptions and software as a percentage of corresponding
revenues increased to 36% in the first quarter of 1996 from 31% in the first
quarter of 1995. This increase was primarily due to an increase in royalty
expense (due to sales of database subscriptions paying higher royalties to their
providers).
The cost of maintenance revenues represented 7% and 13% of maintenance revenues
in the first quarter of 1996 and 1995, respectively, and primarily represented
hardware replacement.
GROSS PROFIT
Gross profit was $4.8 million for the quarter ended March 31, 1996, compared
with $4.6 million for the same period in 1995, representing 67% of revenues for
the first quarter of 1996 and 70% for the first quarter 1995.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 35% to $1.8 million during the first
quarter of 1996 from $1.3 million for the same period in 1995. As a percentage
of revenues, sales and marketing expenses increased to 25% during the first
quarter of 1996 from 20% during the comparable quarter in 1995. This percentage
increase is primarily attributable to an increased sales presence in North
American academic markets in anticipation of future sales growth and in several
markets outside North America, in particular, Europe and the Pacific Rim.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses decreased 8% to $1.4 million during the first
quarter of 1996 from $1.5 million during the same period in 1995. As a
percentage of total revenues, product development expenses decreased to 19% for
the three months ended March 31, 1996 from 22% for the same period in 1995. The
decrease in product development expenses is related to the shut down of our
Albany production facility and decreased costs associated with the company's
move to Salt Lake City in 1995 offset by increases to full-text development
costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 3% to $1.32 million in the first
quarter of 1996 from $1.29 million during the same period in 1995. As a
percentage of total revenues, general and administrative expenses decreased to
18% in the first quarter of 1996 from 20% in the comparable period of 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 $157,000 for the first quarter of 1996
as compared to $224,000 for the same period in 1995. This represents a 40%
effective tax rate for both 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had cash and cash equivalents of approximately
$697,000 and working capital of $6.1 million. Operating activities provided the
Company with $362,000 in cash during the first three months of 1996 as compared
to $252,000 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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
The Company's investing activities used cash of $1.5 million during the first
three months of 1996, compared to providing cash of $423,000 during the same
period in 1995. The primary use of cash in 1996 was the purchase of $6.2 million
of short term investments less $5.1 million of redemptions. During the first
quarter of 1995, the primary source of cash was the redemption of $4.0 million
of short term investments less $3.0 million of purchases. The Company's ongoing
strategy is to invest excess cash in short-term investments.
The Company's financing activities provided $34,000 from the exercise of stock
options for the three months ended March 31, 1996 as compared to $10,000 used in
the same period for 1995 related to a distribution to the Company's 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 expiration
set for the agreement, however, it is cancelable in writing by both parties 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 flows from operations will be sufficient to
finance its planned operations and capital requirements for the foreseeable
future. The Company anticipates capital expenditures through the year to
continue at the current rate.
9
<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)
May 9, 1996 /s/ DEBORAH M. HULL
- ----------- -----------------------------
Date Deborah M. Hull
Chief Operating Officer
May 9, 1996 /s/ JERRY P. McAULIFFE
- ----------- ------------------------------
Date Jerry P. McAuliffe
Chief Financial Officer
11
Exhibit 11
OVID TECHNOLOGIES, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
------------
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1995 March 31, 1996
-------------- --------------
<S> <C> <C>
Net income $337,000 $233,000
======== ========
Shares used in calculation of net income per share of common stock:
Weighted average shares of common stock
outstanding 5,435,050 5,712,797
Dilutive effect of stock options after the
application of the treasury stock method 1,746,481 1,461,989
--------- ---------
7,181,531 7,174,786
========= =========
Net income per share of common stock $.05 $.03
========== =========
10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 697
<SECURITIES> 4,682
<RECEIVABLES> 7,803
<ALLOWANCES> 568
<INVENTORY> 0
<CURRENT-ASSETS> 13,897
<PP&E> 5,999
<DEPRECIATION> 2,979
<TOTAL-ASSETS> 19,217
<CURRENT-LIABILITIES> 7,791
<BONDS> 0
<COMMON> 57
0
0
<OTHER-SE> 8,092
<TOTAL-LIABILITY-AND-EQUITY> 19,217
<SALES> 7,250
<TOTAL-REVENUES> 7,250
<CGS> 2,408
<TOTAL-COSTS> 4,505
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 390
<INCOME-TAX> 157
<INCOME-CONTINUING> 233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
