<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 March 31, 1997
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 6,056,548 May 9, 1997
<PAGE>
OVID TECHNOLOGIES, INC.
INDEX
--------
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1997 3
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1996 and 1997 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1996 and 1997 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
2
<PAGE>
OVID TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS: 1996 1997
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,426 $ 854
Short-term investments - held to maturity 5,382 7,417
Accounts receivable, less allowance for doubtful
accounts of $895 and $943 for 1996 and 1997, respectively 12,310 10,197
Prepaid and other current assets 698 770
Deferred income taxes 298 298
------- -------
Total current assets 20,114 19,536
Equipment and leasehold improvements, net 3,216 3,501
Full-text database, net 2,223 2,419
Deferred income taxes 307 320
Deposits and other assets 107 108
------- -------
Total assets $25,967 $25,884
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 2,343 $ 1,675
Accrued expenses 3,146 3,570
Customer deposits 457 450
Income taxes payable 916 1,240
Unearned revenue 3,838 3,167
Obligation under database subscriptions 656 636
------- -------
Total current liabilities 11,356 10,738
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;
5,894,832 and 5,964,898 shares issued and outstanding for
1996 and 1997, respectively 59 60
Additional paid-in capital 8,688 8,715
Retained earnings 5,792 6,326
Foreign currency translation adjustment 72 45
------- -------
Total stockholders' equity 14,611 15,146
------- -------
Total liabilities and stockholders' equity $25,967 $25,884
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
<PAGE>
OVID TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
for the three months ended March 31,
---------
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Revenues:
Database subscriptions and software $6,588 $7,674
Maintenance and other 662 778
------ ------
Total revenues 7,250 8,452
------ ------
Cost of revenues:
Database subscriptions and software 2,361 2,788
Maintenance and other 47 58
------ ------
Total cost of revenues 2,408 2,846
------ ------
Gross profit 4,842 5,606
Operating expenses:
Sales and marketing 1,815 1,948
Product development 1,366 1,490
General and administrative 1,324 1,341
------ ------
Total operating expenses 4,505 4,779
------ ------
Income from operations 337 827
Interest income and other, net 53 63
------ ------
Income before provision for income taxes 390 890
Provision for income taxes 157 356
Net income $ 233 $ 534
------ ------
Net income per common share $ .03 $ .07
------ ------
Weighted average number of shares of common stock and
common stock equivalents 7,175 7,230
------ ------
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
<PAGE>
OVID TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
(Unaudited)
for the three months ended March 31,
----------
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 233 $ 534
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 513 691
Deferred income tax benefit -- (14)
Provision for doubtful accounts 80 48
Changes in assets and liabilities:
Decrease in accounts receivable, net of unearned revenue 250 1,394
Increase in full-text database (111) (354)
Decrease (increase) in other assets 217 (73)
Decrease in accounts payable (512) (668)
(Decrease) increase in other liabilities (307) 696
------- -------
Cash provided by operating activities 362 2,254
------- -------
Cash flows from investing activities:
Purchase of short-term investments (6,162) (6,159)
Redemption of short-term investments at maturity 5,117 4,124
Capital expenditures (429) (819)
------- -------
Cash used in investing activities (1,474) (2,854)
------- -------
Cash flows from financing activities:
Proceeds from the exercise of stock options 34 28
------- -------
Cash provided by financing activities 34 28
------- -------
Decrease in cash and cash equivalents (1,078) (572)
Cash and cash equivalents, beginning of the period 1,775 1,426
------- -------
Cash and cash equivalents, end of the period $ 697 $ 854
======= =======
</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
-------------------
1. Basis of Presentation:
These condensed consolidated financial statements should be read in
conjunction with the Company's Form 10-K dated March 28, 1997, 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 March 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" ("Statement No.
128"). Statement 128 establishes standards for computing and
presenting earnings per share ("EPS") and is effective for financial
statements issued for periods ending after December 15, 1997. This
Statement will eliminate the presentation of primary EPS and will
require the presentation of basic EPS (the principal difference being
that common stock equivalents will not be considered in the
computation of basic EPS.). It will also require the presentation of
diluted EPS which will give effect to all dilutive potential common
shares that were outstanding during the period. The Company has not
determined the effect of Statement No. 128 on the Company's EPS.
6
<PAGE>
OVID TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997, as compared to
Three Months Ended March 31, 1996
----------------
REVENUES
For the three months ended March 31, 1997, the Company's total revenues
increased 17% to $8.5 million versus $7.3 million for the comparable period in
1996.
Revenues from database subscriptions and software increased 16% to $7.7
million in the first quarter of 1997 from $6.6 million during the same period
of 1996. This revenue growth was primarily attributable to an increase in
units sold, particularly in medical sales in North America, Japan and
Australia.
Maintenance revenues increased 18% to $0.8 million for the three months ended
March 31, 1997 from $0.7 million for the same period in 1996. 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 18% to $2.8 million in the first quarter of 1997
from $2.4 million for the same period in 1996. As a percent of revenues, total
cost of revenues increased to 34% for the first quarter of 1997 from 33% in
1996. This increase was primarily due to an increase in royalty expense, as
the Company has experienced an increasing amount of database sales from for
profit data providers who require substantial royalties. The Company expects
this trend to continue as it is assumed that a significant amount of future
sales are expected to be from these databases and full text.
GROSS PROFIT
Gross profit was $5.6 million for the quarter ended March 31, 1997, compared
with $4.8 million for the same period in 1996, representing 66% of revenues
for the first quarter of 1997 and 67% for the first quarter 1996.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 7% to $1.9 million during the first
quarter of 1997 from $1.8 million for the same period in 1996. The increase is
attributable to payroll and other costs to support the existing sales and
marketing staff As a percentage of total revenues, sales and marketing
expenses decreased to 23% during the first quarter of 1997 from 25% during the
comparable quarter in 1996. This percentage decrease is primarily attributable
to an increase in database subscription renewals, which require limited
involvement from the Company's sales force. As renewal revenue continues to
grow, the Company expects this trend to continue.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
PRODUCT DEVELOPMENT EXPENSES
Product development expenses increased 9% to $1.5 million during the first
quarter of 1997 from $1.4 million during the same period in 1996. Product
development expenses reflect an increase in staff costs related to full-text
development and production costs. As a percentage of total revenues, product
development expenses decreased to 18% for the three months ended March 31,
1997 from 19% for the same period in 1996. The Company expects to have
significant expenditure needs in full-text production and development over the
next two years with no significant changes in product development expenses as
a percentage of sales during this period.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses remain relatively flat at $1.3 million in
the first quarter of 1997 compared to the same period in 1996. As a percentage
of total revenues, general and administrative expenses decreased to 16% in the
first quarter of 1997 from 18% in the comparable period of 1996. 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 $356,000 for the first quarter of 1997
as compared to $157,000 for the same period in 1996. This represents a 40%
rate for both 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had cash and cash equivalents of
approximately $854,000 and working capital of $8.8 million. Operating
activities provided the Company with $2.3 million in cash during the first
three months of 1997 as compared to $362,000 during the same period in 1996.
The increase in cash provided by operating activities from 1997 to 1996 was
due primarily to a decrease in accounts receivables in addition to an increase
in other liabilities.
The Company's investing activities used cash of $2.9 million during the first
three months of 1997, compared to using cash of $1.5 during the same period in
1996. The primary use of cash in 1997 was the purchase of $6.2 million of
short term investments less $4.1 million of redemptions. During the first
quarter of 1996, the primary use of cash was the purchase of $6.2 million of
short term investments less $5.1 million of redemptions.
The Company's financing activities provided $28,000 in 1997 as compared to
$34,000 provided in the same period for 1996, both related to the exercise of
stock options. Effective February 13, 1996, the Company entered into a
line-of-credit agreement for $1.0 million collateralized by the Company's
receivables, 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 begun 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.
The Company that these activities can be financed by its available cash and
short-term investments and expected future cash flow from operations.
8
<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 14, 1997 /s/ DEBORAH M. HULL
- ------------ -----------------------------------
Date Deborah M. Hull
Chief Operating Officer
May 14, 1997 /s/ JERRY P. McAULIFFE
- ------------ -----------------------------------
Date Jerry P. McAuliffe
Chief Financial Officer
9
<PAGE>
Exhibit 11
OVID TECHNOLOGIES, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
------------
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1997
-------------- --------------
Net income $233,000 $534,000
--------- ---------
Shares used in calculation of net income
per share of common stock:
Weighted average shares of common stock
outstanding 5,712,797 5,919,783
Dilutive effect of stock options after the
application of the treasury stock method 1,461,989 1,310,252
--------- ---------
7,174,786 7,230.035
========= =========
Net income per share of common stock $.03 $.07
==== ====
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 854
<SECURITIES> 7,417
<RECEIVABLES> 11,140
<ALLOWANCES> 943
<INVENTORY> 0
<CURRENT-ASSETS> 19,536
<PP&E> 7,610
<DEPRECIATION> 4,109
<TOTAL-ASSETS> 25,884
<CURRENT-LIABILITIES> 10,738
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 8,715
<TOTAL-LIABILITY-AND-EQUITY> 25,884
<SALES> 8,452
<TOTAL-REVENUES> 8,452
<CGS> 2,846
<TOTAL-COSTS> 2,846
<OTHER-EXPENSES> 4,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> 890
<INCOME-TAX> 356
<INCOME-CONTINUING> 534
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 534
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
