-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UgJIJW2lYP21AYeirLQv89342yxBLPrW8BzHnfv/gtPy5H0ydL9nQqBvqG/Oifih gvj54zj9BvEnOzcBViypuA== 0000922811-99-000015.txt : 19991115 0000922811-99-000015.hdr.sgml : 19991115 ACCESSION NUMBER: 0000922811-99-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNODATA CORP CENTRAL INDEX KEY: 0000903651 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133475943 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22196 FILM NUMBER: 99748837 BUSINESS ADDRESS: STREET 1: 95 ROCKWELL PL CITY: BROOKLYN STATE: NY ZIP: 11217 BUSINESS PHONE: 7188550044 MAIL ADDRESS: STREET 1: 95 ROCKWELL PLACE CITY: BROOKLYN STATE: NY ZIP: 11217 10-Q 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1999 Commission File Number 0-22196 INNODATA CORPORATION (Exact name of small business issuer 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 October 31, 1999 there were 4,948,323 shares of common stock outstanding. PART I. FINANCIAL INFORMATION - ------- --------------------- Item 1. Financial Statements -------------------- See pages 2-7 Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- See pages 8-12 PART ll. OTHER INFORMATION - -------- ----------------- See page 13 INNODATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1999 (Unaudited) -----------
ASSETS CURRENT ASSETS: Cash and equivalents $ 2,526,926 Accounts receivable-net 5,466,654 Prepaid expenses and other current assets 1,204,675 Deferred income taxes 625,000 ----------- Total current assets 9,823,255 FIXED ASSETS-net 4,161,813 OTHER ASSETS 562,642 ----------- TOTAL $14,547,710 =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 24,575 Accounts payable and accrued expenses 889,930 Accrued salaries and wages 1,806,214 Income and other taxes 231,515 ----------- Total current liabilities 2,952,234 ----------- LONG-TERM DEBT, less current portion 7,803 ----------- DEFERRED INCOME TAXES 425,000 ----------- STOCKHOLDERS' EQUITY (NOTE 5): Common stock, $.01 par value; authorized, 20,000,000 shares; issued, 5,055,447 shares 50,554 Additional paid-in capital 10,688,171 Retained earnings 644,917 ----------- 11,383,642 Less: treasury stock-at cost; 144,249 shares (220,969) ----------- Total stockholders' equity 11,162,673 ----------- TOTAL $14,547,710 =========== See notes to unaudited condensed consolidated financial statements
INNODATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Unaudited) -----------
1999 1998 REVENUES $19,709,688 $14,109,397 ----------- ----------- OPERATING COSTS AND EXPENSES: Direct operating expenses 12,313,614 9,624,379 Selling and administrative expenses 4,920,670 3,462,089 Unrealized gain on foreign currency contracts - (487,458) Interest income - net (77,601) (8,219) ---------- ---------- Total 17,156,683 12,590,791 ----------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES 2,553,005 1,518,606 PROVISION FOR INCOME TAXES 708,550 - ----------- ----------- NET INCOME $ 1,844,455 $ 1,518,606 ============ =========== BASIC INCOME PER SHARE $.40 $.34 ==== ==== WEIGHTED AVERAGE SHARES 4,577,153 4,437,594 =========== =========== DILUTED INCOME PER SHARE $.35 $.34 ==== ==== WEIGHTED AVERAGE DILUTED SHARES 5,203,281 4,504,797 =========== =========== See notes to unaudited condensed consolidated financial statements
INNODATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Unaudited) -----------
1999 1998 REVENUES $7,072,658 $5,309,806 ---------- ---------- OPERATING COSTS AND EXPENSES: Direct operating expenses 4,707,098 3,534,891 Selling and administrative expenses 1,607,176 1,312,920 Interest income - net (22,099) (7,229) ---------- ---------- Total 6,292,175 4,840,582 ----------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES 780,483 469,224 PROVISION FOR INCOME TAXES 195,000 - ----------- ---------- NET INCOME $ 585,483 $ 469,224 ========== ========== BASIC INCOME PER SHARE $ .12 $ .11 =========== =========== WEIGHTED AVERAGE SHARES 4,760,505 4,421,457 ========== =========== DILUTED INCOME PER SHARE $ .11 $ .10 ========== ========== WEIGHTED AVERAGE DILUTED SHARES 5,562,726 4,576,089 ========== ========== See notes to unaudited condensed consolidated financial statements
INNODATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Unaudited) -----------
1999 1998 OPERATING ACTIVITIES: Net income $ 1,844,455 $1,518,606 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,172,934 913,180 Gain on foreign currency contracts - (487,458) Loss on disposal of fixed assets - 29,634 Changes in operating assets and liabilities: Accounts receivable (2,523,232) 376,284 Prepaid expenses and other current assets (688,048) 181,204 Other assets 91,328 77,524 Accounts payable and accrued expenses 720,497 679,368 Liability for foreign currency contracts - (912,542) Income and other taxes 310,899 (227,068) ----------- ---------- Net cash provided by operating activities 928,833 2,148,732 ----------- ---------- INVESTING ACTIVITIES: Expenditures for fixed assets (2,696,195) (642,023) Proceeds from disposal of fixed assets - 132,803 ----------- ---------- Net cash used in investing activities (2,696,195) (509,220) ------------ ----------- FINANCING ACTIVITIES: Proceeds from exercise of stock options 807,184 - Purchase of treasury stock - (38,372) Payments of long-term debt (48,429) (92,086) ---------- --------- Net cash provided by (used in) financing activities 758,755 (130,458) ---------- ---------- (DECREASE) INCREASE IN CASH (1,008,607) 1,509,054 CASH AND EQUIVALENTS, BEGINNING OF PERIOD 3,535,533 1,969,852 ------------ ----------- CASH AND EQUIVALENTS, END OF PERIOD $ 2,526,926 $3,478,906 =========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 4,645 $ 13,501 Income taxes $ 278,000 $ - See notes to unaudited condensed consolidated financial statements
INNODATA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (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, 1999, the results of operations for the three and nine month periods ended September 30, 1999 and 1998, and of cash flows for the nine months ended September 30, 1999 and 1998. The results of operations for the nine months ended September 30, 1999 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, 1998 included in the Company's Annual Report on Form 10-KSB. The accounting policies used in preparing these financial statements are the same as those described in the December 31, 1998 financial statements. 2. The nine months ended September 30, 1998 has no provision for taxes due to the utilization of net operating loss carryforwards. The provision for taxes for the nine months ended September 30, 1999 was less than the statutory rate due to certain tax holidays available in foreign countries in which the Company operates. 3. During1999, the Company granted options to purchase 375,000 shares of its common stock at prices ranging from $2.66 - 9.00 per share. During the nine months ended September 30, 1999 options to purchase 435,243 shares of the Company's common stock were exercised, resulting in proceeds of $807,184. 4. Segment Information. The Company's operations are classified in two business segments: Internet and on-line data conversion; and content management services and document imaging services.
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 ---- ---- ---- ---- Revenues - -------- Internet and on-line services $18,806,333 $12,640,794 $6,785,411 $4,679,959 Document imaging services 903,355 1,468,603 287,247 629,847 ----------- ----------- -------- ---------- Total consolidated $19,709,688 $14,109,397 $7,072,658 $5,309,806 =========== =========== ========== ========== Income (loss) before income taxes - --------------------------------- Internet and on-line services $ 3,153,330 $ 2,377,768 $ 849,596 $ 926,311 Document imaging services (600,325) (859,162) (69,113) (457,087) ----------- ----------- ---------- ---------- Total consolidated $ 2,553,005 $ 1,518,606 $ 780,483 $ 469,224 =========== =========== ========== ==========
Internet and on-line data conversion and content management services provide all the necessary steps for product development and data conversion to enable its customers to disseminate vast amounts of information both on-line and via the Internet. Its customers represent an array of major electronic publishers of legal, scientific, educational and medical information, as well as document-intensive companies repurposing their proprietary information into electronic resources that can be referenced via web-centric applications. The document imaging services segment provides high volume backfile and day-forward conversion of business documents, technical manuals, engineering drawings, aperture cards, roll film, and microfiche, providing high quality computer accessible images and indexing. 5. On August 17, 1999, the Company declared a three-for-one stock split in the form of a stock dividend payable on September 9, 1999 to stockholders of record on August 31, 1999. The financial statements and notes thereto have been retroactively adjusted to reflect such stock split. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL INNODATA is a leading provider of Internet and online data conversion and content management services, providing all the necessary steps from data capture to product development to enable its customers to publish vast amounts of information both online and via the Internet. Innodata's customers represent an array of major electronic publishers of legal, scientific, educational, and medical information, as well as document-intensive companies repurposing their proprietary information into electronic resources that can be referenced via web-centric applications. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Revenues increased 33% to $7,072,658 for the three months ended September 30, 1999 compared to $5,309,806 for the similar period in 1998. Revenues from the Internet and on-line data conversion and content management services segment increased to $6,785,411 in 1999 from $4,679,959 in 1998, or 45%, principally from new customers. During 1999, one customer accounted for 22% of the Company's Internet and on-line data conversion and content management services revenue, while another customer comprised of twelve affiliated companies, accounted for 20% of such revenues for the period during 1998. No other customer accounted for 10% or more of the Company's revenues. Further, in 1999 and 1998, export revenues, all of which were derived from European customers, accounted for 17% and 24%, respectively, of such revenues. Revenues from the document imaging services segment decreased to $287,247 in 1999 from $629,847 in 1998. The decline in 1999 is due principally to the completion of a large one-time project. During 1999 three customers accounted for 57%, 21% and 12% of the Company's document imaging service revenues, respectively. During the same period in 1998, one other customer accounted for 67% of such revenues. No other customer accounted for 10% or more of such revenues. Direct operating expenses were $4,707,098 in the third quarter of 1999 and $3,534,891 in the third quarter of 1998, an increase of 33% in 1999 from 1998. Direct operating expenses for the Internet and on-line data conversion and content management services increased to $4,426,945 in 1999 from $2,707,594 in 1998, or 64%. Direct operating expenses as a percentage of revenues were 65% in 1999 and 58% in 1998. The percentage increase during the third quarter of 1999 was due to hiring and training of a significant number of production employees to prepare for an anticipated increase in projects commencing in the fourth quarter and next year. Direct operating expenses in the document imaging services segment decreased to $280,153 in 1999 from $827,297 in 1998. The decrease in 1999 was due principally to a staff reduction and reduced direct costs on the lower revenues. Direct operating expenses include primarily direct payroll, telecommunications, freight, computer services, supplies and occupancy. Selling and administrative expenses were $1,607,176 and $1,312,920 in the third quarter of 1999 and 1998, respectively, representing an increase of 22% in 1999 from 1998. Selling and administrative expenses as a percentage of revenues were 23% in 1999 compared with 25% in 1998. The increased dollar amount is due to commissions on the revenue increase and additional payroll costs of personnel hired in the third and fourth quarter of 1998. Selling and administrative expenses include management salaries, sales and marketing salaries, clerical and administrative salaries, rent and utilities not included in direct costs, marketing costs and administrative overhead. In 1999, the Internet and on-line data conversion and content management services segment realized income before income taxes of $849,596, while the document imaging services segment incurred a loss of $69,113. In 1998, the Internet and on-line data conversion and content management services segment realized income before income taxes of $926,311, while the document imaging services segment incurred a loss of $457,087. The 1998 period has no provision for taxes, as benefits of net operating loss carry forwards were not previously recognized. The provision for taxes for the three months ended September 30, 1999 was less than the statutory rate due to certain tax holidays available in foreign countries in which the Company operates. As a result of the aforementioned items, the Company realized net income of $585,483 in 1999 and $469,224 in 1998. NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Revenues increased 40% to $19,709,688 for the nine months ended September 30, 1999 compared to $14,109,397 for the similar period in 1998. Revenues from the Internet and on-line data conversion and content management services segment increased to $18,806,333 in 1999 from $12,640,794 in 1998, or 49%, principally from new customers. During 1999, one customer accounted for 23% of the Company's Internet and on-line data conversion and content management services revenue, while another customer comprised of twelve affiliated companies, accounted for 21% of such revenues for the period during 1998. No other customer accounted for 10% or more of the Company's revenues. Further, in 1999 and 1998, export revenues, all of which were derived from European customers, accounted for 13% and 15%, respectively, of such revenues. Revenues from the document imaging services segment decreased to $903,355 in 1999 from $1,468,603 in 1998. During 1999 two customers accounted for 34% and 18% of the Company's document imaging service revenues, respectively. During the same period in 1998, two other customers accounted for 52% and 12% of such revenues. No other customer accounted for 10% or more of such revenues. Direct operating expenses were $12,313,614 for the nine months ended September 30, 1999 and $9,624,379 for the similar period in 1998, an increase of 28% in 1999 from 1998. Direct operating expenses for the Internet and on-line data conversion and content management services increased to $11,372,828 in 1999 from $7,925,887 in 1998, or 43%. Direct operating expenses as a percentage of revenues decreased to 60% in the 1999 period compared with 63% in 1998. The decrease as a percentage of revenues was due primarily to fixed costs that did not increase proportionately with the increased revenues. Direct operating expenses in the document imaging services segment decreased to $940,786 in 1999 from $1,698,492 in 1998. The decrease in 1999 was due principally to lower labor costs for the reduced revenues. Selling and administrative expenses were $4,920,670 and $3,462,089 for the nine months ended September 30, 1999 and 1998, respectively, representing an increase of 42% in 1999 from 1998. Selling and administrative expenses as a percentage of revenues were 25% in 1999 and 1998. The increased dollar amount is due to commissions on the revenue increase and additional payroll costs of personnel hired in the third and fourth quarter of 1998. The 1998 period has no provision for taxes, as benefits of net operating loss carry forwards were not previously recognized. The provision for taxes for the nine months ended September 30, 1999 was less than the statutory rate due to certain tax holidays available in foreign countries in which the Company operates. Net income was $1,844,455 and $1,518,606 for the nine months ended September 30, 1999 and 1998, respectively. LIQUIDITY AND CAPITAL RESOURCES Net cash of $928,833 and $2,148,732 was provided by operating activities for the nine months ended September 30, 1999 and 1998, respectively. The decrease in 1999 was primarily due to an increase in accounts receivable. Net cash of $2,696,195 and $509,220 was used in investing activities in 1999 and 1998, respectively. The increased expenditures in 1999 were primarily utilized for expansion of production capacity. Net cash of $758,755 was provided by financing activities in 1999, primarily from the exercise of stock options, while net cash of $130,458 was used in financing activities for the same period in 1998 for purchases of treasury stock and payments of debt. The Company expects to make capital expenditures of approximately $3,000,000 during the next 12 months, principally for continued production facility expansion and equipment upgrades, which is expected to be funded from operations and, if necessary, the line of credit discussed below. In addition, in connection with a recently signed agreement containing potentially significant production requirements, the Company may be required to build two additional automated, consolidated offshore production facilities to perform these services. The Company expects that the cost of such facilities would be financed in part internally and in part from a combination of external sources, including equipment financing from original equipment manufacturers and others, and debt and equity financing. The Company has a line of credit with a bank in the amount of $2 million. The line is collateralized by accounts receivable. Interest is charged at 1/2% above the bank's prime rate and is due on demand. The line is believed to be sufficient for the Company's cash requirements. The Company relies on certain hardware, software and operating systems (collectively, "Systems") for production, financial reporting and general administration. The Company has been evaluating these Systems to identify potential Year 2000 compliance problems and has been planning appropriate remedial efforts and testing, where required. In addition, it has been evaluating its external interfaces with customers and service suppliers to coordinate Year 2000 compliance. The Company replaced older, non-compliant Systems components as a means by which to obtain Year 2000 compliance and to obtain increased functionality and efficiency. These new Systems components will cost approximately $500,000, most of which will be capitalized as fixed assets. All such historical costs have been funded out of existing cash and cash flows from operations, and the Company expects that future costs will be funded similarly. The Company is in close contact with each of its significant suppliers concerning their Year 2000 readiness status. Suppliers of both products and services are being monitored constantly to determine the necessity and level of contingency for their contribution to our product or services. Based on currently available information, the Company has substantially completed its Year 2000 compliance process. The Company is currently in the midst of the final testing phase of its contingency planning. The foregoing notwithstanding, the Company plans to have in place contingency plans to deal with the possibility that any component of the Systems fails to pass final testing by such date. Such contingency plans may include, without limitation, implementing substitute production Systems and obtaining services from substitute vendors. Nevertheless, achieving actual Year 2000 compliance is dependent upon many factors, some of which are not completely within the Company's control. Should either one or more of the Company's critical Systems components or one or more of its critical vendors, including those vendors providing services in foreign countries in which the Company has operations, fail to achieve Year 2000 compliance, the Company's business and its results of operations could be adversely affected. INFLATION, SEASONALITY AND PREVAILING ECONOMIC CONDITIONS To date, inflation has not had a significant impact on the Company's operations. The Company generally performs its work for its customers on a task by task at-will basis, or under short-term contracts or contracts which are subject to numerous termination provisions. The Company has flexibility in its pricing due to the absence of long-term contracts. The Company's revenues are not significantly affected by seasonality. Disclosures in this Form 10-QSB contain certain forward-looking statements, including without limitation, statements concerning the Company's operations, economic performance and financial condition, including in particular, Year 2000 and market risk information. 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, 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, including the Company's Forms 10-KSB, S-3 and S-8. 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-QSB will in fact occur. 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. --------------------------------------------------- The following matters were voted on at the October 21, 1999 Annual Meeting of Stockholders. The total shares voted were 4,248,015.
FOR AGAINST ABSTAIN --------- ------- ------- ELECTION OF DIRECTORS: Jack Abuhoff 4,231,851 16,164 Albert Drillick 4,231,781 16,234 E. Bruce Fredrikson 4,231,851 16,164 Barry Hertz 4,231,851 16,164 Martin Kaye 4,231,851 16,164 Morton Mackof 4,231,781 16,234 Todd Solomon 4,231,851 16,164 Stanley Stern 4,231,781 16,234 APPOINTMENT OF AUDITORS: 4,232,469 6,000 9,546
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 Date: 11/12/99 ----------------------------------- Jack Abuhoff President Chief Executive Officer Date: 11/12/99 ----------------------------------- Martin Kaye Executive Vice President Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1999 SEP-30-1999 2,526,926 0 5,466,654 0 0 9,823,255 4,161,813 0 14,547,710 2,952,234 0 0 0 50,554 0 14,547,710 0 19,709,688 12,313,614 17,156,683 0 0 (77,601) 2,553,005 708,550 0 0 0 0 1,844,455 .40 .35
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