U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1996
Commission File Number 0-22196
INNODATA CORPORATION
(Exact name of small business issuer
as specified in its charter)
DELAWARE 13-3475943
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
95 ROCKWELL PLACE
BROOKLYN, NY 11217
(Address of principal executive offices)
(718) 855-0044
(Issuer's telephone number)
Check whether the issuer (1) has 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 classes of
common equity, as of the latest practicable date: As of October 31, 1996 there
were 4,523,710 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 2-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See pages 7-9
PART II. OTHER INFORMATION
See page 10
INNODATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 2,022,898
Accounts receivable-net 3,906,275
Short-term investments (at market) 500,853
Prepaid expenses and other current assets 1,543,523
Deferred income taxes 72,000
-----------
Total current assets 8,045,549
FIXED ASSETS-net 3,713,382
GOODWILL 1,181,846
OTHER ASSETS 489,171
-----------
TOTAL $13,429,948
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 263,982
Accounts payable and accrued expenses 1,134,434
Accrued salaries and wages 1,099,530
Taxes, other than income taxes 209,234
-----------
Total current liabilities 2,707,180
-----------
LONG-TERM DEBT, less current portion 314,257
-----------
DEFERRED INCOME TAXES PAYABLE 453,000
-----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized, 20,000,000 shares;
issued, 4,565,210 shares 45,652
Additional paid-in capital 8,766,767
Retained earnings 1,286,969
-----------
10,099,388
Less: treasury stock- at cost; 41,500 shares (143,877)
-----------
Total stockholders' equity 9,955,511
-----------
TOTAL $13,429,948
===========
<FN>
See notes to unaudited condensed consolidated financial statements.
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
REVENUES $4,951,412 $5,532,456
---------- ----------
OPERATING COSTS AND EXPENSES:
Direct operating expenses 4,338,421 3,628,808
Selling and administrative expenses 1,290,181 1,256,085
Interest expense 9,155 2,209
Interest income (31,054) (35,718)
---------- ----------
Total 5,606,703 4,851,384
---------- ----------
(LOSS) INCOME BEFORE (BENEFIT FROM)
PROVISION FOR INCOME TAXES (655,291) 681,072
(BENEFIT FROM) PROVISION FOR INCOME TAXES (250,000) 273,000
---------- ----------
NET (LOSS) INCOME $ (405,291) $ 408,072
========== ==========
(LOSS) INCOME PER SHARE $(.09) $.09
===== ====
<FN>
See notes to unaudited condensed consolidated financial statements.
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
REVENUES $15,792,091 $15,193,156
----------- -----------
OPERATING COSTS AND EXPENSES:
Direct operating expenses 12,372,419 10,243,711
Selling and administrative expenses 3,575,934 3,222,444
Interest expense 28,765 11,546
Interest income (93,498) (112,165)
----------- -----------
Total 15,883,620 13,365,536
----------- -----------
(LOSS) INCOME BEFORE (BENEFIT FROM)
PROVISION FOR INCOME TAXES (91,529) 1,827,620
(BENEFIT FROM) PROVISION FOR INCOME TAXES (25,000) 731,000
----------- -----------
NET (LOSS) INCOME $ (66,529) $ 1,096,620
=========== ===========
(LOSS) INCOME PER SHARE $(.01) $.25
===== ====
<FN>
See notes to unaudited condensed consolidated financial statements.
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
OPERATING ACTIVITIES:
Net (loss) income $ (66,529) $ 1,096,620
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 1,013,776 652,868
Provision for doubtful accounts 5,000 90,000
Deferred income taxes 100,000 -
Changes in operating assets and liabilities:
Accounts receivable 1,187,506 (2,119,386)
Prepaid expenses and other current assets (839,678) (123,282)
Other assets (288,159) 44,100
Accounts payable and accrued expenses 748,907 336,647
Taxes, other than income taxes 15,122 91,017
Income taxes payable (726,194) 508,938
---------- -----------
Net cash provided by operating activities 1,149,751 577,522
---------- -----------
INVESTING ACTIVITIES:
Expenditures for fixed assets (992,856) (737,694)
Payments in connection with acquisition (410,646) -
Redemption of short term investment 740,000 -
---------- -----------
Net cash used in investing activities (663,502) (737,694)
---------- -----------
FINANCING ACTIVITIES:
Proceeds from short-term debt 133,574 -
Purchase of treasury stock - (143,877)
Proceeds from exercise of stock options 65,768 -
Redemption of preferred stock - (2,000)
Payments of long-term debt (229,347) (104,166)
---------- -----------
Net cash used in financing activities (30,005) (250,043)
---------- -----------
INCREASE (DECREASE) IN CASH 456,244 (410,215)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,566,654 2,363,868
---------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $2,022,898 $ 1,953,653
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 35,143 $ 12,713
========== ===========
Income taxes $ 896,540 $ 222,062
========== ===========
<FN>
See notes to unaudited condensed consolidated financial statements.
INNODATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(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, 1996, and the results of operations for the three and nine
month periods ended September 30, 1996 and 1995 and of cash flows for the nine
months ended September 30, 1996 and 1995. The results of operations for the
three and nine month periods ended September 30, 1996 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, 1995
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, 1995 financial statements.
2. On January 2, 1996, the Company acquired certain assets of
International Imaging, Inc. ("II"). II is located in Azusa, California and
provides imaging and document management systems and scanning/conversion
services. The purchase price consisted of $40,000 cash and 50,000 shares of
the Company's restricted common stock valued at $153,125. The Company also
paid approximately $300,000 of II's outstanding lease obligations. II's
revenues for the year ended December 31, 1995 were in excess of $1,000,000.
3. During 1996, options to purchase 22,937 shares of the Company's Common
Stock were exercised by employees pursuant to the Company's stock option plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
INNODATA is a worldwide electronic publishing services company
specializing in superior quality data conversion for Internet, CD-ROM, print
and online database publishers around the globe. Services include all the
necessary steps for product development and data capture: the highest accuracy
data entry (99.995%+), OCR, SGML and custom coding, hypertext linking, imaging
and document management systems, page composition, copyediting, indexing and
abstracting, and applications programming. The Company also offers medical
transcription services to health-care providers through its Statline division.
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues decreased 11% to $4,951,412 for the three months ended September
30, 1996 compared to $5,532,456 for the similar period in 1995. The decrease
in revenues was due principally to a decrease in volume from existing
customers. During the third quarter of 1996 and 1995, one customer comprised
of twelve affiliated companies accounted for 37% and 41% of the Company's
revenues, respectively. No other customer accounted for 10% or more of the
Company's revenues.
Direct operating expenses were $4,338,421 in the third quarter of 1996
and $3,628,808 in the third quarter of 1995, an increase of 20% in 1996 from
1995. Direct operating expenses as a percentage of revenues increased to 88%
in the 1996 quarter compared with 66% in 1995. The significant increase in
direct operating expenses as a percentage of revenues in 1996 was due
principally to lower than anticipated revenues and higher fixed costs,
including those of International Imaging acquired in 1996, and increased labor
costs in the Philippines of approximately $200,000 resulting from a collective
bargaining agreement that became effective on April 1, 1996. Direct operating
expenses include primarily direct payroll, telecommunications, freight,
computer services and supplies and occupancy.
Selling and administrative expense was $1,290,181 and $1,256,085 in the
third quarter of 1996 and 1995, respectively, representing an increase of 3%
in 1996 from 1995. Selling and administrative expense as a percentage of
revenues was 26% in 1996 compared with 23% in 1995. The dollar increase
primarily reflects the expansion of the Company's management team, and also
reflects the added overhead and sales related expenses of International
Imaging acquired in 1996. Selling and administrative expense includes
management salaries, sales and marketing salaries, clerical and administrative
salaries, rent and utilities not included in direct costs, trade shows, travel
expense, and administrative overhead.
The Company incurred a net loss of $(405,291) in the third quarter of
1996 compared to net income of $408,072 in the third quarter of 1995. The
loss in 1996 was due to lower revenues realized in that period while
experiencing increased direct costs as discussed above.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues increased 4% to $15,792,091 for the nine months ended September
30, 1996 compared to $15,193,156 for the similar period in 1995. During the
first nine months of 1996 and 1995, one customer comprised of twelve
affiliated companies accounted for 28% and 31% of the Company's revenues,
respectively. No other customer accounted for 10% or more of the Company's
revenues.
Direct operating expenses were $12,372,419 for the nine months ended
September 30, 1996 and $10,243,711 for the similar period in 1995, an increase
of 21%. Direct operating expenses as a percentage of revenues increased to 78%
in the 1996 period compared with 67% in 1995. The significant increase in
direct operating expenses as a percentage of revenues in 1996 was due
principally to lower than anticipated revenues and higher fixed costs,
including those of International Imaging acquired in 1996, and increased labor
costs in the Philippines of approximately $400,000 resulting from a collective
bargaining agreement that became effective on April 1, 1996.
Selling and administrative expense was $3,575,934 and $3,222,444 for the
nine months ended September 30, 1996 and 1995, respectively, representing an
increase of 11% in 1996 from 1995. Selling and administrative expense as a
percentage of revenues was 23% in 1996 compared with 21% in 1995. The dollar
increase primarily reflects the expansion of the Company's sales and
marketing, including additional employees, and also reflects the added
overhead and sales related expenses of International Imaging acquired during
1996.
The Company incurred a net loss of $(66,529) for the first nine months of
1996 and realized net income of $1,096,620 for the first nine months of 1995.
The loss in 1996 was due to lower revenues realized in that period while
experiencing increased direct costs as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $1,149,751 and $577,522 was provided by operating activities
for the nine months ended September 30, 1996 and 1995, respectively,
principally resulting from increased collections of accounts receivable during
the nine months ended September 30, 1996. Net cash of $663,502 and $737,694
was used in investing activities in 1996 and 1995, respectively, for the
purchase of fixed assets in both years, and additionally, in 1996, for
payments in connection with the acquisition of International Imaging. These
outlays were partially offset by the redemption of certain short-term
investments in 1996. Net cash of $30,005 and $250,043 was used in financing
activities in the 1996 and 1995 periods, respectively. In 1996, the Company
received proceeds from short-term borrowings and from the exercise of stock
options offset by payments of long-term debt.
In April 1996, the Company entered into a collective bargaining agreement
with a union covering non-management employees in the Philippines. The
agreement is expected to increase labor costs approximately 10%. Management
expects to reduce the impact of this increase over time through efficiencies
in the production process and from certain price increases. Further, to
support an anticipated growth in revenues, the Company is opening a new
facility in India in 1997 and is enhancing its management team by hiring
additional executive management personnel. In January 1996, the Company's
Imaging Services division and Statline transcription division joined the
Company's Brooklyn based production employees in a new facility in Hackensack,
New Jersey that serves as the Company's worldwide telecommunications, customer
service and technical support hub. The aforementioned costs have had an
adverse affect on earnings in 1996; however, management believes these
investments are critical to assure greater returns and anticipated growth in
the future.
The Company has a commitment to purchase a perpetual license for certain
production process software for cash totaling $300,000 and 50,000 shares of
the Company's common stock. Payment is contingent upon the successful
completion and testing of the software, expected to occur during 1996. As of
September 30, 1996, the Company was required to pay $110,000 and issue 15,000
shares of its common stock.
The Company plans to open a production facility in India. In addition,
the Company expects to make capital expenditures on an ongoing basis for the
expansion of its existing production facilities in the Philippines and Sri
Lanka and for additional equipment for its United States operations. The
Company estimates these capital expenditures will aggregate approximately
$1,500,000 during the next 12 months. The Company has a line of credit with a
bank in the amount of $500,000 and is currently negotiating a $3 million line
of credit, $1 million of which is for equipment financing.
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 affected by seasonality.
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. Not
Applicable
Item 5. Other Information. None
Item 6. (a) Exhibits. None
(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: 11/12/96 /s/
--------- ----------------
Todd Solomon
President
Chief Executive Officer
Date: 11/12/96 /s/
--------- ----------------
Martin Kaye
Chief Financial Officer
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule