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 MARCH 31, 1997
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) 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 April 30, 1997 there
were 4,501,410 shares of common stock outstanding.
1
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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See pages 2-5
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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See pages 6-7
PART II. OTHER INFORMATION
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See page 8
2
INNODATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and equivalents $ 1,910,134
Accounts receivable-net 3,600,887
Prepaid expenses and other current assets 1,134,980
Deferred income taxes 220,000
-----------
Total current assets 6,866,001
FIXED ASSETS-net 3,549,124
GOODWILL-net 1,138,046
OTHER ASSETS 447,439
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TOTAL $12,000,610
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 185,855
Accounts payable and accrued expenses 1,300,095
Accrued salaries and wages 816,764
Taxes, other than income taxes 386,496
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Total current liabilities 2,689,210
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LONG-TERM DEBT, less current portion 168,501
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DEFERRED INCOME TAXES 111,000
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized, 20,000,000 shares;
issued, 4,565,210 shares 45,652
Additional paid-in capital 8,828,596
Retained earnings 301,528
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9,175,776
Less: treasury stock-at cost; 41,500 shares (143,877)
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Total stockholders' equity 9,031,899
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TOTAL $12,000,610
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<FN>
See notes to unaudited condensed consolidated financial statements
3
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
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1997 1996
REVENUES $4,662,465 $5,590,418
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OPERATING COSTS AND EXPENSES:
Direct operating expenses 4,013,642 3,889,286
Selling and administrative expenses 1,352,160 1,187,880
Interest expense 9,008 4,878
Interest income (22,873) (34,194)
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Total 5,351,937 5,047,850
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(LOSS) INCOME BEFORE (BENEFIT) PROVISION
FOR INCOME TAXES (689,472) 542,568
(BENEFIT) PROVISION FOR INCOME TAXES (240,000) 217,000
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NET (LOSS) INCOME $ (449,472) $ 325,568
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(LOSS) INCOME PER SHARE (Note 2) $(.10) $.07
===== ====
<FN>
See notes to unaudited condensed consolidated financial statements
4
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
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1997 1996
OPERATING ACTIVITIES:
Net (loss) income $ (449,472) $ 325,568
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization 340,103 325,576
Deferred income taxes (240,000) 100,000
Changes in operating assets and liabilities
Accounts receivable 117,396 5,433
Prepaid expenses and other current assets (4,470) (201,298)
Other assets 24,986 23,361
Accounts payable and accrued expenses 211,861 253,683
Taxes, other than income taxes 107,927 (23,899)
Income taxes - (596,735)
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Net cash provided by operating activities 108,331 211,689
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INVESTING ACTIVITIES:
Expenditures for fixed assets (245,488) (258,826)
Payments in connection with acquisition - (395,646)
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Net cash used in investing activities (245,488) (654,472)
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FINANCING ACTIVITIES:
Proceeds from exercise of stock options - 46,311
Payments of long-term debt (49,902) (139,410)
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Net cash used in financing activities (49,902) (93,099)
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DECREASE IN CASH (187,059) (535,882)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 2,097,193 1,566,654
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CASH AND EQUIVALENTS, END OF PERIOD $1,910,134 $1,030,772
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 9,088 $ 3,198
========== ==========
Income taxes $ 175 $ 713,735
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<FN>
See notes to unaudited condensed consolidated financial statements
5
INNODATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
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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 March 31, 1997, and the results of operations and of cash flows for the
three months ended March 31, 1997 and 1996. The results of operations for the
three months ended March 31, 1997 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, 1996
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, 1996 financial statements.
2. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which changes the methodology of calculating earnings per share. SFAS
No. 128 requires the disclosure of diluted earnings per share regardless of
its difference from basic earnings per share. The Company plans to adopt SFAS
No. 128 in December 1997. Early adoption is not permitted. Had the Company
adopted SFAS No. 128 as of March 31, 1997, the related per share disclosure
for both basic and diluted earnings per share would have been $(.10) for the
first quarter ended March 31, 1997 and $.07 for the same period in 1996.
6
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 MARCH 31, 1997 AND 1996
Revenues decreased 17% to $4,662,465 for the three months ended March 31,
1997 compared to $5,590,418 for the similar period in 1996. The decrease in
revenues was due principally to a decrease in volume from existing customers.
During the first quarter of 1997 and 1996, one customer comprised of twelve
affiliated companies accounted for 13% and 30% of the Company's revenues,
respectively, and in 1996, one customer accounted for 11% of revenues. No
other customer accounted for 10% or more of the Company's revenues.
Direct operating expenses were $4,013,642 in the first quarter of 1997
and $3,889,286 in the first quarter of 1996, an increase of 3% in 1997 from
1996. Direct operating expenses as a percentage of revenues increased to 86%
in the 1997 quarter compared with 70% in 1996. The increase in direct
operating expenses as a percentage of revenues in 1997 was due principally to
a higher base of fixed costs that could not be absorbed by the decrease in
revenues during the quarter, and increased labor costs in the Philippines
principally resulting from a collective bargaining agreement that became
effective on April 1, 1996. Direct operating expenses include primarily
direct payroll, telecommunications, freight, computer services, supplies and
occupancy.
Selling and administrative expenses were $1,352,160 and $1,187,880 in the
first quarter of 1997 and 1996, respectively, representing an increase of 14%
in 1997 from 1996. Selling and administrative expenses as a percentage of
revenues were 29% in the 1997 quarter compared with 21% in the 1996 quarter.
The dollar increase primarily reflects the expansion of the Company's sales
and marketing efforts. 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.
Net (loss) income was $(449,472) and $325,568 for the first quarter of
1997 and 1996, respectively. The loss in 1997 was due to the increased costs
discussed above combined with a decrease in revenues.
7
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $108,331 for the three
months ended March 31, 1997 and $211,689 for the 1996 period. Net cash used
in investing activities was $245,488 for the three months ended March 31, 1997
and $654,472 in 1996 for the purchase of fixed assets, and in 1996, for
payments in connection with the acquisition of International Imaging. Net
cash used in financing activities was $49,902 and $93,099 for the three months
ended March 31, 1997 and 1996, respectively, principally for payments of
borrowings.
The Company has a commitment to purchase a perpetual license for certain
production process software for cash totaling $190,000 and 35,000 shares of
the Company's common stock. Payment is contingent upon the successful
completion and testing of the software, expected to occur during 1997.
In January 1997, the Company entered into a revolving credit agreement
with a bank providing for borrowings up to $1,000,000 for equipment purchases.
The borrowings will convert to a term loan payable over a three year period
commencing January 1998. During 1997 interest is payable at % over prime and
interest has been fixed on the term loan at 10.1% per annum. In addition, the
bank has provided a line of credit up to $2,000,000 based on eligible
receivables, as defined. Interest is payable at % over prime. The line of
credit is reviewed annually on June 30 and borrowings are collateralized by a
lien on the assets of the Company.
The Company expects to open a production facility in India in the second
half of 1997. 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 U.S.
operations. The Company estimates these capital expenditures will aggregate
approximately $1,500,000 during 1997.
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.
8
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings. Not Applicable
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Item 2. Changes in Securities. Not Applicable
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Item 3. Defaults upon Senior Securities. Not Applicable
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Item 4. Submission of Matters to a Vote of Security Holders.
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Not Applicable
Item 5. Other Information. None
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Item 6. (a) Exhibits.
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Exhibit 27. Financial Data Schedule
(b) There were no reports on Form 8-K filed during the first
quarter of 1997.
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: 5/13/97 /s/
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Todd Solomon
President
Chief Executive Officer
Date: 5/13/97 /s/
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Martin Kaye
V. P. Finance
Chief Financial Officer