U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
Commission File Number 0-22196
INNODATA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation)
13-3475943
(I.R.S. Employer
Identification No.)
THREE UNIVERSITY PLAZA
HACKENSACK, NEW JERSEY 07601
(Address of principal executive offices)
(201) 488-1200
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of April 30, 2000 there were
5,046,529 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 2-5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See pages 6-7
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See page 8
PART ll. OTHER INFORMATION
See page 9
INNODATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2000 1999
---------- ----------
Unaudited Derived
from
audited
financial
statements
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 2,476,208 $ 3,380,242
Accounts receivable-net 5,788,025 5,247,428
Prepaid expenses and other
current assets 743,389 396,743
Deferred income taxes 430,000 540,000
----------- -----------
Total current assets 9,437,622 9,564,413
FIXED ASSETS-net 5,790,223 4,891,992
OTHER ASSETS 1,211,210 1,189,472
----------- -----------
TOTAL $16,439,055 $15,645,877
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings $ 500,000 $ -
Current portion of long-term debt 13,916 19,629
Accounts payable and accrued expenses 1,120,007 1,553,585
Accrued salaries and wages 1,732,980 1,529,753
Income and other taxes 617,909 495,628
----------- -----------
Total current liabilities 3,984,812 3,598,595
---------- -----------
LONG-TERM DEBT, less current portion 4,070 5,188
---------- -----------
DEFERRED INCOME TAXES PAYABLE 390,000 390,000
---------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
authorized, 20,000,000 shares;
issued, 5,185,779 shares in
2000 and 5,133,943 shares in 1999 51,858 51,339
Additional paid-in capital 11,057,969 10,908,538
Retained earnings 1,171,315 913,186
----------- -----------
12,281,142 11,873,063
Less: treasury stock - at cost;
144,249 shares (220,969) (220,969)
----------- -----------
Total stockholders' equity 12,060,173 11,652,094
----------- -----------
TOTAL $16,439,055 $15,645,877
=========== ===========
See notes to unaudited condensed consolidated financial statements
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
2000 1999
----------- -----------
REVENUES $8,839,282 $5,611,075
----------- -----------
OPERATING COSTS AND EXPENSES:
Direct operating expenses 6,941,375 3,455,828
Selling and administrative expenses 1,548,462 1,700,789
Interest income - net (18,684) (29,774)
----------- -----------
Total 8,471,153 5,126,843
----------- -----------
INCOME BEFORE
INCOME TAXES 368,129 484,232
PROVISION FOR INCOME TAXES 110,000 193,550
----------- -----------
NET INCOME $ 258,129 $ 290,682
=========== ===========
BASIC INCOME PER SHARE $ .05 $ .07
=========== ===========
DILUTED INCOME PER SHARE $ .05 $ .06
=========== ===========
See notes to unaudited condensed consolidated financial statements
INNODATA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
2000 1999
------------ -----------
OPERATING ACTIVITIES:
Net income $ 258,129 $ 290,682
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 624,727 332,528
Deferred income taxes 110,000 -
Changes in operating assets and
liabilities
Accounts receivable (540,597) (680,941)
Prepaid expenses and other current
assets (391,646) (232,190)
Other assets ( 44,538) 89,551
Accounts payable and accrued expenses (230,351) 747,982
Income and other taxes 122,281 190,180
----------- -----------
Net cash (used in) provided
by operating activities (91,995) 737,792
----------- -----------
INVESTING ACTIVITIES:
Expenditures for fixed assets (1,455,158) (489,099)
------------ -----------
FINANCING ACTIVITIES:
Proceeds from short term borrowings 500,000 -
Proceeds from exercise of stock options 149,950 -
Payments of long-term debt (6,831) (18,633)
------------ -----------
Net cash provided by (used in)
financing activities 643,119 (18,633)
----------- -----------
(DECREASE) INCREASE IN CASH ( 904,034) 230,060
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 3,380,242 3,535,533
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 2,476,208 $3,765,593
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 10,035 $ 2,147
=========== ==========
Income taxes $ - $ 30,000
=========== ==========
See notes to unaudited condensed consolidated financial statements
INNODATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(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 March 31, 2000, and the results of operations and of cash flows for the three
months ended March 31, 2000 and 1999. The results of operations for the three
months ended March 31, 2000 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, 1999 included in
the Company's Annual Report on Form 10-K. The accounting policies used in
preparing these financial statements are the same as those described in the
December 31, 1999 financial statements.
2. During the three months ended March 31, 2000, options to purchase 51,836
shares of the Company's common stock were exercised, resulting in proceeds of
$149,950.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
Innodata is a leading provider of Internet and on-line data conversion,
content architecture, and content management services, providing all the
necessary steps to enable its clients to create and disseminate vast amounts of
information via the Internet and on-line. Innodata's customers represent an
array of major electronic publishers and Internet content providers, as well as
document-intensive companies repurposing proprietary information into electronic
resources that can be referenced via web-centric applications.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues increased 58% to $8,839,282 for the three months ended March 31,
2000 compared to $5,611,075 for the similar period in 1999. Revenues increased
principally from new customers. During 2000, one customer accounted for 32% of
the Company's revenue. During 1999, one customer that is comprised of twelve
affiliated companies accounted for 10% of the Company's revenues while one other
customer accounted for 23% of such revenues. No other customer accounted for 10%
or more of such revenues. Further, in 2000 and 1999, export revenues, all of
which were derived from European customers, accounted for 11% and 22%,
respectively, of the Company's revenues.
Direct operating expenses were $6,941,375 in the first quarter of 2000 and
$3,455,828 in the first quarter of 1999, an increase of 101%. Direct operating
expenses as a percentage of revenues were 79% in 2000 and 62% in 1999. The
increase in 2000 is due to costs incurred for the increased revenues, as well as
additional fixed and variable costs incurred for a new offshore production
facility and training costs for new production employees required to meet the
anticipated growth in revenues. Direct operating expenses include primarily
direct payroll, telecommunications, depreciation, freight, computer services,
supplies and occupancy.
Selling and administrative expenses were $1,548,462 and $1,700,789 in the
first quarter of 2000 and 1999, respectively, representing a decrease of 9% in
2000 from 1999. Selling and administrative expenses as a percentage of revenues
were 18% in the 2000 quarter compared with 30% in the 1999 quarter. The
decrease in dollars and percentage in 2000 was due principally to the
elimination of costs associated with the Company's document imaging services
which was phased out in 1999. 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.
As a result of the aforementioned items, the Company realized net income of
$258,129 in 2000 and $290,682 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $91,995 was used for operating activities in 2000 while net
cash of $737,792 was provided by operating activities in 1999. The change was
due principally to greater payments of accounts payable and accrued expenses in
2000. Net cash of $1,455,158 and $489,099 was used in investing activities in
2000 and 1999, respectively, for the purchase of fixed assets. The significant
increase in 2000 was due to the expansion of production facilities and the
investment in additional technologies and computer infrastructure to meet
increased revenues and anticipated future revenue increases. Net cash provided
by financing activities was $643,119 in 2000, principally from the proceeds of
short term bank borrowings of $500,000 and from the exercise of stock options of
$149,950 compared to cash used in financing activities of $18,633 in 1999.
The Company expects to make capital expenditures of approximately
$6,000,000 during the next 12 months, principally for continued production
facility expansion and equipment upgrades, and for its new automated, offshore
production facility. The Company expects these costs to be financed in part
internally and in part from a combination of external sources, including its
line of credit, 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.
INFLATION, SEASONALITY AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's
operations. The Company's revenues are not significantly affected by
seasonality.
Disclosures in this Form 10-Q contain certain forward-looking statements,
including without limitation, statements concerning the Company's operations,
economic performance and financial condition. 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, the ability of the Company's customers to continue to execute
their business plans which give rise to increased requirements for data
conversion, 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. 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-Q will in fact occur.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate change market risk with respect to
its credit facility with a financial institution which is priced based on the
prime rate of interest. At March 31, 2000, $500,000 was borrowed under the
credit facility. Changes in the prime interest rate during fiscal 2000 will have
a positive or negative effect on the Company's interest expense. Such exposure
will increase accordingly should the Company maintain higher levels of borrowing
during 2000.
The Company has operations in foreign countries. While it is exposed to foreign
currency fluctuations, the Company presently has no financial instruments in
foreign currency and does not maintain funds in foreign currency beyond those
necessary for operations.
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.
Exhibit 27. Financial Data Schedule
(b) There were no reports on Form 8-K filed during the first quarter of
2000.
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: 5/12/00 /s/
-------- ----------------------------
Jack Abuhoff
President
Chief Executive Officer
Date: 5/12/00 /s/
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Martin Kaye
Executive Vice President
Chief Financial Officer