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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000903651-99-000003.txt : 19990329
<SEC-HEADER>0000903651-99-000003.hdr.sgml : 19990329
ACCESSION NUMBER: 0000903651-99-000003
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 19981231
FILED AS OF DATE: 19990326
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-K
SEC ACT:
SEC FILE NUMBER: 000-22196
FILM NUMBER: 99574584
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
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<TEXT>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
/X/ Annual report under section 13 or 15(d) of the securities exchange act of
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
-----------------
/ / Transition report under section 13 or 15(d) of the securities exchange act
of 1934
COMMISSION FILE NUMBER 0-22196
INNODATA CORPORATION
(Name of small business issuer in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
13-3475943
(I.R.S. Employer Identification No.)
THREE UNIVERSITY PLAZA
HACKENSACK, NEW JERSEY
(Address of principal executive offices)
07601
(Zip Code)
(201) 488-1200
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK,
$.01 PAR VALUE
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 twelve months (or for 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
/ /
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. / /
State issuer's revenues for its most recent fiscal year. $19,593,353
-----------
State the aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing price of the Company's Common Stock on
February 26, 1999 of $5.88 per share. $6,279,281
----------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
1,491,985 SHARES OF COMMON STOCK, $.01 PAR VALUE, AS OF FEBRUARY 28, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
[SEE INDEX TO EXHIBITS]
<PAGE>
PART I
------
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Innodata Corporation ("Innodata" or the "Company") is a leading provider of
Internet and on-line data conversion and content management services, providing
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. The Company's operations are classified in two business segments:
Internet and On-Line Data Conversion and Content Management Services and
Document Imaging Services. See Note 8 of the Notes to Consolidated Financial
Statements in Item 7 of this report for further information about the Company's
business segments.
The Company was incorporated in Delaware in June 1988, maintains its executive
offices in Hackensack, New Jersey, and employs globally approximately 3,000
persons in offices in Hackensack, New Jersey; Garden Grove, California; London,
U.K.; Manila, The Philippines; Cebu, The Philippines; Delhi, India; and Colombo
Sri Lanka.
INDUSTRY BACKGROUND
Since its founding, Innodata has provided a host of services to commercial
electronic data providers that publish CD-ROM and on-line products ("traditional
electronic publishers"). Historically, the market has been dominated by a few
large competitors in most vertical markets (e.g., Dialog, Lexis/Nexis, Westlaw,
Elsevier Science BV). These traditional electronic publishers obtain information
from a variety of different providers and resell it to targeted groups of end
users (e.g., Dialog and Elsevier Science to libraries, Lexis/Nexis and Westlaw
to attorneys).
Traditional electronic publishers discovered that outsourcing offered the most
efficient and cost-effective way to develop and deploy massive electronic
content to meet their on-line publishing goals.
With the rapid growth and popularity of the Internet and the wide acceptance of
Internet publishing standards, the market for electronic information has grown
enormously. The Internet offers traditional electronic publishers and new market
entrants unprecedented opportunities for global information distribution.
Traditional electronic publishers have responded by becoming increasingly
ambitious in delivering large quantities of information quickly to subscribers,
and new market entrants have developed novel electronic information offerings,
such as adding image content to traditional text products and offering new media
deliverables such as PDF (Portable Document Format) and XML (eXtensible Markup
Language).
In order to stay competitive, traditional electronic publishers and new market
entrants are becoming more focused on speed of product delivery and product
quality, and increasing the value added which accrues to their information
content.
At the same time, as standards regarding Internet and Web protocols have become
universal and solutions for data security have become more reliable, major
corporations have begun to implement electronic knowledge management initiatives
as a way of mitigating the cost of lost knowledge, isolated islands of
information, and redundancies and duplication in work efforts. Corporations are
viewing the Web as a viable publishing environment for enabling unprecedented
information access to knowledge workers.
As a result, many document-intensive companies are confronted with the challenge
of making large quantities of data accessible to both current and new users.
This is causing a revolution in the way organizations create, manage, and access
information of all types. Providing timely and accurate information to knowledge
workers is a publishing process, and corporations - no matter what their
business - are becoming de facto electronic publishers of product and technical
documentation and policy and procedures manuals.
CORPORATE STRATEGY
The Internet opportunity for Innodata is five-fold: 1) enable traditional
electronic information providers and new market entrants to prepare and deliver
increasingly massive amounts of content over the Internet reliably and
efficiently; 2) support electronic publishers' race for product currency by
becoming increasingly flexible with a focus on delivering information quickly
and reliably; 3) respond to opportunities to provide increased value-add to
content; 4) configure service offerings specifically geared to corporate
organizations' knowledge management initiatives, which is a new fast-growth
market area where the Company's core competencies apply; and 5) provide industry
thought leadership and specific service offerings around XML as it becomes the
key part of the future of the Internet, intranets, and the World Wide Web.
CLOSE RELATIONSHIPS WITH CUSTOMERS
Innodata views the long-term partnerships with its customers as a critical
element in its historical and future success. Innodata's customers include many
of the largest and most highly regarded electronic publishers and Fortune 500
companies. In order to continue to meet the needs of its existing and
prospective customers in a timely fashion, the Company works directly with its
customers to identify and develop new and improved services. To promote a close
and continuing relationship with customers, the Company sells through its direct
sales organizations in North America and Europe, provides consulting expertise
through its Professional Services Group, and provides 24/7 project support
through its Customer Service Center.
The Company generally performs its work for its customers under project-specific
contracts or long-term contracts, which are subject to numerous termination
provisions.
During 1998, 1997 and 1996, one customer that is comprised of twelve affiliated
companies, accounted for 21%, 16% and 28% of the Company's Internet and on-line
data conversion and content management services revenues, respectively. One
other customer accounted for 13%, 10% and 10% of such revenues in 1998, 1997 and
1996, respectively. No other customer accounted for 10% or more of such
revenues. Further, in 1998, 1997 and 1996, export revenues, all of which were
derived from European customers, accounted for 22%, 24% and 22%, respectively,
of such revenues. A significant amount of the Company's revenues are derived
from customers in the publishing industry. Accordingly, the Company's accounts
receivable generally include significant amounts due from such customers.
During 1998, 1997 and 1996 one customer accounted for 53%, 11% and 12% of the
Company's document imaging service revenues, respectively. Another customer
accounted for 10% and 12% of such revenues in 1997 and 1996. No other customer
accounted for 10% or more of such revenues.
RECURRING BUSINESS
The Company's marketing, pricing, and support strategies are focused on the
generation of both one-time and recurring revenues. Many of the Company's
customers are involved in publishing information content that requires regular
updating, thus providing Innodata with recurring business. To support these
initiatives and preserve recurring revenue, Innodata has configured on-site
facilities management service offerings. In addition, the Company is working
with many of its long-time customers to migrate their products to new, less
proprietary formats, and to add both more and richer content.
COMPREHENSIVE SERVICE OFFERINGS
The Company's comprehensive set of services distinguishes the Company from its
competitors. Many competitors offer only a single service, such as data capture,
or do not offer the full complement of specialized services to enable large
organizations to develop on-line/Internet services. Innodata provides a broad
range of conversion and processing services and consulting services to enable
its clients to publish massive content databases quickly and economically.
INTERNET AND ON-LINE DATA CONVERSION AND CONTENT MANAGEMENT SERVICES
- ----------------------------------------------------------------------------
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.
The Company's specific services include:
Consulting and Support
Through its Professional Services Group, the Company offers customers
vendor-neutral conversion and consulting services, including SGML (Standard
Generalized Markup Language), XML (eXtensible Markup Language), and HTML
(Hypertext Markup Language) consulting services, customized programming and
conversion application development, document analysis, DTD architecture
analysis, and design and database quality assurance.
The Company operates two Customer Support Centers, one located at its U.S.
headquarters in New Jersey and one located at its Asian headquarters in the
Philippines. Seamlessly linked over a proprietary fiber-optic wide area network,
the Customer Support Centers offer customers 24/7 hotline project support and
remote dial-in services for data transmission.
Data Conversion
For customers desiring the ability to use electronic data for on-line
information retrieval, intranet, extranet, or Internet distribution, permanent
archives, electronic publishing, CD-ROM and DVD distribution or printing on
demand, the Company converts massive hardcopy and paper collections to a variety
of output formats including Adobe PDF (Portable Document Format), tagged ASCII
(American Standard Code for Information Interchange), and EBCDIC (Extended
Binary Coded Decimal Interchange Code), as well as SGML, XML and HTML conforming
electronic files.
To accomplish this, the Company utilizes high speed scanning and a variety of
commercial and proprietary OCR/ICR (optical/intelligent character recognition)
applications, in concert with structured methodologies and work flow processes
designed to accomplish rapid turnaround of data with high degrees of accuracy
(typically guaranteeing up to 99.995% character accuracy). Its systems enable
multiple production processes to be performed simultaneously at one or more of
its production sites. In addition, the Company uses a wide variety of advanced
tools for data enhancement and validation, and its Conversion Engineers create
automatic procedures - utilizing industry standards such as Omnimark, DynaText,
Adept, etc. - to ensure validated SGML structure for legacy data files. Finally,
Editorial Specialists enhance the structured files by adding hyperlinks,
ensuring quality of tagging and inserting electronic markers.
In addition, the Company converts a broad range of legacy-formatted data and
proprietary electronic formatted data to SGML and SGML-related electronic files.
The Company maintains a staff of experienced engineers and programmers who
utilize custom conversion filters and parsers for this purpose.
Two of the Company's conversion facilities have been accorded ISO 9003 and 9002
Certifications. The ISO 9000-series certification program is an internationally
recognized marque of quality assurance and process conformity. Regularly
scheduled ISO audits assure a high degree of staff acuity to the documented
processes and serve to build accountability within all levels of the Company's
delivery organizations. Increasingly, customers rely on their vendors'
conformity to documented processes and promised quality levels when making
purchasing decisions. Innodata's early adoption of the ISO program has resulted
in such processes having become engrained in its operating culture, which in
turn serves as a major contributor to generating and maintaining customer
confidence in the Company's ability to make deliveries as promised.
Content Development and Data Enhancement
The Company's teams of Content Editors enhance customers' databases by creating
links to related material and building indexes and abstracts as the basis of
subject links and access points.
Innodata's highly educated professionals are trained to index and abstract a
wide variety of scientific, medical, and technical data in diverse fields,
including law, medicine, biology, pharmacology, and engineering.
New services include Web mining and indexing of information published on the
Internet.
DOCUMENT IMAGING SERVICES
- ---------------------------
The Company also 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.
After conversion, these documents are stored on various optical and magnetic
media to populate document management systems such as Documentum and FileNet.
Traditional markets for document imaging services include Fortune 500
manufacturers, major utilities, governmental departments, hospital medical
records, and commercial back-office.
The Company utilizes the latest in state-of-the-art equipment from high-end
document scanners to large format and film scanners. Throughout its operations,
the Company maintains a quality control program to ensure the integrity of the
imaging and indexing. The Company provides Document Imaging Services at its
production facility in Garden Grove, California. Upon client request, the
Company can provide equipment to process documents at remote client-site
locations.
SALES AND MARKETING
Sales and marketing functions are primarily conducted by the Company's full-time
sales personnel. Sales and marketing activities have consisted primarily of
exhibiting at trade shows in the United States and Europe, and seeking direct
personal access to decision-makers. The Company has also obtained visibility by
way of articles published in the trade press. The Company's Director of
Professional Services has authored a widely acclaimed book on the subject of
data conversion for the Internet and regularly publishes articles in trade
magazines and on vendor websites. To date, the Company has not conducted any
significant advertising campaign in the general media.
The direct sales effort is closely supported by sales engineering and pre-sales
consulting personnel from the Company's Professional Services Group. These
individuals assist the sales force in understanding the technical needs of
customers and providing responses to these needs, including demonstrations,
prototypes, pricing quotations and time estimates.
Document Imaging Services has a reseller program that allows qualified companies
in document and records management, micrographics, reprographics and CAD to
resell conversion services. The division also works with strategic document
imaging systems vendors.
COMPETITION
Internet and On-Line Data Conversion and Content Management Services
The Company's ability to compete favorably is, in significant part, dependent
upon its ability to control costs, react swiftly and appropriately to short and
long-term trends, harness technology and competitively price its services. Firms
compete based on quality, speed, accuracy, and "customer intimacy," as well as
on the relative ability to accomplish massive and complex data conversions
economically. Major competitors include: for document and information
outsourcing, F.Y.I. Inc. and Lason Inc.; for data conversion services, Saztec
Philippines, Inc., Access Innovations, Inc., APEX Data Services, Inc. and Jouve
S.A.; for SGML/XML and related consulting services, Database Publishing Systems
Ltd. and KPMG Consulting. The Company may also be considered in competition with
customers' and potential customers' in-house personnel who may attempt to
duplicate the Company's services.
Document Imaging Services
The Company's scanning conversion services conducted through its Imaging
Services division competes with numerous companies that may have substantially
greater financial, technical, and other resources than the Company. Firms
compete based on price, geographic location, quality, and speed of turn-around,
as well as on the size of project and the complexity and level of work that they
can perform on an economic basis. Major national competitors include Lason Inc.
and IKON Office Solutions Inc. The Company may also be considered in competition
with customers' and potential customers' in-house personnel who may attempt to
duplicate the Company's services.
RESEARCH AND DEVELOPMENT
The Company has not made significant expenditures for research and development,
although expenditures were incurred in connection with OCR technology
developments and enhancing its networking and telecommunications capabilities.
FACTORS AFFECTING BUSINESS OVERSEAS
While the major part of the Company's operations are carried on in the
Philippines, India and Sri Lanka, the Company's headquarters are in the United
States and its customers to date have all been located in North America and
Europe. As a result, the Company is not as affected by economic conditions
overseas as it would be if it depended on revenues from sources internal to
those countries. However, such adverse economic factors as inflation, external
debt, negative balance of trade, political pressure to raise salaries and
underemployment may significantly impact the Company.
Certain aspects of overseas economies directly affect the Company. Overseas
operations remain vulnerable to political unrest which could interfere with the
Company's operations. Political instability could also change the present
satisfactory legal environment for the Company through the imposition of
restrictions on foreign ownership, repatriation of funds, adverse labor laws,
and the like.
Since April 1, 1995 and April 1, 1997, the Philippine and Indian operations,
respectively, are conducted through wholly-owned subsidiaries that have been
granted income tax holidays for four-year periods. Accordingly, no income taxes
will be payable on earnings from operations of the subsidiaries during such
period, unless repatriated to the U.S.
The Company funds its overseas operations through transfers of U.S. dollars only
as needed and generally does not maintain any significant amount of funds or
monetary assets overseas. To the extent that the Company needs to bring currency
to the United States from its overseas operations, it will be affected by
currency control regulations.
The Philippines has historically experienced high rates of inflation and major
fluctuations in exchange rate between the Philippine peso and the U.S. dollar.
Continuing inflation without corresponding devaluation of the peso against the
dollar, or any other increase in value of the peso relative to the dollar, may
have a material adverse effect on the Company's operations and financial
condition. From time to time, the Company has purchased futures contracts for
pesos at fixed prices, in order to ensure a stable cost of services. In the
second half of 1997 and the first part of 1998 these contracts stabilized prices
for the Company's services at a time when the peso was significantly devalued.
As a result, the Company was unable to enjoy the benefits it would have
otherwise received.
The Philippines is subject to relatively frequent earthquakes, volcanic
eruptions, floods and other natural disasters, which may disrupt the Company's
operations. Further, power outages lasting for periods of as long as eight hours
per day have occurred. The Company's facilities are equipped with standby
generators which have produced electric power during these outages; however,
there can be no assurance that the Company's operations will not be adversely
affected should municipal power production capacity deteriorate further.
EMPLOYEES
As of February 28, 1999, the Company employed an aggregate of approximately 50
persons in the United States and the United Kingdom, and approximately 3,000
persons in the Philippines, Sri Lanka and India.
Employees at the Company's Manila facilities are members of a union. The
Company reached agreement in 1996 on a collective bargaining agreement which
provides for approximately 10% wage increases per annum plus one-half of any
government mandated increases for the five years ending March 31, 2001.
No other of the Company's employees are represented by any labor union. The
Company believes that its relations with its employees are satisfactory.
Production Staff; Recruitment and Training-Philippines
- ----------------------------------------------------------
The Philippines offers a well-educated workforce trained in an English language
school system. Economic opportunity in the Philippines is not commensurate with
the level of education in the workforce. The overall depressed economic
conditions and low wage scale permit an educated professional to enjoy a
comfortable standard of living on an income that is relatively low when compared
to that in developed nations.
The Company's staff in the Philippines has a median age of approximately
twenty-five. A significant number of employees have college degrees. A
substantial middle management infrastructure, grown both from within the ranks
of the Company and through experienced hires, is in place. These managers are
in charge of departmental responsibilities, including personnel, public
relations, facilities, quality control, programming, systems and development.
The Company maintains a vigorous recruiting, screening and training program.
All applicants are given an extensive battery of written and practical tests,
many developed specifically by the Company, over a two-day period. The Company
hires less than 10% of all applicants. Diagnostic tests and equipment have
allowed the Company to hire the brightest people available rather than focusing
solely on typing ability.
Once hired, the Company uses intensive efforts to train its employees and to
ensure that their skills are constantly upgraded. Training is performed under
close supervision by senior personnel. In addition, the Company has an in-house
training program for new employee applicants who have all the requisite skills,
excepting the speed of their performance. The course consists of approximately
three weeks of half-day sessions. Upon satisfactory completion, full time
employment is offered.
The Company seeks to maintain high levels of motivation and retention. It
offers its employees what it believes to be one of the most comprehensive
benefit packages available in the Philippines. This package includes
comprehensive medical insurance, eye care, food subsidies, a subsidized general
store and canteen, tuition credits, and free computer-programming classes. It
maintains a modern and well-appointed facility. It conducts aggressive incentive
programs tied to performance. It affords to its employees the opportunity to
advance.
Similar conditions and methods are in place at the Company's facilities in India
and Sri Lanka.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's Manila, Philippines premises are occupied under a five-year lease
which expires on December 31, 2003 and which is cancelable at the Company's
option. The premises consist of a four-story, 45,000 square foot building with
a separate cafeteria building. The lease provides for monthly payments of
approximately $23,000.
The Company's operations in the Philippines city of Cebu are conducted in
approximately 10,000 square feet of space leased through March 2001, cancelable
at the Company's option, at a monthly rental of approximately $5,500.
The Company has a lease for a 12,000 square foot office and production facility
located in Hackensack, New Jersey. The lease provides for monthly rental
payments of approximately $16,000 through December 1999. In addition, the
Company leases a 6,000 square foot office and production facility in California
for approximately $5,000 per month. The lease expires February 2002.
The Company leases its production facility in India and is obligated to make
payments aggregating approximately $125,000 per year for an initial term of five
years.
The Company's operations in Colombo, Sri Lanka are conducted in approximately
7,000 square feet of space leased through July 2001, cancelable at the Company's
option, at a monthly rental of approximately $2,700.
The Company believes that it maintains adequate fire, theft and liability
insurance for its facilities and that its facilities are adequate for its
present needs.
ITEM 3. LEGAL PROCEEDINGS.
There is no material litigation pending to which the Company is a party or of
which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
See Part II, Item 4 of Form 10-QSB for September 30, 1998 as to results of
voting at the Company's Annual Meeting held on November 5, 1998.
<PAGE>
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is quoted on the Nasdaq SmallCap Market under the
symbol "INOD." On February 28, 1999, there were 101 stockholders of record of
the Company's Common Stock based on information provided by the Company's
transfer agent. Virtually all of the Company's publicly held shares are held in
"street name" and the Company believes the actual number of beneficial holders
of its Common Stock to be approximately 1,000.
The following table sets forth the high and low sales prices on a quarterly
basis for the Company's Common Stock, as reported on Nasdaq, for the two years
ended December 31, 1998, after giving retroactive effect to a one-for-three
reverse stock split on March 25, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON STOCK SALE PRICES
1997 HIGH LOW
- ---- ------- -------
First Quarter 4-1/2 3-3/16
Second Quarter 3-27/32 1-7/8
Third Quarter 3-3/4 2-1/4
Fourth Quarter 3-9/16 2-1/4
1998
- ----
First Quarter 2-29/32 1-1/8
Second Quarter 6-1/4 1-5/32
Third Quarter 9-1/2 3-1/2
Fourth Quarter 8-3/8 3-9/16
</TABLE>
DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does not
anticipate that it will do so in the foreseeable future. The future payment of
dividends, if any, on the Common Stock is within the discretion of the Board of
Directors and will depend on the Company's earnings, its capital requirements
and financial condition and other relevant factors.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND ANALYSIS.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
REVENUES $19,593,353 $20,116,935 $20,536,448 $20,767,405 $14,344,914
------------ ------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Direct operating costs 13,068,660 16,007,051 16,783,595 14,044,067 10,764,658
Selling and administrative 4,982,127 5,283,891 4,799,739 4,344,793 2,834,534
Restructuring costs, impairment of assets
and other 133,141 1,500,000 - - 393,195
(Gain) loss on settlement of currency contracts (487,458) 1,400,000 - - -
Interest expense 77,594 85,595 36,383 18,476 7,392
Interest income (98,391) (59,384) (123,771) (151,319) (160,689)
------------ ------------ ------------ ------------ ------------
Total 17,675,673 24,217,153 21,495,946 18,256,017 13,839,090
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES 1,917,680 (4,100,218) (959,498) 2,511,388 505,824
INCOME TAXES (BENEFIT) (332,000) 100,000 (357,000) 1,000,000 199,000
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 2,249,680 $(4,200,218) $ (602,498) $ 1,511,388 $ 306,824
============ ============ ============ ============ ============
BASIC INCOME (LOSS) PER SHARE $ 1.52 $ (2.80) $ (.40) $ 1.02 $ .21
============ ============ ============ ============ ============
DILUTED INCOME (LOSS) PER SHARE $ 1.49 $ (2.80) $ (.40) $ .97 $ .21
============ ============ ============ ============ ============
CASH DIVIDENDS PER SHARE - - - - -
============ ============ ============ ============ ============
AS OF DECEMBER 31, 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
WORKING CAPITAL $ 4,749,101 $ 2,091,848 $ 4,774,121 $ 6,247,708 $ 4,972,682
============ ============ ============ ============ ============
TOTAL ASSETS $10,595,508 $10,029,247 $12,416,296 $12,538,694 $10,077,049
============ ============ ============ ============ ============
LONG-TERM DEBT $ 24,089 $ 79,604 $ 195,960 $ 92,180 $ 191,666
============ ============ ============ ============ ============
STOCKHOLDERS' EQUITY $ 7,485,438 $ 5,254,133 $ 9,477,471 $ 9,747,655 $ 8,327,601
============ ============ ============ ============ ============
</TABLE>
<PAGE>
------
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
The following discussion should be read in conjunction with the Audited
Financial Statements and related Notes thereto of the Company for the years
ended December 31, 1998, 1997 and 1996 included in Item 7 of this Form 10-KSB.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues decreased 3% to $19,593,353 for the year ended December 31, 1998
compared to $20,116,935 for the similar period in 1997. Revenues from the
Internet and online data conversion and content management services segment
decreased to $17,401,346 in 1998 from $18,032,232 in 1997. The 1997 period
included approximately $2,612,000 from journal and book pagination and medical
transcription businesses that were discontinued. During 1998 and 1997, one
customer that is comprised of twelve affiliated companies, accounted for 21% and
16% of the Company's Internet and on-line data conversion and content management
services revenues, respectively. One other customer accounted for 13% and 10% of
such revenues in 1998 and 1997, respectively. No other customer accounted for
10% or more of such revenues. Further, in 1998 and 1997, export revenues, all
of which were derived from European customers, accounted for 22% and 24%,
respectively, of such revenues. Revenues from the document imaging services
segment increased to $2,192,007 in 1998 from $2,084,703 in 1997. During 1998 and
1997, one customer accounted for 53% and 11% of the Company's document imaging
service revenues, respectively. The Company has no present arrangement with this
customer for 1999. Another customer accounted for 10% of such revenues in 1997.
No other customer accounted for 10% or more of such revenues.
Direct operating expenses were $13,068,660 for the year ended December 31, 1998
and $16,007,051 for the similar period in 1997, a decrease of 18%. Direct
operating expenses for the Internet and on-line data conversion and content
management services decreased to $10,701,569 in 1998 from $14,265,974 in 1997,
or 25%. Direct operating expenses as a percentage of revenues were 61% in 1998
and 79% in 1997. The decrease in direct operating expenses in 1998 was due
primarily to a favorable foreign exchange rate for the Philippine peso and the
elimination of journal and book page making services. Direct operating expenses
in the document imaging services segment increased to $2,367,091 in 1998 from
$1,741,077 in 1997. The increase in 1998 was due principally to significant
inefficiencies incurred in connection with a project that required offsite
management and hiring of temporary workers as well as a staggered workflow
provided by the segment's largest customer. Direct operating expenses include
primarily direct payroll, telecommunications, freight, computer services,
supplies and occupancy.
Selling and administrative expense was $4,982,127 and $5,283,891 for the years
ended December 31, 1998 and 1997, respectively, representing a decrease of 6% in
1998 from 1997. Selling and administrative expense as a percentage of revenues
was 25% in 1998 and 26% in 1997. The decrease primarily reflects the elimination
of pagination services offset by the addition of sales and technical support
staff, primarily at the beginning of the third quarter, for expansion of the
Company's sales and marketing efforts. Selling and administrative expense
includes management salaries, sales and marketing salaries, clerical and
administrative salaries, rent and utilities not included in direct costs,
marketing costs and administrative overhead.
During the second quarter of 1997 management determined to reduce its U.S. based
overhead. The principal actions were to eliminate U.S. production for the
publishing services division and merge the east and west coast document imaging
operations into one facility on the west coast. The restructuring costs
consisted of estimated losses on leases and severance pay, while the impairment
costs consisted of a write-off of goodwill in connection with the document
imaging business and equipment in connection with both the imaging and
publishing services businesses. The restructuring and impairment costs totaled
$1,500,000.
In the fourth quarter of 1998, management determined that its plans to
significantly increase the revenues of the document imaging services segment
were not realized. While management continues to evaluate this business, it was
determined that the remaining goodwill associated with the business could not be
recovered. Accordingly, the remaining unamortized amount of $382,000 was written
off at December 31, 1998. Further, certain estimated liabilities for
restructuring and other items totaling $249,000 were deemed in excess of actual
amounts payable and were recognized as a gain in the fourth quarter of 1998.
The Company recognized an unrealized loss of $1,400,000 in 1997 in connection
with foreign currency contracts that were in dispute. The loss represented the
difference between the contract rate for Philippine pesos and the estimated fair
value at December 31, 1997. In the second quarter of 1998, the Company reached
an agreement regarding the disputed currency contracts. This resulted in a
reduction of the estimated liability previously provided by $487,000 that was
recognized as a gain.
In 1998, the Internet and on-line data conversion and content management
services segment realized income before income taxes of $3,151,928, while the
document imaging services segment incurred a loss of $1,234,248, including a
write-off of goodwill in the amount of $382,000. In 1997, the Internet and
on-line data conversion and content management services segment incurred a loss
before income taxes of $2,894,158, including a loss on foreign currency
contracts and restructuring costs of $2,107,000, while the document imaging
services segment incurred a loss of $1,206,060, including restructuring costs of
$793,000.
The Company recognized a benefit from income taxes in 1998 from a reduction in
the tax valuation allowance and a utilization of net operating loss
carryforwards that were not recognized as tax benefits in 1997 for losses
incurred in that year.
As a result of the aforementioned items, the Company realized net income of
$2,249,680 in 1998 and incurred a net loss of $(4,200,218) in 1997. The 1997
loss was principally due to the charges set forth above, no benefit for income
taxes and higher overhead.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues decreased 2% to $20,116,935 for the year ended December 31, 1997
compared to $20,536,448 for the similar period in 1996. Revenues from the
Internet and on-line data conversion and content management services segment
increased to $18,032,232 in 1997 from $17,852,384 in 1996. During 1997 and 1996,
one customer that is comprised of twelve affiliated companies, accounted for 16%
and 28% of the Company's Internet and on-line data conversion and content
management services revenues, respectively. One other customer accounted for 10%
of such revenues in 1997 and 1996. No other customer accounted for 10% or more
of such revenues. Further, in 1997 and 1996, export revenues, all of which were
derived from European customers, accounted for 24% and 22%, respectively, of
such revenues. Revenues from the document imaging services segment decreased to
$2,084,703 in 1997 from $2,684,064 in 1996. This decrease was primarily due to a
restructuring in 1997 and closing of the east coast facility which resulted in a
loss of customers in that area. During 1997 and 1996 two customers accounted for
11% and 10% of such revenues in 1997 and 12% and 12% in 1996, respectively. No
other customer accounted for 10% or more of such revenues.
Direct operating expenses were $16,007,051 for the year ended December 31, 1997
and $16,783,595 for the similar period in 1996, a decrease of 5%. Direct
operating expenses for the Internet and on-line data conversion and content
management services decreased to $14,265,974 in 1997 from $14,655,036 in 1996
due principally to a favorable Philippine peso exchange rate. Direct operating
expenses for the document imaging services segment decreased to $1,741,077 in
1997 from $2,128,559 in 1996 principally due to lower revenues in that year.
Selling and administrative expense was $5,283,891 and $4,799,739 for the years
ended December 31, 1997 and 1996, respectively, representing an increase of 10%
in 1997 from 1996. Selling and administrative expense as a percentage of
revenues was 26% in 1997 and 23% in 1996. The dollar and percentage increase in
1997 primarily reflects the expansion of the Company's sales and marketing
efforts.
During the second quarter of 1997 management determined to reduce its U.S. based
overhead. The principal actions were to eliminate U.S. production for the
publishing services division and merge the east and west coast document imaging
operations into one facility on the west coast. The restructuring costs
consisted of estimated losses on leases and severance pay, while the impairment
costs consisted of a write-off of goodwill in connection with the document
imaging business and equipment in connection with both the imaging and
publishing services businesses. The restructuring and impairment costs totaled
$1,500,000.
The Company recognized an unrealized loss of $1,400,000 in 1997 in connection
with foreign currency contracts that were in dispute. The loss represents the
difference between the contract rate for Philippine pesos and the estimated fair
value at December 31, 1997.
Internet and on-line data conversion and content management services incurred a
loss before income taxes of $2,894,158 in 1997 and $475,744 in 1996. Document
imaging services incurred a loss before income taxes of $1,206,060 in 1997,
including restructuring costs of $793,000, and $483,754 in 1996.
The Company did not recognize tax benefits in 1997 for losses incurred in that
year.
The Company incurred net losses of $(4,200,218) in 1997 and $(602,498) in 1996.
The 1997 loss was greater than that incurred in 1996 due to the charges set
forth above, no benefit for income taxes and higher overhead.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased to $2,547,013 in 1998 from
$1,128,671 in 1997, principally from profitable operations in 1998. Net cash of
$841,710 and $1,015,088 was used in investing activities in 1998 and 1997,
respectively, for the purchase of fixed assets. Net cash used in financing
activities decreased to $139,622 in 1998 from $240,924 in 1997 principally from
lower payments on borrowings in 1998.
The Company expects to make capital expenditures of approximately $2,000,000 for
its production facilities in 1999.
The Company has a line of credit with a bank in the amount of $1 million. The
line is collateralized by the assets of the Company. Interest is charged at 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 has planned to replace 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 has obtained compliance statements from each of its significant
service suppliers, most of which have provided positive assurances regarding
their compliance.
Based on currently available information, the Company expects to attain Year
2000 compliance and institute appropriate final testing of its modifications and
replacements no later than June 30, 1999. 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. The Company
does not anticipate that the cost of effecting Year 2000 compliance will have a
material impact on the Company's financial condition or results of operations.
Nevertheless, achieving 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-KSB 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. 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-KSB will in fact
occur.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Innodata Corporation
Hackensack, New Jersey
We have audited the accompanying consolidated balance sheets of Innodata
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Innodata
Corporation and subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Parsippany, New Jersey
February 25, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Innodata Corporation
Brooklyn, New York
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Innodata Corporation and subsidiaries for
the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Innodata Corporation and subsidiaries for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
Margolin, Winer & Evens LLP
Garden City, New York
March 14, 1997
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 3,535,533 $ 1,969,852
Accounts receivable-net of allowance for doubtful accounts of
$425,000 in 1998 and $450,000 in 1997 2,943,422 3,188,920
Prepaid expenses and other current assets 555,127 825,586
Deferred income taxes 376,000 136,000
------------ ------------
TOTAL CURRENT ASSETS 7,410,082 6,120,358
FIXED ASSETS-NET 2,669,892 2,909,619
GOODWILL - 410,076
OTHER ASSETS 515,534 589,194
------------ ------------
TOTAL $10,595,508 $10,029,247
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 56,718 $ 122,450
Accounts payable and accrued expenses 1,295,347 1,507,866
Accrued salaries and wages 849,608 641,186
Estimated loss on foreign currency contracts - 1,400,000
Income and other taxes 459,308 357,008
------------ ------------
TOTAL CURRENT LIABILITIES 2,660,981 4,028,510
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION 24,089 79,604
------------ ------------
DEFERRED INCOME TAXES 425,000 667,000
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-authorized 20,000,000 shares;
issued - 1,528,402 shares in 1998 and 1,521,736 shares in 1997 15,284 15,217
Additional paid-in capital 8,890,661 8,870,731
Deficit (1,199,538) (3,449,218)
------------ ------------
7,706,407 5,436,730
Less: treasury stock - at cost; 48,083 shares in 1998 and 26,400 shares in 1997 (220,969) (182,597)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,485,438 5,254,133
------------ ------------
TOTAL $10,595,508 $10,029,247
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
------------ ------------ ------------
REVENUES $19,593,353 $20,116,935 $20,536,448
------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Direct operating costs 13,068,660 16,007,051 16,783,595
Selling and administrative expenses 4,982,127 5,283,891 4,799,739
Restructuring costs, impairment of assets and other 133,141 1,500,000 -
(Gain) loss on foreign currency contracts (487,458) 1,400,000 -
Interest expense 77,594 85,595 36,383
Interest income (98,391) (59,384) (123,771)
------------ ------------ ------------
TOTAL 17,675,673 24,217,153 21,495,946
------------ ------------ ------------
INCOME (LOSS) BEFORE (BENEFIT) PROVISION
FOR INCOME TAXES 1,917,680 (4,100,218) (959,498)
(BENEFIT) PROVISION FOR INCOME TAXES (332,000) 100,000 (357,000)
------------ ------------ ------------
NET INCOME (LOSS) $ 2,249,680 $(4,200,218) $ (602,498)
============ ============ ============
BASIC INCOME (LOSS) PER SHARE $ 1.52 $ (2.80) $ (.40)
============ ============ ============
DILUTED INCOME (LOSS) PER SHARE $ 1.49 $ (2.80) $ (.40)
============ ============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONAL UNREALIZED (DEFICIT)
COMMON STOCK PAID-IN LOSS ON RETAINED TREASURY
------------
SHARES AMOUNT CAPITAL SECURITIES EARNINGS STOCK TOTAL
------------ ----------- ----------- ------------ ------------ ---------- ------------
JANUARY 1, 1996 1,492,424 $ 14,924 $ 8,527,302 $ (4,192) $ 1,353,498 $(143,877) $ 9,747,655
Net loss - - - - (602,498) - (602,498)
Issuance of common stock
upon exercise of stock
options 7,645 76 65,692 - - - 65,768
Issuance of common stock
as partial acquisition costs 21,667 217 193,736 - - - 193,953
Warrant costs for
consulting arrangement - - 68,401 - - - 68,401
Redemption of available-
for-sale securities - - - 4,192 - - 4,192
------------ ----------- ----------- ------------ ------------ ---------- ------------
DECEMBER 31, 1996 1,521,736 15,217 8,855,131 - 751,000 (143,877) 9,477,471
Net loss - - - - (4,200,218) - (4,200,218)
Warrant costs for
consulting arrangement - - 15,600 - - - 15,600
Purchase of treasury stock - - - - - (38,720) (38,720)
------------ ----------- ----------- ------------ ------------ ---------- ------------
DECEMBER 31, 1997 1,521,736 15,217 8,870,731 - (3,449,218) (182,597) 5,254,133
Net income - - - - 2,249,680 - 2,249,680
Issuance of common stock
upon exercise of stock
options 6,666 67 19,930 - - - 19,997
Purchase of treasury stock - - - - - (38,372) (38,372)
------------ ----------- ----------- ------------ ------------ ---------- ------------
DECEMBER 31, 1998 1,528,402 $ 15,284 $ 8,890,661 $ - $(1,199,538) $(220,969) $ 7,485,438
============ =========== =========== ============ ============ ========== ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
------------ ------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ 2,249,680 $(4,200,218) $ (602,498)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,322,721 1,321,555 1,372,731
Restructuring costs, impairment of assets and other 133,141 1,500,000 -
Gain on disposal of fixed assets (74,399) - -
(Gain) loss on foreign currency contracts (487,458) 1,400,000 -
Deferred income taxes (482,000) 400,000 (150,000)
Changes in operating assets and liabilities:
Accounts receivable 419,834 529,363 1,380,498
Prepaid expenses and other current assets 120,459 304,924 (479,251)
Other assets 23,660 (116,769) (271,413)
Accounts payable and accrued expenses (76,805) (104,330) 187,764
Liability for foreign currency contracts (912,542) - -
Accrued salaries and wages 208,422 15,707 100,991
Income and other taxes payable 102,300 78,439 (641,737)
------------ ------------ ------------
Net cash provided by operating activities 2,547,013 1,128,671 897,085
------------ ------------ ------------
INVESTING ACTIVITIES:
Expenditures for fixed assets (1,024,622) (1,015,088) (1,231,273)
Proceeds from disposal of fixed assets 182,912 - -
Payments in connection with acquisition - - (410,646)
Short-term investments - - 1,240,000
------------ ------------ ------------
Net cash used in investing activities (841,710) (1,015,088) (401,919)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings - 577,000 626,014
Payments of borrowings (121,247) (779,204) (656,409)
Proceeds from exercise of stock options 19,997 - 65,768
Purchase of treasury stock (38,372) (38,720) -
------------ ------------ ------------
Net cash (used in) provided by financing activities (139,622) (240,924) 35,373
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 1,565,681 (127,341) 530,539
CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,969,852 2,097,193 1,566,654
------------ ------------ ------------
CASH AND EQUIVALENTS, END OF YEAR $ 3,535,533 $ 1,969,852 $ 2,097,193
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ 32,524 $ 85,595 $ 35,238
Income taxes - - 922,789
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
INNODATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ---------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION - Innodata Corporation and subsidiaries (the
"Company") performs data conversion and content management services and document
imaging services tailored to customer requirements. The Company's services are
performed in production facilities located in the Philippines, Sri Lanka, India
and the United States. The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly owned.
All intercompany transactions and balances have been eliminated in
consolidation.
USE OF ESTIMATES - In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION - Revenue is recognized in the period in which the service
is performed.
WORK-IN-PROCESS - Work-in-process, included in other current assets, consists of
actual labor and certain other costs incurred for uncompleted and unbilled
services.
FOREIGN CURRENCY - The functional currency for the Company's production
operations located in the Philippines, India and Sri Lanka is U.S. dollars. As
such, transactions denominated in Philippine pesos, Indian and Sri Lanka rupees
were translated to U.S. dollars at rates which approximate those in effect on
transaction dates. Monetary assets and liabilities denominated in foreign
currencies at December 31, 1998 and 1997 were translated at the exchange rate in
effect as of those dates. In 1997, the Company recognized a gain of $125,000
resulting from such foreign currency translation. Exchange gains and losses in
1998 and 1996 resulting from such transactions were immaterial.
STATEMENT OF CASH FLOWS - For financial statement purposes (including cash
flows), the Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents. During
1996, the Company leased equipment under capital leases for approximately
$237,000. Supplemental disclosure of non-cash investing and financing
activities is as follows:
<TABLE>
<CAPTION>
<S> <C>
1996
Acquisition costs $ 563,771
Common stock issued (153,125)
----------
Payments in connection with acquisition $ 410,646
==========
</TABLE>
DEPRECIATION - Depreciation is provided on the straight-line method over the
estimated useful lives of the related assets which are as follows:
<TABLE>
<CAPTION>
<S> <C>
ESTIMATED USEFUL
CATEGORY LIVES
Equipment 3-5 years
Furniture and fixtures 10 years
</TABLE>
Leasehold improvements are amortized on the straight-line basis over the shorter
of their estimated useful lives or the lives of the leases.
INCOME TAXES - Deferred taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities, using enacted tax
rates, as well as any net operating loss or tax credit carryforwards expected to
reduce taxes payable in future years.
ACCOUNTING FOR STOCK-BASED COMPENSATION - The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which became effective in 1996. As
permitted by SFAS No. 123, the Company has elected to continue to account for
employee stock options under APB No. 25, "Accounting for Stock Issued to
Employees."
SEGMENT REPORTING - The Company adopted Statement of Financial Accounting
Standards SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" for the year ended December 31, 1998. SFAS No. 131 requires that
the Company disclose certain information about its operating segments defined as
"components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance." Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company has estimated the fair value
of financial instruments using available market information and other valuation
methodologies in accordance with SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments." Management of the Company believes that the fair value
of financial instruments for which estimated fair value has not been
specifically presented is not materially different than the related carrying
value. Determinations of fair value are based on subjective data and
significant judgment relating to timing of payments and collections and the
amounts to be realized. Different assumptions and/or estimation methodologies
might have a material effect on the fair value estimates. Accordingly, the
estimates of fair value are not necessarily indicative of the amounts the
Company would realize in a current market exchange.
INCOME (LOSS) PER SHARE - Basic earnings per share is based on the weighted
average number of common shares outstanding without consideration of potential
common stock. Diluted earnings per share is based on the weighted average number
of common and potential common shares outstanding. The calculation takes into
account the shares that may be issued upon exercise of stock options, reduced by
the shares that may be repurchased with the funds received from the exercise,
based on average prices during the year.
2. FIXED ASSETS
Fixed assets, stated at cost less accumulated depreciation and amortization,
consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1998 1997
Equipment $6,647,870 $6,095,004
Furniture and fixtures 427,807 372,566
Leasehold improvements 678,557 472,574
---------- ----------
Total 7,754,234 6,940,144
Less accumulated depreciation
and amortization 5,084,342 4,030,525
---------- ----------
$2,669,892 $2,909,619
========== ==========
</TABLE>
As of December 31, 1998 and 1997, the net book value of fixed assets located at
the Company's production facilities in the Philippines, India and Sri Lanka was
approximately $1,553,000 and $1,600,000, respectively. In addition, equipment
financed by capital leases has a net book value of $153,000 at December 31,
1998.
3. INCOME TAXES
The significant components of the provision for (benefit from) income taxes are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
Current income tax expense (benefit):
Foreign $ 50,000 $ - $ -
Federal 55,000 (300,000) (159,000)
State and local 45,000 - (48,000)
---------- ---------- ----------
150,000 (300,000) (207,000)
Deferred income tax (benefit) expense (482,000) 400,000 (150,000)
---------- ---------- ----------
(Benefit from) provision for income taxes $(332,000) $ 100,000 $(357,000)
========== ========== ==========
</TABLE>
During 1998 the Company utilized approximately $1,100,000 of net operating loss
carryforwards, resulting in a tax benefit of $375,000.
Reconciliation of the U.S. statutory rate with the Company's effective tax rate
is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
Federal statutory rate 34.0% (34.0)% (34.0)%
Effect of:
Valuation allowance (35.0) 34.0 -
Utilization of net operating loss carryforwards
not previously recognized (19.5) - -
State income taxes (net of federal tax benefit) 1.6 - (5.4)
Foreign taxes 2.6 - -
Other (1.0) 2.4 2.2
----- ----- -----
Effective rate (17.3)% 2.4% (37.2)%
===== ===== =====
</TABLE>
As of December 31, 1998 and 1997, the composition of the Company's net deferred
taxes is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Deferred income tax assets:
Allowances not currently deductible $ 266,000 $ 247,000
Expenses not deductible until paid 60,000 161,000
Net operating loss carryforwards 150,000 500,000
---------- ----------
476,000 908,000
Less: valuation allowance (100,000) (772,000)
---------- ----------
Deferred income tax assets 376,000 136,000
---------- ----------
Deferred income tax liabilities:
Foreign source income, not taxable
unless repatriated (415,000) (415,000)
Depreciation and amortization (10,000) (252,000)
---------- ----------
(425,000) (667,000)
---------- ----------
Net deferred income tax liability $ (49,000) $(531,000)
========== ==========
</TABLE>
The valuation allowance reduces total deferred tax assets to an amount
management believes will likely be realized. At December 31, 1998, the Company's
net operating loss carryforward for federal income tax purposes of approximately
$400,000 expires in 2012. These net operating losses may be limited to annual
use based on IRS regulations.
4. LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Equipment leases, at 9.6% to 13.5% $88,581 $226,335
Less: deferred interest 7,774 24,281
------- --------
Total 80,807 202,054
Less: current portion of long-term debt 56,718 122,450
------- --------
Long-term debt $24,089 $ 79,604
======= ========
</TABLE>
Long term debt matures as follows: 1999 - $62,494; 2000 - $19,299; and 2001 -
$6,788.
5. COMMITMENTS AND CONTINGENT LIABILITIES
LINE OF CREDIT - The Company has a line of credit with a bank in the amount of
$1 million. The line is collateralized by the assets of the Company. Interest is
charged at 2% above the bank's prime rate and is due on demand. The line is
presently unused.
LEASES - The Company is obligated under various operating lease agreements for
office and production space. The agreements contain escalation clauses and
requirements that the Company pay taxes, insurance and maintenance costs. The
lease agreements for production space in the Philippines, which expire through
2003, contain provisions pursuant to which the Company may cancel the leases at
any time. The annual rental for the leased space in the Philippines is
approximately $350,000. For the years ended December 31, 1998, 1997 and 1996,
rent expense totaled approximately $700,000, $940,000 and $825,000,
respectively.
At December 31, 1998, future minimum annual rental commitments on
non-cancellable leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $382,000
2000 191,000
2001 193,000
2002 165,000
--------
931,000
========
</TABLE>
EMPLOYMENT AGREEMENTS - The Company has a three-year employment agreement
through August 2000 with its President and CEO. He is currently paid at the
rate of $240,000 per annum with any bonuses and future increases at the
discretion of the Board of Directors. In addition, each December 31 during the
term of the agreement he will receive 10,333 options to purchase common stock of
the Company at then prevailing market prices. In consideration of the signing of
the agreement he was granted five year options as follows (after repricing in
June 1998): 10,000 options at $3.00 per share; 16,666 at $5.00; 23,333 at $6.00;
30,000 at $7.00; and 33,333 at $15.50. The options are exercisable upon the
earliest to occur of (i) various dates during 1999; or (ii) in the event of a
sale of the Company where a third party acquires more than 50% of the Company.
The Company has an employment agreement with its former President and CEO
expiring September 30, 2000 that provides for a salary of $75,000 per annum. He
will serve as Vice Chairman of the Board and in executive capacities as
designated by the CEO or the Board of Directors.
LITIGATION - The Company is subject to legal proceedings and claims which arise
in the ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially affect
the Company's financial statements.
FOREIGN CURRENCY - The Company's production facilities are located in the
Philippines, India and Sri Lanka. To the extent that the currencies of these
countries fluctuate, the Company is subject to risks of changing costs of
production after pricing is established for certain customer projects, although
most arrangements are at will and can be terminated or renegotiated.
OTHER COMMITMENTS - Employees at the Company's Manila facilities voted to join a
union. The Company has a collective bargaining agreement with the rank and file
employees at its Manila facility which provides for approximately 10% wage
increases per annum plus one-half of any government mandated increases through
March 31, 2001.
PHILIPPINE PENSION REQUIREMENT - The Philippine government enacted legislation
requiring businesses to provide a lump-sum pension payment to employees working
at least five years and who are employed by the Company at age 60. Those
eligible employees are to receive approximately 59% of one month's pay for each
year of employment with the Company. The terms of the collective bargaining
agreement provide benefits similar to the government. Based on actuarial
assumptions and calculations in accordance with SFAS No. 87, "Employers'
Accounting for Pensions," the liability for the future payment is insignificant
at December 31, 1998. Under the legislation, the Company is not required to
fund future costs, if any.
6. CAPITAL STOCK
COMMON STOCK - In 1993 the Company sold pursuant to a public offering 563,500
shares of its common stock and certain warrants that expired in 1997 and
realized net proceeds after all expenses of the offering of $6,752,585.
The Company's stockholders approved a one-for-three reverse stock split
effective on March 25, 1998. All share and per share amounts have been restated
to reflect such split.
PREFERRED STOCK - The Board of Directors is authorized to fix the terms, rights,
preferences and limitations of the preferred stock and to issue the preferred
stock in series which differ as to their relative terms, rights, preferences and
limitations.
COMMON STOCK RESERVED - At December 31, 1998, the Company reserved for issuance
999,356 shares of its common stock as follows: (a) 982,690 shares pursuant to
the Company's Stock Option Plans (including 120,332 options issued to the
Company's Chairman and its President which were not granted under the plans);
and (b) 16,666 shares issuable upon exercise of warrants issued to a consultant.
7. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
The Company adopted, with stockholder approval, 1993, 1994, 1995, 1996 and 1998
Stock Option Plans (the "1993 Plan," "1994 Plan," "1994 DD Plan," "1995 Plan,"
"1996 Plan" and the "1998 Plan") which provide for the granting of options to
purchase not more than an aggregate of 87,500, 105,000, 17,500, 200,000, 166,666
and 300,000 shares of common stock, respectively, subject to adjustment under
certain circumstances. Such options may be incentive stock options ("ISOs")
within the meaning of the Internal Revenue Code of 1986, as amended, or options
that do not qualify as ISOs ("Non-Qualified Options").
The option exercise price per share may not be less than the fair market value
per share of common stock on the date of grant (110% of such fair market value
for an ISO, if the grantee owns stock possessing more than 10% of the combined
voting power of all classes of the Company's stock). Options may be granted
under the Stock Option Plan to all officers, directors and employees of the
Company and, in addition, Non-Qualified Options may be granted to other parties
who perform services for the Company. No options may be granted under the 1993
Plan after April 30, 2003, under the 1994 Plan and 1994 DD Plan, after May 19,
2004, under the 1995 Plan, after May 16, 2005, under the 1996 Plan, after July
8, 2006 and under the 1998 Plan, after July 8, 2008.
The Plans may be amended from time to time by the Board of Directors of the
Company. However, the Board of Directors may not, without stockholder approval,
amend the Plans to increase the number of shares of common stock which may be
issued under the Plans (except upon changes in capitalization as specified in
the Plans), decrease the minimum exercise price provided in the Plans or change
the class of persons eligible to participate in the Plans.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock Based Compensation."
Accordingly, no compensation expense has been recognized for stock options
granted to employees. Had compensation cost for the Company's stock option
grants been determined based on the fair value at the grant date for awards in
1998, 1997 and 1996 consistent with the provisions of SFAS No. 123, the
Company's net income would have been $1,463,259, or $1.00 per share, basic, and
$.97 per share, diluted, in 1998, net loss would have been $(4,359,807), or
$(2.90) per share, in 1997 and $(738,987), or $(.49) per share, in 1996. The
fair value of options at date of grant was estimated using the Black-Scholes
pricing model with the following weighted average assumptions: expected life of
four years; risk free interest rate of 5% in 1998 and 6.4% in 1997 and 1996;
expected volatility of 107% in 1998 and 40% in 1997 and 1996; and a zero
dividend yield. The effects of applying SFAS No. 123 in this disclosure are not
indicative of future disclosures.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE WEIGHTED WEIGHTED FAIR
PER SHARE REMAINING AVERAGE AVERAGE VALUE,
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE DATE OF
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE GRANT
---------------- ------------ ------------ --------- ------------ --------- -------
Balance 1/1/96 $ 7.89 - 9.75 132,696 3 $ 8.25
$ 10.14 - 17.85 135,050 3 $ 12.93
------------
267,746 120,098 $ 10.38
============
Canceled $ 9.03 (166)
Granted $ 6.93 - 11.79 29,666 5 $ 9.18 $ 3.66
Exercised $ 7.89 - 9.03 (7,646)
------------
Balance 12/31/96 $ 6.93 - 9.75 138,717 3 $ 8.13 111,513 $ 8.88
$ 10.14 - 17.85 150,883 3 $ 12.69 89,157 $ 13.17
------------ ------------
289,600 200,670
============
Canceled $ 7.89 - 13.89 (48,883)
Granted $ 3.00 - 6.00 100,000 5 $ 3.63 $ 1.26
Granted $ 9.00 - 21.00 86,666 5 $ 13.44 $ .18
------------
Balance 12/31/97 $ 3.00 - 9.75 246,192 4 $ 6.42 115,969 $ 8.16
$ 10.14 - 21.00 181,191 3 $ 14.10 93,996 $ 12.96
------------ ------------
427,383 209,965
============
Canceled $ 3.75 - 10.50 (161,366)
Canceled $ 11.44 - 21.00 (162,543)
Granted $ 3.00 - 6.38 176,299 5 $ 5.49 $ 4.00
Granted and
Repriced $ 5.00 - 8.63 267,260 2 $ 6.34 $ 2.67
Granted and
Repriced $ 15.50 33,333 3 $ 15.50 $ 1.98
Exercised $ 3.00 (6,666)
------------
BALANCE 12/31/98 $ 3.00 - 9.03 537,217 3 $ 5.67 97,496 $ 4.13
$ 14.28 - 17.85 36,483 2 $ 15.69 3,150 $ 17.65
------------ ------------
573,700 100,646
============ ============
</TABLE>
WARRANTS
In connection with a consulting agreement on December 18, 1995, the Company
issued a five-year warrant to purchase 16,666 shares at a price of $11.44 per
share.
8. SEGMENT REPORTING
The Company's operations are classified in two business segments; Internet and
on-line data conversion and content management services and document imaging
services.
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.
During 1998, 1997 and 1996, one customer that is comprised of twelve affiliated
companies, accounted for 21%, 16% and 28% of the Company's Internet and on-line
data conversion and content management service revenues, respectively. One other
customer accounted for 13%, 10% and 10% of such revenues in 1998, 1997 and 1996,
respectively. No other customer accounted for 10% or more of such revenues.
Further, in 1998, 1997 and 1996, export revenues, all of which were derived from
European customers, accounted for 22%, 24% and 22%, respectively, of such
revenues. A significant amount of the Company's revenues are derived from
customers in the publishing industry. Accordingly, the Company's accounts
receivable generally include significant amounts due from such customers.
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.
During 1998, 1997 and 1996 one customer accounted for 53%, 11% and 12% of the
Company's document imaging service revenues, respectively. The Company has no
present arrangements with this customer for 1999. Another customer accounted for
10% and 12% of such revenues in 1997 and 1996. No other customer accounted for
10% or more of such revenues.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
Revenues
- --------
Internet and on-line services $17,401,346 $18,032,232* $17,852,384
Document imaging services 2,192,007 2,084,703 2,684,064
----------- ----------- -----------
Total consolidated $19,593,353 $20,116,935 $20,536,448
=========== =========== ===========
<FN>
* Includes $2,612,000 from journal and book pagination and medical transcription
businesses that were discontinued in 1997.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income (loss) before income taxes
- ---------------------------------
Internet and on-line services $ 3,151,928(a) $(2,894,158)(c) $(475,744)
Document imaging services (1,234,248)(b) (1,206,060)(d) (483,754)
------------ ------------ ----------
Total consolidated $ 1,917,680 $(4,100,218) $(959,498)
============ ============ ==========
<FN>
(a) Includes gain on foreign currency contracts and reversal of previously estimated
liabilities of $736,000.
(b) Includes write off of goodwill of $382,000.
(c) Includes loss on foreign currency contracts and restructuring costs of $2,107,000.
(d) Includes restructuring costs of $793,000.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
Total assets
- -----------------------------
Internet and on-line services $ 9,520,116 $ 8,703,927 $ 9,501,943
Document imaging services 1,075,392 1,325,320 2,914,353
----------- ----------- -----------
Total consolidated $10,595,508 $10,029,247 $12,416,296
=========== =========== ===========
Capital expenditures
- --------------------
Internet and on-line services $ 980,218 $ 907,535 $ 1,071,190
Document imaging services 44,404 107,553 160,083
----------- ----------- -----------
Total consolidated $ 1,024,622 $ 1,015,088 $ 1,231,273
=========== =========== ===========
Depreciation and amortization
- -----------------------------
Internet and on-line services $ 1,116,445 $ 1,048,875 $ 1,115,674
Document imaging services 206,276 272,680 257,057
----------- ----------- -----------
Total consolidated $ 1,322,721 $ 1,321,555 $ 1,372,731
=========== =========== ===========
</TABLE>
9. INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
Net income (loss) $2,249,680 $(4,200,218) $ (602,498)
========== ============ ===========
Weighted average common shares outstanding 1,478,408 1,501,043 1,503,196
Dilutive effect of outstanding warrants and options 31,391 - -
---------- ------------ -----------
Adjusted for dilutive computation 1,509,799 1,501,043 1,503,196
========== ============ ===========
Basic income (loss) per share $ 1.52 $ (2.80) $ (.40)
========== ============ ===========
Diluted income (loss) per share $ 1.49 $ (2.80) $ (.40)
========== ============ ===========
</TABLE>
Reference is made to Note 7 with respect to options and warrants that would have
been dilutive in 1997 and 1996 had there not been a loss in those years.
10. RESTRUCTURING COSTS AND IMPAIRMENT OF ASSETS
During the second quarter of 1997 management implemented a plan to reduce the
Company's U.S. based overhead. The principal actions were to eliminate U.S.
production for the publishing services division and merge the east and west
coast document imaging operations into one facility on the west coast. The
restructuring costs consisted of estimated losses on leases and severance pay
totaling approximately $325,000, while the impairment costs consisted of a
write-off of goodwill in connection with the document imaging business totaling
approximately $700,000 and fixed assets related to both the imaging and
publishing services businesses totaling approximately $475,000.
In the fourth quarter of 1998, management determined that its plans to
significantly increase the revenues of the document imaging services segment
were not realized. While management continues to evaluate this business, it was
determined that the goodwill associated with the business could not be
recovered. Accordingly, the remaining unamortized amount of $382,000 was written
off at December 31, 1998. Further, certain estimated liabilities for
restructuring and other items totaling $249,000 were deemed in excess of actual
amounts payable and were recognized as income in the fourth quarter of 1998.
11. FOREIGN CURRENCY CONTRACTS
The Company recognized an unrealized loss of $1,400,000 in 1997 in connection
with foreign currency contracts that were in dispute. The loss represented the
difference between the contract rate for Philippine pesos and the estimated fair
value at December 31, 1997. In the second quarter of 1998, the Company reached
an agreement regarding the disputed currency contracts. This resulted in a
reduction of the estimated liability previously provided by $487,000 that was
recognized as a gain.
<PAGE>
ITEM 8. CHANGE IN ACCOUNTANTS.
Margolin, Winer & Evens LLP ("MWE") was the principal auditor of the Company for
each of the three years in the period ended December 31, 1996. On November 11,
1997 the Company and MWE agreed that MWE would not serve as principal accountant
for the year ended December 31, 1997.
MWE reports on the financial statements of the Company for the Company's fiscal
years ended December 31, 1996 and 1995 contained no adverse opinion, disclaimer
of opinion, modification, or qualification. During the two years ended December
31, 1996 and the interim period through November 11, 1997, there were no
disagreements with MWE on any matter of accounting principles and practices,
financial statement disclosure, or audit scope and procedure, which
disagreement, if not resolved to the satisfaction of MWE, would have caused it
to make reference to the subject matter of the disagreement in connection with
its reports.
On November 12, 1997, the Company selected Grant Thornton LLP as its auditor for
the fiscal year ended December 31, 1997.
<PAGE>
--------
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
OFFICERS AND DIRECTORS
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION
- -------------------------- --- ------------------------------------------------------
Barry Hertz 49 Chairman of the Board of Directors
Jack Abuhoff 37 President, Chief Executive Officer and Director
Todd Solomon 37 Vice Chairman of the Board of Directors and Consultant
Martin Kaye 51 Executive Vice President, Chief Financial Officer,
Secretary and Director
Stephen Agress 37 Vice President - Finance
Jurgen Tanpho 34 Vice President - Operations
Jan Palmen 44 Vice President - Sales
Dr. Albert Drillick 53 Director
Dr. E. Bruce Fredrikson 61 Director
Morton Mackof 51 Director
Stanley Stern 48 Director
</TABLE>
BARRY HERTZ has been Chairman since 1988 and Chief Executive Officer of the
Company until August 1995. He founded Track Data Corporation ("Track") in 1981.
He was Track's sole stockholder and Chief Executive Officer until its merger
(the "Merger") on March 31, 1996 with Global Market Information, Inc.
("Global"), a public company co-founded by Mr. Hertz, who was its Chairman and
Chief Executive Officer. Upon consummation of the Merger, Global changed its
name to Track Data Corporation ("TDC"). Mr. Hertz holds a B.S. degree in
mathematics from Brooklyn College (1971) and an M.S. degree in computer science
from New York University (1973).
JACK ABUHOFF was retained as President and CEO effective September 15, 1997. He
has been a Director of the Company since its founding. From 1995 to 1997 he was
Chief Operating Officer of Charles River Corporation, an international systems
integration and outsourcing firm. From 1992 to 1994, he was employed by
Chadbourne & Parke, and engaged in Sino-American technology joint ventures with
Goldman Sachs. He practiced international corporate law with White & Case from
1986 to 1992. He holds an A.B. degree from Columbia College (1983) and a J.D.
degree from Harvard Law School (1986).
TODD SOLOMON has been Vice Chairman and consultant to the Company since his
resignation as President and CEO on September 15, 1997. He served as President
and a Director of the Company since its founding by him in 1988. He had been
Chief Executive Officer since August 1995. Mr. Solomon was President of Ruck
Associates, an executive recruiting firm from 1986 until 1987. Mr. Solomon
holds an A.B. in history and physics from Columbia University (1986). He was
also a director of TDC until his resignation in December 1997.
MARTIN KAYE has been Chief Financial Officer of the Company since October 1993
and was elected Vice President - Finance in August 1995 and was elected
Executive Vice President in March 1998. He has been a Director since March
1995. He is a certified public accountant and serves as Vice President of
Finance and a Director of TDC. Mr. Kaye had been an audit partner with Deloitte
& Touche for more than five years until his resignation in 1993. Mr. Kaye holds
a B.B.A. in accounting from Baruch College (1970).
STEPHEN AGRESS was elected Vice President - Finance in March 1998. He served as
Corporate Controller since joining the Company in August 1995. Mr. Agress is a
certified public accountant and had been a senior audit manager with Deloitte &
Touche for more than five years prior to his resignation in 1995. Mr. Agress
holds a B.S. in accounting from Yeshiva University (1982).
JURGEN TANPHO was elected Vice President - Operations in March 1998. He served
in various management capacities since joining the Company in 1991, most
recently in the position of Assistant to the President of Manila Operations. He
holds a B.S. degree in industrial engineering from the University of the
Philippines (1986).
JAN PALMEN was elected Vice President - Sales in February 1999. Mr. Palmen was
chief operating officer at SPI Technologies, Inc., a leading competitor of the
Company, from 1995 through 1998. Prior to SPI, he was general manager,
production for Reed/Elsevier from 1991 through 1995. He was also a member of the
steering committee for global SGML implementation. Before that, he spent three
years with United Dutch Publishers as head of sales and production and two years
with a global management consultancy company as a strategic consultant. He holds
a M.B.A. degree (1979) in marketing, economics and logistics management and a
B.B.A. degree (1976) in economics and marketing, both from Erasmus University in
Amsterdam.
DR. ALBERT DRILLICK has been a Director of the Company since 1990. He has
served as a director of applications and senior systems analyst for TDC for more
than the past five years. He holds a Ph.D. degree in mathematics from New York
University Courant Institute (1971).
DR. E. BRUCE FREDRIKSON has been a Director of the Company since August 1993.
He is currently a professor of finance at Syracuse University School of
Management where he has taught since 1966 and has previously served as chairman
of the finance department. Dr. Fredrikson has a B.A. in economics from
Princeton University and a M.B.A. and a Ph.D. in finance from Columbia
University. He is a director of Eagle Finance Corp., a company that acquires
and services non-prime automobile installment sales contracts. He is also an
independent general partner of Fiduciary Capital Partners, L.P. and Fiduciary
Capital Pension Partners, L.P. He is also a director of TDC.
MORTON MACKOF has been a Director of the Company since April 1993. He is
President and CEO of Third Millennium Technology Inc., a company involved in
information technology consulting and software development. He had been
executive vice president of Track since February 1991 and was elected its
President in December 1994, and since the Merger served as President of TDC. He
resigned as President in November 1996. From 1986 to 1991, he was president of
Medical Leasing of America, Inc. From 1981 to 1986 he was vice president of
sales with Fonar Corp. He holds a B.S. degree in electrical engineering from
Rensselaer Polytechnic Institute (1970) and did graduate work in computer
science. He is also a director of TDC.
STANLEY STERN has been a Director of the Company since August 1988. He was
chief operating officer of Track, and in predecessor positions, for more than
five years and since the Merger was Executive Vice President of TDC until his
resignation in December 1996. Mr. Stern holds a B.B.A. from Baruch College
(1973). He was also a director of TDC until his resignation in September 1997.
There are no family relationships between or among any directors or officers of
the Company. Directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Officers
serve at the discretion of the Board.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Company believes that during the period from January 1, 1998 through
December 31, 1998 all officers, directors and greater than ten-percent
beneficial owners complied with Section 16(a) filing requirements.
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation paid by
the Company for services to the Company during the three fiscal years ended
December 31, 1998 to those executive officers whose aggregate cash and cash
equivalent compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ANNUAL COMPENSATION
--------------------- NUMBER OF
NAME AND PRINCIPAL CALENDAR STOCK OPTIONS
POSITION YEAR SALARY BONUS AWARDED
Jack Abuhoff 1998 $ 200,000 $20,000 20,833
President, CEO since (A)109,514
September 1997 1997 37,500 - 114,500
Barry Hertz 1998 $ 75,000 $ - 14,000
Chairman (A)37,000
1997 50,000 - 13,333
1996 50,000 - -
Todd Solomon 1998 $ 93,750 $ - 10,500
President, CEO through (A)71,699
September 1997, Vice 1997 209,166 - 20,333
Chairman of the Board 1996 231,000 - 10,333
and Consultant thereafter
<FN>
(A) Options granted in prior years and repriced in 1998
</TABLE>
The above compensation does not include certain insurance and other personal
benefits, the total value of which does not exceed as to any named officer, the
lesser of $50,000 or 10% of such person's cash compensation. The Company has
not granted any stock appreciation rights nor does it have any "long-term
incentive plans," other than its stock option plans.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERCENT
OF TOTAL
NUMBER OPTIONS
OF GRANTED TO EXERCISE EXPIR-
OPTIONS EMPLOYEES IN PRICE ATION
NAME GRANTED FISCAL YEAR PER SHARE DATE
Jack Abuhoff 20,833 12% $3.00-6.00 7/2003
Barry Hertz 14,000 8% $ 6.00 7/2003
Todd Solomon 10,500 6% $ 6.00 7/2003
</TABLE>
The options become exercisable one half on the first anniversary and one half on
the second anniversary.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR;
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE- MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR END YEAR END
ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE UNEXERCISABLE UNEXERCISABLE
Jack Abuhoff None 21,499/120,014 $ 69,872/$30,238
Barry Hertz None 13,333/51,000 $ 43,332/$12,800
Todd Solomon None 20,333/82,199 $ 66,082/$43,978
</TABLE>
DIRECTORS COMPENSATION
Dr. E. Bruce Fredrikson and Stanley Stern were compensated at the rate of $1,250
and $833 per month, respectively, plus out-of-pocket expenses for each meeting
attended. No other director is compensated for his services as director.
Further, Messrs. Fredrikson and Stern received options to purchase 2,500 and
1,200 shares, respectively, in 1998.
EMPLOYMENT AGREEMENTS
The Company has a three-year employment agreement through August 2000 with Jack
Abuhoff, its President and CEO. He is currently paid at the rate of $240,000
per annum with any bonuses and future increases at the discretion of the Board
of Directors. In addition, each December 31 during the term of the agreement he
will receive 10,333 options to purchase common stock of the Company at then
prevailing market prices. In consideration of the signing of the agreement he
was granted five year options as follows (after repricing in June 1998): 10,000
options at $3.00 per share; 16,666 at $5.00; 23,333 at $6.00; 30,000 at $7.00;
and 33,333 at $15.50. The options are exercisable upon the earliest to occur of
(i) various dates during 1999; or (ii) in the event of a sale of the Company
where a third party acquires more than 50% of the Company.
The Company has an employment agreement with Todd Solomon, its former President
and CEO, expiring September 30, 2000 that provides for a salary of $75,000 per
annum. He will serve as Vice Chairman of the Board and in executive capacities
as designated by the CEO or the Board of Directors.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of February 28, 1999 information regarding
the beneficial ownership of the Company's Common Stock based upon the most
recent information available to the Company for (i) each person known by the
Company to own beneficially more than five (5%) percent of the Company's
outstanding Common Stock, (ii) each of the Company's officers and directors, and
(iii) all officers and directors of the Company as a group. Unless otherwise
indicated, each stockholder's address is c/o Company, 95 Rockwell Place,
Brooklyn, NY 11217.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND AMOUNT
ADDRESS OF AND NATURE PERCENT
BENEFICIAL OF BENEFICIAL OF
OWNER OWNERSHIP CLASS
Track Data Corporation (2) 214,748 14.4%
Barry Hertz (3) 251,381 16.5%
Todd Solomon (4) 236,827 15.3%
Jack Abuhoff (5) 58,796 3.8%
Martin Kaye (6) 23,374 1.5%
Stephen Agress (7) 7,458 *
Jurgen Tanpho (8) 902 *
Albert Drillick (9) 5,325 *
Dr. E. Bruce Fredrikson (10)
Syracuse University
School of Management
Syracuse, NY 13244 8,581 *
Morton Mackof (9) 5,325 *
Stanley Stern (9) 2,750 *
All Officers and Directors
as a Group (11 persons)
(3)(4)(5)(6)(7)(8)(9)(10) 600,719 36.3%
<FN>
* Less than 1%.
1. Except as noted otherwise, all shares are owned beneficially and of
record. Includes shares pursuant to options presently exercisable or which are
exercisable within 60 days. Based on 1,491,985 shares outstanding.
2. Consists of 214,748 shares owned by Track Data Corporation, which is
majority owned by Mr. Hertz.
3. Includes 214,748 shares owned by Track Data Corporation, which is
majority owned by Mr. Hertz, 2,800 shares held in a pension plan for the benefit
of Mr. Hertz and currently exercisable options to purchase 33,833 shares of
Common Stock.
4. Includes currently exercisable options to purchase 56,845 shares of
Common Stock.
5. Includes currently exercisable options to purchase 49,796 shares of
Common Stock.
6. Includes currently exercisable options to purchase 20,041 shares of
Common Stock.
7. Includes currently exercisable options to purchase 6,458 shares of Common
Stock.
8. Consists of shares issuable upon exercise of currently exercisable
options granted under the Company's Stock Option Plans.
9. Includes currently exercisable options to purchase 1,172 shares of Common
Stock and 4,153 shares for Messrs. Drillick and Mackof and 1,578 shares for Mr.
Stern held in the Track Data Phantom Unit Trust to be released upon termination
of association with the Company or Track Data Corporation, or earlier with
approval of the Board of Directors.
10. Includes currently exercisable options to purchase 5,248 shares of
Common Stock.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.RELATIONSHIPS AND
RELATED TRANSACTIONS
There were no material related party transactions.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits which are indicated as being included in previous filings are
incorporated herein by reference.
<TABLE>
<CAPTION>
<S> <C> <C>
EXHIBIT DESCRIPTION FILED ASEXHIBIT
- -------- ------------------------------ -------------------------------------------
3.1 Restated Certificate of Exhibit 3.1 to Form SB-2 Registration
Incorporation Statement No. 33-62012
3.2 By-Laws Exhibit 3.2 to Form SB-2 Registration
Statement No. 33-62012
4.2 Specimen of Common Stock Exhibit 4.2 to Form SB-2 Registration
certificate Statement No. 33-62012
10.1 1994 Stock Option Plan Exhibit A to Definitive Proxy dated August
9, 1994
10.2 Contract of Lease with JM and Filed herewith
Company, Inc.
10.3 Contract of Lease with Elcado Filed herewith
Realty Corporation
10.4 1993 Stock Option Plan Exhibit 10.4 to Form SB-2 Registration
Statement No. 33-62012
10.5 Form of Indemnity Agreement Exhibit 10.5 to Form SB-2 Registration
with Directors Statement No. 33-62012
10.6 1994 Disinterested Directors Exhibit B to Definitive Proxy dated August
Stock Option Plan 9, 1994
10.7 Contract of Sublease with Exhibit 10.11 to Form 10-KSB for year ended
Computer Leasing, Inc. December 31, 1995
10.8 1995 Stock Option Plan Exhibit A to Definitive Proxy dated August
10, 1995
10.9 1996 Stock Option Plan Exhibit A to Definitive Proxy dated
November 7, 1996
10.10 Employment Agreement dated Exhibit 10.11 to Form 10-KSB for the year
August 19, 1997 with ended December 31, 1997
Jack Abuhoff
10.11 1998 Stock Option Plan Exhibit A to Definitive Proxy dated
November 5, 1998
21 Subsidiaries of Small Business Filed herewith
Issuer
23.1 Consent of Grant Thornton LLP Filed herewith
23.2 Consent of Margolin, Winer & Filed herewith
Evens LLP
27 Financial Data Schedule Filed herewith
</TABLE>
(b) There were no reports on Form 8-K filed during the quarter ended
December 31, 1998.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INNODATA CORPORATION
By /s/
------------------------
Barry Hertz
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- ----------------------- ------------------------------------ -----------------
/s/ Chairman of the Board March 25, 1999
- -----------------------
Barry Hertz
/s/ President, Chief Executive Officer March 25, 1999
- -----------------------
Jack Abuhoff and Director
/s/ Vice Chairman of the Board March 25, 1999
- -----------------------
Todd Solomon
/s/ Executive Vice President (Principal March 25, 1999
- -----------------------
Martin Kaye Financial Officer), Director
/s/ Vice President - Finance (Principal March 25, 1999
- -----------------------
Stephen Agress Accounting Officer)
/s/ Director March 25, 1999
- -----------------------
Dr. Albert Drillick
/s/ Director March 25, 1999
- -----------------------
Dr. E. Bruce Fredrikson
/s/ Director March 25, 1999
- -----------------------
Morton Mackof
/s/ Director March 25, 1999
- -----------------------
Stanley Stern
</TABLE>
<PAGE>
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>2
<DESCRIPTION>CONTRACT OF LEASE WITH JM AND COMPANY, INC.
<TEXT>
[ARTICLE] 2
[CIK] 0000903651
[NAME] INNODATA CORPORATION
CONTRACT OF LEASE
KNOW ALL MEN BY THESE PRESENTS:
This Contract of Lease, made and entered into this 9th day of November, 1998 at
Makati City, Philippines, by and between:
JM & COMPANY, INC., a corporation duly organized and existing under and by
virtue of the laws of the Republic of the Philippines with offices at 2nd Floor,
JM Building, South Superhighway corner Rockefeller Street, Makati City,
represented herein by VICENTE S. VARGAS, Executive Vice President, hereinafter
referred to as the LESSOR;
- - and -
INNODATA PHILIPPINES, INC., a corporation duly organized and Existing under and
by virtue of the laws of the Republic of the Philippines, with address at 2900
Faraday Street comer South Superhighway, Makati City, represented herein by
JURGEN C. TANPHO, Vice President-Global Operations, hereinafter referred to as
the LESSEE
WITNESSETH: That -
WHEREAS, the LESSOR is the absolute and registered owner of a complex covered
by Transfer Certificate of Title no. 165246 of the Registry of Deed of Rizal,
Metro Manila,with all improvements constructed thereon, composed of the entire
four-floor building,the adjacent canteen building, the parking slots and the
entire uncovered lot area of the complex. Said four-floor building has an area
of four thousand one hundred and sixteen square meters (4,116 sqm), more or
less, hereinafter referred to as the "Building"; said adjacent canteen building
has anarea of three hundred sixty four and twenty - three (364.23 sqm), more or
less, hereinafter referred to as the"Canteen"; said parking slots are composed
of fifteen (15) units, hereinafter referred to as the"Parking Slots"; and said
uncovered lot area having an area of nine hundred eighty square meters, more or
less, hereinafter referred to as the "Uncovered Lot Area"; all of the above
hereinafter referred to collectively as the "Leased-Premises' ' or Premises .
WHEREAS, the LESSEE is desirous of leasing the above described premises;
NOW, THEREFORE, for and in consideration of the mutual covenants and
stipulations hereinafter set forth, the LESSOR hereby leases unto the LESSEE,
and the LESSEE does hereby accepts said lease from the LESSOR the above
described premises, subject to the following terms and conditions:
Section 1. PERIOD OF LEASE
The Contract of Lease shall be for a period of five (5) years starting January
1, 1999 to December 31, 2003. The lease is extendable for additional two (2)
years under such terms and conditions, as the parties shall agree upon.
Contract automatically preterminates in event of expropriation by government of
property for infrastructure purposes. LESSOR has no liability in event of
expropriation provided six (6) month notice is given If LESSOR gives between
four (4) months to less than six (6) months notice, LESSOR shall be liable for a
penalty equivalent to one (1) month's rent. If LESSOR gives between two (2)
months to less than four- (4) months notice, LESSOR shall be liable for a
penalty equivalent to two- (2) month's rent. If LESSOR gives less than two (2)
months notice, LESSOR shall be liable for a penalty equivalent to four (4)
months' rent.
Contract is preterminable without penalty by LESSEE by giving sixty (60) days
notice; provided pretermination as a result of Innodata having obtained
knowledge of an eminent domain proceeding shall only require thirty (30) days
notice and, in such an event, Innodata shall have no limit on holdover. Holdover
is defined as the right to maintain occupancy of the demised premises beyond the
lease termination date at a daily rate. Other pretermination without cause by
LESSEE shall result in a maximum liability equivalent to one-half of the rental
deposit.
LESSOR warrants full disclosure to LESSEE of all notices, documents and
information which it obtains relating to contacts made with LESSOR by outside
parties relating to acquisition of the building for the Skyway. LESSOR agrees
that if it fails to do so, it will indemnify LESSEE by the amount of equivalent
to four (4) months' rent.
If during the term of this lease, or any renewal of it, the premises shall be
substantially destroyed by fire, typhoon, earthquake or any other unforeseen
cause not the fault of either the LESSOR or the LESSEE, then the LESSEE shall
have the option, upon notice in writing to the LESSOR, to terminate the lease,
suspend payments of rentals, or proportionately reduce the rentals. In case the
lease is terminated, the LESSOR shall refund to the LESSEE any portion of the
rent paid in advance and not earned at the time of such destruction within
fifteen (15) days from the date of termination.
If the lease is terminated pursuant to the provisions of this Contract or for
any other Valid and justifiable cause, the LESSOR shall refund to the LESSEE the
deposit within fifteen (15) days from the date of termination subject to Section
3. In case of pretermination by the LESSEE without due cause as provided in this
Contract, the LESSOR shall dispose of the deposit as follows:
(i)50% thereof shall constitute liquidated damages and pertain to the LESSOR;
and
(ii)50% thereof shall be utilized to pay any unpaid utilities of the LESSEEor
damages to the leased premises chargeable to the LESSEE as provided in this
Contract; provided that any excess amount shall pertain to the LESSOR as
additional liquidated damages; provided further that the LESSEE shall remain
liable in case of a deficiency.
The LESSOR hereby accepts the above-described liquidated damages to represent
payment for full and final damages incurred and LESSOR agrees to seek no further
claims from LESSEE in connection with said pre-termination. _ If, however,
during the term, the premises shall be partially destroyed by fire or any other
cause, then the LESSOR shall repair the premises as speedily as possible, at
LESSOR's expense, and the LESSEE shall be entitled to a reduction of rent in
proportion to the amount of floor space of which it was deprived of use while
such repairs are being made.
Damages to such extent as to render fifty percent (50%) or more of the floor
space unusable/unsuitable for the purpose of LESSEE's business shall be deemed
"substantial destruction" within the meaning of this agreement, and damage which
render less than fifty percent (50%) of the floor space unusable/unsuitable for
the purpose of the LESSEE's business, but which cannot be repaired within thirty
(30) days shall likewise be deemed to be a "substantial destruction". Damage
which renders less than fifty percent (50%) of floor space unusable/unsuitable
for the purpose of LESSEE's business, and which can be repaired within thirty
(30) days shall be deemed to be a "partial destruction" within the meaning of
the agreement.
In case the leased premises shall be deserted or vacated before the expiration
of this lease for a period of thirty consecutive calendar days, the LESSOR shall
have the right and is hereby authorized by the LESSEE to enter the same as agent
of the LESSEE, without being liable for any prosecution therefor and to relet
the same as the agent of the LESSEE, and to receive the rent therefor and apply
the same to the payment of the rent hereunder, holding the LESSEE liable for any
deficiency.
Section 2. RENTAL
The LESSEE during the period of the lease shall pay a fixed monthly rent
based on the following schedule:
OFFICE BUILDING CANTEEN PARKING SLOTS TOTAL
MONTHLY MONTHLY MONTHLY MONTHLY
YEAR PER SQM RENTAL PER SQM RENTAL PER SQM RENTAL RENTAL
- -------------------------------------------------------------------------------
1 206.00 847,896.00 103.00 37,516.00 220.00 3,300.00 888,712.00
2 221.00 909,636.00 110.50 40,247.00 236.50 3,547.00 953,430.00
3 238.00 979,608.00 119.00 43,343.00 254.00 3,810.00 1,026,761.00
4 256.00 1,053,696.00 128.00 46,621.00 273.00 4,095.00 1,104,412.00
5 275.00 1,131,900.00 137.50 50,082.00 294.00 4,410.00 1,186,392.00
The monthly rental shall be paid to the LESSOR at its business address without
the need of any demand not later than the first five (5) working days of each
month. Any monthly rental not paid when due shall earn three percent (3%) per
month as penalty charges until fully paid.
Further to the Presidential Decrees No. 1351 and revenue regulation numbers
13-78 implementing the withholding of creditable income taxed from certain
income payments and the additional requirements for deductibility of such income
payments, which are otherwise deductible from the gross income of the payor,
effective November 01, 1978, five percentum (5%) of the herein mentioned rental
amount due to the LESSOR shall be automatically deducted and withheld by the
LESSEE and shall be remitted to the government by the LESSEE as prescribed under
said revenue regulation numbers 13-78 as well as any and/or all government
regulations, amendments to regulations, etc., that may follow, regarding the
above. The LESSEE hereby assumes direct and total responsibility and/or
liability for the implementation of the above and in no way shall the LESSOR be
held liable and/or responsible for non-compliance and/or late compliance in any
form.
The LESSEE shall present evidence to the LESSOR in the form of a written
statement duly signed by the proper government agent showing the withholding
payment made by the LESSEE together with a copy of the official receipt for said
payment within the first ten (10) days of each succeeding quarter for the
preceding three (3) months deduction.
The LESSEE on or before March 1 of every year shall present evidence to the
LESSOR in the form prescribed by the Bureau of Internal Revenue that the LESSEE
has filed with the Bureau of Internal Revenue an annual return of income tax
withheld at source from the LESSOR for the government. Said returns should
contain the following information:
a. The official receipt, date of payment and amount paid for each month, as
Withheld from the rental income due the LESSOR.
b. The name, address and taxpayer's account number of the LESSOR.
c. The nature of income payment, gross amount and total amount of tax
Withheld from the LESSOR.
Evidence should be in the form of actual copy of said annual return of withheld
taxes filed with and received by the Bureau of Internal Revenue.
The above mentioned procedure may be changed from time to time as the Bureau of
Internal Revenue or new government regulations are promulgated or changed.
Section 3. SECURITY DEPOSIT
The LESSEE shall deposit with the LESSOR the amount of Pesos Two Million Six
Hundred Sixty Six Thousand One Hundred Thirty Six & 00/100 (P2, 666,136.00) or
equivalent of three (3) months rental upon signing of the Contract of Lease to
guarantee the LESSEE's obligation under this lease contract, to cover damages to
the leased premises, and any unpaid obligation and liabilities of the LESSEE,
including utilities at the termination of the lease.
The deposit shall not be applied to the monthly rentals, but shall be retained
by the LESSOR, and shall be refunded to the LESSEE within 45 days after the
LESSEE vacates the leased premises, less deduction as enumerated above, if any.
In case legal devaluation or revaluation, extraordinary inflation or deflation
of the Philippine Peso as declared by the Central Bank of the Philippines,
adjustment in the rate of the contract shall be done upon mutual consent.
The LESSEE agrees to always maintain a deposit equivalent to three (3) months
rental for the duration of the lease contract. The above mentioned-deposit
amount shall be within the first ten (10) days of the year be increased
accordingly based on the rental rates of the current year or the leased rates as
shown in Section entitled "Rentals".
Section 4. OWNERSHIP OF LEASED PREMISES
The LESSOR warrants that it is the absolute owner of the above-described
property and has the right to lease the same. Furthermore, the LESSOR shall, in
case of litigation or controversy concerning the LESSOR's right, title and
interest in the premises, defend and hold harmless the rights of the LESSEE
under the terms and conditions of this Contract at the LESSOR's expense.
Section 5. TAXES
LESSOR shall pay and defray at LESSOR's own expense all real estate taxes and
other government assessments;
The LESSOR shall, for the entire duration of the lease, be exclusively liable
for payment of all realty taxes due on the lease premises covering the land and
building only.
The value-added tax levied or assessed on the rentals and other payments owing
by the LESSEE to the LESSOR shall be for the account of the LESSEE. For this
purpose, the LESSEE shall pay to the LESSOR the amount corresponding to the
value-added tax payable on account of this lease by delivering to the latter the
said amount simultaneously with the payment by the former of the rental for the
Leased Property.
The documentary stamp tax arising from this lease shall be borne equally by the
LESSOR and LESSEE.
Section 6: USE OF PREMISES
The premises hereby leased shall be used exclusively as a Computer Data
Processing Office and the LESSEE shall not divert the premises to other uses
without prior written consent of the LESSOR, it being expressly agreed that if,
at anytime during the existence of this lease and without the previous written
consent of the LESSOR the said premises are used for other purposes, the LESSOR
has the choice to (a) rescind this contract in accordance with Section entitled
"Default", or; (b) increase the rent, or; (c) compel the LESSEE to stop the new
activities.
It is further expressly understood that under no circumstances will the LESSEE
permit the use of the leased premises except for the canteen area as an eatery
for the dispensation of food, hard or soft beverages of any kind whatsoever
unless served gratuitously to customers or visitors.
The sidewalks, lobbies, entries, passages, fire exits and stairways of the
building shall not be obstructed or used by the LESSEE for any purpose other
than for ingress to and egress from the building.
Section 7. CARE OF THE LEASED PREMISES
The LESSEE hereby expressly agrees that it shall, at its expense, keep and
maintain the leased premises in good, clean, tenantable and sanitary condition,
free from obnoxious odors, disturbing noises or other nuisance and, upon the
expiration of the lease, shall surrender and return the premises and fixtures in
as good condition as they were actually found at the beginning of the lease,
ordinary wear and tear excepted, and further agrees that it shall be liable for
any damages to the leased premises and for any violation of the above
restrictions due to the carelessness or negligence of the said LESSEE, its
agents, sub-lessee(s) or other persons under or subject to its direct control.
Any injury or damage caused or done by the LESSEE may be repaired by the LESSOR
for the account of the LESSEE.
The LESSEE binds itself to use the leased premises within the structural limits
of the load capacity of the footings, columns, concrete flooring and beams. The
LESSOR shall advise the LESSEE of such structural limits and load capacities.
The LESSEE shall provide itself, at its own cost and expense, receptacles which
the city by ordinance may require it to hold and contain waste matter, garbage
and refuse, and shall deposit them within its own premises or at such places as
may be designated by the LESSOR.
Section 8. REPAIRS AND MAINTENANCE
LESSOR accepts full responsibility for maintenance of sewage, elevator and water
inflow systems.
Major repairs shall be made by the LESSOR at its own expense. Major repairs
shall consist of building structure restoration, plumbing, air conditioning, and
electrical systems. Major repairs shall be understood to mean any single repair
work on the items mentioned in the preceding sentence involving an expenditure
of Five Thousand Pesos (P5, 000.00), or more per repair. Minor repairs and
maintenance, such as fluorescent lamps, fuse replacements, etc., landscaping,
gardening, shall be the LESSEE's responsibility and account.
In case the LESSOR fails to make and complete the necessary repairs within
fifteen (15) days from the date the malfunction or damage has been reported to
the LESSOR by the LESSEE in writing, the LESSEE shall undertake the repair with
all expenses reimbursable by the LESSOR upon submission of job quotations and
receipts. LESSOR to settle within thirty (30) days else to deduct from rent due.
Due to the LESSEE's critical requirement of continuously operating air
conditioning units, LESSOR shall grant LESSEE the permission to undertake
repairs of systems and subsystems affecting the air conditioning units without
the necessity of informing the LESSOR, provided that the LESSOR retains the
right to inspect all such repairs and associated documents. Further, LESSEE will
subject only material costs shall be subject to reimbursement by the LESSOR at
above-mentioned calculation of major or minor repairs. LESSEE will shoulder for
LESSEE's own account all labor expenses for items covered by this paragraph.
The LESSOR may perform necessary work on the building provided that it will not
interfere or interrupt with the use of the leased premises, in which case, prior
consent of the LESSEE shall be first be obtained.
Section 9. STRUCTURAL WARRANTY
LESSOR warrants the structural integrity of the structure in the premises, in
particular the building, the canteen and the car park, at all times.
Section 10. UNRESTRICTED ACCESS TO PREMISES
LESSOR grants LESSEE permission to occupy and fully operate leased premises
building, systems and applicable environs twenty-four hours a day, seven days a
week, without restriction of access. Should this right be abridged or caused to
be abridged by the LESSOR without justifiable cause, the LESSEE may preterminate
the contract without penalty of forfeiture of rental deposit. By justifiable
cause is meant imminent danger to person and/or property.
Section 11. PROHlBITIONS
The LESSEE shall not, without prior written consent of the LESSOR, which consent
shall not be unreasonably withheld, bring into, store and/or install any
apparatus, machinery or equipment which may cause abnormal tremors or noise or
expose the leased premises to fire or increase the fire hazard of the building
or change the insurance rate of the building, or any other article which the
LESSOR may reasonably prohibit; it being understood that should the LESSEE do
so, not only shall the latter be responsible for all damages which such
violation may cause the LESSOR and/or its other tenants but the LESSOR shall in
addition thereto, have the right to cancel this contract. If the LESSEE shall
use the building, or deposit therein any such matter as to result in any
increase in the rate of the insurance payable by the LESSOR, the increase shall
be for the account of the LESSEE, except when such use is in consonance with the
Section entitled "Use of Premises".
LESSOR hereby permits LESSEE to bring into leased premises, diesel fuel for
LESSEE's generator units and liquified petroleum gas (LPG) for LESSEE's canteen,
in quantities reasonable for operation of the above.
Section 12. Improvement and Signs
a.All interior partitions, which the LESSEE shall put up at its own expense,
shall remain the property of the LESSEE during the period of the original lease.
Ownership of all partitions, except movable partitions, upon termination of the
original lease period shall revert to the LESSOR. Prior to the termination of
this lease, LESSEE shall have the option to remove the partitions at its own
expense or sell them to the LESSOR at an agreed depreciated value, determined by
employing the straight line method, with the partitions having a depreciable
life of five (5) years. The LESSOR, however, is not bound to take the partitions
at depreciated value.
Movable partitioning shall mean partitions that are not fastened by any means to
the ceiling and/or flooring and can be readily removed without damage to the
floor tiles or ceiling finish.
Before any interior partitions are put up, the LESSEE shall provide the LESSOR
two (2) copies each of the proposed partitioning lay-out and electrical system
lay-out for the LESSOR's verification on whether the proposed interior
partitioning shall be compatible with the building's air conditioning and
electrical system.
The LESSOR agrees to conduct the verification without delay, and as so as the
proposed plan is verified and approved by the LESSOR, the LESSEE agrees to
strictly comply with the approved plan. The LESSEE likewise agrees to secure
written consent from the LESSOR any additions, alterations or revisions thereof,
which consent the LESSOR shall give within fifteen (15) days from the date of
its receipt of a written request made by the LESSEE.
b.The LESSEE may install or introduce at its sole discretion and for its
exclusive account venetian blinds, curtains, individual air conditioning traits
provided the existing electrical system can carry this additional load and is
technically feasible), lighting and other fixtures, upon the leased premises,all
of which may be removed at the termination of the lease provided that the leased
premises can be restored to their original condition, ordinary wear and tear
excepted. The LESSEE, however, shall secure written approvalfrom the LESSOR
before nstalling any major electrical equipment within the premises.
No permanent improvements or fixtures including air conditioning units linked up
with the central air conditioning system which cannot be removed without causing
damage to the leased premises or without affecting the operations of the
electrical or mechanical systems shall be made without prior written consent of
the LESSOR.
Ownership of the additional air conditioning unit/equipment exclusive of ducting
introduced in the premises shall remain with the LESSEE even after the lease
period.
LESSOR shall have the option to purchase the additional air conditioning
unit/system at a price mutually agreed upon by both parties. Should LESSOR not
purchase such units, LESSEE shall immediately restore the original air
conditioning system and make the necessary restoration works such that the
original air conditioning systems in the premises are operable.
c. The LESSEE shall have the right, subject to the approval of the LESSOR and
the proper government authorities, to place in, upon and about the leased
premises, except on the roof, such signs and advertising materials as it may
desire. The LESSEE shall inform, in writing, the LESSOR of any intention to
install a sign including proposed location, dimensions, etc. to enable the
LESSOR to verify the technical feasibility, location and power requirements of
the proposed sign.
Section 13. BUILDING NAME
LESSOR gives LESSEE permission to name the building and/or premises as "Innodata
Building" or "Innodata Center" and to erect signs stating this fact subject to
approval by LESSOR as provided by Section entitled "Improvement and Signs".
Section 14. ANTENNA RIGHTS
LESSOR grants LESSEE permission to install antenna aerials and satellite dishes
subject to approval by LESSOR of its design, location and installation.
Section 15. AUTOMATIC TELLER MACHINE (ATM)
LESSOR grants LESSEE permission to install automatic teller machines (ATMs)
within premises.
Should the party(s) owning, operating and/or installing such ATMs require that
the public have access to said machines, LESSOR and LESSEE will conduct
discussions with said party regarding possible arrangements.
Section 16. INJURY OR DAMAGE
The LESSEE shall be responsible for all acts and omissions of its officers,
employees, helpers, agents and sub-lessee(s) and of all other persons allowed by
it to have access to the leased premises for any damage which may be caused to
persons or property or third persons while remaining either casually or on
business in any part of the premises leased to the LESSEE and further binds
itself to hold the LESSOR free and harmless from any such claim for injury or
damage.
The LESSOR shall not be made responsible nor liable for the following:
a. For the presence of bugs, vermin, ants, insects, if any, in the leased
premises;
b. For the injury, loss of life and/or damages to goods and property caused by
fire, earthquake shock, earthquake, typhoons, water leaks caused by rains,
theft, building or building partitions collapse, the cracking of any glass
window, or done upon or about said leased premises, and other similar causes, as
well as lightning;
c. For any injury, loss of life and/or damage which the LESSEE, its agents or
employees might sustain in the premises due to any cause other than the LESSOR's
willful or negligent acts, or those of its agents or employees, or the LESSOR's
violation of the provisions of this Contract; or
d. For any damage to goods and property of the LESSEE done or occasioned by, or
arising from plumbing, gas, water and/or other lines or the bursting, leaking or
destruction of any cistern tank, wash stand, water closet or waste pipe in,
above, upon or about the leased premises, except to the extent that the LESSOR
is required to make repairs under the provisions of this Contract, particularly
under the provisions of Section entitled "Repairs and Maintenance.
Section 17. PUBLIC UTILITIES AND SERVICES
LESSOR warrants the presence and operability of all connections with electric,
water and sewage systems upon turn over of the premises. LESSOR further warrants
that there are no arrearage or existing causes that would cause these utilities
to refuse to deal with the occupant of the premises. LESSOR further guarantees
that all unsettled obligations, if any, occurring prior to the occupancy of the
premises by LESSEE will be settled by LESSOR and shall be the sole liability of
the LESSOR.
All utilities and services such as light, telephone, gas, water, garbage
collections and other similar services shall be paid by and for the account of
the LESSEE. It is understood that the LESSOR shall not be liable for any
stoppage, absences, failure or deficiency in such utilities and services.
Janitorial and security services used by the LESSEE shall also be paid by and
for the account of the LESSEE. Telephone service shall be negotiated between the
LESSEE and the Philippine Long Distance Telephone Company.
In case of water supply, LESSEE hereby agrees to share pro-rata in the cost of
supplying water into the leased premises based on the readings of the water
meter corresponding to the leased premises.
Should the need arise to deal with these utility companies, the LESSOR will
either make necessary representations on behalf of the LESSEE or will authorize
in writing the LESSEE to represent the premises' and/or LESSOR's interest, if
any, in such transactions or discussions.
Section 18. OPTION ON ADDITIONAL SPACE
Should additional leasable space become available for rent in any property
owned, administered or controlled by the LESSOR which is adjacent to premises,
LESSOR agrees to give LESSEE the first-right-of-refusal/matching offer option.
Upon availability for lease of such space, LESSOR shall notify LESSEE in
writing. Within seven (7) business days from receipt of the notice, LESSEE shall
submit a written offer for the space. If the offer is unacceptable to the
LESSOR, LESSOR can proceed to negotiate a deal with any other third party.
LESSOR shall disclose to the LESSEE the terms of the "third party" deal. LESSEE
will have three (3) business days from date of written notice of such terms to
match the "third party's" terms. However, if LESSEE opts not to match a
particular "deal" and that deal falls through, LESSEE shall have the right to
match any succeeding deals both on the particular space and on spaces covered by
this option.
Section 19. BUILDING FOR SALE
Should the premises or any part thereof be offered for sale, LESSOR agrees to
notify LESSEE prior to any other third party.
In the event that the LESSOR shall sell, convey or otherwise alienate the
property or premises herein leased during the effectivity of the contract or any
renewal thereof with all its terms and conditions, it is understood that the
LESSOR shall make it part of the sale terms and conditions that this lease
contract will be honored by the buyer or LESSOR's successor.
Section 20. RULES AND REGULATIONS
The LESSEE shall comply with all the laws, ordinances, regulations or orders of
the national or city government arising from or regarding the use, occupation
and sanitation of the leased premises other than those for which the LESSOR
should be responsible and/or pertaining to ownership. Failure to comply with the
said laws, ordinances, regulations or orders shall be at the exclusive risk and
responsibility of the said LESSEE,
The LESSEE further agrees to abide by all local and national ordinances, rules
and regulations with respect to the use of' the premises and shall hold the
LESSOR harmless against stoppage or interruption due to non-compliance with
existing or future rules, regulations and ordinances, with respect to the use of
the premises as intended by the LESSEE. The LESSEE warrants that LESSEE is aware
of all local and national restrictions regarding the use of the premises.
During the term of the Contract of Lease, the LESSEE shall allow agents or
representative of the LESSOR to inspect the leased premises during reasonable
business hours.
The LESSEE shall comply with any and all reasonable rules and safety
regulations, which may be promulgated from time to time by the LESSOR or the
administration of the building.
Failure of the LESSOR to insist on one or more instances in the strict
performance of any of the covenants of this lease or to exercise any option
herein contained, shall thereafter not to be construed as abandonment or
cancellation or waiver of such covenant or option. No waiver by the LESSOR shall
be deemed to have been made unless expressed in writing and signed by the
LESSOR.
The LESSEE shall comply with all government orders and requirements affecting
the said leased premises regarding any prohibited effects or articles or
contraband, which the LESSEE may have in its possession therein.
Insurance on the premises will be for the LESSOR's account.
LESSOR and LESSEE shall both insure their respective insurable interest. Both
parties agree that should harm come to the premises covered by this Contract,
the aggrieved party, it any, will seek compensation from its insurance
company/assurer and will not seek compensation from the other party, regardless
of fault.
Section 21. SUBLEASE
With prior written consent of. the LESSOR, which consent shall not be
unreasonably withheld, the LESSEE shall have the right to sublet a portion of
the leased premises to any party but the LESSEE shall not be relieved of the
obligation to the LESSOR under this contract. The LESSEE is prohibited from
assigning or mortgaging this lease contract without consent of. the LESSOR which
consent shall not be unreasonably withheld. Should the LESSEE lease to a
sublessee the subleased portion at a rental rate which shall exceed the rental
rate agreed between the LESSOR and the LESSEE for the subleased portion of the
premises, the LESSEE agrees to share the rental rate difference with the LESSOR
in a proportion which shall be mutually agreed upon. Sharing of the rental rate
differential by the LESSOR should not be construed as relieving the LESSEE of
its liability in so far as rental dues from the subleased area is concerned.
All interior partitioning that the sublessee shall put shall be approved by the
LESSOR and subject to the terms and conditions of the Article entitled
"Improvements and Signs" regarding submission of proposed partitioning,
electrical plans, etc., to the LESSOR for approval and verifications, etc.
Section 22. SURRENDER OF LEASED PREMISES
The LESSEE shall, at the end or cancellation of this Contract promptly surrender
the leased premises, with all keys to them, in the same good and tenantable
condition in which the LESSEE received them together with articles and effects
of any kind other than such alterations, additions, or improvements which the
LESSE can remove, in accordance with the provisions of Section entitled
Improvement and Signs.
Section 23. CANCELLATION OF PREVIOUS AGREEMENTS
This Contract of Lease supersedes and renders void any and all agreements and
understanding, oral or written, previously entered into between the parties
covering the property herein leased, the same having been considered merged
herein.
Section 24. DEFAULT
If the rentals stipulated be in arrears for thirty (30) days or if the LESSEE
should delay in the payment of rent for thirty (30) days, the LESSOR shall serve
LESSEE a written notice asking that such arrearage be settled within thirty (30)
days from written notice, if after the expiry of this thirty (30) days period
provided in said notice the LESSEE has not settled such arrearage, the LESSOR
will immediately be entitled to terminate this lease by giving the LESSEE
written notice thirty (30) days in advance of the intended date of termination.
Should the LESSEE fail or neglect to perform or observe any of the agreements,
covenants or conditions herein contained, or if the LESSEE shall cause
deliberate damage to the leased premises, the LESSOR shall serve the LESSEE a
written notice asking that remedial measures be undertaken within thirty (30)
day period provided in said notice, If the LESSEE has not commenced remedial
measures after the end of the above stated thirty (30) day period, the LESSOR
will immediately be entitled to terminate this lease by giving the LESSEE
written notice thirty (30) days in advance of the intended date of termination.
Upon such termination, the LESSOR or its duly authorized representative is
hereby authorized by the LESSEE to take legal and physical possession of the
leased premises including all its improvements and/or contents without
compensation to the LESSEE and without necessity of court action provided the
LESSEE is advised in writing either through private or public messenger or mail
service or telegram at least thirty (30) days before the take over date or from
date of written notice, whichever is earlier.
Section 25. BINDING EFFECT
This Contract of Lease shall be binding not only upon parties hereof, but also
upon their successors-in-interest and assigns.
IN WITNESS WHEREOF, the parties have hereunto set their hands on the date and
place first above written.
JM & COMPANY, INC. INNODATA PHILIPPINES, INC.
Lessor Lessee
By: ________________________ By: ______________________
VICENTE S. VARGAS JURGEN C. TANPHO
Executive Vice-President VP-Global Operations
SIGNED IN THE PRESENCE OF:
__________________________ _________________________
ACKNOWLEDGEMENT
REPUBLIC OF THE PHILIPPINES)
CITY OF MAKATI, METRO MANILA) S.S.
BEFORE ME, a Notary Public for and in the above jurisdiction, this 9th day
of November 1998 personally appeared the following:
Comm. Tax
Name Cert. No. Issued on/at
JM & Company, Inc. 00011177 January 21, 1998/Makati City
represented by:
Vicente S. Vargas 01398740 January 20, 1998/Makati City
Innodata Philippines, Inc. 00011314 January 20, 1998/Makati City
represented by:
Jurgen C. Tanpho 7826066 April 02, 1998/Makati City
known to me and by me known to be the same persons who executed the foregoing
Contract of Lease and they acknowledged that the same is their free and
voluntary act and deed as well as that of the corporations herein represented.
WITNESS MY HAND AND SEAL on the date and at the place abovewritten.
ROSALIA S. BARTOLOME
Notary Public
Until December 31, 1999
IBP NoCity/1-07-98
PIN NoCity/1-16-98
Doc. No. 438
Page No. 88
Book No. 111,
Series of 1998
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>3
<DESCRIPTION>CONTRACT OF LEASE WITH ELCADO REALTY CORPORATION
<TEXT>
[ARTICLE] 3
[CIK] 0000903651
[NAME] INNODATA CORPORATION
CONTRACT OF LEASE
KNOW ALL MEN BY THESE PRESENTS:
This Contract of Lease made and executed on this 29th day of January 1999, by
and between:
ELCADO REALTY CORPORATION, a domestic corporation duly organized and existing
under and by virtue of the laws of the Republic of the Philippines, with offices
and principal place of business at the basement of Benigno Du Building, Fuente
Osmena Oval, Cebu City, represented in this act by its President, Dolores D.
Diez, MD, hereinafter referred to as LESSOR;
- - and -
INNODATA PHILIPPINES, INC. a domestic corporation duly organized and existing
under and by virtue of the laws of the Republic of the Philippines, with offices
and principal place of business at 2F Benigno Du Building, Fuente Osmenia Oval,
Cebu City, represented in this act by its Assistant Vice-President/Head of
Facility, Ma. Rosario R. Remoquillo, - hereinafter referred to as LESSEE;
WITNESSETH:
WHEREAS, the LESSOR is the absolute and registered owner of the BENIGNO DU
BUILDING (hereafter, the "Building"), located at the Fuente Osmena Oval, Cebu
City.
WHEREAS, the LESSEE desires to lease a portion of the basement, a portion of the
second floor and a portion of the third floor of the Building currently existing
hereinafter collectively referred to as the "Leased Premises", with a total area
of one thousand six hundred one and 79/100 square meters (1,601.79 sqm.) and the
LESSOR is willing to lease said premises to the LESSEE under the terms and
conditions hereinafter provided.
NOW, THEREFORE, for and in consideration of the mutual covenants and obligations
hereinafter contained, the LESSOR hereby leases unto the LESSEE, and the LESSEE
hereby agrees to lease from the LESSOR the Leased Premises:
1. USE OF THE PREMISES - The LESSEE shall use the Leased Premises exclusively as
a data encoding and software design office.
2. TERM - This Lease shall be for a period of five (5) years, to begin on
February 1, 1999 and to expire on January 31, 2004.
The area leased from the LESSOR by the LESSEE under lease contact for the second
and third floors and addendum for additional space in the basement, all
documents covering the period of time from March 7, 1996 to March 6, 2001,
hereinafter collectively referred to as the "Old Contract", shall continue to
have full force and effect within the applicable period, except modified
explicitly in this Contract. All terms referred to here shall not apply for the
Old Contract unless otherwise specifically stated.
3. AREA - The Lease shall cover Leased Premises with a total of one thousand six
hundred one and 79/100 square meters (1,601.79 sq.). Said Leased Premises is
composed or seventy-five and 63/100 square meters (75.63 sqm.) on the basement,
hereinafter referred to as "Basement Leased Premises", and eight hundred eight
and 59/100 square meters (808.59 sqm.) on the second floor, hereinafter referred
to as "2F Leased Premises", and seven hundred seventeen and 57/100 square meters
(717.57 sqm.) on the third floor, hereinafter referred to as "3F Leased
Premises".
The exact location and size of the Leased Premises is documented in a floor plan
labeled "Annex A", "Annex B" and "Annex C" for the Basement Leased Premises, 2F
Leased Premises and 3F Leased Premises, respectively, and shall form an integral
part of this contract.
4. CONSTRUCTION AND TURNOVER OF LEASED PREMISES - Upon signing of this Contract,
LESSOR shall, at its own expense, undertake the steps listed below. These
actions shall occur within the time period covered by the Old Contract and the
locations stipulated in the Old Contract as thus accordingly modified.
a. LESSOR shall ensure full operationability of items under LESSOR's
responsibility like windows which should be capable of being opened and closed
properly, and shall replace all broken, missing or cracked glass panes. Pipes
should not be clogged nor leak, roof slabs and walls should be free from cracks
and leaks. Holes in floor slabs should be properly patched, reinforced or
repaired.
Any leaks occurring during the lease period shall be immediately attended to by
LESSOR, including the repair of any portion of the Leased Premises damaged
thereby (e.g. ceilings, floors, walls, carpets, tiles, paint, etc.). LESSOR
shall not be liable for any consequential damages to office supplies, computers,
office equipment, air conditioners and other similar items arising from such
cracks and leaks.
LESSOR shall ensure that the Leased Premises are equipped with an electrical
system with a capacity of at least 200 KVA. LESSOR and LESSEE shall both
designate the location of the main panel box area within the Leased Premises.
LESSOR is responsible for electrical connections from the point supplied by the
electric company to the main panel box.
The completion date of such construction should not be later than February 28,
1999. All such construction and other activities to be undertaken by are the
LESSOR at the LESSOR's sole expense unless otherwise provided in this document.
b. LESSOR grants LESSEE to install generator(s) with a combined capacity of
approximately 250 KVA in area specified in Annex "E" of the Old Contract which
the LESSEE shall rent at the thirty-three percent (33%) of the rental rate of
the Leased Premises. All electrical connections from generator to the main panel
box area shall be undertaken by the LESSEE, Likewise, all generator-associated
equipment and materials like manual/automatic transfer switches, circuit
breakers and conduits shall be provided for and installed by LESSEE. LESSEE can
maintain existing structure constructed over existing generator site that
shields the generator from weather and restricts access to this equipment. The
generator and all generator-related equipment shall remain the property of the
LESSEE and shall be removed by the LESSEE at the expiration or termination of
this Contract.
c. LESSOR hereby grants LESSEE permission to install (i) window-type air
conditioning units along walls not facing Fuente Osmena, (ii) condenser units of
split-type air conditioning to be installed along the air conditioning ledge
found at the rear of the building specified in Annex "F" of the Old Contract and
(iii) air handling units of split-type air conditioners to be installed anywhere
within the Leased Premises. All other types, configuration and location for air
conditioners not specifically mentioned herein shall be subject to LESSOR's
prior approval. All air conditioning units and attendant piping, equipment and
accessories shall remain the property of LESSEE and shall be removed by the
LESSEE at the expiration or termination of this Contract.
d. LESSEE may install any kind of partition in the Leased Premises without
further consultation with the LESSOR.
5. RENTAL - The parties herein agree that the monthly rental of the Leased
Premises shall be as follows:
February 1, 1999 to January 31, 2000P 185.00 / sqm./month February 1, 2000 to
January 31,2001P 194.25 / sq.m. / month February 1,2001 to January 31, 2002P
203.96 / sq.m. / month February 1, 2002 to January 31, 2003P 214.16 / sq.m. /
month February 1, 2003 to January 31, 2004P 235.58 / sq.m. / month
or a total of Two Hundred Ninety-Six Thousand Three Hundred Thirty-One Pesos and
15/100 Centavos (P296, 331.15) per month in Philippine Currency, based on the
floor area of one thousand six hundred one and 79/100 square meters (1,601.79
sq.m.) at One Hundred Eighty-Five Pesos (P185.00) per square meter per month for
the first year. This amount will change as the rate changes.
The rental payment due is subject to application by the advance rental payment
as described below.
Rental obligations of the LESSEE to the LESSOR less applications of the rental
advance, if any, are payable within the first five (5) days of every calendar
month without a need of demand.
6. DEPOSIT - All deposits made by the LESSEE with the LESSOR for the Leased
Premises under the Old Contract shall be maintained without change. This deposit
is refundable upon the expiry of this Contact without interest. The Deposit
shall answer at the end of the lease for any unpaid utility bills or any damage
to the premises attributable to causes of other than ordinary wear and tear and
acts of God. 7. ADVANCE RENTAL - Upon signing of this Contract, the LESSEE shall
pre-pay to the LESSOR the amount of One Million Seven Hundred Seventy-Seven
Thousand Nine Hundred Eighty-Six Pesos and 90/100 Centavos (P1, 777,986.90),
calculated as one thousand six hundred one and 79/100 square meters (1,601.79
sq.m.), the total area of the Basement Leased Premises, 2F Leased Premises and
3F Leased Premises, multiplied by One Hundred Eighty-Five Pesos (P185.00) per
square meter.
This advance rental shall be applied over a period of six months beginning
February 1, 1999. In other words, Two Nine Hundred Six Thousand Three Hundred
Thirty-One Pesos and 15/100 Centavos (P296, 331.15) shall be deducted from the
advance made and applied to the rental payment that is due, until this advance
is exhausted.
8. ADJUSTMENTS - In case of legal devaluation or extra-ordinary inflation of
the Philippine Peso, the parties shall mutually consent to make the necessary
adjustment in the rate of rentals.
9.IMPROVEMENTS - For the duration of this Contract, the LESSEE may, at its own
expense, and with written approval of the LESSOR, install additional
improvements in the Leased Premises. Provided that such improvements do not
violate or cause the LESSOR to violate any applicable building or safety code or
structurally endanger the building in any way; provided further, that such
permanent improvements shall become the property of the LESSOR at the
termination of this Contract; provided finally, that temporary improvements like
furniture, fixtures and equipment which can be removed without defacing or
damaging the building or any part of it shall remain the property of the LESSEE.
The LESSEE shall furnish the LESSOR a complete set of "as-built" plans
upon-completion of its renovations.
10. CANTEEN - LESSOR hereby grants the LESSEE permission to operate a canteen in
the Building.
11.ELECTRIC SYSTEMS - All electrical works undertaken by either party hereto
shall conform to the Philippine Electrical Code and/or such other pertinent law.
Both parties undertaking such work shall be responsible for compliance of their
work with such regulations and will be liable for violations and/or damages
arising from non-compliance therewith.
12. CONSTRUCTION - All construction works undertaken by either party hereto
shall conform to the Philippine Building Code and/or such other pertinent law.
Both parties undertaking such work shall be responsible for compliance of their
work with such regulations and will be liable for violations and/or damages
arising from non-compliance therewith.
13. REPAIRS & MAINTENANCE - The LESSOR shall be responsible for maintenance and
repair of the premises attributable to ordinary and reasonable wear and tear.
The LESSEE shall be responsible for repair of any damage due to the fault or
negligence of the LESSEE, its employees, clients or customers and their
companions. The LESSEE shall also be responsible for lost keys to locks in their
premises and replacement of consumable such as light bulbs and fuses.
14. PEST CONTROL - LESSEE shall be responsible for retaining a pest control
contractor for regular fumigation
15. SIGNS - The LESSEE may install at its own cost, various and customary signs,
displays, lettering, illuminated or otherwise, at the exterior portion of the
Leased Premises provided the installation of the same is not in violation of any
ordinance law or zoning regulation. Said signs, logos or names shall not deface
nor obstruct any areas common to other lessees and shall be subject to prior
consultation with, and the mutual agreement of, LESSOR and LESSEE.
16. INSURANCE - Either party may, at its option and expense, secure an
appropriate insurance policy over its respective insurable interest on the
Leased Premises.
17. UTILITIES - The LESSEE shall promptly pay (upon billing) through the LESSOR
all electrical, water, telephone, garbage and other utility fees furnished to
the LESSEE by the LESSOR during the term of this Contract. The LESSEE shall not
be liable for any other fee, including any subsequent Condominium Association
due, not expressly mentioned herein.
a. Electricity - The Leased Premises shall be provided with an electric
sub-meter. Electrical consumption shall be billed by the LESSOR and paid by the
LESSEE to the LESSOR every month at prevailing VECO per kilowatt-hour rates.
b. Water - The Leased Premises shall be provided with a sub-meter. Water
consumption shall be billed by the LESSOR and paid by the LESSEE to the LESSOR
every month at prevailing commercial rate per cubic meter of the MCWD.
c. Telephone - The LESSOR shall allow LESSEE to use the telephone terminals of
the Building for the additional installation of eight (8) telephone lines in the
'Leased Premises at LESSEE's expense. Telephone rental and long distance toll
charges shall be for the account of the LESSEE. For telephones in the name of
the LESSOR, said bills shall be payable to the LESSOR upon presentation of
monthly bills.
18. RESERVE PARKING SPACE - The LESSOR shall provide the LESSEE with three (3)
reserve parking spaces at the basement free of charge during the entire lease
term.
19. TAXES - The LESSOR shall pay and defray at its own expense all real estate
taxes and other government assessments. Any taxes on rental payments shall be
withheld and settled by the LESSEE to the Commissioner of Internal Revenue for
the account of the LESSOR.
20. WARRANTY - The LESSOR warrants that the premises which is subject of this
Contract is free from all liens and encumbrances and shall maintain peaceful and
legal possession of the Leased Premises in favor of the LESSEE during the term
of this Contract.
21.SALE OR MORTGAGE OF LEASED PREMISES - The LESSEE agrees that the right to
sell, mortgage or otherwise dispose of the Leased Premises shall be reserved to
the LESSOR, provided the LESSEE's right and interest under this Contract are
respected.
22. SUBLEASE - The LESSEE shall not sublease or sublet all or any portion of the
Leased Premises without written consent of the LESSOR.
23. INSPECTION OF PREMISES - The LESSOR or its authorized agent shall, by
previous arrangement with the LESSEE, have the right to enter the Leased
Premises at any reasonable time during normal office hours to examine the same,
or for any purpose, which it may deem necessary, for the operation or
maintenance of the building or its installation, for purposes of making repairs
or to undertake all work necessary for the building or any part thereof. No
compensation or claim shall be allowed against the LESSOR by reason of any
inconveniences, annoyance or injury to the LESSEE's business that may arise by
virtue of undertaking any work under this provision.
24. PROHIBITION - The LESSEE shall not bring into or store in the leased
premises any thing of a highly inflammable nature or explosive materials nor
install therein any apparatus, machinery or equipment which may cause obnoxious
tremors, noise, or which may expose the leased premises to fire or increase the
fire hazard of the building or change the insurance rate of the building, or any
article the LESSOR may reasonably prohibit it being understood that should the
LESSEE do so, not only shall the latter be responsible for all damages which
such violation may cause the LESSOR and/or its other tenants, but the LESSOR
shall, in addition thereto, have the fight to cancel the lease.
LESSOR permits LESSEE to store reasonable amount of diesel fuel for LESSEE's
generator.
25. COMPLIANCE WITH RULES AND REGULATIONS - The LESSEE binds itself to abide and
comply with all the reasonable rules and regulations which may be promulgated
from time to time by the LESSOR, as well as rules, regulations, ordinances and
laws promulgated by the Bureau of Health or other duly constituted authorities
regarding the use, occupancy and sanitation of the Leased Premises.
Upon signing of this Contract, the LESSEE shall furnish the LESSOR a copy of the
business permit and all other pertinent permits in relation to the conduct of
the business.
26. FIRE - In case of damage to the Leased Premises or its appurtenances by
fire, earthquake or other unforeseen cause, the LESSEE shall give immediate
notice to the LESSOR. If the building or the Leased Premises be so destroyed as
to make it untenantable, without fault or neglect of the LESSEE, either party
may demand the recession of this Contract, in such cases without forfeiture of
deposit, advancerental or other charges to the LESSEE. 27. TERMINATION OF LEASE
- - The LESSEE agrees to return or surrender the Leased Premises at the expiration
of the term or termination of this Contract in as good condition as reasonable
wear and tear will permit devoid of all occupants, furniture, equipment,
articles and effects of any kind other than partitions, alternations,
installations, additions or improvements of permanent character ownership over
which accrues in favor of the LESSOR in accordance with the applicable
provisions of this Contract. LESSOR shall, within ten (10) days from expiration
or termination of this contract, notify the LESSEE of any furniture, equipment
and effects that have not been removed and which LESSOR would want to be removed
from the Leased Premises. Any furniture, equipment, articles, and effects not
removed from the Leased Premises within thirty (30) days from expiration or
termination of this Contract shall belong to the LESSOR. In case of breach of
any condition of this Contract, the aggrieved party can extrajudicialy terminate
this Contract and further, collect damages, costs of collection, expenses of
litigation and reasonable; attorney's fees._ 28. PRE-TERMINATION - LESSEE may
pre-terminate this Contract should LESSOR restrict or cause to restrict LESSEE's
24 hours a day, 7-days a week access to Leased Premises. Such pre-termination
shall not cause the forfeiture of LESSEE's Deposit as above provided.
LESSEE may also pre-terminate this Contract in the event that the Leased
Premises shall become untenantable as hereinafter defined. Such pre-termination
shall not cause the forfeiture of LESSEE's deposit, which LESSOR shall
immediately return to LESSEE provided that LESSEE has fulfilled all its
contractual obligations.
In the event that LESSEE does not chose to preterminate this Contract despite
the fact that the Leased Premises has become untenantable, LESSEE shall inform
the LESSOR of the actions it should take in order to remedy the tenantability of
the Lease Premises within one hundred twenty (120) days from notice thereof.
During this period, LESSEE shall continue to pay rental for the tenantable areas
and shall remit the same in escrow for the credit of LESSOR. Untenantable areas
shall not generate rental income. Failure of LESSOR to take appropriate action
to remedy the condition of the Leased Premises shall entitle the LESSEE to
pre-terminate this Contract and retrieve all amounts paid in escrow.
For purposes of this paragraph, damage is defined as the reduction or impairment
of usability of the Leased Premises. Untenantability shall be defined as
follows:
(a) The declaration by competent authority of such fact due to damage or
destruction arising from earthquake, fire, water, age, atmospheric disturbance
or similar incidents;
(b) The inability of LESSEE to continue normal operations within the Leased
Premises due to dangers posted by the above or due to lack of power, water,
drainage or the impairment of such utilities; and
(c) The prohibition of ingress or egress by LESSOR or other competent authority
due to hazards to occupants.
On the other hand, LESSEE may also pre-terminate this Contract without due cause
and shall forfeit its right to the return of its Deposit. LESSOR agrees to
consider the forfeited deposit as the full settlement of damages that may be
suffered by the same on account of the pre-termination and shall not seek
further claim against LESSEE for the pre-termination.
29. FIRST OPTION - LESSEE shall have the right of first refusal for any and all
space that may become available for lease or renewal of lease whether the same
be caused by vacancy of existing tenant, expiration of a contract or
construction of additional space; LESSEE is likewise given the option to match
any offer made by third parties thereon. LESSOR shall immediately inform LESSEE
in writing of the availability of lease space to which LESSEE shall reply by a
written offer within seven (7) days from receipt of LESSOR's notice. Failure of
LESSOR and LESSEE to arrive at mutually acceptable terms shall entitle LESSOR to
negotiate with. any third party. The terms arrived at which such third party be
disclosed to LESSEE and LESSEE shall be given three (3) business days from
notice thereof to match third party's offer. The non-exercise by the LESSEE of
its right under this paragraph in one instance shall in no way diminish the same
for exercise in the future. Breach of this right by the LESSOR shall entitle the
LESSEE to immediately pre-terminate this Contract without forfeiture of its
Deposit.
30. ASSIGNABILITY - Either party may assign this Contract to its
successors-in-interest or to any other party as it may deem fit.
31. VENUE - The parties hereby agree that the venue of any court litigation that
may arise under this Contract shall be brought before the proper courts of Cebu
City exclusively, and thus expressly waive all other venues.
32. VALIDITY - This Contract supersedes and renders void any and all agreements
and undertakings, oral and/or written, previously entered into by and between
the parties, covering the Lease Premises. However, as mentioned, the Old
Contract shall remain in full force and effect during the period covered by the
Old Contract, except for provisions specifically provided in this Contract.
This Contract may not hereafter be modified or altered except by instrument in
writing duly signed by the parties hereto.
In the event one or more provisions of this Contract be declared null and void
and/or of no legal effect, the said provisions shall not affect and/or render
null and - void the other provisions not included therein.
IN WITNESS WHEREOF, the parties thereto have caused this instrument to be duly
executed by their respective authorized signatories on dates and places
indicated below.
ELCADO REALTY CORPORATION INNODATA PHILLIPPINES, INC.
LESSOR LESSEE
By: DOLORES D. DIEZ, MD MA. ROSARIO R. REMOQUILLO
President Assistant Vice-President/
Head of Facility
SIGNED IN THE PRESENCE OF
_____________________ ________________________
ACKNOWLEDGEMENT
REPUBLIC OF THE PHILIPPINES) CITY OF CEBU ) S.S.
BEFORE ME, a Notary Public for and in the City of Cebu, Province of Cebu, this
1st day of March 1999 personally appeared Ma. Rosario R. Remoquillo with
residence certificate October l 1998 02778 issued on February 25, 1999 at Cebu
City, Cebu Province, in her capacity as Assistant Vice-President/Head of
Facility of Innodata Philippines, Inc. above written and Dolores D. Diez, MD
with residence certificate 3792512E issued on January 21, 1999 at Cebu City,
Cebu Province, in her capacity as President of Elcado Realty Corporation above
written, known to me and to me known to be the same persons named in and who
executed the foregoing instrument and they acknowledged to me that the execution
of the same is of their free and voluntary act and deed of the corporations
which they represent.
This instrument refers to a Contract of Lease consisting of nine (9) pages,
including this page, signed on all pages by the parties and their material
witnesses.
SIGNED AND SEALED BY ME AT THE CITY OF CEBU, PROVINCE OF CEBU
Doc No. 442 INOCENCIO A. DELA CERNA, JR.
Page No. 89 Notary Public
Book No. XVI Until December 31, 2000
Series of 1999 PTR No. 3318129 issued on
January 4, 1999 at Cebu City
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<DESCRIPTION>SUSIDIARIES OF SMALL BUSINESS ISSUER
<TEXT>
[ARTICLE] 4
[CIK] 0000903651
[NAME] INNODATA CORPORATION
EXHIBIT 21
SUBSIDIARIES OF SMALL BUSINESS ISSUER
<TABLE>
<CAPTION>
<S> <C> <C>
STATE OR OTHER NAME UNDER
JURISDICTION OF WHICH SUBSIDIARY
NAME OF SUBSIDIARY INCORPORATION CONDUCTS BUSINESS
Innodata Philippines, Inc. Philippines Same
Innodata India (Private) Limited India Same
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>5
<DESCRIPTION>INDEPENDENT AUDITORS' CONSENT
<TEXT>
[ARTICLE] 5
[CIK] 0000903651
[NAME] INNODATA CORPORATION
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Innodata Corporation on Form S-8 (Registration No. 33-85530, dated October 21,
1994, Registration No. 333-3466, dated April 11, 1996 and Registration No.
333-63085, dated September 9, 1998) and on Form S-3 (Registration No. 333-3464,
dated April 11, 1996) of our report dated February 25, 1999, appearing in the
Annual Report on Form 10-KSB of Innodata Corporation for the year ended December
31, 1998.
Grant Thornton LLP
Parsippany, New Jersey
February 25, 1999
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>6
<DESCRIPTION>INDEPENDENT AUDITORS' CONSENT
<TEXT>
[ARTICLE] 6
[CIK] 0000903651
[NAME] INNODATA CORPORATION
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Innodata Corporation on Form S-8 (Registration No. 33-85530, dated October 21,
1994, Registration No. 333-3466, dated April 11, 1996 and Registration No.
333-63085, dated September 9, 1998) and on Form S-3 (Registration No. 333-3464,
dated April 11, 1996) of our report dated March 14, 1997, appearing in the
Annual Report on Form 10-KSB of Innodata Corporation for the year ended December
31, 1998.
Margolin, Winer & Evens LLP
Garden City, New York
February 25, 1999
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>7
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<FLAWED>
<TEXT>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000903651
<NAME> INNODATA CORPORATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,535,533
[SECURITIES] 0
[RECEIVABLES] 2,943,422
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 7,410,082
[PP&E] 2,669,892
[DEPRECIATION] 0
<TOTAL-ASSETS> 10,595,508
[CURRENT-LIABILITIES] 2,660,981
[BONDS] 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 15,284
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,595,508
[SALES] 0
[TOTAL-REVENUES] 19,593,353
[CGS] 0
[TOTAL-COSTS] 17,675,673
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 77,594
<INCOME-PRETAX> 1,917,680
<INCOME-TAX> (332,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,249,680
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.49
</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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