-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SNh/NTvDya/NrjMAvi4GwI7dAfUbZxnqFzT3RW1Lo5muswnbDpWfGkOEkh0YOOCm oEvFH8Qh92t6AfVsycyQ0g== 0001144204-03-007015.txt : 20031112 0001144204-03-007015.hdr.sgml : 20031112 20031112172337 ACCESSION NUMBER: 0001144204-03-007015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031112 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: 1216 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22196 FILM NUMBER: 03995009 BUSINESS ADDRESS: BUSINESS PHONE: 201 488 1200 MAIL ADDRESS: STREET 1: 95 ROCKWELL PLACE CITY: BROOKLYN STATE: NY ZIP: 11217 10-Q 1 form10q.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September, 30, 2003 /_/ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-22196 INNODATA CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3475943 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) THREE UNIVERSITY PLAZA HACKENSACK, NEW JERSEY 07601 (Address of principal executive offices) (Zip Code) (201) 488-1200 (Registrant's telephone number) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceeding 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 /_/ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes /_/ No /X/ State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 21,670,000 SHARES OF COMMON STOCK, $.01 PAR VALUE, AS OF OCTOBER 31, 2003. PART I. FINANCIAL INFORMATION - ------- --------------------- Item 1. Financial Statements See pages 2-11 Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- See pages 12-20 Item 3. Quantitative and Qualitative Disclosures about Market Risk ---------------------------------------------------------- See pages 19-20 Item 4. Controls and Procedures ----------------------- See page 20 PART ll. OTHER INFORMATION - -------- ----------------- See page 21 1 INNODATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2003 2002 -------- -------- Unaudited Derived from audited financial statements ASSETS CURRENT ASSETS: Cash and equivalents $ 5,766 $ 7,255 Cash and equivalents - restricted 1,000 -- Accounts receivable-net 7,198 3,253 Refundable income taxes 1,075 1,491 Prepaid expenses and other current assets 1,238 706 Deferred income taxes 1,570 1,501 -------- -------- Total current assets 17,847 14,206 PROPERTY AND EQUIPMENT - NET 6,140 6,707 OTHER ASSETS 853 1,109 GOODWILL 675 675 -------- -------- TOTAL $ 25,515 $ 22,697 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short term borrowings $ 1,000 $ -- Accounts payable and accrued expenses 2,982 2,655 Accrued salaries and wages 3,074 2,526 Income and other taxes 583 455 Current portion of capital lease obligations 146 -- -------- -------- Total current liabilities 7,785 5,636 -------- -------- DEFERRED INCOME TAXES PAYABLE 1,372 1,492 -------- -------- OBLIGATIONS UNDER CAPITAL LEASE 307 -- -------- -------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value; authorized 75,000,000 shares; issued, 22,295,000 and 22,046,000 shares at September 30, 2003 and December 31, 2002, respectively. 223 220 Additional paid-in capital 14,869 14,084 Retained earnings 3,005 3,264 -------- -------- 18,097 17,568 Less: treasury stock - at cost; 645,000 and 610,000 shares at September 30, 2003 and December 31, 2002 respectively (2,046) (1,999) -------- -------- Total stockholders' equity 16,051 15,569 -------- -------- TOTAL $ 25,515 $ 22,697 ======== ========
See notes to unaudited condensed consolidated financial statements 2 INNODATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (Unaudited) - --------------------------------------------------------------------------------
2003 2002 -------- -------- REVENUES $ 11,184 $ 7,278 -------- -------- OPERATING COSTS AND EXPENSES: Direct operating expenses 7,225 7,124 Selling and administrative expenses 2,002 2,740 Interest income - net (4) (13) -------- -------- Total 9,223 9,851 -------- -------- INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES 1,961 (2,573) PROVISION FOR (BENEFIT FROM) INCOME TAXES 471 (52) -------- -------- NET INCOME (LOSS) $ 1,490 $ (2,521) ======== ======== BASIC INCOME (LOSS) PER SHARE $ .07 $ (.12) ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING 21,593 21,733 ======== ======== DILUTED INCOME (LOSS) PER SHARE $ .06 $ (.12) ======== ======== ADJUSTED DILUTIVE SHARES OUTSTANDING 23,225 21,733 ======== ========
See notes to unaudited condensed consolidated financial statements 3 INNODATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (Unaudited) - --------------------------------------------------------------------------------
2003 2002 -------- -------- REVENUES $ 25,893 $ 30,223 -------- -------- OPERATING COSTS AND EXPENSES: Direct operating expenses 19,458 25,668 Selling and administrative expenses 6,561 7,810 Interest income - net (19) (34) -------- -------- Total 26,000 33,444 -------- -------- LOSS BEFORE PROVISION FOR (BENEFIT FROM) INCOME INCOME TAXES (107) (3,221) PROVISION FOR (BENEFIT FROM) INCOME TAXES 152 (44) -------- -------- NET LOSS $ (259) $ (3,177) ======== ======== BASIC LOSS PER SHARE $ (.01) $ (.15) ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING 21,499 21,589 ======== ======== DILUTED LOSS PER SHARE $ (.01) $ (.15) ======== ======== ADJUSTED DILUTIVE SHARES OUTSTANDING 21,499 21,589 ======== ========
See notes to unaudited condensed consolidated financial statements 4 INNODATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (IN THOUSANDS) (Unaudited) - --------------------------------------------------------------------------------
2003 2002 ------- ------- OPERATING ACTIVITIES: Net loss $ (259) $(3,177) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,325 4,050 Non-cash compensation 650 523 Tax benefit from exercise of stock options 3 110 Deferred income taxes (189) 237 Changes in operating assets and liabilities: Accounts receivable (3,945) 4,312 Refundable income taxes 416 -- Prepaid expenses and other current assets (988) (1,206) Other assets 206 947 Accounts payable and accrued expenses 327 (657) Accrued salaries and wages 548 (706) Income and other taxes 128 (464) ------- ------- Net cash provided by operating activities 222 3,969 ------- ------- INVESTING ACTIVITIES: Increase in restricted cash (1,000) -- Capital expenditures (1,785) (609) ------- ------- (2,785) (609) ------- ------- FINANCING ACTIVITIES: Short term borrowings 1,000 -- Payment of obligations under capital lease (14) -- Payment of acquisition notes -- (650) Purchase of treasury stock -- (270) Proceeds from exercise of stock options 88 80 ------- ------- Net cash provided by (used in) financing activities 1,074 (840) ------- ------- (DECREASE) INCREASE IN CASH (1,489) 2,520 CASH AND EQUIVALENTS, BEGINNING OF PERIOD 7,255 6,267 ------- ------- CASH AND EQUIVALENTS, END OF PERIOD $ 5,766 $ 8,787 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 2 $ 29 ======= ======= Income taxes $ 23 $ 224 ======= ======= NON-CASH INVESTING AND FINANCING ACTIVITIES: Acquisition of property and equipment utilizing capital leases $ 467 $ -- ======= =======
See notes to unaudited condensed consolidated financial statements 5 INNODATA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (Unaudited) - -------------------------------------------------------------------------------- 1. Innodata Corporation and subsidiaries (the "Company") is a provider of digital asset services and solutions. Innodata delivers content manufacturing / outsourcing, XML transformation, and XML (and related standards-based) systems engineering and training through offices located both in the U.S. and Asia. 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. In the third quarter 2003, the Company began doing business as Innodata Isogen. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2003, the results of operations for the three and nine months ended September 30, 2003 and 2002, and the cash flows for the nine months ended September 30, 2003 and 2002. The results of operations for the nine months ended September 30, 2003 are not necessarily indicative of results that may be expected for any other interim period or for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2002 included in the Company's Annual Report on Form 10-K. The accounting policies used in preparing these financial statements are the same as those described in the December 31, 2002 financial statements. 2. An analysis of the changes in each caption of stockholders' equity for the nine months ended September 30, 2003 (in thousands) is as follows.
ADDITIONAL COMMON STOCK PAID-IN RETAINED TREASURY SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL ------ ------ ---------- -------- --------- ----- JANUARY 1, 2003 22,046 $ 220 $ 14,084 $ 3,264 $ (1,999) $ 15,569 Net loss -- -- -- (259) -- (259) Issuance of common stock upon exercise of stock options 249 3 132 -- (47) 88 Tax benefit from exercise of options -- -- 3 -- -- 3 Non-cash compensation -- -- 650 -- -- 650 ------- ------- -------- -------- -------- -------- SEPTEMBER 30, 2003 22,295 $ 223 $ 14,869 $ 3,005 $ (2,046) $ 16,051 ======= ======= ======== ======== ======== ========
6 3. Basic income (loss) per share is based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted income per share is based on the weighted average number of common and potential common shares outstanding. The difference between weighted average common shares outstanding and adjusted dilutive shares outstanding represents the dilutive effect of outstanding options. Diluted net loss per share does not include potential common shares derived from stock options because they are antidilutive. The number of antidilutive securities excluded from the dilutable loss per share calculation were 1,172,000 for the three months ended September 30, 2002, and 999,000 and 1,821,000 for the nine months ended September 30, 2003 and 2002, respectively. The basis of the earnings per share computation for the three and nine months ended September 30, 2003 and 2002 (in thousands, except per share amounts) is as follows:
THREE MONTHS NINE MONTHS ------------ ----------- 2003 2002 2003 2002 -------- -------- ------- -------- Net income (loss) $ 1,490 $ (2,521) $ (259) $ (3,177) ======== ======== ======= ======== Weighted average common shares outstanding 21,593 21,733 21,499 21,589 Dilutive effect of outstanding options 1,632 -- -- -- -------- -------- ------- -------- Adjusted for dilutive computation 23,225 21,733 21,499 21,589 ======== ======== ======= ======== Basic income (loss) per share $ .07 $ (.12) $ (.01) $ (.15) ======== ======== ======= ======== Diluted income (loss) per share $ .06 $ (.12) $ (.01) $ (.15) ======== ======== ======= ========
4. The Company has various stock-based employee compensation plans, which it accounts for under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. In general, no stock-based employee compensation cost is reflected in the results of operations, unless options granted under such plans have an exercise price less than the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2003 2002 2003 2002 ---- ---- ---- ---- (IN THOUSANDS, EXCEPT (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PER SHARE AMOUNTS) Net income (loss) as reported $ 1,490 $ (2,521) $ (259) $ (3,177) Deduct: Total stock-based employee compensation determined under fair value based method, net of related tax effects (607) (939) (2,753) (2,158) Add: Compensation expense included in the determination of net income as reported, net of related tax effects, related to the extension of stock options -- 318 455 318 --------- --------- --------- ---------
7 Pro forma net loss $ 883 $ (3,142) $ (2,557) $ (5,017) ========= ========= ========= ========= Income (loss) per share: Basic - as reported $ .07 $ (.12) $ (.01) $ (.15) ========= ========= ========= ========= Basic - pro forma $ .04 $ (.14) $ (.12) $ (.23) ========= ========= ========= ========= Diluted - as reported $ .06 $ (.12) $ (.01) $ (.15) ========= ========= ========= ========= Diluted - pro forma $ .04 $ (.14) $ (.12) $ (.23) ========= ========= ========= =========
5. The Company's operations are classified into two reporting segments: (1) content services and (2) systems integration and training. The content services operating segment aggregates, converts, tags and editorially enhances digital content and performs XML transformations. The Company offers such services as a comprehensive outsourcing solution and individually as discrete activities. The Company's systems integration and training operating segment offers system design, custom application development, consulting services, and systems integration conforming to XML and related standards and provides a broad range of introductory as well as advanced curricula and training on XML and other knowledge management standards.
THREE MONTHS NINE MONTHS ------------ ----------- ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- ------------------- 2003 2002 2003 2002 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Revenues - -------- Content services $ 9,128 $ 6,969 $ 21,489 $ 27,568 Systems and training services 2,056 309 4,404 2,655 -------- -------- -------- -------- Total consolidated $ 11,184 $ 7,278 $ 25,893 $ 30,223 ======== ======== ======== ======== Income (loss) before income taxes (a) - ------------------------------------- Content services $ 1,224 $ (1,339) $ (744) $ (1,252) Systems and training services 737 (1,234) 637 (1,969) -------- -------- -------- -------- Total consolidated $ 1,961 $ 2,573 $ (107) $ (3,221) ======== ======== ======== ========
SEPTEMBER 30, DECEMBER 31, ------------- ------------ 2003 2002 ---- ---- (IN THOUSANDS) Total assets - ------------ Content services $22,178 $20,721 Systems and training services 3,337 1,976 ------- ------- Total consolidated $25,515 $22,697 ======= =======
(a) In 2002, corporate overhead was not allocated to the systems and training services segment. In 2003, corporate overhead has been allocated to the systems and training services segment based upon a percentage of consolidated sales. For comparative purposes, income before income taxes for the three and nine months ended September 30, 2002 has been reclassified to allocate corporate overhead using a method consistent with 2003. 8 6. Restricted cash at September 30, 2003 represents a 90 day certificate of deposit, which collateralizes a $1 million bank line of credit. 7. The Company has a $1 million line of credit with a bank, which, is secured by a $1 million certificate of deposit. Interest is charged at the bank's alternate base rate (4% at September 30, 2003). The line expires on May 31, 2004. At September 30, 2003 the company borrowed $1,000,000 against the line which was repaid in full in October 2003. 8. During the three months ended September 30, 2003, the Company entered into a three year lease for certain equipment located in one of its Philippine facilities. The equipment was capitalized at its fair market value of approximately $641,000, which represented the present value of the minimum lease payments plus trade-in value of exchanged equipment of $175,000. The loss on such trade-in approximated $58,000. Pursuant to the capital lease obligation, annual payments approximate $171,000, including imputed interest at 7% per annum. In addition, the lease contains a one dollar purchase option at the end of the lease term. 9. In the second quarter 2003, the Company extended the expiration date of options granted to certain officers, directors and employees, substantially all of which were vested, to purchase 315,000, 566,000, 522,000 and 133,000 shares of its common stock at $.47, $.50, $.67 and $2.00, respectively. In connection with the extension, the option holders agreed not to sell shares of stock acquired upon exercise of the extended options for designated periods of time ending between June 2004 to March 2005. In connection with this transaction, compensation expense of approximately $650,000 was recorded in the second quarter of 2003 based upon the difference between the exercise price and the market price of the underlying common stock on the date the options were extended. Compensation expense is included as a component of selling and administrative expenses. In the third quarter 2002, the Company extended the expiration date of options to the Chief Executive Officer to purchase 6,672, 248,496, 360,000, 399,996 and 123,996 shares of its common stock at $.42, $.50, $.58, $1.29 and $.25, per share, respectively. In connection with this transaction, compensation expense of approximately $513,000 was recorded in the third quarter as selling and administrative expenses. During the nine months ended September 30, 2002, the Company granted options to an officer, to purchase 153,750 shares of its common stock at $4.00 per share; and to employees, to purchase 3,000 shares of its common stock at $4.60 per share and 4,000 shares of its common stock at $3.75 per share. In addition, the Company issued 11,587 shares of its common stock pursuant to an employment agreement with an officer of the Company. Compensation expense of approximately $10,000 was recorded in the third quarter of 2002 as selling and administrative expenses. 9 10. In the three months ended September 30, 2003, the provision for income taxes as a percentage of income before income taxes was 24%, which is lower than the U.S. Federal statutory rate principally due to certain overseas income that will not be taxed unless repatriated due to tax holidays granted to the Company. In the nine months ended September 30, 2003, the provision for income taxes is primarily a result of taxable income attributable to certain expenses not deductible for income tax purposes, and to the taxability of income in certain state and foreign tax jurisdictions. In the three and nine months ended September 30, 2002, the income tax benefit was substantially lower as a percentage of the loss before income taxes than the U.S. Federal statutory rate, principally due to a non-cash compensation charge of approximately $500,000, which is not deductible for income tax purposes, and to losses attributable to certain overseas subsidiaries not subject to income taxes. 11. In connection with the cessation of all operations at certain foreign subsidiaries, certain former employees have filed various illegal dismissal actions in the Philippines seeking, among other remedies, reinstatement of employment, payment of back wages and damages approximating one million dollars. Outside counsel has advised management that under the circumstances, the Company is not legally obligated to pay severance to such terminated employees. Based upon the advice of counsel, management believes the actions are substantially without merit and intends to defend the actions vigorously. In addition, one of the foreign subsidiaries which ceased operations has been presented with a tentative tax assessment by the Philippine Bureau of Internal Revenue for an amount approximating $400,000, plus applicable interest and penalties. Management believes the tentative assessment is principally without substance and any amounts that might ultimately be paid in settlement (which is not expected to be material) have been accrued. In addition, the Company is subject to various legal proceedings and claims which arise in the ordinary course of business. While management currently believes that the ultimate outcome of all these proceedings will not have a material adverse effect on the Company's financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the operating results of the period in which the ruling occurs. In addition, the estimate of potential impact on the Company's financial position or overall results of operations for the above legal proceedings could change in the future. 12. 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. However, most significant contracts contain provisions for price renegotiation. 13. The Company is obligated under certain circumstances to indemnify directors and certain officers against costs and liabilities incurred in actions or threatened actions 10 brought against such individual because such individual acted in the capacity of director and/or officer of the Company. In addition, the Company has contracts with certain clients pursuant to which the Company has agreed to indemnify the client for certain specified and limited claims. These indemnification obligations are in the ordinary course of business and, in many cases, do not include a limit on maximum potential future payments. As of September 30, 2003, the Company does not have a liability for any obligations arising as a result of these indemnifications. 14. In connection with the procurement of tax incentives at one of the company's foreign subsidiaries, the foreign zoning authority was granted a first lien on the subsidiary's property and equipment. As of September 30, 2003, such equipment had a book value of approximately $611,000. 15. In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others (FIN 45). FIN 45 elaborates on the disclosures to be made by a guarantor in its financial statements about its obligations under certain agreements and warranties it has issued. It also requires the guarantor to recognize, at the inception of the guarantee, a liability for the fair value of an obligation undertaken in issuing the guarantee. The recognition requirements are effective for guarantees initiated after December 31, 2002. The adoption of the fair value provisions of FIN 45 did not have an impact on the Company's consolidated financial statements as there were no guarantees or modifications of guarantees for the nine months ended September 30, 2003. 16. In January, 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 provides guidance for identifying a controlling interest in a Variable Interest Entity (VIE) established by means other than voting interests. FIN 46 also requires consolidation of a VIE by an enterprise that holds such controlling interest. Companies are required to adopt the provisions of FIN 46 for any variable interest entity created prior to February 1, 2003, by the end of the current fiscal year. Based on management's review of FIN 46, management believes the Company has no interests qualifying as VIEs and does not anticipate that the provisions of FIN 46 will have any near term impact on its consolidated financial statements. 17. In May, 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150). SFAS No. 150 established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective beginning in the third quarter of 2003. The adoption of SFAS No. 150 does not have an impact on the Company's consolidated financial statements and management does not anticipate SFAS No. 150 will have any near term impact on its consolidated financial statements. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE COMPANY Disclosures in this Form 10-Q contain certain forward-looking statements, including without limitation, statements concerning the Company's operations, economic performance and financial condition. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "intend", "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, continuation or worsening of present depressed market conditions, changes in external market factors, the ability and willingness of the Company's clients and prospective clients to execute business plans which give rise to requirements for digital content and professional services in knowledge processing, difficulty in integrating and deriving synergies from acquisitions, potential undiscovered liabilities of companies that the Company acquires, changes in the Company's business or growth strategy, the emergence of new or growing competitors, various other competitive and technological factors, and other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission. Actual results could differ materially from the results referred to in the forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the results referred to in the forward-looking statements contained in this Form 10-Q will in fact occur. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made. THE COMPANY Innodata Corporation ("Innodata" or the "Company") is a leading provider of digital content outsourcing services. It delivers content manufacturing and XML- related digital asset services to online information providers and companies in the telecommunications, technology, healthcare, defense, and Internet commerce sectors. It has over 100 active clients, including Amazon.com, Dow Jones & Company, Lockheed Martin Corporation, ProQuest Company, Reed Elsevier, Reuters, Simon & Schuster, The Thomson Corporation, and Wolters Kluwer. The Company operates through three divisions. Its Content Division aggregates, converts, tags and editorially enhances digital content - services the Company refers to collectively as "content manufacturing" services. The Company offers content manufacturing services as a comprehensive outsourcing solution and individually as discrete 12 activities. The Content Division also transforms data to Extensible Markup Language (XML). The Company's Systems Division offers system design, custom application development, consulting services, and systems integration conforming to XML and related standards. The Company's Training Division provides a broad range of introductory as well as advanced curricula and training on XML and other knowledge management standards. For financial reporting purposes, the Company's operations have been classified into two reporting segments: (1) content services and (2) systems integration and training. The results of the Training Division, which are below the level required for reporting as a separate segment, have been combined with the results of the Systems Division due to the nature of services provided. In the third quarter 2003, the Company began doing business as Innodata Isogen. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 Revenues increased 54% to $11,184,000 for the three months ended September 30, 2003 compared to $7,278,000 for the similar period in 2002. Revenues from the content services segment increased 31% to $9,128,000 for the three months ended September 30, 2003 compared to $6,969,000 for the similar period in 2002. The increase principally reflected approximately $1.7 million of revenues received in the third quarter of 2003 from a short duration project for an ongoing client. The project was substantially completed in the third quarter 2003. In addition, revenues from a second client increased approximately $2.5 million, offsetting the decline in content services segment revenues of approximately $2.1 million from a client whose largest project was substantially completed in 2002. Revenues from the Company's systems and training segment were $2,056,000 for the three months ended September 30, 2003 and $309,000 for the similar period in 2002. The increase was principally attributable to an increase in the quantity and size of system integration projects booked in 2003. In addition, revenues for the three months ended September 30, 2003 included approximately $800,000 from a systems integration project sold to a content services client. For the three months ended September 30, 2003, two clients accounted for approximately 60% of systems and training segment revenues. One client, comprising multiple entities and divisions worldwide, accounted for 37% and 20% of the Company's revenues for the three months ended September 30, 2003 and 2002, respectively. A second client accounted for 15% of the Company's revenues for the three months ended September 30, 2003. In addition, one other client, whose largest project was substantially completed in 2002, accounted for 29% of the Company's revenues in the three months ended September 30, 2002. Further, in the three months ended September 30, 2003 and 2002, revenues from clients located in foreign countries (principally Europe), accounted for 42% and 28%, respectively, of the Company's revenues. 13 Direct operating expenses were $7,225,000 and $7,124,000 for the three months ended September 30, 2003 and 2002, respectively, an increase of 1%. Direct operating expenses as a percentage of revenues were 65% in 2003 and 98% in 2002. Direct operating expenses for the content services segment were $6,260,000 and $6,115,000 in the three months ended September 30, 2003 and 2002, respectively, an increase of 2%. Direct operating expenses as a percentage of revenues for the content services segment were 69% and 88% in the three months ended September 30, 2003 and 2002, respectively. The decrease as a percent of sales for the content services segment in the 2003 period was principally due to the reductions in fixed costs associated with the Company's cost reduction initiatives, and to higher revenues without a corresponding increase in direct operating costs. Direct operating expenses primarily include direct payroll, telecommunications, depreciation, computer services, supplies and occupancy. Direct operating expenses for the Company's systems and training segment were $965,000 and $1,009,000 for the three months ended September 30, 2003 and 2002, respectively, a decrease of 4%. Direct operating expenses as a percent of revenues for the Company's systems and training segment were 47% and 327% in the three months ended September 30, 2003 and 2002, respectively. The dollar decrease in the 2003 period was principally due to a reduction in labor costs associated with the Company's cost reduction initiatives. The decrease as a percent of revenues for the systems and training segment was primarily attributable to the cost reduction initiatives described above coupled with the increase in revenues. Selling and administrative expenses were $2,002,000 and $2,740,000 for the three months ended September 30, 2003 and 2002, respectively. Selling and administrative expenses for the three months ended September 30, 2002 include a non-cash compensation charge of approximately $513,000 (described in the notes to the Condensed Consolidated Financial Statements). Excluding this charge, overall selling and administrative expenses for the three months ended September 30, 2003 would have decreased by approximately $215,000 or 10% from the similar period in 2002. This decrease was primarily attributable to the Company's cost reduction initiatives. Selling and administrative expenses primarily include management and administrative salaries, sales, marketing cost, and administrative overhead. Selling and administrative expenses for the content services segment were $1,649,000 and $2,336,000 for the three months ended September 30, 2003 and 2002, respectively, a decrease of 29%. The reasons for the decline are described above. Selling and administrative expenses as a percentage of revenues for the content services segment decreased to 18% in the 2003 period compared to 34% in the 2002 period. Excluding the non-cash compensation charge in 2002 described above, selling and administrative expenses as a percentage of revenues for the content services segment would have been 26% in the 2002 period compared to 18% in the 2003 period. This decrease as a percent of sales was primarily attributable to an increase in sales without a corresponding increase in selling and administrative costs and to the cost reduction initiatives previously described. 14 Selling and administrative expenses for the Company's systems and training segment were $353,000 and $404,000 for the three months ended September 30, 2003 and 2002 respectively, a decrease of 13%. Selling and administrative expenses as a percentage of revenues for the systems and training segment decreased to 17% from 131% in the 2002 period. The decrease as a percent of sales was primarily attributable to an increase in sales. In the three months ended September 30, 2003, the provision for income taxes as a percentage of income before income taxes was 24%, which is lower than the U.S. Federal statutory tax rate principally due to certain overseas income that will not be taxed unless repatriated due to tax holidays granted to the Company. In the three months ended September 30, 2002 the income tax benefit was substantially lower as a percentage of the loss before income taxes than the U.S. Federal statutory tax rate, principally due to a non-cash compensation charge of approximately $500,000, which is not deductible for income tax purposes, and to losses attributable to certain overseas subsidiaries not subject to income taxes. NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 Revenues decreased 14% to $25,893,000 for the nine months ended September 30, 2003 compared to $30,223,000 for the similar period in 2002. Revenues from the content services segment decreased 22% to $21,490,000 for the nine months ended September 30, 2003 compared to $27,568,000 for the similar period in 2002. The decrease principally reflects the decline in revenues of approximately $13 million from two clients whose largest projects were substantially completed in 2002. The shortfall was replaced in part by increased revenue from two other clients totaling approximately $7 million. Revenues from the Company's systems and training segment were $4,403,000 for the nine months ended September 30, 2003 and $2,655,000 for the similar period in 2002. The increase was principally attributable to an increase in the quantity and size of system integration projects booked in 2003. For the nine months ended September 30, 2003, projects for two clients accounted for approximately 50% of systems and training segment revenues; in the similar period in 2002, two clients (one of which generated no revenues in 2003) accounted for approximately 63% of systems and training segment revenues. One client, comprising multiple entities and divisions worldwide, accounted for 36% and 13% of the Company's revenues for the nine months ended September 30, 2003 and 2002, respectively. Two other clients, whose largest projects were substantially completed in 2002, accounted for 35% and 13% of the Company's revenues in the nine months ended September 30, 2002. Further, in the nine months ended September 30, 2003 and 2002, revenues from clients located in foreign countries (principally Europe), accounted for 43% and 20%, respectively, of the Company's revenues. Direct operating expenses were $19,458,000 and $25,668,000 for the nine months ended September 30, 2003 and 2002, respectively, a decrease of 24%. Direct operating expenses as a percentage of revenues were 75% in 2003 and 85% in 2002. Direct operating expenses for the content services segment were $16,847,000 and $22,553,000 in the nine months ended September 30, 2003 and 15 2002, respectively, a decrease of 25%. Direct operating expenses as a percentage of revenues for the content services segment were 78% and 82% in the nine months ended September 30, 2003 and 2002, respectively. The dollar decrease for the content services segment in the 2003 period was principally due to a reduction in labor costs associated with lower revenues, and to reductions in fixed costs associated with the Company's cost reduction initiatives. The percentage decrease for the content services segment was primarily attributable to the reductions in fixed costs described above. Direct operating expenses primarily include direct payroll, telecommunications, depreciation, computer services, supplies and occupancy. Direct operating expenses for the Company's systems and training segment were $2,611,000 and $3,115,000 for the nine months ended September 30, 2003 and 2002, respectively, a decrease of 16%. Direct operating expenses as a percent of revenues for the Company's systems and training segment were 59% and 117% in the nine months ended September 30, 2003 and 2002, respectively. The dollar decrease in the 2003 period were principally due to a reduction in labor costs associated with the company's cost reduction initiatives that were implemented during the second half of 2002. The decrease as a percent of the systems and training segment was primarily attributable to the cost reductions described above and the increase in revenues. Selling and administrative expenses were $6,561,000 and $7,810,000 for the nine months ended September 30, 2003 and 2002, respectively, a decrease of 16%. This decrease was primarily attributable to our previously described cost reduction initiatives. Selling and administrative expenses as a percentage of revenues were 25% and 26% in the 2003 and 2002 periods, respectively. Selling and administrative expenses for the content services segment were $5,407,000 and $6,576,000 for the nine months ended September 30, 2003 and 2002, respectively, a decrease of 18%. The reasons for the decline are described above. Selling and administrative expenses as a percentage of revenues for the content services segment increased to 25% in the 2003 period from 24% in the 2002 period. Selling and administrative expenses for the systems and training segment were $1,154,000, or 26% of revenues, in the nine months ended September 30, 2003 compared to $1,234,000, or 46% of revenues, for nine months ended September 30, 2002. The percentage decrease is primarily due to an increase in revenue without a corresponding increase in selling and administrative expenses. In the nine months ended September 30, 2003, the provision for income taxes is primarily a result of taxable income attributable to certain expenses not deductible for income tax purposes, and to the taxability of income in certain state and foreign tax jurisdictions. In the nine months ended September 30, 2002, the income tax benefit was substantially lower as a percentage of the loss before income taxes than the U.S. Federal statutory tax rate, principally due to a non-cash compensation charge of approximately $500,000, which is not deductible for income tax purposes, and to losses attributable to certain overseas subsidiaries not subject to income taxes. 16 LIQUIDITY AND CAPITAL RESOURCES Selected measures of liquidity and capital resources are as follows:
September 30, 2003 December 31, 2002 ------------------ ----------------- Cash and Cash Equivalents $ 5,766,000 $7,255,000 Working Capital $10,062,000 $8,570,000 Stockholders' Equity Per Common Share* $.74 $.73
*Represents total stockholders' equity divided by the actual number of common shares outstanding (which excludes treasury stock). Net Cash Provided By Operating Activities ----------------------------------------- Net cash provided by operating activities was $222,000 in the nine months ended September 30, 2003 compared to $3,969,000 provided by operating activities for the nine months ended September 30, 2002, a decrease of approximately $3.7 million. The decrease was primarily due to a $5.5 million net increase in operating assets and liabilities and a decrease in non-cash charges of approximately $1.1 million, partially offset by a decrease of $2.9 million in the net loss. The $5.5 million net increase in operating assets and liabilities was principally comprised of an $8.3 million increase in accounts receivable net of a $3.5 million increase in accounts payable and accrued expenses. Accounts receivable totaled $7,198,000 at September 30, 2003, representing approximately 62 days of sales outstanding, compared to $3,253,000, or 52 days, at December 31, 2002. The increase in accounts receivable resulted principally from an 81% increase in revenues in the three months ended September 30, 2003, as compared to the three months ended December 31, 2002. The increase in amount and in days sales outstanding is also attributable to a significant accounts receivable balance from one client, most of which was subsequently collected. A significant amount of the Company's revenues are derived from clients in the publishing industry. Accordingly, the Company's accounts receivable generally include significant amounts due from such clients. In addition, as of September 30, 2003, approximately 58% of the Company's accounts receivable was from foreign (principally European) clients, and approximately 50% of accounts receivable was due from one client. Net Cash Used in Investing Activities ------------------------------------- During the nine months ended September 30, 2003, the Company spent approximately $1,785,000 for capital expenditures, compared to approximately $609,000 in the nine months ended September 30, 2002. During the next 12 months, the Company anticipates modest increases in capital spending levels. Such 2003 past and anticipated capital spending relates to project requirement specific equipment for certain new projects, normal ongoing equipment upgrades and replacement, and costs related to the purchase and implementation of new management information systems. 17 Availability of Funds --------------------- The Company replaced its expired line of credit with a $1 million bank line of credit which is secured by a $1 million certificate of deposit. Interest is charged at the bank's alternate base rate. The line expires on May 31, 2004. At September 30, 2003 the company borrowed $1,000,000 against the line. The loan was repaid in full in October 2003. Management believes that existing cash and internally generated funds will be sufficient for reasonably anticipated working capital and capital expenditure requirements during the next 12 months. The Company funds its foreign expenditures from its U.S. corporate headquarters on an as-needed basis. 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 clients under project-specific contracts, requirements-based contracts or long-term contracts. Contracts are typically subject to numerous termination provisions. The Company's revenues are not significantly affected by seasonality. CRITICAL ACCOUNTING POLICIES Basis of Presentation and Use of Estimates ------------------------------------------ Management's discussion and analysis of its results of operations and financial condition is based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to accounts receivable. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Allowance for Doubtful Accounts ------------------------------- The Company records an allowance for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments. If the financial condition of the Company's clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be necessary. Revenue Recognition ------------------- Revenue is recognized in the period in which services are performed and delivered. 18 Depreciation ------------ Depreciation is provided on the straight-line method over the estimated useful lives of the related assets, which is two to five years. Leasehold improvements are amortized on a 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 bases 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. A valuation allowance is provided when it is more likely than not that some or all of a deferred tax asset will not be realized. Unremitted earnings of foreign subsidiaries have been included in the consolidated financial statements without giving effect to the United States taxes that may be payable on distribution to the United States to the extent such earnings are not anticipated to be remitted to the United States. Goodwill and Other Intangible Assets ------------------------------------ SFAS 142 requires that goodwill be tested for impairment at the reporting unit level (segment or one level below a segment) on an annual basis and between annual tests in certain circumstances. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. Accounting for Stock-Based Compensation --------------------------------------- The Company accounts for stock-based compensation plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. In general, no stock-based employee compensation cost is reflected in the results of operations, unless options granted under those plans have an exercise price that is less than the market value of the underlying common stock on the date of grant. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate change market risk with respect to its credit facility with a financial institution which is priced based on the bank's alternate bank rate (4% at September 30, 2003). At September 30, 2003, $1,000,000 was borrowed under the credit facility. To the extent the Company utilizes all or a portion of its line of credit, changes in the interest rate 19 during fiscal 2003 will have a positive or negative effect on the Company's interest expense. The loan was fully repaid in October 2003. The Company has operations in foreign countries. While it is exposed to foreign currency fluctuations, the Company presently has no financial instruments in foreign currency and does not maintain funds in foreign currency beyond those necessary for operations. ITEM 4. CONTROLS AND PROCEDURES An evaluation has been carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and the operation of our "disclosure controls and procedures" (as such term is defined in Rules 13a-14(c) under the Securities Exchange Act of 1934) as of September 30, 2003. Based on such evaluation, our Chief Executive Officer and Chief Accounting Officer have concluded that, as of September 30, 2003, the disclosure controls and procedures are reasonably designed and effective to ensure that (i) information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer, as appropriate to allow timely decisions regarding required disclosure. 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings. Not Applicable ------------------ Item 2. Changes in Securities. Not Applicable ---------------------- Item 3. Defaults upon Senior Securities. Not Applicable -------------------------------- Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- Not Applicable Item 5. Other Information. Not Applicable ------------------ Item 6. (a) Exhibits. --------- 31.1 Certification of Chief Executive Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934. 31.2 Certification of Principal Financial Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934. 32.1 Certification of Chief Executive Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934. 32.2 Certification of Principal Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934. (b) Form 8-K Report. ---------------- During the quarter for which this report is filed, the Company furnished a current report on Form 8-K dated August 12, 2003 which reported the Company's results for the second quarter ended June 30, 2003 under Item 9. 21 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INNODATA CORPORATION Date: November 12, 2003 /s/ Jack Abuhoff ----------------- ------------------------------------- Jack Abuhoff Chairman of the Board of Directors, Chief Executive Officer and President Date: November 12, 2003 /s/ Stephen Agress ----------------- ------------------------------------- Stephen Agress Vice President - Finance Chief Accounting Officer 22 EX-31.1 3 ex-31_1.txt EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Jack Abuhoff, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Innodata Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(f)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 12, 2003 /s/ Jack Abuhoff ------------------------------------- Jack Abuhoff Chairman of the Board, Chief Executive Officer and President EX-31.2 4 ex-31_2.txt EXHIBIT 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, Stephen Agress, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Innodata Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(f) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 12, 2003 /s/ Stephen Agress ------------------------------------- Stephen Agress Vice President, Finance and Chief Accounting Officer EX-32.1 5 ex-32_1.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Innodata Corporation (the "Company") on Form 10-Q for the quarter ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jack Abuhoff, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: 1. the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Jack Abuhoff ------------------------------------- Jack Abuhoff Chairman of the Board, Chief Executive Officer and President November 12, 2003 EX-32.2 6 ex-32_2.txt EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Innodata Corporation (the "Company") on Form 10-Q for the quarter ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen Agress, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: 1. the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Stephen Agress ------------------------------------- Stephen Agress Vice President, Finance and Chief Accounting Officer November 12, 2003 -----END PRIVACY-ENHANCED MESSAGE-----