-----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, U61CduuPz0zjCPVYihqQJTijAZ+KV/7/RPrZqlDAXLJ7JGtFIquLK8+xZfT6c/yt 1t0iyp751gLq+SlNjZ8/zQ== 0001144204-04-011783.txt : 20040813 0001144204-04-011783.hdr.sgml : 20040813 20040813123104 ACCESSION NUMBER: 0001144204-04-011783 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNODATA ISOGEN INC 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: 04972818 BUSINESS ADDRESS: STREET 1: THREE UNIVERSITY PLAZA STREET 2: SUITE 506 CITY: HACKENSACK STATE: NJ ZIP: 07601 BUSINESS PHONE: 201 488 1200 MAIL ADDRESS: STREET 1: THREE UNIVERSITY PLAZA STREET 2: SUITE 506 CITY: HACKENSACK STATE: NJ ZIP: 07601 FORMER COMPANY: FORMER CONFORMED NAME: INNODATA CORP DATE OF NAME CHANGE: 19930505 10-Q 1 v05629_10q.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 JUNE 30, 2004 ------------- |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-22196 INNODATA ISOGEN, INC. (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. 22,312,411 SHARES OF COMMON STOCK, $.01 PAR VALUE, AS OF JULY 30, 2004. 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 page 21 Item 4. Controls and Procedures See page 21 PART ll. OTHER INFORMATION See pages 22-23 INNODATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31, 2004 2003 --------- ------------ Unaudited Derived from audited financial statements ASSETS CURRENT ASSETS: Cash and equivalents $ 13,336 $ 5,051 Cash and equivalents - restricted 1,000 1,000 Accounts receivable-net 7,674 8,497 Refundable income taxes -- 1,075 Prepaid expenses and other current assets 1,322 999 Deferred income taxes 278 1,421 -------- -------- Total current assets 23,610 18,043 PROPERTY AND EQUIPMENT - NET 4,886 5,628 OTHER ASSETS 868 800 GOODWILL 675 675 -------- -------- TOTAL $ 30,039 $ 25,146 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 2,677 $ 2,451 Accrued salaries and wages 3,393 2,865 Income and other taxes 622 598 Current portion of capital lease obligations 153 146 -------- -------- Total current liabilities 6,845 6,060 -------- -------- DEFERRED INCOME TAXES PAYABLE 1,401 1,410 -------- -------- OBLIGATIONS UNDER CAPITAL LEASE 192 272 -------- -------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value; authorized 75,000,000 shares; issued 22,897,000 and 22,535,000 shares at June 30, 2004 and December 31, 2003 respectively 230 226 Additional paid-in capital 15,949 15,413 Retained earnings 7,396 3,739 -------- -------- 23,575 19,378 Less: treasury stock - at cost; 584,000 shares (1,974) (1,974) -------- -------- Total stockholders' equity 21,601 17,404 -------- -------- TOTAL $ 30,039 $ 25,146 ======== ========
See notes to unaudited condensed consolidated financial statements 2 INNODATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2004 AND 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (Unaudited) - -------------------------------------------------------------------------------- 2004 2003 -------- -------- REVENUES $ 12,354 $ 8,056 -------- -------- OPERATING COSTS AND EXPENSES: Direct operating expenses 7,859 6,408 Selling and administrative expenses 2,413 2,513 Interest (income) - net -- (6) -------- -------- Total 10,272 8,915 -------- -------- INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES 2,082 (859) PROVISION FOR (BENEFIT FROM) INCOME TAXES 505 (223) -------- -------- NET INCOME (LOSS) $ 1,577 $ (636) ======== ======== BASIC INCOME (LOSS) PER SHARE $ .07 $ (.03) ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING 22,145 21,466 ======== ======== DILUTED INCOME (LOSS) PER SHARE $ .06 $ (.03) ======== ======== ADJUSTED DILUTIVE SHARES OUTSTANDING 24,433 21,466 ======== ======== See notes to unaudited condensed consolidated financial statements 3 INNODATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (Unaudited) - -------------------------------------------------------------------------------- 2004 2003 -------- -------- REVENUES $ 24,511 $ 14,709 -------- -------- OPERATING COSTS AND EXPENSES: Direct operating expenses 15,634 12,233 Selling and administrative expenses 4,667 4,559 Bad debt recovery - net (963) -- Interest expense (income) - net 1 (15) -------- -------- Total 19,339 16,777 -------- -------- 16,777 INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES 5,172 (2,068) PROVISION FOR (BENEFIT FROM) INCOME TAXES 1,515 (319) -------- -------- NET INCOME (LOSS) $ 3,657 $ (1,749) ======== ======== BASIC INCOME (LOSS) PER SHARE $ .17 $ (.08) ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING 22,049 21,451 ======== ======== DILUTED INCOME (LOSS) PER SHARE $ .15 $ (.08) ======== ======== ADJUSTED DILUTIVE SHARES OUTSTANDING 24,480 21,451 ======== ======== See notes to unaudited condensed consolidated financial statements 4 INNODATA ISOGEN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (IN THOUSANDS) (Unaudited) - --------------------------------------------------------------------------------
2004 2003 -------- -------- OPERATING ACTIVITIES: Net income (loss) $ 3,657 $ (1,749) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,068 2,131 Non-cash compensation 39 650 Deferred income taxes 1,134 (192) Changes in operating assets and liabilities: Accounts receivable 823 (1,963) Refundable income taxes 1,075 24 Prepaid expenses and other current assets (692) (370) Other assets (101) 224 Accounts payable and accrued expenses 226 402 Accrued salaries and wages 528 368 Income and other taxes 219 (25) -------- -------- Net cash provided by (used in) operating activities 8,976 (500) -------- -------- INVESTING ACTIVITIES: Capital expenditures (924) (1,006) -------- -------- FINANCING ACTIVITIES: Payment of obligations under capital lease (73) -- Proceeds from exercise of stock options 306 38 -------- -------- Net cash provided by financing activities 233 38 -------- -------- INCREASE (DECREASE) IN CASH 8,285 (1,468) CASH AND EQUIVALENTS, BEGINNING OF PERIOD 5,051 7,255 -------- -------- CASH AND EQUIVALENTS, END OF PERIOD $ 13,336 $ 5,787 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 9 $ -- ======== ======== Income taxes $ 120 $ 2 ======== ========
See notes to unaudited condensed consolidated financial statements 5 INNODATA ISOGEN, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (Unaudited) - -------------------------------------------------------------------------------- 1. Innodata Isogen, Inc. and subsidiaries (the "Company") is a provider of digital asset services and solutions. The Company's solutions encompass both the manufacture of content (for which the Company provides services such as digitization, imaging, data conversion, XML and markup services, metadata creation, advanced classification services, editorial and knowledge services) as well as the design, implementation, integration and deployment of the systems used to manage content (for which the Company provides custom application development, consulting and training) through offices located both in the U.S. and Asia. The consolidated financial statements include the accounts of Innodata Isogen, Inc. and its subsidiaries, all of which are wholly owned. All intercompany transactions and balances have been eliminated in consolidation. 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 June 30, 2004, the results of operations for the three and six months ended June 30, 2004 and 2003, and the cash flows for the six months ended June 30, 2004 and 2003. The results of operations for the three and six months ended June 30, 2004 and 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, 2003 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, 2003 financial statements. 6 2. An analysis of the changes in each caption of stockholders' equity for the six months ended June 30, 2004 and 2003, (in thousands) is as follows.
ADDITIONAL COMMON STOCK PAID-IN RETAINED TREASURY SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL -------- -------- -------- -------- -------- -------- JANUARY 1, 2004 22,535 $ 226 $ 15,413 $ 3,739 $ (1,974) $ 17,404 Net income -- -- -- 3,657 -- 3,657 Issuance of common stock upon exercise of stock options 362 4 302 -- -- 306 Tax benefit from exercise of options -- -- 195 -- -- 195 Non-cash compensation -- -- 39 -- -- 39 -------- -------- -------- -------- -------- -------- JUNE 30, 2004 22,897 $ 230 $ 15,949 $ 7,396 $ (1,974) $ 21,601 ======== ======== ======== ======== ======== ======== 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 -- -- -- (1,749) -- (1,749) Issuance of common stock upon exercise of stock options 171 2 83 -- (47) 38 Tax benefit from exercise of options -- -- 3 -- -- 3 Non-cash compensation -- -- 650 -- -- 650 -------- -------- -------- -------- -------- -------- JUNE 30, 2003 22,217 $ 222 $ 14,820 $ 1,515 $ (2,046) $ 14,511 ======== ======== ======== ======== ======== ========
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 (loss) 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. Options to purchase 1.3 and 4.4 million shares of common stock at June 30, 2004 and 2003, respectively, were outstanding but not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares and therefore, the effect would have been antidilutive. In addition, for 2003, diluted net loss per share does not include 723,000 and 683,000 potential common shares derived from stock options for the three months and six months ended June 30, 2003 respectively, because they are antidilutive. 7 The basis of the earnings (loss) per share computation for the three and six months ended June 30, 2004 and 2003 (in thousands, except per share amounts) is as follows:
THREE MONTHS SIX MONTHS 2004 2003 2004 2003 ------- ------- ------- -------- Net income (loss) $ 1,577 $ (636) $ 3,657 $ (1,749) ======= ======= ======= ======== Weighted average common shares outstanding 22,145 21,466 22,049 21,451 Dilutive effect of outstanding options 2,288 -- 2,431 -- ------- ------- ------- -------- Adjusted for dilutive computation 24,433 21,466 24,480 21,451 ======= ======= ======= ======== Basic income (loss) per share $ .07 $ (.03) $ .17 $ (.08) ======= ======= ======= ======== Diluted income (loss) per share $ .06 $ (.03) $ .15 $ (.08) ======= ======= ======= ========
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 SIX MONTHS ENDED JUNE 30, JUNE 30, 2004 2003 2004 2003 ------- ------- ------- -------- Net income (loss) as reported $ 1,577 $ (636) $ 3,657 $ (1,749) Deduct: Total stock-based employee compensation determined under fair value based method, net of related tax effects (903) (1,527) (1,418) (2,146) Add: Compensation expense included in the determination of net income as reported, net of related tax effects, related to the extension of stock options -- 455 -- 455 Pro forma net income (loss) $ 674 $(1,708) $ 2,239 $ (3,440) ======= ======= ======= ======== Income (loss) per share: Basic - as reported $ .07 $ (.03) $ .17 $ (.08) ======= ======= ======= ======== Basic - pro forma $ .03 $ (.08) $ .10 $ (.16) ======= ======= ======= ======== Diluted - as reported $ .06 $ (.03) $ .15 $ (.08) ======= ======= ======= ======== Diluted - pro forma $ .03 $ (.08) $ .09 $ (.16) ======= ======= ======= ========
8 5. The Company's operations are classified into two reporting segments: (1) content services and (2) professional services. The content services operating segment aggregates, converts, tags and editorially enhances digital content and performs XML transformations. The Company's professional services 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. Commencing October 1, 2003, the Company unified its selling and related activities for its content and professional services segments. As such, selling and corporate administrative costs are not segregated by, nor are they allocated to, operating segments. The income (loss) before income taxes, by operating segment for the 2003 periods, have been reclassified for comparative purposes.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2004 2003 2004 2003 -------- -------- -------- -------- (IN THOUSANDS) (IN THOUSANDS) Revenues Content services $ 9,683 $ 6,591 $ 18,504 $ 12,361 Professional services 2,671 1,465 6,007 2,348 -------- -------- -------- -------- Total consolidated $ 12,354 $ 8,056 $ 24,511 $ 14,709 ======== ======== ======== ======== Income (loss) before income taxes Content services $ 2,939 $ 1,026 $ 6,254 $ 1,824 Professional services 1,255 631 3,017 703 Selling and corporate administration (2,112) (2,516) (4,099) (4,595) -------- -------- -------- -------- Total consolidated $ 2,082 $ (859) $ 5,172 $ (2,068) ======== ======== ======== ======== JUNE 30, DECEMBER, 31, 2004 2003 -------- -------- (IN THOUSANDS) Total assets Content services $ 27,049 $ 20,986 Professional services 2,990 4,160 -------- -------- Total consolidated $ 30,039 $ 25,146 ======== ========
6. Restricted cash at June 30, 2004 represents a certificate of deposit which collateralizes a $1 million line of credit. The Company has not borrowed against the line in 2004. In August 2004, the Company replaced this line with a $5 million line of credit pursuant to which it may borrow up to 80% of eligible accounts receivable at the bank's alternate base rate plus 1/2% or LIBOR plus 3%. The line, which expires in May, 2005, is secured by the company's accounts receivable. On June 1, 2004, the Company issued a $322,000 standby letter of credit related to software license purchases which expires on November 1, 2004. 9 7. In the three and six months ended June 30, 2004, the provision for income taxes as a percentage of income before income taxes was 24% and 29%, respectively, which is lower than the U.S. Federal statutory tax rate, principally due to certain overseas income which is neither subject to foreign income taxes because of tax holidays granted to the Company, nor subject to tax in the U.S. unless repatriated. In the three and six months ended June 30, 2003, 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 losses attributable to certain overseas subsidiaries not subject to income taxes, and certain domestic losses for which tax benefits may not be available. 8. In January 2004, the Company signed a settlement agreement and received $1,000,000 cash from a former client as full satisfaction of a $2.6 million remaining outstanding balance that the Company had fully written off as a bad debt in 2001. The $1,000,000 receipt, net of $37,000 in recovery costs, is reflected as bad debt recovery income in the statement of operation for the six months ended June 30, 2004. 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 and 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. Such compensation expense is included as a component of selling and administrative expenses. 10. In connection with the cessation of all operations at certain foreign subsidiaries, certain former employees have filed various actions in the Philippines relating to their dismissal 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, 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. 10 11. 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. 12. The Company is obligated under certain circumstances to indemnify directors and certain officers against costs and liabilities incurred in actions or threatened actions 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 June 30, 2004, the Company is not aware of liability for any obligations arising as a result of these indemnifications. 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, worsening of present 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 Isogen, Inc. (the "Company") is a leading provider of digital asset services and solutions. The Company's solutions encompass both the manufacture of content (for which the Company provides services such as digitization, imaging, data conversion, XML and markup services, metadata creation, advanced classification services, editorial and knowledge services) as well as the design, implementation, integration and deployment of the systems used to manage content (for which the Company provides custom application development, consulting and training) through offices located both in the US and Asia. The Company has approximately 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. 12 The Company's management currently monitors its operations through two reporting segments: (1) content services and (2) professional services (formerly referred to as systems integration and training). The content services operating segment aggregates, converts, tags and editorially enhances digital content and performs XML transformations. The Company's professional services operating segment offers system design, custom application development, consulting services and systems integration conforming to SML and related standards and provides a broad range of introductory as well as advanced curricula and training on XML and other knowledge management standards. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2004 AND 2003 Revenues increased 53% to $12,354,000 for the three months ended June 30, 2004 compared to $8,056,000 for the similar period in 2003. Revenues from the content services segment increased 47% to $9,683,000 for the three months ended June 30, 2004 compared to $6,591,000 for the similar period in 2003. The increase was principally due to increased revenues from two existing clients (one of which accounted for approximately 75% of the total increase) and one client added late in 2003. Revenues from the Company's professional services segment increased 82% to $2,671,000 for the three months ended June 30, 2004 compared to $1,465,000 for the similar period in 2003. The increase was principally attributable to an increase in the quantity and size of systems integration and consulting projects. For the three months ended June 30, 2004, revenues from four clients accounted for substantially all of professional services segment revenues; in the similar period in 2003, two clients accounted for approximately 50% of professional services segment revenues. One client, comprising multiple entities and divisions worldwide, accounted for 24% and 37% of the Company's revenues for the three months ended June 30, 2004 and 2003, respectively. A second client accounted for 27% of the Company's revenues for the three months ended June 30, 2004. Further, in the three months ended June 30, 2004, and 2003, revenues from clients located in foreign countries (principally in Europe), accounted for 30% and 49% respectively, of the Company's revenues. During the quarter, the Company provided approximately 50% of its total services under project-based arrangements and provided the balance of its services under outsourcing-type arrangements. Both types of services are typically subject to client requirements, and many are terminable upon notice. Outsourcing arrangements tend to continue for relatively longer periods, while revenues for project-based work vary depending on the size and completion dates of specific projects. The Company seeks wherever possible to counterbalance periodic declines in revenues on completion of large projects by entering into arrangements for new projects with the same client or others. The Company has refocused its sales force to seek to increase the relative percentage of services that the Company performs on an outsourcing basis. 13 Direct operating expenses were $7,859,000 and $6,408,000 for the three months ended June 30, 2004 and 2003, respectively, an increase of 23%. Direct operating expenses as a percentage of revenues were 64% in 2004 and 80% in 2003. Direct operating expenses for the content services segment were $6,443,000 and $5,574,000 in the three months ended June 30, 2004 and 2003, respectively, an increase of 16%. Direct operating expenses as a percentage of revenues for the content services segment were 67% and 85% in the three months ended June 30, 2004 and 2003, respectively. The dollar increase for the content services segment in the 2004 period was principally due to increases in costs for the increased revenues. The decrease as a percent of sales for the content services segment in the 2004 period was principally due to lower production labor costs as a percent of revenues, and to a 47% increase in revenues compared to a 22% increase in fixed non-labor costs. Direct operating expenses primarily include direct payroll, telecommunications, depreciation, computer services, supplies and occupancy. Direct operating expenses for the Company's professional services segment were $1,416,000 and $834,000 for the three months ended June 30, 2004 and 2003, respectively, an increase of 70%. Direct operating expenses as a percent of revenues for the Company's professional services segment were 53% and 57% in the three months ended June 30, 2004 and 2003, respectively. The dollar increase for the professional services segment in the 2004 period was principally due to increases in personnel and related costs for the increased revenues. The decrease as a percent of revenues for the professional services segment in the 2004 period was primarily attributable to an 82% increase in revenue without a proportionate increase in direct operating expenses. Commencing October 1, 2003, the Company unified its selling and related activities for its content and professional services segments. As such, selling and corporate administrative costs are not segregated by, nor are they allocated to, operating segments. Selling and administrative expenses were $2,413,000 and $2,513,000 for the three months ended June 30, 2004 and 2003, respectively, a decrease of 4%. Selling and administrative expenses as a percentage of revenues decreased to 20% in the 2004 period compared to 31% in the 2003 period. Selling and administrative expenses for the three months ended June 30, 2003 include a non-cash compensation charge of approximately $650,000 (described in note 9 to the Condensed Consolidated Financial Statements). Excluding this charge, overall selling and administrative expenses for the three months ended June 30, 2004 would have increased by approximately $550,000 or 30% from the similar period in 2003. This increase was primarily attributable to increases in marketing costs, which are expected to continue to grow modestly as the Company expands its sales and marketing activities, and to increases in administrative costs. Selling and administrative expenses primarily include management and administrative salaries, sales, marketing cost, and administrative overhead. 14 In the three months ended June 30, 2004, 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 which is neither subject to income taxes because of tax holidays granted to the Company, nor subject to tax in the U.S. unless repatriated. In the second quarter 2003, the income tax benefit as a percentage of the loss before income taxes was 26%, which is lower than the U.S. Federal statutory tax rate principally due to losses attributable to certain overseas subsidiaries not subject to income taxes, and certain domestic losses for which tax benefits may not be available. SIX MONTHS ENDED JUNE 30, 2004 AND 2003 Revenues increased 67% to $24,511,000 for the six months ended June 30, 2004 compared to $14,709,000 for the similar period in 2003. Revenues from the content services segment increased 50% to $18,504,000 for the six months ended June 30, 2004 compared to $12,361,000 for the similar period in 2003. The increase was principally due to increased revenues from four existing clients (one of which accounted for 58% of the total increase) and one client added late in 2003. Revenues from the Company's professional services segment increased 156% to $6,007,000 for the six months ended June 30, 2004 compared to $2,348,000 for the similar period in 2003. The increase was principally attributable to an increase in the quantity and size of systems integration and consulting projects. For the three months ended June 30, 2004, revenues from four clients accounted for approximately 90% of professional services segment revenues; in the similar period in 2003, two clients accounted for approximately 47% of professional services segment revenues. One client, comprising multiple entities and divisions worldwide, accounted for 24% and 36% of the Company's revenues for the six months ended June 30, 2004 and 2003, respectively. A second client also accounted for 25% of the Company's revenues for the six months ended June 30, 2004. Further, in the six months ended June 30, 2004, and 2003, revenues from clients located in foreign countries (principally in Europe), accounted for 30% and 47% respectively, of the Company's revenues. During the six months ended June 30, 2004, the Company provided approximately 50% of its total services under project-based arrangements and provided the balance of its services under outsourcing-type arrangements. Both types of services are typically subject to client requirements, and many are terminable upon notice. Outsourcing arrangements tend to continue for relatively longer periods, while revenues for project-based work vary depending on the size and completion dates of specific projects. The company seeks wherever possible to counterbalance periodic declines in revenues on completion of large projects by entering into arrangements for new projects with the same client or others. The Company has refocused its sales force to seek to increase the relative percentage of services that the Company performs on an outsourcing basis. 15 Direct operating expenses were $15,634,000 and $12,233,000 for the six months ended June 30, 2004 and 2003, respectively, an increase of 28%. Direct operating expenses as a percentage of revenues were 64% in 2004 and 83% in 2003. Direct operating expenses for the content services segment were $12,669,000 and $10,587,000 in the six months ended June 30, 2004 and 2003, respectively, an increase of 20%. Direct operating expenses as a percentage of revenues for the content services segment were 68% and 86% in the six months ended June 30, 2004 and 2003, respectively. The dollar increase for the content services segment in the 2004 period was principally due to increases in costs for the increased revenues. The decrease as a percent of sales for the content services segment in the 2004 period was principally due to lower production labor costs as a percent of revenues, and to a 50% increase in revenues compared to a 22% increase in fixed non-labor costs. Direct operating expenses primarily include direct payroll, telecommunications, depreciation, computer services, supplies and occupancy. Direct operating expenses for the Company's professional services segment were $2,965,000 and $1,646,000 for the six months ended June 30, 2004 and 2003, respectively, an increase of 80%. Direct operating expenses as a percent of revenues for the Company's professional services segment were 49% and 70% in the six months ended June 30, 2004 and 2003, respectively. The dollar increase for the professional services segment in the 2004 period was principally due to increases in personnel and related costs for the increased revenues. The decrease as a percent of revenues for the professional services segment in the 2004 period was primarily attributable to a 156% increase in revenue without a proportionate increase in direct operating expenses and a 17 percentage point decrease in direct labor costs as a percent of revenues. Commencing October 1, 2003, the Company unified its selling and related activities for its content and professional services segments. As such, selling and corporate administrative costs are not segregated by, nor are they allocated to, operating segments. Selling and administrative expenses were $4,667,000 and $4,559,000 for the six months ended June 30, 2004 and 2003, respectively, an increase of 2%. Selling and administrative expenses as a percentage of revenues decreased to 19% in the 2004 period compared to 31% in the 2003 period. Selling and administrative expenses for the six months ended June 30, 2003 include a non-cash compensation charge of approximately $650,000 (described in note 9 to the Condensed Consolidated Financial Statements). Excluding this charge, overall selling and administrative expenses for the six months ended June 30, 2004 would have increased by approximately $758,000, or 19%, from the similar period in 2003. This increase was primarily attributable to increases in marketing costs, which are expected to continue to grow modestly as the Company expands its sales and marketing activities, and to increases in administrative costs. Selling and administrative expenses primarily include management and administrative salaries, sales, marketing cost, and administrative overhead. 16 In January 2004, the Company reached a settlement agreement and received $1,000,000 cash from a former client as full satisfaction of a $2.6 million dollar remaining outstanding balance that the Company had fully written off as a bad debt in 2001. The $1,000,000 receipt, net of $37,000 in recovery costs, is reflected as bad debt recovery income in the statement of operations for the six months ended June 30, 2004. In the six months ended June 30, 2004, the provision for income taxes as a percentage of income before income taxes was 29%, which is lower than the U.S. Federal statutory tax rate, principally due to certain overseas income which is neither subject to foreign income taxes because of tax holidays granted to the Company, nor subject to tax in the U.S. unless repatriated. In the three and six months ended June 30, 2003, 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 losses attributable to certain overseas subsidiaries not subject to income taxes, and certain domestic losses for which tax benefits may not be available. LIQUIDITY AND CAPITAL RESOURCES Selected measures of liquidity and capital resources are as follows:
June 30, 2004 December 31, 2003 ------------- ----------------- Cash and Cash Equivalents $13,336,000 $ 5,051,000 Working Capital 16,765,000 11,983,000 Stockholders' Equity Per Common Share* $.97 $.79
*Represents total stockholders' equity divided by the actual number of common shares outstanding (which excludes treasury stock). Net Cash Provided By (Used In) Operating Activities Net cash provided by operating activities was $8,976,000 in the six months ended June 30, 2004 compared to $500,000 used in operating activities for the six months ended June 30, 2003, an increase of approximately $9.5 million. The net cash provided by operating activities in the 2004 period is principally due to net income approximating $3.7 million, non-cash charges approximating $3.2 million and a $1.0 million income tax refund. Accounts receivable totaled $7,674,000 at June 30, 2004, representing approximately 56 days of sales outstanding, compared to $8,497,000, or 71 days, at December 31, 2003. The decrease in days outstanding resulted from significant accounts receivable collections during the first six months of 2004. 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 June 30, 2004, approximately 22% of the Company's accounts receivable was from foreign (principally European) clients, and 41% of accounts receivable were due from two clients. 17 Net Cash Used in Investing Activities During the six months ended June 30, 2004, the Company spent approximately $924,000 for capital expenditures, compared to approximately $1,006,000 in the six months ended June 30, 2003. During the next 12 months, the Company currently anticipates capital spending levels to be in the $3 million range. Such spending in the first six months of 2004 and anticipated capital spending relates principally to normal ongoing equipment upgrades, to project requirement specific equipment for certain new projects, and for improvements in infrastructure. Availability of Funds In August 2004, the Company replaced its existing line of credit with a $5 million line of credit pursuant to which it may borrow up to 80% of eligible accounts receivable at the bank's alternate base rate plus 1/2% or LIBOR plus 3%. The line, which expires in May, 2005, is secured by the company's accounts receivable. 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. 18 Allowance for Doubtful Accounts The Company establishes credit terms for new clients based upon management's review of their credit information and project terms, and performs ongoing credit evaluations of its customers, adjusting credit terms when management believes appropriate based upon payment history and an assessment of their current credit worthiness. The Company records an allowance for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company's previous loss history, the client's current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. While credit losses have generally been within expectations and the provisions established, the Company cannot guarantee that credit loss rates in the future will be consistent with those experienced in the past. In addition, there is credit exposure if the financial condition of one of the Company's major clients were to deteriorate. In the event that 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 for content manufacturing and outsourcing services is recognized in the period in which services are performed and delivered. The Company recognizes revenues from custom application and systems integration development which requires significant production, modification or customization of software in accordance with Statement of Position ("SOP") No. 97-2 "Software Revenue Recognition" and SOP No. 81-1 "Accounting for Performance of Construction-Type and Certain Production-Type Contracts". Revenue for such contracts billed under fixed fee arrangements is recognized using the percentage-of-completion method under contract accounting as services are performed or output milestones are reached. The percentage completed is measured either by the percentage of labor hours incurred to date in relation to estimated total labor hours or in consideration of achievement of certain output milestones, depending on the specific nature of each contract. For arrangements in which percentage-of completion accounting is used, the Company records cash receipts from customers and billed amounts due from customers in excess of recognized revenue as billings in excess of revenues earned on contracts in progress (which is included in accounts receivable). Revenue for contracts billed on a time and materials basis is recognized as services are performed. 19 Property and Equipment Property and equipment is depreciated on the straight-line method over the estimated useful lives of the related assets, which is generally 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. The Company makes estimates regarding the useful lives of these assets and any changes in actual lives could result in material changes in the net book value of these assets. The Company evaluates the recoverability of long-lived assets whenever adverse events or changes in business climate indicate that the expected undiscounted future cash flows from the related asset may be less than previously anticipated. If the net book value of the related asset exceeds the undiscounted future cash flows of the asset, the carrying amount would be reduced to the present value of its expected future cash flows and an impairment loss would be recognized. This analysis requires the Company to make significant estimates and assumptions, and changes in facts and circumstances could result in material changes in the carrying value of the assets and the related depreciation expense. 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 Statement of Financial Accounting Standard ("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. 20 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 base rate (4 1/4% at June 30, 2004). The company has not borrowed against this line in 2004. To the extent the Company utilizes all or a portion of its line of credit, changes in the interest rate will have a positive or negative effect on the Company's interest expense. 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 The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Principal Financial Officer to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures which, by their nature, can provide only reasonable assurance regarding management's control objectives. Management, including the Company's Chief Executive Officer along with the Company's Principal Financial Officer, concluded that the Company's disclosure controls and procedures are effective in reaching the level of reasonable assurance regarding management's control objectives. The Company has carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer along with the Company's Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon the foregoing, as of June 30, 2004, the Company's Chief Executive Officer along with the Company's Principal Financial Officer, concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's Exchange Act reports. There has been no change during the Company's six months ended June 30, 2004 in the Company's internal control over financial reporting that was identified in connection with the foregoing evaluation which has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 21 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. The following matters were voted on at the June 15, 2004 Annual Meeting of Stockholders. The total shares voted were 20,684,682. ELECTION OF DIRECTORS: NOMINEE FOR WITHHELD AGAINST ABSTAIN ------- ---------- -------- ------- ---------- Jack Abuhoff 20,211,355 473,327 Todd Solomon 20,211,555 473,127 Haig Bagerdjian 20,637,338 47,344 Louise Forlenza 20,637,338 47,344 Charles Goldfarb 20,637,338 47,344 John Marozsan 20,637,338 47,344 APPOINTMENT OF AUDITORS 18,513,868 47,160 2,123,654 Item 5. Other Information. Not Applicable Item 6. (a) Exhibits. 10.11 2004 Executive Management Incentive Compensation Plan 31.1 Certificate of Chief Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 22 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (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 May 13, 2004, which reported the Company's results for the three months and year ended March 31, 2004 under Items 7 and 12. 23 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 ISOGEN, INC. Date: August 12, 2004 /s/ Jack Abuhoff --------------- ------------------------------------- Jack Abuhoff Chairman of the Board of Directors, Chief Executive Officer and President Date: August 12, 2004 /s/ Stephen Agress --------------- ------------------------------------- Stephen Agress Vice President - Finance Chief Accounting Officer 24 EX-10.11 2 v05629_ex10-11.txt EXHIBIT 10.11 2004 Executive Management Incentive Compensation Plan PURPOSE The purpose of the 2004 Executive Management Incentive Compensation Plan (the "Plan") is to enhance and reinforce the goals of the Company for profitable growth and continuation of a sound overall condition by providing additional financial rewards for attainment of such growth and a stable financial and operating condition. ADMINISTRATION The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"). PARTICIPATION The Committee shall select participants in the Plan from executive management of the Company other than the CEO. BONUSES UNDER THE PLAN Bonus terms and eligibility under the Plan shall be set forth in a grant memorandum issued by the Company to the Participant (a "Grant Memorandum") pursuant to which the Company authorizes a bonus hereunder. Each Grant Memorandum issued pursuant to the Plan shall contain such provisions, consistent with the provisions of the Plan, as may be established by the Committee. PAYMENT OF BONUSES Incentive bonuses under this Plan shall be earned as of the last business day of 2004. Payment of bonuses shall be made in cash by March 31, 2005, and shall be made net of withholding requirements. PERFORMANCE FACTORS The Plan is based on the following performance factors for 2004: o The Company's earnings before interest, taxes and funding of this Plan (EBITe). o Business unit performance as measured by the gross margin of the designated business unit or units (unit performance). o Sales performance as measured by bookings and revenues (bookings and revenues). CALCULATION OF BONUSES The Grant Memorandum for each participant shall set forth one or more performance factors on which his or her bonus will be based. To the extent a participant's bonus is based on more than one performance factor, the Grant Memorandum shall weight these factors. The Grant Memorandum shall set out a specific bonus (the target bonus) ranging between 20% and 40% of the participant's compensation base that will be paid to the participant if the Company precisely achieves its goals for the factors set forth the Grant Memorandum. For each 1% variance in actual Company results above or below the goal for EBITe, unit performance and bookings and revenues, the bonus allocable to these factors will be increased or reduced by 3%, 3% and 5%, respectively. No bonus shall be allocable to EBITe, unit performance and bookings and revenues if the Company fails to attain, respectively, 70%, 70% and 85% of its goal for that factor, and no bonus shall be made for bookings and revenues if the sales department has not operated within its budget. The maximum bonus allocable to each factor will be achieved if the Company attains 160% of its goal for that factor. The bonus otherwise payable to a participant in respect of the EBITe and business unit factors is subject to a performance modifier of 50% of the bonus at the CEO's discretion. Modifications, if any, will be at the CEO's discretion, and will be made in order to achieve equity based upon a participant's individual performance and effectiveness during the period. The Committee's determinations under the Plan (including without limitation determinations of the persons to receive bonuses, the terms and provisions of bonuses and the agreements evidencing same) need not be uniform and may be made by the Committee selectively among persons who receive, or are eligible to receive, bonuses under the Plan, whether or not such persons are similarly situated. Decisions of the Committee with respect to any questions arising as to the interpretation of the Plan shall be final, conclusive, and binding on all parties. The Committee shall have full power and authority to administer and interpret the Plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Committee deems necessary or advisable, all within the Committee's sole and absolute discretion. The Committee reserves the right to amend, modify or discontinue the Plan at any time for any reason, notwithstanding the terms of any Grant Memorandum. EX-31.1 3 v05629_ex31-1.txt EXHIBIT 31.1 CERTIFICATIONS I, Jack Abuhoff, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Innodata Isogen, Inc.; 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(e)) 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: August 12, 2004 /s/ Jack Abuhoff ------------------------------------- Jack Abuhoff Chairman of the Board, Chief Executive Officer and President I, Stephen Agress, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Innodata Isogen, Inc.; 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(e) 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: August 12, 2004 /s/ Stephen Agress ------------------------------- Stephen Agress Vice President, Finance and Chief Accounting Officer EX-32.1 4 v05629_ex32-1.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 Isogen, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2004 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) or 15(d) 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 August 12, 2004 EX-32.2 5 v05629_ex32-2.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 Isogen, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2004 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) or 15(d) 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 August 12, 2004 -----END PRIVACY-ENHANCED MESSAGE-----