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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000922811-02-000057.txt : 20020515
<SEC-HEADER>0000922811-02-000057.hdr.sgml : 20020515
ACCESSION NUMBER:		0000922811-02-000057
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20020331
FILED AS OF DATE:		20020515

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INNODATA CORP
		CENTRAL INDEX KEY:			0000903651
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374]
		IRS NUMBER:				133475943
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-22196
		FILM NUMBER:		02647794

	BUSINESS ADDRESS:	
		STREET 1:		95 ROCKWELL PL
		CITY:			BROOKLYN
		STATE:			NY
		ZIP:			11217
		BUSINESS PHONE:		7188550044

	MAIL ADDRESS:	
		STREET 1:		95 ROCKWELL PLACE
		CITY:			BROOKLYN
		STATE:			NY
		ZIP:			11217
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>doc1.txt
<TEXT>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    Form 10-Q

                QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended March 31, 2002

                         Commission File Number 0-22196


                              INNODATA CORPORATION
             (Exact name of registrant as specified in its charter)


                                    DELAWARE
                 (State or other jurisdiction of incorporation)


                                   13-3475943
                       (I.R.S. EmployerIdentification No.)


                             Three University Plaza
                              Hackensack, NJ 07601
                    (Address of principal executive offices)

                                 (201) 488-1200
                           (Issuer's telephone number)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes /X/
No /  /

State the number of shares outstanding of each of the issuer's common equity, as
of the latest practicable date: As of April 30, 2002 there were approximately
21,586,000 shares of common stock outstanding.


PART I.   FINANCIAL INFORMATION

Item 1.     Financial Statements

            See pages 2-7

Item 2.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations

            See pages 8-11

Item 3.     Quantitative and Qualitative Disclosures about Market Risk

            See page 11

PART ll.    OTHER INFORMATION

            See page 12


                      INNODATA CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>



<S>                                                 <C>             <C>
                                                      March 31,       December 31,
                                                        2002            2001
                                                    -------------  --------------
                                                      Unaudited     Derived from
                                                                     audited
                                                                    financial
                                                                    statements
ASSETS

CURRENT ASSETS:
 Cash and equivalents                                  $ 7,300        $ 6,267
 Accounts receivable-net                                 7,946          7,846
 Prepaid expenses and other current assets               1,340            978
 Deferred income taxes                                   1,793          1,793
                                                       -------        -------

 Total current assets                                   18,379         16,884

PROPERTY AND EQUIPMENT - NET                             9,099         10,236

OTHER ASSETS                                             1,985          2,351

GOODWILL                                                   623            623
                                                       -------        -------

TOTAL                                                  $30,086        $30,094
                                                       =======        =======

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Acquisition notes payable                             $   650        $   650
 Accounts payable and accrued expenses                   2,293          2,875
 Accrued salaries and wages                              4,180          3,770
 Income and other taxes                                    653            735
                                                       -------        -------

Total current liabilities                                7,776           8,030
                                                       -------         -------

DEFERRED INCOME TAXES PAYABLE                            1,702          1,702
                                                       -------        -------

STOCKHOLDERS' EQUITY:
 Common stock, $.01 par value; authorized 75,000,000
 shares; issued, 21,725,000 and 21,716,000 shares
 at March 31, 2002 and December 31, 2001 respectively      217            217
Additional paid-in capital                              13,358         13,355
Retained earnings                                        8,672          8,429
                                                       -------         ------

                                                        22,247         22,001
Less: treasury stock - at cost; 270,000 shares          (1,639)        (1,639)
                                                       -------        -------

Total stockholders' equity                              20,608         20,362
                                                       -------        -------

TOTAL                                                  $30,086        $30,094
                                                       =======        =======
<FN>

See notes to unaudited condensed consolidated financial statements
</TABLE>



                      INNODATA CORPORATION AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                   THREE MONTHS ENDED MARCH 31, 2002 AND 2001
                    (In thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>



<S>                                       <C>       <C>
                                            2002      2001
                                          --------  --------

REVENUES                                  $12,556   $18,058
                                          -------   -------

OPERATING COSTS AND EXPENSES:
Direct operating expenses                   9,739    11,923
Selling and administrative expenses         2,483     2,163
Interest income - net                          (4)      (93)
                                          -------   -------

Total                                      12,218    13,993
                                          -------   -------
INCOME BEFORE PROVISION FOR INCOME TAXES      338     4,065
PROVISION FOR INCOME TAXES                     95     1,382
                                          -------   -------
NET INCOME                                $   243   $ 2,683
                                          =======   =======

BASIC INCOME PER SHARE                       $.01      $.13
                                             ====      ====
WEIGHTED AVERAGE SHARES OUTSTANDING        21,450    21,228
                                          =======   =======

DILUTED INCOME PER SHARE                     $.01      $.11
                                             ====      ====
ADJUSTED DILUTIVE SHARES OUTSTANDING       23,901    25,266
                                          =======   ========
<FN>

See notes to unaudited condensed consolidated financial statements
</TABLE>




                      INNODATA CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                   THREE MONTHS ENDED MARCH 31, 2002 AND 2001
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>




<S>                                                               <C>      <C>

                                                                   2002      2001
                                                                  -------  --------

OPERATING ACTIVITIES:
 Net income                                                       $  243   $ 2,683
 Adjustments to reconcile net income to
  net cash provided by operating activities:
  Depreciation and amortization                                    1,434     1,094
  Deferred income taxes                                              -         119
  Changes in operating assets and liabilities:
   Accounts receivable                                              (100)   (1,999)
   Prepaid expenses and other current assets                        (358)      546
   Other assets                                                      198      (335)
   Accounts payable and accrued expenses                            (582)      (95)
   Accrued salaries and wages                                        410       (37)
   Income and other taxes                                            (82)      652
                                                                  ------   -------

          Net cash provided by operating activities                1,163     2,628
                                                                  ------   -------

INVESTING ACTIVITIES:
 Capital expenditures                                               (133)   (1,578)
                                                                  ------   -------

FINANCING ACTIVITIES:
 Proceeds from exercise of stock options                               3       149
                                                                  ------   -------

INCREASE IN CASH                                                   1,033     1,199

CASH AND EQUIVALENTS, BEGINNING OF PERIOD                          6,267     9,040
                                                                  ------   -------

CASH AND EQUIVALENTS, END OF PERIOD                               $7,300   $10,239
                                                                  ======   =======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the period for:
  Income taxes                                                    $    9   $   654
                                                                  ======   =======
<FN>

See notes to unaudited condensed consolidated financial statements
</TABLE>




                      INNODATA CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   THREE MONTHS ENDED MARCH 31, 2002 AND 2001
                                   (Unaudited)


1.   In the opinion of the Company, the accompanying unaudited condensed
     consolidated financial statements contain all adjustments (consisting of
     only normal recurring accruals) necessary to present fairly the financial
     position as of March 31, 2002, the results of operations for the three
     months ended March 31, 2002 and 2001, and the cash flows for the three
     months ended March 31, 2002 and 2001. The results of operations for the
     three months ended March 31, 2002 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, 2001 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, 2001 financial statements.

2.   An analysis of the changes in each caption of stockholders' equity for the
     three months ended March 31, 2002 (in thousands) is as follows.

<TABLE>
<CAPTION>
<S>                                  <C>           <C>       <C>        <C>        <C>       <C>
                                                      Additional
                                      Common Stock     Paid-in    Retained   Treasury
                                     Shares   Amount   Capital    Earnings    Stock     Total
                                     ------   ------  ----------  --------   --------  -------

     January 1, 2002                 21,716    $217    $13,355    $8,429     $(1,639)  $20,362

     Net income                         -       -          -         243         -         243

     Issuance of common stock
     upon exercise of stock options       9     -            3       -           -           3
                                     ------    ----    -------    ------     -------   -------

     March 31, 2002                  21,725    $217    $13,358    $8,672     $(1,639)  $20,608
                                     ======    ====    =======    ======     =======   =======
</TABLE>



3.   Basic earnings per share is based on the weighted average number of common
     shares outstanding without consideration of potential common stock. Diluted
     earnings per share is based on the weighted average number of common and
     potential common shares outstanding. The difference between weighted
     average common shares outstanding and adjusted dilutive shares outstanding
     represents the dilutive effect of outstanding options.

     The basis of the earnings per share computation for the three months ended
     March 31, 2002 and 2001 (in thousands, except per share amounts) is as
     follows:

<TABLE>
<CAPTION>



<S>                                         <C>            <C>
                                                         Three Months
                                                        2002      2001
                                                      -------   -------

     Net income                                       $   243  $ 2,683
                                                      =======  =======

     Weighted average common shares outstanding        21,450   21,228
     Dilutive effect of outstanding options             2,451    4,038
                                                      -------  -------

     Adjusted for dilutive computation                 23,901   25,266
                                                      =======  =======

     Basic income per share                              $.01     $.13
                                                          ===     ====

     Diluted income per share                            $.01     $.11
                                                         ====     ====
</TABLE>



4.   The Company is subject to legal proceedings and claims which arise in the
     ordinary course of its business. In the opinion of management, the amount
     of ultimate liability with respect to these actions will not materially
     affect the Company's financial statements.

5.   As a result of the acquisition of ISOGEN International in December 2001,
     the Company's operations are now 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.


<TABLE>
<CAPTION>
<S>                             <C>                            <C>
                                           Three Months Ended March 31,
                                             2002               2001
                                          -----------------------------
                                                 (in thousands)

Revenues
- --------
Content services                            $10,921           $18,058
Systems and training services                 1,635               -
                                            -------           -------

Total consolidated                          $12,556           $18,058
                                            =======           =======

Income before income taxes (a)
- ------------------------------
Content services                            $   227           $ 4,065
Systems and training services                   111               -
                                            -------           -------

Total consolidated                          $   338           $ 4,065
                                            =======           =======
<FN>
     (a)  Corporate  overhead has not been allocated to the systems and training
          services  segment.
</TABLE>

<TABLE>
<CAPTION>
<S>                             <C>         <C>
                                    March 31,     December 31,
                                      2002           2001
                                   ----------     ------------
                                      (in thousands)

Total assets
- ------------
Content services                   $27,924          $30,094
Systems and training services        2,162              -
                                   -------          -------

Total consolidated                 $30,086          $30,094
                                   =======          =======
</TABLE>



6.   On April 2, 2002, the Company issued a $280,000 standby letter of
     credit, which expires on October 31, 2002.


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

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.

     Commencing with the acquisition of ISOGEN International in December 2001,
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 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.
Prior to the acquisition of ISOGEN International in December 2001, the Company
operated as a single segment.


Results of Operations

Three Months Ended March 31, 2002 and 2001

     Revenues decreased 30% to $12,556,000 for the three months ended March 31,
2002 compared to $18,058,000 for the similar period in 2001. Revenues from the
content services segment decreased 40% to $10,921,000 for the three months ended
March 31, 2002 compared to $18,058,000 for the similar period in 2001. The
decline principally resulted from the loss in revenues from one client that
accounted for $11 million of the Company's content services segment revenues in
the first quarter of 2001, and the loss in revenues from two smaller clients,
both of which substantially curtailed operations, that accounted for
approximately $700,000 of first quarter 2001 revenues. The Company replaced this
shortfall in part by a $4.7 million increase in revenues from two other clients.
Revenues from the Company's systems and training segment were $1,635,000 for the
three months ended March 31, 2002.

     For the three months ended March 31, 2002, two clients accounted for 35%
and 15%, respectively, of the Company's revenues. For the three months ended
March 31, 2001, one other client accounted for 61% of the Company's revenues.
This other client did not account for revenues in 2002. No other client
accounted for 10% or more of revenues. Further, in 2002 and 2001, export
revenues, substantially all of which were derived from European clients,
accounted for 16% and 10%, respectively, of the Company's revenues.

     Direct operating expenses were $9,739,000 in the first quarter of 2002 and
$11,923,000 in the first quarter of 2001, a decrease of 18%. Direct operating
expenses for the content services segment were $8,649,000 in the first quarter
of 2002 and $11,923,000 in the first quarter of 2001, a decrease of 27%. Direct
operating expenses as a percentage of revenues for the content services segment
were 79% in 2002 and 66% in 2001. The dollar decrease for the content services
segment in 2002 is principally due to a reduction in labor costs associated with
lower revenues. The percentage increase for the content services segment in 2002
is primarily attributable to the decline in revenues without a corresponding
decline in fixed operating costs. Direct operating expenses for the Company's
systems and training segment were $1,090,000 for the three months ended March
31, 2002. Direct operating expenses primarily include direct payroll,
telecommunications, depreciation, equipment lease costs, computer services,
supplies and occupancy.

     Selling and administrative expenses were $2,483,000 and $2,163,000 in the
first quarter of 2002 and 2001, respectively. The increase is primarily due to
selling and marketing costs of the ISOGEN International Division, which was
acquired in December 2001. Selling and administrative expenses as a percentage
of revenues increased to 20% in 2002 from 12% in the 2001 quarter due primarily
to the decrease in revenues without a corresponding decrease in such expenses.
Selling and administrative expenses primarily include management and
administrative salaries, sales and marketing costs, and administrative overhead.

Liquidity and Capital Resources

     Selected measures of liquidity and capital resources are as follows:

<TABLE>
<CAPTION>



<S>                                     <C>              <C>
                                              March 31, 2002  December 31, 2001
                                              --------------  -----------------

     Cash and Cash Equivalents                 $  7,300,000      $6,267,000
     Working Capital                            $10,603,000      $8,854,000
     Stockholders' Equity Per Common Share*          $.96            $.95
<FN>
     *Represents total stockholders' equity divided by the actual number of
     common shares outstanding (which excludes treasury stock).
</TABLE>



Net Cash Provided By Operating Activities

     Net cash provided by operating activities was $1,163,000 and $2,628,000 for
the three months ended March 31, 2002 and 2001, respectively, a decrease of
approximately $1.5 million. The decrease was primarily due a $2.4 million
decrease in net income, partially offset by $754,000 in net changes in operating
assets and liabilities and a $221,000 increase in depreciation and other
non-cash charges to net income.

Net Cash Used in Investing Activities

     As a result of the decline in revenues and associated reduction in
production capacity, the need for new equipment has been diminished in
comparison with the prior two years. Accordingly, in the three months ended
March 31, 2002, the Company spent approximately $133,000 for capital
expenditures, compared to approximately $1,578,000 in the three months ended
March 31, 2001.

Net Cash Provided By Financing Activities

     In the three months ended March 31, 2002, net cash provided by financing
activities totaled approximately $3,000 compared to $149,000 in the comparable
period in 2001. The change was primarily due to a decrease in the proceeds from
the exercise of stock options.

Availability of Funds

     The Company has a $4 million line of credit with a bank pursuant to which
it may borrow up to 80% of eligible accounts receivable. The line, which is due
on demand and was unused at March 31, 2002, is collateralized by accounts
receivable. Interest is charged at 1/2% above the bank's prime rate.

     On April 2, 2002, the Company issued a $280,000 standby letter of credit
which expires on October 31, 2002.

     Management believes that existing cash, internally generated funds, and
short term bank borrowings 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.

     Disclosures in this Form 10-Q contain certain forward-looking statements,
including without limitation, statements concerning the Company's operations,
economic performance and financial condition. These forward-looking statements
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The words "believe," "expect," "anticipate" and
other similar expressions generally identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates. These forward-looking statements are based
largely on the Company's current expectations, and are subject to a number of
risks and uncertainties, including without limitation, changes in external
market factors, the ability and willingness of the Company's clients and
prospective clients to execute business plans which give rise to requirements
for digital content services and professional services in knowledge processing,
difficulty in integrating and deriving synergies from acquisitions, potential
undiscovered liabilities of companies that Innodata 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.


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
prime rate of interest.  At March 31, 2002, there were no borrowings under the
credit facility. To the extent the Company utilizes all or a portion of its line
of credit, changes in the prime interest rate during fiscal 2002 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.


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.  None

            (b) Form 8-K Report.  None




                                   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


<TABLE>
<CAPTION>
<S>      <C>                                <C>
  Date:  May 14, 2002                        /s/
         ------------                        -----------------------------------
                                             Jack Abuhoff
                                             Chairman of the Board of Directors,
                                             Chief Executive Officer and President


  Date:  May 14, 2002                        /s/
         ------------                        -----------------------------------
                                             Stephen Agress
                                             Vice President - Finance
                                             Chief Accounting Officer
</TABLE>



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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