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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

(Mark One)
|X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF
      1934

                  For the fiscal year ended December 31, 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)

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:  Common Stock,
                                                                $.01 par value

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past  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 if disclosure  of  delinquent  filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes |_| No |X|

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common  equity,  as of
the last business day of the registrant's most recently  completed second fiscal
quarter. $72,400,000
         ===========

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

   22,693,138 shares of common stock, $.01 par value, as of February 28, 2005.

                       DOCUMENTS INCORPORATED BY REFERENCE
                             [SEE INDEX TO EXHIBITS]
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<PAGE>

                                     PART I

Disclosures  in this  Form  10-K  contain  certain  forward-looking  statements,
including without  limitation,  statements  concerning our 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 "estimate,"  "believe," "expect," and "anticipate"
and other similar  expressions  generally identify  forward-looking  statements,
which speak only as of their dates.

These forward-looking  statements are based largely on our current expectations,
and are  subject  to a number  of risks  and  uncertainties,  including  without
limitation,  continuing  revenue  concentration  in a limited number of clients,
continuing  reliance on  project-based  work,  worsening  of market  conditions,
changes in external market  factors,  the ability and willingness of our 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 we acquire, changes in our
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 our filings with the Securities and
Exchange Commission.

Our 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 release will occur.

We  undertake  no   obligation  to  update  or  review  any  guidance  or  other
forward-looking  information,  whether  as a result of new  information,  future
developments or otherwise.

Item 1.  Description of Business.

General

      Innodata  Isogen is a leading  provider  of  business  services  that help
organizations  create,  manage, use and distribute  information more effectively
and economically.  We provide  outsourced  content services and  content-related
information  technology  (IT)  professional  services.  Our  outsourced  content
services  focus on  fabrication  services and  knowledge  services.  Fabrication
services  include  digitization,  imaging,  data  conversion,  XML  and  mark-up
services, as well as language translation and content creation services. XML, or
Extensible Markup Language,  is a universally  accepted notation for identifying
information  elements in  documents,  and is designed to meet the  challenges of
large-scale   electronic   publishing.   Knowledge   services   include  content
enhancement, taxonomy, controlled vocabulary development,  hyperlinking, mark-up
indexing,  abstracting  and  general  editorial  services.  Our IT  professional
services  focus on the design,  implementation,  integration  and  deployment of
systems used to author, manage and distribute content.

      We believe our integrated  offering of outsourced  content services and IT
professional  services  allows us to offer our clients a suite of  comprehensive
and sophisticated technology-based solutions that span the entire content supply
chain,  which is the series of integrated  activities needed to create,  manage,
use and distribute information.

      In 2004,  we provided  our services to  approximately  100 clients in four
content-intensive sectors. Organizations within each of these sectors, which are
listed below, face a distinct set of challenges in creating, managing, using and
distributing information more effectively and economically:

      o     publishing, media and information services, including EBSCO and Reed
            Elsevier;

      o     Global 2000 enterprises,  including Hamilton Sundstrand and Lockheed
            Martin;


                                      I-1
<PAGE>

      o     educational and cultural institutions,  including Cornell University
            and Harvard Business School Publishing; and

      o     government agencies, including several U.S. intelligence agencies.

      We   typically   service   our   clients  in   multi-year   relationships.
Approximately  76% of our  largest  25  clients  by  revenues  in the year ended
December 31, 2004 have been clients in each year since 2001.

      We provide  outsourced  content  services for business  processes  that we
anticipate will continue for an indefinite period and therefore generate what we
regard as recurring revenues.  We derived 47% and 53% of our revenues from these
engagements for the years ended December 31, 2004 and 2003, respectively.

      We are  headquartered  in  Hackensack,  New Jersey,  just outside New York
City.  We  have  two  additional  solutions  centers  in  North  America,  seven
production  facilities  in Asia (the  Philippines,  India and Sri  Lanka)  and a
technology  and  tools  development  center in India.  We were  incorporated  in
Delaware in 1988.

Innodata Isogen's Services

      Our services  encompass  both  outsourced  content  services that focus on
fabrication  services and knowledge  services and  information  technology  (IT)
professional services that focus on the design, implementation,  integration and
deployment of systems used to author,  manage and distribute  content. We define
content as all forms of unstructured data,  including text,  formatted text such
as HTML, high-fidelity  information such as XML, interactive and /or dynamic Web
pages, images, graphics animation, video and sound files.

Outsourced Content Services

      Our  outsourced  content  services  focus  on  fabrication   services  and
knowledge services.  We undertake fabrication projects for enterprises deploying
content  management  solutions,  and we build  customized  content  products for
online publishers and information providers.  In addition, we provide outsourced
services for content-intensive enterprises and information service providers.

      The services we provide may vary in size and duration.  Outsourced content
services  that are  provided  for a  specific  project  generate  revenues  that
terminate  on  completion  of a defined  task and we regard  these  revenues  as
non-recurring.   We  also  provide  outsourced  content  services  for  business
processes  that  we  anticipate  will  continue  for an  indefinite  period  and
therefore generate what we regard as recurring revenue.

      Our methodology typically involves building customized workflow management
tools and  content  authoring  tools  that we  operate  on  advanced  technology
platforms in our content  processing  facilities.  We typically gather data from
multiple sources,  normalize disparate data formats, digitize non-digital assets
and create XML files that are uploaded to a client's digital warehouse.  As part
of this  process,  we may  engineer  links that enable  cross-referencing  among
digital  assets,  index  data  assets to an  organizational  structure,  such as
taxonomy or ontology, copyedit content or author content synopsis and abstracts.

Fabrication Services.  Our fabrication services include  digitization,  imaging,
data conversion,  XML and mark-up services,  as well as language translation and
content  creation  services.  We use  leading-edge  technologies  to capture our
clients'  relevant  content  and convert it into XML and other  related  mark-up
standards.   These  technologies  include  high-speed  scanning;  a  variety  of
commercial  and  proprietary   optical/intelligent   character  recognition,  or
OCR/ICR,   applications;   structured   workflow   processes;   and  proprietary
applications  and tools designed to create  meaningful,  accurate and consistent
data.

      To convert  the  captured  content to XML,  tags are  inserted  within the
content  to  provide  a marker  that  computers  can  process.  Our  proprietary
technology  includes  production-grade,  auto-tagging  applications that utilize
pattern  recognition  algorithms based on comprehensive  rule sets and heuristic
online databases. This technology enables the mass creation or conversion of XML
content from complex, unstructured data or content.


                                      I-2
<PAGE>

      We price our  translation  and content  conversion  services  based on the
quantity delivered or resources utilized.

      As  an  example,  a  major  educational  publisher  sought  to  build  the
definitive digital archive of leading newspapers in North America.  On behalf of
this client, we digitized  production runs of major world newspapers,  providing
full page viewing,  as well as threaded  articles with searchable  digital text.
The  process  included  treating  the  digital  images  with the latest  digital
technology to visually repair the original images.

Knowledge  Services.  Our knowledge services add value to a client's content and
these services  include content  enhancement,  taxonomy,  controlled  vocabulary
development,  hyperlinking,  mark up indexing, abstracting and general editorial
services,  including the provision of synopses and annotations.  We also provide
research services that cover a wide spectrum of expertise,  including  medicine,
law, basic sciences, applied sciences, humanities,  engineering,  management and
finance.  We have organized  knowledge teams to provide these services,  each of
which  consists of a number of educated and highly trained people with expertise
in the relevant subject.  We typically price our knowledge services based on the
quantity delivered or resources utilized.

      As an example,  a major  publisher of  scientific,  technical  and medical
information  sought to build one of the world's largest  databases of scientific
journal  citations and  references.  We created records of nearly 15,000 journal
titles going back almost 13 years,  encoded in a way that  supported  integrated
web searches and seamless linking. Under a long-term engagement, we maintain the
database  with daily  updates,  managing  on behalf of our  client a  production
process in which we aggregate, digitize, convert and enhance data.

IT Professional Services

      Our  IT  professional  services  focus  on  the  design,   implementation,
integration  and  deployment  of systems used to author,  manage and  distribute
content. These services include:

      o     consulting;

      o     systems integration;

      o     custom application development; and

      o     other IT professional  services,  including application  maintenance
            support, evaluation and implementation and training.

      Clients  that  use  our  IT  professional   services   typically   require
publishing,  performance  support  or process  automation  systems  that  enable
multiple  authors to collaborate on content and enable  multiple  products to be
generated from  single-source  XML  repositories.  Our IT professional  services
undertake a standards-based approach to development and integration.

      Projects  vary in size and  duration.  Our IT  professional  services  are
typically  provided on a project basis that  involves a defined task that,  upon
completion,  does not generate any  significant  amount of continuing  revenues.
Each project typically involves all aspects of the software development process,
including defining, designing, prototyping,  programming, module integration and
installation of the custom application.  We typically work on-site at clients to
develop specifications and define requirements and to interact with end-users of
the  application.  Detailed  design,  implementation  and testing are  generally
performed at our Dallas and Austin,  Texas  offices,  as well as offshore at our
Gurgaon, India office.


                                      I-3
<PAGE>

Consulting.  We offer  consulting  services that focus on evaluating,  advising,
creating,  overseeing or reviewing  processes and/or technology designs that are
necessary  for a client  to  improve  its  management,  use or  distribution  of
information.  We  assist  our  clients  by first  understanding  their  business
objectives  and then analyzing and  recommending  the  appropriate  hardware and
software  specifications,  as well as process and engineering  changes that will
fulfill these  objectives.  Our  consultants  have a broad mix of functional and
industry expertise. Our highly skilled process analysts, workflow architects and
project  managers  enable  clients  to  outsource  to us  their  entire  content
operations,  and  thereby  enhance  the  client's  ability  to  manage,  use and
distribute the content.

      As an example,  a major  defense  contractor  was awarded a  multi-billion
dollar military  contract to build a new war plane.  The military  required that
the technical  documentation be delivered in electronic format and be useable by
field technicians using handheld PDAs, as well as by pilots in the cockpit.  The
defense contractor hired us to recommend an XML-based publishing approach.  Over
several  months,  our team  made  several  recommendations  and  redesigned  the
client's  core  business  processes  and  systems  architecture  to achieve  its
objectives,  including the ability to support high-volume,  link-intensive data.
We were then engaged by the client to develop the system.  The completed  system
provided an  end-to-end  workflow that  included  link  management,  support for
complex  graphics,  customized  backend  databases  to support  fast  search and
retrieval and customized user interfaces.

Systems Integration. Our systems integration services include the integration of
disparate authoring tools,  content/knowledge management systems and composition
tools into an overall IT infrastructure,  and often also include the development
of software that  enhances the  compatibility  among  various  components of the
overall IT  infrastructure.  We also  undertake  the  management of programs and
vendors during this process.  Many of our systems  integration  projects involve
organizations  that are  migrating to XML and other  standards-based  publishing
systems  or are  seeking  to  integrate  disparate  data  sources  into a common
environment.  Our IT projects often include content analysis and the development
of information architectures.

      For example, one of the world's most successful IT equipment manufacturers
was  faced  with the  challenge  of  producing  increasingly  complex  technical
documentation  faster, in more languages and across multiple platforms,  as well
as in print.  This was necessary  because of shortening  product life cycles and
the desire to market products in remote global markets.  Over a 12-month period,
our team of information  architects and developers provided strategy and process
consulting,   product  evaluation  and  information   engineering  services.  We
addressed complex content  authoring,  translation and localization and document
rendition   requirements.    The   result   was   a   completely   re-engineered
standards-based  product  documentation system that enabled our client to easily
revise  and  re-use  content  and  translate  that  content  into  35  languages
seamlessly.  We improved our client's  time-to-market by significantly  reducing
the turnaround time for documentation  and revisions and  substantially  reduced
its  overall  product  documentation-related  costs.  Our  team of two  domestic
project  managers and five  offshore  developers  continue to provide the client
ongoing systems enhancement and maintenance under a long-term engagement.

Custom Application Development. Our custom application development services help
our clients  create new  applications  and enhance  the  functionalities  of our
clients' existing software  applications.  We perform system design and software
coding and run pilots, while transition  planning,  user training and deployment
activities  are  performed at the client's  site.  Our  application  development
services span the entire range of client server and Internet  technologies.  Our
IT  professional  services  staff are  experts  at XML and  related  information
standards, as well as emerging computing platforms.  Our programmers are skilled
in a  wide  range  of  programming  languages,  as  well  as a  diverse  set  of
application program interfaces, applications servers and database technologies.

      As an example,  a client in the  information  services  industry needed to
build an  enterprise-scale  publishing  platform  for a new  online  information
service  utilizing the latest  knowledge  processing  technologies.  Our team of
onshore and offshore technologists designed and built the platform over a period
of several months,  including  authoring and  classification  workflow  systems,
backend database and user interface. Our content services department aggregated,
digitized and enhanced  multiple  gigabytes of data for the  successful  product
pilot. Our single program manager coordinated the efforts of our IT professional
services team, our outsourced content services team and other vendors on-site at
the client.


                                      I-4
<PAGE>

Other IT  Professional  Services.  We assist our clients in the  evaluation  and
implementation  of  software  packages  developed  by third  party  vendors.  We
specialize  in  enterprise  content  management  systems  developed  by  several
vendors, including:  Documentum, Content@, XHive Corporation and Vasont Systems;
and document  authoring  systems  developed by vendors  including  Arbortext and
Blast Radius;  publishing tools developed by vendors including TopLeaf,  Antenna
House and FrameMaker; as well as various content analysis and extraction tools.

      We provide support for our client's content-related applications, ensuring
that systems remain operational and responsive to changing user requirements. In
doing so, we are often able to enhance  processes  and improve  service  levels.
Through  our  domestic,  on-site and  offshore  delivery  model,  we are able to
provide a range of support services to our clients.

      We also provide clients professional  training,  courseware and continuing
education in XML and other structural information services.

Clients

      We view our  relationship  with our  clients as a critical  element of our
historical  success  and an  important  basis  for our  future  growth.  We work
directly  with  existing  and  prospective  clients to identify and refine their
objectives  and to design,  implement,  integrate  and  deploy new and  improved
service  solutions  to satisfy  those  objectives.  We  believe we provide  high
quality,  value-added  services  to our  clients  on a  timely  basis  and  have
developed  a  close  relationship  with  them  as a  result.  To  enhance  those
relationships,  we provide  project  support 24 hours a day,  seven days a week,
through our Asia-based  customer service center, and we maintain sales,  service
and strategic support in North America and Europe in proximity to the operations
of most of our clients.

      We offer our services to approximately 100 businesses and organizations in
four content-intensive  sectors. The following sets forth a selected list of our
clients in the four content-intensive sectors that we serve:

      o     Publishing, media and information services:

            EBSCO;  John Wiley & Sons;  McGraw-Hill;  ProQuest;  Reed  Elsevier;
            Thomson and Wolters Kluwer;

      o     Global 2000 enterprises:

            Amazon.com;  Bausch & Lomb; Boeing; Hamilton Sundstrand; John Deere;
            Lockheed Martin and Primerica;

      o     Educational and cultural institutions:

            CAB  International;  Cornell  University;  Harvard  Business  School
            Publishing and The Smithsonian Institution; and

      o     Government agencies:

            The Federal Reserve Board and several U.S. intelligence agencies.

      Outsourced  content  services  that are  provided  for a specific  project
generate  revenues that  terminate on completion of a defined task and we regard
these revenues as non-recurring. We also provide outsourced content services for
business processes that we anticipate will continue for an indefinite period and
therefore generate what we regard as recurring revenue.

      Approximately  76% of our largest 25 clients by revenues in the year ended
December 31, 2004 have been clients in each year since 2001.


                                      I-5
<PAGE>

      One client  accounted  for 23%, 33% and 17% of our total  revenues for the
years ended  December 31, 2004,  2003 and 2002,  respectively.  One other client
accounted for 31% and 30% of our revenues for the years ended  December 31, 2004
and 2002,  respectively.  No other client accounted for 10% or more of our total
revenues  during  these  periods.  Revenues  from  clients  located  in  foreign
countries  (principally  in Europe)  accounted for 30%, 47% and 23% of our total
revenues for the years ended December 31, 2004, 2003 and 2002, respectively.

      Some of our  clients  require  us to enter into  nondisclosure  agreements
pursuant to which we agree not to disclose their identities or the nature of our
relationship.  Typically these arrangements are required because the client does
not want to  publicize  its  outsourcing  strategy or a new product  development
initiative before it is introduced in the market.

Sales and Marketing

      We currently have four executive-level business development  professionals
and five  full-time  sales  personnel and are planning to increase our full-time
salesperson  headcount  to  between 10 and 12 in 2005.  Historically,  our sales
efforts depended heavily on senior  management.  We are  transitioning to a more
structured   direct  sales  model  in  which  we  implement   additional   sales
infrastructure,  add dedicated sales support  personnel and add additional sales
persons. In this model, our executive-level  business development  professionals
will continue to manage key client  relationships  through targeted  interaction
with  our  clients'  senior  management,   while  sales  professionals  will  be
responsible for identifying  prospective clients and the execution of day-to-day
sales strategies.

      Our  sales  organization  is  responsible  for  qualifying  and  otherwise
pursuing  prospects,  securing  direct  personal  access to  decision-makers  at
existing  and  prospective  clients and  obtaining  orders for our  services and
solutions.  Our sales professionals work directly with clients to identify their
requirements  and with our  engineering  teams to define the solutions that best
fit our clients' specific needs.

      Sales activities  include the design and generation of  presentations  and
proposals,  account and client  relationship  management and the organization of
account activities.

      Consulting  personnel from our project  analysis group and our engineering
services group closely support our direct sales effort. These individuals assist
the sales force in  understanding  the technical  needs of clients and providing
responses  to  these  needs,  including  demonstrations,   prototypes,   pricing
quotations and time estimates.  In addition,  account managers from our customer
service   group   support  our  direct  sales   effort  by   providing   ongoing
project-level, post-sale support to our clients.

      We constantly seek to expand the nature and scope of our engagements  with
existing  clients by  increasing  the volume of our business and  extending  the
breadth and value of services offered. For existing clients, our sales personnel
and our on-site  project  personnel  proactively  identify client needs and work
with our sales team to structure solutions to address those needs.

      Our marketing organization is responsible for:

      o     developing  and increasing the visibility and awareness of our brand
            and our service offerings;

      o     defining and communicating our value proposition; and

      o     generating leads and furnishing effective sales support tools.

      Over the  past 12  months,  we have  improved  our  brand  management  and
enhanced our lead generation capability.  In addition, we have created a partner
program  pursuant  to  which we have  formed  collaborative  relationships  with
selected  leading  software  vendors  and service  providers  in many of our key
markets.  We believe that our partner  program is an important way for our sales
force to  generate  more and better  quality  leads.  Furthermore,  the  partner
program helps us gain  technical  insights that allow us to evaluate  better the
effectiveness of the various tools that we recommend to our clients.

                                      I-6
<PAGE>

      Primary marketing outreach activities include:

      o     event marketing  (including  exhibiting at trade shows,  conferences
            and seminars);

      o     direct and database marketing;

      o     public  and media  relations  (including  speaking  engagements  and
            active participation in industry and technical standard bodies); and

      o     web marketing (including search engine  optimization,  search engine
            marketing and the maintenance and continued  development of external
            web sites).

Competition

      The markets for our services are highly competitive.  The most significant
competitive factors are:

      o     experience and expertise;

      o     quality and reliability of services;

      o     price of services;

      o     the scope and scale of service offerings;

      o     the quality of supporting services;

      o     retention of highly skilled employees; and

      o     technical competence.

      Our ability to compete  favorably is  dependent  upon our ability to react
appropriately to short- and long-term trends, harness new technology and deliver
large-scale requirements.

      With  respect  to  outsourced  content  services,  competition  is  highly
fragmented and intense;  however, we believe we compete successfully by offering
high quality services and favorable  pricing by leveraging our technical skills,
IT infrastructure, process knowledge, offshore model and economies of scale.

      SPI  Technologies,  Apex  CoVantage,  Techbooks  and Jouve,  among others,
compete with us in providing content services.  However, we are not aware of any
single  competitor  that  provides the same  comprehensive  range of  outsourced
content  services  as we do, and we  believe  that we have  created  significant
differentiation as a result of:

      o     our specific  business process  expertise and the greater  resources
            that we provide to our clients;

      o     the high quality and reliability of our services; and

      o     the scope and scale of our services.


                                      I-7
<PAGE>
      Thus, we believe we are well  positioned to obtain client  contracts  when
the  undertaking  required  is  technically  sophisticated,  sizable in scope or
scale, or when clients require a highly  fail-safe  environment  with technology
redundancy.  We also  believe  that the  timeliness  with which we  provide  our
services  enables  our  clients  to reduce the time it takes for them to release
their products to the market,  thereby providing a competitive  advantage to the
client.

      With  respect  to our IT  professional  services,  a number  of large  and
mid-sized  technology and business  consulting  practices offer  content-related
integration  and  consulting  services  as part of their  broad and  generalized
offerings.  Major  companies such as IBM, EDS,  Bearing Point,  Accenture,  Booz
Allen and others compete for entire content supply chain dollars, though few, if
any,  focus  exclusively on our niche.  There are fewer firms,  most with lesser
capacity,  with a narrower  strategic focus on the content supply chain, such as
Thomas Technology Solutions and RivCom.

      As a provider of outsourced content services and IT professional services,
we also  compete at times with  in-house  personnel  at existing or  prospective
clients who may attempt to duplicate our services using in-house personnel.

      Some of our competitors  have longer  operating  histories,  significantly
greater  financial,  human,  technical  and other  resources  and  greater  name
recognition  than we do,  and we  cannot  assure  you that we will  continue  to
compete effectively with them.

Employees

      As of February 28, 2005,  we employed an  aggregate  of  approximately  85
persons in the United  States  and Europe and 7,400  persons in five  production
facilities  in the  Philippines,  one  production  facility  in Sri  Lanka,  one
production  facility in India and a technology and tools  development  center in
India.  Most of our employees have  graduated  from at least a two-year  college
program.  Many  of  our  employees  hold  advanced  degrees  in  law,  business,
technology, medicine and social sciences.

      We take great pride in our company culture and values, which are extremely
service  oriented.  We have  designed  processes to foster  consistent  employee
behavior that promotes our clients' successes and delivers dependable  outcomes.
At the same time, we promote operating efficiencies.  Within our IT professional
services team, we have  assembled what we believe is a highly  talented group of
technologists.  Our culture is  non-hierarchical,  encouraging  the iteration of
ideas to address complex  technical  challenges.  We have developed  specialized
internal  software  applications to facilitate  meaningful  communication  among
employees.

      To retain our qualified personnel, we offer competitive base salaries that
are supplemented by results-based  incentives.  Senior managers are eligible for
bonuses  and stock  options.  Our  compensation  structure  is  coupled  with an
extensive benefits package,  tailored by region, which can include comprehensive
health  insurance  coverage,  paid vacation and holiday  leaves,  allowances and
continuing education programs.

      No employees are currently  represented  by a labor union,  and we believe
that our relations with our employees are satisfactory.

Item 2. Description of Property.

      Our services  are  primarily  performed  from our  Hackensack,  New Jersey
headquarters,   our  Dallas  and  Austin,  Texas  offices,  and  seven  overseas
facilities, all of which are leased. In addition, we have a technology and tools
development facility in Gurgaon, India, which is also leased. The square footage
of all our leased  properties  is  approximately  218,000.  Rental  payments  on
property leases were approximately $1,725,000 in 2004.


                                      I-8
<PAGE>

Item 3. Legal Proceedings.

      The  Innodata  Employees  Association  (IDEA),  Jomarie  Deles  and  other
complainants have sued one of our Philippines  subsidiaries,  and have purported
also  to  sue  us and  certain  of  our  officers  and  directors,  in  Innodata
Philippines  Employees  Association (IDEA) v Innodata  Philippines,  Inc. (filed
July 27, 2001 at the National Conciliation and Mediation Board of the Philippine
Department of Labor and Employment in Manila);  Innodata  Employees  Association
(IDEA),  Jomarie Deles, et al v. Innodata Philippines,  Inc. (filed July 1, 2002
in the National Labor Relations Commission of the Republic of the Philippines in
Manila);  and in related cases and proceedings filed in the Philippines  Supreme
Court, the Philippine  Court of Appeals and the Philippines  Department of Labor
and Employment.  Complainants seek to require reinstatement of employment and to
recover back wages for an  allegedly  illegal  facility  closing on June 7, 2002
based on the terms of a collective bargaining agreement with this subsidiary. We
have prevailed in substantially all stages of this litigation to date,  although
several appeals by complainants are still pending.  If complainants'  claims had
merit they could be entitled to back wages of up to $5.0  million for the period
from June 7, 2002 to June 6, 2005,  consistent  with  prevailing  jurisprudence.
After  consultation with counsel,  we believe that the complainants'  claims are
without merit and we intend to defend against them vigorously.

      In addition,  we are subject to various legal proceedings and claims which
arise in the ordinary  course of business.  While we currently  believe that the
ultimate outcome of these proceedings will not have a material adverse affect on
our  financial  condition  or results of  operations,  litigation  is subject to
inherent  uncertainties.  Were an unfavorable  ruling to occur,  it could have a
material adverse effect on our financial condition and results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.

       None.


                                      I-9
<PAGE>


                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

      Innodata Isogen, Inc. (the "Company") Common Stock is quoted on the Nasdaq
National Market System under the symbol "INOD." On February 28, 2005, there were
115  stockholders  of record of the Company's  Common Stock based on information
provided  by the  Company's  transfer  agent.  Virtually  all  of the  Company's
publicly  held  shares are held in "street  name" and the Company  believes  the
actual  number of  beneficial  holders of its Common  Stock to be  approximately
4,500.

      The  following  table  sets  forth  the high  and low  sales  prices  on a
quarterly basis for the Company's  Common Stock, as reported on Nasdaq,  for the
two years ended December 31, 2004.

                                            Common Stock
                                            Sale Prices

                              2003         High      Low
                              ----         ----      ---

                         First Quarter    $ 1.09   $ 0.73

                         Second Quarter     1.47     0.84

                         Third Quarter      2.60     1.11

                         Fourth Quarter     4.96     2.42

                              2004         High      Low
                              ----         ----      ---

                         First Quarter    $ 4.95   $ 3.09

                         Second Quarter     4.20     2.80

                         Third Quarter      4.60     3.15

                         Fourth Quarter     9.99     3.28

Dividends

      The Company has never paid cash dividends on its Common Stock and does not
anticipate that it will do so in the foreseeable  future.  The future payment of
dividends,  if any, on the Common Stock is within the discretion of the Board of
Directors and will depend on the Company's  earnings,  its capital  requirements
and financial condition and other relevant factors.


                                      II-1
<PAGE>

Securities Authorized for Issuance Under Equity Compensation Plans

      The following table sets forth the aggregate information for the Company's
equity compensation plans in effect as of December 31, 2004:

<TABLE>
<CAPTION>
                                              Number of
                                       Securities to be Issued    Weighted-Average      Number of Securities
                                           Upon Exercise of      Exercise Price of     Remaining Available For
                                         Outstanding Options,   Outstanding Options,    Future Issuance Under
Plan Category                            Warrants and Rights    Warrants and Rights   Equity Compensation Plans
                                                 (a)                    (b)                      (c)
<S>                                            <C>                       <C>                 <C>
Equity compensation plans
approved by security holders                   6,011,000                 $2.62               1,424,000

Equity compensation plans
not approved by security holders               1,015,000  (1)            $0.84                      --
                                               ---------                 -----               ---------

Total                                          7,026,000                 $2.36               1,424,000
                                               =========                 =====               =========
</TABLE>

(1)   Consists of stock  options to purchase  1,015,164  shares of common  stock
      granted to the Company's current Chairman pursuant to an agreement entered
      into at time of hire.


                                      II-2
<PAGE>


Item 6. Selected Financial Data (In thousands, except per share amounts).

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                                -----------------------
                                                2004         2003        2002          2001        2000
                                                ----         ----        ----          ----        ----
                                                       (In thousands, except per share data)
<S>                                          <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
REVENUES                                     $  53,949    $  36,714    $  36,385    $  58,278    $  50,731
                                             ---------    ---------    ---------    ---------    ---------
OPERATING COSTS AND EXPENSES:
  Direct operating expenses                     33,050       27,029       32,005       44,354       34,458
  Selling and administrative                    10,205        8,898       10,038        8,337        7,248
  Terminated offering costs                        625           --           --           --           --
  Provision for doubtful accounts                   --           --           --        2,942           --
  Bad debt recovery, net                          (963)          --           --           --           --
  Restructuring costs and asset impairment          --           --          244          865           --
  Interest expense                                  25            9           29            9           43
  Interest income                                  (87)         (30)         (89)        (216)        (155)
                                             ---------    ---------    ---------    ---------    ---------
  Total                                         42,855       35,906       42,227       56,291       41,594
                                             =========    =========    =========    =========    =========

INCOME (LOSS) BEFORE PROVISION
  FOR (BENEFIT FROM) INCOME
  TAXES                                         11,094          808       (5,842)       1,987        9,137
PROVISION FOR (BENEFIT FROM)
  INCOME TAXES                                   3,237          333         (677)         639        2,969
                                             ---------    ---------    ---------    ---------    ---------

NET INCOME (LOSS)                            $   7,857    $     475    $  (5,165)   $   1,348    $   6,168
                                             =========    =========    =========    =========    =========

INCOME (LOSS) PER SHARE:
  Basic                                      $     .35    $     .02    $    (.24)   $     .06    $     .30
                                             =========    =========    =========    =========    =========

  Diluted                                    $     .32    $     .02    $    (.24)   $     .05    $     .26
                                             =========    =========    =========    =========    =========

Cash dividends per share                            --           --           --           --           --
                                             ---------    ---------    ---------    ---------    ---------
</TABLE>

<TABLE>
<CAPTION>
                                                                      December 31,
                                                                      ------------
                                                2004         2003        2002          2001        2000
                                                ----         ----        ----          ----        ----
                                                                     (In thousands)
<S>                                          <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA:

WORKING CAPITAL                              $  22,209    $  11,983    $   8,570    $   8,854    $   9,505
                                             =========    =========    =========    =========    =========

TOTAL ASSETS                                 $  37,211    $  25,146    $  22,697    $  30,094    $  27,946
                                             =========    =========    =========    =========    =========

LONG TERM DEBT                               $     150    $     272           --           --           --
                                             =========    =========    =========    =========    =========

STOCKHOLDERS' EQUITY                         $  26,737    $  17,404    $  15,569    $  20,362    $  19,316
                                             =========    =========    =========    =========    =========
</TABLE>


                                      II-3
<PAGE>

Item 7. Management's  Discussion and Analysis Of Financial Condition and Results
        Of Operations.

Revenues

      We derive the majority of our revenues from outsourced  content  services.
These services consist of fabrication and knowledge services. Outsourced content
services  that are  provided  for a  specific  project  generate  revenues  that
terminate  on  completion  of a defined  task and we regard  these  revenues  as
non-recurring.   We  also  provide  outsourced  content  services  for  business
processes  that  we  anticipate  will  continue  for an  indefinite  period  and
therefore generate what we regard as recurring revenues. We price our outsourced
content services based on the quantity delivered or resources utilized. Revenues
for  outsourced  content  services  are  recognized  in the  period in which the
services are performed and delivered.

      We also derive a portion of our revenues from IT professional  services. A
substantial  majority of our IT  professional  services is provided on a project
basis  that  generates  non-recurring   revenues.   These  services  consist  of
consulting,  systems  integration,  custom  application  development  and  other
professional services. We price our professional services on an hourly basis for
actual time and expense incurred, or on a fixed-fee turn-key basis. Revenues for
contracts  billed on a time and materials  basis are  recognized as services are
performed.  Revenues under fixed-fee  contracts are recognized on the percentage
of completion  method of accounting as services are performed or milestones  are
achieved.

      Recurring  revenues  consisted  of 47% and 53% of total  revenues  for the
years ended December 31, 2004 and 2003,  respectively.  The substantial majority
of our recurring revenues is derived from outsourced  content services.  A small
portion of our recurring  revenues is derived from the  application  maintenance
agreements related to our IT professional services.  Non-recurring revenues vary
depending on the size and completion dates of specific projects.

      While we seek, wherever possible,  to counterbalance  periodic declines in
revenues  on  completion  of large  projects  with new  arrangements  to provide
services to the same client or others,  we may not be able to avoid  declines in
revenues  when large  projects  are  completed.  Our  inability in any period to
obtain sufficient new projects to counterbalance any decreases in such work will
adversely  affect our revenues and results of operations for the period.  By way
of example, we expect a decline in year-over-year  revenues in the first half of
2005, principally because we expect that revenues from existing projects and new
projects will not be sufficient to offset the decline in revenues resulting from
projects that were concluded, terminated or delayed.

      We have historically  relied on a very limited number of clients that have
accounted for a significant  portion of our revenues.  One client  accounted for
23%, 33% and 17% of our total  revenues  for the years ended  December 31, 2004,
2003 and 2002,  respectively.  One other client accounted for 31% and 30% of our
revenues for the years ended  December 31, 2004 and 2002,  respectively.  We may
lose any of these or our other  major  clients as a result of:

      o     our failure to meet or satisfy our clients' requirements;

      o     the completion or termination of a project or engagement; or

      o     the selection of another service provider.

      In addition,  the revenues we generate  from our major clients may decline
or grow at a slower rate in future  periods than in the past.  If we lose any of
our  significant  clients,  our  revenues  and  results of  operations  could be
adversely  affected  and we may incur a loss from  operations.  Our services are
typically subject to client requirements,  and in most cases are terminable upon
30 to 90 days' notice.

                                      II-4
<PAGE>

      We have  experienced,  and expect to continue to  experience,  significant
fluctuations  in our quarterly  revenues and results of  operations.  During the
past eight  quarters,  our net income ranged from a loss of  approximately  $1.1
million to a profit of approximately  $3.1 million.  Numerous  factors,  some of
which are beyond our control,  may affect our quarterly  results of  operations,
including completions,  terminations,  cancellations or deferrals of projects or
engagements;  the size, mix, timing and terms and conditions of client projects;
variations  in the  duration,  size and scope of our  projects  or  engagements;
market  acceptance  of our clients' new  products and  services;  our ability to
manage costs; local factors and events that affect our production  volume,  such
as local holidays;  unforeseen  events,  such as  earthquakes,  storms and civil
unrest; currency exchange fluctuations; changes in pricing policies by us or our
competitors;  the  introduction  of new services by us or our  competitors;  and
acquisition  and  integration  costs related to possible  acquisitions  of other
businesses.

      Our  quarterly  operating  results  are also  subject to certain  seasonal
fluctuations.  Our fourth and first quarters  include the months of December and
January,  when billable  services  activity by  professional  staff,  as well as
engagement  decisions by clients,  may be reduced due to client budget  planning
cycles. Demand for our services generally may be lower in the fourth quarter due
to reduced  activity  during the holiday  season and fewer  working days for our
Philippines-based staff during this period. These and other seasonal factors may
contribute to fluctuations in our results of operations from quarter to quarter.

Direct Operating Costs

      Direct  operating  costs for both our outsourced  content  services and IT
professional services consist of direct payroll,  occupancy costs, depreciation,
telecommunications,  computer services and supplies.  We intend to reduce direct
operating costs of our IT professional services as a percentage of revenues from
our IT professional services by increasing our offshore IT professional services
staff.

Selling and Administrative Expenses

      Selling  and  administrative  expenses  for  both our  outsourced  content
services and IT professional  services consist of management and  administrative
salaries,  sales and marketing costs and administrative  overhead. We anticipate
selling and administrative expenses to increase in absolute terms as we continue
to grow our  business.  Commencing  October 1, 2003,  we unified our selling and
related  activities  for our  outsourced  content  services and IT  professional
services segments.  As such, selling and corporate  administrative costs are not
segregated  by,  nor are they  allocated  to,  operating  segments  for  periods
commencing January 1, 2004.

Results of Operations

Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

Revenues

      Revenues were $53.9 million for the year ended  December 31, 2004 compared
to $36.7 million for the similar period in 2003.

      One client  accounted for 23% and 33% of our total  revenues for the years
ended December 31, 2004 and 2003,  respectively.  A second client  accounted for
31% of our  revenues  for the year ended  December  31,  2004.  No other  client
accounted for 10% or more of our total revenues for these periods.  Further, for
the years ended  December 31, 2004 and 2003,  revenues  from clients  located in
foreign countries (principally in Europe) accounted for 30% and 47% of our total
revenues, respectively.

      Revenues from outsourced  content services  increased 46% to $43.7 million
for the year ended  December 31, 2004 from $30.0 million for the similar  period
in 2003.  The increase was primarily due to increased  revenues from several new
projects.  Of the $43.7  million of revenues  for the year ended  December,  31,
2004,   approximately  $13.8  million,  or  31%,  resulted  from  new  projects,
substantially all of which were for existing clients.



                                      II-5
<PAGE>

      Revenues from IT professional  services increased 52% to $10.2 million for
the year ended  December  31, 2004 from $6.7  million for the similar  period in
2003.  This increase was primarily due to increased  revenues from new projects.
Approximately  $9.5 million,  or 93%, of revenues from IT professional  services
for the year ended  December 31, 2004 resulted from new projects,  a majority of
which were for existing clients.

      For the year ended December 31, 2004, approximately 53% of our revenue was
non-recurring  and the 47% balance  was  recurring,  compared  with 47% and 53%,
respectively, for the year ended December 31, 2003.

Direct Operating Costs

      Direct  operating costs were $33.1 million and $27.0 million for the years
ended  December  31, 2004 and 2003,  respectively,  an  increase of 23%.  Direct
operating costs as a percentage of revenues were 61% for the year ended December
31, 2004 and 74% for the year ended December 31, 2003.

      Direct operating costs for outsourced  content services were $27.5 million
and $23.0 million for the years ended December 31, 2004 and 2003,  respectively,
an increase of 19%. Direct  operating costs of outsourced  content services as a
percentage of revenues from outsourced content services were 63% and 77% for the
years ended December 31, 2004 and 2003,  respectively.  The dollar  increase for
the content services segment in the 2004 period was principally due to increases
in both  labor  and  non-labor  costs as a result  of  increased  revenues.  The
decrease  in  direct  operating  costs  of  outsourced  content  services  as  a
percentage of revenues from outsourced  content services for the 2004 period was
principally due to lower labor costs as a percentage of revenues  resulting from
improved process efficiencies and aggressive project cost management, as well as
a 46% increase in revenues compared to a 12% increase in fixed non-labor costs.

      Direct operating costs for IT professional  services were $5.6 million and
$4.0 million for the years ended December 31, 2004 and 2003 respectively. Direct
operating costs of IT professional  services as a percentage of revenues from IT
professional services were 54% and 59% for the years ended December 31, 2004 and
2003,  respectively.  The  dollar  increase  in  direct  operating  costs  of IT
professional  services for the 2004 period was  principally  due to increases in
personnel  and  related  costs.  The  decrease in direct  operating  costs of IT
professional  services as a percentage of revenues from IT professional services
for the 2004 period was primarily attributable to increased resource utilization
resulting in a 4% decrease in non-labor  costs as a percentage  of revenues from
IT professional  services, and a one percent decrease in direct labor costs as a
percentage of revenues.

Selling and Administrative Expenses

      Selling and  administrative  expenses  were $10.2 million and $8.9 million
for the years ended  December  31, 2004 and 2003,  respectively,  an increase of
15%.  Selling and  administrative  expenses as a percentage of revenues were 19%
and 24% for the years ended  December 31, 2004 and 2003,  respectively.  Selling
and  administrative  expenses  for the year ended  December  31, 2003  include a
non-cash compensation charge of approximately  $650,000.  Excluding this charge,
selling and  administrative  expenses for the year ended December 31, 2004 would
have increased by approximately $2.0 million, or 24%, from the similar period in
2003.  Approximately  $1.7 million of the increase in selling and administrative
expenses  relates  to  increases  in  selling  and  marketing  costs,  primarily
attributable to the hiring of additional  business  development,  management and
sales  support  personnel,  as  well  as to  increased  marketing  programs  and
activities.

Other

      On January 5, 2005,  we  announced  our intent to raise  funds and filed a
registration  statement on Form S-3 to register  4,250,000  shares of our common
stock,  plus 3,250,000  shares of common stock  currently held by certain of our
directors  and officers.  On March 23, 2005,  we terminated  the offering and as
such, in the fourth quarter 2004,  expensed  approximately  $625,000 of offering
costs.

      In January 2004, we reached a settlement  agreement with and received $1.0
million  in cash from a former  client in full  satisfaction  of a $2.6  million
outstanding  balance  that we had fully  written off as a bad debt in 2001.  The
$1.0 million receipt, net of $37,000 in recovery costs, is reflected as bad debt
recovery for the year ended December 31, 2004.


                                      II-6
<PAGE>

      For the year ended  December 31, 2004, the provision for income taxes as a
percentage of income was 29%. The 2004 provision is lower than the U.S.  Federal
statutory  rate,  principally  due to certain  overseas  income which is neither
subject to foreign  income  taxes  because  of tax  holidays  granted to us, nor
subject to tax in the U.S. unless repatriated.

      In August 2004,  the IRS  promulgated  regulations,  effective  August 12,
2004, that had the effect of making certain of our overseas  entities taxable in
the United  States for U.S.  federal  income tax purposes.  As a result,  in the
fourth quarter 2004, we provided  approximately  $450,000 for U.S.  income taxes
attributable to these applicable  overseas  entities.  In addition,  in December
2004, we effected certain filings in Delaware to ensure that these  subsidiaries
will not be treated as U.S. corporations for U.S. federal income tax purposes as
of the date of filing and as such,  will not be subject to U.S.  federal  income
taxes commencing January 1, 2005.

      The  provision  for income  taxes for the year ended  December 31, 2003 is
higher as a percentage  of pre-tax  income than the federal  statutory  rate due
primarily  to foreign and state  income  taxes,  and to certain  foreign  source
losses for which no tax benefit is available,  partially offset by the effect of
income in tax jurisdictions currently under tax holiday.

Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002

Revenues

      Revenues were $36.7 million for the year ended  December 31, 2003 compared
to $36.4 million for the similar period in 2002.

      One client  accounted for 33% and 17% of our total  revenues for the years
ended December 31, 2003 and 2002,  respectively.  A second client  accounted for
30% of our  revenues  for the year ended  December  31,  2002.  No other  client
accounted for 10% or more of our total revenues for these periods.  Further, for
the years ended  December 31, 2003 and 2002,  revenues  from clients  located in
foreign countries (principally in Europe) accounted for 47% and 23% of our total
revenues, respectively.

      Revenues from outsourced  content  services  decreased 9% to $30.0 million
for the year ended  December 31, 2003 from $33.1 million for the similar  period
in  2002.  The  decrease  was  primarily  due  to the  decline  in  revenues  of
approximately  $11.0  million  from two  clients  whose  largest  projects  were
substantially  completed in 2002.  The  shortfall was replaced in part by a $9.0
million increase in revenues from three existing clients.

      Revenues from IT professional  services increased 104% to $6.7 million for
the year ended  December  31, 2003 from $3.3  million for the similar  period in
2002.  The increase was primarily due to an increase in the quantity and size of
system  integration  projects for both new and existing  clients.  Approximately
$5.2  million,  or 78%, of revenues from IT  professional  services for the year
ended December 31, 2003 resulted from new projects, a majority of which were for
existing clients.

      For the year  ended  December  31,  2003,  approximately  47% of our total
revenues was non-recurring and the 53% balance was recurring,  compared with 58%
and 42%, respectively, for the year ended December 31, 2002.

Direct Operating Costs

      Direct  operating costs were $27.1 million and $32.0 million for the years
ended  December  31,  2003 and 2002,  respectively,  a decrease  of 16%.  Direct
operating costs as a percentage of revenues were 74% for the year ended December
31, 2003 and 88% for the year ended December 31, 2002.

                                      II-7
<PAGE>

      Direct operating costs for outsourced  content services were $23.1 million
and $28.0 million for the years ended December 31, 2003 and 2002,  respectively,
a decrease of 18%. Direct  operating costs of outsourced  content  services as a
percentage of revenues from outsourced content services were 77% and 85% for the
years ended December 31, 2003 and 2002,  respectively.  The dollar  decline,  as
well as the decline in such costs as a percentage  of revenues  from  outsourced
content services in the 2003 period,  were primarily due to a reduction in labor
and in fixed costs associated with our cost reduction initiatives.

      Direct  operating costs for IT professional  services were $4.0 million in
each of the years ended December 31, 2003 and 2002. Direct operating costs of IT
professional  services as a percentage of revenues from IT professional services
were 59% and 120% for the years ended December 31, 2003 and 2002,  respectively.
The  decrease  in  direct  operating  costs  of IT  professional  services  as a
percentage of IT professional  services  revenues was primarily  attributable to
increased resource utilization and fixed cost leverage.

Selling and Administrative Expenses

      Selling and  administrative  expenses  were $8.9 million and $10.0 million
for the years ended December 31, 2003 and 2002, respectively, a decrease of 11%.
Selling and administrative expenses as a percentage of revenues were 24% and 28%
for the years ended  December 31, 2003 and 2002,  respectively.  The decrease in
selling  and  administrative  expenses  is  primarily  attributable  to the cost
reduction initiatives that were implemented during the second half of 2002.

Other

      In early 2002, we closed a facility in Asia, resulting in the write-off of
property  and   equipment   associated   with  the  closed   facility   totaling
approximately   $244,000.   This   write-off  of  equipment  was  classified  as
restructuring costs and asset impairment for the year ended December 31, 2002.

      For the year ended  December 31, 2003,  the provision for income taxes was
41% of  pre-tax  income,  compared  to a 12%  benefit  from  income  taxes  as a
percentage of pre-tax loss for the year ended  December 31, 2002.  The provision
for income taxes for the year ended  December 30, 2003 is higher as a percentage
of pre-tax  income than the federal  statutory rate due primarily to foreign and
state income taxes and to certain foreign source losses for which no tax benefit
is  available,  partially  offset by the  effect of income in tax  jurisdictions
currently  under tax holiday.  For the year ended  December 31, 2002, the income
tax benefit was lower as a percentage of pre-tax loss than the federal statutory
rate primarily as a result of certain  overseas  foreign source losses for which
no tax benefit is available.

Liquidity and Capital Resources

      Selected  measures  of  liquidity  and  capital  resources,  expressed  in
thousands are as follows:

                                         December 31, 2004     December 31, 2003
                                         -----------------     -----------------

      Cash and Cash Equivalents                    $20,663               $ 6,051
      Working Capital                               22,209                11,983

Net Cash Provided By Operating Activities

      Net cash provided by operating  activities  was $15.7 million for the year
ended December 31, 2004 compared to $.7 million provided by operating activities
for the year ended  December  31,  2003,  an  increase  of  approximately  $15.0
million.  The net cash provided by operating  activities  for the 2004 period is
principally  due to net income  approximating  $7.9  million,  non-cash  charges
approximating  $4.8 million,  and changes in operating assets and liabilities of
$3.0 million.


                                      II-8
<PAGE>

      Accounts   receivable   totaled   $8.0   million  at  December  31,  2004,
representing  approximately  57  days of  sales  outstanding,  compared  to $8.5
million,  or 71 days,  at December  31, 2003.  The decrease in days  outstanding
resulted from increased accounts receivable collections during 2004.

      A  significant  amount of our  revenues  is  derived  from  clients in the
publishing  industry.  Accordingly,  our accounts  receivable  generally include
significant amounts due from such clients. In addition, as of December 31, 2004,
approximately  27% of our  accounts  receivable  was from  foreign  (principally
European) clients, and 69% of accounts receivable was due from two clients.

Net Cash Used in Investing Activities

      For the year ended December 31, 2004, we spent  approximately $2.1 million
for capital  expenditures,  compared to approximately  $2.4 million for the year
ended December 31, 2003.  Capital spending in 2004 and 2003 related  principally
to normal ongoing equipment upgrades,  project  requirement  specific equipment,
and for improvements in infrastructure.  We expect that the capital expenditures
for  these  purposes  will  approximate  $3.0  million  in 2005,  excluding  any
potential capital expenditures related to future facilities expansion.

Availability of Funds

      We have a $5.0 million  line of credit  pursuant to which we 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 our
accounts receivable. There are no amounts outstanding under this facility.

      We believe  that  existing  cash and  internally  generated  funds will be
sufficient  for  our  reasonably   anticipated   working   capital  and  capital
expenditure  requirements  during  the  next  12  months.  We fund  our  foreign
expenditures from our U.S. corporate headquarters on an as-needed basis.

Contractual Obligations

      The table below reflects our contractual  cash  obligations,  expressed in
thousands, at December 31, 2004.

<TABLE>
<CAPTION>
                                                    Payments Due by Period
                                                    ----------------------
Contractual Obligations               Total   Less than   1-3 years   4-5 years    After
-----------------------               -----    1 year     ---------   ---------   5 years
                                               ------                             -------
<S>                                  <C>      <C>         <C>         <C>         <C>
Capital lease obligations            $  355   $     199   $     156   $      --   $    --
Non-cancelable operating leases       2,203         460       1,286         457        --
                                     ------   ---------   ---------   ---------   -------

Total contractual cash obligations   $2,558   $     659   $   1,442   $     457   $    --
                                     ======   =========   =========   =========   =======
</TABLE>

Inflation, Seasonality and Prevailing Economic Conditions

      To date, inflation has not had a significant impact on our operations.  We
generally  perform  work  for  our  clients  under  project-specific  contracts,
requirements-based  contracts or long-term  contracts.  Contracts  are typically
subject to numerous termination provisions.

      Our  quarterly   operating   results  are  subject  to  certain   seasonal
fluctuations.  Our fourth and first quarters  include the months of December and
January,  when billable  services  activity by  professional  staff,  as well as
engagement  decisions by clients,  may be reduced due to client budget  planning
cycles. Demand for our services generally may be lower in the fourth quarter due
to reduced  activity  during the holiday  season and fewer  working days for our
Philippines-based staff during this period. These and other seasonal factors may
contribute to fluctuations in our operating results from quarter to quarter.


                                     II-9
<PAGE>

Critical Accounting Policies and Estimates

Basis of Presentation and Use of Estimates

      Management's  discussion  and  analysis of its results of  operations  and
financial condition is based upon our 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,  we  evaluate  our  estimates,
including those related to accounts  receivable.  Management bases its estimates
on historical  experience and on various other  assumptions that are believed to
be reasonable under the  circumstances,  the results of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent from other  sources.  Actual results may differ from these
estimates under different assumptions or conditions.

Allowance for Doubtful Accounts

      We establish credit terms for new clients based upon  management's  review
of their  credit  information  and project  terms,  and perform  ongoing  credit
evaluations of our customers,  adjusting  credit terms when management  believes
appropriate based upon payment history and an assessment of their current credit
worthiness.  We record an allowance for doubtful  accounts for estimated  losses
resulting  from the  inability  of our  clients to make  required  payments.  We
determine  this  allowance by  considering  a number of factors,  including  the
length of time  trade  accounts  receivable  are past  due,  our  previous  loss
history,  our estimate of the client's  current ability to pay its obligation to
us, 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,  we cannot  guarantee  that credit loss rates in the future will be
consistent  with those  experienced  in the past.  In  addition,  we have credit
exposure  if  the  financial  condition  of one of our  major  clients  were  to
deteriorate.  In the event that the  financial  condition of our clients were to
deteriorate,  resulting  in an  impairment  of their  ability to make  payments,
additional allowances may be necessary.

Revenue Recognition

      We recognize revenue for content manufacturing and outsourcing services in
the period in which we perform  services  and deliver in  accordance  with Staff
Accounting Bulletin 104.

      We recognize IT professional  services revenue 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 in a manner similar
to SOP No. 81-1  "Accounting  for Performance of  Construction-Type  and Certain
Production-Type  Contracts". We recognize revenue for such services billed under
fixed fee arrangements using the percentage-of-completion  method under contract
accounting  as we perform  services or reach output  milestones.  We measure the
percentage completed 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, we record
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).  Revenues from  fixed-fee
projects  accounted for less than 10% of our total revenue for each of the three
years ended December 31, 2004, respectively. We receive revenue billed on a time
and materials basis as we perform the services.

Property and Equipment

      Property  and  equipment  is  stated  at cost  and 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.


                                     II-10
<PAGE>

Long-lived Assets

      We account for long lived assets under  Statement of Financial  Accounting
Standards ("SFAS") 144,  Accounting for the Impairment or Disposal of Long Lived
Assets.  We assess the  recoverability of our long-lived  assets,  which consist
primarily  of fixed  assets and  intangible  assets  with finite  useful  lives,
whenever events or changes in circumstance  indicate that the carrying value may
not be recoverable. The following factors, if present, may trigger an impairment
review:  (i)  significant  underperformance  relative to expected  historical or
projected  future  operating  results;  (ii)  significant  negative  industry or
economic trends;  (iii)  significant  decline in our stock price for a sustained
period;  and (iv) a change in our  market  capitalization  relative  to net book
value.  If the  recoverability  of  these  assets  is  unlikely  because  of the
existence  of  one or  more  of  the  above-mentioned  factors,  we  perform  an
impairment analysis using a projected  discounted cash flow method. We must make
assumptions regarding estimated future cash flows and other factors to determine
the fair  value of these  respective  assets.  If  these  estimates  or  related
assumptions  change in the future,  we may be  required to record an  impairment
charge.  Impairment  charges  would be included  in general  and  administrative
expenses in our statements of operations,  and would result in reduced  carrying
amounts of the related assets on our balance sheets.

Income Taxes

      We  determine  our  deferred  taxes  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.  We provide a valuation  allowance when it
is more  likely  than not that some or all of a  deferred  tax asset will not be
realized.  Unremitted earnings of foreign subsidiaries have been included in the
consolidated  financial  statements  without  giving effect to the United States
taxes  that may be payable on  distribution  to the United  States to the extent
such earnings are not anticipated to be remitted to the United States.

Goodwill and Other Intangible Assets

      SFAS 142 requires  that we test goodwill for  impairment  using a two-step
fair value based test. The first step of the goodwill  impairment  test, used to
identify potential impairment,  compares the fair value of a reporting unit with
its carrying amount, including goodwill. If the carrying amount of the reporting
unit  exceeds its fair value,  the second step of the goodwill  impairment  test
must be  performed  to measure  the amount of the  impairment  loss,  if any. If
impairment is  determined,  we will  recognize  additional  charges to operating
expenses in the period in which they are  identified,  which  would  result in a
reduction of operating results and a reduction in the amount of goodwill.

Accounting for Stock-Based Compensation

      We account for our stock options issued to employees and outside directors
pursuant to Accounting  Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees" and has adopted the disclosure  requirements  of SFAS
No.  123,  "Accounting  for  Stock-Based   Compensation",   and  SFAS  No.  148,
"Accounting  for  Stock-Based  Compensation  -  Transition  and  Disclosure - an
Amendment  of FASB  Statement  No.  123".  Accordingly,  in  2004,  we have  not
recognized  compensation  expense  in  connection  with  the  issuance  of stock
options.

Significant New Accounting Pronouncements Not Yet Adopted

      In December 2004, the FASB issued SFAS No. 123 (R), "Share-Based Payment",
which is a revision of SFAS No. 123 and supersedes  Accounting  Principles Board
("APB")  Opinion No. 25. SFAS No. 123 (R) requires all  share-based  payments to
employees,  including  grants of employee  stock  options,  to be valued at fair
value on the date of  grant,  and to be  expensed  over the  applicable  vesting
period.  Pro forma  disclosure of the income  statement  effects of  share-based
payments  is no longer an  alternative.


                                     II-11
<PAGE>

SFAS No. 123 (R) is effective  for all  stock-based  awards  granted on or after
July 1, 2005. In addition,  companies must also recognize  compensation  expense
related  to any  awards  that are not  fully  vested as of the  effective  date.
Compensation  expense for the unvested awards will be measured based on the fair
value  of  the  awards  previously   calculated  in  developing  the  pro  forma
disclosures in accordance  with the provisions of SFAS No. 123. We are currently
evaluating  SFAS No. 123 (R),  including the method of adoption,  and expect its
adoption will result in increased compensation expense in the future.

      In December  2004, the FASB issued FASB Staff Position No. FAS 109-1 ("FAS
109-1"),  "Application of FASB Statement No. 109, `Accounting for Income Taxes,'
to the Tax Deduction on Qualified Production Activities provided by the American
Jobs Creation Act of 2004." The American  Jobs Creation Act, or AJCA,  creates a
temporary  incentive  for U.S.  corporations  to repatriate  accumulated  income
earned  abroad by  providing  an 85%  dividend  received  deduction  for certain
qualified  dividends from controlled foreign  corporations.  FAS 109-1 clarifies
that this tax  deduction  should be accounted  for as a special tax deduction in
accordance  with  Statement  109. Our evaluation of the AJCA with respect to the
additional  deduction  is  still  in  process  and we  expect  to  complete  the
evaluation  process in 2005. As such, we cannot  reasonably  estimate the income
tax effect of any such repatriation at the present time.

      In December 2004, the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29." The guidance in APB Opinion No. 29,
Accounting  for  Nonmonetary  Transactions,  is  based  on  the  principle  that
exchanges of  nonmonetary  assets should be measured  based on the fair value of
assets  exchanged.  The  guidance in that  opinion,  however,  included  certain
exceptions to that principle.  This Statement amends APB No. 29 to eliminate the
exception for  nonmonetary  exchanges of similar  productive  assets that do not
have commercial  substance.  A nonmonetary  exchange has commercial substance if
the future cash flows of the entity are  expected to change  significantly  as a
result of the  exchange.  SFAS No. 153 is effective  for  nonmonetary  exchanges
occurring in fiscal periods  beginning after June 15, 2005. The adoption of SFAS
No. 153 is not expected to have a material impact on our financial  position and
results of operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

      We are exposed to interest  rate  change  market risk with  respect to our
credit line with a  financial  institution  which is priced  based on the bank's
alternate  base rate (5.25% at December  31,  2004) plus 1/2% or LIBOR (2.44% at
December 31, 2004) plus 3%. We have not borrowed under this line in 2004. To the
extent we  utilize  all or a  portion  of this line of  credit,  changes  in the
interest rate will have a positive or negative effect on our interest expense.

      We have operations in foreign  countries.  While we are exposed to foreign
currency  fluctuations,  we presently  have no financial  instruments in foreign
currency and do not maintain  significant funds in foreign currency beyond those
necessary for operations.


                                     II-12
<PAGE>

Item 8. Financial Statements.

                     INNODATA ISOGEN, INC. AND SUBSIDIARIES
                          INDEX TO FINANCIAL STATEMENTS

                                                                           PAGE

Report of Independent Registered Public Accounting Firm                    II-14

Consolidated Balance Sheets as of December 31, 2004 and 2003               II-15

Consolidated Statements of Operations for the three years ended
December 31, 2004                                                          II-16

Consolidated Statement of Stockholders' Equity for the three years ended
December 31, 2004                                                          II-17

Consolidated Statements of Cash Flows for the three years ended
December 31, 2004                                                          II-18

Notes to Consolidated Financial Statements                                 II-19


                                     II-13
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of
Innodata Isogen, Inc.

      We have audited the accompanying  consolidated  balance sheets of Innodata
Isogen,  Inc. and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2004.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

      We conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  The  Company is not
required  to have,  nor were we  engaged  to  perform  an audit of its  internal
control over financial reporting.  Our audits included consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position  of Innodata
Isogen,  Inc.  and  subsidiaries  as of  December  31,  2004 and  2003,  and the
consolidated  results of their operations and their  consolidated cash flows for
each of the three years in the period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America.

      We have also audited Schedule II for each of the three years in the period
ended  December 31, 2004.  In our opinion,  this  schedule,  when  considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information therein.

Grant Thornton LLP

Edison, New Jersey
March 9, 2005


                                     II-14
<PAGE>

                     INNODATA ISOGEN, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2004 AND 2003
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                                      2004       2003
                                                                                                      ----       ----
<S>                                                                                                 <C>        <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                                                         $ 20,663   $  5,051
  Cash and cash equivalents-restricted                                                                    --      1,000
  Accounts receivable-net of allowance for doubtful accounts of $135 and $1,219 at
    December 31, 2004 and 2003 respectively                                                            8,019      8,497
  Prepaid expenses and other current assets                                                            1,757        999
  Refundable income taxes                                                                                 --      1,075
  Deferred income taxes                                                                                  645      1,421
                                                                                                    --------   --------
         Total current assets                                                                         31,084     18,043
PROPERTY AND EQUIPMENT-NET                                                                             4,559      5,628
OTHER ASSETS                                                                                             893        800
GOODWILL                                                                                                 675        675
                                                                                                    --------   --------
TOTAL                                                                                               $ 37,211   $ 25,146
                                                                                                    ========   ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                                                  $  1,449   $  1,299
  Accrued expenses                                                                                     1,963      1,152
  Accrued salaries, wages and related benefits                                                         3,979      2,865
  Income and other taxes                                                                               1,304        598
  Current portion of capital lease obligations                                                           180        146
                                                                                                    --------   --------
         Total current liabilities                                                                     8,875      6,060
                                                                                                    --------   --------
DEFERRED INCOME TAXES                                                                                  1,449      1,410
                                                                                                    --------   --------
OBLIGATIONS UNDER CAPITAL LEASE                                                                          150        272
                                                                                                    --------   --------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
  Serial preferred stock; 5,000,000 shares authorized, none outstanding                                   --         --
  Common stock, $.01 par value; 75,000,000 shares authorized; 22,679,000 and 22,535,000 shares
     issued; 22,679,000 and 21,951,000 outstanding as of December 31, 2004 and 2003, respectively        227        226
  Additional paid-in capital                                                                          14,914     15,413
  Retained earnings                                                                                   11,596      3,739
                                                                                                    --------   --------
                                                                                                      26,737     19,378
  Less: treasury stock-at cost; 584,000 shares at December 31, 2003                                       --     (1,974)
                                                                                                    --------   --------
         Total stockholders' equity                                                                   26,737     17,404
                                                                                                    --------   --------
TOTAL                                                                                               $ 37,211   $ 25,146
                                                                                                    ========   ========
</TABLE>

                 See notes to consolidated financial statements


                                     II-15
<PAGE>

                     INNODATA ISOGEN, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 2004, 2003 and 2002
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                      2004        2003        2002
                                                      ----        ----        ----
<S>                                                 <C>         <C>         <C>
REVENUES                                            $ 53,949    $ 36,714    $ 36,385
                                                    --------    --------    --------
OPERATING COSTS AND EXPENSES
  Direct operating costs                              33,050      27,029      32,005
  Selling and administrative expenses                 10,205       8,898      10,038
  Terminated offering costs                              625          --          --
  Bad debt recovery - net                               (963)         --          --
  Restructuring costs and asset impairment                --          --         244
  Interest expense                                        25           9          29
  Interest income                                        (87)        (30)        (89)
                                                    --------    --------    --------
  Total                                               42,855      35,906      42,227
                                                    --------    --------    --------
INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT FROM)
  INCOME TAXES                                        11,094         808      (5,842)
PROVISION FOR (BENEFIT FROM) INCOME TAXES              3,237         333        (677)
                                                    --------    --------    --------
NET INCOME (LOSS)                                   $  7,857    $    475    $ (5,165)
                                                    ========    ========    ========
INCOME PER SHARE:
  Basic:                                            $    .35    $    .02    $   (.24)
                                                    ========    ========    ========
  Diluted:                                          $    .32    $    .02    $   (.24)
                                                    ========    ========    ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
  Basic:                                              22,288      21,570      21,489
                                                    ========    ========    ========
  Diluted:                                            24,817      22,966      21,489
                                                    ========    ========    ========
</TABLE>

                 See notes to consolidated financial statements


                                     II-16
<PAGE>

                     INNODATA ISOGEN, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2004, 2003 and 2002
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                  Additional
                                                               Common Stock         Paid-in    Retained     Treasury
                                                             Shares     Amount      Capital    Earnings       Stock      Total
                                                             ------     ------    ----------   --------     --------     -----
<S>                                                          <C>            <C>      <C>          <C>        <C>         <C>
January 1, 2002                                              21,716         217      13,355       8,429      (1,639)     20,362
  Net loss                                                       --          --          --      (5,165)         --      (5,165)
  Issuance of common stock upon exercise of stock options       318           3         107          --          --         110
  Purchase of treasury stock                                     --          --          --          --        (360)       (360)
  Non-cash equity compensation                                   12          --         523          --          --         523
  Income tax benefit from exercise of stock options              --          --          99          --          --          99
                                                             -------   --------    --------    --------    --------     -------

December 31, 2002                                            22,046         220      14,084       3,264      (1,999)     15,569
   Net income                                                    --          --          --         475          --         475
   Issuance of common stock upon exercise of stock options      515           6         565          --          --         571
   Retirement of treasury stock                                 (26)         --         (25)         --          25          --
   Income tax benefit from exercise of stock options             --                     132          --          --         132
   Non-cash equity compensation                                  --          --         657          --          --         657
                                                             -------   --------    --------    --------    --------     -------

December 31, 2003                                            22,535         226      15,413       3,739      (1,974)     17,404
   Net income                                                    --          --          --       7,857          --       7,857
   Issuance of common stock upon exercise of stock options      728           7       1,075          --          --       1,082
   Retirement of treasury stock                                (584)         (6)     (1,968)         --       1,974          --
   Income tax benefit from exercise of stock options             --          --         358          --          --         358
   Non-cash equity compensation                                  --          --          36          --          --          36
                                                             -------   --------    --------    --------    --------     -------

December 31, 2004                                            22,679    $    227    $ 14,914    $ 11,596    $    -0-     $26,737
                                                             =======   ========    ========    ========    ========     =======
</TABLE>

                 See notes to consolidated financial statements


                                     II-17
<PAGE>

                      INNODATA ISOGEN INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2004, 2003 and 2002
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                     2004        2003        2002
                                                                                     ----        ----        ----
<S>                                                                                <C>         <C>         <C>
OPERATING ACTIVITIES:
  Net income (loss)                                                                $  7,857    $    475    $ (5,165)
  Adjustments  to reconcile  net income (loss) to net cash provided by operating
  activities:
    Depreciation and amortization                                                     3,924       4,528       5,228
    Non-cash compensation                                                                36         657         523
    Loss on disposal of fixed assets                                                     --         147          --
    Restructuring costs and asset impairment                                             --          --         244
    Deferred income taxes                                                               815          (2)         30
    Changes in operating assets and liabilities, net of acquisition:
      Accounts receivable                                                               478      (5,244)      4,593
      Prepaid expenses and other current assets                                      (1,495)       (947)       (680)
      Refundable income taxes                                                         1,075         416        (982)
      Other assets                                                                     (160)        242         894
      Accounts payable                                                                  150         652        (811)
      Accrued expenses                                                                  811        (856)        601
      Accrued salaries and wages                                                      1,114         339      (1,244)
      Income and other taxes                                                          1,064         275        (181)
                                                                                   --------    --------    --------
          Net cash provided by operating activities                                  15,669         682       3,050
                                                                                   --------    --------    --------
INVESTING ACTIVITIES:
  Decrease (increase) in restricted cash                                              1,000      (1,000)         --
  Capital expenditures                                                               (2,051)     (2,408)     (1,162)
                                                                                   --------    --------    --------
          Net cash used in investing activities                                      (1,051)     (3,408)     (1,162)
                                                                                   --------    --------    --------
FINANCING ACTIVITIES:
  Payments of obligations under capital lease                                           (88)        (49)         --
  Payment of acquisition notes                                                           --          --        (650)
  Proceeds from exercise of stock options                                             1,082         571         110
  Purchase of treasury stock                                                             --          --        (360)
                                                                                   --------    --------    --------
          Net cash provided by (used in) financing activities                           994         522        (900)
                                                                                   --------    --------    --------
INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                                    15,612      (2,204)        988
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                          5,051       7,255       6,267
                                                                                   --------    --------    --------
CASH AND CASH EQUIVALENTS, END OF YEAR                                             $ 20,663    $  5,051    $  7,255
                                                                                   ========    ========    ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the year for:
          Income taxes                                                             $  1,237    $    417    $    261
                                                                                   --------    --------    --------
          Interest expense                                                         $     25    $     23    $     29
                                                                                   --------    --------    --------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
          Acquisition of equipment utilizing capital leases                        $     66    $    467    $     --
                                                                                   --------    --------    --------
</TABLE>

                 See notes to consolidated financial statements


                                     II-18
<PAGE>

                     INNODATA ISOGEN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2004, 2003 and 2002

1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Description  of  Business-Innodata  Isogen,  Inc.  and  subsidiaries  (the
"Company"),  is a leading provider of business services that help  organizations
create,   manage,   use  and  distribute   information   more   effectively  and
economically.   The   Company   provides   outsourced   content   services   and
content-related information technology (IT) professional services. The Company's
outsourced  content  services  focus  on  fabrication   services  and  knowledge
services.   Fabrication   services  include  digitization  and  data  conversion
services, content creation and XML services.  Knowledge services include content
enhancement,   hyperlinking,   indexing  and  general  editorial  services.  The
Company's  IT  professional  services  focus  on  the  design,   implementation,
integration  and  deployment  of systems used to author,  manage and  distribute
content.

      Principles of Consolidation-The  consolidated financial statements include
the accounts of Innodata  Isogen,  Inc. and its  subsidiaries,  all of which are
wholly owned. All significant  intercompany  transactions and balances have been
eliminated in consolidation.

      Use of  Estimates-In  preparing  financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States of  America,
management  is  required  to make  estimates  and  assumptions  that  affect the
reported  amounts of assets and  liabilities,  and the  disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses  during the reporting  period.  Actual  results
could differ from those estimates.

      Revenue  Recognition-Revenue  for content  manufacturing  and  outsourcing
services  is  recognized  in the  period in which  services  are  performed  and
delivery has occurred in accordance with Staff Accounting Bulletin 104.

      The Company  recognizes its IT professional  services 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 in a
manner similar to SOP No. 81-1 "Accounting for Performance of  Construction-Type
and Certain Production-Type  Contracts".  Revenue for such services 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). Revenues from fixed-fee projects accounted for
less than 10% of our total  revenue for each of the three  years ended  December
31,  2004,  respectively.  Revenue  billed  on a time  and  materials  basis  is
recognized as services are performed.

      Foreign  Currency-The  functional  currency for the  Company's  production
operations located in the Philippines,  India and Sri Lanka is U.S. dollars.  As
such, transactions  denominated in Philippine pesos, Indian and Sri Lanka rupees
were translated to U.S.  dollars at rates which  approximate  those in effect on
transaction  dates.  Monetary  assets  and  liabilities  denominated  in foreign
currencies at December 31, 2004 and 2003 were translated at the exchange rate in
effect  as of those  dates.  Exchange  gains  and  losses  resulting  from  such
transactions were not material in 2004, 2003 and 2002.

      Cash Equivalents-For  financial statement purposes (including cash flows),
the Company  considers  all highly  liquid debt  instruments  purchased  with an
original maturity of three months or less to be cash equivalents.



                                     II-19
<PAGE>

      Property  and  Equipment-Property  and  equipment is stated at cost and 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.

      Long-lived  Assets-The  Company  accounts  for  long  lived  assets  under
Statement of Financial  Accounting  Standards  ("SFAS") 144,  Accounting for the
Impairment   or  Disposal  of  Long  Lived  Assets.   Management   assesses  the
recoverability of its long-lived assets, which consist primarily of fixed assets
and intangible  assets with finite useful lives,  whenever  events or changes in
circumstance  indicate  that the  carrying  value  may not be  recoverable.  The
following factors, if present, may trigger an impairment review: (i) significant
underperformance  relative to expected  historical or projected future operating
results;   (ii)  significant   negative  industry  or  economic  trends;   (iii)
significant  decline in the Company's  stock price for a sustained  period;  and
(iv) a change in the Company's market capitalization relative to net book value.
If the  recoverability  of these assets is unlikely  because of the existence of
one or more of the above-mentioned  factors, an impairment analysis is performed
using a projected discounted cash flow method.  Management must make assumptions
regarding  estimated  future cash flows and other  factors to determine the fair
value of these  respective  assets.  If these  estimates or related  assumptions
change in the  future,  the  Company  may be  required  to record an  impairment
charge.  Impairment  charges  would be included  in general  and  administrative
expenses in the Company's statements of operations,  and would result in reduced
carrying amounts of the related assets on the Company's balance sheets.

      Goodwill  and Other  Intangible  Assets-Goodwill  primarily  includes  the
excess purchase price paid over the fair value of net assets acquired. Effective
July 1, 2002, the Company adopted SFAS No. 142,  "Goodwill and Other  Intangible
Assets." Under SFAS 142, the Company tests its goodwill on an annual basis using
a two-step  fair value based  test.  The first step of the  goodwill  impairment
test,  used to  identify  potential  impairment,  compares  the fair  value of a
reporting unit, with its carrying amount,  including  goodwill.  If the carrying
amount of the  reporting  unit  exceeds its fair  value,  the second step of the
goodwill  impairment  test  must be  performed  to  measure  the  amount  of the
impairment loss, if any. If impairment is determined, the Company will recognize
additional  charges  to  operating  expenses  in the  period  in which  they are
identified,  which  would  result in a  reduction  of  operating  results  and a
reduction in the amount of goodwill.

      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.

      Accounting for Stock-Based Compensation-The Company accounts for its stock
options  issued to  employees  and  outside  directors  pursuant  to  Accounting
Principles  Board  Opinion  ("APB")  No.  25,  "Accounting  for Stock  Issued to
Employees"  and  has  adopted  the  disclosure  requirements  of SFAS  No.  123,
"Accounting for  Stock-Based  Compensation",  and SFAS No. 148,  "Accounting for
Stock-Based  Compensation  -  Transition  and  Disclosure - an Amendment of FASB
Statement  No. 123".  Accordingly,  in 2004,  no  compensation  expense has been
recognized in connection with the issuance of stock options.

      The following table  illustrates the effect on net income and earnings per
share if the Company had applied the fair value  recognition  provisions of SFAS
No. 123 to stock-based employee  compensation using the assumptions described in
note 7, stock options.


                                     II-20
<PAGE>

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                              -----------------------
                                                                           2004      2003        2002
                                                                           ----      ----        ----
                                                                                   (in thousands,
                                                                             except per share amounts)
<S>                                                                       <C>       <C>        <C>
Net income (loss), as reported                                            $ 7,857   $   475    $  (5,165)
  Deduct:  Total stock-based employee compensation
  determined under fair value based method, net of related
  tax effects                                                              (3,200)   (3,193)      (2,315)
  Add:  Compensation expense included in the determination
  of net income (loss) as reported, net of related tax effects,
  related to the extension of stock options                                    --       455          318
                                                                          -------   -------    ---------
Pro forma net income (loss)                                               $ 4,657   $(2,263)   $  (7,162)
                                                                          =======   =======    =========

Income (loss) per share:
  Basic-as reported                                                       $   .35   $   .02    $    (.24)
                                                                          =======   =======    =========

  Basic-pro forma                                                         $   .21   $  (.10)   $    (.33)
                                                                          =======   =======    =========

  Diluted-as reported                                                     $   .32   $   .02    $    (.24)
                                                                          =======   =======    =========

  Diluted-pro forma                                                       $   .19   $  (.10)   $    (.33)
                                                                          =======   =======    =========
</TABLE>

      Fair Value of  Financial  Instruments-The  carrying  amounts of  financial
instruments,  including  cash  and cash  equivalents,  accounts  receivable  and
accounts  payable  approximated  fair  value as of  December  31,  2004 and 2003
because of the relative short maturity of these instruments.

      Accounts  Receivable-The majority of the Company's accounts receivable are
due from secondary publishers and information providers. 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 (accounts  outstanding
longer than the payment terms are considered  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.

      Concentration  of Credit  Risk-The  Company  maintains  its cash with high
quality financial  institutions,  located primarily in the United States. To the
extent  that such cash  exceeds  the maximum  insurance  levels,  the Company is
uninsured. The Company has not experienced any losses in such accounts.

      Income  (Loss) Per Share- Basic  earnings  (loss) per share is computed by
dividing income (loss) available to common shareholders by the  weighted-average
number of common shares outstanding  during the period.  Diluted earnings (loss)
per share is computed by dividing income (loss) available to common shareholders
by the  weighted-average  number of common shares  outstanding during the period
increased to include the number of additional common shares that would have been
outstanding  if the  dilutive  potential  common  shares  had been  issued.  The
dilutive  effect of the  outstanding  options is reflected  in diluted  earnings
(loss) per share by application of the treasury stock method.


                                     II-21
<PAGE>

      New Accounting Pronouncements:

      In December 2004, the FASB issued SFAS No. 123(R),  "Share-Based Payment",
which is a revision of SFAS No. 123 and supersedes  Accounting  Principles Board
("APB")  Opinion No. 25. SFAS No. 123 (R) requires all  share-based  payments to
employees,  including  grants of employee  stock  options,  to be valued at fair
value on the date of  grant,  and to be  expensed  over the  applicable  vesting
period.  Pro forma  disclosure of the income  statement  effects of  share-based
payments  is no longer an  alternative.  SFAS No. 123 (R) is  effective  for all
stock-based awards granted on or after July 1, 2005. In addition, companies must
also  recognize  compensation  expense  related to any awards that are not fully
vested as of the effective  date.  Compensation  expense for the unvested awards
will be measured based on the fair value of the awards previously  calculated in
developing the pro forma  disclosures in accordance  with the provisions of SFAS
No. 123. The Company is currently  evaluating  SFAS No. 123 (R),  including  the
method  of  adoption,   and  expects  its  adoption  will  result  in  increased
compensation expense in the future.

      In December  2004, the FASB issued FASB Staff Position No. FAS 109-1 ("FAS
109-1"),  "Application of FASB Statement No. 109, `Accounting for Income Taxes,'
to the Tax Deduction on Qualified Production Activities provided by the American
Jobs Creation Act of 2004." The American  Jobs Creation Act, or AJCA,  creates a
temporary  incentive  for U.S.  corporations  to repatriate  accumulated  income
earned  abroad by  providing  an 85%  dividend  received  deduction  for certain
qualified  dividends from controlled foreign  corporations.  FAS 109-1 clarifies
that this tax  deduction  should be accounted  for as a special tax deduction in
accordance with Statement 109. The Company's evaluation of the AJCA with respect
to the additional  deduction is still in process and is expected to be completed
during 2005.  As such,  the Company  cannot  reasonably  estimate the income tax
effect of any such repatriation at the present time.

2.    PROPERTY AND EQUIPMENT

      Property and equipment,  stated at cost less accumulated  depreciation and
amortization (in thousands), consist of the following:

                                                                 December 31,
                                                                 ------------
                                                               2004        2003
                                                               ----        ----

Equipment                                                    $15,204     $14,608
Furniture and office equipment                                   977         820
Leasehold improvements                                         2,433       2,342
                                                             -------     -------

  Total                                                       18,614      17,770
Less accumulated depreciation and amortization                14,055      12,142
                                                             -------     -------

                                                             $ 4,559     $ 5,628
                                                             =======     =======

      Depreciation   expense  was  approximately   $3,120,000,   $3,807,000  and
$4,380,000 for the three years ended December 31, 2004, respectively.

      In 2003, the Company entered into a three year lease for certain equipment
located in one of its Philippine  facilities.  The equipment was  capitalized at
its fair market value of approximately  $641,000,  which represented the present
value of the minimum lease payments plus trade-in  value of exchanged  equipment
of $175,000. The loss on such trade-in approximated $58,000.

      At December 31, 2004 and 2003,  equipment  under capital  leases had a net
book value of approximately $312,000 and $587,000, respectively.


                                     II-22
<PAGE>

3.    INCOME TAXES

      The  significant  components of the  provision  for (benefit  from) income
taxes for each of the three years ended  December 31, 2004 (in thousands) are as
follows:

                                                       2004     2003      2002
                                                       ----     ----      ----

Current income tax expense (benefit):
  Foreign                                             $  174   $   29    $   97
  Federal                                              1,943      230      (827)
  State and local                                        305       76        23
                                                      ------   ------    ------
                                                       2,422      335      (707)
Deferred income tax expense (benefit) provision          815       (2)       30
                                                      ------   ------    ------
Provision for (benefit from) income taxes             $3,237   $  333    $ (677)
                                                      ======   ======    ======


      The reconciliation of the U.S. statutory rate with the Company's effective
tax rate for each of the three years ended  December  31 2004 is  summarized  as
follows:

<TABLE>
<CAPTION>
                                                                  2004     2003     2002
                                                                  ----     ----     ----
<S>                                                               <C>      <C>     <C>
Federal statutory rate                                            35.0%    35.0%   (35.0)%
Effect of:
  State income taxes (net of federal tax benefit)                  2.5      5.9      0.6
  Foreign source losses for which no tax benefit is available      1.5      7.3     23.8
  Foreign entities subject to US federal income taxes              4.3       --       --
  Effect of foreign tax holiday, net of foreign income
     not deemed permanently reinvested                           (12.3)   (24.0)    (3.4)
  Taxes on foreign income at rates that differ from US
    statutory rate                                                (1.4)     7.6       --
  Non deductible compensation                                       --      5.9       --
  Other                                                           (0.4)     3.5      2.4
                                                                 -----    -----    -----
Effective rate                                                    29.2%    41.2%   (11.6)%
                                                                 =====    =====    =====
</TABLE>


                                     II-23
<PAGE>

      As of December 31, 2004 and 2003,  the  composition  of the  Company's net
deferred income taxes (in thousands) is as follows:

                                                             2004        2003
                                                             ----        ----
Deferred income tax assets:
Allowances not currently deductible                         $   192     $ 1,358
Depreciation and amortization                                    32         114
Equity compensation not currently deductible                    375         348
Expenses not deductible until paid                              469          63
                                                            -------     -------
                                                              1,068       1,883
                                                            -------     -------
Deferred income tax liabilities:
Foreign source income, not taxable until repatriated         (1,872)     (1,872)
                                                            -------     -------

Net deferred (liability) asset                              $  (804)    $    11
                                                            =======     =======

Net deferred income tax asset-current                           645       1,421
Net deferred income tax liability-non-current                (1,449)     (1,410)
                                                            -------     -------

Net deferred income tax (liability) asset                   $  (804)    $    11
                                                            =======     =======

      United States and foreign  components of income (loss) before income taxes
for each of the three  years  ended  December  31,  2004 (in  thousands)  are as
follows:

                                          2004            2003            2002
                                          ----            ----            ----

United States                           $ 6,731         $   565         $(2,806)
Foreign                                   4,363             243          (3,036)
                                        -------         -------         -------

Total                                   $11,094         $   808         $(5,842)
                                        =======         =======         =======

      Certain of the Company's foreign  subsidiaries are subject to tax holidays
for various periods ranging from 2005 to 2014,  pursuant to which the income tax
rate for these subsidiaries is substantially reduced. Unless renewed, as the tax
holidays  expire,  the Company's  overall  effective tax rate will be negatively
impacted. The tax benefit for tax holidays was approximately $900,000,  $300,000
and $600,000 for each of the three years ended December 31, 2004, respectively.

      In  August  2004,  the  Internal   Revenue  Service  ("IRS")   promulgated
regulations,  effective  August 12, 2004,  that treated certain of the Company's
subsidiaries   that  are   incorporated  in  foreign   jurisdictions   and  also
domesticated as Delaware limited  liability  companies as U.S.  corporations for
U.S. federal income tax purposes.  In the preamble to such regulations,  the IRS
expressed  its view that dual  registered  companies  described in the preceding
sentence  are also  treated as U.S.  corporations  for U.S.  federal  income tax
purposes for periods prior to August 12, 2004.  Notwithstanding  this view,  the
Company believes that its historic treatment of these subsidiaries as not having
been  required to pay taxes in the United  States for the period prior to August
12,  2004 is  correct,  and  intends  to  vigorously  defend  its  treatment  if
challenged.  As such,  the Company has made no provision  for U.S.  taxes in its
financial  statements  for these  entities  for the periods  prior to August 12,
2004.  However,  if  challenges  by the  IRS  were  ultimately  successful,  the
Company's  potential U.S.  federal income tax liability could  approximate


                                     II-24
<PAGE>

$2.5 million,  excluding  interest and  potential  penalties.  Furthermore,  the
Company  cannot be assured  that the IRS will not assert  other  positions  with
respect to the foregoing matters that, if successful,  could increase materially
the Company's  liability for U.S.  federal  income taxes.  In December 2004, the
Company effected  certain filings in Delaware to ensure that these  subsidiaries
will not be treated as U.S. corporations for U.S. federal income tax purposes as
of the date of filing and as such,  will not be subject to U.S.  federal  income
taxes commencing January 1, 2005.

4.    COMMITMENTS AND CONTINGENT LIABILITIES

      Line of  Credit-The  Company has 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.  The  Company has not
borrowed against its credit line in 2004.

      Leases-The  Company is obligated under various  operating lease agreements
for office and production space.  Certain  agreements contain escalation clauses
and requirements  that the Company pay taxes,  insurance and maintenance  costs.
Company leases that include escalated lease payments are straight-lined over the
non-cancelable base lease period in accordance with SFAS 13.

      Lease agreements for production space in most overseas  facilities,  which
expire through 2011, contain provisions pursuant to which the Company may cancel
the leases with a minimal  notice  period,  generally  subject to  forfeiture of
security  deposit.  The  annual  rental  for  the  cancelable  leased  space  is
approximately $1,100,000.  For the years ended December 31, 2004, 2003 and 2002,
rent expense for office and production space totaled  approximately  $1,725,000,
$1,700,000 and $2,100,000, respectively.

      In addition, the Company leases certain equipment under short-term capital
and operating lease agreements.  For the years ended December 31, 2004, 2003 and
2002,  rent expense for equipment  totaled  approximately  $47,000,  $36,000 and
$46,000, respectively.

      At  December  31,  2004,  future  minimum  annual  rental  commitments  on
non-cancelable leases (excluding operating leases with terms less than one year)
(in thousands) are as follows:

<TABLE>
<CAPTION>
Leases                                                      Operating Leases     Capital
------                                                      ----------------     -------
<S>                                                                     <C>         <C>
2005                                                                    $460        $199
2006                                                                     502         138
2007                                                                     417          18
2008                                                                     367          --
2009                                                                     367          --
Thereafter                                                                90          --
                                                                      ------       -----

                                                                      $2,203         355
                                                                      ======

Less: Amounts representing interest (7% - 9% per annum)                               25
                                                                                   -----
Present value of minimum lease payments                                             $330
                                                                                   =====
</TABLE>

      Litigation -In connection  with the cessation of all operations at certain
foreign  subsidiaries,  certain  former  employees  have filed  various  actions
against certain of the Company's Philippine subsidiaries,  and have purported to
also sue the Company  and  certain of its  officers  and  directors,  seeking to
require  reinstatement  of employment and to recover back wages for an allegedly
illegal  facility  closing  on June 7, 2002  based on the terms of a  collective
bargaining  agreement  with  this  subsidiary.  The  Company  has  prevailed  in
substantially all stages of this litigation to date, although several appeals by
complainants are still pending.


                                     II-25
<PAGE>

If the  complainants'  claims had merit, they could be entitled to back wages of
up to $5.0 million for the period from June 7, 2002 to June 6, 2005,  consistent
with  prevailing  jurisprudence.  Based upon  consultation  with legal  counsel,
management  believes the claims are without merit and is defending  against them
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.

      Foreign Currency-The  Company's  production  facilities are located in the
Philippines,  India and Sri Lanka.  To the extent that the  currencies  of these
countries  fluctuate,  the  Company  is subject  to risks of  changing  costs of
production after pricing is established for certain customer projects.  However,
most significant contracts contain provisions for price renegotiation.

      Employment  Agreements-On January 1, 2004, the Company entered into a four
year employment  agreement with the co-founder of ISOGEN,  an entity the Company
acquired in 2001, to serve as Executive Vice President of the Company.  Pursuant
to the agreement, he will be compensated at a rate of $250,000 per annum for the
first  year,  subject  to  annual  review  for  discretionary  annual  increases
thereafter,  and will be eligible to receive an annual cash bonus, the amount of
which will be based upon meeting  certain  goals.  In addition,  on November 10,
2003,  he was  granted an option to  purchase  200,000  shares of the  Company's
common stock at $3.35 per share.  In  connection  with his  previous  employment
agreement,  in 2002 the  executive  was  granted an option to  purchase  150,000
shares of the Company's  common stock at $4.00 per share,  and was issued 11,587
unregistered  shares of the  Company's  common  stock.  Compensation  expense of
approximately  $10,000  was  recorded  in the year ended  December  31,  2002 as
selling and administrative expenses pursuant to the stock issuance.

      In May 2001, the Company  entered into an agreement with its then Chairman
of the Board pursuant to which he will continue to serve as a part-time employee
at a salary of $2,000 per month for five years.  In  addition,  the Company paid
him $400,000 in exchange for a six year non-compete agreement, which is included
in other  assets  and is being  amortized  over  the term of the  agreement.  On
December 31, 2004, the unamortized balance was $155,000.

      Indemnifications-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
individuals 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 a  maximum  potential  future
payments.  As of December 31, 2004, the Company has not recorded a liability for
any obligations arising as a result of these indemnifications.

      Liens-In  connection  with the procurement of tax incentives at one of the
company's foreign subsidiaries, the foreign zoning authority was granted a first
lien on the subsidiary's  property and equipment.  As of December 31, 2004, such
equipment had a book value of $670,000.

5.    RETIREMENT PLANS

      The Company has a defined contribution plan qualified under Section 401(k)
of the  Internal  Revenue  Code.  Substantially  all of its U.S.  employees  are
eligible to participate  after completing three months of service.


                                     II-26
<PAGE>

Participants  may elect to  contribute  a portion of their  compensation  to the
plan.  Under the plan,  the  Company  has the  discretion  to match a portion of
participants' contributions.  The Company intends to match approximately $75,000
to the plan for the fiscal year ended  December 31,  2004.  For the fiscal years
ended  December 31, 2003 and 2002,  the Company's  matching  contributions  were
approximately $48,000 and $50,000 respectively.

      Most of the Company's foreign  subsidiaries  maintain unfunded  retirement
plans  consistent  with local  practices  and  requirements.  Retirement-related
expenses for foreign subsidiaries totaled approximately  $205,000,  $124,000 and
$38,000  for  the  three  years  ended   December  31,  2004,   2003  and  2002,
respectively.  As of December 31,  2004,  accrued  retirement  costs for foreign
subsidiaries totaled approximately $470,000.

6.    CAPITAL STOCK

      The Company is authorized to issue  75,000,000  shares of common stock and
5,000,000  shares of preferred  stock.  Each share of common stock has one vote.
The Board of Directors is authorized to fix the terms,  rights,  preferences and
limitations  of the preferred  stock and to issue the preferred  stock in series
which differ as to their relative terms, rights, preferences and limitations.

      Stockholder  Rights  Plan-On  December  16,  2002,  the Board of Directors
adopted a Stockholder  Rights Plan ("Rights  Plan") in which one right ("Right")
was  declared  as a  dividend  for each  share  of the  Company's  common  stock
outstanding.  The  purpose  of the plan is to deter a  hostile  takeover  of the
Company. Each Right entitles its holders to purchase,  under certain conditions,
one  one-thousandth  of a share  of  newly  authorized  Series  C  Participating
Preferred  Stock  ("Preferred  Stock"),  with one  one-thousandth  of a share of
Preferred  Stock intended to be the economic and voting  equivalent of one share
of the Company's  common stock.  Rights will be exercisable  only if a person or
group  acquires  beneficial  ownership  of 15%  (25% in the  case  of  specified
executive  officers of the  Company) or more of the  Company's  common  stock or
commences a tender or exchange offer, upon the consummation of which such person
or group would  beneficially own such percentage of the common stock.  Upon such
an event,  the Rights  enable  dilution  of the  acquiring  person's  or group's
interest by  providing  that other  holders of the  Company's  common  stock may
purchase,  at an exercise  price of $4.00,  the Company's  common stock having a
market  value of $8.00 based on the then market  price of the  Company's  common
stock, or at the discretion of the Board of Directors,  Preferred Stock,  having
double the value of such exercise price.  The Company will be entitled to redeem
the  Rights at $.001  per right  under  certain  circumstances  set forth in the
Rights  Plan.  The Rights  themselves  have no voting  power and will  expire on
December 26, 2012, unless earlier exercised, redeemed or exchanged.

      Common Stock  Reserved-As  of December 31, 2004,  the Company had reserved
for issuance  approximately  8,450,000  shares of common  stock  pursuant to the
Company's stock option plans (including an aggregate of 1,015,164 options issued
to the  Company's  Chairman  which  were not  granted  pursuant  to  stockholder
approved stock option plans).

      Treasury  Stock-During  the year ended  December  31,  2002,  the  Company
repurchased  340,000 shares of its common stock at a cost of $360,000.  In 2004,
the Company retired 584,000 shares of its treasury stock.

      In August 2002, the Board of Directors  authorized the repurchase of up to
$1.5 million of the Company's  common stock, of which  approximately  $1,140,000
remains available for repurchase under the program at December 31, 2004.

7.    STOCK OPTIONS

      The Company adopted,  with stockholder  approval,  1995, 1996, 1998, 2001,
and 2002 Stock  Option  Plans (the "1995  Plan," "1996 Plan," "1998 Plan," "2001
Plan," and "2002  Plan")  which  provide for the granting of options to purchase
not more than an aggregate of  2,400,000,  1,999,992,  3,600,000,  900,000,  and
950,000  shares of common  stock,  respectively,  subject  to  adjustment  under
certain  circumstances.  Such options may be incentive  stock  options  ("ISOs")
within the meaning of the Internal Revenue Code of 1986, as amended,  or options
that do not qualify as ISOs ("Non-Qualified Options").


                                     II-27
<PAGE>

      The option  exercise  price per share may not be less than the fair market
value per share of common  stock on the date of grant  (110% of such fair market
value for an ISO,  if the  grantee  owns stock  possessing  more than 10% of the
combined  voting power of all classes of the  Company's  stock).  Options may be
granted under the Stock Option Plan to all officers, directors, and employees of
the Company  and,  in  addition,  Non-Qualified  Options may be granted to other
parties who perform  services for the Company.  No options may be granted  under
the 1995 Plan after May 16, 2005;  under the 1996 Plan after July 8, 2006; under
the 1998 Plan after July 8, 2008;  under the 2001 Plan after May 31,  2011;  and
under the 2002 Plan after June 30, 2012.

      The Plans may be amended  from time to time by the Board of  Directors  of
the  Company.  However,  the Board of  Directors  may not,  without  stockholder
approval, amend the Plans to increase the number of shares of common stock which
may be  issued  under  the Plans  (except  upon  changes  in  capitalization  as
specified in the Plans),  decrease the minimum  exercise  price  provided in the
Plans or change the class of persons eligible to participate in the Plans.

      The fair  value  of  options  at date of grant  was  estimated  using  the
Black-Scholes  pricing model with the following  weighted  average  assumptions:
expected  lives  ranging  between  four to four and  one-half  years for options
granted  in 2004,  six  years for  options  granted  in 2003 and four  years for
options  granted in 2002; risk free interest rate of 3.19% in 2004, 4.2% in 2003
and 3.5% in 2002;  expected volatility of 114% in 2004, 140% in 2003 and 119% in
2002;  and a zero  dividend  rate in each of the three years ended  December 31,
2004.

      The  following  table  presents  information  related to stock options for
2004, 2003 and 2002.

                                            Weighted                  Weighted
                                            Average                    Average
                             Number         Exercise     Number       Exercise
                          Outstanding         Price    Exercisable     Price
                          -----------         -----    -----------     -----

Balance 1/1/02              7,851,292       $   1.84     4,795,880    $   0.88
                                            ========   ===========    ========

    Cancelled                (489,482)      $   1.29
    Granted                   220,750       $   3.64
    Exercised                (317,676)      $   0.35
                            ---------       --------

Balance 12/31/02            7,264,884       $   1.99     5,402,457    $   1.53
                                            ========   ===========    ========

    Cancelled                (127,176)      $   2.42
    Granted                 1,002,000       $   3.40
    Exercised                (550,328)      $   1.14
                            ---------       --------

Balance 12/31/03            7,589,380       $   2.34     5,780,204    $   1.83
                                            ========   ===========    ========

    Cancelled                 (49,174)      $   1.55
    Granted                   214,000       $   3.74
    Exercised                (728,274)      $   1.48
                            ---------       --------
Balance 12/31/04            7,025,932       $   2.36     5,985,748    $   2.14
                            =========       ========   ===========    ========


                                     II-28
<PAGE>

<TABLE>
<CAPTION>
                                                        Weighted
                          Per Share                      Average       Weighted                      Weighted
                           Range of                     Remaining      Average                        Average
                           Exercise        Number      Contractual     Exercise         Number       Exercise
                            Prices      Outstanding       Life          Price        Exercisable       Price
                            ------      -----------       ----          -----        -----------       -----
<S>                      <C>              <C>                <C>      <C>              <C>          <C>
Balance 12/31/04         $0.25 - 0.47       445,668          7        $    0.41          445,668    $   0.41
                         $0.50 - 0.75     1,625,061          7        $    0.57        1,625,061    $   0.57
                         $1.29 - 1.56     1,401,342          1        $    1.48        1,401,342    $   1.48
                         $2.00 - 2.50     1,021,911          2        $    2.24        1,021,911    $   2.24
                         $3.00 - 4.60     1,393,750          8        $    3.53          422,050    $   3.58
                         $5.43 - 5.89     1,130,200          1        $    5.45        1,062,300    $   5.45
                         $6.00 - 6.57         8,000          1        $    6.24            7,416    $   6.24
                                          ---------                   ---------        ---------    --------
                                          7,025,932                   $    2.36        5,985,748    $   2.14
                                          =========                   =========        =========    ========
</TABLE>

      Options granted prior to 2003 vest over a four year period and have a five
year life.  In 2004,  substantially  all options  granted  vest over a four year
period  and  have a ten  year  life.  The  weighted  average  fair  value of the
underlying  common  stock as of the date of grant for  options  granted in 2004,
2003 and 2002 is $3.74, $3.21 and $3.62, respectively.

      In 2003, the Company  extended the expiration  date of options  granted to
certain  officers,  directors  and  employees,  substantially  all of which were
vested, to purchase 315,000,  566,000,  522,000 and 133,000 shares of its common
stock at $.47,  $.50,  $.67 and  $2.00,  respectively.  In  connection  with the
extension,  the option  holders agreed not to sell shares of stock acquired upon
exercise of the extended  options for designated  periods of time ending between
June 2004 to March  2005.  In  connection  with this  transaction,  compensation
expense of  approximately  $650,000 was  recorded in the second  quarter of 2003
based upon the difference between the exercise price and the market price of the
underlying  common  stock on the date the options  were  extended.  Compensation
expense is included as a component of selling and administrative expenses.

      In 2002, the Company  extended the expiration date of options to the Chief
Executive  Officer to  purchase  6,672,  248,496,  360,000,  399,996 and 123,996
shares of its  common  stock at $.42,  $.50,  $.58,  $1.29 and $.25,  per share,
respectively.  In  connection  with this  transaction,  compensation  expense of
approximately  $513,000  was  recorded  in the  third  quarter  as  selling  and
administrative  expenses.  In addition,  the Company issued 11,587 shares of its
common stock pursuant to an employment agreement with an officer of the Company.
Compensation expense of approximately  $10,000 was recorded in the third quarter
of 2002 as selling and administrative expenses.

8.    SEGMENT REPORTING AND CONCENTRATIONS

      The Company's  operations are classified into two reporting segments:  (1)
outsourced  content  services and (2) IT professional  services.  The outsourced
content services segment focuses on fabrication services and knowledge services.
Fabrication services include digitization and data conversion services,  content
creation and XML  services.  Knowledge  services  include  content  enhancement,
hyperlinking,  indexing  and general  editorial  services.  The IT  professional
services  segment  focuses  on  the  design,  implementation,   integration  and
deployment  of  systems  used to  author,  manage and  distribute  content.  The
Company's  outsourced  content services revenues are generated  principally from
its production  facilities located in the Philippines,  India and Sri Lanka. The
Company does not depend on revenues  from sources  internal to the  countries in
which the  Company  operates;  nevertheless,  the  Company is subject to certain
adverse economic and political risks relating to overseas  economies in general,
such as inflation, currency fluctuations and regulatory burdens.

      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 has been reclassified for comparative purposes.


                                     II-29
<PAGE>

                                                 2004        2003        2002
                                                 ----        ----        ----
                                                       (in thousands)

Revenues:
  Outsourced content services                  $ 43,701    $ 29,977    $ 33,089
  IT Professional services                       10,248       6,737       3,296
                                               --------    --------    --------
  Total consolidated                           $ 53,949    $ 36,714    $ 36,385
                                               ========    ========    ========

Depreciation and amortization:
  Outsourced client services                   $  3,547    $  4,157    $  4,892
  IT Professional services                           92          79          78
  Selling and corporate administration              285         292         258
                                               --------    --------    --------
  Total consolidated                           $  3,924    $  4,528    $  5,228
                                               ========    ========    ========

Income (loss) before income taxes:
  Outsourced content services                  $ 16,116    $  6,576    $  5,037
  IT Professional services                        4,671       2,778        (655)
  Selling and corporate administration           (9,693)     (8,546)    (10,224)
                                               --------    --------    --------
  Total consolidated                           $ 11,094    $    808    $ (5,842)
                                               ========    ========    ========

                                                               December 31,
                                                               ------------
                                                             2004        2003
                                                             ----        ----
                                                             (in thousands)
Total assets
  Outsourced content services                              $15,937       $12,330
  IT Professional services                                   2,033         3,533
  Corporate (includes corporate cash)                       19,241         9,283
                                                           -------       -------
Total consolidated                                         $37,211       $25,146
                                                           =======       =======

      Long-lived assets:

      Long-lived  assets  as of  December  31,  2004 and 2003,  respectively  by
geographic region are comprised of:

                                                         2004              2003
                                                         ----              ----
                                                             (in thousands)
United States                                           $1,756            $1,739
                                                        ------            ------

Foreign countries:
Philippines                                              2,626             3,430
India                                                      827             1,134
Sri Lanka                                                  180               202
                                                        ------            ------
Total foreign                                            3,633             4,766
                                                        ------            ------
                                                        $5,389            $6,505
                                                        ======            ======

      One client  accounted for 23%, 33% and 17% of the  Company's  revenues for
the years ended December 31, 2004, 2003 and 2002, respectively. One other client
accounted for 31% and 30% of the Company's  revenues for the year ended December
31, 2004 and 2002,  respectively.  No other client  accounted for 10% or more of
revenues  during these periods.  Further,  in the years ended December 31, 2004,
2003 and 2002,  revenues to non-US  clients  accounted  for 30%,  47%,  and 23%,
respectively, of the Company's revenues.


                                     II-30
<PAGE>

      Revenues for the three years ended  December  31,  2004,  2003 and 2002 by
geographic region are as follows:

                                              2004          2003          2002
                                              ----          ----          ----
                                                       (in thousands)

United States                                $37,842       $19,582       $28,142
The Netherlands                               12,648        12,147         5,767
Other - principally Europe                     3,459         4,985         2,476
                                             -------       -------       -------
                                             $53,949       $36,714       $36,385
                                             =======       =======       =======

      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
December 31, 2004,  approximately 27% of the Company's  accounts  receivable was
from foreign  (principally  European) clients and 69% of accounts receivable was
due from two clients.

9.    INCOME (LOSS) PER SHARE

<TABLE>
<CAPTION>
                                                   2004         2003         2002
                                                   ----         ----         ----
                                              (in thousands, except per share amounts)
<S>                                              <C>          <C>          <C>
Net income (loss)                                $  7,857     $    475     $ (5,165)
                                                 ========     ========     ========

Weighted average common shares outstanding         22,288       21,570       21,489
Dilutive effect of outstanding options              2,529        1,396           --
                                                 --------     --------     --------
Adjusted for dilutive computation                  24,817       22,966       21,489
                                                 ========     ========     ========

Basic income (loss) per share                    $    .35     $    .02     $   (.24)
                                                 ========     ========     ========

Diluted income (loss) per share                  $    .32     $    .02     $   (.24)
                                                 ========     ========     ========
</TABLE>

      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
1,337,000  shares of common stock at December 31, 2003 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.  Such shares excluded at
December 31, 2004 were insignificant. In addition, diluted net loss per share in
2002 does not include potential common shares derived from stock options because
they are antidilutive.  The number of antidilutive  securities excluded from the
dilutable loss per share  calculation were 1,542,000 for the year ended December
31, 2002.

10.   RESTRUCTURING COSTS AND ASSET IMPAIRMENT

      During the fourth quarter 2001, the Company  commenced  certain actions to
reduce  production  operations  at a  wholly  owned  Asian  subsidiary  that was
operating  at a loss  and to  reduce  overall  excess  capacity  in  Asia.  Such
activities,  which  culminated in the cessation and closure of all operations at
such  subsidiary  and included  employee  layoffs,  were  completed in 2002.  In
addition,  during 2002 the Company  closed a second  facility,  resulting in the
write-off of property and equipment associated with the closed facility totaling
approximately  $244,000.  Such  write-off of equipment  has been  classified  as
Restructuring Costs and Asset Impairment for the year ended December 31, 2002.


                                     II-31
<PAGE>

11.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

                                        First      Second       Third     Fourth
                                      Quarter     Quarter     Quarter    Quarter
                                      -------     -------     -------    -------
                                       (in thousands, except per share amounts)
2004
Revenues                             $ 12,157    $ 12,354    $ 15,927   $ 13,511
Net income                              2,080       1,577       3,103      1,097
Net income per share                 $    .09    $    .07    $    .14   $    .05
Diluted net income per share         $    .08    $    .06    $    .13   $    .04
2003
Revenues                             $  6,653    $  8,056    $ 11,184   $ 10,821
Net income (loss)                      (1,113)       (636)      1,490        734
Net income (loss) per share          $   (.05)   $   (.03)   $    .07   $    .03
Diluted net income (loss) per share  $   (.05)   $   (.03)   $    .06   $    .03

12.   OTHER

      For the year ended  December 31, 2001,  the Company  provided an allowance
for doubtful accounts of approximately  $2.6 million  representing the remaining
balance due at December  31,  2001 from a client that  accounted  for 30% of its
2001  revenues  because the client has reported an  inability  to raise  further
operating funds required to make payment. In January 2004, the Company reached a
settlement with this client to pay $1,000,000  cash as full  satisfaction of the
outstanding balance due to the Company.  The $1,000,000 receipt,  net of $37,000
in recovery  costs is reflected as bad debt  recovery  income for the year ended
December 31, 2004.

      The Company  announced its intent to raise funds and filed a  registration
statement on Form S-3 to register  4,250,000  shares of its common  stock,  plus
3,250,000  shares  of common  stock  currently  held by  certain  directors  and
officers of the Company.  On March 23, 2005, the Company terminated the offering
and, as such, in the fourth  quarter 2004,  expensed  approximately  $625,000 of
offering costs.


                                     II-32
<PAGE>

Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure.

      None

Item 9A. Controls and Procedures.

      An  evaluation  has been  carried out under the  supervision  and with the
participation  of our  management,  including  our Chief  Executive  Officer and
Principal  Financial  Officer,  of the  effectiveness  of  the  design  and  the
operation of our  "disclosure  controls and procedures" (as such term is defined
in Rules 13a-15(e) under the Securities Exchange Act of 1934) as of December 31,
2004 ("Evaluation Date"). Based on such evaluation,  our Chief Executive Officer
and Chief Financial  Officer have concluded that, as of the Evaluation Date, the
disclosure  controls and  procedures  are  reasonably  designed and effective to
ensure that (i)  information  required to be  disclosed  by us in the reports we
file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms,  and  (ii)  such  information  is  accumulated  and  communicated  to our
management,  including  our Chief  Executive  Officer  and  Principal  Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.

      There were no changes in our internal controls over financial reporting in
connection  with the  evaluation  required by  paragraph  (d) of Rules 13a-15 or
15d-15 under the Exchange Act that occurred  during our last fiscal quarter that
materially  affected or are reasonably  likely to materially affect the internal
controls over financial reporting.


                                     II-33
<PAGE>

                                    PART III

Item 10.  Directors,  Officers,  Promoters and Control Persons;  Compliance with
          Section 16(a) of the Exchange Act.

      The  information  called for by Item 10 is  incorporated by reference from
the  Company's  definitive  proxy  statement  for the  2005  Annual  Meeting  of
Stockholders  to be filed  pursuant to Regulation  14A under the Exchange Act no
later than 120 days after the end of the Company's 2004 fiscal year.

      The information  concerning the Company's  Executive  Officers required by
this Item is  incorporated  by reference to the Company's  proxy statement under
the heading  "Executive  Officers".  The  information  concerning  the Company's
Directors  required by this Item is  incorporated  by reference to the Company's
proxy  statement  under  the  heading   "Election  of  Directors".   Information
concerning compliance by the Company's officers,  Directors and 10% stockholders
with Section 16(a) of the  Securities  Exchange Act of 1934 is  incorporated  by
reference to the  information  contained in the Company's  Proxy Statement under
the heading  "Compliance  with Section 16(a) of the Exchange  Act."  Information
regarding the presence of an audit committee  financial  expert required by this
Item is  incorporated  by reference to the Company's  Proxy  Statement under the
heading "Committees of the Board of Directors."

      The  Company has a code of ethics  that  applies to all of its  employees,
officers,  and directors,  including its principal executive officer,  principal
financial and accounting officer, and controller. The text of the Company's code
of ethics  is posted on its  website  at  www.innodata-isogen.com.  The  Company
intends to disclose future amendments to, or waivers from, certain provisions of
the code of ethics for  executive  officers  and  directors in  accordance  with
applicable NASDAQ and SEC requirements.

Item 11. Executive Compensation.

Executive Compensation

      The  information  called for by Item 11 is  incorporated by reference from
the  Company's  definitive  proxy  statement  for the  2005  Annual  Meeting  of
Stockholders  to be filed  pursuant to Regulation  14A under the Exchange Act no
later than 120 days after the end of the Company's 2004 fiscal year. Information
appearing  under  the  captions  "Compensation  Committee  Report  on  Executive
Compensation";  "Report of the Audit Committee" and "Stock Performance Graph" to
be included in the Company's 2005 Proxy Statement is not incorporated  herein by
this reference.

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters.

      The  information  called for by Item 12 is  incorporated by reference from
the  Company's  definitive  proxy  statement  for the  2005  Annual  Meeting  of
Stockholders  to be filed  pursuant to Regulation  14A under the Exchange Act no
later than 120 days after the end of the Company's 2004 fiscal year.

Item 13. Certain Relationships and Related Transactions.

      The  information  called for by Item 13 is  incorporated by reference from
the  Company's  definitive  proxy  statement  for the  2005  Annual  Meeting  of
Stockholders  to be filed  pursuant to Regulation  14A under the Exchange Act no
later than 120 days after the end of the Company's 2004 fiscal year.


                                      III-1
<PAGE>

Item 14. Principal Accountant Fees and Services.

      The  information  called for by Item 14 is  incorporated by reference from
the  Company's  definitive  proxy  statement  for the  2005  Annual  Meeting  of
Stockholders  to be filed  pursuant to Regulation  14A under the Exchange Act no
later than 120 days after the end of the Company's 2004 fiscal year.


                                     III-2
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)   1. Financial Statements. See Item 8. Index to Financial Statements.
      2. Financial Statement  Schedules.  Schedule II - Valuation and Qualifying
         Accounts
      3. Exhibits

      Exhibits  which are  indicated as being  included in previous  filings are
incorporated herein by reference.

<TABLE>
<CAPTION>
Exhibit     Description                                   Filed as Exhibit
-------     -----------                                   ----------------
<S>         <C>                                           <C>
3.1 (a)     Restated Certificate of Incorporation filed   Filed as Exhibit 3.1(a) to our Form 10-K for the year ended
            on April 29, 1993                             December 31, 2003

3.1 (b)     Certificate of Amendment of Certificate of    Filed as Exhibit 3.1(b) to our Form 10-K for the year ended
            Incorporation of Innodata Corporation filed   December 31, 2003
            on March 1, 2001

3.1 (c)     Certificate of Amendment of Certificate of    Filed as Exhibit 3.1(c) to our Form 10-K for the year ended
            Incorporation of Innodata Corporation         December 31, 2003
            Filed on November 14, 2003

3.2         Form of Amended and Restated By-Laws          Exhibit 3.1 to Form 8-K dated December 16, 2002

3.3         Form of Certificate of Designation of         Filed as Exhibit A to Exhibit 4.1 to Form 8-K dated
            Series C Participating Preferred Stock        December 16, 2002

4.2         Specimen of Common Stock certificate          Exhibit 4.2 to Form SB-2 Registration Statement No. 33-62012

4.3         Form of Rights Agreement, dated as of         Exhibit 4.1 to Form 8-K dated December 16, 2002
            December 16, 2002 between Innodata
            Corporation and American Stock Transfer
            & Trust Co., as Rights Agent

10.1        1994 Stock Option Plan                        Exhibit A to Definitive Proxy dated August 9, 1994

10.2        1993 Stock Option Plan                        Exhibit 10.4 to Form SB-2 Registration Statement No. 33-62012

10.3        Form of Indemnification Agreement             Filed as Exhibit 10.3 to Form 10-K dated December 31, 2002
            Between us and our directors and one of our
            officers

10.4        1994 Disinterested Directors Stock Option     Exhibit B to Definitive Proxy dated August 9, 1994
            Plan

10.5        1995 Stock Option Plan                        Exhibit A to Definitive Proxy dated August 10, 1995

10.6        1996 Stock Option Plan                        Exhibit A to Definitive Proxy dated November 7, 1996

10.7        1998 Stock Option Plan                        Exhibit A to Definitive Proxy dated November 5, 1998

10.8        2001 Stock Option Plan                        Exhibit A to Definitive Proxy dated June 29, 2001

10.9        2002 Stock Option Plan                        Exhibit A to Definitive Proxy dated September 3, 2002

10.10       Employment Agreement dated as of              Filed as Exhibit 10.10 to our Form 10-K for the year ended
            January 1, 2004 with George Kondrach          December 31, 2003

10.11       Letter Agreement dated as of August 9, 2004,  Filed as Exhibit 10.2 to Form S-3 Registration statement
            by and between us and The Bank of New York    No. 333-121844

21          Significant subsidiaries of the registrant    Filed herewith
</TABLE>


                                      IV-1
<PAGE>

Exhibit     Description                                   Filed as Exhibit
-------     -----------                                   ----------------

23          Consent of Grant Thornton LLP                 Filed herewith

31.1        Certificate of Chief Executive Officer and    Filed herewith
            Principal Financial Officer pursuant to
            Section 302 of the Sarbanes-Oxley Act
            of 2002.

32.1        Certification Pursuant to 18 U.S.C. Section   Filed herewith
            1350, as adopted pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002.

32.2        Certification Pursuant to 18 U.S.C. Section   Filed herewith
            1350, as adopted pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002.

99.1        Schedule II Valuation and Qualifying Accounts Filed herewith


                                      IV-2
<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                  INNODATA ISOGEN, INC.


                                  By Jack Abuhoff
                                     -------------------------------------------
                                     Jack Abuhoff
                                     Chairman of the Board of Directors,
                                     Chief Executive Officer and President

      In accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
Signature                                    Title                                           Date
---------                                    -----                                           ----
<S>                                          <C>                                             <C>
    Jack Abuhoff                             Chairman of the Board of Directors,             March 25, 2005
----------------------------------------     Chief Executive Officer and President
Jack Abuhoff

    Todd Solomon                             Vice Chairman of the Board of                   March 25, 2005
----------------------------------------     Directors and Consultant
Todd Solomon

    Stephen Agress                           Vice President - Finance                        March 25, 2005
----------------------------------------     Chief Accounting Officer (Principal
Stephen Agress                               Accounting and Financial Officer)


    Haig S. Bagerdjian                       Director                                        March 25, 2005
----------------------------------------
Haig S. Bagerdjian

    Louise C. Forlenza                       Director                                        March 25, 2005
----------------------------------------
Louise C. Forlenza

    Charles F. Goldfarb                      Director                                        March 25, 2005
----------------------------------------
Dr. Charles F. Goldfarb

    John R. Marozsan                         Director                                        March 25, 2005
----------------------------------------
John R. Marozsan
</TABLE>