As filed with the Securities and Exchange Commission on January 5, 2005

Registration No.                   

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________ 

FORM S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Innodata Isogen, Inc.
_______________________ 

INNODATA INC.

(Exact name of registrant as specified in its charter)

Jack S. Abuhoff
Chairman, Chief Executive Officer and President
Innodata Isogen, Inc.

Three University Plaza

Hackensack, New Jersey 07601

(201) 488-1200
371-8000

(Address, including zip code, and telephone number, including area code, of registrant's principal executive office)

_______________________

Amy R. Agress

Vice President, General Counsel and Secretary

Innodata Inc.

Three University Plaza

Hackensack, New Jersey 07601

(201) 371-8000

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

COPIES TO:_______________________

Approximate date of commencement of proposed sale to the public: As soon as practicable From time to time after the effective date of this Registration Statement.registration statement becomes effective.

        If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. o¨

        If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box oþ

        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o¨

        If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o¨

If delivery ofthis Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the prospectus is expected to be madeCommission pursuant to Rule 434, please462(e) under the Securities Act, check the following box.  o¨

If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

 _______________________

CALCULATION OF REGISTRATION FEE

The Registrantregistrant hereby amends this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until the Registrantregistrant shall file a further amendment whichthat specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statementthis registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

CALCULATION OF REGISTRATION FEE

(1)

One preferred stock purchase right will attach to and trade with each share of common stock sold in the offering. These rights are also covered by this registration statement and the value attributable to them, if any, is reflected in the market price of the common stock.

(2)

Includes 1,125,000 shares of common stock to cover over-allotments.

(3)

Estimated solely for the purpose of computing the amount of the registration fee, in accordance with Rule 457(c) under the Securities Act of 1933, as amended. The maximum offering price per share is $8.95, which was the average high and low prices for Innodata Isogen's common stock as reported on the Nasdaq National Market on Wednesday, December 29, 2004.

The information in this prospectus is not complete and may be changed. These securitiesWe may not be soldsell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION—JANUARY 5, 2005

Preliminary Prospectus

 7,500,000 Shares

Innodata Isogen, Inc.Subject to completion, dated June 14, 2012

PROSPECTUS

INNODATA INC.

$70,000,000

Common Stock

Preferred Stock

Debt Securities

Warrants

Units

 _______________________

We are offering 7,500,000 shares of our common stock, consisting of 4,250,000 sharesmay from time to time offer and sell any combination of common stock, beingpreferred stock, debt securities and warrants described in this prospectus, either individually or in units, in one or more offerings. The aggregate initial offering price of all securities sold under this prospectus will not exceed $70,000,000. The preferred stock, debt securities and warrants may be convertible into or exercisable for our common or preferred stock.

This prospectus provides a general description of the securities we may offer. The specific terms of any securities to be offered by uswill be described in a supplement to this prospectus that contains specific information about the offering and 3,250,000 sharesthe terms of the securities.

We may offer and sell these securities to or through one or more underwriters, dealers and agents, or directly to purchasers, on a continued or delayed basis.

Our common stock being offered for resale by the selling stockholders. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.

        Our shares of common stock are listedis traded on the Nasdaq NationalGlobal Market under the symbol "INOD." The last reported sales price of our common stock on the Nasdaq National Market on January 4, 2005 was $9.29 per share.“INOD.”

Investing in our common stockthe securities involves risks. See "Risk Factors" beginning“Risk Factors” on page 63 of this prospectus as well as references to read aboutrisk factors and material risks thatin any one or more prospectus supplements. Before buying the securities, you should read and consider before buyingthe risk factors included in our sharesperiodic reports and in other information that we file with the Securities and Exchange Commission and that are incorporated by reference in this prospectus.

This prospectus may not be used to offer or sell any of common stock.our securities unless accompanied by a prospectus supplement.

 _______________________

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

  We and some of our existing stockholders have granted the underwriters a 30-day option to purchase up to an aggregate of 1,125,000 additional shares of our common stock at the public offering price, less the underwriting discounts and commissions, solely to cover over-allotments, if any. In the event that the underwriters exercise their over-allotment option, we will not receive any of the net proceeds from any shares sold by the selling stockholders._______________________

 We expect that the shares of our common stock will be ready for delivery to purchasers on or about January    , 2005.

The date of this prospectus is January    , 2005

__________, 2012

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission (the “SEC”) using a “shelf” registration process. Under this shelf registration process, we may offer and sell from time to time shares of our common stock, shares of our preferred stock, debt securities, warrants, units, or any combination thereof, in one or more offerings in amounts, at prices and on terms that we determine at the time of the offering, with an aggregate initial offering price of up to $70,000,000. This prospectus provides you with a general description of the securities. Each time we offer the securities, we will provide a prospectus supplement that describes the terms of the offering. The prospectus supplement also may add, update or change information contained in this prospectus. If there is any inconsistency between the information in this prospectus and the applicable prospectus supplement, you should rely on the information in the prospectus supplement.

Before making an investment decision, you should read carefully both this prospectus and any prospectus supplement together with the documents incorporated by reference into this prospectus as described below under the heading “Incorporation by Reference.” The registration statement that contains this prospectus, including the exhibits to the registration statement and the information incorporated by reference, provides additional information about us and our securities. The registration statement can be read at the SEC web site (www.sec.gov) or at the SEC public reference room as discussed below under the heading “Where You Can Find More Information.”

You should rely only on the information containedthat we have provided or incorporated by reference in this prospectus.prospectus and any applicable prospectus supplement that we may authorize to be provided to you. We have not, and the underwriters have not authorized anyone to provide you with additional information in addition to or information different from that contained in this prospectus. We are offeringprospectus and any applicable prospectus supplement. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus and any applicable prospectus supplement that we may authorize to be provided to you. You must not rely on any unauthorized information or representation. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and seeking offers to buy, shares of our common stock only in jurisdictions where it is lawful to do so. We will not make an offer to sell our securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any accompanying prospectus supplement, as well as information we have previously filed with the Securities and Exchange Commission and incorporated herein by reference, is accurate as of the date on the front of those offersdocuments only. Our business, financial condition, results of operations and salesprospects may have changed since those dates.This prospectus may not be used to consummate a sale of our securities unless it is accompanied by a prospectus supplement.

Unless otherwise mentioned or unless the context requires otherwise, all references in this prospectus to “the Company,” “Innodata,” “we,” “us,” “our,” or similar references mean Innodata Inc., a Delaware corporation and its subsidiaries.

THE COMPANY

Innodata is a leading provider of business process, technology and consulting services, as well as products and solutions that help clients create, manage, use and distribute digital information. Propelled by a culture that emphasizes quality, service and innovation, we have developed a client base that includes many of the world’s preeminent media, publishing and information services companies, as well as leading enterprises in information-intensive industries such as aerospace, defense, financial services, government, healthcare, high technology, insurance, intelligence, manufacturing and law. We operate in two reporting segments. Our Content Services segment provides services that support the creation, enhancement, and repurposing of digital content. We launched Innodata Advanced Data Solutions (IADS) as a separate segment in the second quarter of 2011 to render high quality advanced data analytics to clients in the financial services, healthcare, medical and insurance industries.

For a description of our business, financial condition, results of operations and other important information regarding Innodata, we refer you to our filings with the SEC that are permitted.incorporated by reference in this prospectus. For instructions on how to find copies of these documents, see the section under the heading “Where You Can Find More Information.” More information about us is also available through our website at www.innodata.com. The information on our website is not incorporated by reference into this prospectus or any accompanying prospectus supplement.

Our principal executive offices are located at Three University Plaza, Hackensack, New Jersey 07601. Our telephone number is (201) 371-8000.

FORWARD-LOOKING STATEMENTS

This prospectus and the documents incorporated by reference contain “forward-looking statements” of Innodata within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties and other factors relate to, among other things:

Words such as“estimate,” “believe,” “expect,” “anticipate,” “intend”and other similar expressions identify forward-looking statements.

Further, any forward-looking statement made by us herein and in the documents incorporated by reference herein, or elsewhere, speaks only as of the date on which we make it. We have no obligation to update any forward-looking statements herein or therein after the date hereof or thereof, except as required by federal securities laws.

RISK FACTORS

An investment in our securities involves a high degree of risk. You should carefully consider the risks described under “Risk Factors” in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, and all of the other information contained in this prospectus is accurate only as of the date ofand incorporated by reference into this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of common stock offered by this prospectus.

i

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed business information and consolidatedincluding our financial statements and related notes, that are included elsewhere in this prospectus and in the documents that are incorporated by reference into this prospectus. This prospectus may contain "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. See "Special Note Regarding Forward-Looking Statements." This information involves risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors."

INNODATA ISOGEN

        We are 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 successfully to create a sustainable position as a business service provider focused on the content supply chain, which is the series of integrated activities needed to create, manage, use and distribute information. Our competitive advantages include:

        Domain Expertise.    We believe that the quality of our services and their broad scope and scale give us an important competitive advantage. We offer a suite of comprehensive and sophisticated technology-based solutions that span the entire content supply chain. Our technology solutions and our skilled workforce, coupled with our long operating history and experience with clients in many vertical industries, allow us to work with clients to implement the appropriate content focused solutions.

        Proven Project Management and Established Global Network of Delivery Centers.    We believe our project management strategy coupled with our highly evolved global network of delivery centers represent a key competitive advantage. We have developed our domestic, on-site and offshore execution capabilities to deliver seamlessly high quality services. In doing so, we have made substantial investments in our process, infrastructure and systems over the last decade, and have successfully integrated our domestic, on-site and offshore service offerings.

        Ability to Scale.    We have successfully managed our growth by investing in infrastructure and by recruiting, training and rapidly deploying staff. Our strong financial position allows us to make the required investments in infrastructure and personnel that we need to continue to grow our business. We can rapidly deploy resources and execute new projects through our scalable network of global delivery centers. As a result, we are able to execute large-scale, short-term projects and long-term engagements in an efficient and cost-competitive manner.

        Ability to Provide Services Encompassing the Content Supply Chain.    Our specialized focus on business services related to content allows us to provide clients a solution that can address a variety of needs throughout the content supply chain. We believe that these offerings provide us with a competitive advantage because we are able to offer a client a range of solutions as a single-source provider and to adapt our solutions as the client's needs change or expand over time.

        We believe that the value of our solutions is best exemplified by the breadth and depth of our client relationships. 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:

•

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



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Global 2000 enterprises, including Hamilton Sundstrand and Lockheed Martin;



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



•

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

        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% of our total revenues for the nine months ended September 30, 2004 and for 33% and 17% of our total revenues for the years ended December 31, 2003 and 2002, respectively. A second client accounted for 29% of our total revenues for the nine months ended September 30, 2004 and for 9% and 30% of our total revenues for the years ended December 31, 2003 and 2002, respectively.

        We typically service our clients in multi-year relationships. Approximately 76% of our largest 25 clients by revenues in the nine months ended September 30, 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 48% and 53% of our revenues from these engagements for the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively.

        Our objective is to be a strategic partner to organizations that provide, sell or consume content and to become the dominant worldwide provider of outsourced content services and content-related information technology professional services to these organizations.

        To achieve our objectives, we intend to:

•

Grow our relationships with existing and new clients;



•

Increase our recurring revenues;



•

Enhance our portfolio of solutions; and



•

Execute strategic acquisitions.

        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.

The Offering

        Except as otherwise indicated, all information in this prospectus assumes that the underwriters' over-allotment option is not exercised.

        In addition to the 27,941,728 shares of common stock to be outstanding after this offering, as of November 30, 2004, options for a total of 5,609,686 shares have been granted at a weighted average exercise price of $2.46 per share, not including options for a total of 1,021,840 shares that will be exercised in connection with this offering (see "Principal and Selling Stockholders"), and options for an additional 1,424,388 shares of common stock were available to be granted under our stock option plans.

        The terms "Innodata Isogen," "we," "our" and "us," when used in this prospectus, refer to Innodata Isogen, Inc., a Delaware corporation incorporated in 1988, and its subsidiaries on a consolidated basis, unless the context suggests otherwise.

        Unless the context otherwise indicates or requires, all trademarks and tradenames referred to in this prospectus are trademarks or service marks of Innodata Isogen and may be registered in certain jurisdictions.

SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)

        The summary consolidated financial data as of September 30, 2004 and for the nine-month periods ended September 30, 2004 and 2003 are derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus. The summary consolidated financial data for the years ended December 31, 2003, 2002 and 2001 are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The historical results presented are not necessarily indicative of the results that may be expected in the future.

        You should carefully read the information set forth below in conjunction with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical consolidated financial statements and related notes.

        The following table presents a summary of our balance sheet data as of September 30, 2004:

•

on an actual basis; and



•

on an as adjusted basis to give effect to our sale of 4,250,000 shares of common stock in this offering, after deducting underwriting discounts and commission and the estimated offering expenses, and the exercise of options to purchase 1,021,840 shares of common stock by certain

of our officers and directors at an average exercise price of $1.92 per share, and the application of our net proceeds from this offering.

RISK FACTORS

You should carefully consider the following risks before investing in our common stock. These are not the only risks that we may face.securities. If any of the possible events referred to belowdescribed in those sections actually occurs,occur, our business, financial condition, liquidity andbusiness prospects, cash flow, results of operations or financial condition could suffer significantly.be harmed. In thatthis case, the trading price of our common stock or the value of our securities could declinedecrease, and you maymight lose all or part of your investment. You should also refer to the other information in this prospectus and in the documents that are incorporated by reference into this prospectus, including our consolidated financial statements and related notes.

Risks Related to Our Business

We have historically relied on a very limited number of clients that have accounted for a significant portion of our revenues and our results of operations could be adversely affected if we lose one or more of these significant clients.

        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% of our total revenues for the nine months ended September 30, 2004 and for 33% and 17% of our total revenues for the years ended December 31, 2003 and 2002, respectively. A second client accounted for 29% of our total revenues for the nine months ended September 30, 2004 and for 9% and 30% of our total revenues for the years ended December 31, 2003 and 2002, respectively. We may lose any of these or our other major clients as a result of:

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our failure to meet or satisfy our clients' requirements;



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the completion or termination of a project or engagement; or



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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.

A significant portion of our services is provided on a non-recurring basis for specific projects, and our inability to replace large projects when they are completed could adversely affect our revenues and results of operations.

        We provide a portion of our services for specific projects that generate revenues that terminate on completion of a defined task and we regard these revenues as non-recurring. Non-recurring revenues derived from these project-based arrangements accounted for approximately 52% of our total revenues for the nine months ended September 30, 2004 and approximately 47% of our total revenues for the year ended December 31, 2003. 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 to obtain sufficient new projects to counterbalance any decreases in such work could adversely affect our revenues and results of operations.

        For example, we completed a project in the quarter ended September 30, 2004 that generated approximately $1.0 million of revenues for that quarter. These revenues were not replaced or offset by increased revenues from existing projects in the quarter ended December 31, 2004. Similarly, in the quarter ended December 31, 2004, we completed a project that generated approximately $1.5 million of revenues for the quarter ended September 30, 2004 and approximately $1.2 million of revenues for the quarter ended December 31, 2004. We cannot assure you that for the quarter ending March 31, 2005, or thereafter, we will generate sufficient increased revenues from existing projects and revenues from new projects to offset the decline in revenues resulting from these or other completed projects.

A large portion of our accounts receivable is payable by a limited number of clients; the inability of any of these clients to pay its accounts receivable would adversely affect our results of operations.

        Several significant clients account for a large percentage of our accounts receivable. As of September 30, 2004, 68%, or $7.2 million, of our accounts receivable was due from two clients. If any of these clients were unable, or refuse, for any reason, to pay our accounts receivable, our results of operations would be adversely affected.

Quarterly fluctuationsinvestment in our results of operations could make financial forecasting difficultsecurities. Additional risks and could negatively affect our stock price.

        We have experienced, and expect to continue to experience, significant fluctuations in our quarterly revenues and results of operations. During the past seven quarters, our net income ranged from a loss of approximately $636,000 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:

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completions, terminations, cancellations or deferrals of projects or engagements;



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the size, mix, timing and terms and conditions of client projects;



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variations in the duration, size and scope of our projects or engagements;



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market acceptance of our clients' new products and services;



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our ability to manage costs;



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local factors and events that affect our production volume, such as local holidays;



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unforeseen events, such as earthquakes, storms and civil unrest;



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currency exchange fluctuations;



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changes in pricing policies by us or our competitors;



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the introduction of new services by us or our competitors; and



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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.

        Accordingly, we believe that quarter-to-quarter comparisons of our results of operations areuncertainties not necessarily meaningful. You should not rely on the results of any one quarter as an indication of our future performance.

        We may not experience increases in our revenues or net income in future years comparable to the increases in some prior periods. In future periods, our results of operations could be below the expectations of investors, which is likely to cause the trading price of our common stock to decline.

Demand for our services could change as a result of the changing needs of our clients, which could adversely affect our results of operations.

        A substantial portion of the services we provide to our clients is subject to our clients' needs. Our agreements with clients are in most cases terminable on 30 to 90 days' notice and are typically subject to client requirements. Accordingly, we effectively rely on our clients' interests in maintaining the

continuity of our services rather than on contractual requirements. Our clients may cancel, change or delay their production plans for a variety of reasons beyond our control. Cancellations, reductions or delays by a significant client or by a group of clients that account for a significant portion of our revenues could adversely affect our revenues and results of operations.

        Moreover, we make significant decisions based on our estimates of clients' needs and other factors, including:

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economic conditions in our clients' industries or in general;



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decisions about the levels of business that we will seek and accept;



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production schedules;



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equipment procurement;



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personnel hiring; and



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other resource acquisition.

        The nature of our clients' commitments and the possibility of changes in demand for their products or services may reduce our ability to estimate or otherwise plan accurately. On occasion, clients may require rapid increases in production, which may challenge our resources and capacity. As a result, we may not have sufficient capacity at any given time to meet all of our clients' demands.

If we fail to meet our clients' performance expectations, our reputation may be harmed, causing us to lose clients or exposing us to legal liability.

        As a services provider, our ability to attract and retain clients depends to a large extent on our relationships with our clients and our reputation for high quality services and integrity. In addition, we need to continue to provide our clients with innovative value-added services. As a result, if a client is not satisfied with our services, including those of subcontractors we engage, our reputation may be damaged. Moreover, if we fail to meet our clients' performance expectations, we may lose clients and be subject to legal liability, particularly if such failure has a consequential adverse impact on our clients' businesses. As a result, our revenues and results of operations could be adversely affected.

If we fail to keep pace with changing technologies, we may lose clients.

        Our market is characterized by rapidly changing client requirements and evolving technologies and industry standards. If we cannot keep pace with these changes, our business could suffer. To achieve our goals, we need to continue to develop strategic business solutions and to develop and integrate proprietary applications for use in our various facilities in order to keep pace with continuing changes in client expectations, information technologies and industry standards. If we are unable to keep pace with changing technologies, we may lose clients and our revenues and results of operations could be adversely affected.

Our clients may adopt technologies that decrease the demand for our services, which could adversely affect our revenues and results of operations.

        We target clients with a particular need for our services. However, after we complete an engagement, our clients may adopt new technologies or implement various processes that automate a portion of the services which we offer and thereby substantially reduce their need for our services. The adoption of such technologies or processes could place negative pressure on our pricing and adversely affect our revenues and result of operations.

We compete in highly competitive markets that have low barriers to entry.

        The markets for our services are highly competitive and fragmented. We may not be able to compete successfully against our competitors in the future. Some of our competitors have longer

operating histories, significantly greater financial, human, technical and other resources and greater name recognition than we do. If we fail to be competitive with these companies in the future, we may lose market share, which could adversely affect our revenues and results of operations.

        There are relatively few barriers preventing companies from competing with us. We do not own any patented technology that would preclude or inhibit others from entering our market. As a result, new market entrants also pose a threat to our business. We also compete with in-house personnel at current and prospective clients, who may attempt to duplicate our services using in-house personnel. We cannot assure you that our clients will outsource more of their needs to us in the future, or that they will not choose to provide internally the services that they currently obtain from us. If we are not able to compete effectively, our revenues and results of operations could be adversely affected.

If we do not effectively manage our capacity, our results of operations could be adversely affected.

        Our ability to profit from the global trend toward outsourcing depends largely on how effectively we manage our capacity. There are several factors and trends that have intensified this challenge. In order to create the additional capacity necessary to accommodate the demand for our services, we may need to open new facilities or expand our existing facilities. The opening or expansion of these facilities may result in idle or underutilized capacity until any new or expanded facility operates at full revenue capacity. We periodically assess the expected long-term capacity utilization of our facilities. We may not be able to achieve or maintain optimal utilization of our facilities. A significant portion of our costs represents fixed operating expenses, including depreciation expense, facility rent, management costs and administrative overhead. If demand for our services does not meet our expectations, our revenues will not be sufficient to offset these expenses and our results of operations could be adversely affected.

If we fail to manage our growth effectively, our results of operations could be adversely affected.

        We have expanded significantly since our formation and intend to maintain our focus on growth. However, our growth will place demands on our resources, and we cannot be sure that we will be able to manage our growth effectively. In order to manage our growth successfully, we must:

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maintain the hiring, training and management necessary to ensure the quality and responsiveness of our services;



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expand and enhance our administrative and technical infrastructure, facilities and capacities; and



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continue to improve our management, financial and information systems and controls.

        Continued growth could place a strain on our management, operations and financial resources. Our infrastructure, facilities and personnel may not be adequate to support our future operations. As a result, we may be unable to manage our growth effectively, in which case our operating costs could increase at a faster rate than the growth in our revenues, our margins could decline and our results of operations could be adversely affected.

We may have difficulty in identifying and competing for strategic acquisition opportunities.

        Our business strategy includes the pursuit of strategic acquisitions. We may acquire or make strategic investments in complementary businesses, technologies, services or products, or enter into strategic partnerships or alliances with third parties in the future in order to expand our business. We may be unable to identify suitable acquisition, strategic investment or strategic partnership candidates, or if we do identify suitable candidates, we may not complete those transactions on terms commercially favorablepresently known to us or at all. If we fail to identify and successfully complete these transactions, our competitive position and our growth prospects could be adversely affected. In addition, we expect to face competition from other companies with significantly greater resources for acquisition candidates, making it more difficult for us to acquire suitable companies on favorable terms.

Pursuing and completing potential acquisitions could divert management attention and financial resources and may not produce the desired business results.

        We do not have specific personnel dedicated to pursuing and making strategic acquisitions. As a result, if we pursue any acquisition, our management, in addition to operational responsibilities, could spend a significant amount of time and financial resources to pursue and integrate the acquired business with our existing business. To pay for an acquisition, we might use capital stock, cash or a combination of both. Alternatively, we may borrow money from a bank or other lender. If we use capital stock, our stockholders will experience dilution. If we use cash or debt financing, our financial liquidity may be reduced and the interest on any debt financing could adversely affect our results of operations. From an accounting perspective, an acquisition may involve amortization or write-off of significant amounts of intangible assets that could adversely affect our results of operations.

        Despite the investment of these management and financial resources, and completion of due diligence with respect to these efforts, an acquisition may not produce the revenues, earnings or business synergies that we anticipated for a variety of reasons, including:

•

difficulties in the integration of the technologies, products and personnel of the acquired business;



•

the failure of acquired technologies and services to perform as expected;



•

the risks of entering markets in which we have no, or limited, prior experience;



•

the failure to identify or assess adequately any undisclosed or potential legal liabilities of the acquired business;



•

the failure of the acquired business to achieve the forecasts we used to determine the purchase price;



•

the potential loss of key personnel of the acquired business; or



•

geographic distances between us and the acquired business.

        These difficulties could disrupt our ongoing business and increase our expenses and working capital requirements. We have no current arrangements, understandings or agreements to enter into any acquisition, investment, partnership, alliance or other joint venture transaction.

Our success depends in part upon the senior members of our management team, and our inability to retain them could adversely affect our ability to operate our business.

        We are highly dependent on the senior members of our management team. We do not maintain key person life insurance for any of the senior members of our management team. Competition for senior management in our industry is intense. Wecurrently deem immaterial may not be able to retain our senior management personnel or attract and retain new senior management personnel in the future, particularly if we implement policies or programs that are not favorably viewed by this personnel. For example, we are considering implementing a policy with respect to director and officer stock ownership. If we were to adopt such a policy, it may not be favorably viewed by the senior members of our management. The loss of one or more members of our senior management team could adversely affect our ability to:

•

attract and retain clients;



•

execute our business strategy; and



•

otherwise operate our business.

If we fail to attract and retain qualified professional staff, we may not have the necessary resources to staff properly our existing engagements or obtain new engagements.

        Our success depends largely on the contributions of our employees and our ability to attract and retain qualified personnel, including technology, consulting, engineering, marketing and management professionals. Competition for qualified personnel in the markets in which we operate, particularly in the Philippines and India, is intense. Accordingly, we may not be able to hire or retain all of the personnel necessary to meet our ongoing and future business needs. Our industry has traditionally experienced high employee turnover. A significant increase in the turnover rate among our employees, especially among mid-level managers, would increase our recruiting and training costs and decrease our operating efficiency and productivity. If we are unable to attract and retain the professional staff we need, we may have to forego opportunities to provide services for lack of resources or be unable to staff opportunities to provide services optimally. In addition, the competition for highly skilled employees may require us to increase salaries of highly skilled employees, which could adversely affect our results of operations.

If we fail to complete fixed-fee contracts within budget and on time, our results of operations could be adversely affected.

        We offer a portion of our services on a fixed-fee, turnkey basis, rather than on a time-and-materials basis or a per-unit-delivered basis. Revenues from fixed-fee projects accounted for less than 10% of our total revenues for the nine months ended September 30, 2004 and for the year ended December 31, 2003. Under these contractual arrangements, we bear the risk of cost overruns, completion delays, wage inflation and other cost increases. If we fail to estimate accurately the resources and time required to complete a project or fail to complete our contractual obligations within the scheduled timeframe, our results of operations could be adversely affected. We cannot assure you that in the future we will not price these contracts inappropriately and lose money as a result.

We may be liable to our clients for damages caused by system failures, which could damage our reputation and cause us to lose clients.

        Many of our contracts involve services that are critical to the operations of our clients' businesses, and provide benefits which may be difficult to quantify. Any failure in a client's system or breaches of security could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Our exposure to legal liability may be increased in the case of outsourcing contracts in which we become more involved in our clients' operations. Although we attempt to limit our contractual liability for consequential damages in rendering our services, we cannot assure you that the limitations on liability we typically provide for in our service contracts will be enforceable, or that they will otherwise be sufficient to protect us from liability for damages. The general liability insurance coverage that we maintain is subject to important exclusions and limitations. We cannot assure you that such coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. A successful assertion of one or more large claims against us that exceeds our available insurance coverage or changes in our insurance policies, including premium increases or the imposition of a large deductible or co-insurance requirement, could adversely affect our results of operations.

Our operations could suffer from telecommunications or technology downtime, disruptions or increased costs, and our facilities could be damaged by earthquakes and other natural disasters.

        We are highly dependent on our computer and telecommunications equipment and software systems. In the normal course of our business, we must process significant amounts of data quickly and accurately. We also depend on continuous availability of voice and electronic communication with our clients. If we experience interruptions of our telecommunications network with our clients, we may experience data loss, a delay in the delivery of data to our clients and a reduction in revenues. These

disruptions could be the result of errors by our vendors, clients or third parties, electronic or physical attacks by persons seeking to disrupt our operations, or the operations of our vendors, clients or others. The temporary or permanent loss of equipment or systems through casualty or operating malfunction could adversely affect our revenues and results of operations.

        In addition, our overseas facilities are located in regions that are susceptible to earthquakes and other natural disasters, which may increase the risk of disruption of information systems and telephone service for sustained periods. Further, we have, from time to time, experienced power outages lasting for periods of as long as eight hours per day. Damage or destruction that interrupts our provision of services may cause us to incur substantial additional expense to repair or replace damaged equipment or facilities. Prolonged disruption of our services as a result of natural disasters may entitle our clients to terminate their contracts.

        A significant interruption of service due to any of the foregoing reasons could have a negative impact on our reputation, could lead our existing and prospective clients not to use our services and could adversely affect our revenues and results of operations.

Unauthorized disclosure of sensitive or confidential client and customer data, whether through breach of our computer systems or otherwise, could expose us to liability and cause us to lose clients.

        We are typically required to store our clients' sensitive data in connection with providing our services. If any person, including any of our employees, penetrates our network security or otherwise misappropriates sensitive data, we could be subject to liability for breaching contractual confidentiality provisions or privacy laws. Penetration of the network security of our data centers could have a negative impact on our reputation and we may lose clients as a result.

Our inability to protect our intellectual property rights may force us to incur unanticipated costs.

        Our success will depend, in part, on our ability to obtain and maintain protection in the United States and other countries for our proprietary rights. This is primarily relevant with respect to our IT professional services. We presently do not hold any patents and do not intend to obtain patents relating to our technology. While we attempt to retain intellectual property rights arising from client engagements, our clients often have the contractual right to such intellectual property. For intellectual property that we own, we rely upon a combination of trade secrets, confidentiality, nondisclosure and other contractual arrangements. These measures may not adequately prevent or deter infringement or other misappropriation of our intellectual property, and we may not be able to detect unauthorized use of, or take appropriate and timely steps to enforce, our intellectual property rights.

        We may have to resort to litigation to enforce our intellectual property rights, to protect trade secrets or know-how, or to determine their scope, validity or enforceability. Enforcing or defending our proprietary technology is expensive, could cause diversion of our resources and may not prove successful.

If a third party asserts that we are infringing its intellectual property, whether successfully or not, it could subject us to costly and time-consuming litigation or expensive licenses, and adversely affect our business and results of operations.

        Our industry is characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Third parties may assert patent and other intellectual property infringement claims against us in the form of lawsuits, letters or other forms of communication. This is primarily relevant with respect to our IT professional services. If a third party successfully asserts a claim that we are infringing its proprietary rights, royalty or licensing agreements might not be available on terms we find acceptable or at all. As currently pending patent applications are not publicly available, we cannot anticipate all such claims or know with certainty whether our technology, designs or processes infringe

the intellectual property rights of third parties. We expect that the number of infringement claims in our market will increase as the number of services and competitors in our industry grow. These claims, whether or not successful, could:

•

divert management's attention;



•

result in costly and time-consuming litigation;



•

require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all; or



•

require us to redesign our services to avoid infringement.

        As a result, any third-party intellectual property claims against us could increase our expenses and adversely affect our business and results of operations. In addition, many of our contracts require us to indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us resulting from an adverse ruling in any such claim. Even if we have not infringed any third parties' intellectual property rights, we cannot be sure our legal defenses will be successful.

We are the subject of continuing litigation, including litigation by certain of our former employees.

        We are subject to various legal proceedings and claims which arise in the ordinary course of business. In addition, in connection with the cessation of all operations at certain of our foreign subsidiaries, certain former employees have filed various actions against one of our Philippine subsidiaries and have purported also to sue us and certain of our officers and directors. An unfavorable ruling in any of these proceedings could adversely affect our financial condition and results of operations. See "Business—Legal Proceedings."

Risks Related to Our International Operations

Our international operations subject us to risks inherent in doing business on an international level, any of which could increase our costs and hinder our growth.

        The major part of our operations is carried on in the Philippines, India and Sri Lanka, while our headquarters are in the United States and our clients are primarily located in North America and Europe. While we do not depend on revenues from sources internal to the countries in which we operate, we are nevertheless subject to certain adverse economic factors relating to overseas economies generally, including inflation, external debt, a negative balance of trade and underemployment. Other risks associated with our international business activities include:

•

difficulties in staffing international projects and managing international operations, including overcoming logistical and communications challenges;



•

local competition, particularly in the Philippines, India and Sri Lanka;



•

imposition of public sector controls;



•

trade and tariff restrictions;



•

price or exchange controls;



•

currency control regulations;



•

foreign tax consequences;



•

labor disputes and related litigation and liability;



•

limitations on repatriation of earnings; and



•

the burdens of complying with a wide variety of foreign laws and regulations.

        One or more of these factors could adversely affect our business and results of operations.

Our international operations subject us to currency exchange fluctuations, which could adversely affect our results of operations.

        To date, most of our revenues have been denominated in U.S. dollars, while a significant portion of our expenses, primarily labor expenses in the Philippines, India and Sri Lanka, is incurred in the local currencies of countries in which we operate. For financial reporting purposes, we translate all non-United States denominated transactions into dollars in accordance with accounting principles generally accepted in the United States. As a result, we are exposed to the risk that fluctuations in the value of these currencies relative to the dollar could increase the dollar cost ofimpair our operations and therefore adversely affect our results of operations.results.

 The Philippines has historically experienced high rates of inflation and major fluctuations

USE OF PROCEEDS

Unless otherwise indicated in the exchange rate between the Philippine peso and the U.S. dollar. Continuing inflation without a corresponding devaluation of the peso against the dollar, or any other increase in the value of the peso relative to the dollar, could adversely affect our results of operations. Since 1997,applicable prospectus supplement, we have not purchased foreign currency futures contracts for pesos, but we may choose to do so in the future.

New regulation of the Internal Revenue Service may impose significant U.S. income taxes on our subsidiaries in the Philippines.

        Our subsidiaries incorporated in the Philippines were domesticated in Delaware as limited liability companies. In August 2004, the Internal Revenue Service promulgated regulations, effective August 12, 2004, that treat certain companies incorporated in foreign jurisdictions and also domesticated as Delaware limited liability companies as U.S. corporations for U.S. federal income tax purposes. We have effected certain filings with the Secretary of State of the State of Delaware to ensure that these subsidiaries are no longer domesticated in Delaware. As a result, these subsidiaries will not be treated as U.S. corporations for U.S. federal income tax purposes under the regulations and will not be subject to U.S. federal income taxes commencing January 1, 2005.

        In the preamble to the August 2004 regulations, the Internal Revenue Service expressed its view that dual registered companies described above should also be treated as U.S. corporations for U.S. federal income tax purposes for periods prior to August 12, 2004. Notwithstanding the view of the Internal Revenue Service as to the law in effect prior to the adoption of the regulations, we believe that our historic treatment of these subsidiaries as not having been required to pay taxes in the United States is correct. If the Internal Revenue Service were to challenge our treatment of these subsidiaries for periods prior to August 12, 2004, we would intend to vigorously defend our treatment for the periods prior to August 12, 2004. If challenges by the Internal Revenue Service were ultimately successful, however, we could owe additional U.S. federal income tax of approximately $2.5 million, plus interest and possible penalties.

        Furthermore, we cannot assure you that the Internal Revenue Service will not assert other positions with respect to the foregoing matters, including positions with respect to our treatment of the tax consequences of the termination of the status of our Philippines subsidiaries as Delaware limited liability companies, that, if successful, could increase materially our liability for U.S. federal income taxes.

If certain tax authorities in North America and Europe challenge the manner in which we allocate our profits, our net income will decrease.

        We benefit from tax incentives in certain jurisdiction where tax incentives have been extended to encourage foreign investment or where income tax rates are low. Our taxes could increase if these tax incentives are not renewed upon expiration, or if tax rates applicable to us are increased. Substantially all of the services provided by our Asian subsidiaries are performed on behalf of clients based in North

America and Europe. We believe that profits from our Asian operations are not sufficiently connected to jurisdictions in North America or Europe to give rise to income taxation in those jurisdictions, other than U.S. taxes that may arise as the result of the former status of our Philippine subsidiaries as Delaware limited liability companies as described in the preceding risk factor. Tax authorities in jurisdictions in North America and Europe could, however, challenge the manner in which we allocate our profits among our subsidiaries, and we may not prevail in this type of challenge. If our Asian profits became subject to income taxes in these other jurisdictions, our worldwide effective tax rate could increase, thereby decreasing our net income.

An expiration or termination of our current tax holidays could adversely affect our results of operations.

        We currently benefit from income tax holiday incentives in the Philippines, India and Sri Lanka which provide that we pay reduced income taxes in those jurisdictions for a fixed period of time that varies depending on the jurisdiction. A tax holiday that yielded approximately $500,000 of tax savings in the first nine months of 2004 is scheduled to expire in 2005, and we are seeking to extend the expiration date. An expiration or termination of our current tax holidays could substantially increase our worldwide effective tax rate, thereby decreasing our net income and adversely affecting our results of operations.

Regional instability in the Philippines, India and Sri Lanka could adversely affect business conditions in those regions, which could disrupt our operations and adversely affect our business and results of operations.

        We conduct a majority of our operations in the Philippines, India and Sri Lanka. These operations remain vulnerable to political unrest. Political instability could adversely affect the legal environment for our business activities in those regions.

        In particular, the Philippines has experienced ongoing problems with insurgents. The Abu Sayyaf group of kidnappers, which is purported to have ties to the Al Qaeda terrorist organization, is concentrated on Basilan Island. While Basilan Island is not near our facilities and the government of the Philippines has taken action to eradicate this group, we cannot assure you that these efforts will be successful or that the Abu Sayyaf group will not attempt to disrupt activities or commit terrorist acts in other areas of the Philippines or South Asia.

        In recent years there have been military confrontations between India and Pakistan that have occurred in the region of Kashmir and along the India-Pakistan border. In addition, in recent years there has been civil unrest in Sri Lanka.

        Further political tensions and an escalation in these hostilities could adversely affect our Philippines-, Indian- and Sri Lankan-based operations and therefore adversely affect our revenues and results of operations.

Terrorist attacks or a war could adversely affect our results of operations.

        Terrorist attacks, such as the attacks of September 11, 2001 in the United States, and other acts of violence or war, such as the conflict in Iraq, could affect us or our clients by disrupting normal business practices for extended periods of time and reducing business confidence. In addition, these attacks may make travel more difficult and may effectively curtail our ability to serve our clients' needs, any of which could adversely affect our results of operations.

A reversal of industry trends toward offshore outsourcing due to negative public reaction in the United States and recently proposed legislation could adversely affect demand for our services.

        During the past year, the issue of outsourcing of services abroad by U.S. companies has become a topic of political discussions in the United States. The trend to outsource business processes offshore may not continue and could reverse. Recently, many organizations and public figures have publicly expressed concerns about a perceived association between offshore outsourcing providers and the loss of jobs in the United States. In addition, there has been recent publicity about the negative experience of certain companies that use offshore outsourcing, particularly in India. Any slowdown or reversal of existing industry trends could adversely affect our ability to compete effectively with competitors that operate from facilities located in the United States.

        A variety of federal and state legislation has been proposed that, if enacted, could restrict or discourage U.S. companies from outsourcing their services to companies outside the United States. It is possible that legislation could be adopted that would restrict U.S. private sector companies that have federal or state government contracts from outsourcing their services to offshore service providers. Any expansion of existing laws or the enactment of new legislation restricting offshore outsourcing could adversely affect our ability to maintain business relationships with U.S. clients, especially with U.S. government agencies such as the Federal Reserve Board.

Risks Related to this Offering and Our Common Stock

The market price of our common stock may be volatile.

        Our stock price has been extremely volatile. The market price of our common stock may be affected by many factors, including:

•

fluctuations in our results of operations;



•

our announcement of new contracts, acquisitions or strategic alliances;



•

the actions of our clients or competitors;



•

future sales of our common stock by a significant stockholder;



•

additions or departures of key clients or officers;



•

technological innovations or events affecting other companies with which we compete; and



•

currency fluctuations and general market conditions.

Any adverse impact attributable to any of the foregoing factors could cause the market price of our common stock to decline significantly.

        In addition, the public stock markets have experienced significant price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These market fluctuations could adversely affect the market price of our common stock.

Substantial future sales of our common stock in the public market could cause our stock price to fall.

        Substantial sales of our common stock in the public market after this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. Upon completion of this offering, we will have 27,941,728 shares of common stock outstanding and we will also have outstanding options to purchase 5,609,686 shares of common stock. All shares sold in this offering will be freely transferable without restriction or additional registration under the U.S. Securities Act of 1933, as amended, or the Securities Act.

        Increased sales of our common stock, particularly after the 90-day period following the consummation of this offering during which time our directors and officers have agreed to refrain from selling our common stock, could exert significant downward pressure on the price of our common stock. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem appropriate.

Our management has broad discretion over the use of our proceeds from this offering and may not use them effectively or in ways with which you agree.

        We estimate that our net proceeds from this offering will be approximately $         million after deducting underwriting discounts and commissions and estimated offering expenses. We intend to use these net proceeds for general corporate purposes, including new product development initiatives, and for acquisitions and, potentially, facilities expansion. Because of the number and variety of factors that could determine the particular uses, our management will retain broad discretion to allocate the proceeds of this offering that we receive. The failure of management to apply these funds effectively could adversely affect our ability to implement our business strategy.

Some provisions of our certificate of incorporation and by-laws and in Delaware law and our stockholder rights plan may deter takeover attempts, which may limit the opportunity of our stockholders to sell their shares at a favorable price.

        Some of the provisions of our certificate of incorporation and by-laws and in Delaware law could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders by providing them with the opportunity to sell their shares at a premium over the then market price. For example, our certificate of incorporation authorizes our board of directors, without further stockholder approval, to issue preferred stock, which could have the effect of delaying, deferring or preventing a change of control of us. The issuance of preferred stock could also adversely affect the voting power of the holders of common stock, including the loss of voting control to others. Our by-laws contain provisions that require stockholders to act only at a duly-called meeting and make it difficult for any persons other than management to introduce business at a duly-called meeting by requiring these persons to follow certain notice procedures. Certain provisions of Delaware law could delay or prevent a change in control of us, discourage acquisition proposals or diminish the opportunities for a stockholder to participate in tender offers, including tender offers at a price above the then-current market value of our common stock or over a stockholder's cost basis in our common stock.

        In December 2002, our board of directors authorized 100,000 shares of our series C participating preferred stock in connection with the adoption of a stockholder rights plan under which we issued to holders of our common stock rights to purchase our series C preferred stock. Upon certain triggering events, the holders of these rights may exercise them to purchase our common stock at a price substantially discounted from the market price of our common stock. The stockholder rights plan could generally discourage a merger or tender offer involving our securities that is not approved by our board of directors by prohibitively increasing the cost of effecting this type of transaction and, accordingly, could have an adverse impact on stockholders who might want to vote in favor of a merger or participate in a tender offer.

Our directors' liability for their actions is limited, and we must indemnify them if they are sued.

        Our governing documents limit the liability of our directors for monetary damages for breaches of their fiduciary duty of care. Our governing documents do not, however, limit the liability of our directors for:

•

any breach of the individual director's duty of loyalty to us or our stockholders;



•

acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;



•

the payment of an unlawful dividend or an unlawful stock purchase or redemption; or



•

any transaction from which the director derived an improper personal benefit.

        We may have to use significant resources to indemnify our officers and directors or to pay for damages caused by their conduct. Our governing documents provide for indemnification of our officers and directors to the fullest extent permitted by Delaware law. In addition, we have entered into indemnification agreements with our directors and one of our officers that provide for indemnification for liabilities and expenses that they may incur in those capacities. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or controlling persons pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy and is therefore unenforceable.

It is unlikely that we will pay dividends.

        We have not paid any cash dividends since our inception and do not anticipate paying any cash dividends in the foreseeable future. We expect that our earnings, if any, will be used to finance our growth.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains certain forward-looking statements. When used in this prospectus or in the information incorporated by reference into this prospectus, statements which are not historical in nature, including the words "anticipate," "estimate," "should," "expect," "believe," "intend," "target," "plan," "aim," "project" and similar expressions are intended to identify forward-looking statements. They also include statements containing a projection or estimate of future revenues, earnings or losses, earnings per share, capital expenditures, dividends, capital structure or other financial terms.

        The forward-looking statements in this prospectus and in the information incorporated by reference into this prospectus are based upon our management's beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to us. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us, that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

•

general economic and business conditions;



•

the level of success of our strategy for growing our business;



•

the impact of competition and technological change;



•

political and economic fluctuations in international markets;



•

our ability to employ and retain qualified employees; and



•

the other factors described in this prospectus and in the information incorporated by reference into this prospectus including, without limitation, under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business."

        We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Furthermore, forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements after the date of this prospectus, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. We qualify any and all of our forward-looking statements entirely by these cautionary factors.

USE OF PROCEEDS

        We estimate that our net proceeds from our sale of 4,250,000 shares of common stock pursuant to this offering, based upon the public offering price of $    per share, will be approximately $    million ($    million if the underwriters' over-allotment option to purchase additional shares is exercised in full), after deducting underwriting discounts and commissions and estimated offering expenses. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders, but we will receive proceeds from the exercise by the selling stockholders of stock options that are being exercised, prior to their expiration in connection with this offering, of approximately $      in the aggregate ($      if the underwriters' over-allotment option to purchase additional shares is exercised in full). See "Principal and Selling Stockholders."

        We will use the net proceeds from this offeringthe sale of the securities offered by us for general corporate purposes, including, among other things, working capital, new product development initiatives and/or capital expenditures, which may include expansion of our facilities. We may also use such proceeds to fund acquisitions, technologies or product lines that complement our current business. However, we do not have agreements or commitments for any specific acquisitions at this time.

The amount and for acquisitions and, potentially, facilities expansion.

        Although we intend actively to seek strategic acquisitions, we currently have no arrangements, understandings or agreements to enter into any acquisitions. The amounts we actually spend may vary significantly andtiming of our use of proceeds will depend upon a number ofon several factors, including our future revenuesthe extent and timing of cash collections of revenue and the other factors described under "Risk Factors." Accordingly,amount of net cash used by our management has broad discretionoperations. Pending their uses, we plan to allocate ourinvest the net proceeds from this offering. Pending these uses, we intend to invest our net proceeds fromof this offering temporarily in short-term,short- and intermediate-term, interest-bearing obligations, investment-grade interest-bearing securitiesinstruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

PRICE RANGE

RATIO OF COMMON STOCK AND DIVIDEND POLICY
EARNINGS TO FIXED CHARGES

 Our common

For the five fiscal years ended December 31, 2011, we had no fixed charges and no shares of preferred stock is traded on the Nasdaq National Market under the symbol "INOD."for which we are required to make dividend payments. Accordingly, we have no ratio of earnings to fixed charges, and no ratio of earnings to combined fixed charges and preferred stock dividends, to illustrate for this period.

DESCRIPTION OF CAPITAL STOCK

The following table sets forth,summary of the terms of our capital stock does not purport to be complete and is subject to, and qualified in its entirety by, our Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), and our Amended and Restated Bylaws (“Bylaws”), copies of which are filed as exhibits to our SEC reports previously filed by us. See “Where You Can Find More Information.”

Certain provisions of our Certificate of Incorporation, Stockholder Rights Plan and Bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for the periods indicated, the range of high and low sale prices fortheir shares, or transactions that our common stock onstockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the Nasdaq National Market.

Innodata Isogen's Strategysecurities.

 Our objective is to be a strategic partner to organizations that provide, sell or consume content and to become the dominant worldwide provider of outsourced content services and content-related information technology professional services to these organizations—including leading publishers, media companies, information services providers, Global 2000 enterprises, major educational and cultural institutions, and government agencies.

General

 To achieve our objectives, we intend to:

        Grow our relationships with existing and new clients.    We intend to continue to solidify and expand enduring relationships with our existing clients and to develop long-term relationships with new clients. We constantly seek to expand the nature and scope of our engagements with clients by increasing the volume of our business and extending the breadth and value of the services we offer. We have been leveraging our IT professional services to market and sell more effectively our outsourced content services, thereby offering our clients a suite of comprehensive and sophisticated technology-based solutions. In addition, we are transitioning to a more structured direct sales model. Over the past 12 months, we have substantially improved our sales support infrastructure, hired additional sales and marketing talent, created a partner program, improved our brand management and enhanced our lead generation capability.

        Increase our recurring revenues.    We intend to increase our sales of outsourced content services that are long-term in nature and provide us with recurring revenue. We plan to do this by increasing our sales emphasis on our knowledge services and focusing our engineering capabilities in support of this sales effort. In addition, we plan to expand our capability to provide application maintenance services from India, thereby reducing the cost of our services and rendering our pricing more competitive.

        Enhance our portfolio of solutions.    We seek continually to enhance our portfolio of solutions as a means of developing and growing our business. To differentiate our services and achieve recognition in the marketplace, we focus on emerging trends, new technologies, specific industries and pervasive business issues that confront our clients, thereby allowing us to address their needs better. We assist our clients in evaluating their existing content-related systems and in determining their objectives for improving those systems. To help our clients meet their objectives, we have been increasingly providing them with an integrated offering of outsourced content services and IT professional services that span the entire content supply chain, and we are planning to expand our integrated offerings to additional vertical industries over time.

        Execute strategic acquisitions.    We intend to pursue selective acquisitions that will enable us to enhance our portfolio of solutions and expand into additional vertical industries. We plan to target those businesses with complementary services that will allow us to extend the breadth and value of services we provide, thereby enhancing our ability to provide services that span the entire content supply chain.

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.

        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:

•

consulting;



•

systems integration;



•

custom application development; and



•

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.

        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.

        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:

•

Publishing, media and information services:

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

•

Global 2000 enterprises:

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

•

Educational and cultural institutions:

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

•

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 nine months ended September 30, 2004 have been clients in each year since 2001.

        One client accounted for 23% of our total revenues for the nine months ended September 30, 2004 and for 33% and 17% of our total revenues for the years ended December 31, 2003 and 2002, respectively. A second client accounted for 29% of our total revenues for the nine months ended September 30, 2004 and for 9% and 30% of our total revenues for the years ended December 31, 2003 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 27% of our total revenues for the nine months ended September 30, 2004 and 47% of our total revenues for the year ended December 31, 2003.

        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 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:

•

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



•

defining and communicating our value proposition; and



•

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.

        Primary marketing outreach activities include:

•

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



•

direct and database marketing;



•

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



•

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:

•

experience and expertise;



•

quality and reliability of services;



•

price of services;



•

the scope and scale of service offerings;

•

the quality of supporting services;



•

retention of highly skilled employees; and



•

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:

•

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



•

the high quality and reliability of our services; and



•

the scope and scale of our services.

        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. See "Risk Factors."

Employees

        As of November 30, 2004, we employed an aggregate of 87 persons in the United States and Europe and 7,431 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.

Properties

        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 $1,700,000 in 2004.

        While we believe that our facilities are adequate for our present needs, we may need to expand our facilities in 2005. In order to prepare for this, we have begun assessing our alternatives.

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, inInnodata 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.

MANAGEMENT

Directors and Officers

        The following table presents information about each of our executive officers and directors as of November 30, 2004

Jack S. Abuhoff has been our President and Chief Executive Officer since September 15, 1997, and a director since our founding in 1988. Mr. Abuhoff has been the Chairman of our board of directors since May 2001. From 1995 to 1997, he was Chief Operating Officer of Charles River Corporation, an international systems integration and outsourcing firm. From 1992 to 1994, Mr. Abuhoff was employed by Chadbourne & Parke LLP, in connection with its joint venture with Goldman Sachs to develop capital projects in China. He practiced international corporate law at White & Case LLP from 1986 to 1992. Mr. Abuhoff holds an A.B. degree in English from Columbia College (1983) and a J.D. degree from Harvard Law School (1986).

Todd Solomon has been the Vice Chairman of our board of directors and a consultant to us since his resignation as President and Chief Executive Officer on September 15, 1997. He served as our President and one of our directors since our founding by him in 1988, and had been our Chief Executive Officer since August 1995. Mr. Solomon was President of Ruck Associates, an executive recruiting firm, from 1986 to 1987. Mr. Solomon holds an A.B. degree in history and physics from Columbia University (1986).

George Kondrach has been our Executive Vice President since May 2003. From December 2001 to May 2003, he served as President of Isogen International, LLC, our wholly-owned subsidiary. Mr. Kondrach, who in 1991 co-founded Isogen International, served as its Chairman until April 1999, when it was acquired by DataChannel, Inc. From 1999 until we acquired the Isogen International division of DataChannel, Inc. in December 2001, Mr. Kondrach served in various executive management capacities at DataChannel, Inc., most recently as Senior Vice President of Solutions Architecture. Mr. Kondrach holds a B.S. degree in biology from Southern Methodist University (1975).

Stephen Agress has been our Vice President—Finance since March 1998. Before that, he served as Corporate Controller since joining us in August 1995. Mr. Agress is a certified public accountant and was a senior audit manager at Deloitte & Touche LLP for more than five years prior to his resignation in 1995. Mr. Agress holds a B.S. degree in accounting from Yeshiva University (1982).

Haig S. Bagerdjian has served as one of our directors since June 2001. He has also been Chairman of the Board of Point.360 (Nasdaq: PTSX), a provider of video and film asset management services to owners, producers and distributors of entertainment and advertising content, since September 2001.

From 1991 to 2002, Mr. Bagerdjian served in various executive management positions at Syncor International Corporation (Nasdaq: SCOR), an international provider of high-technology healthcare services primarily for radiopharmacy and medical imaging segments of the healthcare industry, including Executive Vice President, President and Chief Executive Officer of Syncor Overseas, Ltd., Chairman and Chief Executive Officer of Syncor Pharmaceuticals, Inc., Chief Legal Officer, and Senior Vice President, Business Development. Mr. Bagerdjian also served as a director of Advanced Machine Vision Corporation (Nasdaq: AMVC) from 1997 until 2001. Mr. Bagerdjian received a B.A. degree in International Relations and Slavic Languages and Literature, and Certificates in Russian Studies, Strategic Defense and National Security, from the University of Southern California (1983) and a J.D. degree from Harvard Law School (1986). He is admitted to the State Bar of California.

Louise C. Forlenza has served as one of our directors since October 2002. From 1994 to the present, Ms. Forlenza has been providing audit consultancy, management advisory, and tax planning services to a diverse group of corporate clients. From 1987 to 1992, she was the Chief Financial Officer and Chief Operating Officer of Intercontinental Exchange Partners, an international foreign exchange company, and served as a director and as chair of its International Audit Committee. Prior to joining Intercontinental, Ms. Forlenza was Chief Financial Officer of Bierbaum-Martin, a foreign exchange firm. Ms. Forlenza participates actively in various not-for-profit and philanthropic organizations, including as benefit chair for Greenwich Hospital and as Director and Treasurer of The Acting Company, a New York City-based promoter of arts and literacy founded in 1972 by actor John Houseman. Ms. Forlenza also serves on the executive, compensation and finance committees of The Acting Company. She is a certified public accountant and served on the faculty of the accounting department of Iona College from 1981 until 1982. Ms. Forlenza received a B.B.A. degree in Accounting from Iona College (1971).

Charles F. Goldfarb has served as one of our directors since October 2000. In 1974, he invented SGML (Standard Generalized Markup Language) and later led the team that developed it into the International Standard (ISO 8879) on which the World Wide Web's HTML (HyperText Markup Language) and XML (Extensible Markup Language) are based. Dr. Goldfarb served as Editor of the SGML International Standard for 20 years and is a consultant to developers of SGML and XML applications and products. He is co-author of "The XML Handbook™" and author of "The SGML Handbook.™" Dr. Goldfarb has been profiled in "Forbes," "Web Techniques," "Red Herring" and other publications. He received the Printing Industries of America's Gutenberg Award, and is an Honorary Fellow of the Society for Technical Communication. Dr. Goldfarb earned an A.B. degree from Columbia College (1960) and a J.D. degree from Harvard Law School (1964).

John R. Marozsan has served as one of our directors since June 2001. In 1999, Mr. Marozsan retired as President, Chief Executive Officer and as a member of the Executive Committee of CCH Incorporated, a leading provider of tax and business law information. He was a member of the board of directors of Wolters Kluwer U.S., of which CCH is a wholly-owned subsidiary, until June 1999. Prior to joining CCH in 1996, Mr. Marozsan was President and Chief Executive Officer of Aspen Publishers, also a Wolters Kluwer U.S. company, since 1986. Before that, he spent 10 years serving in a number of management positions at Aspen Publishers, Inc., including Editor-in-Chief and Publisher. Mr. Marozsan received a B.S. degree in physics from Trenton State College (1967) and an M.A. degree from Harvard University (1970).

        Our executive officers are elected by and serve at the discretion of our board of directors and until their successors have been duly elected and qualified. There are no family relationships among any of our executive officers and directors. Stephen Agress, our Vice President-Finance, is the husband of our Vice President and General Counsel, who is not an executive officer.

Independent Directors

        Our board of directors is comprised of 6 members, of which 4 are classified as independent as defined in the Nasdaq National Market's Marketplace Rule 4200. The four independent directors are Haig S. Bagerdjian, Louise C. Forlenza, Charles F. Goldfarb and John R. Marozsan.

Committees of the Board of Directors

        Our board of directors has an audit committee and a compensation committee, both comprised solely of independent directors.

        Our audit committee makes recommendations concerning the selection of independent auditors to be employed by us, reviews the effectiveness of our internal accounting methods and procedures, considers whether our principal accountant's provision of non-audit services is compatible with maintaining the principal accountant's independence and determines through discussions with the independent auditors whether any instructions or limitations have been placed upon them in connection with the scope of their audit or its implementation. The members of the audit committee are Messrs. Marozsan and Bagerdjian and Ms. Forlenza. Our board of directors has determined that the members of the audit committee are "independent" as defined in the Nasdaq National Market's Marketplace Rule 4200. Our board of directors has also determined that Ms. Forlenza is an audit committee financial expert.

        Our compensation committee makes recommendations to our board of directors regarding the compensation packages for our executive officers, including our Chief Executive Officer. The members of the compensation committee are Messrs. Bagerdjian and Marozsan and Ms. Forlenza. Our board of directors has determined that the members of the compensation committee are "independent" as defined in the Nasdaq National Market's Marketplace Rule 4200.

        We do not have a nominating committee. Due to our size and the resulting efficiency of a board of directors that is also limited in size, as well as the lack of turnover in our directors, our board of directors has determined that it is not necessary or appropriate at this time to establish a nominating committee. Potential directors are reviewed by our entire board of directors, and director nominees are selected by board of directors resolutions subject to the approval of a majority of our independent directors. Although our board of directors has not established any minimum qualifications for director candidates, our board of directors considers such candidate's character, judgment, diversity, skills, including financial literacy, and experience in the context of our needs and those of our board of directors.

        Our by-laws include a procedure whereby our stockholders can nominate director candidates. Our board of directors will consider director candidates recommended by stockholders in a similar manner to those recommended by members of management or other directors, provided the stockholder submitting such nomination has complied with the notice procedures set forth in our by-laws. To date, we have not received any recommended director candidates from any non-management stockholder or group of stockholders that beneficially owns five percent or more of its voting stock.

Compensation of Directors

        Messrs. Bagerdjian and Marozsan and Ms. Forlenza are compensated at the rate of $1,250 per month, plus out-of-pocket expenses for each board of directors meeting they attend. In addition, on November 14, 2003, Messrs. Bagerdjian and Marozsan and Ms. Forlenza were each granted options to purchase 30,000 shares of our common stock at an exercise price of $3.69 per share.

        Dr. Charles F. Goldfarb is compensated at a rate of $1,250 per month, plus out-of-pocket expenses for each board of directors meeting he attends. Dr. Goldfarb also receives $750 per month for additional services he renders to us. In addition, Dr. Goldfarb received approximately $38,562 and

$1,250 in fees for certain special assignments in 2003 and 2002, respectively, and was granted options in 2003 to purchase 90,000 shares of our common stock at an exercise price of $3.69 per share and 30,000 shares of our common stock at an exercise price of $3.26 per share.

        We have an arrangement with Mr. Todd Solomon, our former President and Chief Executive Officer, that provides for a salary of $75,000 per annum. In addition, Mr. Solomon was granted options in 2003 to purchase 30,000 shares of our common stock at an exercise price of $3.69 per share. Mr. Solomon serves as Vice Chairman of our board of directors and in certain consulting and advisory capacities as designated by our Chief Executive Officer or our board of directors.

        Our directors do not receive any compensation for serving on a committee of our board of directors.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        In May 2001, we entered into an agreement with Mr. Barry Hertz, then the Chairman of our board of directors, pursuant to which Mr. Hertz is to serve as our part-time employee at a salary of $2,000 per month for five years. In addition, we paid Mr. Hertz at that time $400,000 for entering into a six-year non-competition agreement with us.

PRINCIPAL AND SELLING STOCKHOLDERS

        The following table contains information about the beneficial ownership of our common stock before and after our public offering for:

•

each of our directors;



•

each of our named executive officers;



•

all directors and executive officers as a group;



•

each stockholder known by us to own beneficially more than 5% of our common stock; and



•

each selling stockholder.

        The percentage of ownership beneficially owned prior to this offering in the following table is based on 22,669,888 shares of common stock outstanding on November 30, 2004.

        Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Except as indicated by footnote and subject to community property laws where applicable, to our knowledge the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are exercisable as of November 30, 2004 or will become exercisable within 60 days thereafter are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person.

        The selling stockholders are exercising certain stock options held by them in connection with this offering because these options expire in 2005.

        Except as noted below, the address of each person listed on the table is c/o Innodata Isogen, Inc., Three University Plaza, Hackensack, New Jersey 07601.

*

Represents less than 1% of the outstanding shares.

(1)

For purposes of calculating the number of shares and percentage beneficially owned by each stockholder, we included shares of common stock issuable by us to that stockholder upon the exercise of options which may be exercised within 60 days of November 30, 2004.

(2)

Assumes the exercise by the underwriters of their over-allotment option in full. If the underwriters exercise their over-allotment option in full, there would be outstanding 29,066,728 shares of common stock immediately after the offering.

(3)

Track Data Corporation ("TDC") is controlled by Barry Hertz, its Chairman and principal shareholder. The information above does not include            shares held in a pension plan for the benefit of Mr. Hertz and exercisable options held by Mr. Hertz to purchase            shares of common stock. Including such stock options and shares, Mr. Hertz and TDC combined are beneficial owners of            shares of common stock, representing    % of the total shares outstanding.

(4)

Based on a Schedule 13G dated October 8, 2004 filed with the Securities and Exchange Commission.

(5)

Includes currently exercisable options to purchase 927,753 shares of common stock. Mr. Solomon intends to exercise 126,176 of these options in connection with this offering; if the underwriters exercise their over-allotment option in full, Mr. Solomon intends to exercise 49,824 additional options.

(6)

Includes currently exercisable options to purchase 2,496,660 shares of common stock. Mr. Abuhoff intends to exercise 731,245 of these options in connection with this offering; if the underwriters exercise their over-allotment option in full, Mr. Abuhoff intends to exercise 288,755 additional options.

(7)

Includes currently exercisable options to purchase 106,100 shares of common stock.

(8)

Includes currently exercisable options to purchase 27,918 shares of common stock.

(9)

Includes currently exercisable options to purchase 27,918 shares of common stock.

(10)

Includes currently exercisable options to purchase 8,753 shares of common stock.

(11)

Includes 208,842 shares of common stock held jointly with his wife. Also includes (i) currently exercisable options held by Mr. Agress to purchase 379,671 shares of common stock and (ii) currently exercisable options held by his wife to purchase 77,671 shares of common stock. Mr. Agress disclaims any beneficial ownership in the shares issuable upon the exercise of options held by his wife. Mr. Agress intends to exercise 71,691 of the options held by him in connection with in this offering; if the underwriters exercise their over-allotment option in full, Mr. Agress intends to exercise 28,309 additional options. See footnote 14.

(12)

Includes currently exercisable options to purchase 161,470 shares of common stock.

(13)

Includes currently exercisable options to purchase 4,136,249 shares of common stock.

(14)

Includes 208,842 shares of common stock held jointly with her husband. Also includes (i) currently exercisable options held by Ms. Agress to purchase 77,671 shares of common stock and (ii) currently exercisable options held by her husband to purchase 379,671 shares of common stock. Ms. Agress disclaims any beneficial ownership in the shares issuable upon the exercise of options held by her husband. Ms. Agress intends to exercise 17,206 of the options held by her in connection with this offering; if the underwriters exercise their over-allotment option in full, Ms. Agress intends to exercise 6,794 additional options. See footnote 11.

(15)

Consists of currently exercisable options to purchase shares of common stock. Mr. Mishra intends to exercise 11,471 of these options in connection with this offering; if the underwriters exercise their over-allotment option in full, Mr. Mishra intends to exercise 4,529 additional options.

(16)

Consists of currently exercisable options to purchase shares of common stock. Mr. Palmen intends to exercise 64,053 of these options in connection with this offering; if the underwriters exercise their over-allotment option in full, Mr. Palmen intends to exercise 25,293 additional options.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of (1)(i) 75,000,000 shares of common stock, par value $0.01 per share, and (2) 4,998,000share; (ii) 100,000 shares of Series C participating preferred stock, par value $0.01 per share including 1,000(“Series C Preferred Stock”); and (ii) 4,900,000 shares of seriespreferred stock.Our board of directors authorized our Series C Preferred Stock in connection with the adoption of the Stockholder Rights Plan described below. We redeemed all shares of ourSeries A preferred stock 1,000 shares of seriesand Series B preferred stock. The following summary description of our capital stock is qualified by reference to our Restated Certificate of Incorporation, as amended, and our Amended and Restated By-laws, all of which are incorporated by reference into this prospectus. in December 1996.

As of NovemberApril 30, 20042012, there were 22,669,888 fully paid and non-assessableoutstanding 24,766,609 shares of common stock issued and outstanding. In addition, we had outstanding options to purchase 5,609,6863,394,807 additional shares of common stock. No shares of preferred stock aswere outstanding on that date.

Description of November 30, 2004, not including options for a total of 1,021,840 shares that will be exercised in connection with this offering.

our Common Stock

General

Holders of common stock are entitled to one vote per share for each share held of record on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. Our by-laws require that onlyPursuant to our Bylaws, a majority of the issued and outstanding shares of common stock need be representedentitled to vote thereat constitute a quorum and to transact business at a meeting of stockholders for the transaction of any stockholders' meeting.business. The holders of common stock are entitled to receive equally on a per share basis such lawful dividends as may be declared by our board of directors. In the event of a liquidation, dissolution or winding up of our business, after payments to creditors and the holders of any senior securities, the holders of common stock will be entitled to receive pro rata all of our remaining assets available for distribution to itsour stockholders. The common stock has no preemptive, redemption, conversion or subscription rights. All outstanding shares of common stock are fully paid and non-assessable. The shares of common stock to be issued by us in thisany offering, when issued in consideration of payment, will be fully paid and non-assessable.

Stockholder Rights Plan

On December 16, 2002, we adopted a stockholder rights plan, or Rights Plan. The description and terms of the rights issuable under the Rights Plan are set forth in a Rights Agreement between us and American Stock Transfer & Trust Co., as rights agent, dated as of December 16, 2002. Under the Rights Plan, the holders of our common stock own one Series C Preferred Stock purchase right for each share of common stock held by them from time to time. The rights are attached to the shares of common stock for which they were issued until the rights become exercisable.

If a person or group of affiliated or associated persons (an “Acquiring Person”) acquires 15% or more of our common stock in a transaction not pre-approved by our Board of Directors or if a person or group begins a tender offer or exchange offer which, if completed, would result in that person or group becoming an Acquiring Person, then, each right will become exercisable and entitle its holder, other than the acquirer, to receive for a $4 purchase price (i) one one-thousandth of a share of Series C Preferred Stock, or (ii) shares of our common stock having a then market value of $8.00, or (iii) if we are acquired in a merger or similar transaction, shares of the acquiring corporation that had a market value of $8.00 immediately prior to the merger or similar transaction. We may redeem the rights for a nominal amount before an event that causes the rights to become exercisable. For acquisitions of common stock by Jack Abuhoff, who is our Chairman and CEO, and Todd Solomon, who is a director of the Company, the 15% percentage in this paragraph is changed to 25%.

Each one one-thousandth of a share of Series C Preferred Stock has substantially the same rights as one share of common stock. Stockholders may recognize taxable income should the rights become exercisable or upon the occurrence of certain events thereafter. The rights will expire on December 26, 2012, unless earlier redeemed by us for a nominal amount.

The Rights Agreement and related documents are attached as exhibit 4.1 to the Form 8-K that we filed with the SEC on December 20, 2002. The foregoing brief description is qualified in its entirety by reference to the Rights Agreement and related documents.

The Rights Plan is designed to discourage a merger or tender offer involving our securities that is not approved by our board of directors by increasing the cost of effecting this type of transaction.

Delaware Anti-Takeover Law

We are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

Section 203 generally defines a business combination to include:

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

Special Meetings of Stockholders; Notice Requirements

Our Bylaws provide that the Chairman of our board of directors, a majority of our board of directors and our Chief Executive Officer each has the power to call a special meeting of stockholders, and that stockholders do not have the power to call a special meeting of stockholders. Our Bylaws also provide that stockholders may propose nominees for election of directors, or propose other actions at annual or special meetings of stockholders, only if the stockholders give to us advance notice in the manner provided in the Bylaws. These notice procedures may prevent a contest for the election of directors or the consideration of stockholder proposals. This could deter a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposals, without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.

Directors’ Liability; Indemnification of Directors and Officers

The Company is a Delaware corporation. Section 145 of the General Corporation Law of the State of Delaware (the “DGCL”) provides that a Delaware corporation may indemnify any persons who are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of such corporation, by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise, if such person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. Section 145 of the DGCL further authorizes a corporation to purchase and maintain insurance on behalf of any indemnified person against any liability asserted against him or her and incurred by him or her in any indemnified capacity, or arising out of his or her status as such, regardless of whether the corporation would otherwise have the power to indemnify him or her under the DGCL.

Our Certificate of Incorporation provides that we will indemnify our directors and officers, and the directors and officers of our subsidiaries, to the maximum extent permitted by law. Our Certificate of Incorporation also provides that a director, or former director, shall not be liable to us or to any of our stockholders for monetary damages for breach of fiduciary duty as a director, it being provided that such indemnity provision does not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to us or to our stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the General Corporation Law of the State of Delaware, pertaining to the liability of directors for unlawful payment of dividends or unlawful stock purchase or redemption; or (iv) for any transaction from which the director derived an improper personal benefit. Our Bylaws provide that we shall indemnify our directors and officers to the fullest extent permitted by law, or as otherwise set forth in an indemnification agreement entered into between us and an officer or director. Furthermore, we have entered into agreements with our directors in which we agreed to indemnify the director to the maximum extent permitted by law. We also maintain directors’ and officers’ liability insurance.

Stock Transfer Agent

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company.

Description of Preferred Stock

Our Certificate of Incorporation provides that our board of directors is authorized subject to any limitations prescribed by Delaware law and subject to our certificate of incorporation governing our existing preferred stock, from time to time to issue up to an aggregate of 4,998,0004,900,000 shares of preferred stock in one or more series. Our board of directors is also authorized, subject to the limitations prescribed by Delaware law, and except as to the series A preferred stock and the series B preferred stock, to establish the number of shares to be included in each series and to fix the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of any series, including the dividend rights, dividend rates, conversion rights, voting rights, redemption terms and prices and liquidation preferences of shares constituting any series, as shall be determined by our board of directors in a resolution providing for the issuance of such preferred stock. As a result, the issuance of such preferred stock may adversely affect the voting or other rights of holders of common stock.

        As of November 30, 2004, we had no No shares of preferred stock outstanding. We have no current plans to issue preferred stock. However, thewere outstanding as of June 14, 2012. The issuance of preferred stock or of rights to purchase preferred stock could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a large majoritycontrolling interest in our Company.

We will describe the specific terms of a particular series of preferred stock in the prospectus supplement relating to that series. The description of preferred stock above and the description of the terms of a particular series of preferred stock in the prospectus supplement are not complete. You should refer to the applicable certificate of designation for complete information. The prospectus supplement will also contain a description of U.S. federal income tax consequences relating to the preferred stock.

DESCRIPTION OF DEBT SECURITIES

The following is a summary of the general terms of the debt securities. We will file a prospectus supplement or term sheet that will contain additional terms when we issue debt securities. The terms presented here, together with the terms in a related prospectus supplement or term sheet, will be a description of the material terms of the debt securities. You should also read the indenture under which the debt securities are to be issued and the form of debt securities. Such indenture may be supplemented from time to time. We have filed a form of indenture governing different types of debt securities with the Securities and Exchange Commission as an exhibit to the registration statement of which this prospectus is a part. All capitalized terms have the meanings specified in the indenture.

We may issue, from time to time, debt securities, in one or more series. The debt securities we offer will be issued under an indenture between us and the trustee named in the indenture. These debt securities that we may issue include senior debt securities, senior subordinated debt securities, subordinated debt securities, convertible debt securities and exchangeable debt securities. The following is a summary of certain provisions of the form of the indenture filed as an exhibit to the registration statement of which this prospectus is a part. For each series of debt securities, the applicable prospectus supplement or term sheet for the series may change and supplement the summary below.

General Terms of the Indenture

The indenture does not limit the amount of debt securities that we may issue. It provides that we may issue debt securities up to the principal amount that we may authorize. Except for the limitations on consolidation, merger and sale of all or substantially all of our outstanding common stock.

Anti-Takeover Effectsassets contained in the indenture, the terms of Provisionsthe indenture do not contain any covenants or other provisions designed to give holders of Our By-Laws, Delaware Law and Our Stockholders Rights Planany debt securities protection against changes in our operations, financial condition or transactions involving us. For each series of debt securities, any restrictive covenants for those debt securities will be described in the applicable prospectus supplement or term sheet for those debt securities.

 Our by-laws,

We may issue the Delaware General Corporation Lawdebt securities issued under the indenture as “discount securities,” which means they may be sold at a discount below their stated principal amount. These debt securities, as well as other debt securities that are not issued at a discount, may, for United States federal income tax purposes, be treated as if they were issued with “original issue discount,” or OID, because of interest payment and other characteristics. Special United States federal income tax considerations applicable to debt securities issued with original issue discount will be described in more detail in any applicable prospectus supplement or term sheet.

You should refer to the prospectus supplement or term sheet relating to a particular series of debt securities for a description of the following terms of the debt securities offered by that prospectus supplement or term sheet and by this prospectus:

The applicable prospectus supplement or term sheet will present any material United States federal income tax considerations for holders of any debt securities and the securities exchange or quotation system on which any debt securities are to be listed or quoted.

Conversion or Exchange Rights

Debt securities may be convertible into or exchangeable for shares of our stockholders rights plan containequity securities or other securities. The terms and conditions of conversion or exchange will be stated in the applicable prospectus supplement or term sheet. The terms will include, among others, the following:

These terms may also include provisions under which the number or amount of other securities to be received by the holders of the debt securities upon conversion or exchange would be calculated according to the market price of the other securities as of a time stated in the prospectus supplement or term sheet.

Reopening of Issue

We may, from time to time, reopen an issue of debt securities and issue additional debt securities with the same terms (including maturity date and interest rate) as debt securities issued on an earlier date. After such additional debt securities are issued, they will be fungible with the debt securities issued on the earlier date to the extent specified in the applicable prospectus supplement.

Consolidation, Merger or Sale

We cannot consolidate with or merge with or into, convey, transfer or lease all or substantially all of our properties and assets to, any person, unless we are the continuing or successor company or unless the successor entity or person to which our properties and assets are transferred or leased is organized under the laws of the United States, any state of the United States or the District of Columbia and expressly assumes by a supplemental indenture the due and punctual payment of the principal of, any premium on and any interest on, all the outstanding debt securities and the performance of every covenant and obligation in the indenture to be performed by us. In addition, we cannot complete such a transaction unless immediately after giving effect to the transaction, no event of default under the indenture, and no event that, could discourage, delayafter notice or preventlapse of time or both, would become an event of default under the indenture, has occurred and is continuing. When the successor entity or person to whom our assets are transferred or leased has assumed our obligations under the debt securities and the indenture, we will be discharged from all our obligations under the debt securities and the indenture except in limited circumstances.

This covenant would not apply to any recapitalization transaction, a change of control affecting us or a highly leveraged transaction, unless the transaction or change of control were structured to include a merger or consolidation or transfer or lease of all or substantially all of our properties and assets.

Events of Default

The indenture provides that the following will be “events of default” with respect to any series of debt securities:

An event of default for a particular series of debt securities does not necessarily constitute an event of default for any other series of debt securities issued under the indenture. For each series of debt securities, any modifications to the above events of default will be described in the applicable prospectus supplement or term sheet for those debt securities.

The indenture provides that if an event of default occurs and is continuing with respect to any series of debt securities, either the trustee or the holders of at least 25% in aggregate principal amount of the outstanding debt securities of that series may declare the principal amount of all those debt securities (or, in the case of discount securities or indexed securities, that portion of the principal amount as may be specified in the terms of that series) to be due and payable immediately. If an event of default specified in the fourth bullet above occurs and is continuing, then the principal amount of all those debt securities (or, in the case of discount securities or indexed securities, that portion of the principal amount as may be specified in the terms of that series) will be due and payable immediately, without any declaration or other act on the part of the trustee or any holder. In certain cases, holders of a majority in principal amount of the outstanding debt securities of any series may, on behalf of holders of all those debt securities, rescind and annul a declaration of acceleration.

The indenture imposes limitations on suits brought by holders of debt securities against us. Except for actions to receive payment of principal, premium, if any, or interest, no holder of debt securities of any series may institute any action against us under the indenture unless:

We will be required to file annually with the trustee a certificate, signed by one of our officers, stating whether or not the officer knows of any default by us in the performance, observance or fulfillment of any condition or covenant of the indenture.

Discharge, Defeasance and Covenant Defeasance

We may discharge or decrease our obligations under the indenture as stated below.

We may discharge obligations to holders of any series of debt securities that have not already been delivered to the trustee for cancellation and that have either become due and payable or are by their terms to become due and payable, or are scheduled for redemption, within one year. We may effect a discharge by irrevocably depositing with the trustee cash or government obligations denominated in the currency of the debt securities, as trust funds, in an amount certified to be enough to pay when due, whether at maturity, upon redemption or otherwise, the principal of, and any premium and interest on, the debt securities and any mandatory sinking fund payments.

Unless otherwise provided in the applicable prospectus supplement or term sheet, we may also discharge any and all of our obligations to holders of any series of debt securities at any time, which we refer to as defeasance. We may also be released from the obligations imposed by certain covenants of any outstanding series of debt securities and provisions of the indenture, and we may omit to comply with those covenants without creating an event of default under the trust declaration, which we refer to as covenant defeasance. We may effect defeasance and covenant defeasance on the 91st day after the date of the deposit with the trustee described below only if, among other things:

In the case of a defeasance by us, the opinion we deliver must be based on a ruling of the Internal Revenue Service issued, or a change in controlU.S. federal income tax law occurring, after the date of the indenture, since such a result would not occur under the U.S. federal income tax laws in effect on that date.

Although we may discharge or decrease our obligations under the indenture as described in the three preceding paragraphs, we may not avoid, among other things, our duty to register the transfer or exchange of any series of debt securities, to replace any temporary, mutilated, destroyed, lost or stolen series of debt securities or to maintain an acquisitionoffice or agency in respect of our company atany series of debt securities.

Modification of the Indenture

The indenture provides that we and the trustee may enter into supplemental indentures without the consent of the holders of debt securities to, among other things:

The indenture also provides that we and the trustee may, with the consent of the holders of not less than a pricemajority in aggregate principal amount of debt securities of each series of debt securities affected by such supplemental indenture then outstanding, add any provisions to, or change in any manner, eliminate or modify in any way the provisions of, the indenture or any supplemental indenture or modify in any manner the rights of the holders of the debt securities. We and the trustee may not, however, without the consent of the holder of each outstanding debt security affected thereby:

The indenture provides that the holders of not less than a majority in aggregate principal amount of the then outstanding debt securities of any series, by notice to the relevant trustee, may on behalf of the holders of the debt securities of that series waive any default and its consequences under the indenture except:

Registered Global Securities and Book Entry System

The debt securities of a series may be issued in whole or in part in book-entry form and will be represented by one or more fully registered global securities. We will deposit any registered global securities with a depositary or with a nominee for a depositary identified in the applicable prospectus supplement or term sheet and registered in the name of such depositary or nominee. In such case, we will issue one or more registered global securities denominated in an amount equal to the aggregate principal amount of all of the debt securities of the series to be issued and represented by such registered global security or securities. This means that we will not issue certificates to each holder, except in the limited circumstances described below.

Unless and until it is exchanged in whole or in part for debt securities in definitive registered form, a registered global security may not be transferred except as a whole:

The prospectus supplement or term sheet relating to a series of debt securities will describe the specific terms of the depositary arrangement involving any portion of the series represented by a registered global security. We anticipate that the following provisions will apply to all depositary arrangements for debt securities:

The laws of some states may require that specified purchasers of securities take physical delivery of the securities in definitive form. These laws may limit the ability of those persons to own, transfer or pledge beneficial interests in registered global securities.

So long as the depositary for a registered global security, or its nominee, is the registered owner of the registered global security, the depositary or such nominee, as the case may be, will be considered the sole owner or holder of the debt securities represented by the registered global security for all purposes under the indenture. Except as stated below, owners of beneficial interests in a registered global security:

Accordingly, each person owning a beneficial interest in a registered global security must rely on the procedures of the depositary for the registered global security and, if the person is not a participant, on the procedures of a participant through which many stockholdersthe person owns its interest, to exercise any rights of a holder under the indenture.

We understand that under existing industry practices, if we request any action of holders or if an owner of a beneficial interest in a registered global security desires to give or take any action that a holder is entitled to give or take under the indenture, the depositary for the registered global security would authorize the participants holding the relevant beneficial interests to give or take the action, and the participants would authorize beneficial owners owning through the participants to give or take the action or would otherwise act upon the instructions of beneficial owners holding through them.

We will make payments of principal and premium, if any, and interest, if any, on debt securities represented by a registered global security registered in the name of a depositary or its nominee to the depositary or its nominee, as the case may find attractive. The existencebe, as the registered owners of the registered global security. Neither we nor the trustee, or any other agent of ours or the trustee will be responsible or liable for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the registered global security or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests.

We expect that the depositary for any debt securities represented by a registered global security, upon receipt of any payments of principal and premium, if any, and interest, if any, in respect of the registered global security, will promptly credit participants’ accounts with payments in amounts proportionate to their respective beneficial interests in the registered global security as shown on the records of the depositary. We also expect that standing customer instructions and customary practices will govern payments by participants to owners of beneficial interests in the registered global security held through the participants, as is the case with the securities held for the accounts of customers in bearer form or registered in “street name.” We also expect that any of these provisions could limitpayments will be the priceresponsibility of the participants.

If the depositary for any debt securities represented by a registered global security is at any time unwilling or unable to continue as depositary or stops being a clearing agency registered under the Exchange Act, we will appoint an eligible successor depositary. If we fail to appoint an eligible successor depositary within 90 days, we will issue the debt securities in definitive form in exchange for the registered global security. In addition, we may at any time and in our sole discretion decide not to have any of the debt securities of a series represented by one or more registered global securities. In that investors might be willing to payevent, we will issue debt securities of the series in a definitive form in exchange for all of the registered global securities representing the debt securities. The trustee will register any debt securities issued in definitive form in exchange for a registered global security in the futurename or names as the depositary, based upon instructions from its participants, shall instruct the trustee.

We may also issue bearer debt securities of a series in the form of one or more global securities, referred to as “bearer global securities.” We will deposit these securities with a depositary identified in the prospectus supplement or term sheet relating to the series. The prospectus supplement or term sheet relating to a series of debt securities represented by a bearer global security will describe the applicable terms and procedures. These will include the specific terms of the depositary arrangement and any specific procedures for sharesthe issuance of common stock.

By-Lawsdebt securities in definitive form in exchange for a bearer global security, in proportion to the series represented by a bearer global security.

 Our by-laws provide

Concerning the Trustee

The indenture provides that unless otherwise prescribed by law, only the Chairman of our board of directors, a majority of our board of directors or our Chief Executive Officer is able to call a special meeting of stockholders. Our by-laws also provide that, unless otherwise prescribed by law, stockholder actionthere may be taken only atmore than one trustee under the indenture, each for one or more series of debt securities. If there are different trustees for different series of debt securities, each trustee will be a duly calledtrustee of a trust under the indenture separate and convened annualapart from the trust administered by any other trustee under that indenture. Except as otherwise indicated in this prospectus or special meeting of stockholders, and do not provide for stockholder action to be taken by written consent. All stockholder provisions, taken together, prevent stockholders from forcing consideration by the stockholders of stockholder proposals over the opposition of our board of directors, other than at an annual meeting.

        Our by-laws provide thatany prospectus supplement or term sheet, any action required or permitted to be taken by our stockholdersa trustee may be taken by such trustee only on the one or more series of debt securities for which it is the trustee under the indenture. Any trustee under the indenture may resign or be removed from one or more series of debt securities. All payments of principal of, and any premium and interest on, and all registration, transfer, exchange, authentication and delivery of, the debt securities of a series will be effected by the trustee for that series at an annual meeting or special meetingoffice designated by the trustee in New York, New York.

The indenture provides that, except during the continuance of stockholders mayan event of default, the trustee will perform only be taken if wesuch duties as are given proper advance noticespecifically set forth in the indenture. During the existence of an event of default, the trustee will exercise those rights and powers vested in it under the indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person’s own affairs.

If the trustee becomes a creditor of ours, the indenture places limitations on the right of the action. This notice procedure affordstrustee to obtain payment of claims or to realize on property received in respect of any such claim as security or otherwise. The trustee may engage in other transactions. If it acquires any conflicting interest relating to any duties concerning the debt securities, however, it must eliminate the conflict or resign as trustee.

No Individual Liability of Incorporators, Stockholders, Officers or Directors

The indenture provides that no past, present or future incorporator, director, officer, stockholder or employee of ours, any of our boardaffiliates, or any successor corporation, in their capacity as such, shall have any individual liability for any of directors an opportunity to considerour obligations, covenants or agreements under the qualifications of proposed director nomineesdebt securities or the meritindenture.

Governing Law

The indenture and the debt securities will be governed by, and construed in accordance with, the laws of stockholder proposals, and, to the extent deemed appropriate by our boardState of directors, to inform stockholders about such matters. The notice procedure also gives a more orderly procedure for conducting annual meetings of stockholders. Our by-laws do not give our board of directors any power to approve or disapprove stockholder nominationsDelaware.

DESCRIPTION OF WARRANTS

We may issue warrants for the electionpurchase of directorscommon stock, preferred stock, debt securities, or proposals for action. However, the notice procedureany combination thereof. We may prevent a contest for the election of directorsissue warrants independently or the consideration of stockholder proposals. This could deter a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposals if the proper advance notice procedures are not followed, without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.

Delaware Law

        We are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combinationtogether with any interested stockholder for a periodother securities offered by any prospectus supplement and the warrants may be attached to or separate from the other offered securities. Each series of three years following the time that such stockholder became an interested stockholder.

        Section 203 does not apply if:

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prior to such time, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;



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upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the planwarrants will be tendered inissued under a tender or exchange offer; or



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at or subsequent to such time, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

        The application of Section 203 may limit the ability of stockholders to approve a transaction that they may deemseparate warrant agreement to be in their best interests. Section 203 defines "business combination" to include:

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entered into by us with a warrant agent, if any. The warrant agent, if any, merger or consolidation involving the corporation and the interested stockholder;



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any sale, lease, transfer, pledge or other disposition of 10% or more of the assets of the corporation to or with the interested stockholder;

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subject to limited exceptions, any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;



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any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or



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the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

        In general, Section 203 defines an "interested stockholder"will act solely as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the past three years, and any entity or person associated with, affiliated with or controlling or controlled by such entity or person.

Stockholders Rights Plan

        In December 2002, our board of directors authorized 100,000 shares of our Series C participating preferred stockagent in connection with the adoptionwarrants and will not assume any obligation or relationship of agency or trust for or with any holders or beneficial owners of warrants. Further terms of the warrants and the applicable warrant agreements will be set forth in the applicable prospectus supplement.

The applicable prospectus supplement or term sheet relating to any particular issue of warrants will describe the terms of the warrants, including, as applicable, the following:

We and the warrant agent may amend or supplement the warrant agreement for a stockholder rights plan under which we issued to holdersseries of our common stock rights to purchase our Series C preferred stock. Upon certain triggering events,warrants without the consent of the holders of these rightsthe warrants issued thereunder to effect changes that are not inconsistent with the provisions of the warrants and that do not materially and adversely affect the interests of the holders of the warrants.

DESCRIPTION OF UNITS

We may exercise them to purchase ourissue, in one or more series, units consisting of common stock, preferred stock, debt securities and warrants or any combination of such securities. While the terms we have summarized below will apply generally to any units that we may offer under this prospectus, we will describe the particular terms of any series of units in more detail in the applicable prospectus supplement. The terms of any units offered under a prospectus supplement may differ from the terms described below.

General

Each unit will be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit will have the rights and obligations of a holder of each included security.

We will describe in the applicable prospectus supplement the terms of the series of units being offered, including:

PLAN OF DISTRIBUTION

We may sell the securities from time to time pursuant to underwritten public offerings, negotiated transactions, block trades or a combination of these methods. We may sell the securities separately or together:

We may distribute the securities from time to time in one or more transactions:

The accompanying prospectus supplement will set forth the terms of the offering and the method of distribution and will identify any firms acting as underwriters, dealers or agents in connection with the offering, including:

If underwriters are used in the sale, they will acquire the securities for their own account and may resell the securities from time to time in one or more transactions at a fixed public offering price substantially discounted fromor at varying prices determined at the market pricetime of our common stock.sale. The stockholder rights plan could generally discourage a merger or tender offer involving our securities that is not approved by our board of directors by prohibitively increasing the cost of effecting this type of transaction and, accordingly, could have an adverse impact on stockholders who might want to vote in favor of a merger or participate in a tender offer.

Limitation of Liability

        Our certificate of incorporation provides that none of our directors or former directors shall be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except that the limitation shall not eliminate or limit liability for:

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any breach of the individual director's duty of loyalty to us or our stockholders;



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acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;



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the payment of an unlawful dividend or an unlawful stock purchase or redemption; or



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any transaction from which a director derived an improper personal benefit.

        Our certificate of incorporation and by-laws further provide for the indemnification of our directors and officers to the fullest extent permitted by law. In addition, we have entered into indemnification agreements with our directors and one of our officers that provide for indemnification for liabilities and expenses that they may incur in those capacities.

Stock Transfer Agent

        The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company.

UNDERWRITING

        The underwriters named below are acting through their representative, Friedman, Billings, Ramsey & Co., Inc. Subject to the terms and conditions contained in the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has agreed to purchase from us, the number of shares set forth opposite its name below. The underwriting agreement provides that the obligationobligations of the underwriters to pay for and accept delivery of our common stock ispurchase the securities will be subject to the conditions set forth in the applicable underwriting agreement. We may offer the securities to the public through underwriting syndicates represented by managing underwriters or by underwriters without a syndicate. Subject to certain conditions. Theconditions, the underwriters arewill be obligated to take and pay forpurchase all shares of our common stockthe securities offered (otherby the prospectus supplement, other than thosesecurities covered by any over-allotment option. Any public offering price and any discounts or concessions allowed or re-allowed or paid to dealers may change from time to time. We may use underwriters with whom we have a material relationship. We will describe the over-allotment option described below) ifnature of any such relationship in the prospectus supplement and will name the underwriter.

We may sell securities directly or through agents we designate from time to time. We will name any agent involved in the offering and sale of securities and we will describe any commissions we will pay the shares are taken.agent in the prospectus supplement. Unless the prospectus supplement states otherwise, our agent will act on a best-efforts basis for the period of its appointment.

We and somemay authorize agents or underwriters to solicit offers by certain types of our existing stockholders have granted the underwriters an option exercisable for 30 days after the date of this prospectusinstitutional investors to purchase up to 1,125,000 additional shares of common stock to cover over-allotments, if any,securities from us at the public offering price less the underwriting discounts and commissions set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the cover page of this prospectus.

        The following table showsfuture. We will describe the per shareconditions to these contracts and total underwriting discounts andthe commissions we must pay for solicitation of these contracts in the prospectus supplement.

We may provide agents and underwriters with indemnification against civil liabilities, including liabilities under the selling stockholders will paySecurities Act, or contribution with respect to payments that the underwriters. The amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase 1,125,000 additional shares of our common stock to cover over-allotments.

        The underwriters propose to offer our common stock directly to the public at $    per share and to certain dealers at this price less a concession not in excess of $    per share. Theagents or underwriters may allow,make with respect to these liabilities. Underwriters, dealers and the dealers may reallow, a concession not in excess of $    per share to certain dealers.

        We expect to incur expenses, excluding underwriting fees, of approximately $            in connection with this offering. Additionally, we have agreed to reimburse Friedman, Billings, Ramsey & Co., Inc. for some of its out-of-pocket expenses in connection with this offering.

        Our common stock is listed on the Nasdaq National Market under the symbol "INOD."

        In connection with this offering the underwritersagents may engage in transactions with us, or perform services for us, in the ordinary course of business.

All securities we may offer, other than common stock, will be new issues of securities with no established trading market. Any underwriters may make a market in these securities, but will not be obligated to do so and may discontinue any market making at any time without notice. We cannot guarantee the liquidity of the trading markets for any securities.

Any underwriter may engage in over-allotment, stabilizing transactions, over-allotmentshort-covering transactions syndicate covering transactions,and penalty bids and passive market making in accordance with Regulation M under the Exchange Act.

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Over-allotment involves sales in excess of the offering size, which create a short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.



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Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short positionmaximum price. Syndicate-covering or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option.

The underwriters may close out any covered short position by exercising their over-allotment option and/or purchasing shares in the open market.

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Syndicate coveringother short-covering transactions involve purchases of the common stocksecurities, either through exercise of the over-allotment option or in the open market after the distribution has beenis completed, in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in this offering.



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Penalty bids permit the representativeunderwriters to reclaim a selling concession from a syndicate memberdealer when the common stocksecurities originally sold by the syndicate member isdealer are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.



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In passive market making, market makers in Those activities may cause the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our common stock until the time, if any, at which a stabilizing bid is made.

        These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of our common stock maysecurities to be higher than it would otherwise be. If commenced, the price that might otherwise exist inunderwriters may discontinue any of the open market. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinuedactivities at any time.

The anticipated date of delivery of the securities offered by this prospectus will be described in the applicable prospectus supplement relating to the offering.

In compliance with the guidelines of the Financial Industry Regulatory Authority (“FINRA”), the aggregate maximum discount, commission, agency fees or other items constituting underwriting compensation to be received by any FINRA member or independent broker-dealer will not exceed 8% of the offering proceeds from any offering pursuant to this prospectus and any applicable prospectus supplement.

No FINRA member may participate in any offering of securities made under this prospectus if such member has a conflict of interest under FINRA Rule 5121, including if 5% or more of the net proceeds, not including underwriting compensation, of any offering of securities made under this prospectus will be received by a FINRA member participating in the offering or affiliates or associated persons of such FINRA members, unless a qualified independent underwriter has participated in the offering or the offering otherwise complies with FINRA Rule 5121.

We may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement so indicates, in connection with any derivative transaction, the third parties may sell securities covered by this prospectus and the selling stockholders have agreedapplicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by us or borrowed from us or others to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933,settle those sales or to contributeclose out any related open borrowings of stock, and may use securities received from us in settlement of those derivatives to payments the underwriters mayclose out any related open borrowings of stock. The third party in such sale transactions will be required to makean underwriter and, if not identified in respect thereof.

        Our officers and directors (including the selling stockholders) have agreed with the underwriters not to, directly or indirectly, offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of common stock or any securities convertible into or exchangeable for shares of common stock (or to engage in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a disposition of any such securities, even if such securities would be disposed of by someone other than one of our executive officers and directors), for a period continuing through the 90th day after the date of this prospectus, except with the prior written consent of Friedman, Billings, Ramsey & Co., Inc. These transfer restrictions do not apply to bona fide gifts, provided the donees agree in writing towill be bound by the terms of these transfer restrictions, or sales or purchases of common stock acquiredidentified in the open market.

applicable prospectus supplement or a post-effective amendment to the registration statement of which this prospectus is a part. In addition, we have agreed, formay otherwise loan or pledge securities to a period continuing throughfinancial institution or other third party that in turn may sell the 90th day after the datesecurities short using this prospectus. Such financial institution or other third party may transfer its economic short position to investors in our securities or in connection with a concurrent offering of this prospectus, not to, except with the prior written consent of Friedman, Billings, Ramsey & Co., Inc., directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option for the sale of, or otherwise dispose of or transfer (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock, or file any registration statement under the Securities Act with respect to anyother securities.

LEGAL MATTERS

The validity of the foregoing or (ii) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of the common stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settledsecurities being offered by delivery of common stock or such other