UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended ~~September~~June 30, ~~2021~~2022

	OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ________________ to ________________

Commission file number: 001-35774

INNODATA INC.

(Exact name of registrant as specified in its charter)

Delaware	13-3475943
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

55 Challenger Road	07660
Ridgefield Park, New Jersey	(Zip Code)
(Address of principal executive offices)

(201) 371-8000

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	INOD	The NASDAQ Stock Market LLC
~~Preferred Stock Purchase Right~~	~~N/A~~	~~N/A~~

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

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

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑ Smaller reporting company ☑ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of outstanding shares of the registrant’s common stock, $0.01 par value per share, as of ~~November 2, 2021~~August 6, 2022 was ~~27,153,485.~~27,302,843.

Table of Contents

INNODATA INC. AND SUBSIDIARIES

For the Quarter Ended ~~September~~June 30, ~~2021~~2022

INDEX


	Part I – Financial Information
		Page No.
Item 1.	Financial Statements
	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021	2
	Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	3
	Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	4
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three ~~and nine~~ and six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2223
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3034
Item 4.	Controls and Procedures	3034

	Part II – Other Information

Item 1.	Legal Proceedings	3135
Item 1A.	Risk Factors	3135
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3135
Item 3.	Defaults Upon Senior Securities	3135
Item 4.	Mine Safety Disclosures	3135
Item 5.	Other Information	3135
Item 6.	Exhibits	3236
~~Signatures~~Signatures		3337

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	20,943	$	17,573	$	10,481	$	18,902
Accounts receivable, net of allowance for doubtful accounts of $780 and $670, respectively		9,016		10,048
Accounts receivable, net of allowance for doubtful accounts of $730 for each of these periods						10,956		11,379
Prepaid expenses and other current assets		3,853		4,240		3,786		3,681
Total current assets		33,812		31,861		25,223		33,962
Property and equipment, net		2,414		1,852		2,899		2,947
Right-of-use-asset, net		5,876		6,610		4,395		5,621
Other assets		2,344		2,563		2,005		2,247
Deferred income taxes, net		1,999		2,187		1,667		1,950
Intangibles, net		10,245		10,031		11,658		10,347
Goodwill		2,143		2,150		2,076		2,143
Total assets	$	58,833	$	57,254	$	49,923	$	59,217
LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES, NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,763	$	1,435	$	2,054	$	1,823
Accrued expenses and other		6,240		3,490		6,205		7,564
Accrued salaries, wages and related benefits		6,692		5,719		6,404		6,391
Income and other taxes		3,415		5,000		3,387		3,213
Long-term obligations - current portion		1,130		1,712		700		1,279
Operating lease liability - current portion		1,056		990		776		1,034
Total current liabilities		20,296		18,346		19,526		21,304

Deferred income taxes		60		44
Deferred income taxes, net						20		15
Long-term obligations, net of current portion		5,700		6,282		5,998		6,217
Operating lease liability, net of current portion		5,507		6,332		4,087		5,276
Total liabilities		31,563		31,004		29,631		32,812

Commitments and contingencies
Non-controlling interests		(3,453)		(3,390)		(730)		(3,522)

STOCKHOLDERS’ EQUITY:
Serial preferred stock; 4,998,000 shares authorized, NaN outstanding		0		0		-		-
Common stock, $.01 par value; 75,000,000 shares authorized; 30,337,000 shares issued and 27,153,000 outstanding at September 30, 2021 and 28,984,000 shares issued and 25,800,000 outstanding at December 31, 2020;		303		289
Common stock, $.01 par value; 75,000,000 shares authorized; 30,487,000 shares issued and 27,303,000 outstanding at June 30, 2022 and 30,347,000 shares issued and 27,163,000 outstanding at December 31, 2021						305		303
Additional paid-in capital		34,475		31,921		33,946		35,121
Retained earnings		4,328		4,833
Retained earnings (deficit)						(3,488)		3,160
Accumulated other comprehensive loss		(1,918)		(938)		(3,276)		(2,192)
		37,188		36,105		27,487		36,392
Less: treasury stock, 3,184,000 shares at cost		(6,465)		(6,465)
Less: treasury stock, 3,184,000 shares at June 30, 2022 and December 31, 2021 at cost						(6,465)		(6,465)
Total stockholders’ equity		30,723		29,640		21,022		29,927
Total liabilities and stockholders’ equity	$	58,833	$	57,254
Total liabilities, non-controlling interests and stockholders’ equity					$	49,923	$	59,217

See notes to Condensed Consolidated Financial Statements.

Table of Contents

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended
	June 30,
	2022		2021
Revenues	$	19,987	$	17,049
Operating costs and expenses:
Direct operating costs		12,992		10,409
Selling and administrative expenses		10,277		6,980
Interest expense, net		(1)		4
		23,268		17,393
Loss from operations		(3,281)		(344)
Gain from loan forgiveness		0		580
Income (loss) before provision for income taxes		(3,281)		236
Provision for income taxes		550		366

Consolidated net loss		(3,831)		(130)

Income (loss) attributable to non-controlling interests		2		(27)

Net loss attributable to Innodata Inc. and Subsidiaries	$	(3,833)	$	(103)

Loss per share attributable to Innodata Inc. and Subsidiaries:
Basic and Diluted	$	(0.14)	$	(0.00)

Weighted average shares outstanding:
Basic and Diluted		27,226		26,522

Comprehensive Loss:
Consolidated Net loss	$	(3,831)	$	(130)
Pension liability adjustment, net of taxes		38		11
Change in fair value of derivatives, net of taxes		(541)		(267)
Foreign currency translation adjustment		(600)		135
Other comprehensive loss		(1,103)		(121)
Total Comprehensive loss		(4,934)		(251)
Less: Comprehensive income (loss) attributable to non-controlling interest		2		(27)
Comprehensive Loss attributable to Innodata Inc. and Subsidiaries	$	(4,936)	$	(224)

See notes to Condensed Consolidated Financial Statements.

Table of Contents

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended

September 30,


2021

2020
Revenues

$
17,450

$
14,553
Operating costs and expenses:

Direct operating costs

10,703

9,784
Selling and administrative expenses

7,262

4,582
Interest expense, net

4

44

17,969

14,410
Income (loss) before provision for income taxes

(519)

143
Provision for income taxes

328

(70)
Consolidated net income (loss)

(847)

213
Income (loss) attributable to non-controlling interests

(47)

7
Net income (loss) attributable to Innodata Inc. and Subsidiaries

$
(800)

$
206
Income (loss) per share attributable to Innodata Inc. and Subsidiaries:

Basic

$
(0.03)

$
0.01
Diluted

$
(0.03)

$
0.01
Weighted average shares outstanding:




Basic

26,971

24,470
Diluted

26,971

25,260
Comprehensive income (loss):




Consolidated net income (loss)

$
(847)

$
213
Pension liability adjustment, net of taxes

10

(1)
Foreign currency translation adjustment

(594)

216
Change in fair value of derivatives, net of taxes

(265)

51
Other comprehensive income (loss)

(849)

266
Total comprehensive income (loss)

(1,696)

479
Less: Comprehensive income (loss) attributable to non-controlling interests

(47)

7
Comprehensive income (loss) attributable to Innodata Inc. and Subsidiaries

$
(1,649)

$
472

~~See notes to Condensed Consolidated Financial Statements.~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND~~

~~COMPREHENSIVE LOSS~~

~~(Unaudited)~~

~~(In thousands, except per share amounts)~~


	Nine Months Ended				Six Months Ended
	September 30,				June 30,
	2021		2020		2022		2021
Revenues	$	50,466	$	42,946	$	41,179	$	33,016
Operating costs and expenses:
Direct operating costs		31,208		29,209		26,406		20,505
Selling and administrative expenses		19,767		13,663		20,467		12,505
Interest expense, net		18		113		2		14
		50,993		42,985		46,875		33,024
Loss from operations		(527)		(39)		(5,696)		(8)
Gain on loan forgiveness		580		0
Gain from loan forgiveness						-		580
Income (loss) before provision for income taxes		53		(39)		(5,696)		572

Provision for income taxes		621		504		1,025		293
Consolidated net loss		(568)		(543)
Income (loss) attributable to non-controlling interests		(63)		25
Net loss attributable to Innodata Inc. and Subsidiaries	$	(505)	$	(568)
Loss per share attributable to Innodata Inc. and Subsidiaries:

Consolidated net income (loss)						(6,721)		279

Loss attributable to non-controlling interests						(73)		(16)

Net income (loss) attributable to Innodata Inc. and Subsidiaries					$	(6,648)	$	295

Income (loss) per share attributable to Innodata Inc. and Subsidiaries:
Basic	$	(0.02)	$	(0.02)	$	(0.24)	$	0.01
Diluted	$	(0.02)	$	(0.02)	$	(0.24)	$	0.01

Weighted average shares outstanding:
Basic		26,459		24,427		27,192		26,199
Diluted		26,459		24,427		27,192		29,194
Comprehensive loss:
Consolidated net loss	$	(568)	$	(543)

Comprehensive income (loss):
Consolidated net income (loss)					$	(6,721)	$	279
Pension liability adjustment, net of taxes		32		24		78		22
Foreign currency translation adjustment		(480)		(281)
Foreign currency translation adjustment, net of taxes						(626)		114
Change in fair value of derivatives, net of taxes		(532)		(33)		(536)		(267)
Other comprehensive loss		(980)		(290)		(1,084)		(131)
Total comprehensive loss		(1,548)		(833)
Less: Comprehensive income (loss) attributable to non-controlling interests		(63)		25
Comprehensive loss attributable to Innodata Inc. and Subsidiaries	$	(1,485)	$	(858)
Total Comprehensive income (loss)						(7,805)		148
Less: Comprehensive loss attributable to non-controlling interests						(73)		(16)
Comprehensive income (loss) attributable to Innodata Inc. and Subsidiaries					$	(7,732)	$	164

See notes to Condensed Consolidated Financial Statements.

Table of Contents

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended				Six Months Ended
	September 30,				June 30,
	2021		2020		2022		2021
Cash flows from operating activities:
Consolidated net loss	$	(568)	$	(543)
Adjustments to reconcile consolidated net loss to net cash
provided by operating activities:
Consolidated net income (loss)					$	(6,721)	$	279
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,054		1,720		1,824		1,370
Gain on loan forgiveness		(580)		0		0		(580)
Stock-based compensation		1,117		700		1,565		614
Deferred income taxes		(16)		(412)		167		(61)
Pension cost		308		596		303		322
Loss on disposal of property and equipment		0		33
Loss on lease termination						125		0
Changes in operating assets and liabilities:
Accounts receivable		431		568		274		(140)
Prepaid expenses and other current assets		342		(297)		(148)		239
Other assets		214		(8)		243		168
Accounts payable and accrued expenses		2,895		814		(1,647)		4,658
Accrued salaries, wages and related benefits		976		1,729		(35)		0
Income and other taxes		(1,531)		753		178		(1,283)
Net cash provided by operating activities		5,642		5,653
Net cash provided by (used in) operating activities						(3,872)		5,586

Cash flows from investing activities:
Capital expenditures		(2,919)		(1,115)		(3,638)		(1,473)
Proceeds from disposal of property and equipment		0		39
Net cash used in investing activities		(2,919)		(1,076)		(3,638)		(1,473)

Cash flows from financing activities:
Proceeds from stock option exercises		2,214		167		180		1,750
Withholding taxes on net settlement of stock-based compensation		(763)		0		0		(763)
Payment of long-term obligations		(666)		(800)		(477)		(574)
Proceeds from bank loan		0		580
Net cash provided by (used in) financing activities		785		(53)		(297)		413

Effect of exchange rate changes on cash and cash equivalents		(138)		(62)		(614)		(40)
Net increase in cash and cash equivalents		3,370		4,462

Net increase (decrease) in cash and cash equivalents						(8,421)		4,486

Cash and cash equivalents, beginning of period		17,573		10,874		18,902		17,573

Cash and cash equivalents, end of period	$	20,943	$	15,336	$	10,481	$	22,059

Supplemental disclosures of cash flow information:
Shares withheld for withholding taxes on net settlement for stock-based compensation	$	763	$	0
Cash paid for income taxes	$	201	$	209	$	696	$	724
Cash paid for operating leases	$	1,312	$	1,777	$	974	$	860
Cash paid for interest	$	18	$	113	$	4	$	17

See notes to Condensed Consolidated Financial Statements.

Table of Contents

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

(In thousands)


								Accumulated														Accumulated
				Additional				Other										Additional				Other
	Common Stock			Paid-in		Retained		Comprehensive		Treasury Stock					Common Stock			Paid-in		Retained		Comprehensive		Treasury Stock
	Shares	Amount		Capital		Earnings		Loss		Shares	Amount		Total		Shares	Amount		Capital		Earnings		Loss		Shares	Amount		Total
January 1, 2022															30,347	$	303	$	35,121	$	3,160	$	(2,192)	3,184	$	(6,465)	$	29,927
Net loss attributable to Innodata Inc. and subsidiaries															0		0		0		(2,815)		0	0		0		(2,815)
Stock-based compensation															0		0		537		0		0	0		0		537
Stock option exercises															23		1		26		0		0	0		0		27
Shares withheld for exercise settlement and taxes															(7)		0		(53)		0		0	0		0		(53)
Redemption of non-controlling interest															0		0		(2,864)		0		0	0		0		(2,864)
Pension liability adjustments, net of taxes															0		0		0		0		40	0		0		40
Foreign currency translation adjustment															0		0		0		0		(26)	0		0		(26)
Change in fair value of derivatives, net of taxes															0		0		0		0		5	0		0		5
March 31, 2022															30,363	$	304	$	32,767	$	345	$	(2,173)	3,184	$	(6,465)	$	24,778
Net loss attributable to Innodata Inc. and subsidiaries															0		0		0		(3,833)		0	0		0		(3,833)
Stock-based compensation															0		0		1,028		0		0	0		0		1,028
Stock option exercises															124		1		152		0		0	0		0		153
Redemption of non-controlling interest															0		0		(1)		0		0	0		0		(1)
Pension liability adjustments, net of taxes															0		0		0		0		38	0		0		38
Foreign currency translation adjustment															0		0		0		0		(600)	0		0		(600)
Change in fair value of derivatives, net of taxes															0		0		0		0		(541)	0		0		(541)
June 30, 2022															30,487	$	305	$	33,946	$	(3,488)	$	(3,276)	3,184	$	(6,465)	$	21,022

January 1, 2021	28,984	$	289	$	31,921	$	4,833	$	(938)	3,184	$	(6,465)	$	29,640	28,984	$	289	$	31,921	$	4,833	$	(938)	3,184	$	(6,465)	$	29,640
Net income attributable to Innodata Inc. and subsidiaries	0		0		0		398		0	0		0		398	0		0		0		398		0	0		0		398
Stock-based compensation	0		0		278		0		0	0		0		278	0		0		278		0		0	0		0		278
Stock option exercises	690		4		605		0		0	0		0		609
Exercise of stock options															690		4		605		0		0	0		0		609
Shares withheld for exercise settlement and taxes	(193)		1		(764)		0		0	0		0		(763)	(193)		1		(764)		0		0	0		0		(763)
Pension liability adjustments, net of taxes	0		0		0		0		11	0		0		11	0		0		0		0		11	0		0		11
Foreign currency translation adjustment	0		0		0		0		(21)	0		0		(21)	0		0		0		0		(21)	0		0		(21)
Change in fair value of derivatives, net of taxes															0		0		0		0		0	0		0		0
March 31, 2021	29,481	$	294	$	32,040	$	5,231	$	(948)	3,184	$	(6,465)	$	30,152	29,481	$	294	$	32,040	$	5,231	$	(948)	3,184	$	(6,465)	$	30,152
Net loss attributable to Innodata Inc. and subsidiaries	0		0		0		(103)		0	0		0		(103)	0		0		0		(103)		0	0		0		(103)
Stock-based compensation	0		0		336		0		0	0		0		336	0		0		336		0		0	0		0		336
Stock option exercises	556		5		1,136		0		0	0		0		1,141
Exercise of stock options															556		5		1,136		0		0	0		0		1,141
Pension liability adjustments, net of taxes	0		0		0		0		11	0		0		11	0		0		0		0		11	0		0		11
Foreign currency translation adjustment	0		0		0		0		135	0		0		135	0		0		0		0		135	0		0		135
Change in fair value of derivatives, net of taxes	0		0		0		0		(267)	0		0		(267)	0		0		0		0		(267)	0		0		(267)
June 30, 2021	30,037	$	299	$	33,512	$	5,128	$	(1,069)	3,184	$	(6,465)	$	31,405	30,037	$	299	$	33,512	$	5,128	$	(1,069)	3,184	$	(6,465)	$	31,405
Net loss attributable to Innodata Inc. and subsidiaries	0		0		0		(800)		0	0		0		(800)
Stock-based compensation	0		0		503		0		0	0		0		503
Stock option exercises	300		4		460		0		0	0		0		464
Pension liability adjustments, net of taxes	0		0		0		0		10	0		0		10
Foreign currency translation adjustment	0		0		0		0		(594)	0		0		(594)
Change in fair value of derivatives, net of taxes	0		0		0		0		(265)	0		0		(265)
September 30, 2021	30,337	$	303	$	34,475	$	4,328	$	(1,918)	3,184	$	(6,465)	$	30,723

January 1, 2020	27,643	$	275	$	28,426	$	4,216	$	(920)	3,184	$	(6,465)	$	25,532
Net loss attributable to Innodata Inc. and Subsidiaries	0		0		0		(365)		0	0		0		(365)
Stock-based compensation	0		0		170		0		0	0		0		170
Pension liability adjustments, net of taxes	0		0		0		0		14	0		0		14
Foreign currency translation adjustment	0		0		0		0		(718)	0		0		(718)
Change in fair value of derivatives, net of taxes	0		0		0		0		(171)	0		0		(171)
March 31, 2020	27,643		275		28,596		3,851		(1,795)	3,184		(6,465)		24,462
Net loss attributable to Innodata Inc. and Subsidiaries	0		0		0		(557)		0	0		0		(557)
Stock-based compensation	0		0		298		0		0	0		0		298
Pension liability adjustments, net of taxes	0		0		0		0		11	0		0		11
Foreign currency translation adjustment	0		0		0		0		221	0		0		221
Change in fair value of derivatives, net of taxes	0		0		0		0		87	0		0		87
June 30, 2020	27,643		275		28,894		3,294		(1,476)	3,184		(6,465)		24,522
Revision adjustments	0		0		0		148		0	0		0		148
Net income attributable to Innodata Inc. and Subsidiaries	0		0		0		206		0	0		0		206
Stock option exercises	278		3		312		0		0	0		0		315
Stock-based compensation	0		0		232		0		0	0		0		232
Pension liability adjustments, net of taxes	0		0		0		0		(1)	0		0		(1)
Foreign currency translation adjustment	0		0		0		0		216	0		0		216
Change in fair value of derivatives, net of taxes	0		0		0		0		51	0		0		51
September 30, 2020	27,921	$	278	$	29,438	$	3,648	$	(1,210)	3,184	$	(6,465)	$	25,689

See notes to Condensed Consolidated Financial Statements.

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

1. Summary of Significant Accounting Policies and Estimates

Basis of Presentation - The condensed consolidated financial statements for the interim periods included herein are unaudited; however, they contain all adjustments (consisting of only normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the consolidated financial position of Innodata Inc. (including its subsidiaries, the “Company”) as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the results of its operations and comprehensive income (loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, and stockholders’ equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. The results of operations for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

Certain information and note disclosures normally included in or with financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted from these condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”)and, accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Unless otherwise noted, the accounting policies used in preparing these condensed consolidated financial statements are the same as those ~~described~~ in the notes to the consolidated financial statements for the year ended December 31, ~~2020.~~2021.

Principles of Consolidation - The condensed consolidated financial statements include the accounts of Innodata Inc. and its wholly owned subsidiaries, and ~~the Synodex and~~ docGenix limited liability ~~companies~~company that ~~are~~is majority-owned by the Company. The non-controlling ~~interests~~interest in the ~~Synodex and~~ docGenix limited liability ~~companies are accounted for~~company has call and put options that can be settled in cash or stock. Accordingly, this is presented in temporary equity in accordance with the Financial Accounting Standards Board’s (the “FASB”) non-controlling interest guidance. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates - In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Management believes that the estimates and assumptions used in the preparation of the condensed consolidated financial statements are reasonable, including assumptions made by management about the possible effects of the novel coronavirus (“COVID-19”) pandemic on critical and significant accounting estimates. Actual results could differ from those ~~estimates and changes in those estimates are recorded when known.~~estimates. Significant estimates include those related to the allowance for doubtful accounts and billing adjustments, useful life of long-lived assets, useful life of intangible assets, impairment of goodwill, valuation of deferred tax assets, valuation of stock-based compensation, pension benefit plan assumptions, litigation accruals and estimated accruals for various tax exposures.

~~Capitalized Software Development Costs~~ - the Company incurs development costs related to software it develops for its internal use. Qualifying costs incurred during the application development stage are capitalized. These costs primarily consist of internal labor costs and are amortized using the straight-line method over the software's estimated useful life, which ranges between three and ten years. All other research and maintenance costs are expensed as incurred. Capitalized software development costs in progress as of September 30, 2021 and December 31, 2020 were $0.4 million and $1.4 million, respectively. Completed capitalized software and development costs as of September 30, 2021 and December 31, 2020 were $8.2 million and $5.5 million, respectively.

~~Deferred Revenue~~ - Deferred revenue represents payments received from clients in advance of providing services and amounts deferred if conditions for revenue recognition have not been met. Included in accrued expenses and other on the accompanying condensed consolidated balance sheets is deferred revenue amounting to $3.1 million and $1.2 million as of September 30, 2021 and December 31, 2020, respectively.

Revenue Recognition – The Company’s revenue is recognized when services are rendered or goods are delivered to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services or goods as per the agreement with the customer. In cases where there are agreements with multiple performance obligations, the Company identifies each performance obligation and evaluates whether the performance obligations are distinct within the context of the agreement at the agreement’s inception. Performance obligations that are not distinct at agreement inception are combined. For agreements with distinct performance obligations, the Company allocates the transaction price to each distinct performance obligation proportionately based on the estimated standalone selling price for each performance obligation, if any, and then evaluates how the services are performed for the customer to determine the timing of revenue recognition.

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020~~

~~(Unaudited)~~

For the Digital Data Solutions ~~(“DDS”)~~(DDS) segment, revenue is recognized primarily based on the quantity delivered or resources utilized in the period in which services are performed and performance conditions are satisfied as per the agreement. Revenue ~~under~~from agreements billed on a time-and-materials basis is recognized as services are performed. Revenue ~~under~~from fixed-fee agreements, which are not significant to overall ~~revenue,~~revenues, is recognized based on the proportional performance method of accounting, as services are performed, or milestones are achieved.

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

For the Synodex segment, revenue is recognized primarily based on the quantity delivered in the period in which services are performed and performance conditions are satisfied as per the agreement. A portion of the Synodex segment revenue is derived from licensing the Company’s functional software and providing access to the Company’s hosted software platform. Revenue from such services is recognized monthly when all parties to the agreement have agreed to the agreement; each party’s rights are identifiable; the payment terms are identifiable; the agreement has commercial substance; access to the service is provided to the end user; and collection is probable.

The Agility segment derives its revenue primarily from subscription arrangements and provision of enriched media analysis services. It also derives revenue as a reseller of corporate communication solutions. Revenue from subscriptions is recognized monthly when access to the service is provided to the end user; all parties to the agreement have agreed to the agreement; each party’s rights are identifiable; the payment terms are identifiable; the agreement has commercial substance; and collection is probable. Revenue from enriched media analysis services is recognized when the services are performed, and performance conditions are satisfied. Revenue from the reseller agreements is recognized at the gross amount received for the goods in accordance with ~~our~~the Company functioning as a principal due to ~~our~~the Company meeting the following criteria: the Company acts as the primary obligor in the sales transaction; assumes the credit risk; sets the price; can select suppliers; and is involved in the execution of the services, including after sales service.

Revenue includes reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in direct operating costs.

The Company considers U.S. GAAP criteria for determining whether to report gross revenue as a principal versus net revenue as an agent. The Company evaluates whether it is in control of the services before the same are transferred to the customer to assess whether it is principal or agent in the arrangement. Revenue is recognized on a gross basis if the Company is in the capacity of principal and on a net basis if it falls in the capacity of an agent.

Contract acquisition costs, which are included in prepaid expenses and other current assets, are amortized over the term of a subscription agreement or ~~contract.~~contract that normally has a duration of 12 months or less. The Company reviews these prepaid acquisition costs on a periodic basis to determine the need to adjust the carrying values for early-terminated contracts.

Foreign Currency Translation - The functional currency of the ~~Company's subsidiaries~~Company’s locations in the Philippines, India, Sri Lanka, Israel, Hong Kong and Canada (other than the Agility subsidiary) is the U.S. dollar. Transactions denominated in Philippine pesos, Indian and Sri Lankan rupees, Israeli shekels and Hong Kong ~~and Canadian~~ dollars are translated to U.S. dollars at rates ~~that~~which approximate those in effect on the transaction dates. ~~All~~ Monetary assets and all liabilities denominated in foreign currencies on ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are translated at the exchange rate in effect as of those dates. Non-monetary assets ~~liabilities~~ and stockholders’ equity are translated at the appropriate historical rates. Included in direct operating costs were foreign exchange gains (losses) resulting from such transactions of approximately $348,000 and $13,000 for the three months ended September 30, 2021 and 2020, respectively, and $503,000 and $(221,000) for the nine months ended September 30, 2021 and 2020, respectively.

The functional currency for the Company’s subsidiaries in Germany, ~~and~~ the United Kingdom and for the Company’s Agility subsidiary in Canada are the Euro, the Pound Sterling and the Canadian dollar, respectively. The financial statements of these subsidiaries are prepared in these respective currencies. Financial information is translated from the applicable functional currency to the U.S. dollar (the reporting currency) for inclusion in the Company’s condensed consolidated financial statements. ~~Revenues,~~Income, expenses and cash flows are translated at weighted-average exchange rates prevailing during the fiscal ~~periods,~~period, and assets and liabilities are translated at fiscal period-end exchange rates. Resulting translation adjustments are included as a component of accumulated other comprehensive loss in stockholders’ equity. Foreign exchange transaction gains or losses are included in direct operating costs in the accompanying condensed consolidated statements of operations and comprehensive ~~loss.~~

~~INNODATA INC. AND SUBSIDIARIES~~income (loss).

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~THREE AND NINE MONTHS ENDED SEPTEMBER~~Included in direct operating costs were foreign exchange gains resulting from such transactions of approximately $747,000 and $16,000 for the three months ended June 30, 2022 and 2021 ~~AND 2020~~respectively and $1,166,000 and $155,000 for the six months ended June 30, 2022 and 2021 respectively.

~~(Unaudited)~~

Derivative Instruments - The Company accounts for derivative transactions in accordance with the FASB’s Accounting Standards Codification (“ASC”) Topic 825, “Financial Instruments”. For derivative instruments that are designated and qualify as cash flow hedges, the entire change in fair value of the hedging instrument is recorded in Other comprehensive income (loss). ~~When~~Upon settlement of these contracts, the ~~amounts~~change in the fair value recorded in Other comprehensive income (loss) ~~are~~is reclassified to earnings ~~they are~~and included as part of Direct operating costs. ~~For derivative instruments that~~

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

Capitalized Developed Software - The Company incurs development costs related to software it develops for its internal use. Qualifying costs incurred during the application development stage are ~~not designated~~capitalized. These costs primarily consist of internal labor and third-party development costs and are amortized using the straight-line method over the estimated useful life of the capitalized developed software, which ranges between three and ten years. All other research and maintenance costs are expensed as ~~hedges, any change in fair value is recorded directly in earnings as part of Direct operating costs.~~incurred.

Income Taxes– - Estimated deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities, using enacted tax rates, as well as any net operating loss or tax credit carryforwards expected to reduce taxes payable in future years. A valuation allowance is provided when it is more likely than not that all or some portion of the estimated deferred tax assets will not be realized. While the Company considers future taxable income in assessing the need for the valuation allowance, in the event that the Company anticipates that it will be able to realize the estimated deferred tax assets in the future in excess of its net recorded amount, an adjustment to the provision for deferred tax assets would increase income in the period such determination was made. Similarly, in the event that the Company anticipates that it will not be able to realize the estimated deferred tax assets in the future considering future taxable income, an adjustment to the provision for deferred tax assets would decrease income in the period such determination was made. Changes in the valuation allowance from period to period are included in the Company’s tax provision in the period of change. The Company indefinitely reinvests the foreign earnings in its foreign subsidiaries. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company would have to accrue as a liability the applicable amount of foreign jurisdiction withholding taxes associated with such remittances.

In assessing the realization of deferred tax assets, management considered whether it is more likely than not that all or some portion of the U.S. and Canadian deferred tax assets will not be realizable. As the expectation of future taxable income resulting from the U.S. and Canadian entities ~~cannot be predicted with certainty,~~is not probable at this time, the Company maintains a valuation allowance against all the U.S. and Canadian net deferred tax assets.

The Company accounts for income taxes regarding uncertain tax positions, and recognizes interest and penalties related to uncertain tax positions in ~~Income~~income tax expense in the condensed consolidated statements of operations and comprehensive income (loss).

Deferred Revenue - Deferred revenue represents payments received from customers in advance of providing services and amounts deferred if conditions for revenue recognition have not been met. Included in accrued expenses and other on the accompanying condensed consolidated balance sheets is deferred revenue amounting to $2.3 million and $4.5 million as of June 30, 2022 and December 31, 2021, respectively. The Company expect to recognize substantially all of these performance obligations over the next 12 months.

Recent Accounting Pronouncements - In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” as part of its initiative to reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted the standard on January 1, 2021 and it had no material impact on the Company’s condensed consolidated financial statements.

– In June 2016, the FASB issued ASU No. 2016-13, “Financial ~~Instruments - Credit~~Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements” (“ASU 2016-13”). ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation amount that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial ~~Instruments - Credit~~Instruments-Credit Losses,” which clarifies ASC Topic 326, “Financial Instruments -– Credit Losses” and corrects unintended application of the guidance, and in November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” which clarifies or addresses specific issues about certain aspects of ASU 2016-13. In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments,” which modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 is effective for certain smaller reporting companies for financial statements issued for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, which will be fiscal 2023 for the Company if it continues to be classified as a smaller reporting company, with early adoption permitted. The Company does not expect that the adoption of the new guidance will have a material impact on the Company’s condensed consolidated financial statements.

2. Goodwill and Intangible Assets

The change in the carrying amount of goodwill for the six months ended June 30, 2022 was as follows (in thousands):


Balance as of January 1, 2022	$	2,143
Foreign currency translation adjustment		(67)
Balance as of June 30, 2022	$	2,076

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

~~2. Goodwill and Intangible Assets~~

The Company completed its annual impairment analysis procedures on its reporting units as of September 30, 2021. The Company determined that there was no impairment of long-lived assets, tangible or intangible, in any reporting units as of September 30, 2021.

~~The change in the carrying amount of goodwill for the nine months ended September 30, 2021 was as follows (in thousands):~~

Balance as of January 1, 2021

$
2,150
Foreign currency translation adjustment

(7)
Balance as of September 30, 2021

$
2,143

The fair value measurement of goodwill for the Agility segment was classified within Level 3 of the fair value hierarchy because the Company used the income approach, which utilizes significant inputs that are unobservable in the market and the market multiple approach which utilizes comparable entities to further validate the carrying values. The Company believes it made reasonable estimates and assumptions to calculate the fair value of the reporting unit as of the impairment test measurement date.

Information regarding the Company acquired intangible assets and capitalized developed software was as follows (in thousands):


	Company Acquired Intangible Assets										Capitalized Developed Software						Company Acquired Intangible Assets										Capitalized Developed Software
													Capitalized																Capitalized
											Capitalized		Software								Trademarks				Media		Capitalized		Developed
Balance as of September 30, 2021					Trademarks				Media		Software		Development
	Developed		Customer		and				Contact		Development		Cost - Work in				Developed		Customer		and				Contact		Developed		Software - in
	technology		relationships		tradenames		Patents		Database		Cost		Progress		Total		technology		relationships		tradenames		Patents		Database		Software		Progress		Total
Gross carrying amounts:
Balance as of January 1, 2021	$	3,175	$	2,228	$	882	$	45	$	3,670	$	5,507	$	1,360	$	16,867
Balance as of January 1, 2022																	$	3,169	$	2,228	$	880	$	45	$	3,648	$	8,576	$	635	$	19,181
Additions		-		-		-		-		-		376		1,357		1,733		-		-		-		-		-		-		2,770		2,770
Transfers		-		-		-		-		-		2,323		(2,323)		-		-		-		-		-		-		1,475		(1,475)		-
Foreign currency translation		(6)		-		(2)		-		(23)		(54)		24		(61)		(76)		(34)		(17)		-		(156)		(128)		(9)		(420)
Balance as of September 30, 2021	$	3,169	$	2,228	$	880	$	45	$	3,647	$	8,152	$	418	$	18,539
Balance as of June 30, 2022																	$	3,093	$	2,194	$	863	$	45	$	3,492	$	9,923	$	1,921	$	21,531

Accumulated amortization:
Balance as of January 1, 2021	$	1,844	$	1,192	$	629	$	29	$	1,650	$	1,492	$	-	$	6,836
Balance as of January 1, 2022																	$	2,158	$	1,377	$	685	$	34	$	2,005	$	2,575	$	-	$	8,834
Amortization expense		233		138		41		3		261		778		-		1,454		158		93		28		2		180		799		-		1,260
Foreign currency translation		2		1		-		1		2		(2)		-		4		(51)		(23)		(11)		(1)		(90)		(45)		-		(221)
Balance as of September 30, 2021	$	2,079	$	1,331	$	670	$	33	$	1,913	$	2,268	$	-	$	8,294
Balance as of June 30, 2022																	$	2,265	$	1,447	$	702	$	35	$	2,095	$	3,329	$	-	$	9,873

Net carrying values - September 30, 2021	$	1,090	$	897	$	210	$	12	$	1,734	$	5,884	$	418	$	10,245
Net carrying values - June 30, 2022																	$	828	$	747	$	161	$	10	$	1,397	$	6,594	$	1,921	$	11,658

The Company reclassified capitalized developed software, net of accumulated amortization, of $6.3 million and $5.4 million as of September 30, 2021 and December 31, 2020, respectively, from Property and equipment to Intangibles.

Amortization expense relating to ~~Company~~ acquired intangible assets was $0.2 million and $0.5 million for the three and six months ended ~~September~~June 30, ~~2021~~2022.

Amortization expense relating to capitalized developed software was $0.4 million and ~~$0.7~~$0.8 million for the ~~nine~~three and six months ended ~~September~~June 30, ~~2021~~2022.

As of June 30, 2022, estimated future amortization expense for intangible assets was as follows (in thousands):


Year	Amortization
2022	$	627
2023	$	1,641
2024	$	1,540
2025	$	1,277
2026	$	437
Thereafter	$	6,136
	$	11,658

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

~~Amortization expense relating to capitalized developed software was $0.3 million for the three months ended September 30, 2021 and $0.8 million for the nine months ended September 30, 2021.~~

~~As of September 30, 2021, estimated future amortization expense for intangible assets was as follows (in thousands):~~

Year

Amortization
2021

$
532
2022

2,203
2023

2,018
2024

1,590
2025

1,215
Thereafter

2,687

$
10,245

3. Income Taxes

Taxes primarily consist of a provision for foreign taxes recorded by the Company’s foreign subsidiaries in accordance with local tax regulations. Effective income tax rates are disproportionate due to the losses incurred by the Company’s U.S. and Canadian subsidiaries and a valuation allowance recorded on deferred taxes of these entities and tax effects of foreign operations, including foreign exchange gains and losses.

The reconciliations of the U.S. statutory rate with the Company’s effective tax rate for the ~~nine -month~~six-month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 are summarized in the table below:


					For the Six Months
	For the Nine Months Ended September 30,				Ended June 30,
	2021		2020		2022		2021
Federal income tax expense at statutory rate	21.0	%	(21.0)	%	(21.0)	%	21.0	%
Effect of:
Change in valuation allowance	2,468.8		(660.0)		40.3		101.1
Effect of Section 162 (m)	549.9		-
Foreign operations permanent difference - foreign exchange gains and losses	271.9		90.3		2.1		9.1
Return to provision true up					2.0		3.2
Tax effects of foreign operations					1.2		35.4
Increase (decrease) in unrecognized tax benefits (ASC 740)					1.2		(64.4)
State income tax net of federal benefit					0.2		1.5
Change in tax rates	225.0		-		-		20.6
Tax effects of foreign operations	79.8		1,610.6
State income tax net of federal benefit	43.2		(120.1)
Return to provision true up	31.6		(14.8)
Withholding tax					-		-
Effect of stock based compensation					(1.0)		(62.1)
Foreign rate differential	(478.8)		(295.9)		(6.3)		(19.6)
Increase (decrease) in unrecognized tax benefits (ASC 740)	(490.0)		410.5
Effect of stock-based compensation	(1,573.2)		263.7
Other	22.5		29.0		(0.7)		5.4
Effective tax rate	1,171.7	%	1,292.3	%	18.0	%	51.2	%

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020~~

~~(Unaudited)~~

The following table presents a roll-forward of the Company’s unrecognized tax benefits and associated interest for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 (in thousands):


	Unrecognized		Unrecognized
	tax benefits		tax benefits
Balance - January 1, 2021	$	3,231
Tax settlement matters �� prior periods		(1,713)
Change in tax position		149
Balance - January 1, 2022			$	1,753
Increase for current period tax positions				58
Decrease for prior period tax positions				(29)
Interest accrual		84		52
Foreign currency remeasurement		(32)		(100)
Balance - September 30, 2021	$	1,719
Balance - June 30, 2022			$	1,734

The Company expects that unrecognized tax benefits as of ~~September~~June 30, ~~2021~~2022, if recognized, would have a material impact on the Company’s effective tax rate.

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

Tax Assessments

In September 2015, the Company’s Indian subsidiary was subject to an inquiry by the Service Tax Department in India regarding the classification of services provided by this subsidiary, asserting that the services provided by this subsidiary fall under the category of online information and database access or retrieval services ~~(“OID Services”)~~(OID Services), and not under the category of business support services ~~(“BS Services”)~~(BS Services) that are exempt from service tax as historically indicated in the subsidiary’s service tax filings. The Company disagrees with the Service Tax Department’s position. In November 2019, the Commissioner of Central Tax, GST & Central Excise issued an order confirming the Service Tax ~~Department's~~Department’s position. The Company is contesting this order in an appeal to the Customs, Excise and Service Tax Appellate Tribunal. In the event the Service Tax Department is ultimately successful in proving that the services fall under the category of OID Services, the revenues earned by the Company’s Indian subsidiary for the period July 2012 through November 2016 would be subject to a service tax of between 12.36% and 15%, and this subsidiary may also be liable for interest and penalties. The revenue of the Company’s Indian subsidiary during this period was approximately ~~$64.0~~$63.0 million. In accordance with new rules promulgated by the Service Tax Department, as of December 1, 2016 service tax is no longer applicable to OID or BS Services. Based on the Company’s assessment ofin consultation with the Company’s tax counsel, the Company has not recorded any tax liability for this case.

In a separate action relating to service tax refunds, in October 2016, the Company’s Indian subsidiary received notices from the Indian Service Tax Department in India seeking to reverse service tax refunds of approximately $160,000 previously granted to the Company’s Indian subsidiary for three quarters in 2014, asserting that the services provided by this subsidiary fall under the category of OID Services and not BS Services. The appeal was determined in favor of the Service Tax Department. The Company disagrees with the basis of this decision and is contesting it. The Company expects delays in its Indian subsidiary receiving further service tax refunds until this matter is adjudicated with finality, and currently has service tax credits of approximately $1.0 million recorded as a receivable. Based on the Company’s assessment ofin consultation with the Company’s tax counsel, the Company has not recorded any tax liability ~~or allowance~~for this case.

Substantial recovery against the Company in the above referenced 2015 Service Tax Department case could have a material adverse impact on the Company, and unfavorable rulings or recoveries in other tax proceedings could have a material adverse impact on the consolidated operating results of the period (and subsequent periods) in which the rulings or recovery occurs.

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020~~

~~(Unaudited)~~

4. Commitments and Contingencies

Litigation – In 2008, a judgment was rendered in the Philippines against a Philippine subsidiary of the Company that is no longer active and purportedly also against Innodata Inc., in favor of certain former employees of the Philippine subsidiary. The potential payment amount aggregates to approximately $6.8 million, plus legal interest that accrued at 12% per annum from August 13, 2008 to June 30, 2013, and thereafter accrued and continues to accrue at 6% per annum. The potential payment amount as expressed in U.S. dollars varies with the Philippine peso to U.S. dollar exchange rate. In December 2017, a group of 97 of the former employees of the Philippine subsidiary indicated that they proposed to record the judgment as to themselves in New Jersey. In January 2018, in response to an action initiated by Innodata Inc., the United States District Court for the District of New Jersey (“USDC”) entered a preliminary injunction that enjoins these former employees from pursuing or seeking recognition or enforcement of the judgment against Innodata Inc. in the United States during the pendency of the action and until further order of the USDC. In June 2018, the USDC entered a consent order administratively closing the action subject to return of the action to the active docket upon the written request of Innodata Inc. or the former employees, with the USDC retaining jurisdiction over the matter and the preliminary injunction remaining in full force and effect.

The Company is also subject to various other legal proceedings and claims that have arisen in the ordinary course of business.

While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s consolidated financial position or overall trends in consolidated results of operations, litigation is subject to inherent uncertainties. Substantial recovery against the Company in the above-referenced Philippine action could have a material adverse impact on the Company, and unfavorable rulings or recoveries in the other proceedings could have a material adverse impact on the consolidated operating results in the period in which the ruling or recovery occurs. In addition, the Company’s estimate of the potential impact on the Company’s consolidated financial position or overall consolidated results of operations for the above referenced legal proceedings could change in the future.

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

The Company’s legal accruals related to legal proceedings and claims are based on the Company’s determination of whether or not a loss is probable. The Company reviews outstanding proceedings and claims with external counsel to assess probability and estimates of loss. The accruals are adjusted if necessary. While the Company intends to defend these matters vigorously, adverse outcomes that it estimates could reach approximately $350,000 in the aggregate beyond recorded amounts are reasonably possible. If circumstances change, the Company may be required to record adjustments that could be material to its reported consolidated financial condition and results of operations.

5. Stock Options and Restricted ~~Shares~~Stock Units

A summary of ~~stock~~ option activity under the Innodata Inc. 2013 Stock Plan, as amended and restated effective June 7, 2016 (the ~~“Plan”~~“2013 Plan”)~~, as of September 30, 2021,~~ and changes during each of the ~~nine months then~~six-month periods ended June 30, 2022 and 2021 are presented below:


		Weighted -		Weighted-Average				Weighted -		Weighted-Average
	Number of	Average Exercise		Remaining Contractual	Aggregate		Number of	Average Exercise		Remaining Contractual	Aggregate
	Options	Price		Term (years)	Intrinsic Value		Options	Price		Term (years)	Intrinsic Value
Outstanding at January 1, 2021	5,906,884	$	1.61				5,906,884	$	1.61
Granted	750,000		6.76				360,000		6.40
Exercised	(1,546,288)		2.01				(1,245,182)		2.12
Forfeited/Expired	(20,000)		1.38				(20,000)		1.38
Outstanding at September 30, 2021	5,090,596	$	2.05	7.49	$	37,037,015
Outstanding at June 30, 2021							5,001,702	$	1.83	7.60	$	25,837,675

Exercisable at September 30, 2021	3,468,912	$	1.73	7.03	$	27,069,483
Exercisable at June 30, 2021							3,425,983	$	1.62	7.12	$	18,426,406

Vested and Expected to Vest at September 30, 2021	5,090,596	$	2.05	7.49	$	37,037,015
Vested and Expected to Vest at June 30, 2021							5,001,702	$	1.83	7.60	$	25,837,675

~~During the nine months ended September 30, 2021, a total of 1,546,288 options were exercised at an average price of $2.01 for~~ ~~net proceeds of $2.2 million~~.


				Weighted-Average
	Number of	Weighted - Average		Remaining Contractual	Aggregate
	Options	Exercise Price		Term (years)	Intrinsic Value
Outstanding at January 1, 2022	5,536,896	$	2.66
Granted	1,479,558		5.21
Exercised	(146,705)		1.22
Forfeited/Expired	(36,000)		5.13
Outstanding at June 30, 2022	6,833,749	$	3.24	7.62	$	13,923,020

Exercisable at June 30, 2022	3,578,045	$	1.81	6.40	$	11,195,079

Vested and Expected to Vest at June 30, 2022	6,833,749	$	3.24	7.62	$	13,923,020

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

A summary of option activity under the Innodata Inc. 2021 Stock Plan and changes during the six-month period ended June 30, 2022 are presented below:


				Weighted-Average
	Number of	Weighted - Average		Remaining Contractual	Aggregate Intrinsic
	Options	Exercise Price		Term (years)	Value
Outstanding at January 1, 2022	-	$	-
Granted	25,000		6.40
Exercised	-		-
Forfeited/Expired	-		-
Outstanding at June 30, 2022	25,000	$	6.40	5.00	$	-

Exercisable at June 30, 2022	-	$	-

Vested and Expected to Vest at June 30, 2022	25,000	$	6.40	5.00	$	-

During the six months ended June 30, 2022, a total of 146,705 options were exercised at an average price of $1.22.

The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model. The weighted-average fair value of the options granted, and weighted-average assumptions were as follows:


	For the Nine Months Ended September 30,						For the Six Months Ended June 30,
	2021			2020			2022		2021
Weighted average fair value of options granted	$	3.56		$	0.61		$	3.10	$	3.33
Risk-free interest rate		0.22% - 0.82	%		0.29% - 0.56	%		1.94%-2.75%		0.22%-0.82%
Expected term (years)		3-6			5-6			3.0-6.42		3-6
Expected volatility factor		58% - 68	%		47% - 50	%		62% - 76.48%		59.62%
Expected dividends		NaN			NaN			-		-

A summary of ~~outstanding~~ restricted ~~shares~~stock units issued under the 2013 Plan ~~as of September 30,~~and the 2021 ~~are~~Plan (collectively, the “Equity Plans”) is presented below:

In March 2022, the Company granted restricted stock units (“RSU”) to key executives, pursuant to the Equity Plans. Each RSU has vesting conditions based on both the achievement of performance-based metrics and the continuation of employment over a defined period. The level of performance determines the number of RSUs that performance-vest, and performance vested RSUs must also time-vest in order to be fully vested. Each fully-vested RSU represents the right to receive 1 share of the Company’s common stock or the fair market value of 1 share of common stock, at the Company’s discretion, and is classified as an equity award. Each RSU vests pursuant to the vesting schedule found in the respective RSU agreement. RSUs are generally subject to graduated vesting schedules and stock-based compensation expense is computed by tranche and recognized on a straight-line basis over the tranches’ applicable vesting period based on the expected achievement level. The fair value of restricted stock units is estimated on the date of grant using the Binomial option pricing model.

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

Restricted stock unit activity during the six months ended June 30, 2022 was as follows:


		Weighted-Average Grant		Number of Restricted	Weighted-Average Grant
	Number of Shares	Date Fair Value		Stock Awards	Date Fair Value
Unvested at December 31, 2020	50,000		0
Unvested at January 1, 2022				25,000	$	1.38
Granted	0		0	-		-
Vested	(25,000)		0	(25,000)		1.38
Forfeited/Expired	0		0	0		0
Unvested at September 30, 2021	25,000	$	1.38
Unvested at June 30, 2022				-	$	-


	Number of	Weighted-Average
	Restricted Stock	Grant Date
	Units	Fair Value
Unvested at January 1, 2022	0	$	-
Granted*	700,000		5.59
Vested	-		-
Forfeited/Expired	-
Unvested at June 30, 2022	700,000	$	5.59

* 200,000 RSUs were issued under the 2013 Plan and 500,000 RSUs were issued under the 2021 Plan

The compensation cost related to non-vested stock options ~~and restricted stock awards~~ not yet recognized as of ~~September~~June 30, ~~2021~~2022 totaled approximately ~~$2.7~~$7.1 million. The weighted-average period over which these costs will be recognized is ~~twenty-six~~27 months.

During the six months ended June 30, 2022, 700,000 performance-based restricted stock units were granted and remain non-vested at June 30, 2022. Vesting of the performance-based restricted stock units is contingent on the achievement of certain financial performance goals and service vesting conditions. There were 0 restricted stock units granted during the three months ended June 30, 2022.

The compensation cost related to non-vested restricted stock units not yet recognized as of June 30, 2022 totaled approximately $3.0 million. The weighted-average period over which these costs will be recognized is 24 months.

The stock-based compensation expense related to the ~~Company’s various stock awards was~~Equity Plans were allocated as follows (in thousands):


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Direct operating costs	$	21	$	40	$	96	$	119	$	56	$	37	$	107	$	75
Selling and administrative expenses		482		192		1,021		581		972		299		1,458		539
Total stock-based compensation	$	503	$	232	$	1,117	$	700	$	1,028	$	336	$	1,565	$	614

6. Operating Leases

The Company has various lease agreements for its offices and service delivery centers. The Company has determined that the risks and benefits related to the leased properties are retained by the lessors. Accordingly, these are accounted for as operating leases.

These lease agreements are for terms ranging from two to eleven years and, in most cases, provide for rental escalations ranging from 1.75% to 10%. Most of these agreements are renewable at the mutual consent of the parties to the contract.

1415

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

The table below summarizes the amounts recognized in the condensed consolidated financial statements related to operating leases for the periods presented (in thousands):


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Rent expense for long-term operating leases	$	393	$	402	$	1,169	$	1,266	$	337	$	388	$	713	$	776
Rent expense for short-term leases		59		122		143		511		144		34		261		84
Total rent expense	$	452	$	524	$	1,312	$	1,777	$	482	$	422	$	974	$	860

The following table presents the maturity profile of the Company’s operating lease liabilities based on the contractual undiscounted payments with a reconciliation of these amounts to the remaining net present value of the operating lease liability reported in the condensed consolidated balance sheet as of ~~September~~June 30, ~~2021~~2022 (in thousands):


Year	Amount		Amount
2021	$	389
2022		1,511	$	1,160
2023		1,255		865
2024		1,028		825
2025		1,043		840
2026 and thereafter		3,490
2026				855
2027 and thereafter				1,953
Total lease payments		8,716		6,498
Less: Interest		2,153		(1,635)
Net present value of lease liabilities	$	6,563	$	4,863

Current portion	$	1,056	$	776
Long-term portion		5,507		4,087
Total	$	6,563	$	4,863

The weighted average remaining lease terms and discount rates for all of the Company’s operating leases as of ~~September~~June 30, ~~2021~~2022 were as follows:


Weighted-average lease term remaining	5648 months
Weighted-average discount rate	8.68	%

7. Long-term obligations

Total long-term obligations as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 consisted of the following (in thousands):


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Pension obligations - accrued pension liability	$	6,124	$	5,940	$	6,547	$	6,839
Settlement agreement		326		518		151		272
Capital lease obligations		0		209
Microsoft licenses		380		747		-		385
Bank loans payable		0		580
		6,830		7,994		6,698		7,496
Less: Current portion of long-term obligations		1,130		1,712		700		1,279
Totals	$	5,700	$	6,282	$	5,998	$	6,217

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

8. Redemption of non-controlling interest

The Condensed Consolidated Balance Sheets for the six-month period ending June 30, 2022 includes a $2.9 million charge against additional paid-in-capital representing the carrying value of the non-controlling interest in Innodata Synodex, LLC which was redeemed by the Company on March 31, 2022. The Company accounted for the transaction in accordance with ASC Topic 810, “Consolidation,” which discusses the proper accounting treatment of the carrying value for the non-controlling interest. Under the standard, any change in ownership that does not result in a loss of control must be accounted for as an equity transaction.

8.9. Comprehensive loss

Accumulated other comprehensive loss, as reflected in the condensed consolidated balance sheets, consists of pension liability adjustments, net of taxes, foreign currency translation adjustment and changes in fair value of derivatives, net of taxes. The components of ~~Accumulated~~accumulated other comprehensive loss as of ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, and reclassifications from ~~Accumulated~~accumulated other comprehensive loss ~~to earnings~~ for the three and ~~nine~~six months then ended, are presented below (in thousands):


					Foreign Currency				Pension Liability		Fair Value of		Foreign Currency		Accumulated Other
	Pension Liability		Fair Value of		Translation		Accumulated Other		Adjustment		Derivatives		Translation Adjustment		Comprehensive Loss
	Adjustment		Derivatives		Adjustment		Comprehensive Loss
Balance at July 1, 2021	$	(422)	$	(267)	$	(380)	$	(1,069)
Balance at April 1, 2022									$	(818)	$	(348)	$	(1,007)	$	(2,173)
Other comprehensive loss before reclassifications, net of taxes		-		(302)		(594)		(896)		-		(744)		(600)		(1,344)
Total other comprehensive loss before reclassifications, net of taxes		(422)		(569)		(974)		(1,965)		(818)		(1,092)		(1,607)		(3,517)
Net amount reclassified to earnings		10		37		-		47		38		203		-		241
Balance at September 30, 2021	$	(412)	$	(532)	$	(974)	$	(1,918)
Balance at June 30, 2022									$	(780)	$	(889)	$	(1,607)	$	(3,276)


					Foreign Currency
	Pension Liability		Fair Value of		Translation		Accumulated Other
	Adjustment		Derivatives		Adjustment		Comprehensive Loss
Balance at January 1, 2022	$	(858)	$	(353)	$	(981)	$	(2,192)
Other comprehensive loss before reclassifications, net of taxes		-		(822)		(626)		(1,448)
Total other comprehensive loss before reclassifications, net of taxes		(858)		(1,175)		(1,607)		(3,640)
Net amount reclassified to earnings		78		286		-		364
Balance at June 30, 2022	$	(780)	$	(889)	$	(1,607)	$	(3,276)

Foreign Currency

Pension Liability

Fair Value of

Translation

Accumulated Other


Adjustment

Derivatives

Adjustment

Comprehensive Loss
Balance at January 1, 2021

$
(444)

$
-

$
(494)

$
(938)
Other comprehensive loss before reclassifications, net of taxes

-

(536)

(480)

(1,016)
Total other comprehensive loss before reclassifications, net of taxes

(444)

(536)

(974)

(1,954)
Net amount reclassified to earnings

32

4

-

36
Balance at September 30, 2021

$
(412)

$
(532)

$
(974)

$
(1,918)


					Foreign Currency				Pension Liability		Fair Value of		Foreign Currency		Accumulated Other
	Pension Liability		Fair Value of		Translation		Accumulated Other		Adjustment		Derivatives		Translation Adjustment		Comprehensive Loss
	Adjustment		Derivatives		Adjustment		Comprehensive Loss
Balance at July 1, 2020	$	(28)	$	(51)	$	(1,397)	$	(1,476)
Other comprehensive income before reclassifications, net of taxes		-		12		216		228
Balance at April 1, 2021									$	(433)	$	-	$	(515)	$	(948)
Other comprehensive income (loss) before reclassifications, net of taxes										-		(301)		135		(166)
Total other comprehensive loss before reclassifications, net of taxes		(28)		(39)		(1,181)		(1,248)		(433)		(301)		(380)		(1,114)
Net amount reclassified to earnings		(1)		39		-		38		11		34		-		45
Balance at September 30, 2020	$	(29)	$	-	$	(1,181)	$	(1,210)
Balance at June 30, 2021									$	(422)	$	(267)	$	(380)	$	(1,069)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)


					Foreign Currency								Foreign Currency
	Pension Liability		Fair Value of		Translation		Accumulated Other		Pension Liability		Fair Value of		Translation		Accumulated Other
	Adjustment		Derivatives		Adjustment		Comprehensive Loss		Adjustment		Derivatives		Adjustment		Comprehensive Loss
Balance at January 1, 2020	$	(53)	$	33	$	(900)	$	(920)
Other comprehensive loss before reclassifications, net of taxes		-		(154)		(281)		(435)
Balance at January 1, 2021									$	(444)	$	-	$	(494)	$	(938)
Other comprehensive income (loss) before reclassifications, net of taxes										-		(301)		114		(187)
Total other comprehensive loss before reclassifications, net of taxes		(53)		(121)		(1,181)		(1,355)		(444)		(301)		(380)		(1,125)
Net amount reclassified to earnings		24		121		-		145		22		34		-		56
Balance at September 30, 2020	$	(29)	$	-	$	(1,181)	$	(1,210)
Balance at June 30, 2021									$	(422)	$	(267)	$	(380)	$	(1,069)

All reclassifications from ~~Accumulated~~accumulated other comprehensive loss had an impact on ~~Direct~~direct operating costs in the condensed consolidated statements of operations and comprehensive ~~loss.~~income (loss).

9.10. Segment ~~Reporting~~reporting and ~~Concentrations~~concentrations

The Company’s operations are classified in 3 reporting segments: ~~DDS,~~Digital Data Solutions (DDS), Synodex and Agility.

The DDS segment provides AI-enabled software platforms and managed services to companies that require high-quality data for training AI and machine learning (ML) algorithms, and AI digital transformation solutions to help companies apply AI/ML to real-world problems relating to analyzing and deriving insights from documents. In conjunction with AI digital transformation, the Company often provides a range of ~~solutions and platforms for solving complex~~ data ~~challenges that companies face when they seek to obtain the benefits of artificial intelligence (“AI”) systems and analytics platforms. These include data annotation,~~engineering support services, including data transformation, data curation, data hygiene, data consolidation, data compliance, and ~~intelligent automation. The DDS segment also provides a variety of services for clients in the information industry that relate to content operations and product development.~~master data management.

The Synodex segment provides an ~~intelligent data~~industry platform that transforms medical records into useable digital data organized in accordance with ~~the Company’s~~its proprietary data models or ~~client~~customer data models.

The Agility segment provides an ~~intelligent data~~industry platform that provides marketing communications and public relations professionals with the ability to target and distribute content to journalists and social media influencers world-wide and to monitor and analyze global news channels (print, web, radio and TV) and social media channels.

A significant portion of the ~~services are~~Company’s revenue is generated from its ~~operations~~locations in the Philippines, India, Sri Lanka, Canada, Germany, the United Kingdom and Israel.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

Revenues from external ~~clients and~~customers, segment operating profit (loss), and other reportable segment information ~~for the periods presented were~~are as follows (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Revenues:
DDS	$	13,237	$	10,526	$	37,997	$	30,793	$	14,181	$	12,997	$	30,092	$	24,760
Synodex		983		1,197		2,888		3,680		1,945		886		3,614		1,905
Agility		3,230		2,830		9,581		8,473		3,861		3,166		7,473		6,351
Total Consolidated	$	17,450	$	14,553	$	50,466	$	42,946	$	19,987	$	17,049	$	41,179	$	33,016

Income (loss) before provision for income taxes⁽¹⁾:
DDS	$	1,608	$	4	$	3,988	$	226	$	(72)	$	1,726	$	1,381	$	2,379
Synodex		(657)		79		(878)		356		(831)		(329)		(1,819)		(221)
Agility		(1,470)		60		(3,057)		(621)		(2,378)		(1,161)		(5,258)		(1,586)
Total Consolidated	$	(519)	$	143	$	53	$	(39)	$	(3,281)	$	236	$	(5,696)	$	572

Income (loss) before provision for income taxes⁽²⁾:
DDS	$	1,509	$	(64)	$	3,740	$	27	$	(250)	$	1,646	$	1,046	$	2,230
Synodex		(584)		124		(711)		487		(680)		(278)		(1,540)		(126)
Agility		(1,444)		83		(2,976)		(553)		(2,351)		(1,132)		(5,202)		(1,532)
Total Consolidated	$	(519)	$	143	$	53	$	(39)	$	(3,281)	$	236	$	(5,696)	$	572


	September 30, 2021		December 31, 2020		June 30, 2022		December 31, 2021
Total assets:
DDS	$	29,640	$	27,767	$	29,723	$	40,100
Synodex		714		457		2,702		1,753
Agility		28,479		29,030		17,498		17,364
Total Consolidated	$	58,833	$	57,254	$	49,923	$	59,217


	September 30, 2021		December 31, 2020		June 30, 2022		December 31, 2021
Goodwill:
Agility	$	2,143	$	2,150	$	2,076	$	2,143
Total Consolidated	$	2,143	$	2,150
Total					$	2,076	$	2,143

(1)	Before elimination of any inter-segment profits

(2)	After elimination of any inter-segment profits

1819

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

~~The following table summarizes revenues~~Revenues for the period ended June 30, 2022 and 2021 by geographic region (determined ~~and~~ based upon customer’s domicile), were as follows (in thousands):


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,				For the Three Months Ended				For the Six Months Ended
	2021		2020		2021		2020		June 30,				June 30,
									2022		2021		2022		2021
United States	$	9,467	$	6,613	$	26,761	$	19,561	$	12,385	$	9,074	$	25,777	$	17,294
United Kingdom		2,912		2,832		8,709		8,284		2,558		2,995		5,640		5,797
The Netherlands		1,750		1,704		5,012		5,003		1,717		1,608		3,369		3,262
Canada		1,469		1,434		4,556		4,304		1,439		1,492		2,816		3,087
Others - principally Europe		1,852		1,970		5,428		5,794		1,888		1,880		3,577		3,576
Totals	$	17,450	$	14,553	$	50,466	$	42,946	$	19,987	$	17,049	$	41,179	$	33,016

Long-lived assets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 by geographic region were comprised of (in thousands):


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
United States	$	4,367	$	4,045	$	6,042	$	4,578

Foreign countries:
Canada		9,238		9,044		8,156		9,280
United Kingdom						1,292		1,538
Philippines		4,162		4,545		3,858		4,027
United Kingdom		1,577		1,759
India		1,140		930		1,522		1,481
Sri Lanka		194		319		156		154
Israel		-		1		2		-
Germany						-		-
Total foreign		16,311		16,598		14,986		16,480
Totals	$	20,678	$	20,643	$	21,028	$	21,058

Long-lived assets include the unamortized balance of right-of-use assets amounting to ~~$5.9~~$4.4 million and ~~$6.6~~$5.6 million as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

NaN ~~client~~customer in the DDS segment generated approximately ~~10% and~~ 13% of the Company’s total revenues for the three months ended ~~September~~June 30, 2022. A second customer in the DDS segment generated approximately 10% and 11% of the Company’s total revenues for the three months ended June 30, 2022 and June 30, 2021, ~~and 2020,~~ respectively. A third customer in the DDS segment generated approximately 11% of the Company’s total revenues for the three months ended June 30, 2021. NaN other ~~client~~customer accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. ~~clients~~customers accounted for ~~46%~~ 38% and ~~55%~~47% of the Company’s total revenues for the three months ended ~~September~~June 30, 2022 and 2021, ~~and 2020,~~ respectively.

NaN ~~client~~customer in the DDS segment generated approximately ~~11% and 14%~~17% of the ~~Company's~~Company’s total revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020, respectively.~~2022. NaN other ~~client~~customers in the DDS segment generated approximately 22% of the Company’s total revenues for the six months ended June 30, 2021. NaN other customer accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. ~~clients~~customers accounted for ~~47%~~38% and ~~54%~~48% of the Company’s total revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

As of ~~September~~June 30, ~~2021,~~2022, approximately ~~44%~~33% of the Company’s accounts receivable was from foreign (principally European) ~~clients~~customers and ~~34%~~44% of the Company’s accounts receivable was due from 3 ~~clients.~~customers. As of December 31, ~~2020,~~2021, approximately ~~55%~~37% of the Company’s accounts receivable was from foreign (principally European) ~~clients~~customers and ~~36%~~19% of the Company’s accounts receivable was due from ~~3 clients.~~

1 customer. NaN other customer accounted for 10% or more of the accounts receivable as of June 30, 2022 and December 31, 2021.

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

~~10.~~11. Income (Loss) Per Share


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021

Net income (loss) attributable to Innodata Inc. and Subsidiaries									$	(3,833)	$	(103)	$	(6,648)	$	295
	(in thousands)				(in thousands)

Net income (loss) attributable to Innodata Inc. and Subsidiaries	$	(800)	$	206	$	(505)	$	(568)
Weighted average common shares outstanding		26,971		24,470		26,459		24,427		27,226		26,522		27,192		26,199
Dilutive effect of outstanding options		0		790		0		0		-		-		-		2,995
Adjusted for dilutive computation		26,971		25,260		26,459		24,427		27,226		26,522		27,192		29,194

Basic income (loss) per share is computed using the weighted-average number of common shares outstanding during the year. Diluted income (loss) per share is computed by considering the impact of the potential issuance of common shares, using the treasury stock method, on the weighted-average number of shares outstanding. For those securities that are not convertible into a class of common stock, the ~~two-class~~“two-class” method of computing ~~loss~~income (loss) per share is used.

Options to purchase ~~5.1~~6.9 million and 5.0 million shares of common stock for the three months ended ~~September~~June 30, 2022 and June 30, 2021 were outstanding but not included in the computation of diluted loss per share because the effect would have been anti-dilutive.

Options to purchase ~~2.3~~6.9 million shares of common stock for the ~~three~~six months ended ~~September~~June 30, ~~2020 were outstanding but not included in the computation of diluted income per share because the exercise price of the options was greater than the average market price of the common shares.~~

~~Options to purchase 5.1 million and 7.0 million shares of common stock for the nine months ended September 30, 2021 and 2020, respectively,~~2022 were outstanding but not included in the computation of diluted loss per share because the effect would have been anti-dilutive. All options outstanding for the six months ended June 30, 2021 were included in the computation of diluted income per share.

~~11.~~12. Derivatives

The Company conducts a large portion of its operations in international markets, which subject it to foreign currency fluctuations. The most significant foreign currency exposures occur when revenue and associated accounts receivable are collected in one currency and expenses to generate that revenue are incurred in another currency. The Company is also subject to wage inflation and other government mandated increases and operating expenses in Asian countries where the Company has the majority of its operations. The Company’s primary inflation and exchange rate exposure relates to payroll, other payroll costs and operating expenses in the Philippines, India, Sri Lanka and Israel.

In addition, although most of the Company’s revenue is denominated in U.S. dollars, a significant portion of total revenues is denominated in Canadian dollars, Pound Sterling and Euros.

The ~~Company's~~Company’s policy is to enter derivative instrument contracts with terms that coincide with the underlying exposure being hedged for a period up to 12 months. As such, the ~~Company's~~Company’s derivative instruments are expected to be highly effective. For derivative instruments that are designated and qualify as cash flow hedges, the entire change in fair value of the hedging instrument is recorded to Other comprehensive income (loss). Upon settlement of these contracts, the change in the fair value recorded in Other comprehensive income (loss) are reclassified to earnings and included as part of Direct operating costs. ~~For derivative instruments that are not designated as hedges, any change in fair value is recorded directly in earnings as part of Direct operating costs.~~

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Company does not hold or issue derivatives for trading purposes. All derivatives are recognized at their fair value and classified based on the instrument’s maturity date. The total notional amount for outstanding derivatives designated as hedges was ~~$21.5~~ $19.9 million as of ~~September~~June 30, ~~2021.~~ ~~There were 0 outstanding derivatives not designated as hedges as of September 30, 2021.~~2022. The total notional amount for outstanding derivatives ~~not~~ designated as hedges was ~~$7.0~~$19.7 million as of December 31, ~~2020.~~2021.

2021

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INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

The following table presents the fair value of derivative instruments included within the condensed consolidated balance sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 (in thousands):


	Balance Sheet Location	Fair Value				Balance Sheet Location	Fair Value
		2021		2020			2022		2021
Derivatives designated as hedging instruments:

Foreign currency forward contracts	Accrued expenses	$	532	$	-	Accrued expenses	$	889	$	353

Derivatives not designated as hedging instruments:

Foreign currency forward contracts	Prepaid expenses and other current assets	$	-	$	48

The effect of foreign currency forward contracts designated as cash flow hedges on the condensed consolidated statements of operations for thethree and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were as follows (in thousands):


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Net loss recognized in OCI⁽¹⁾	$	(302)	$	12	$	(536)	$	(154)
Net loss reclassified from accumulated OCI into income⁽²⁾	$	37	$	39	$	4	$	121
Net gain (loss) recognized in OCI⁽¹⁾									$	(744)	$	(301)	$	(822)	$	(301)
Net (gain) loss reclassified from accumulated OCI into income⁽²⁾									$	203	$	34	$	286	$	34
Net gain recognized in income⁽³⁾	$	-	$	-	$	-	$	-			$	-			$	-

(1)	Net change in fair value of the effective portion classified into other comprehensive income ~~("OCI"~~(“OCI”).

(2)	Effective portion classified within direct operating costs.

(3)	There were no ineffective portions for the period presented.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

Disclosures in this Quarterly Report on Form 10-Q (this “Report”) contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements include, without limitation, statements concerning our operations, economic performance, and financial condition. Words such as “project,” “believe,” “expect,” “can,” “continue,” “could,” “intend,” “may,” “should,” “will,” “anticipate,” “indicate,” “predict,” “likely,” “estimate,” “plan,” “potential,” or the negatives thereof, and other similar expressions generally identify forward-looking statements.

These forward-looking statements are based on management’s current expectations, assumptions and estimates and are subject to a number of risks and uncertainties, including, without limitation, the expected or potential effects of the novel coronavirus (“COVID-19”) pandemic and the responses of governments, the general global population, our customers, and the Company thereto; impacts resulting from the rapidly evolving conflict between Russia and the Ukraine; that contracts may be terminated by ~~clients;~~customers; projected or committed volumes of work may not materialize; continuing reliance on project-based work in the ~~Digital Data Solutions (“DDS”)~~DDS segment and the primarily at-will nature of such contracts and the ability of these ~~clients~~customers to reduce, delay or cancel projects; the likelihood of continued development of the markets, particularly new and emerging markets, that our services support; continuing DDS segment revenue concentration in a limited number of ~~clients;~~customers; potential inability to replace projects that are completed, canceled or reduced; our dependency on content providers in our Agility segment; difficulty in integrating and deriving synergies from acquisitions, joint venture and strategic investments; potential undiscovered liabilities of companies and businesses that we may acquire; potential impairment of the carrying value of goodwill and other acquired intangible assets of companies and businesses that we acquire; changes in our business or growth ~~strategy, such as our re-design of our solutions and product portfolio in 2019;~~strategy; a continued downturn in or depressed market conditions, whether as a result of the COVID-19 pandemic or otherwise; changes in external market factors; the ability and willingness of our ~~clients~~customers and prospective ~~clients~~customers to execute business plans that give rise to requirements for our services; changes in our business or growth strategy; the emergence of new, or growth in existing competitors; various other competitive and technological factors; the Company’s use of and reliance on information technology systems, including potential security breaches, cyber-attacks, privacy breaches or data breaches that result in the unauthorized disclosure of consumer, ~~client,~~customer, employee or Company information, or service interruptions; and other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange ~~Commission~~.Commission.

Our actual results could differ materially from the results referred to in forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, uncertainty around the COVID-19 pandemic and the effects of the global response thereto and the risks discussed in Part I, Item 1A. “Risk Factors,” in “Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other parts of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March ~~15, 2021,~~24, 2022, and in other filings that we may make with the Securities and Exchange Commission. In light of these risks and uncertainties, there can be no assurance that the results referred to in the forward-looking statements will occur, and you should not place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date hereof.

We undertake no obligation to update or review any guidance or other forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by the federal securities laws.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Innodata Inc. and its subsidiaries and should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes to condensed consolidated financial statements contained in Part I, Item 1 of this Report.

Business Overview

Innodata Inc. (NASDAQ: INOD) (including its subsidiaries, the “Company”, “Innodata”, “we”, “us” or “our”) is a global data engineering company. ~~We solve complex data challenges using artificial intelligence (“AI”) and human expertise.~~The Company’s mission is to deliver the promise of AI to the world’s most prestigious companies.

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We provide ~~large-scale data annotation services~~AI-enabled software platforms and ~~platforms~~managed service to companies ~~who~~that require high-quality data for training AI and machine learning ~~(“ML”)~~(ML) algorithms. We also provide ~~AI/ML-based~~AI digital transformation solutions and platform to help companies apply AI/ML to real-world problems relating to analyzing and deriving insights from documents. For industry-specific, document-intensive industry ~~use cases,~~business processes, we provide AI-augmented software-as-a-service ~~(“SaaS”)~~(SaaS) platforms and discrete managed services.

Our platforms and services are powered by Goldengate, our proprietary AI/ML platform, as well as other technologies we have developed. In addition, we bring to bear ~~4,000+~~more than 4,500 employees spanning ~~nine~~eight countries with expertise in data pertaining to many professional fields. Our hybrid approach of using AI/ML in conjunction with human experts enables us to deliver superior data quality with even the most complex and sensitive data.

We developed our capabilities and honed our customer- and quality-centric culture progressively over the last 30 years creating high-quality data for many of the world’s most demanding information companies. Approximately ~~five~~six years ago, we formed Innodata Labs, a research and development ~~(“R&D”)~~ center, to research, develop and apply MLmachine learning and emerging AI to our large-scale, human-intensive data operations. In 2019, we began packaging the capabilities that emerged from our R&D efforts in order to align with several fast-growing new markets and help companies use AI/ML to drive performance benefits and business insights. We anticipate this strategy will enable us to accelerate growth.

AI Data Annotation

We train AI algorithms for social media companies, robotics companies, financial services companies, and many others, working with images, text, video and audio. Data sciences teams seek partners that can perform data preparation functions for them at large-scale and at high quality, while using automated tools to minimize cost. Moreover, as AI projects become more specialized and mission-critical, data preparation is becoming increasingly complex, requiring deep domain knowledge and an infrastructure in which data security is assured.

We utilize a variety of leading third-party image and video annotation tools. For text, we use our proprietary text annotation platform that incorporates AI to reduce cost while improving consistency and quality of output. Our proprietary text annotation platform features auto-tagging capabilities that apply to both classical and generative AI tasks. It also encapsulates many of the innovations we ~~have~~ conceived of in the course of our 30-year history of creating high-quality data.

~~AI/ML Solutions~~AI Digital Transformation

We also provide ~~AI/ML~~AI solutions and platforms to companies that intensively process textual data and seek to obtain the benefits of AI/ML technologies without having to develop AI/ML engineering capabilities in-house. For such companies, we often integrate one or more of our pre-trained text processing algorithms as a foundation for an overall solution. Our algorithms are accessible as microservices via application programming interfaces ~~(“APIs”)~~(APIs), enabling easy integration.

In conjunction with ~~AI/ML solutions,~~AI digital transformation, we often provide a range of data engineering support services, including data transformation, data curation, data hygiene, data consolidation, data compliance, and master data management.

Our customers span a diverse range of industries and a wide range of AI use cases, benefiting from the short time-to-value and high economic returns of our ~~AI/ML~~AI digital transformation solutions ~~provide.~~and platforms.

~~AI/ML~~ Industry AI Platforms

Our industry platforms address specific, niche market requirements that we believe we can fulfill in large part with our AI/ML technologies. We deploy these industry platforms as ~~SaaS~~software-as-a-service (SaaS) and as managed services. To date, we have built an industry platform for medical records data extraction and transformation (which we brand as ~~“Synodex~~^®“Synodex®”) and an industry platform for ~~marketing communications/~~public relations ~~news distribution and monitoring~~ (which ~~we brand~~brands as “Agility PR Solutions”).

Our Synodex industry platform transforms medical records into useable digital data organized in accordance with our proprietary data models or ~~client~~customer data models. At the end of 2020, we had 20 clients utilizing our Synodex platform, including John Hancock Insurance, the insurance operating unit of John Hancock Financial (a division of Manulife) and one of the largest life insurers in the United States.

Our Agility industry platform provides marketing communications and public relations professionals with the ability to target and distribute content to journalists and social media influencers world-wide and to monitor and analyze global news (print, web, radio and TV) and social media.

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Our operations are presently classified and reported in three reporting segments: ~~DDS,~~Digital Data Solutions (DDS), Synodex and Agility.

Prevailing Economic Conditions and Seasonality

Prevailing Economic Conditions

The novel coronavirus disease 2019, which the World Health Organization declared as a pandemic on March 11, 2020, continues to spread throughout the world. COVID-19 has created significant global economic downturn, disrupted global trade and supply chains, adversely impacted many industries, caused federal and regional governments to impose substantial restrictions on the operations of non-essential businesses and contributed to significant declines and volatility in financial markets.

While the pandemic presented, and may in the future present, new risks to our business and there have been logistical and other challenges, there was no material adverse impact on our results of operations for the three ~~or nine~~and six months ended ~~September~~June 30, ~~2021.~~2022.

The situation surrounding the COVID-19 crisis remains fluid and the extent and duration of its impact to the economy remains unclear. For this reason, we cannot reasonably estimate with any degree of certainty the future impact that it may have on our results of operations and financial condition. The potential for a material impact on our results of operations and financial position increases the longer COVID-19 affects the level of economic activity in the United States and globally.

With the current level of demand for our services, we believe we have existing cash and cash equivalents that provide sufficient sources of liquidity to satisfy our financial needs for at least the next 12 months from the date of the filing of this Report (refer to Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for additional information). In the event we experience a significant or prolonged reduction in revenues, the likelihood of which is uncertain, we would seek to manage our liquidity by reducing capital expenditures, deferring investment activities, and reducing operating costs as we would likely have no other sources of liquidity to support ongoing operations in a manner that is not significantly detrimental to the business.

Seasonality

Our quarterly operating results are subject to certain fluctuations. We experience fluctuations in our revenue and earnings as we replace and begin new projects, which may have some normal start-up delays, or we may be unable to replace a project entirely. These and other factors may contribute to fluctuations in our operating results from quarter to quarter. In addition, as some of our Asian facilities are closed during holidays in the fourth quarter, we typically incur higher wages, due to overtime, that reduce our margins.

Our Synodex subsidiary experiences seasonal fluctuations in revenues. Typically, revenue is lowest in the third quarter of the calendar year and highest in the fourth quarter of the calendar year. The seasonality is directly linked to the number of life insurance applications received by the insurance companies.

Trends

We view new customer acquisition as an indicator of our business momentum, sales and marketing efficiency, and competitive market positioning. During the six-month period ending June 30, 2022, we added an average of 119 new customers per quarter. This is a 90% increase over the 62 new customers we added on average per quarter in 2020 and a 27 % increase over the 93 new customers we added on average per quarter in 2021.

For further information refer to the risk factor titled “Quarterly fluctuations in our revenues and results of operations could make financial forecasting difficult and could negatively affect our stock price.” in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Non-GAAP Financial Measures

In addition to the financial information prepared in conformity with U.S. GAAP (“GAAP”), we provide certain non-GAAP financial information. We believe that these non-GAAP financial measures assist investors in making comparisons of period-to-period operating results. In some respects, management believes non-GAAP financial measures are more indicative of our ongoing core operating performance than their GAAP equivalents by making adjustments that management believes are reflective of the ongoing performance of the business.

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We believe that the presentation of this non-GAAP financial information provides investors with greater transparency by providing investors a more complete understanding of our financial performance, competitive position, and prospects for the future, particularly by providing the same information that management and our Board of Directors uses to evaluate our performance and manage the business. However, the non-GAAP financial measures presented in this Quarterly Report on Form 10-Q have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures that we present may differ from similar non-GAAP financial measures used by other companies.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP before interest expense, income taxes, depreciation and amortization of intangible assets (which derives EBITDA), plus additional adjustments for loss on impairment of intangibles assets and goodwill, stock-based compensation, income (loss) attributable to non-controlling interests and other one-time costs. We use Adjusted EBITDA to evaluate core results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process.

The following table contains a reconciliation of GAAP net income (loss) attributable to Innodata Inc. and its subsidiaries to Adjusted EBITDA (loss) for the three and six months ended June 30, 2022 and 2021 (in thousands).


	Three Months Ended June 30,				Six Months Ended June 30,
Consolidated	2022		2021		2022		2021
Net income (loss) attributable to Innodata Inc. and Subsidiaries	$	(3,833)	$	(103)	$	(6,648)	$	295
Provision for income taxes		550		366		1,025		293
Interest expense, net		(1)		4		2		14
Gain on loan forgiveness		-		(580)		-		(580)
Depreciation and amortization		951		673		1,824		1,370
Stock-based compensation		1,028		335		1,565		614
Non-controlling interests		2		(27)		(73)		(16)
Adjusted EBITDA / (loss) - Consolidated	$	(1,303)	$	668	$	(2,305)	$	1,990


	Three Months Ended June 30,				Six Months Ended June 30,
DDS Segment	2022		2021		2022		2021
Net income (loss) attributable to DDS Segment	$	(651)	$	1,307	$	112	$	1,987
Provision for income taxes		399		342		932		246
Interest expense, net		(1)		4		2		13
Gain on loan forgiveness		-		(580)		-		(580)
Depreciation and amortization		57		159		281		319
Stock-based compensation		796		242		1,168		459
Non-controlling interests		2		(2)		1		(3)
Adjusted EBITDA - DDS Segment	$	602	$	1,472	$	2,496	$	2,441


	Three Months Ended June 30,				Six Months Ended June 30,
Synodex Segment	2022		2021		2022		2021
Net loss attributable to Synodex Segment	$	(680)	$	(254)	$	(1,465)	$	(113)
Depreciation and amortization	$	271		2	$	312	$	2
Stock-based compensation		50		7		99		14
Non-controlling interests		-		(25)		(74)		(13)
Adjusted EBITDA (loss) - Synodex Segment	$	(359)	$	(270)	$	(1,128)	$	(110)

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	Three Months Ended June 30,				Six Months Ended June 30,
Agility Segment	2022		2021		2022		2021
Net loss attributable to Agility Segment	$	(2,502)	$	(1,156)	$	(5,295)	$	(1,579)
Provision for income taxes		151		24		93		47
Interest expense, net		-		-		-		1
Depreciation and amortization		623		512		1,231		1,049
Stock-based compensation		182		86		298		141
Adjusted EBITDA (loss) - Agility Segment	$	(1,546)	$	(534)	$	(3,673)	$	(341)

Results of Operations

Amounts in the MD&A below are after elimination of any inter-segment profit and have been rounded. All percentages have been calculated using rounded amounts.

Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

Revenues

Total revenues were ~~$17.5~~$20.0 million and $17.0 million for the three months ended ~~September~~June 30, 2022 and 2021, ~~compared to $14.6~~respectively, an increase of $3.0 million or approximately 17%.

Revenues from the DDS segment were $14.2 million and $13.0 million for the three months ended ~~September~~June 30, ~~2020,~~2022 and 2021, respectively, an increase of ~~approximately $2.9~~$1.2 million or ~~20%~~approximately 9%. The increase was primarily attributable to ~~new clients and~~ higher volume ~~in the DDS and Agility segments, offset in part by a decrease in volume in the Synodex segment.~~from an existing customer.

Revenues from the ~~DDS~~Synodex segment were ~~$13.3~~$1.9 million and $0.9 million for the three months ended ~~September~~June 30, 2022 and 2021, ~~compared to $10.6 million for the three months ended September 30, 2020,~~respectively, an increase of ~~approximately $2.7~~$1.0 million or ~~25%~~approximately 111%. The increase was primarily attributable to higher volume from two ~~new clients.~~existing customers.

Revenues from the ~~Synodex~~Agility segment were ~~$1.0~~$3.9 million and $3.1 million for the three months ended ~~September~~June 30, 2022 and 2021, compared to $1.2 million for the three months ended September 30, 2020, a decrease of approximately $0.2 million or 17%. The decrease was primarily attributed to lower volumes from two existing clients.

~~Revenues from the Agility segment were $3.2 million for the three months ended September 30, 2021, compared to $2.8 million for the three months ended September 30, 2020,~~respectively, an increase of ~~approximately $0.4~~$0.8 million or ~~14%~~approximately 26%. The increase was ~~principally~~primarily attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform and newswire product.

One ~~client~~customer in the DDS segment generated approximately ~~10% and~~ 13% of the Company’s total revenues for the three months ended ~~September~~June 30, 2022. A second customer in the DDS segment generated approximately 10% and 11% of the Company’s total revenues for the three months ended June 30, 2022 and 2021, ~~and 2020,~~ respectively. A third customer in the DDS segment generated approximately 11% of the Company’s total revenues for the three months ended June 30, 2021. No other ~~client~~customer accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. ~~clients~~customers accounted for ~~46%~~38% and ~~55%~~47% of the Company’s total revenues for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Direct Operating Costs

Direct operating costs consist of direct and indirect labor costs, occupancy costs, data center hosting fees, cloud services, content acquisition costs, depreciation and amortization, travel, telecommunications, computer services and supplies, realized gain (loss) on forward contracts, foreign currency revaluation gain (loss), and other direct expenses that are incurred in providing services to our ~~clients.~~customers.

Direct operating costs were ~~$10.7~~$13.0 million and ~~$9.8~~$10.4 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$0.9 million.~~$2.6 million or 25%. The cost increase primarily supported our growth initiatives across all business segments. The increase ~~was primarily due to higher~~in Direct operating costs includes direct and indirect labor related costs primarily on account of ~~$1.2 million,~~higher headcount and salary increases of $2.6 million; and an increase in cloud services, occupancy, depreciation and amortization of capitalized developed software of $0.5 million. These cost increases were offset in part by ~~$0.3 million~~the favorable impact of foreign exchange ~~gains.~~rate fluctuations of $0.5 million. Direct operating costs as a percentage of total revenues were ~~61%~~65% and ~~67%~~61% for the ~~three months~~three-month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020, respectively.~~2021. The ~~decrease~~increase in direct operating costs as a percentage of total revenues was primarily attributable to ~~increased revenues~~higher expenditures in ~~the DDS and Agility~~all segments, offset in part by ~~decreased~~increased revenues ~~in the Synodex segment and increased direct operating costs~~ in all segments.

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Direct operating costs for the DDS segment were approximately ~~$7.7~~$8.9 million and ~~$7.4~~$7.8 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$0.3 million.~~$1.1 million or 14%. The cost increase primarily supported our growth initiatives. The increase ~~was primarily due to higher~~in Direct operating costs includes direct and indirect labor related costs primarily on account of ~~$0.6 million,~~higher headcount and salary increases of $1.6 million. These cost increases were offset in part by ~~$0.3 million~~the favorable impact of foreign exchange ~~gains.~~rate fluctuations of $0.5 million. Direct operating costs for the DDS segment as a percentage of DDS segment revenues were ~~58%~~63% and ~~70%~~60% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~decrease~~increase in direct operating costs as a percentage of segment revenues was primarily attributable to ~~increased revenues,~~an increase in direct operating costs offset in part by an increase in ~~direct operating costs.~~revenues.

Direct operating costs for the Synodex segment ~~was $1.2~~were $2.2 million and ~~$0.9~~$0.8 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$0.3 million.~~$1.4 million or 175%. The cost increase primarily supported our growth initiatives combined with the timing of new technology roll-out. The increase in Direct operating costs was primarily due to an increase in direct labor costs primarily on account of higher headcount and salary increases of $1.1 million and an increase in ~~anticipation~~depreciation and amortization of ~~increased revenues in the coming quarters.~~capitalized developed software of $0.3 million. Direct operating costs for the Synodex segment as a percentage of Synodex segment revenues were ~~120%~~116% and ~~75%~~89% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in direct operating costs as a percentage of segment revenues was due to an increase in direct operating costs ~~and a decrease~~offset in part by an increase in revenues.

Direct operating costs for the Agility segment were ~~$1.8~~$1.9 million and ~~$1.5~~$1.8 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$0.3 million.~~ $0.1 million or 6%. The cost increase was primarily due to ~~higher~~amortization of capitalized developed software ~~amortization costs during the quarter.~~ of $0.1 million. Direct operating costs for the Agility segment as a percentage of Agility segment revenues were ~~56%~~49% and ~~54%~~58% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~increase~~decrease in direct operating costs as a percentage of segment revenues was primarily due to ~~increase in direct operating costs offset in part by~~ increased revenues from subscriptions to our Agility ~~intelligent data~~AI-enabled platform and newswire ~~products.~~products offset in part by an increase in direct operating costs.

Selling and Administrative Expenses

Selling and administrative expenses consist of management and administrative ~~salaries, sales~~payroll and ~~marketing~~related costs including commissions, bonuses, and stock-based compensation, marketing costs, new services research and related software development, third-party software, advertising, ~~and~~ trade conferences, professional fees and consultant costs, and other administrative overhead costs.

Selling and administrative expenses were ~~$7.3~~$10.3 million and ~~$4.6~~$7.0 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$2.7 million.~~ $3.3 million or 47%. The cost increase ~~was~~ primarily ~~due to higher payroll~~supported our growth initiatives across all business segments. The selling and administrative cost increase includes payroll related costs for new hires, stock-based compensation, commissions, incentives, bonuses, and recruitment and professional fees ~~to support the revenue growth plan across all business segments~~ of ~~$2.2~~$2.5 million, ~~higher~~ marketing related activities of ~~$0.4~~$0.5 million, and a ~~$0.1~~$0.3 million increase in other selling and administrative ~~costs~~.costs. Selling and administrative expenses as a percentage of total revenues were ~~42%~~52% and ~~32%~~41% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher expenditures in all segments, ~~and decreased revenues in the Synodex segment,~~ offset in part by increased revenues in ~~the DDS and Agility~~all segments.

Selling and administrative expenses for the DDS segment were ~~$4.1~~$5.5 million and ~~$3.3~~$4.2 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$0.8 million. This~~$1.3 million or 31%. The cost increase ~~was~~ primarily ~~due to higher payroll~~supported our growth initiatives. The selling and administrative cost increase includes payroll related costs ~~of $0.8 million~~ for new hires, ~~commission,~~stock-based compensation, commissions, incentives, bonuses, and ~~bonuses.~~recruitment fees of $0.7 million, marketing related activities of $0.2 million, professional fees of $0.1 million and an increase in other selling and administrative expenses of $0.3 million. Selling, and administrative expenses for the DDS segment as a percentage of DDS revenues were 39% and 32% for the three-month periods ended June 30, 2022 and 2021, respectively. The increase in selling and administrative expenses as a percentage of ~~DDS~~total revenues ~~were 31% for each of the three-month periods ended September 30, 2021 and 2020.~~was primarily attributable to higher expenditures offset in part by increased revenues.

Selling and administrative expenses for the Synodex segment were ~~$0.3~~$0.5 million and ~~$0.2~~$0.3 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$0.1 million.~~$0.2 million or 67%. The cost increase was primarily attributable to payroll related costs and recruitment fees for new hires and other professional fees of $0.2 million to support our growth initiatives. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were ~~30%~~26% and ~~17%~~33% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~increase~~decrease in selling and administrative expenses as a percentage of segment revenues was primarily attributable to higher ~~expenditures and lower revenues.~~revenues offset in part by higher expenditures.

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Selling and administrative expenses for the Agility segment were ~~$2.9~~$4.3 million and ~~$1.1~~$2.5 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of $1.8 ~~million. This~~million or 72%. The cost increase ~~was~~ primarily ~~due to higher payroll~~supported our growth initiatives. The selling and administrative costs increase includes payroll related costs ~~of $1.2 million~~ for new hires, stock-based compensation, commissions, incentives of $1.5 million, marketing related activity costs ~~of $0.4 million, recruitment fees of $0.1 million~~ and other ~~selling and administrative activities~~net increases of ~~$0.1~~$0.3 million. Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were ~~91%~~110 % and ~~39%~~81% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in selling and administrative expenses as a percentage of segment revenues was primarily due to higher expenditures, offset in part by an increase in revenues.

Income Taxes

We recorded a provision for income taxes of ~~$0.3~~$0.6 million for the three months ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~a tax benefit of $0.1~~$0.4 million for the three months ended ~~September~~June 30, ~~2020.~~2021.

Taxes primarily consist of a provision for foreign taxes recorded in accordance with the local tax regulations by our foreign subsidiaries. Effective income tax rates are disproportionate due to the losses incurred by our U.S. entity and our Canadian subsidiaries, and a valuation allowance recorded on deferred taxes on these entities and tax effects of foreign operations, including foreign exchange gains and losses.

Net ~~Loss~~Income (Loss)

We incurred a net loss of ~~$0.8~~$3.8 million during the three months ended ~~September~~June 30, ~~2021,~~2022, compared to a net ~~income~~loss of ~~$0.2~~$0.1 million during the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~$1.0~~$3.7 million change was a result of higher Direct operating and Selling and administrative costs in all segments in the current quarter, offset in part by higher revenues in ~~the DDS and Agility~~all segments.

Net ~~income~~loss for the DDS segment was ~~$1.2~~$0.6 million for the three months ended ~~September~~June 30, ~~2021,~~2022, compared to a net ~~loss~~income of ~~$0.1~~$1.3 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~improvement of $1.3~~$1.9 million change was primarily attributable ~~due~~ to ~~higher revenues, partially~~an increase in Direct operating and Selling and administrative costs, offset in part by an increase in ~~operating costs~~revenues in the current quarter.

Net loss for the Synodex segment was ~~$0.5~~$0.7 million for the three months ended ~~September~~June 30, ~~2021,~~2022, compared to a net ~~income of $0.1 million for the three months ended September 30, 2020. The $0.6 million change was due to higher operating expenses and lower revenues in the current quarter.~~

~~Net~~ loss ~~for the Agility segment was $1.5 million for the three months ended September 30, 2021, compared to net income~~ of $0.2 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~$1.7~~$0.5 million change was due to higher Direct operating and Selling and administrative costs, offset in part by higher revenues in the current quarter.

Net loss for the Agility segment was $2.5 million for the three months ended June 30, 2022, compared to net loss of $1.2 million for the three months ended June 30, 2021. The $1.3 million change was due to higher Direct operating and Selling and administrative costs, offset in part by higher revenues in the current quarter.

Adjusted EBITDA

Adjusted EBITDA for the three months ended June 30, 2022 was a loss of $1.3 million compared to an income of $0.7 million for the three months ended June 30, 2021. The $2.0 million change in Adjusted EBITDA was due to a higher net loss reduced in part by higher provisions for income taxes, stock-based compensation and depreciation and amortization.

Adjusted EBITDA for the DDS segment was $0.6 million and $1.5 million for the three months ended June 30, 2022 and 2021, respectively. The $0.9 million change in Adjusted EBITDA was due to lower net income for the DDS segment, offset in part by higher stock-based compensation.

Adjusted EBITDA for the Synodex segment was a loss of $0.4 million and $0.3 million for the three months ended June 30, 2022 and 2021, respectively. The $0.1 million change was due to a higher net loss for the Synodex segment, offset in part by higher stock-based compensation, depreciation and amortization.

Adjusted EBITDA for the Agility segment was a loss of $1.5 million and $0.5 million for the three months ended June 30, 2022 and 2021, respectively. The $1.0 million change in Adjusted EBITDA was due to a higher net loss for the Agility segment.

~~Nine months~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

Revenues

Total revenues were ~~$50.5~~$41.2 million and $33.0 million for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~compared to $42.9~~respectively, an increase of $8.2 million or approximately 25%.

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Revenues from the DDS segment were $30.1 million and $24.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2022 and 2021, respectively, an increase of ~~$7.6~~$5.3 million or ~~18%~~approximately 21%. The increase was primarily attributable to ~~new clients and~~ higher volume ~~in the DDS and Agility segments, offset in part by a decrease in volume in the Synodex segment.~~from an existing customer.

Revenues from the ~~DDS~~Synodex segment were ~~$38.0~~$3.6 million and ~~$30.7~~$1.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~approximately $7.3~~$1.7 million or ~~24%~~approximately 89%. The increase ~~in revenues~~ was primarily attributable to higher volume from two ~~existing clients and two new clients.~~

Revenues from the Synodex segment were $2.9 million and $3.7 million for the nine months ended September 30, 2021 and 2020, respectively, a decrease of $0.8 million or 22%. The decrease was primarily attributable to lower volumes from three existing clients.customers.

Revenues from the Agility segment were ~~$9.6~~$7.5 million and ~~$8.5~~$6.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$1.1~~$1.2 million or ~~13%~~approximately 19%. The increase was primarily attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform and newswire product.

One ~~client~~customer in the DDS segment generated approximately ~~11% and 14%~~17% of the Company’s total revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020, respectively.~~2022. Two other customers in the DDS segment generated approximately 22% of the Company’s total revenues for the six months ended June 30, 2021. No other ~~client~~customer accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. ~~clients~~customers accounted for ~~47%~~38% and ~~54%~~48% of the Company’s total revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Direct Operating Costs

Direct operating costs were ~~$31.2~~$26.4 million and ~~$29.2~~$20.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$2.0 million. This~~$5.9 million or 29%. The cost increase ~~was~~ primarily ~~due to~~supported our growth initiatives across all business segments. The increase in Direct operating costs includes direct and indirect labor related costs primarily on account of higher headcount and salary increases of $5.5 million; and an increase in cloud services, occupancy, depreciation and amortization of capitalized developed software of $0.5 million and other direct operating costs of ~~$3.2 million,~~$0.6 million. These cost increases were offset in part by ~~a $0.8 million~~the favorable impact of foreign exchange ~~gain and a $0.4 million decrease in other direct operating expenditures.~~rate fluctuations of $0.7 million. Direct operating costs as a percentage of total revenues were ~~62%~~64% and ~~68%~~62% for the ~~nine months~~six-month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020, respectively.~~2021. The ~~decrease~~increase in direct operating costs as a percentage of total revenues was primarily attributable to ~~increased revenues~~higher expenditures in ~~the DDS and Agility~~all segments, offset in part by ~~decreased~~increased revenues ~~in the Synodex segment and increased direct operating costs~~ in all segments.

Direct operating costs for the DDS segment were approximately ~~$23.1~~$18.3 million and ~~$21.7~~$15.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$1.4 million. This~~$2.9 million or 19%. The cost increase ~~was~~ primarily ~~due to an~~supported our growth initiatives. The increase in Direct operating costs includes direct and indirect labor related costs primarily on account of ~~$2.8 million,~~higher headcount and salary increases of $3.2 million; and an increase in cloud services, occupancy, depreciation and amortization of capitalized developed software of $0.4 million. These cost increases were offset in part by ~~a $0.8 million~~the favorable impact of foreign exchange ~~gain and a $0.6 million reduction in other direct operating expenditures.~~rate fluctuations of $0.7 million. Direct operating costs for the DDS segment as a percentage of DDS segment revenues were 61% and ~~71%~~62% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The decrease in direct operating costs as a percentage of segment revenues was primarily attributable to ~~higher~~increased revenues, offset in part by an increase in direct operating costs.

Direct operating costs for the Synodex segment ~~were $2.7~~was $4.0 million and ~~$2.6~~$1.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$0.1 million.~~$2.5 million or 167%. The cost increase primarily supported our growth initiatives combined with the timing of new technology roll-out. The increase in Direct operating costs was primarily due to an increase in ~~technology and~~ direct labor costs on account of higher headcount and salary increases of $2.2 million and an increase in ~~anticipation~~depreciation and amortization of ~~increased revenues in the coming quarters.~~capitalized developed software of $0.3 million. Direct operating costs for the Synodex segment as a percentage of Synodex segment revenues were ~~93%~~111% and ~~70%~~79% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in direct operating costs as a percentage of segment revenues ~~during the quarter~~ was ~~primarily~~ due to ~~lower revenues and~~ an increase in direct operating ~~costs.~~costs offset in part by an increase in revenues.

Direct operating costs for the Agility segment were ~~$5.4~~$4.1 million and ~~$4.9~~$3.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of $0.5 ~~million.~~million or 14%. The cost increase was primarily due to higher labor related costs of $0.2 million, amortization of capitalized developed software ~~amortization costs~~of $0.2 million and ~~new hires during the current period.~~other net increases of $0.1 million. Direct operating costs for the Agility segment as a percentage of Agility segment revenues were ~~56%~~55% and ~~58%~~57% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The decrease in direct operating costs as a percentage of segment revenues ~~during the quarter~~ was primarily due to ~~higher revenue~~increased revenues from subscriptions to our Agility AI-enabled platform and newswire products offset ~~in part~~ by an increase in direct operating costs.

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Selling and Administrative Expenses

Selling and administrative expenses were ~~$19.8~~$20.5 million and ~~$13.8~~$12.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$6.0 million. This~~$8.0 million or 64%. The cost increase ~~was~~ primarily ~~due to higher payroll~~supported our growth initiatives across all business segments. The selling and administrative cost increase includes payroll related costs ~~of $4.9 million~~ for new hires, ~~commissions,~~ stock-based compensation, commissions, incentives, ~~and~~ bonuses, and ~~higher~~recruitment and professional fees of $6.0 million, marketing related ~~costs~~activities of ~~$1.1 million.~~$1.3 million, and a $0.7 million increase in other selling and administrative costs. Selling and administrative expenses as a percentage of total revenues were ~~39%~~50% and ~~32%~~38% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in selling and administrative expenses as a percentage of total revenues was primarily attributable

to higher expenditures in all segments, ~~and decreased revenues in the Synodex segment,~~ offset in part by increased revenues in ~~the DDS and Agility~~all segments.

Selling and administrative expenses for the DDS segment were ~~$11.8~~$10.8 million and ~~$9.3~~$7.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021, respectively, an increase of ~~$2.5 million. This~~$3.1 million or 40%. The cost increase ~~was~~ primarily ~~due to higher payroll~~supported our growth initiatives. The selling and administrative cost increase includes payroll related costs ~~of $2.2 million~~ for new hires, ~~commissions,~~ stock-based compensation, commissions, incentives, bonuses, and ~~incentives, and an increase in~~recruitment fees of $1.3 million, marketing related ~~costs~~activities of $0.3 million. DDS selling and administrative expenses as percentage of DDS revenues were 31% and 30% for the nine months ended September 30, 2021 and 2020, respectively. The increase in selling and administrative expenses as a percentage of DDS revenues was primarily attributable to higher expenditures, offset in part by increased revenues.

~~Selling and administrative expenses for the Synodex segment were $0.9 million and~~ $0.6 million, for the nine months ended September 30, 2021 and 2020, respectively, an increase of $0.3 million. The increase was primarily due to new hires. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were 31% and 16% for the nine months ended September 30, 2021 and 2020, respectively. The increase in selling and administrative expenses as a percentage of total revenues was attributable to higher expenditures and lower revenues.

Selling and administrative expenses for the Agility segment were $7.1 million and $3.9 million for the nine months ended September 30, 2021 and 2020, respectively, an increase of $3.2 million. This increase was primarily due to higher payroll and payroll-related costs of $2.5 million for new hires, commissions, stock-based compensation, and incentives, higher marketing related costsprofessional fees of $0.5 million and an increase in ~~professional~~other selling and ~~recruitment fees~~administrative expenses of ~~$0.2~~$0.7 million. Selling and administrative expenses for the ~~Agility~~DDS segment as a percentage of ~~Agility segment~~DDS revenues were ~~74%~~36% and ~~46%~~31% for the ~~nine months~~six-month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher expenditures offset in part by increased revenues.

Selling and administrative expenses for the Synodex segment were $1.1 million and $0.5 million for the six months ended June 30, 2022 and 2021, respectively, an increase of $0.6 million or 120%. The cost increase was primarily attributable to payroll related costs and recruitment fees for new hires and other professional fees of $0.6 million to support our growth initiatives. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were 31% and 26% for the six months ended June 30, 2022 and 2021, respectively. The increase in selling and administrative expenses as a percentage of segment revenues was primarily attributable to higher expenditures offset in part by higher revenues.

Selling and administrative expenses for the Agility segment were $8.6 million and $4.3 million for the six months ended June 30, 2022 and 2021, respectively, an increase of $4.3 million or 100%. The cost increase primarily supported our growth initiatives. The selling and administrative costs increase includes payroll related costs for new hires, stock-based compensation, commissions, incentives of $3.3 million, marketing related activity costs and other net increases of $1.0 million. Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were 115% and 68% for the six months ended June 30, 2022 and 2021, respectively. The increase in selling and administrative expenses as a percentage of segment revenues was primarily due to higher expenditures, offset in part by an increase in revenues.

Gain on PPP Loan ~~Forgiveness~~forgiveness

On May 4, 2020, the Company received loan proceeds of $579,700 under the Paycheck Protection Program (“PPP”) which was established as part of the Coronavirus Aid, Relief and Economic Security Act of 2020, as amended. On May 21, 2021, the ~~Small Business Administration approved the~~ Company’s loan forgiveness application was approved for 100% of the ~~loan proceeds.~~amount loaned to the Company by the Small Business Administration (“SBA”).

Income Taxes

We recorded a provision for income taxes of ~~$0.6 million and $0.5~~$1.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020, respectively. The $0.1~~2022, as compared to $0.3 million ~~increase is primarily due to a higher tax provision~~ for ~~our foreign subsidiaries in~~ the ~~nine~~six months ended ~~September~~June 30, 2021.

Taxes primarily consist of a provision for foreign taxes recorded in accordance with the local tax regulations by our foreign subsidiaries. Effective income tax rates are disproportionate due to the losses incurred by our U.S. entity and our ~~US and~~ Canadian subsidiaries, and a valuation allowance recorded on deferred taxes on these entities and tax effects of foreign operations, including foreign exchange gains and losses.

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Net ~~Loss~~Income (Loss)

~~Net~~We incurred a net loss ~~was $0.6~~of $6.6 million ~~for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to a net ~~loss~~income of ~~$0.5~~$0.3 million ~~for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The $ 6.9 million change was a result of higher Direct operating and Selling and administrative costs in all segments in the current six-month period, offset in part by higher revenues in all segments.

Net income for the DDS segment was ~~$3.0~~$0.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to a net ~~loss~~income of ~~$0.7~~$2.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~improvement~~change of ~~$3.7~~$1.9 million was primarily attributable to ~~a higher~~an increase in Direct operating ~~income of $3.2 million~~ and ~~a gain from the PPP loan forgiveness of $0.6 million,~~Selling and administrative costs, offset in part by ~~a higher tax provision of $0.1 million~~an increase in revenues in the current ~~nine month~~six-month period.

Net loss for the Synodex segment was ~~$0.7~~$1.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to a net ~~income~~loss of ~~$0.5~~$0.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~$1.2~~$1.3 million change was due to ~~lower~~higher Direct operating and Selling and administrative costs, offset in part by higher revenues ~~and higher expenses~~ in the current ~~nine month~~six-month period.

Net loss for the Agility segment was ~~$2.9~~$5.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to a net loss of ~~$0.3~~$1.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~$2.6~~$3.7 million ~~increase in net loss~~change was due to higher Direct operating and Selling and administrative costs, ~~partially~~ offset in part by higher revenues in the current ~~nine month~~six-month period.

28Adjusted EBITDA

Adjusted EBITDA for the six months ended June 30, 2022 was a loss of $2.3 million compared to an income of $ 2.0 million for the six months ended June 30, 2021. The $4.3 million change in Adjusted EBITDA was due to a higher net loss reduced in part by higher provisions for income taxes, stock-based compensation, depreciation and amortization.

Adjusted EBITDA for the DDS segment was $2.5 million and $2.4 million for the six months ended June 30, 2022 and 2021, respectively. The $0.1 million change in Adjusted EBITDA was due to higher stock-based compensation and a higher provision for income taxes, offset in part by lower net income in the DDS segment.

Adjusted EBITDA for the Synodex segment was a loss $1.1 million and $0.1 million for the six months ended June 30, 2022 and 2021, respectively. The $1.0 million change in Adjusted EBITDA was due to a higher net loss in the Synodex segment.

Adjusted EBITDA for the Agility segment was a loss of $3.7 million and $ 0.3 million for the six months ended June 30, 2022 and 2021, respectively. The $3.4 million change in Adjusted EBITDA was due to a higher net loss in the Agility segment.

Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, please see the description of “Non-GAAP Financial Measures – Adjusted EBITDA” above.

Liquidity and Capital Resources

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

September 30,

December 31,

2021

2020
Cash and cash equivalents

$
20,943

$
17,573
Working capital

13,516

13,515


	June 30,		December 31,
	2022		2021
Cash and cash equivalents	$	10,481	$	18,902
Working capital		5,697		12,658

At ~~September~~June 30, ~~2021,~~2022, we had cash and cash equivalents of ~~$20.9~~$10.5 million, of which ~~$13.5~~$7.1 million was held by our foreign subsidiaries, and ~~$7.4~~$3.4 million was held in the United States. Despite our ability under existing tax law to repatriate funds from overseas after paying the toll charge, it is our intent as of ~~September~~June 30, ~~2021,~~2022, to indefinitely reinvest the overseas funds in our foreign subsidiaries on account of the withholding tax that we would have to incur on the actual remittances.

We have used, and plan to use, our cash and cash equivalents for (i) ~~hiring of sales personnel;~~capital investments; (ii) the expansion of our ~~other~~ operations; (iii) technology innovation; (iv) hiring of sales personnel; (v) product management and strategic marketing; ~~(v)~~(vi) general corporate purposes, including working capital; and ~~(vi)~~(vii) possible business acquisitions. We had working capital of approximately ~~$13.5~~$5.7 million and $12.7 million as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021, respectively. The decrease in working capital was due to a decrease in cash used to fund our growth initiatives.

We did not have any material commitments for capital expenditures as of June 30, 2022.

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We believe that our existing cash and cash equivalents and internally generated funds will provide sufficient sources of liquidity to satisfy our financial needs for at least the next 12 months from the date of this Report. However, we have no bank facilities or lines of credit. ~~Reductions~~A decrease in our cash and cash equivalents from operating losses, capital expenditures, adverse legal decisions, acquisitions or otherwise could materially and adversely affect the Company.

Cash Flows

Net Cash ~~Provided by~~Used in Operating Activities

Cash ~~provided by~~used in our operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~$5.6~~$3.9 million primarily on account of the following factors: our net loss for the period of ~~$0.6~~$6.7 million; a source of ~~$2.9~~$ 4.0 million from non-cash expenses consisting of depreciation and amortization of ~~$2.1~~$1.8 million, stock-based compensation of ~~$1.1~~$1.6 million, pension cost of $0.3 million, a $0.2 million reduction in deferred tax provisions and a loss of $0.1 million from the termination of one of our operating lease contracts. Net changes from working capital accounts further utilized an additional $1.2 million in working capital, mainly from a decrease in accounts payable and accrued expenses of $1.6 million, offset in part by a decrease in accounts receivable of $0.3 million and a net reduction in other working capital accounts of $0.1 million. Refer to the condensed consolidated statements of cash flows for further details.

Cash provided by our operating activities for the six months ended June 30, 2021 was $5.6 million primarily on account of the following factors: our net income for the period of $0.3 million; a source of $1.7 million from non-cash expenses consisting of depreciation and amortization of $1.4 million, stock-based compensation of $0.6 million and pension cost of $0.3 million, offset in part by a gain on loan forgiveness of $0.6 million. Net changes from working capital accounts further contributed an additional source of ~~$3.3 million. Refer to the condensed consolidated statements of cash flows for further details.~~

Cash provided by our operating activities for the nine months ended September 30, 2020 was $5.7 million primarily on account of the following factors: our net loss for the period of $0.5 million; a source of $2.6 million from non-cash expenses consisting of depreciation and amortization of $1.7 million, stock-based compensation of $0.7 million and pension cost of $0.6 million, offset in part by an increase in deferred tax provisions of $0.4 million; net changes from working capital accounts that contributed an additional source of $3.6 million. Refer to the condensed consolidated statements of cash flows for further details.

Net Cash Used in Investing Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, cash used in our investing activities was ~~$2.9~~$3.6 million and ~~$1.1~~$1.5 million, respectively. These capital expenditures were principally ~~consisted of purchases~~for the purchase of technology equipment including servers, network infrastructure and ~~workstations.~~workstations, and expenditures for capitalized developed software

During the next 12 months, ~~we anticipate~~it is anticipated that capital expenditures for ongoing technology, equipment and infrastructure upgrades will approximate ~~$3.5~~to $7.5 million, ~~to $4 million.~~a portion of which we may finance.

~~The source of funds~~Net Cash Used in Financing Activities

Cash used in financing activities for the ~~anticipated capital expenditures is expected to be cash generated~~six months ended June 30, 2022 was $0.3 million primarily for payments of long-term obligations of $0.5 million, reduced in part by proceeds from ~~our operations.~~

~~Net~~ ~~Cash Provided by (Used in)Financing Activities~~stock option exercises of $0.2 million.

Cash provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, 2021 was $0.4 million primarily from proceeds ~~from~~of stock option exercises of ~~$2.2 million. Cash~~$1.8 million reduced in part by cash paid for withholding taxes on net settlement exercises ~~for the nine months ended September 30, 2021 was~~of $0.8 ~~million. Payments of~~million and payments for long-term obligations ~~were $0.7 million and $0.8 million for the nine months ended September 30, 2021 and 2020, respectively.~~of $0.6 million.

Critical Accounting Policies and Estimates

Our discussion and analysis of our results of operations, liquidity and capital resources is based on our condensed consolidated financial statements, which have been prepared in conformity with U.S. GAAP. The preparation of the condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts and billing adjustments, long-lived assets, intangible assets, goodwill, valuation of deferred tax assets, value of securities underlying stock-based compensation, litigation accruals, pension benefits, purchase price allocation of Agility, valuation of derivative instruments and estimated accruals for various tax exposures. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates and could have a significant adverse effect on our condensed consolidated results of operations and financial position.

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The significant accounting policies used in preparing our condensed consolidated financial statements contained in this Report are the same as those described in the Company’s Annual Report on Form 10-K, unless otherwise noted, and we believe those critical accounting policies affect our more significant estimates and judgments in the preparation of our condensed consolidated financial statements.

Off-Balance Sheet Arrangements

None.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable for smaller reporting companies.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision, and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e), as of ~~September~~June 30, ~~2021.~~2022. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of ~~September~~June 30, ~~2021,~~2022, our disclosure controls and procedures were effective.

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting.~~reporting

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 4, Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which is incorporated by reference herein.

Item 1A. Risk Factors

There were no material changes from the risk factors previously disclosed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of unregistered equity securities or repurchases of equity securities during the ~~nine~~three months ended ~~September~~June 30, ~~2021.~~2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit No.		Description

10.1		Innodata Inc. 2021 Equity Compensation Plan, amended and restated effective as of April 11, 2022 (incorporated herein by reference to Annex A to the Company’s Definitive Proxy Statement, filed with the Securities and Exchange Commission on April 26, 2022).

31.1*		Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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

101		The following materials from Innodata Inc.’s Quarterly Report on Form 10-Q for the three months ended ~~September~~June 30, ~~2021,~~2022, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2021(unaudited)~~2022 (unaudited) and December 31, ~~2020;~~2021; (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020 (unaudited);~~2021; (iii) Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020 (unaudited);~~2021; (iv) Condensed Consolidated Statements of Stockholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020 and~~2021; (v) Notes to Condensed Consolidated Financial Statements (unaudited).

104		Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.

*	Filed herewith.

**	In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INNODATA INC.


Date:	~~November 4, 2021~~August 12, 2022	~~/s/~~/s/ Jack S. Abuhoff
		Jack S. Abuhoff
		Chief Executive Officer and President

Date:	August 12, 2022	/s/ Marissa B. Espineli
		~~Date:~~	~~November 4, 2021~~	~~/s/ Mark A. Spelker~~	Marissa B. Espineli
		~~Mark A. Spelker~~	Interim Chief Financial Officer
		~~Chief~~(Principal Financial Officer and Principal Accounting ~~Officer~~Officer)

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